Diary of a Financier

Top Newsstuffs (September 24-30)

In Bookshelf on Sun 30 Sep 2012 at 07:12

Hot off the [Word]press…

Pavlov’s QE Dogs | Market Anthropology
Comparing to prior QEs, analogues galore in Silver (SI/), Gold (GC/), Dollar (USD) & Aussie (AUD).

PBOC RRR cut is not enough for China, massive liquidity injections needed | MacroBusiness
In the past 14 weeks, PBOC has made about RMB1.031T of net injections into the system via open market operations (reverse repos). Given China’s total deposit base ~RMB90T, this liquidity is equivalent to ~2 regular RRR reductions of 50bps each.
Despite this, the PBOC balance sheet has remained constant while the economy’s still growing, leaving PBOC RMB3T behind pace due to capital outflow–akin to quantitative tightening.

Credit Default Swaps: A Traveshamockery | CFO
This week, Markit rolled to CDX NA HY 19, its newest “on the run” CDS index, which includes 3 reference issues (CIT Group, Calpine & Charter Communications) that don’t exist, because they couldn’t find 100 liquid issues to complete the index.

Morningstar: Financial Advisers Are Worth Their Fee | MarketWatch
Advisors providing an average of 5 services add 1.82% “Gamma” annually: asset allocation, withdrawal strategy, tax-efficiency, product allocation, and liability-driven investing.

Chinese & South Korean Central Bankers Say Fed Easing Leaves Emerging Markets Fighting Inflation | The Wall Street Journal
PBOC & BOK governors say they’re unable to ease aggressively after QE3 sparked commodity inflation for EMs. They also mention need for Asian reserve/settlement currency [CNY], due to USD’s irresponsible race-to-the-bottom.

Downgrading Spain from CC+ to CC | Egan-Jones
With unemployment near 25%, Spanish government’s 2013 budget is “Hoover-esque,” proposing value added tax (VAT) increases & borrowing €3B from its social security fund (to pay 2012 pension liabilities), which would lower deficit from 9% to 6.3 next year. EJ expects an inevitable €90B increase in debt from social benefit shortfalls, so all the cutting is for not.
[€45B of that is increased interest expense, which bond markets can repair with a rally, so a deathspiral isn’t inevitable.]

Rail Traffic Weekly: Sideways Growth Continues | Association of American Railroads (AAR)
Carloads -2.5% and Intermodal +3.6 (cumulative ytd volume); -4.1 and +0.7 respectively (vs. this week last year).
9 of 20 carload groups posted gains: Petroleum products +54%, Motor vehicles/parts +13.2 & Food +11.5; Metallic ores -33.3%, Coal -12.1 & Metal products -10.8.

US-led war on drugs questioned at UN General Assembly | Reuters
Leaders from Mexico, Guatemala & Columbia are asking the UN to study the effects of anti-narcotics laws, which began in 1970s. They “welcome wholesale changes to policies that have shown scant evidence of limiting drug flows while contributing to massive violence throughout Latin America.”

Atwater, California: State’s 4th Municipal Bankruptcy Looms | Bloomberg
Low median incomes (19% below national average) & real estate collapse (50%+ decline) has Atwater in $3.3M budget deficit. City will vote on default on October 2, before November’s $2M bond maturity.Entrepreneurs: 5 Signs You’re Ready To Start Your Own Business | Glassdoor
1. Thinking about it for long time
2. You can do it better
3. Doesn’t come from unhappiness
4. You have expertise & confidence
5. Desire to keep learning

Marissa Mayer’s Yahoo (YHOO) Turnaround Plan | Business Insider

Presentation: Complete Guide to the European Stability Mechanism (ESM) | Business Insider
€700B fund will become active in October 2012. €80B will be paid-in with the balance being callable if needed in the future. It will have €500B lending capacity (leaving it overcapitalized with a buffer), but may leverage capital up to €2T using private investors. ESM will receive preferred creditor status–except in €100B Spanish bank bailouts, which it will inherit from pari-passu EFSF.
EFSF will wind down programmes in Ireland/Portugal/Greece and maintain €500B in lending capacity until it’s closed in July 2013.

What Do European Credit Markets Know That Stocks Don’t? | ZeroHedge
September 25- European bonds diverge from equities, signaling trouble ahead; overnight, Spanish sovereign yields exceed 6% again.

Comparing Postcrisis Recoveries | Business Insider
Since the recent recession combine a financial crisis with deleveraging, it should be compared to similar historical analogues like Finland & Sweden–not post WWII US episodes. From an employment standpoint, the US has had 3rd quickest recovery on record.
#Banking crisis #Housing crisis #Financial crisis

The other deleveraging: What economists need to know about the Modern Money Creation process | Manmohan Singh & Peter Stella (VoxEU)
Discussion of the shadow banking revolution, which has rewritten the textbook on traditional monetary theory. Via collateral chains, collateral pledged by a borrower is allowed to be rehypothecated by the lender, who reuses this collateral for its own obligations. One asset ends up having multiple claims, securing loans worth multiples of its value for multiple lenders, so on & so on.  The length of the chain is only limited by counterparty risk & collateral haircuts.
This system is largely responsible for booms/busts, but economists don’t consider it. Instead, they just raise reserve requirements on the traditional banking system (increase haircuts) to slow credit growth, when they should also raise collateral quality standards and reduce rehypothecation.
[My problem with this is that it misuses the money multiplier from fractional reserve banking. Commercial bank credit (as opposed to central bank credit/currency) is an asset tied to a liability, not a net new asset created from the ether.]

Japanese Teachers’ Pension Fund Goes All-In: Focus on ‘Return’ Not ‘Risk’ Following QE8 | ZeroHedge
Mutual Aid pension fund only targets 3-5% return, but it will allocate JPY100B (~17%) to riskier assets like J-REITs & hedge funds “to focus on return… no matter how the market condition is.”
[Flap of a butterfly’s wings for Japanese pensions & JGBs?]

The Fed Has Another $3.9 Trillion In QE To Go (At Least) | ZeroHedge
A takedown of shadow banking. Bank liabilities matched US GDP dollar-for-dollar until 1980s, when shadow banking blossomed. In the wake of Lehman, all the Fed could do was relever the traditional banking system while the shadow delevered. There’s still a $3.9T void to be filled in total bank liabilities, but interventions like QE spur the inflation threat, sending shadow capital out of the system to chase hard assets (and SPX) as an inflation hedge. Hence, there’s a feedback loop.

Obamacare is a fraud: The faults at the heart of the Affordable Care Act | Bruce Krasting
Low income can’t afford health insurance under Obamacare (hence won’t have to pay $700 penalty “tax”), no different than before. Others have exemptions for exploitable excuses like religious beliefs.

ETF Wars: Charles Schwab Just Went Nuclear | The Reformed Broker
Schwab releasing equity ETFs with 0.04% internal expense, a not-for-profit grab for marketshare (against Vanguard). Zero-cost equity has arrived quicker than anyone expected; free lunch for retail investors? how long can it last?


  1. […] lot different than your garden variety recessions, and their subsequent recoveries are naturally different too.  In fact, the US’s postcrisis recovery has far exceeded the global, historical average, […]


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