Are Big Banks’ Dark Pools Behind the Run-Up in Bank Stock Prices?

The biggest banks on Wall Street, both foreign and domestic, have been repeatedly charged with rigging and colluding in markets from New York to London to Japan. Thus, it is natural to ask, have the big banks formed a cartel to rig the prices of their own stocks?
This time last year, Wall Street banks were in a slow, endless bleed. The Federal Reserve had raised interest rates for the first time since the 2008 financial crisis on December 16, 2015 with strong hints that more rate hikes would be coming in 2016. Bank stocks never do well in a rising interest rate environment because their dividend yield has to compete with rising yields on bonds. Money gravitates out of dividend paying stocks into bonds and/or into hard assets like real estate based on the view that it will appreciate from inflationary forces. This is classic market thinking 101.
Bizarrely, to explain the current run up in bank stock prices, market pundits are shoving their way onto business news shows to explain to the gullible public that bank stocks like rising interest rates because the banks will be able to charge more on loans. That rationale pales in comparison to the negative impact of outflows from stocks into bonds (if and when interest rates actually do materially rise) and the negative impact of banks taking higher reserves for loan losses because their already shaky loan clients can’t pay loans on time because of rising rates. That is also classic market thinking 101.
Big bank stocks also like calm and certainty – as does the stock market in general. At the risk of understatement, since Donald Trump took the Oath of Office on January 20, those qualities don’t readily come to mind in describing the state of the union.
Prior to the cravenly corrupt market rigging that led to the epic financial crash in 2008 (we’re talking about the rating agencies being paid by Wall Street to deliver triple-A ratings to junk mortgage securitizations and banks knowingly issuing mortgage pools in which they had inside knowledge that they would fail) the previous episode of that level of corruption occurred in the late 1920s and also led to an epic financial crash in 1929. The U. S. only avoided a Great Depression following 2008 because the Federal Reserve, on its own, secretly funneled $16 trillion in almost zero interest rate loans to Wall Street banks and their foreign cousins. (Because the Fed did this without the knowledge of Congress or the public, this was effectively another form of market rigging. Had the rest of us known this was happening, we also could have made easy bets on the direction of the stock market.)

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

SoftBank Vision Fund Reaches $100BN As Apple, Oracle and Qualcomm Make Investments

Back in October, Masayoshi Son, Chairman & CEO of SoftBank Group Corp., announced the creation of the SoftBank Vision Fund, a UK-based technology fund, with a $45 billion capital commitment form the Public Investment Fund of the Kingdom of Saudi Arabia. The initial press release for the Vision Fund announced the company expected to invest at least $25 billion over the next 5 years and said that overall funding could reach $100 billion.
Since Donald Trump won the US presidential election in November, Mr. Son has been actively courting the president-elect, by vowing to invest as much as $50bn in American start-ups…something the pair happily announced in the lobby of Trump tower back in December.
Masa (SoftBank) of Japan has agreed to invest $50 billion in the U. S. toward businesses and 50,000 new jobs….
— Donald J. Trump (@realDonaldTrump) December 6, 2016

This post was published at Zero Hedge on Jan 5, 2017.

Doug Casey: Why the Euro Is a Doomed Currency

For a long time, I’ve advocated that the world’s governments should default on their debt. I recognize that this is an outrageous-sounding proposal.
However, the debts accumulated by the governments of the U.S., Japan, Europe and dozens of other countries constitute a gigantic mortgage on the next two or three generations, as yet unborn. Savings are proof that a person, or a country, has been living below their means. Debt, on the other hand, is evidence that the world has been living above its means. And the amount of government debt and liabilities in the world is in the hundreds of trillions and growing rapidly, even with essentially zero percent interest rates. This brings up several questions: Will future generations be able to repay it? Will they be willing to? And, if so, should they? My answers are: No, no and no.
The ‘should they’ is one moral question that should be confronted. But I’ll go further. There’s another reason government debt should be defaulted on: to punish the people stupid enough, or unethical enough, to lend governments the money they’ve used to do all the destructive things they do.
I know it’s most unlikely you’ve ever previously heard this view. And I recognize there would be many unpleasant domino-like effects on today’s over-leveraged and unstable financial system. It’s just that, when a structure is about to collapse, it’s better to have a controlled demolition, rather than waiting for it to collapse unpredictably. That said, governments will perversely keep propping up the house of cards, and building it higher, pushing the nasty consequences further into the future, with compound interest.
With that in mind, a few words on the euro, the E.U. and the European Central Bank are in order.

This post was published at International Man

Mind The Dangers Lurking In China’s Red-Hot Property Markets – – Lessons From Japan’s Crash

China is turning Japanese.
That’s the increasingly held view of observers comparing China’s frenzied real-estate market with the epic bust that more than two decades ago hobbled one of its biggest economic rivals.
While the two scenarios aren’t a carbon copy, similarities between China’s record credit boom in recent years and Japan’s bubble era have been made at various times by a number of economists and investors. Now, those voices are being heard more often – even within China. Huang Yiping, a Peking University professor who advises China’s central bank, warned Saturday about leverage that continues to climb, saying that the top risk is more and more investment generates less growth. ‘That’s exactly the story that unfolded in Japan.’
The worry is that China repeats Japan’s mistake of not reining in excess credit and shutting down insolvent borrowers quickly enough, exacting longer-term damage to growth in the world’s No. 2 economy. With potential expansion rates coming down across developed nations, the global pain would be magnified.
‘What really troubles me is that this extended real-estate bull market has gone hand-in-hand with an extended period of rapid credit growth, debt accumulation, and some questionable practices on the part of both lenders and borrowers,’ said Russell Jones, who had a front-row seat working as an analyst in 1990s Japan during that country’s demise.

This post was published at David Stockmans Contra Corner on September 29, 2016.

Goldman Sachs Said to Plan 25% Cut to Asia Investment Bank Jobs

Goldman Sachs Group Inc. plans to cut about a quarter of its investment-banking jobs in Asia, excluding Japan, because of a slump in deal-making in the region, according to a person with knowledge of the matter.
The New York-based bank plans to make the cutback of about 75 jobs in the region later this year, the person said, asking not to be identified because the matter is confidential. The job reduction comes as the bank faces its worst Asia ranking in equity issuance since 2008, according to data compiled by Bloomberg data. A Goldman Sachs spokesman said he was unable to comment.
Asia ex-Japan equity offerings have declined 29 percent this year, and Goldman’s ranking plummeted to 11th from second in 2015, its worst showing in about eight years, the data show. The company also has come under scrutiny by authorities for its role in underwriting $6 billion of bond sales for 1MDB, the Malaysian government fund at the center of several international investigations into suspected corruption and money laundering.
Chinese securities firms are mounting a challenge to western banks like Goldman Sachs and Morgan Stanley in Asia, with mainland companies occupying seven of the top 10 positions in advising on Hong Kong initial public offerings this year, data compiled by Bloomberg show. Postal Savings Bank of China Co. raised $7.4 billion in a Hong Kong initial public offering this week, the world’s biggest first-time share sale this year.

This post was published at bloomberg

Monetary Insanity: When It Doesn’t Work – – Just Promise To Keep Doing It Until It Does

On July 14, 2006, the Bank of Japan raised its benchmark overnight rate off zero for the first time since introducing the world to ZIRP in 1999. In doing so, the BoJ noted that the Japanese economy in its view continued to ‘expand moderately’ and that risks inside the economy were ‘balanced.’ The central bank also sought to reassure, further commenting that despite one 25 bps rate hike ‘an accommodative monetary environment ensuing from very low interest rates will probably be maintained for some time.’
These words, all of them, should sound frighteningly familiar, as they are being redeployed in nearly exactly the same phrasing by the Federal Reserve. Whether or not the FOMC votes for a second rate hike today still remains to be seen, as before that ‘news’ there is first the BoJ once more admitting that its prior efforts didn’t actually work. For the record, Japanese officials actually carried out two hikes, a second coming in February 2007 just in time for the open minded to finally see what really had been going on in the global economy.
In other words, the Japanese policymakers made the same mistakes as are being made today. They assumed absence of further contraction was the same as recovery. In the singularly binary model of orthodox economics, if an economy isn’t in recession it must be growing; so if the economy isn’t in further recession and the economy is barely growing or even stagnating then it is assumed that growth is just being delayed. By the middle of 2006, the Bank of Japan believed there were enough signs the economic postponement had ended.

This post was published at David Stockmans Contra Corner on September 21, 2016.

Abenomics Crushes It – – Japanese Exports, That Is!

Japan’s poor exports performance continued in August, with shipments falling for an 11th straight month as a strong yen and tepid global economy undercut demand.
Key Points
Exports dropped 9.6 percent in August from a year earlier, the Ministry of Finance said on Wednesday. The median estimate of economists surveyed by Bloomberg pointed to a 4.7 percent decline. Imports fell 17.3 percent, resulting in a trade deficit of 18.7 billion yen ($184 million). Big Picture
The trade data came just hours before the results of a highly anticipated Bank of Japan policy meeting.

This post was published at David Stockmans Contra Corner on September 21, 2016.

Will the Bank of Japan cause a Global Bond Tantrum?

As investors anxiously await the key monetary policy decisions from the Federal Reserve and the Bank of Japan next week, there have been signs that the powerful rally in bond markets, unleashed last year by the threat of global deflation, may be starting to reverse. There has been talk of a major bond tantrum, similar to the one that followed Ben Bernanke’s tapering of bond purchases in 2013.
This time, however, the Fed seems unlikely to be at the centre of the tantrum. Even if the FOMC surprises the market by raising US interest rates by 25 basis points next week, this will probably be tempered by another reduction in its expected path for rates in the medium term.
Instead, the Bank of Japan has become the centre of global market attention. The results of its comprehensive review of monetary policy, to be announced next week, are shrouded in uncertainty. So far this year, both the content and the communication of the monetary announcements by BoJ governor Haruhiko Kuroda have been less than impressive, and the market’s response has been repeatedly in the opposite direction to that intended by the central bank.
As a result, the inflation credibility of the BoJ has sunk to a new low, and the policy board badly needs to restore confidence in the 2 per cent inflation target. But the board is reported to be split, and the direction of policy is unclear. With the JGB market now having a major impact on yields in the US, that could be the recipe for an accident in the global bond market.

This post was published at David Stockmans Contra Corner By Gavyn Davies, Financial Times ‘ September 19, 2016.

How Donald Trump Could Wipe $420 Billion Off China’s Exports

Victory for Donald Trump in the U. S. presidential election could be a game changer for China’s economy.
The candidate’s promise to slap punitive tariffs on Chinese imports would be highly contractionary, deflationary and wipe hundreds of billions off the value of the world’s second-biggest economy, according to new research by Kevin Lai, the Hong Kong-based chief economist for Asia (excluding Japan) at Daiwa Capital Markets.
Lai estimates that Trump’s suggestion for a 45 percent tariff on Chinese goods to narrow the trade deficit with America would spark an 87 percent decline in China’s exports to the U. S. – a decline of $420 billion. That would, over time and factoring in multiplier effects, mean a 4.82 percent blow to China’s gross domestic product, or about a half trillion dollars’ worth. It doesn’t even take into account an estimated $426 billion in foreign direct investment repatriation if companies started to withdraw.
‘A loss of GDP or a slowdown in GDP growth of this scale would be staggering,’ Lai wrote in a note entitled ‘What would a Trump presidency mean for China.’ ‘Eventually, Trump and his administration may actually compromise with a watered-down version of tariffs.’

This post was published at David Stockmans Contra Corner By Enda Curran from Benchmark, Bloomberg Business ‘ September 14, 2016.

Japanese Government Bonds Having Worst Quarter In Two Decades

Japanese government bonds hit a six-month low today, and the 10-year came within a whisker of breaking into that long forgotten realm of positive yields.
It’s been a ferocious sell-off- the worst in two decades to be precise.
Since the 10-year JGB yield hit a record low -0.291 per cent at the end of July, yields have rocketed amid widespread headscratching over what the future holds for Japanese monetary policy, writes Joel Lewin.
In July, the Bank of Japan underwhelmed markets with a stimulus boost that fell short of expectations, while the government unveiled a 4.6tn ($45bn) fiscal stimulus package, sparking concerns the BoJ has run out of ammunition and adding fuel to the sell-off.

This post was published at David Stockmans Contra Corner on September 14, 2016.

Here Comes Operation Reverse Twist – – -BOJ Style

Japan’s subzero-rates policy has had a ‘powerful impact,’ as Bank of Japan Gov. Haruhiko Kuroda recently said, in pushing down interest rates. But judging by the collateral damage – record low profits at Japanese banks, which are charged with transmitting the BOJ’s easy-money policy to stimulate the economy – it has likely gone a touch too far.
Signs have emerged that the central bank intends to steepen its yield curve – that is, push long-term rates up and suppress short-term rates. It has shifted around its bond purchases, buying more short-term Japanese government bonds and on the whole buying fewer bonds. Long-term rates rose are up almost half a percentage point since July. Yet even after the recent steepening, the difference between two-year bonds and 10-year bonds is half what it was before negative rates came into effect.
To alleviate further pain, the BOJ at its policy meeting Sept. 21 could nudge the yield curve steeper by committing to lowering the short-term rates that banks typically borrow at, while letting long-term rates that they lend at float higher.

This post was published at David Stockmans Contra Corner on September 14, 2016.

BOJ Bond Buying And Japan’s ‘Crooked’ Yield Curve

In Japan, the yield hunters have become the hunted.
Investors who refused to swallow negative yields to hold Japan’s shorter-dated bonds are suffering, as an index of sovereign debt maturing in 20 years or more has lost 9 percent this quarter. The yield on 2036 bonds climbed to the highest since March 16 as BOJ Governor Haruhiko Kuroda noted last week that low long-term yields hurt returns on pension and insurance investments, even as he signaled there would be no reduction in easing with a policy review due Sept. 21. A 20-year debt sale Tuesday drew the lowest demand in six months.
‘JGBs are responding unreservedly to the BOJ’s message that it’s not desirable for superlong yields to be too low,’ said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co. ‘The problem is we don’t know what the BOJ’s desired level is, and that’s created an atmosphere of paranoia in the market.’
The intensity of Japan’s bond selloff has sparked concern the market will become the epicenter for a global rout, just as it led a record rally in the first half of 2016. Federal Reserve officials are cautioning against waiting too long to tighten policy, while the European Central Bank is playing down the prospect of further stimulus. DoubleLine Capital Chief Investment Officer Jeffrey Gundlach is among those recommending investors prepare for bonds to fall.

This post was published at David Stockmans Contra Corner By Kevin Buckland and Shigeki Nozawa, Bloomberg Business ‘ September 13, 2016.

Bill Gross says negative interest rates are nothing but liabilities

Call bond-market veteran Bill Gross a ‘broken watch.’ He doesn’t care.
His gripe about negative interest rates and a flood of debt, which he considers a risk, not a fix, for a global economy that’s still limping out of the financial crisis, is challenged daily by resilient demand for the bonds he’s bearish on. But even if being ‘right’ eventually is a hard sell right now, he’s not backing down, Gross said in his latest monthly commentary.
‘The problem with Cassandras, such as Gross and Jim Grant and Stanley Druckenmiller, among a host of others, is that we/they can be compared to a broken watch that is right twice a day but wrong for the other 1,438 minutes,’ Gross wrote. ‘But believe me: This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies.’
Germany, Switzerland, France, Spain and Japan are among countries that have negative yields on government-issued debt. Their hope is that cheap, even free, borrowing raises inflation and revives asset prices that can filter through economies; they argue extreme policies have been needed. Gross and others have argued that rates, including those at the Federal Reserve, at near zero or below won’t create sustainable economic growth and actually undermine capitalism.

This post was published at David Stockmans Contra Corner By RACHEL KONING BEALS, Marketwatch ‘ September 1, 2016.

RIP: Oil ‘Supply Glut’

The most remarkable aspect of the WTI crude oil futures curve this month has been its amazing ability to maintain its shape no matter which direction or by how much. Previously, as ‘dollar’ pressures either built or ebbed, the futures curve would either steepen at the front (liquidation pressure) or flatten toward more normal backwardation (easing of the ‘dollar’ difficulties). That was the case since June 8 when the WTI curve was at its flattest in well over a year; but as funding pressures built primarily, I believe, via Japan (increasingly negative and record negative cross currency basis swaps) the curve morphed from nearly flat to once more highly angular contango in the tell-tale sign of the ‘dollar.’
In short, the Japanese end of the Asian ‘dollar’ had become distressingly disruptive through June and July, but much less so once BoJ singled out the ‘dollar’ in its actual policy changes. Thus, from around June 8 until about August 2, the Japanese-connected ‘dollar’ pressure was increasingly acute and globally disruptive (stock markets obviously notwithstanding because of their own liquidity supply and buying interests, largely myths about what central banks can’t do). Since August 2, much less so; leaving oil once again as a function of ‘dollars’ this time in relatively better shape. [emphasis in original]

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ September 1, 2016.

The Mother Of Peak Debt – – Japan’s Total Debt-to-GDP Ratio Stands At 600%

There’s ‘very little’ that Japan can do about its mounting debt pile, which presents a potential risk to growth, according to Pacific Investment Management Co.’s Jamil Baz.
With a government debt load that’s 2 1/2 times the size of annual gross domestic product and a total national borrowing burden that’s six times as large, ‘Japan is suffering from the excesses of the past’ and the country ‘is in a bind right now,” the fund manager’s head of client analytics said in an interview in Sydney last week.
Japan’s economy is still struggling to gain traction even after policy makers hit it with repeated doses of budgetary stimulus and unprecedented monetary easing to drag the country out of its deflationary funk. The Bank of Japan’s adoption of negative interest rates has pushed down debt financing costs for now, but repeated delays to a planned sales tax increase, a new 28 trillion yen ($272 billion) fiscal boost from Prime Minister Shinzo Abe and the pressures of an aging population mean the borrowing pile is likely to keep on growing.

This post was published at David Stockmans Contra Corner By Narayanan Somasundaram and Benjamin Purvis via Bloomberg Business ‘ August 31, 2016.

The Reckoning – – The Central Bankers Really Don’t Know What They Are Doing

As I have written many, many times, the ‘unexpected’ events of January and February were a dramatic wake-up call for central banks. Last August’s global liquidation they could at least try to ignore because it could possibly fit within the paradigm of ‘transitory’, a one-off aberration that was some mysterious Chinese viral contagion and thus of not any great, lingering importance. The recurrence in the first part of 2016, though, destroyed those assertions and a lot of people noticed; and you can bet the Fed noticed that a lot of people noticed.
What is happening this year is astounding. After saying year after year after year that the recovery is coming, and even doing so to the point of condescension, the admissions of wrongfulness are starting to roll in, if only softly at first. How ludicrous does ‘transitory’ look now? Though that word remains attached to official policy statements, official policymakers themselves have begun to act otherwise.
There was the brief flirtation with NIRP even in the United States, though fortunately disabused by clear Japanese example of the utter harm such monetary ‘stimulus’ actually offers. Of late, economists are railing about raising the inflation target, but they have yet to offer an explanation as to why that might be needed (even before they try to argue why it might work in a way the current one doesn’t). To get to the future of new policy regimes that are hopefully (to them) more successful, central bankers have to deal with the past of policies that so clearly weren’t.
Even Jon Hilsenrath of the Wall Street Journal has been captured by the mood, certainly affected by the discussions to be taking place among central bankers gathered at Jackson Hole. The Kansas City Fed symposium might be better titled this year as ‘How do we get ourselves out of this mess we created?’

This post was published at David Stockmans Contra Corner on August 25, 2016.

Clues to the Origins And Stubbornness of the ‘Rising Dollar’

On March 9, 2016, front month trading for Japanese government bond (JGB) futures was halted at 12:32 pm Tokyo time. Selling had become intense, tripping the Osaka Exchange’s dynamic circuit breaker. The total length of the halt was just 30 seconds, but fingers were already being pointed in the direction of the BoJ.
More than four months later, on July 28, trading was halted in all products for JGB’s for an estimated 20 minutes starting 9:51 am Tokyo time. While the exchange provided very little information, they eventually blamed a delay in system processing. Whether or not that was the proximate cause doesn’t really matter, as the context for the trading darkness was just hours ahead of BoJ’s latest monetary policy decision.
A few days after that, on August 2, JGB 10s experienced their worst single day selloff in 13 years. That ended a 3-day selling binge that cut 2.47 points off the price of the 10-year benchmark, the largest three-day losing streak since May 2013 shortly after QQE had begun.
You might get the sense from these events that trading liquidity in JGB’s, cash or futures, isn’t exactly the most robust these days. Violent swings in bond markets are never a good thing in either direction (just ask the US Treasury). It’s not just government bonds, however, that have obtained a direct and palpable disdain from institutions that used to be a major part of the financial plumbing in Japan.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ August 23, 2016.

Monetary policy has Nationalized the Japan Stock Market

Even a resurgent yen hasn’t dampened Japan’s stock rally over the past couple months, but that’s not necessarily because investors like the market.
The Nikkei 225 index has surged around 10 percent since late June, even as the yen has climbed against the dollar, with the pair testing levels under 100. Normally this would be bad news for stocks as a stronger yen is a negative for exporters as it reduces their overseas profits when converted to local currency. So what explains the buoyant stock market?
Analysts attributed the gains to the Bank of Japan (BOJ), not fundamentals.
In a report titled, ‘BOJ nationalizing the stock market,’ Nicholas Smith, an analyst at CLSA, said that the central bank’s exchange-traded fund (ETF) buying program was distorting the market.
At its late July meeting, the BOJ said it would increase its ETF purchases so that their amount outstanding will rise at an annual pace of 6 trillion yen ($56.7 billion), from 3.3 trillion yen previously.
Those purchases were particularly distorting to the market because they focused largely on funds tracking the Nikkei 225 index, Smith said in a note dated Sunday, estimating that more than half of the BOJ’s ETF buying was likely in Nikkei-tied funds.

This post was published at David Stockmans Contra Corner By Leslie Shaffer, CNBC ‘ August 23, 2016.

Bubbles In Bond Land – – A Central Bank Made Mania, Part 1

….. Sometimes an apt juxtaposition is worth a thousand words, and here’s one that surely fits the bill.
Last year Japan lost another 272,000 of its population as it marched resolutely toward its destiny as the world’s first bankrupt old age colony. At the same time, the return on Japan’s 40-year bond during the first six months of 2016 has been an astonishing 48%.
That’s right!
We aren’t talking Tesla, the biotech index or Facebook. To the contrary, like the rest of the Japanese yield curve, this bond has no yield and no prospect of repayment.
But that doesn’t matter because it’s not really a sovereign bond anymore. These Japanese government’s bonds (JGBs) have actually morphed into risk free gambling chips.
Front-running speculators are scooping up whatever odds and sots of JGB’s that remain on the market and are selling them to the Bank of Japan (BOJ) at higher and higher and higher prices.

This post was published at David Stockmans Contra Corner on August 22, 2016.

Why A Weak US Consumer Makes A Grim Outlook for the Economy, Stocks

For some time, Stephanie Pomboy, an economist and the founder of MacroMavens, has pushed a provocative theory that a crisis-chastened U. S. consumer would retard global growth. That is why a U. S. recovery has taken so long to take off, and why Japan and Europe look set to embark on more rounds of quantitative easing.
An avid reader of Shakespeare, Pomboy appreciates the comic and tragic dimensions of the markets – the giddy optimism for the second half of the year, and the potentially disastrous consequences of excessively low rates. As stocks teetered at new highs, we phoned Pomboy in Vail, Colo., where she lives when not in Manhattan, to hear her latest views. They aren’t rosy: Investors and policy makers are deluding themselves that we will soon return to a pre-financial crisis framework. Things have changed, she says, which means expectations for economic growth in the second half are far too optimistic. And today’s low rates could cause another financial crisis, bankrupting pension plans, putting retirees at risk, and hurting stocks.
Barron’s: You like to focus on the consumer – and plot U. S. consumer spending as a percentage of GDP versus world trade. Why?
Pomboy: What ignited and supported the entire era of globalization was the spendthrift U. S. consumer; economies have been totally reliant on trade to U. S. consumers. This once-in-a-generation asset deflation will fundamentally change behavior, just as the Depression changed an entire generation’s attitude about spending and saving.

This post was published at David Stockmans Contra Corner on August 22, 2016.