From Almost Daily Grant's, October 5th 2017 edition:
Irish buys are smiling
Yesterday, the Republic of Ireland issued €4 billion worth of five-year debt, priced to yield negative-0.008%, in a deal that was 2.5 times oversubscribed.
That feat, remarkable on its face, is made even more so in contrast to the Republic’s pronounced struggles during the 2011 European sovereign debt crisis. Amidst an ailing banking system that lead to the demise of the 134-year old Irish Nationwide Building Society and forced the government to supply bailout funds to Bank of Ireland and Anglo Irish Bank to forestall a similar fate, Irish sovereign borrowing costs spiked to panic-type levels. Yields on 10-year government debt jumped above 14% in the summer of 2011, with five-year yields reaching even higher to nearly 17%. Just over six years later, investors are clamoring to lose money (it’s a sure thing if the bonds are held to maturity) by financing the same country.
Then again, buyers of this deal have an ace up their sleeve. Perhaps a non-economic quasi-governmental entity which has bought more than €1.7 trillion of government bonds this cycle (per the FT) might be willing to buy them out a premium.
From Yields of 17% in 2011 to the current -0.008% (yes, that starts with a minus sign) in 2017, what a difference! Welcome to the "wonderful" world of QE (also known as "money printing") in which everything is possible and assets continue to rise in price. Ireland, once a member of the infamous "PIIGS" group, must be laughing all the way to the bank.
One day this will all end badly and buyers of these (any many other) bonds will scratch their head in disbelief why the heck they bought these instruments in the first place. But when that will happen, who knows?
Showing posts with label James Grant. Show all posts
Showing posts with label James Grant. Show all posts
Saturday, 7 October 2017
Monday, 25 May 2015
The Forgotten Depression
Great presentation by James Grant, one of the good guys. I subscribed to his newsletter, but unfortunately had to discontinue it, since it was too US centric and the recommendations too often involved bonds (I always have been more of an equity guy).
If you've never heard of the Depression of 1921, it's because the federal government and the (then new) Federal Reserve did the opposite of what they did in 2008: federal spending was cut, the federal budget was balanced, and interest rates were allowed to rise. In other words, real austerity measures were implemented. The result? A short economic contraction that healed itself.
Also interesting is his remark about John James Cowperthwaite:
He was asked to find ways in which the government could boost post-war economic outlook but found the economy was recovering swiftly without any government intervention. He took the lesson to heart and positive non-interventionism became the focus of his economic policy as Financial Secretary. He refused to collect economic statistics to avoid officials meddling in the economy.
In line with this is Marc Faber's comment that close to 100% of the economic data is collected by institutions like the FED and national banks. These are institutions that are not exactly known to rock the boat, so we should have a healthy dose of scepticism regarding their numbers.
If you've never heard of the Depression of 1921, it's because the federal government and the (then new) Federal Reserve did the opposite of what they did in 2008: federal spending was cut, the federal budget was balanced, and interest rates were allowed to rise. In other words, real austerity measures were implemented. The result? A short economic contraction that healed itself.
Also interesting is his remark about John James Cowperthwaite:
He was asked to find ways in which the government could boost post-war economic outlook but found the economy was recovering swiftly without any government intervention. He took the lesson to heart and positive non-interventionism became the focus of his economic policy as Financial Secretary. He refused to collect economic statistics to avoid officials meddling in the economy.
In line with this is Marc Faber's comment that close to 100% of the economic data is collected by institutions like the FED and national banks. These are institutions that are not exactly known to rock the boat, so we should have a healthy dose of scepticism regarding their numbers.
Saturday, 12 October 2013
Fed up about the Fed
"President Obama was wise to nominate Janet Yellen, vice chairwoman of the Federal Reserve, to be the Fed's next leader. As a deeply respected economist, she will bring two vital attributes to that role as a steward of the economy."
The "deeply respected" bit was something that was often repeated. Not repeated was the fact that she didn't see the last crisis -- the biggest since the Great Depression -- until it happened.
In her own words:
"For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the SIVs -- I didn't see any of that coming until it happened."
I have no idea if she is competent. Competence in an economist is hard to measure, like knowing whether your auto mechanic is really any good.
As for vital attributes, the Times did get one right. "She represents continuity," the Times wrote. That pretty much says it all. Janet Yellen is establishment all the way. She won't wobble the canoe. She's not a Paul Volcker coming in to break things up.
And that's all you need to know about Yellen. She's got the same playbook in her pocket as Bernanke. If anything, there are hints she'll be even more aggressive in printing money than Bernanke.
And old Ben was pretty proficient in this area. Since he took over back in February 2006, the Fed's securities holdings are up 365%, to $3.5 trillion. It bought all that with money it created out of nothing.
How big will the pile be when Yellen leaves?
My guess is it will be higher. Expect the easy money and distortions to continue. The stock market may continue to rise, as it has, with the size of the Fed's holdings. This can't end well, but the party between now and the end could be something.
The above is from Chris Mayer editor of "Capital & Crisis", one of the publication I subscribe to.
It looks indeed like Marc Faber is going to be right (as he usually is, is my experience), after QE1, QE2 and QE3 under Bernanke, we will get QE4, QE5 up to QE infinite under Yellen.
A huge financial "experiment" that eventually has to end badly. And even then, the supporters of money printing will say that it only failed because not enough money has been printed, not because it was ludicrous from the start.
More on this subject can be read here: Marc Faber Blasts "A Corrupt System That Rewards Stupidity"
James Grant, someone I also greatly admire, wrote: "America’s default on its debt is inevitable":
“There is precedent for a government shutdown,” Lloyd Blankfein, the chief executive officer of Goldman Sachs, remarked last week. “There’s no precedent for default.”
How wrong he is.
The U.S. government defaulted after the Revolutionary War, and it defaulted at intervals thereafter. Moreover, on the authority of the chairman of the Federal Reserve Board, the government means to keep right on shirking, dodging or trimming, if not legally defaulting.
Default means to not pay as promised, and politics may interrupt the timely service of the government’s debts. The consequences of such a disruption could — as everyone knows by now — set Wall Street on its ear. But after the various branches of government resume talking and investors have collected themselves, the Treasury will have no trouble finding the necessary billions with which to pay its bills. The Federal Reserve can materialize the scrip on a computer screen.
I wrote before about Goldman Sachs, about the conflict of interest situations that they easily can run into. For instance when they sell products to customers while taking up the other side of the trade. Something that happened in 2008/09 when they sold "alphabet soup products" to clients, which later proofed to be (almost) worthless, profiting themselves hugely on the other side of the trade.
It turns out that inside the New York Fed Carmen Segarra was given the task to check how Goldman Sachs deals with the conflict of interest. Yves Smith describes what happened in "Whistleblower Suit Confirms that the New York Fed is in the Goldman Protection Racket":
"Segarra was tasked to assess whether Goldman’s conflicts of interest policies were adequate in three separate cases: Solyndra, the El Paso/Morgan Kindler acquisition, and a bank acquisition by Sandanter. What is stunning if you read the complaint, which we’ve embedded below, is how high-handed Goldman was in its responses to Segarra’s inquiries. It’s not hard to imagine that they viewed this as a pro forma exercise that given their cozy relationship with the New York Fed, would go nowhere. They didn’t just stonewall, they told egregious lies. That sort of cover-up usually winds up being worse than the crime, but not if you are in a privileged class like Goldman. When Segarra (and initially, the other members of her team) kept pressing Goldman for answers and making clear that what they were getting was problematic, Goldman then started giving credulity-straining responses.
As the exam moved forward, Segarra came under pressure from the Goldman relationship manager, Michael Silva, who was also senior to her at the bank (this is how you can tell the new regulatory push is all optics: the examiners are subordinate to the established “don’t ruffle the banks” incumbents). Silva, who had been chief of staff to Geithner before becoming “relationship manager” to Goldman, appears, unlike Segarra, not to have had real world financial services experience (he looks to have joined the New York Fed as a law clerk in 1992 and stayed with the bank).
Segarra was fired abruptly after refusing to change her recommendations and destroy supporting documents, which was in violation of regulatory policy (bank examiners are not “fire at will” employees; they need to be put on notice and given the opportunity to correct deficiencies in their performance before they can be dismissed).
I’ve read other wrongful termination suits and Segarra’s looks very strong. It’s going to be awfully hard for the New York Fed to talk its way out of this one."
This will be an interesting case to follow, many people have already written about the close ties between Goldman Sachs and several government agencies, like the (New York) Fed.
The full complaint by Segarra can be found here.
In my previous posting about Goldman Sachs I asked the question why anybody would want to deal with Goldman Sachs, given its questionable ethics. Yves Smith gives an answer to that question:
"Goldman was raked over the coals in the media in 2010, first when the SEC filed its suit in April on one of its Abacus CDOs, and later when Carl Levin turned the spotlight on other particularly noxious Goldman CDOs, such as Timberwolf and Hudson. Yet even though Goldman’s reputation suffered and its stock price took a hit, it did not suffer if any loss of customer business. A lot of that is ego: most clients think they are smart enough to protect themselves from the likes of Goldman. Others say that even with its double-dealing, it still offers services other don’t. For example, if you are a hedgie and for some reason really want to do a trade in August in the late afternoon on a Friday, you’ll have trouble scaring up anyone you’d trust to take your order at most shops. By contrast, Goldman makes sure to have all the desks covered."
One organisation that does work with Goldman Sachs, as described here: "Goldman Said to Earn $500 Million Arranging Malaysia Bond". Did 1MDB think they are smart enough, or was it because Goldman Sachs offered services that others didn't? There has not been much transparency regarding 1MDB, I hope that one day all the facts become public and we all know the answer to the above question.
In "What happened inside Goldman Sachs", author Steven Mandis writes how the culture of Goldman Sachs completely changed after it went for IPO, from client focused to shareholder (read: profit) focused. The book review by The Wall Street Journal can be found here.
The "deeply respected" bit was something that was often repeated. Not repeated was the fact that she didn't see the last crisis -- the biggest since the Great Depression -- until it happened.
In her own words:
"For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the SIVs -- I didn't see any of that coming until it happened."
I have no idea if she is competent. Competence in an economist is hard to measure, like knowing whether your auto mechanic is really any good.
As for vital attributes, the Times did get one right. "She represents continuity," the Times wrote. That pretty much says it all. Janet Yellen is establishment all the way. She won't wobble the canoe. She's not a Paul Volcker coming in to break things up.
And that's all you need to know about Yellen. She's got the same playbook in her pocket as Bernanke. If anything, there are hints she'll be even more aggressive in printing money than Bernanke.
And old Ben was pretty proficient in this area. Since he took over back in February 2006, the Fed's securities holdings are up 365%, to $3.5 trillion. It bought all that with money it created out of nothing.
How big will the pile be when Yellen leaves?
My guess is it will be higher. Expect the easy money and distortions to continue. The stock market may continue to rise, as it has, with the size of the Fed's holdings. This can't end well, but the party between now and the end could be something.
The above is from Chris Mayer editor of "Capital & Crisis", one of the publication I subscribe to.
It looks indeed like Marc Faber is going to be right (as he usually is, is my experience), after QE1, QE2 and QE3 under Bernanke, we will get QE4, QE5 up to QE infinite under Yellen.
A huge financial "experiment" that eventually has to end badly. And even then, the supporters of money printing will say that it only failed because not enough money has been printed, not because it was ludicrous from the start.
More on this subject can be read here: Marc Faber Blasts "A Corrupt System That Rewards Stupidity"
James Grant, someone I also greatly admire, wrote: "America’s default on its debt is inevitable":
“There is precedent for a government shutdown,” Lloyd Blankfein, the chief executive officer of Goldman Sachs, remarked last week. “There’s no precedent for default.”
How wrong he is.
The U.S. government defaulted after the Revolutionary War, and it defaulted at intervals thereafter. Moreover, on the authority of the chairman of the Federal Reserve Board, the government means to keep right on shirking, dodging or trimming, if not legally defaulting.
Default means to not pay as promised, and politics may interrupt the timely service of the government’s debts. The consequences of such a disruption could — as everyone knows by now — set Wall Street on its ear. But after the various branches of government resume talking and investors have collected themselves, the Treasury will have no trouble finding the necessary billions with which to pay its bills. The Federal Reserve can materialize the scrip on a computer screen.
I wrote before about Goldman Sachs, about the conflict of interest situations that they easily can run into. For instance when they sell products to customers while taking up the other side of the trade. Something that happened in 2008/09 when they sold "alphabet soup products" to clients, which later proofed to be (almost) worthless, profiting themselves hugely on the other side of the trade.
It turns out that inside the New York Fed Carmen Segarra was given the task to check how Goldman Sachs deals with the conflict of interest. Yves Smith describes what happened in "Whistleblower Suit Confirms that the New York Fed is in the Goldman Protection Racket":
"Segarra was tasked to assess whether Goldman’s conflicts of interest policies were adequate in three separate cases: Solyndra, the El Paso/Morgan Kindler acquisition, and a bank acquisition by Sandanter. What is stunning if you read the complaint, which we’ve embedded below, is how high-handed Goldman was in its responses to Segarra’s inquiries. It’s not hard to imagine that they viewed this as a pro forma exercise that given their cozy relationship with the New York Fed, would go nowhere. They didn’t just stonewall, they told egregious lies. That sort of cover-up usually winds up being worse than the crime, but not if you are in a privileged class like Goldman. When Segarra (and initially, the other members of her team) kept pressing Goldman for answers and making clear that what they were getting was problematic, Goldman then started giving credulity-straining responses.
As the exam moved forward, Segarra came under pressure from the Goldman relationship manager, Michael Silva, who was also senior to her at the bank (this is how you can tell the new regulatory push is all optics: the examiners are subordinate to the established “don’t ruffle the banks” incumbents). Silva, who had been chief of staff to Geithner before becoming “relationship manager” to Goldman, appears, unlike Segarra, not to have had real world financial services experience (he looks to have joined the New York Fed as a law clerk in 1992 and stayed with the bank).
Segarra was fired abruptly after refusing to change her recommendations and destroy supporting documents, which was in violation of regulatory policy (bank examiners are not “fire at will” employees; they need to be put on notice and given the opportunity to correct deficiencies in their performance before they can be dismissed).
I’ve read other wrongful termination suits and Segarra’s looks very strong. It’s going to be awfully hard for the New York Fed to talk its way out of this one."
This will be an interesting case to follow, many people have already written about the close ties between Goldman Sachs and several government agencies, like the (New York) Fed.
The full complaint by Segarra can be found here.
In my previous posting about Goldman Sachs I asked the question why anybody would want to deal with Goldman Sachs, given its questionable ethics. Yves Smith gives an answer to that question:
"Goldman was raked over the coals in the media in 2010, first when the SEC filed its suit in April on one of its Abacus CDOs, and later when Carl Levin turned the spotlight on other particularly noxious Goldman CDOs, such as Timberwolf and Hudson. Yet even though Goldman’s reputation suffered and its stock price took a hit, it did not suffer if any loss of customer business. A lot of that is ego: most clients think they are smart enough to protect themselves from the likes of Goldman. Others say that even with its double-dealing, it still offers services other don’t. For example, if you are a hedgie and for some reason really want to do a trade in August in the late afternoon on a Friday, you’ll have trouble scaring up anyone you’d trust to take your order at most shops. By contrast, Goldman makes sure to have all the desks covered."
One organisation that does work with Goldman Sachs, as described here: "Goldman Said to Earn $500 Million Arranging Malaysia Bond". Did 1MDB think they are smart enough, or was it because Goldman Sachs offered services that others didn't? There has not been much transparency regarding 1MDB, I hope that one day all the facts become public and we all know the answer to the above question.
In "What happened inside Goldman Sachs", author Steven Mandis writes how the culture of Goldman Sachs completely changed after it went for IPO, from client focused to shareholder (read: profit) focused. The book review by The Wall Street Journal can be found here.
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