The Fed has raised rates, officially making real what was mere signaling of the end of its expansionary era... Or is it? You see, from a practical perspective, QE is still in full effect. The US housing market, particularly in large coastal cities is on fire. Commercial and residential rents are rising considerably faster than earnings and incomes. Why is that? Wel...

fredgraph 3 

Published in BoomBustBlog

Bloomberg reports: Bernanke Seeks to Divorce QE Tapering From Interest Rates

Federal Reserve Chairman Ben S. Bernanke will have a chance to use testimony to Congress today to drive home his message that winding down asset purchases won’t presage an increase in the Fed’s benchmark interest rate.

Bernanke has said the Fed may start reducing $85 billion in monthly bond purchases later this year, assuming economic growth meets the Fed’s predictions. At the same time, policy makers’ forecasts have indicated the federal funds rate won’t rise until 2015, long after Bernanke’s second term ends Jan. 31.

... Treasury 10-year note yields were little changed at 2.53 percent as of 8:38 a.m. London time. They touched 2.51 percent yesterday, the lowest since July 5, in anticipation of Bernanke’s testimony, even as economic reports showed that U.S. industrial production rose by the most in four months in June and inflation picked up toward the Fed’s goal, supporting the case for a reduction in quantitative easing.

“He’ll say a slowing in the pace of asset purchases isn’t a tightening of policy, and it’s actually still an easing of policy just at a slower pace,” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion, and a former Fed senior economist. “It doesn’t imply that they’re going to be tightening policy any time soon. They’re not.”

Global stocks and bonds retreated after Bernanke on June 19 outlined the conditions that would prompt the Federal Open Market Committee to reduce and eventually end asset purchases. His remarks pushed the yield on the benchmark 10-year Treasury to a 22-month high and erased $3 trillion in value from global equity market value over five days.

Technically, Bernanke can say that he can taper bond purchases without raising the Fed Benchmark interest rate, for he can. He is in complete control of said rate. Reality dictates something a little different though. The Fed benchmark interest rate doesn't equal market rates. Ask Dr. Greenspan how difficult it is to get mother market rate to bend to your will by simply manipulating the Fed benchmark rate. He lost control (as if he ever had it) of market rates during his term as he tried to play economic god. Expect the same efforts and the same results from Bernanke.

I urge readers to keep in mind what I expoused in Apple Bonds Proven To Have A Nasty Taste wherein Apple bonds lose 9% in six weeks:

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from theMarket Realist site:

 

Published in BoomBustBlog

Now that the Fed has sent a clear signal that they are withdrawing some of the hyper-stimulus measures, combined with the fact that the monopolistic trading profits of the big banks are returning to mean, the trash on bank balance sheets should start coming to fore. Higher rates will compress net interest margins, and if you have been following my research the NIM of many banks were actually rather anemic despite zero interest rate policy. Now that banks are going to have to actually earn money by lending in lieu of a free lunch from the government, you should start seeing some very big hits to earnings - accounting and otherwise.

Now that the Fed has sent a clear signal that they are withdrawing some of the hyper-stimulus measures, combined with the fact that the monopolistic trading profits of the big banks are returning to mean, the trash on bank balance sheets should start coming to fore. Higher rates will compress net interest margins, and if you have been following my research the NIM of many banks were actually rather anemic despite zero interest rate policy. Now that banks are going to have to actually earn money by lending in lieu of a free lunch from the government, you should start seeing some very big hits to earnings - accounting and otherwise.

I was not going to bother to comment further, but after hearing pundit after pundit attack Obama for the bank levy and Glass Steagal 'lite', after banks allegedly paid their dues... I just couldn't take it anymore.

 

Yes! Obama has made a lot of policy errors in dealing with the banks. Yes! I believe he has not solved the problems, but has chased the symptoms. The separation of prop trading from deposit banking IS the RIGHT thing to do. In addition, the banks have not come anywhere NEAR repaying their debt to the government. Not even close.

Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn't fail, at least in part.

So, running down the list, the banks paid back TARP. That's a +, but....

I was not going to bother to comment further, but after hearing pundit after pundit attack Obama for the bank levy and Glass Steagal 'lite', after banks allegedly paid their dues... I just couldn't take it anymore.

 

Yes! Obama has made a lot of policy errors in dealing with the banks. Yes! I believe he has not solved the problems, but has chased the symptoms. The separation of prop trading from deposit banking IS the RIGHT thing to do. In addition, the banks have not come anywhere NEAR repaying their debt to the government. Not even close.

Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn't fail, at least in part.

So, running down the list, the banks paid back TARP. That's a +, but....

The following is the joke that is not funny, currently playing out in a country very near you. Please read "The Doo Doo 32, revisited" and "The FDIC as a catalyst, or the new Doo Doo 32!" to bring you up to speed on my opinion of the banks. "Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets" offers some empirical data to back up these articles, then move on the banking comedy currently
 There is significant risk in smaller, lesser known banks as well. We have screened almost 1,000 publicly traded banks to cull the weak ones into a new Doo Doo list. Trust me, there is more to choose from than one may think. In an attempt to recreate a new list of banks that are at extreme risk of failure, and have publicly traded shares available for shorting, we have screened nearly 1,000 publicly traded prospects for strength, asset quality and solvency. We then shortlisted 25 banks, and of the 25 banks shortlisted we further analyzed the banks in each bucket of risk used to create the list (loan performance and quality, securities inventory depreciation, income and operations). Of the 16 banks in the 1st category we had selected 8 banks with the largest negative cushion to loan losses and had compared them by culling out data from their latest FDIC call report and have performed a trend analysis (for the last four quarters). In aggregate we had short-listed 4 banks in the 1st category, just the first pass! We have dozens more banks to go (subscribers may download this shortlist here: spreadsheet  Doo Doo shortlist - August 27, 2009 2009-08-28 01:07:22 191.05 Kb ).
being played out in the courts. Let me warn you upfront, this post is packed with both poignant opinion (not eveybody is going to like it) and well researched, empirical fact about failed and failing banks.
Aug. 27 (Bloomberg ) -- The Federal Reserve argued yesterday that identifying the financial institutions thatbenefited from its emergency loans would harm the companies and render the central bank’s planned appeal of a court ruling moot. This is abject nonsense. What hurts banks is what ultimately hurts banking product consumers, and that is the secrecy, fraud, and mispresentation that has been the recent changes in accounting rules that allow banks to outright lie about the trouble their assets are in. What hurts the banks are the myriad secrets kept from the public, primarily the ones concerning the heatlh of the banks in the first place. I will start (by the end of this blog post) revealing those banks that are either about to be shut down by the FDIC or very well should be (thus I strongly suggest you read this lengthy, yet informative missive). Why should the people have to rely on a blogger for the true state of their financial institutions and at the same time have to actually sue those who are supposed to be safeguarding us against financial failure. If the banks are insolvent, they should be wound down, not protected in a multi-trillion dollar shroud of secrecy and taxpayer monies. If they are solvent, then there is noting to hide. Bernanke et. al. and the other members of the Central Banking establishment are not the only ones in this country that can count! The bad part about it is, many of these banks who are swimming in trashy assets will probably end up failing anyway, despite the many hundreds of billions of dollars thrown at them and the illegal (as the judge below made clear) shrouds of secrecy surrounding their repetitive bailouts. Read this article and the rest of the doo doo series, I will start informing you of who is already insolvent, putting creditors at risk, and who probably received the Fed assistance. That is, until I am silenced by the government. To make matters worse, the share prices of these companies have skyrocketed, nearly all of them - despite the fact that their is little to negative equity in them.

 

The following is the joke that is not funny, currently playing out in a country very near you. Please read "The Doo Doo 32, revisited" and "The FDIC as a catalyst, or the new Doo Doo 32!" to bring you up to speed on my opinion of the banks. "Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets" offers some empirical data to back up these articles, then move on the banking comedy currently
 There is significant risk in smaller, lesser known banks as well. We have screened almost 1,000 publicly traded banks to cull the weak ones into a new Doo Doo list. Trust me, there is more to choose from than one may think. In an attempt to recreate a new list of banks that are at extreme risk of failure, and have publicly traded shares available for shorting, we have screened nearly 1,000 publicly traded prospects for strength, asset quality and solvency. We then shortlisted 25 banks, and of the 25 banks shortlisted we further analyzed the banks in each bucket of risk used to create the list (loan performance and quality, securities inventory depreciation, income and operations). Of the 16 banks in the 1st category we had selected 8 banks with the largest negative cushion to loan losses and had compared them by culling out data from their latest FDIC call report and have performed a trend analysis (for the last four quarters). In aggregate we had short-listed 4 banks in the 1st category, just the first pass! We have dozens more banks to go (subscribers may download this shortlist here: spreadsheet  Doo Doo shortlist - August 27, 2009 2009-08-28 01:07:22 191.05 Kb ).
being played out in the courts. Let me warn you upfront, this post is packed with both poignant opinion (not eveybody is going to like it) and well researched, empirical fact about failed and failing banks.
Aug. 27 (Bloomberg ) -- The Federal Reserve argued yesterday that identifying the financial institutions thatbenefited from its emergency loans would harm the companies and render the central bank’s planned appeal of a court ruling moot. This is abject nonsense. What hurts banks is what ultimately hurts banking product consumers, and that is the secrecy, fraud, and mispresentation that has been the recent changes in accounting rules that allow banks to outright lie about the trouble their assets are in. What hurts the banks are the myriad secrets kept from the public, primarily the ones concerning the heatlh of the banks in the first place. I will start (by the end of this blog post) revealing those banks that are either about to be shut down by the FDIC or very well should be (thus I strongly suggest you read this lengthy, yet informative missive). Why should the people have to rely on a blogger for the true state of their financial institutions and at the same time have to actually sue those who are supposed to be safeguarding us against financial failure. If the banks are insolvent, they should be wound down, not protected in a multi-trillion dollar shroud of secrecy and taxpayer monies. If they are solvent, then there is noting to hide. Bernanke et. al. and the other members of the Central Banking establishment are not the only ones in this country that can count! The bad part about it is, many of these banks who are swimming in trashy assets will probably end up failing anyway, despite the many hundreds of billions of dollars thrown at them and the illegal (as the judge below made clear) shrouds of secrecy surrounding their repetitive bailouts. Read this article and the rest of the doo doo series, I will start informing you of who is already insolvent, putting creditors at risk, and who probably received the Fed assistance. That is, until I am silenced by the government. To make matters worse, the share prices of these companies have skyrocketed, nearly all of them - despite the fact that their is little to negative equity in them.

 

The guys at Austrian Filter have simply put my thoughts in a timeline. I don't usually reproduce posts from other blogs, but this one is precious [annotation in red are my comments]: 
Zero Credibility from the Austrian Filter

Straight from the horses' mouths, a quick time line of Paulson's & Bernanke's economic assessments:

February 28, 2007 - Dow Jones @ 12,268

March 13th, 2007 - Henry Paulson: "the fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained." A total lack of understanding of what caused this problem. It was never subprime, it was a dearth of underwritng prudence, which means that the losses will appear everywhere a loan was underwritten (or not underwritten). That is any loan, anywhere. A lot of loans in a lot of places. I think we are figuring this out by now, but my blog readers knew this back in 2007, and profited from it. See the Asset Sercuritization Crisis links at the bottom of the post.

March 28th, 2007 - Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained," Same problem as above
 
March 30, 2007 - Dow Jones @ 12,354

April 20th, 2007 - Paulson: "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained." , "All the signs I look at" show "the housing market is at or near the bottom," Same problem as above

The guys at Austrian Filter have simply put my thoughts in a timeline. I don't usually reproduce posts from other blogs, but this one is precious [annotation in red are my comments]: 
Zero Credibility from the Austrian Filter

Straight from the horses' mouths, a quick time line of Paulson's & Bernanke's economic assessments:

February 28, 2007 - Dow Jones @ 12,268

March 13th, 2007 - Henry Paulson: "the fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained." A total lack of understanding of what caused this problem. It was never subprime, it was a dearth of underwritng prudence, which means that the losses will appear everywhere a loan was underwritten (or not underwritten). That is any loan, anywhere. A lot of loans in a lot of places. I think we are figuring this out by now, but my blog readers knew this back in 2007, and profited from it. See the Asset Sercuritization Crisis links at the bottom of the post.

March 28th, 2007 - Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained," Same problem as above
 
March 30, 2007 - Dow Jones @ 12,354

April 20th, 2007 - Paulson: "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained." , "All the signs I look at" show "the housing market is at or near the bottom," Same problem as above

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