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Offline RE

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Market Downhill Giant Slalom Gathers Steam
« Reply #330 on: July 06, 2016, 06:00:37 AM »
We'll need Picabo Street to negotiate this run.


RE

https://www.washingtonpost.com/business/tokyo-stocks-down-3-percent-other-asian-stocks-slump/2016/07/06/d1516334-432e-11e6-a76d-3550dba926ac_story.html

Business
Stocks slump, pound slides, US 10-year yield at record low


A couple looks at an electronic stock indicator of a securities firm in Tokyo, Wednesday, July 6, 2016. Asian stock markets slumped on Wednesday led by a 3-percent fall in Tokyo stocks while the British pound hit a new 31-year low. Investors worried about the effect of Britain’s decision to leave the European Union on the U.K. real estate market following the Bank of England governor’s remarks. (Shizuo Kambayashi/Associated Press)
By Youkyung Lee | AP July 6 at 6:55 AM

SEOUL, South Korea — Global stocks fell Wednesday, while the British pound hit a new 31-year low, as worries reawakened about the economic repercussions of Britain’s decision to leave the European Union. The 10-year U.S. Treasury yield hit a record low as investors sought out the safety of bonds.

KEEPING SCORE: Britain’s FTSE 100 fell 0.6 percent to 6,504 while France’s CAC 40 dropped 2.1 percent to 4,077. Germany’s DAX lost 2 percent to 9338. Futures augured a weak start for Wall Street. Dow and S&P futures both slid 0.6 percent.

UK WATCH: Concerns have grown over the potential economic costs of the U.K.’s decision to leave the EU. Investors this week rushed to sell out of funds that own British commercial real estate, which had been inflated by foreign money in recent years. Mark Carney, the Bank of England governor, said that some of the risks to the economy predicted before the referendum had begun to crystalize.

ANALYST’S QUOTE: “Carney, almost the only British leader who seems to not be resigning at the moment, emphasized the challenges the U.K. economy will suffer in the post-Brexit world,” said Angus Nicholson, a market analyst at IG in Melbourne, Australia. “Carney’s speech seems to have initiated the dawning of realization of the longer-term impact of Brexit for many in the markets.”

CURRENCIES: The pound traded below the $1.30 level for the first time in more than three decades. It was trading at $1.2979, down 0.3 percent on the day. The dollar weakened to 100.30 yen from 101.28 yen while the euro was steady at $1.1072.

Economy & Business Alerts

Breaking news about economic and business issues.

BONDS: The 10-year yield on the U.S. Treasury note touched 1.33 percent on Wednesday, below its previous record set in 2012. Many other countries’ government bond yields were also at record lows, with those of Germany and Japan below zero. Historically, when concerns flare up about the economic outlook, investors buy bonds, which sends their yields down.

ASIA’S DAY: Tokyo’s Nikkei 225 finished at 15,378.99, down 1.9 percent after sliding as much as 3 percent. South Korea’s Kospi lost 1.9 percent to 1,953.12. Hong Kong’s Hang Seng index slid 1.2 percent to 20,495.29. Australia’s S&P/ASX 200 was down 0.6 percent to 5,197.50. Stocks in mainland China and Thailand closed higher while the key index in Taiwan fell.
CONTENT FROM UPSGrow your business across borders
Only 1 percent of U.S. businesses participate in global trade

OIL: Benchmark U.S. crude lost 52 cents at $46.08 per barrel in New York. The contract sank $2.39 on Tuesday. Brent crude, used to price international oils, fell 60 cents to $47.37 a barrel in London.
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Offline RE

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EU Banks Crash To Crisis Lows As Funding Panic Accelerates
« Reply #331 on: July 06, 2016, 08:14:11 AM »
Not sure even Picabo could negotiate this one.


RE

http://www.zerohedge.com/news/2016-07-06/eu-banks-crash-crisis-lows-funding-crisis-accelerates

EU Banks Crash To Crisis Lows As Funding Panic Accelerates

Tyler Durden's picture
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The signs are everywhere - if you choose to look - Europe's banking system is collapsing (no matter what Draghi has to offer). From record lows in Deutsche Bank and Credit Suisse to spiking default risk in Monte Paschi, the panic in Europe's funding markets (basis swaps collapsing) is palpable.

Tumbling to a fresh post-Brexit low, Europe's Stoxx 600 Bank Index is testing EU crisis lows...

 

With Credit Suisse smashing to record lows...

 

and Deustche Bank crashing towards the inevitable Lehman moment...

 

As it seems the most systemically dangerous bank in the world is liquidating aggressively (via Reuters)

Deutsche Bank is looking to sell at least $1 billion of shipping loans to lighten its exposure to the sector whose lenders face closer scrutiny from the European Central Bank, sources told Reuters.

 

While the oil tanker trade has picked up, the container and dry bulk shipping industries are struggling with their worst downturn due to a glut of ships, a faltering global economy and weaker consumer demand.

 

Banking and finance sources familiar with the matter said Germany's biggest lender was initially looking to offload at least $1 billion.

 

"They are looking to lighten their portfolio and this includes toxic debt. It makes commercial sense to try and sell off some of their book," one finance source said. "They are not looking to exit shipping."

 

Deutsche Bank, which has around $5 billion to $6 billion worth of total exposure to the shipping sector, declined to comment.

Senior and Sub CDS are widening dramatically today with Italy's short-sale ban on Monte Paschi shares sparking a 10% bounce in the stock but CDS are unchanged implying a 66% chance of default.

Notably BMPS shares are leaking back lower after the opening ramp (desk chatterof takeover rumors have been dismissed) and the rest of the Italian banking sector is catching its cold (as we warned it would when Consob instigated the short-sale ban)

 

Which helps explain the crisis in Europe's funding markets as USD demand smashes higher (-9bps to -49bps in EUR-USD basis swaps)...

 

With counterparty risk concerns growing in Sterling banks...

 

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Offline RE

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Flash Crashes, ETFs & An Arbitrage Trader's Dream
« Reply #332 on: August 31, 2016, 12:42:14 AM »
Here they come to sell 'em again!

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Call Alan!

LOL.

RE

http://www.forbes.com/sites/rogeraitken/2016/08/30/flash-crashes-etfs-an-arbitrage-traders-dream/#39540b65667d

Aug 30, 2016 @ 01:01 PM 998 views
The Little Black Book of Billionaire Secrets
Flash Crashes, ETFs & An Arbitrage Trader's Dream


Trader Frank Masiello working on the floor of the New York Stock Exchange on 6 May 2010.  According to the U.S. authorities British trader Navinder Singh Sarao helped set off the ‘Flash Crash’ that day. (Source: AP Photo/Henny Ray Abrams).

Roger Aitken , 

Contributor

I write about financial markets, exchanges, IT and trading technology.

Opinions expressed by Forbes Contributors are their own.

Flash crashes and rogue traders – there’ve been a few.  Most trading folk will recall the May 6 ‘flash crash’ in 2010 – also known as ‘The Crash of 2:45’ or simply the 2010 Flash Crash. Yet has anything been learned since then or even last August’s ETF flash crash in the US? Perhaps, but there is always room for improvement even if there is no silver bullet or sacred cow on hand.

The events that unfolded in the US equity market on August 24, 2015, which followed the Treasury ‘Flash Rally’ on October 15, 2014, offered the first true opportunity to assess how effective reforms implemented in reaction to the Flash Crash of 2010 were. These measures spanned individual stock trading halts, policies to address erroneous transactions as well as the market-wide circuit breaker.

For the majority of the day late last August, the market performed adequately, functioned and remained accessible to investors and despite record trading levels and volatility.

That said, over the first hour of trading, a tumultuous US market open precipitated rapid, anomalous price moves in a plethora of stocks, exchange-traded products (ETPs) and closed-end funds. It underscores the point that volatility is never far away in markets and who knows when the next meltdown is coming.

Contributing to the disruption that morning were a number of factors, as one might imagine. These included a confluence of US equity market issues that exposed structural flaws hampering the flow of order and price information, halted trading, and a held up the open for a wide number of securities.

Coming on the back of heavy and widespread selling pressure resulted in pre-market price falls in futures and a spike in market orders, with almost 50% of listed shares on the New York Stock Exchange failing to open by 9:40am on August 24.
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Added to this volatile cocktail, the US equity ETP arbitrage mechanism was temporarily impaired as a result of disruptions arising from the above issues, which was not made any better by the excessive use of market and stop-loss orders seeking liquidity at any price.

2010 Flash Crash

Causing a trillion-dollar stock market crash apparently sparked by Navinder Sarao, dubbed the ‘Hound of Hounslow’ who spoofed the market trading E-mini S&P 500 contracts out of a bedroom in west London, the 201o flash crash started at 2:32pm EDT and lasted around 30 minutes.

Major US stock indexes, such as the Dow Jones Industrial Average (DJIA), Nasdaq Composite and S&P 500, at the time collapsed and rebounded very swiftly that day. The Dow, for example, witnessed its biggest intra-day points decline – from the opening – up to that point, plunging 998.5 points (c.9%), largely within a matter of minutes, only to recover a large part of the loss.

A report subsequently published in 2014 by the U.S. Commodity Futures Trading Commission (CFTC) based in Washington D.C., described the event as one of the most turbulent periods in the history of financial markets. Indeed, in dramatic conditions bids on a slew of ETFs and other securities had dipped as low as a penny a share.

Following the 2010 Flash Crash regulations were put in place. However, despite such actions it proved to be inadequate to safeguard and protect investors in a flash crash that occurred last year  - August 24, 2015. This saw the price of many ETFs become unhinged from their underlying value.

Arbitrage Trader’s Dream Come True

Andrew Chanin, CEO at PureFunds based in New York who was at the firm during last August’s flash crash and prior to this an ETF trading company in May 2010, commenting says: “ETFs presented one of the greatest trading opportunities out there that day. Although many people were treating it like the May 6 ‘flash crash’ of 2010, it was clearly different.”

The Lessons & Industry Concerns

The former Cohen Capital Group executive from 2009 to 2011, who plied his trade in ETF arbitrage, market making and prop trading across equities, fixed income, futures and options, adds: “Be careful with market orders and stop orders. Understand the crash better and the differences between these two occurrences.”

Meanwhile, Eric Ervin, co-founder, President and CEO of Reality Shares, an ETF issuer and index provider in San Diego that has created the first DRONE Stock Index, sharing his insight following in the wake of the one-year anniversary contends: “Some things have changed, but there are still many concerns and issues within the industry that need to be addressed to prevent a repeat scenario.”

He adds: “Not only are many analysts and experts apprehensive, but ETF companies themselves are continuing to point out that investors are vulnerable without sweeping changes.” The question here is what such changes may involve going forward and will they work.

A ‘Viewpoint’ paper from BlackRock BLK  0.59% (October 2015) on the US equity market structure and lessons from 24 August, states: “With the recognition that moments of high volatility and discontinuous pricing may be a persistent aspect of today’s markets, we see a need for market participants, exchanges, and regulators to improve the US equity market’s ability to cope with extraordinary volatility.”

Exchanges & Trading Halts

Among other issues, according to Ervin at Reality Shares in relation to exchanges there is a “need to address their procedures” for trading halts (including how securities are reopened after these halts). Furthermore, there needs to be “more consistency between the trading availability of ETFs themselves and their underlying holdings.”

He also posits that investors need “much more education and have greater awareness” about how these products trade in order to transact more appropriately. This echoes one of seven recommendations made by BlackRock in the aforementioned paper, namely educating investors as to how to navigate the modern US equity market.

Along that vein the 16-page BlackRock paper states: “Customer-facing broker-dealers should consider whether there is more to do to raise investor awareness regarding usage of market and stop-loss orders in volatile periods, especially at the open or close.”

Enhancing US Equity Market Resilience

While it is true that ETF issuers and exchanges have already acted to reform the industry, Ervin contends that “regulators need to act with more urgency to avoid future problems”. This is especially so given the continued growing popularity of exchange-traded products, which spans ETFs and exchange traded commodities (ETCs).

According to the BlackRock view: “We believe that the industry and regulatory response should first focus on facilitating the free flow of pricing and order information across the US equity market ecosystem.”

And, the US investment house shared recommendations to refine trading mechanisms, citing “guard rails” to enhance the resiliency of the US equity market, which they contended would “promote fair and orderly markets and benefit the functioning of both ETPs and individual stocks.”

Their other six recommendations to enhance the resilience of the US equity market include: (1) Harmonizing trading rules among futures, options, individual stocks, and ETPs, with any new rules that should be designed consistently across the equity market ecosystem and its individual components; and, (2) Recalibrating the Limit-Up Limit-Down (‘LULD’) rules - applying a consistent price band throughout the day (instead of wider bands at the open and close) – recognizing linkages across markets and limitations of LULD during market-wide events.

Furthermore, they add into the mix, (3) Consider revising market-wide circuit breakers, and in doing so examine whether lower thresholds that would be tripped more frequently than the current thresholds “would enhance the market’s ability to respond under stress.” It was nevertheless pointed out that additional analysis was required in this area to determine the “appropriate thresholds”.

Subsequent to that there one could also contemplate: (4) Ensure transparency and timeliness of the primary market open - by extending automated pre-open imbalance data feeds until each stock opens when NYSE Rule 48 is in effect; (5) Eliminating uncertainty in the determination of ‘clearly erroneous’ trades; and, (6) Issuers of both ETPs and stocks, who “should be proactive in considering an exchange’s auction processes and trading rules before listing their securities.”

In particular on the last point, issuers should ensure that exchanges have procedures which promote fair and orderly markets in their securities.

The events of August 24 2015 certainly remind us – if we didn’t need reminding again – that we live in a world of heightened and increasing volatility, with technology and many other dynamics impacting capital markets – ranging from equities to fixed income and beyond.

Dr John Bates, a pioneer in the fields of Big Data streaming analytics and the ‘Internet of Things’ with a PhD from Cambridge University, England, from where in the Cavendish Laboratory the atom was split in 1932 by Ernest Rutherford, observes it is highly unlikely that flash crashes will not happen again.

Having famously remarked in recent years that regulators were still using “bicycles to catch Ferraris”, Bates adds: “Although the circumstances and causes behind each [Flash Crash] are and can be different as witnessed through the May 2010 and August 2015 instances, the fundamental issue stems from the fact that capital markets are by their very nature aggressive with the pursuit of profits at their very heart.”

As such, incidents involving rogue traders that may initially trigger such happenings are unlikely to go away any time soon, however much the regulators try to reform things and batten down the hatches. Bates further points to the “interconnectedness of markets” across the globe and between asset classes. So when financial market tsunamis do occur there is a knee-jerk reaction.

But as BlackRock’s paper also argues, when it comes to proposed industry improvements they must “balance attempts to improve market resiliency” with preservation of existing and well-functioning processes by which equity securities are traded today.

They nevertheless acknowledge that there is no “silver bullet” or single solution to the issues observed last August. Recommendations put forward by BlackRock and others also need to be considered in a holistic manner if nothing else. But be careful what you wish for.
« Last Edit: August 31, 2016, 12:46:01 AM by RE »
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S&P 500 Falls for Ninth Session in Longest Losing Streak Since 1980
« Reply #333 on: November 04, 2016, 03:08:54 PM »
Hey Eddie, how'z the Potfolio doing with the Big Slide?

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RE

http://www.wsj.com/articles/european-asian-stocks-follow-s-p-500-lower-1478248853

    Markets Today's Markets
S&P 500 Falls for Ninth Session in Longest Losing Streak Since 1980
After a late afternoon slump, U.S. stocks end lower
By Corrie Driebusch and
Riva Gold
Updated Nov. 4, 2016 4:14 p.m. ET
18 COMMENTS

A late afternoon slump dragged the S&P 500 to its ninth consecutive decline, its longest losing streak in nearly 36 years.

October employment data signaling solid momentum in the labor market and a bounceback in biotechnology shares had buoyed stocks for most of Friday’s trading session. Ultimately, however, caution prevailed in the final hour of trading. The tight U.S. presidential election has dragged down stocks and pushed up Wall Street’s “fear gauge” since early last week.

The S&P 500 declined 3.5 points, or 0.2%, to 2085, putting its nine-day decline at roughly 3%. The last time the S&P 500 index fell for nine days in a row was the period ending Dec. 11, 1980—when it lost 9.4%.

The Dow Jones Industrial Average and the Nasdaq Composite both declined 0.2% on Friday.

The election has unnerved many investors, causing them to either sit on the sidelines or move to products they perceive as less risky, such as gold or shorter-duration bonds, as polls have tightened between the candidates.

“There’s general market anxiety driven by the election,” said Megan Greene, chief economist at Manulife Asset Management. “In the past we talked about bulls and bears. Now I think there’s a big group of investors who are just unsure.”
Read more

    Five Markets to Watch Before and After Election
    Heard on the Street: Investors Get Election Jitters
    U.S. Adds 161,000 Jobs in October; Jobless Rate Ticks Down to 4.9%
    Hilsenrath: Jobs Report Sets the Stage for December Rate Increase
    A New Way to Measure Wage Growth

Nonfarm payrolls rose by a seasonally adjusted 161,000 in October from the prior month. Above, people wait in line for a job fair in Atlanta. ENLARGE
Nonfarm payrolls rose by a seasonally adjusted 161,000 in October from the prior month. Above, people wait in line for a job fair in Atlanta. Photo: Bob Andres/Atlanta Journal-Constitution via AP

The CBOE Volatility Index, or VIX, has surged in the past nine trading sessions—its longest-ever stretch of gains—and has risen above its 10-year average. The “fear gauge” is based on S&P 500 options prices. Investors who buy VIX futures contracts are making a bet that stock-price volatility will go up in the next 30 days.

Craig Hodges, portfolio manager at Hodges Capital Management, said his fund raised cash over the past couple of weeks in anticipation of stock-market swings.

“It’s happened, but it’s been more severe than even I looked for,” he said. He’s preparing for even more volatility. “You could still see another 5% selloff if there were a surprise election result,” he added.

The price of gold has gained more than 3% over the past nine trading sessions, rising 0.1% Friday to $1,303.30 an ounce. Demand for haven debt sent the yield on the two-year Treasury note down to 0.796% from 0.84% on Oct. 24.

“There’s a flight to safety,” said Mohit Bajaj, director of ETF trading solutions at broker WallachBeth Capital LLC.

Oil has come under pressure as well. U.S.-traded crude fell 1.3% to $44.07 a barrel on Friday, marking a six-day losing streak in which prices slid 11%.

As money has moved into these havens and as the price of oil fell, investors have also stepped back from stocks.

Write to Corrie Driebusch at corrie.driebusch@wsj.com and Riva Gold at riva.gold@wsj.com
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Offline RE

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Bond Traders meet the Event Horizon of Hell
« Reply #334 on: November 20, 2016, 07:16:29 PM »
Not a good week for bond traders to stop sniffing glue.  ::)


RE

http://wolfstreet.com/2016/11/19/bond-carnage-hits-mortgage-rates-but-this-time-its-real/

Bond Carnage hits Mortgage Rates. But This Time, it’s Real
by Wolf Richter • November 19, 2016 • 84 Comments   

The “risk free” bonds have bloodied investors.

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”

One of the other three months on that short list occurred at the end of 2010 and two “back to back amid the 2013 Taper Tantrum,” when the Fed let it slip that it might taper QE Infinity out of existence.

Investors were not amused. From the day after the election through November 16, they yanked $8.2 billion out of bond funds, the largest weekly outflow since Taper-Tantrum June.

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!

The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

Then in January, the new administration will move into the White House. It will take them a while to get their feet on the ground. Legislation isn’t an instant thing. Lobbyists will swarm all over it and ask for more time to shoehorn their special goodies into it. In other words, that massive deficit-funded stimulus package, if it happens at all, won’t turn into circulating money for a while.

So eventually the bond market is going to figure this out and sit back and lick its wounds. A week ago, I pontificated that “it wouldn’t surprise me if yields fall some back next week – on the theory that nothing goes to heck in a straight line.”

And with impeccable timing, that’s what we got: mid-week, one teeny-weeny little squiggle in the 10-year yield, which I circled in the chart below. The only “pullback” in the yield spike since the election. (via StockCharts.com):

us-treasury-10-yr-yield-2016-11-18

Note how the 10-year yield has jumped 100 basis points (1 percentage point) since July. I still think that pullback in yields is going to happen any day now. As I said, nothing goes to heck in a straight line.




In terms of dollars and cents, this move has wiped out a lot of wealth. Bond prices fall when yields rise. This chart (via StockCharts.com) shows the CBOT Price Index for the 10-year note. It’s down 5.6% since July:

us-treasury-10-yr-price-2016-11-18

The 30-year Treasury bond went through a similar drubbing. The yield spiked to 3.01%. The mid-week pullback was a little more pronounced. Since the election, the yield has spiked by 44 basis points and since early July by 91 basis points (via StockCharts.com):

us-treasury-30-yr-yield-2016-11-18

Folks who have this “risk free” bond in their portfolios: note that in terms of dollars and cents, the CBOT Price Index for the 30-year bond has plunged 13.8% since early July!

us-treasury-30-yr-price-2016-11-18

However, the election razzmatazz hasn’t had much impact on junk bonds. They’d had a phenomenal run from mid-February through mid-October, when NIRP refugees from Europe and Japan plowed into them, along with those who believed that crushed energy junk bonds were a huge buying opportunity and that the banks after all wouldn’t cut these drillers’ lifelines to push them into bankruptcy, and so these junk bonds surged until mid-October. Since then, they have declined some. But they slept through the election and haven’t budged much since.

It seems worried folks fleeing junk bonds, or those cashing out at the top, were replaced by bloodied sellers of Treasuries.

Overall in bond-land, the Bloomberg Barclays Global Aggregate bond Index fell 4% from Friday November 4, just before the election, through Thursday. It was, as Bloomberg put it, “the biggest two-week rout in the data, which go back to 1990.”

And the hated dollar – which by all accounts should have died long ago – has jumped since the election, as the world now expects rate hikes from the Fed while other central banks are still jabbering about QE. In fact, it has been the place to go since mid-2014, which is when Fed heads began sprinkling their oracles with references to rate hikes (weekly chart of the dollar index DXY back to January 2014):

us-dollar-dxy-2016-11-18

The markets now have a new interpretation: Every time a talking head affiliated with the future Trump administration says anything about policies — deficit-funded stimulus spending for infrastructure and defense, trade restrictions, new tariffs, walls and fences, keeping manufacturing in the US, tax cuts, and what not — the markets hear “inflation.”

So in the futures markets, inflation expectations have jumped. This chart via OtterWood Capital doesn’t capture the last couple of days of the bond carnage, but it does show how inflation expectations in the futures markets (black line) have spiked along with the 10-year yield (red line), whereas during the Taper Tantrum in 2013, inflation expectations continued to head lower:

us-treasury-10-yr-yield-v-inflation-expectations-2016-11-16

Inflation expectations and Treasury yields normally move in sync. And they do now. The futures markets are saying that the spike in yields and mortgage rates during the Taper Tantrum was just a tantrum by a bunch of spooked traders, but that this time, it’s real, inflation is coming and rates are going up; that’s what they’re saying.

The spike in mortgage rates has already hit demand for mortgages, and mortgage applications during the week plunged. Read…  What’ll Happen to Housing Bubble 2 as Mortgage Rates Jump? Oops, they’re already jumping.
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Now it Begins to Unravel
« Reply #335 on: November 23, 2016, 03:52:15 PM »
Online Lending!  There's the solution!

Everybody borrows $35K the first year, then next year they borrow $70K to pay off last year and have money for next year, rinse and repeat!

This actually is what corporations do now, so just extend this to individual consumers!

What could possibly go wrong?  ???  :icon_scratch:

RE

http://wolfstreet.com/2016/11/21/online-lending-fiasco-credit-bubble-peak/
Now it Begins to Unravel
by Wolf Richter • November 21, 2016 • 67 Comments   

The Credit Bubble Peak was Marked by “Totally Crazy Lending.”

Debt is good. More debt is better. Funding consumer spending with debt is even better – that’s what economists have been preaching – because the consumed goods and services are gone after having been added to GDP, while the debt, which GDP ignores, remains until it is paid off with future earnings, or until it blows up.

Corporations too have gone on a borrowing binge. Unlike consumers, they have no intention of paying off their debts. They issue new debt and use the proceeds to pay off maturing debts. Funding share-buybacks and dividends with debt is ideal. It’s called “unlocking value.”

Debt must always grow. For that purpose, the Fed has manipulated interest rates to rock bottom. Actually paying off and reducing debt has the dreadful moniker, bandied about during the Financial Crisis, “deleveraging.” It’s synonymous with “The End of the World.”

At the institutional level, “debt” is replaced with more politically correct “leverage.” More leverage is better. Particularly if you can borrow short-term at near zero cost and bet the proceeds on risky illiquid long-term assets, such as real estate, or on securities that become illiquid without notice.

Derivatives are part of this institutional equation. The notional value of derivatives in the US banking system is $190 trillion, according to the Office of the Comptroller of the Currency. Four banks hold over 90% of them: JP Morgan ($53 trillion), Citibank ($52 trillion), Goldman ($44 trillion), and Bank of America ($26 trillion).

Over 75% of those derivative contracts are interest rate products, such as swaps. With them, heavily leveraged institutional investors that borrow short-term to invest in illiquid long-term assets hedge against interest rate movements. But Treasury yields and mortgage rates have moved violently in recent weeks, and someone is out some big money.

These credit bubbles always unravel to the greatest surprise of those institutions and their economists. When they unravel, the above “End-of-the-World” scenario of orderly deleveraging turns into forced deleveraging, which can get messy. Assets that had previously been taken for granted are either repriced or just evaporate. But they’d been pledged as collateral. Suddenly, the collateral no longer exists….

On the way up, lots of money can be made on this debt, in myriad ways, including in interest and fees extracted from consumers directly, and in fees extracted by Wall Street, for example in repackaging risky consumer or corporate debt into highly rated asset-backed securities that are then spread to institutional investors who use proceeds from leverage to acquire them. But no problem; it’s just OPM (other people’s money).

lies-of-wall-street-ro72_300x250

Then there’s the peak. It’s marked by “totally crazy lending.” We’ve seen that peak. One sign: white-hot online peer-to-peer lenders, or rather “platforms” for risky consumer loans. They’re Silicon Valley inventions that were going to revolutionize lending and put banks out of business. They proudly operate with disregard for risks. They borrow from individual and institutional investors and extend unsecured personal loans to consumers. They also repackage consumer loans into bonds and sell them to over-eager institutional investors.

There are many of these platforms, including Lending Tree, CircleBack, LendingClub, LoanDepot, and Avant.

Avant makes unsecured personal loans up to $35,000, ranging from 2 to 5 years. It targets subprime borrowers with credit scores as low as 580 who wish to consolidate debt, i.e. flip their credit-card balances into a personal loan so that they have room to borrow more on their credit cards.

This is expensive debt. There are fees, including origination fees between 0.95% and 3.75% of the loan amount. According to Nerdwallet, which reviewed Avant’s loans, annual percentage rates range from 9.95% to 36%!

No one, least of all a struggling subprime borrower, is going to pay off a five-year loan with an annual interest rate of 36%. Or heck, even 26%. These usurious rates on unsecured personal loans practically guarantee that the borrower will have to default.

Yet, borrowers typically receive funds the same day, according to Nerdwallet, though it may take up to a week in some cases. And investors were eager to buy these loans, which is the definition of “totally crazy lending.” It marked the peak of the bubble.

Then it began to unravel. The amounts may be small in the multi-trillion dollar scheme. But they’re red flags that soothsayers are busily ignoring.

Citing unnamed sources “with knowledge of the matter,” Bloomberg reported that a slew of these subprime consumer-loan backed securities, which had been issued just last year, are already going bad:

    Delinquencies and defaults are reaching key levels known as “triggers” for at least four different sets of bonds. Breaching those levels will force lenders or underwriters to start paying down the bonds early. Avant Inc. and its underwriters, for example, are going to have to begin to repay three of its asset-backed notes….

The four deals totaled over $500 million, nearly 20% of the $2.8 billion of online consumer-loan-backed securities sold in 2015. But the securitized loans are only a small portion of the loans arranged by online lending platforms, which in 2015, reached $36 billion. Bloomberg:

    Online loans have shown other signs of weakening. LendingClub Corp. last month raised interest rates and tightened its standards for at least the second time this year after seeing higher delinquencies among its customers, especially those with the most debt.

Online lenders arranged only a small part of the $3.7 trillion in non-mortgage consumer debt outstanding, mostly student loans, auto loans, and credit card balances. While credit cards are still holding up, student loans have terrible delinquency rates, and subprime auto-loans delinquencies have jumped to the highest in six years.

LoanDepot began making unsecured online consumer loans last year. By September this year, according to Bloomberg, losses on its consumer-loan backed securities breached the ceilings set by its underwriters. Other online lenders are just trying to hang on:

    Avant, based in Chicago, cut its monthly target for lending this summer by about 50%, and decided to shrink its workforce in line with that, while CircleBack Lending, based in Boca Raton, Florida, stopped making new loans earlier this year.

    Several lenders have changed management this year. LendingClub’s Laplanche left in May and on Monday, Prosper Marketplace said its CEO Aaron Vermut is stepping aside in December.

Given the amount of central-bank liquidity sloshing through the system, the unraveling of the credit bubble will likely be a slow drawn-out process starting in these sorts of pockets here and there.

The online lending debacle isn’t the only red flag. There are others. And now we have this: it’s the “risk free” bonds that have bloodied investors. Read…  Bond Carnage hits Mortgage Rates. But This Time, it’s Real
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Offline MKing

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Re: Re: Frostbite Falls Daily Rant
« Reply #336 on: November 23, 2016, 04:37:38 PM »

The charts indicate a delevering phase is beginning again here, and compared to what is coming down the pipe, 2008 was a cakewalk.

RE

And now the reality, 4 years later. So after more than 4 years, maybe it will begin in the next 4?

http://blogs.barrons.com/stockstowatchtoday/2016/11/22/the-dow-breaches-19000-sp-500-nasdaq-also-hit-record-highs/

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Offline Golden Oxen

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Re: Now it Begins to Unravel
« Reply #337 on: November 23, 2016, 10:03:47 PM »
This topic is of much merit IMO as is this posting. An area closely watched by me as a harbinger of D Day.

The amount of debt out there that is impossible to pay off with the usury that is attached is absolutely horrifying to those who study such data.

It will make a Gold Bug out of you if you delve into it studiously.

                                           
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Offline RE

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A Major Banking Collapse Looks Imminent
« Reply #338 on: December 05, 2016, 04:03:41 PM »
Will we finally get rolling on this?

RE

http://monetarywatch.com/2016/12/major-banking-collapse-looks-imminent/

Market News
A Major Banking Collapse Looks Imminent


By Monetary Watch | December 5, 2016

Submitted by Nick Giambruno via International Man,

This surprises almost everyone…

You don’t own the money in your bank account.

Once you deposit money at the bank, it’s no longer your property. It’s the bank’s.

What you own is a promise from the bank to repay you. It’s an unsecured liability. Technically, you’re a creditor of the bank. And that means a bank bail-in would probably burn you.

A bail-in is when a bank recapitalizes itself by tapping its creditors. That includes all of its average Joe depositors. Italians are about to find this out the hard way.

The Italian banking system is a mile-high house of cards.

It’s looking wobblier every day.

The Italian economy is made up of many small and medium-sized businesses. Those businesses take out loans from Italian banks. But the country’s economy is in a deep and protracted depression. So, many of those loans have either gone bad or will go bad.

This has created a crisis in the Italian banking system. It’s taken years to build up, but the situation is finally coming to a head.

The Italian banking system is insolvent. Shares of most Italian banks have plummeted more than 50% so far this year.

Together, Italian banks hold $400 billion-plus worth of loans that are 90 days past due and unlikely to be repaid in full.

That’s a staggering figure. These nonperforming loans (NPLs) account for more than 18% of all outstanding bank loans in Italy. They add up to over 20% of the Italian GDP.

Here is some sobering perspective: Only 5% of all outstanding loans in France are nonperforming. In the US, it’s 2%. In the UK, it’s a mere 1.5%.

Italy’s NPLs are an enormous problem.

Behind the scenes, European central bankers are preparing for a major crisis—all while promising the public that “everything is under control.”

They know how bad the problem is. That’s why they urgently passed new bail-in rules earlier this year.

The Italian government is in an unenviable conundrum. It can stall and save the banks through a bail-in, or it can let the whole house of cards topple. Either choice is political suicide.

The collapse of Italy’s banking system appears imminent.

There’s a strong chance it will happen in the coming weeks.

The impending failure of Italy’s third-largest bank, Banca Monte dei Paschi di Siena (BMPS), will likely be the spark that sets it off.

Founded in 1472, BMPS is the oldest bank in the world. With one of the highest ratios of NPLs, it’s in far worse shape than any other Italian bank.

BMPS has also become the world’s most infamous penny stock. Over the past 10 years, its stock price has collapsed more than 99%.

This bank has survived everything since before Columbus landed in America. Now it’s about to fail. That should tell you just how unsound modern banking is.

The only reason BMPS is still giving off the faintest death rattle is because Italian taxpayers have already bailed it out… twice.

Of course, neither bailout worked. They were like Band-Aids on a gunshot wound. The bailouts didn’t address the fundamental problem of economic stagnation, and BMPS quickly bled through the bandages.

Then, after BMPS’s stock crashed 20% in one day this summer, the Italian government banned short selling of the bank’s shares. It hasn’t helped. Since the ban went into effect, shares have fallen more than 45% anyway.

Now BMPS is in the middle of a third rescue attempt. It’s trying to raise $5.5 billion in fresh capital from a syndicate of private investors.

At the time of writing, BMPS’s current market cap is around $550 million—about 10% of the $5.5 billion it needs to raise to stay afloat. After BMPS raised $9 billion in recent years, only to have it vanish as its share price collapsed, no sane private investor would throw another penny down this black hole.

Needless to say, the capital-raising effort is not going well. The syndicate was supposed to announce the results in September, but it decided to delay.

I think the implications are clear: BMPS has not raised anything close to $5.5 billion. The Italian government just doesn’t want people to notice.

If the syndicate admits that its capital-raising efforts have failed, then there’s only one way to keep BMPS and the entire Italian banking system from collapsing… a bail-in.

A bail-in is like an ambush…

It’s only effective if it’s a surprise.

Whenever you hear a central banker or a politician say something won’t happen, you can almost be certain it will happen—and probably soon.

The Italian minister of economy and finance recently made revealing comments about BMPS’s capital-raising efforts: “I am absolutely confident it will work.”

The minister was basically denying, although not very convincingly, that BMPS will need a bail-in. Coming from a bureaucrat, the real meaning of “No, of course not” is “It could happen tomorrow.”

It’s like the old saying: “Believe nothing until it has been officially denied.”

These deceptions have a purpose: Politicians and central bankers have to surprise the public to get the results they want. It happens over and over again.
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Offline Golden Oxen

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Re: A Major Banking Collapse Looks Imminent
« Reply #339 on: December 05, 2016, 04:58:31 PM »
Let me try an explain the problem with this.

It seems only Gold bugs grasp it and all others miss it for some strange reason.  :icon_scratch:

It's about Fiat and the children's belief in fairy tales, in fantasies as it were.

Let me state some facts and let the reader take it from there.

First off, the author is correct about their being a major banking collapse, he only errs as to timing.

THERE HAS BEEN A MAJOR BANKING COLLAPSE. IT HAPPENED IN 2008.

Every fucking major bank in the world went bankrupt and had to be bailed out,  at the expense of hapless taxpayers, by the puppets of the bankrupt banksters, who are their respective government leaders.

Their solution to the problem was to bail out the banks short term liquidity program by handing them oceans of fiat for the junk they had that was worth zero, and for the other shit they had in their books they told them to mark it to whatever price they think it is worth at some time in the future.

In other words they are still all bankrupt, and they and the Dim play a lets pretend their solvent game. It is a lie permeating the system so extensively that most believe it as Goebbels would say.

Douce Bank, JP Morgan, Bank of America, Citicorp, Barclays, are all a fucking scam, fiat castle of worthless fiat credits they fooled the dim into thinking were legitimate.

Some will come in with their sophistry now, with their endless bullshit and technical blabber that makes   as  much sense to the wise as the message from a camel blowing farts at the local zoo.

The entire fucking banking system is a FRAUD, a PONZI SCHEME.

That's why there are two groups of people in the world, Gold Bugs, and the Dim. The Dim despising the former for constantly pointing out to them they are conned shit heads.

                                     
                                                   
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« Last Edit: December 05, 2016, 05:07:40 PM by Golden Oxen »

Offline luciddreams

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Re: A Major Banking Collapse Looks Imminent
« Reply #340 on: December 05, 2016, 06:08:52 PM »
Let me try an explain the problem with this.

It seems only Gold bugs grasp it and all others miss it for some strange reason.  :icon_scratch:

It's about Fiat and the children's belief in fairy tales, in fantasies as it were.

Let me state some facts and let the reader take it from there.

First off, the author is correct about their being a major banking collapse, he only errs as to timing.

THERE HAS BEEN A MAJOR BANKING COLLAPSE. IT HAPPENED IN 2008.

Every fucking major bank in the world went bankrupt and had to be bailed out,  at the expense of hapless taxpayers, by the puppets of the bankrupt banksters, who are their respective government leaders.

Their solution to the problem was to bail out the banks short term liquidity program by handing them oceans of fiat for the junk they had that was worth zero, and for the other shit they had in their books they told them to mark it to whatever price they think it is worth at some time in the future.

In other words they are still all bankrupt, and they and the Dim play a lets pretend their solvent game. It is a lie permeating the system so extensively that most believe it as Goebbels would say.

Douce Bank, JP Morgan, Bank of America, Citicorp, Barclays, are all a fucking scam, fiat castle of worthless fiat credits they fooled the dim into thinking were legitimate.

Some will come in with their sophistry now, with their endless bullshit and technical blabber that makes   as  much sense to the wise as the message from a camel blowing farts at the local zoo.

The entire fucking banking system is a FRAUD, a PONZI SCHEME.

That's why there are two groups of people in the world, Gold Bugs, and the Dim. The Dim despising the former for constantly pointing out to them they are conned shit heads.

                                     
                                                   
1 oz Gold Ox
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I'll trade you some high quality bamboo for some gold Ox.  I don't have any gold, or money. 

I can play shakuhachi flute for you though.   :dontknow:

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Re: Big Slide v2.0 Begins
« Reply #341 on: December 05, 2016, 07:00:28 PM »
I wish I had as much faith in Gold as you do, GO.  But we've all seen pieces of paper saying "I represent a 400 oz gold bar, serial number xxxxxxx" being traded as if it was real physical metal.  And we've seen stacks of paper gold being pledged twice or more as collateral for loans.  I think all the gold bars are still in Fort Knox, but rehypothecated, perhaps many times.  So how do you stop paper gold from occurring?
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Offline RE

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Re: A Major Banking Collapse Looks Imminent
« Reply #342 on: December 05, 2016, 07:27:44 PM »

The entire fucking banking system is a FRAUD, a PONZI SCHEME.

That's why there are two groups of people in the world, Gold Bugs, and the Dim. The Dim despising the former for constantly pointing out to them they are conned shit heads.

This is some kind of major revelation?  Banking has always been a fraud, going all the way back to the Roman Empire.  It didn't make any difference that they minted gold and silver coins, they still made bad loans and they still collapsed.

What is Dim here is believing that gold would make banksters any more honest or that it can make any difference to a civilization suffering the twin problems of resource depletion and population overshoot.

RE
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Offline Golden Oxen

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Re: A Major Banking Collapse Looks Imminent
« Reply #343 on: December 05, 2016, 07:37:39 PM »

The entire fucking banking system is a FRAUD, a PONZI SCHEME.

That's why there are two groups of people in the world, Gold Bugs, and the Dim. The Dim despising the former for constantly pointing out to them they are conned shit heads.

This is some kind of major revelation?  Banking has always been a fraud, going all the way back to the Roman Empire.  It didn't make any difference that they minted gold and silver coins, they still made bad loans and they still collapsed.

What is Dim here is believing that gold would make banksters any more honest or that it can make any difference to a civilization suffering the twin problems of resource depletion and population overshoot.

RE

You constantly confuse gold as money of the bankster;  it is not RE. Gold is the money of the people that was taken away from them by the bankster with the point of a gun pointed at them by their corrupt government cohorts.

Offline RE

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Re: A Major Banking Collapse Looks Imminent
« Reply #344 on: December 05, 2016, 07:53:02 PM »
You constantly confuse gold as money of the bankster;  it is not RE. Gold is the money of the people that was taken away from them by the bankster with the point of a gun pointed at them by their corrupt government cohorts.

First off, I never said anything about who the gold belongs to or how it was accumulated. Generally speaking it's first acquired through mining on the backs of slave labor, then goes through a series of thefts over the centuries.  Those can be violent theft such as the Conquistadores, or vaious types of fraud.

Second, how they got the gold and stuffed it into basement safes sprinkled around the world is irrelevant at this point.  It's not going to all be coined up and dropped from helicopters on J6P.

RE
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