"Italian Government paper may as well be toilet paper" - unnamed source
Gotta love the entertainment being provided by our corrupt system right now. The big money manager - Blackrock (many of you probably have retirment funds being managed by Blackrock) - has been accumulating a giant position in Italian Government bonds. In response to questions about this, here was Blackrock's response: BLACKROCK'S ROVELLI: ITALY SPREADS DON'T REFLECT FUNDAMENTALS (source: zerohedge). That is hugely hilarious.
Here's the Golden Truth: that statement is correct - the spreads don't reflect fundamentals. The yield on the 10-yr Italian sovereign bond should be 14.5%, not 7.25%. What this means is that if the current market price of a generic 4% 10-yr Italian Govt bond is priced at 78, the fundamental price in my view should be 47. This means that for every $100 million in intermediate term bonds that Blackrock is happily loading up on, fundamentally those bonds are worth $47 millon less than they paid for them. If you have retirement funds being kept by your advisor or pension plan at Blackrock, you might want to think about liquidating your account and getting the money out before Blackrock turns into the next MF Global times 100. I'm not kidding about this.
Wednesday, November 9, 2011
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MF Global, Repo-to-Maturity and Large Bank OBS exposures
ReplyDeleteWhat the ISDA report suggests, oddly enough, is that the large banks which comprise the most important members of the derivatives markets and ISDA both have been under-reporting their losses to monoline insurers by more than 20x in their SEC filings. But the report also confirms in the last sentence the key factoid that should make the blood of Barack Obama, Jamie Dimon and FOMC members run cold, namely that the banks were hiding these losses on RMBS from investors and regulators in OBS vehicles. This is essentially systematic securities fraud, enabled and facilitated by the FASB and ISDA. By relying solely on GAAP accounting, the OCC, Fed and other regulators have left themselves completely in the dark regarding large bank OBS exposures.
In a “repo to maturity,” banks are permitted to match fund Treasury securities and then lend the securities out. The bonds are not shown on the books of the bank or dealer, because the servile functionaries at the FASB have blessed the repo as a risk-shifting transaction. In economic terms nothing could be further from the truth, but reality has never stopped the FASB from embracing acts of global idiocy like fair value accounting and OBS treatment for RMBS securitizations.
So when people ask me about the exposure of US banks to EU governments, the answer is that we do not know because of the FASB and the willingness of US bank regulators to look the other way by accepting GAAP disclosure as sufficient. When JPM, GS and MS tell us that their EU exposure is limited, what they are really saying is that their GAAP disclosed exposures are small. The real risk exposure is, in my view, far larger.
If we could see all of the OBS exposures of the top 10 US banks to EU government via deceptive if for now legal canards such as repo-to-maturity, my sense is that the difference between the reported risk of US banks on EU government debt and the actual risk exposures would be the same as the gap between the OCC’s view of bank risk on monoline insurers and the reality just confirmed by ISDA. Thanks guys.
And just to show we are paying attention, ISDA is wrong to criticize Gretchen Morgenson’s characterization of the MF Global collapse in last Sunday’s New York Times. Cash is cash, but repo-to-maturity is a derivative, just like any trade that involves an ISDA agreement.
So here is the question Morgenson should ask the top bank CEOs: How much exposure to EU government debt does you bank have OBS? I suspect that the reason for the great performance in financials today is that people in the markets have reached the same conclusion. So, to me, we should hit the bid for US large cap financials in the AM regardless of what is happening in the EU tomorrow – or not.
http://www.zerohedge.com/contributed/mf-global-repo-maturity-and-large-bank-obs-exposures?
Bank Quandary: Valuing the Assets
ReplyDeleteThe two firms are discussing whether to reduce their use of mark-to-market accounting, in which companies immediately take profits or losses as asset values fluctuate, according to people familiar with the situation. Such swings routinely affect the bottom line at Goldman and Morgan Stanley, including in the third quarter.
If executives go through with the change, the two companies would increase their use of so-called historical-cost accounting, where assets generally are held at their original value or purchase price, these people said.
Goldman Chairman and Chief Executive Lloyd C. Blankfein has been a staunch defender of mark-to-market accounting, contending that wider use of the method might have stemmed the worst of the crisis by forcing financial firms to reckon with declining values of mortgages, loans and other assets on their balance sheets.
"If more institutions had been required to recognize their exposures promptly and value them appropriately, they would have been likely to curtail the worst risks," Mr. Blankfein told the Financial Crisis Inquiry Commission in testimony last year. Mark-to-market accounting is better for investors, he said, because they are "better served with information that more closely reflects the judgment of the market."
During the financial crisis, many banks avoided taking losses on loans and other assets until they were forced to sell them. By then, though, some assets were nearly worthless.
http://online.wsj.com/article/SB10001424052970203537304577028422145660162.html
Why anyone (other than central banks thrashing to keep the system breathing) would buy sovereign debt is a mystery to me.
ReplyDeleteBe Honest CNBC-You Are Biased Against Ron Paul
ReplyDeleteThose of us who have supported Ron Paul since his presidential run in 2008 (and some who supported him long before that) have come to expect an astonishing array of mainstream media tricks, lies, and censorship when it comes to the “journalistic” examination of the good doctor. This doesn’t mean, however, that we have ever or will ever come to ACCEPT this consistent trend of deception and disinformation as a forgone conclusion of our political lives. We will never throw up our hands and walk away from the mess the MSM has deliberately created, because that is exactly what they would like us to do; give up, shut up, go home, vote for Romney (an establishment crony with the creepy grin of a pedophile), and watch him lose to Obama (yet another establishment crony) in 2012.
http://www.zerohedge.com/news/guest-post-be-honest-cnbc-you-are-biased-against-ron-paul?
Hi - always value your comments and input.
ReplyDeleteI would greatly appreciate your input in the following - even if you think it not true and we don't know the source!!!
Especially the comment on Gold and how it would effect physical?
http://forum.hegnar.no/thread.asp?id=2077380
Thank you
(DAve)
ReplyDeleteLooks to me like that link is comments based on rumors. I have not seen anything that indicates to me that China is overextended on gold futures. China has $3 trillion in foreign reserves, over half of which is US dollars. China could buy up most of the available gold in the world that might be for sale above ground and not even dent their dollar reserves.
It's Official: Wall Street Firms May Legally Steal From Their Customers
ReplyDelete...and they may not have to pay them back.
“This means they can take segregated funds and leverage them to kingdom come. It means nothing is safe.”
Andy Abraham
If you have a commodity account with Wall Street, they may gamble with your money, the rule on segregated accounts be damned. If they lose the money you might be reimbursed, or not. The losses may have to be 'socialized.'
In a way it is just making the general relationship between Wall Street and its customers official.
MF Global May Have Used Customer Funds In The Losing $6.3 Billion Trade Without Informing Clients
By Robert Lenzner
After an intense day of investigation, I have just discovered that a CFTC rule (1.29) allowed Jon Corzine’s MF Global to use the margin and cash in customers heretofore segregated accounts to amass a risky $6.3 billion investment in European sovereign debt that backfired. Nor did Corzine have the obligation to inform any of these customers he was gambling with their money. Or that he was intending to keep all the profits for himself and his troubled firm. Nothing for the customers.
http://jessescrossroadscafe.blogspot.com/2011/11/its-official-wall-street.html
...how destructive
They punish the truth...they reward the lies...
ReplyDeleteEveillard - If Italy Sells its Gold Here is What Will Happen
“I don’t know when the end game will be, whether it’s in six, twelve, eighteen months, who knows? But the end game is extraordinarily positive for gold. I mean one has to keep in mind that at some point the authorities will try to punish the gold holders.
During the days of the Weimar Republic, in the early 20s in Germany, with hyperinflation, the government made sure the ownership of gold, not just the purchase of gold, but the holding of gold was illegal.
I’m not saying that the American government is going to confiscate the gold. Franklin Roosevelt did it, admittedly, but I think today it would be a lot more difficult to confiscate gold. But maybe taxes will be increased for owners of gold.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/11/10_Eveillard_-_If_Italy_Sells_its_Gold_Here_is_What_Will_Happen.html
The authorities will try to punish the investors in gold. But that will simply delay the ultimate peak in the bull market for gold and I think we are far away from that.”