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MARKET OUTLOOK - Global & Local, Perspectives & General Market Feeling
mullokintyre
post Posted: Dec 4 2019, 09:06 AM
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At the risk of being a merchant of doom, I can't help but see so many parralells between the build up to the GFC and current conditions.


[quote]James Gorman is the Chairman and CEO of Morgan Stanley. He also sits on the Board of Directors of the Federal Reserve Bank of New York (New York Fed), one of Morgan Stanley’s regulators.

The New York Fed is one of 12 regional Federal Reserve banks – but the only one willing to turn on a multi-trillion dollar money funnel to Wall Street’s mega banks when they need a secret bailout. Since September 17 of this year, the New York Fed has pumped upwards of $3 trillion in revolving loans to trading houses on Wall Street, without naming which firms are getting the money and why they’re getting it. From December 2007 to the middle of 2010, the New York Fed turned on its money funnel to Wall Street to the tune of $29 trillion – a fact it battled in court for years to keep secret.

Today, the New York Fed will only say that it’s making these new loans, which tally up to hundreds of billions of dollars each week, to some of its 24 “primary dealers.” For the most part, those “primary dealers” are the high-risk trading units of big commercial banks in the U.S. and abroad. (See list below.)

One of the primary dealers that is eligible to be taking these multi-billion dollar loans from the New York Fed is Morgan Stanley & Co. LLC. Morgan Stanley describes that unit as follows: “Its businesses include securities underwriting and distribution; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; sales, trading, financing and market-making activities in equity and fixed income securities and related products, and other instruments including foreign exchange and commodities futures; and prime brokerage services.”

At 11:36 a.m. on Thanksgiving Day, when households across America were either watching the Macy’s Thanksgiving Day Parade on TV or hustling in the kitchen, Bloomberg News dropped the bombshell report that foreign currency traders at Morgan Stanley had hidden a trading loss of upwards of $140 million. Two of the traders involved in the losses were based in London, according to the Bloomberg report.

There are a number of curious and noteworthy aspects to this report. First, only Bloomberg News was privy to this information. Morgan Stanley had not informed its shareholders via any public statement nor had it informed the Securities and Exchange Commission via a public filing. Thus it is also highly likely that it had not informed the New York Fed, another of its regulators, despite the fact that its CEO, James Gorman, sits on the Board of the New York Fed. The Bloomberg article suggests that the firm itself is just now investigating what actually happened, meaning that an outside news agency attempting to place a realistic figure on the amount of the losses is suspect at best.

In 2012, the Chairman and CEO of JPMorgan Chase, Jamie Dimon, called news reports of its derivative trading losses in London “a tempest in a teapot.” Those hidden trading losses turned out to be over $6.2 billion.
Morgan Stanley, however, can top JPMorgan’s historic trading loss. During the financial crisis, one of Morgan Stanley’s traders, Howie Hubler, lost $9 billion betting on subprime debt. But Morgan Stanley survived the financial crisis because the New York Fed secretly pumped more than $2 trillion into Morgan Stanley from 2007 to the middle of 2010 according to a Fed audit performed by the Government Accountability Office (GAO) and released to the public in July 2011. The audit occurred as the result of an amendment attached to the Dodd-Frank financial reform legislation of 2010 by Senator Bernie Sanders and others.

At the outset of the financial crisis, Morgan Stanley was predominantly an investment bank and a large retail brokerage firm which was not eligible to borrow from the Fed’s Discount Window, which was restricted to deposit-taking banks. In order to funnel trillions of dollars to the trading houses on Wall Street, the New York Fed created an alphabet soup of loan programs. One of those programs was called PDCF (Primary Dealer Credit Facility). For the first time in history, under that program, the New York Fed funneled $8.9 trillion to the trading houses on Wall Street, in many cases taking the unprecedented action of accepting stocks and junk bonds as collateral – at a time when both of those markets were in freefall.

In 2008, at the height of the financial crisis, both Morgan Stanley and Goldman Sachs became bank holding companies, subject to regulation by the New York Fed and with access to its Discount Window./quote]

I am not sure how many people know that the US FED is not a statury government body, but is in fact a private firm, outside of the control and management of the Government.
If anyone needed further proof that the US monetary system is being used and abused by large financial firms, surely this is it.

Full article HERE

Mick




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nipper
post Posted: Dec 4 2019, 08:41 AM
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In Reply To: mullokintyre's post @ Dec 4 2019, 08:15 AM

it's the merchants that 'pay' for these so called debit lenders. The consumer gets offered the bait and then services the repayments. Reality is that if you pay cash you should be able to ask for a discount of 5% at the very least as this is the gouge the merchants are wearing, to drive volume. But then we all know the RRP* system is Potemkin pricing. With the so-called Black Friday just passed, some discounts were running at 65% off RRP.

The stat that got to me was: Subprime means having a credit score below 620. .... That's for consumers? I figure Sub-investment Grade, or Junk, still works for Corporates



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
early birds
post Posted: Dec 4 2019, 08:28 AM
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In Reply To: mullokintyre's post @ Dec 4 2019, 07:17 AM

The fact that we have a higher delinquency rate now than during the GFC is scary. And its only going to get worse.
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i like to add another bad fact, that is most of central banks nearly run out of ammo if the shits hits the fan this time.
my one bob-------------------the system needs clean up!! too many dead wood, branch eg.. it will be a short term pain, but a clearer , healthy long term system that we know and worked till now!
but the ones that in the helmet seems focus on their jobs than anything............. sadsmiley02.gif





 
mullokintyre
post Posted: Dec 4 2019, 08:15 AM
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In Reply To: nipper's post @ Dec 4 2019, 08:02 AM

Given that what happens in the states often follows on here some time later, it might be worth the while to look at the short term lenders such as afterpay etc in OZ,
Worth shorting???

Mick



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nipper
post Posted: Dec 4 2019, 08:02 AM
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In Reply To: mullokintyre's post @ Dec 4 2019, 07:17 AM

thanks Mick. Well worth a perusal.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
mullokintyre
post Posted: Dec 4 2019, 07:17 AM
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For those with memories long enough to remember what triggered the GFC 10 years ago, disturbing news on the sub prime market will give cause for angst.
The fact that we have a higher delinquency rate now than during the GFC is scary. And its only going to get worse.

QUOTE
OK, we’ve got a situation in subprime consumer loans. The delinquency rate on credit-card loan balances at the nearly 5,000 smaller commercial banks in the United States – this means all banks except the largest 100 – is blowing out, according to Federal Reserve data. In the third quarter, the delinquency rate at these banks rose to 6.25%. That’s higher even than during the peak of the Financial Crisis.

Back in 2016, the credit-card delinquency rate at these banks was in the 3% range. It has more than doubled in two years.

Credit card balances are considered delinquent when they’re 30 days or more past due. This delinquency rate means that out of the banks total credit card balances, 6.25% are 30 days or more past due. This is a disturbingly large rate.

But delinquencies are a flow. Balances are removed from the delinquency basket either when the customer cures the delinquency, such as catching up with past-due payments, or when the bank “charges off” the delinquent balance against its loan loss reserves. But as these delinquent balances were taken out of the delinquency basket, even more new delinquencies fell into the basket, and the delinquency rate rose.
What’s Behind the Subprime Consumer Loan Implosion?
by Wolf Richter • Nov 28, 2019 • 110 Comments
These are the good times, but why are subprime credit cards, auto loans, and short-term installment loans blowing out?
This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:
OK, we’ve got a situation in subprime consumer loans. The delinquency rate on credit-card loan balances at the nearly 5,000 smaller commercial banks in the United States – this means all banks except the largest 100 – is blowing out, according to Federal Reserve data. In the third quarter, the delinquency rate at these banks rose to 6.25%. That’s higher even than during the peak of the Financial Crisis.

Back in 2016, the credit-card delinquency rate at these banks was in the 3% range. It has more than doubled in two years.

Credit card balances are considered delinquent when they’re 30 days or more past due. This delinquency rate means that out of the banks total credit card balances, 6.25% are 30 days or more past due. This is a disturbingly large rate.

But delinquencies are a flow. Balances are removed from the delinquency basket either when the customer cures the delinquency, such as catching up with past-due payments, or when the bank “charges off” the delinquent balance against its loan loss reserves. But as these delinquent balances were taken out of the delinquency basket, even more new delinquencies fell into the basket, and the delinquency rate rose.

Subprime auto loans have also been blowing out. In the third quarter, the serious delinquency rate of the $1.3 trillion in auto loans has risen to 4.71%, the highest since the worst months of the Financial Crisis, when the auto industry collapsed, and when the US was facing the worst unemployment crisis since the Great Depression. In the third quarter, about 21% of all subprime auto loans were seriously delinquent – meaning 90 days past due.

Then we got another glimpse of this upheaval in subprime with some of the specialized lenders that cater to them.

For example, World Acceptance Corp., which does small short-term consumer installment loans, and some larger medium-term loans to people who need money desperately and have subprime credit ratings. Like most specialized subprime lenders, World Acceptance charges blistering interest rates, but then it also has large default rates.

It reported disappointing results now two quarters in a row, and its shares have plunged 45% over the past four months. So what’s going on here?

Back in 2009, people were defaulting on their auto loans and credit cards and their installment loans because over 10 million people had lost their jobs. This is not the case today. Back then, new unemployment claims – a sign of layoffs – spiked to astronomical levels. These days, they’ve been hovering near historic lows. So today, these people are working, and they’re falling behind on their debt service.

Subprime doesn’t mean poor or uneducated. Subprime means having a credit score below 620.


I would reccomend folks read the full article HERE

It contains some cogent details about the credit card problems in particular, but is too big to paste in full.

Mick



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blacksheep
post Posted: Dec 3 2019, 12:56 PM
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Large investor lays out $31 million options hedge against U.S. stock market drop
QUOTE
NEW YORK (Reuters) - [b]Monday’s slide in U.S. stocks prompted at least one large investors to load up big on stock options that would guard against a sharper hit to stocks into the start of next year.[/b]

Shortly after the market opened on Monday, an investor paid about $31 million to buy 16,000 of January put options at the 2,980 level on the S&P 500 Index .SPX, according data from options analytics firm Trade Alert.

The position struck about 4.6% below the market’s current level around 3,124 appears to be hedging roughly $4.8 billion in assets, said Henry Schwartz, president of Trade Alert in New York.

An index put option gives the holder the right to sell the value of an underlying index at a fixed level in the future, thereby offering protection against a slide in the market.

U.S. stocks fell on Monday after President Donald Trump decided to restore tariffs on metal imports from Brazil and Argentina and weak factory activity fanned worries of a slowing domestic economy due to the long-drawn trade war with China.

https://www.reuters.com/article/us-usa-stoc...p-idUSKBN1Y628A



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The herd instinct among forecasters makes sheep look like independent thinkers. Edgar Fiedler

If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter. George Washington

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joules mm1
post Posted: Dec 2 2019, 12:02 PM
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china data
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. . . . . . . . everything has an art.....in the instance of the auction process, the only thing, needed to be listened to; price
 
nipper
post Posted: Nov 25 2019, 10:41 AM
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QUOTE
I’m not even sure if the title, ‘An Equilibrium of Disequilibrium’ makes any sense. The markets have, in my view, entered an almost somnolent state as we approach the final month of the year.

On the surface all is calm and stable, however, beneath the surface we have a number of unresolved issues which should be keeping us awake. It is in this regard that a recent article by Bill Dudley, former president of the Federal Reserve Bank of New York (2009 to 2018) and vice chairman of the Federal Open Market Committee, really caught my eye.

First of all I have to say that I very much agreed with everything he said. Dudley highlights several points that I have made, as have many others, for some period of time, namely the high levels of U.S corporate and government debt and the prospect that U.S inflation will be higher than the market currently anticipates.

I urge you to read this relatively short article and whilst there isn’t anything that we haven’t previously discussed, I feel he puts it all together rather well.

https://www.bloomberg.com/opinion/articles/...short-term-calm

In the meantime, and notwithstanding the concerns of an uneasy disequilibrium beneath the surface, equity markets are near record highs, with measures of investor complacency (VIX Index) loitering near record lows.

Similarly, some valuation measures-such as the price/sales ratio-are back to the nosebleed levels we saw at the height of the valuation insanity that prevailed in early 2000.

In addition, and I know that I have also said this before, we have a definitive decline in corporate profit margins.

All of this coupled with the inconvenient truth that we have just experienced a third consecutive quarterly decline in S&P 500 earnings per share...
..

It goes without saying that this has not been an earnings driven rally. The driver has obviously been the sharp decline in bond yields[/i].....
Jonathan pain
- I know he's a perma-bear, but he makes sense. But only in a conventional way, and these are unconventional times




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
blacksheep
post Posted: Nov 24 2019, 01:50 PM
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Wall Street Weekahead: Conditions may be set for Santa Claus rally
QUOTE
NEW YORK (Reuters) - A year after the U.S. stock market plunged, many investors believe conditions are in place to avoid another year-end pullback and possibly set the stage for a rally to finish off 2019


QUOTE
“The prospects this year are better,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee. “It’s not just the U.S. that’s doing well right now. It’s happening in lots of places around the globe, and that puts investors in a more risk-taking mood.”

One wild card for markets heading into year-end is the United States’ trade war with China. The dispute remains unresolved, but there is optimism about a preliminary U.S.-China trade agreement that could also lift stocks into the new year.

Investors are still wary of last year's stock market collapse. The benchmark S&P 500 .SPX fell 19.8% - barely avoiding a bear market - between Sept. 20 and Dec. 24.

The index's 2.7% collapse on the eve of the Christmas holiday marked the bottom, and the S&P 500 .SPX registered its biggest percentage decline for a fourth quarter since 2008, the height of the financial crisis.


read more - https://www.reuters.com/article/us-usa-stoc...y-idUSKBN1XW25D
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The herd instinct among forecasters makes sheep look like independent thinkers. Edgar Fiedler

If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter. George Washington
 
 


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