Why Mega Banks Are The Modern Cocaine Cowboys

In today’s episode of blast from the past, Bloomberg’s Jonathan Weil takes us on a time journey, which presents the Too Big To Fail bank problem from a different perspective: that of the Cocaine Cowboy roaming the streets of Miami in the late 1970s and early 1980s. Just like today’s big banks they were untouchable; just like today’s banks they were collaborating and existing in perfect symbiosis with the Federal Reserve; just like today the Cocaine Cowboys existed in an untouchable vacuum courtesy of endless bribes to the local law enforcement and judicial officials, and just like today, the TBTF institution du jour isn’t “merely an economic problem. It is a great moral failing of our society that poisons our democracy.” Back then, Ronald Reagan stepped in just when Miami (whose real estate market had soared in 1979-1981 courtesy of rampant crime and money laundering: hint hint NAR anti money-laundering exemptions) was about to be overrun, forming a task force that in the nick of time restored law and order. Today we are not that lucky, as there is not a single politican willing to risk it all just to eradicate the modern version of a classic scourge: only this time they don’t hand out 8 balls; they give away 0% introductory APR cards and 3 Year NINJA Adjustable Rate Mortgages. Both however get you hooked for life: either on drugs or on debt. Will someone step up this time and form a task force to eliminate the second coming of the Cocaine Cowboy? Sadly, we don’t think so. At least not until the next great crash happens.

From Jonathan Weil of Bloomberg:

Cocaine Cowboys Know Best Places to Bank

To grow up in South Florida during the 1970s and 1980s, as I did, wasn’t your typical American childhood experience. Back then the area was known as the most dangerous place in the country.

Carnage from the drug wars filled the local news long before “Miami Vice” became a hit TV show. By elementary school, my friends and I knew some of the lingo. A Colombian necktie wasn’t a piece of clothing, but a gruesome execution method. When I was 7 years old my barber was murdered in his shop, apparently over a drug deal.

It had been a long time since I thought much about those days. By chance I recently came across a fabulous documentary, “Cocaine Cowboys,” by Miami filmmaker Billy Corben. Then last month a Senate panel held a hearing on the U.K. bank HSBC Holdings Plc (HSBA) and its ties to drug lords, money laundering, al- Qaeda and rogue nations such as Iran and North Korea.

Here’s a bank with $2.7 trillion of assets that flouted U.S. laws for a decade, according to the July 17 report by the Senate Permanent Subcommittee on Investigations. HSBC turned a blind eye to organized crime, Mexican drug cartels and overseas terrorism financiers, and gave them access to the U.S. banking system. HSBC’s main U.S. regulator, the Office of the Comptroller of the Currency, for years tolerated its violations of anti-money laundering laws.

For this, HSBC and the OCC apologized. Justice Department fines are likely. It’s an outrage HSBC hasn’t had its U.S. banking licenses revoked, assuming the Senate panel’s report is accurate — and there’s no reason to believe it isn’t.

Try This

Let’s try out a novel idea: Banks that help drug cartels launder money and give cover to those tied to terrorism should be put out of business. Is that really so hard for everyone to agree on? Free markets have worked in the U.S. because we have the rule of law. It’s why so many investors from other countries want to do business here. When contracts are breached, courts can be accessed to enforce them. When individuals or companies commit crimes, they’re supposed to be prosecuted and punished.

Except we have this mutant species of corporation called too-big-to-fail banks whose collapse might wreck the global economy. No financial institution in the U.S. can survive a felony indictment. So these companies have become un-indictable, creating a perverse nonchalance regarding financial crimes. In 2010, Wachovia paid $160 million to settle criminal allegations of laundering Mexican drug money. By then the bank had been bought by Wells Fargo & Co. (WFC), and the Justice Department let it off with a deferred-prosecution deal. Usually the most that happens to management is someone resigns, as HSBC’s head of compliance, David Bagley, said he would at last month’s Senate hearing.

What would it take for the government to really crack down on wrongdoing in the financial-services industry? What finally prompted the feds to do something about cocaine smuggling into South Florida long ago was the epidemic of violence it spawned.

A defining moment came in July 1979, when drug traffickers went on a shooting spree in broad daylight at the Dadeland Mall in Kendall, southwest of Miami. This was unprecedented. The gunmen arrived in a delivery van that had been converted into an armored personnel carrier. Two people were killed. Bystanders dove for cover. Cars in the parking lot were riddled with bullets from machine-gun fire.

Attacks like that became frequent over the next few years. In 1979 there were 349 murders in South Florida, according to the Justice Department, triple the number of two years earlier. By 1981 murders had climbed to 621. The local police were outgunned, outnumbered, easily corrupted and often stoned. Finally in 1982 President Ronald Reagan formed a task force and devoted hundreds of additional federal agents to South Florida to restore law and order.
Cash Surplus

Back then, too, the cartels’ enablers included dirty banks. As Corben’s film noted, in 1979 the Federal Reserve’s Miami branch reported a $5 billion cash surplus — more than the country’s other Federal Reserve banks combined. One crucial difference, compared with today, was the drug banks in those days were relatively small. When an outfit such as Sunshine State Bank got busted, it didn’t threaten the economy.

In terms of stray bullets, Miami is a much safer place today. But mainly what the U.S. did was drive the cartels, the turf battles and the killings into Mexico, where the violence is out of mind for most Americans even while much of that country has turned into a narco-state.

Maybe if the bankers were the ones spraying machine-gun fire in the streets, that might spur the U.S. government to take meaningful, punitive action. Short of that, you have to wonder if anything would. Too-big-to-fail isn’t merely an economic problem. It is a great moral failing of our society that poisons our democracy. Something has to give.

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Is The Inexplicable American Consumer Rebelling?

Wolf Richter   www.testosteronepit.com

The strongest and toughest creatures out there that no one has been able to subdue yet, the inexplicable American consumers, are digging in their heels though the entire power structure has been pushing them relentlessly to buy more and more with money they don’t have, and borrow against future income they might never make, just so that GDP can edge up for another desperate quarter.

But it’s been tough. Despite the Fed’s insistence that inflation is “contained,” or its periodic fear-mongering about deflation, consumers have been hit with rising costs. Tuition has been ballooning—up 21% in California in 2011 alone! Student loan balances exceed $1 trillion. Some parents who are still paying for their own student loans are now watching their kids piling them up too [read…. Next: Bankruptcy for a whole Generation]. Healthcare expenses have seen a meteoric rise. And so have many other items that cut deep into the average budget.

Inflation is a special tax. It’s not that horrid if it’s small, if higher yields compensate investors and savers for it, and if higher wages compensate workers for it. But that hasn’t been the case. The Fed’s Zero Interest Rate Policy has seen to it that entire classes of investors and savers get their clocks cleaned; and wages haven’t kept up with inflation since the wage peak of 2000—with the very logical but brutal goal of bringing wages in line with those in China.

But for a welcome change, disposable income adjusted for inflation, reported earlier this week, actually rose 0.3% in June from May. So spending should have gone up as well. It didn’t. The inexplicable American consumer spent less in June than in May. And April. The decline was focused on goods, the lowest since January.

And instead of buying goods with the additional money they’d earned, they saved! What temerity! It wasn’t a one-month fluke. The savings rate reached 4.4%, after a fairly consistent uptrend from the November low of 3.2%. An unusual and courageous act of rebellion in face of the punishment the Fed inflicts on savers.

There’s other evidence: while new car and truck sales weren’t great in July at a seasonally adjusted annual rate of 14.09 million units—down from June’s 14.38 million and February’s 14.50 million, the high of the year—they concealed ominous undercurrents. Honda’s sales jumped 45.3% and Toyota’s 26.1% over July 2011. After the March 11 earthquake last year, supply-chain problems created shortages, which the flood in Thailand made worse. Brand-loyal buyers who couldn’t find the right model, option package, or color, rather than switching to other makes, delayed their purchase—thus creating pent-up demand. Now, supply problems have been resolved, and buyers are swarming all over their favorite dealerships. This specialized pent-up demand obscured a huge problem: GM’s sales dropped 6.4% and Ford’s 3.8%. The two leaders taking a simultaneous turn south! This doesn’t bode well for total vehicle sales once Honda’s and Toyota’s pent-up demand has been satisfied. Another act of rebellion by the inexplicable American consumer.

But the Commerce Department, in its press release on income and spending, had a convenient answer: blame “the economic turmoil in Europe.” For everything. And then it added what was practically a campaign ad: “Therefore, it is critical that we continue to push for policies that will grow our economy and support our middle class, such as abolishing the Fed (sorry, my screw-up) the remaining proposals in President Obama’s American Jobs Act.” And it goes on to praise Obama’s tax proposal. Priceless! Expunging the last vestiges of objectivity from our government agencies, such as the Department of Commerce whose Bureau of Economic Analysis had collected the numbers.

The cellphone in your pocket is NASA-smart, write Alex Daley and Doug Hornig. Yet it costs just a couple hundred dollars. So why is it that these rising technical capabilities are leading to drastically falling prices in tech products, but not in your medical bill? The answer may surprise you. Read…. “Why Your Health Care Is so Darn Expensive.”

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Lacy Hunt On The Unintended Consequences Of Well-Intended Policies

Submitted by Lacy Hunt on behalf of Casey Research

Unintended Consequences of Well-Intended Policies

In the early 1960s, when JFK was in the White House and William McChesney Martin was Fed chairman, Keynesian economics was in full bloom. One of its major tenets is the Phillips Curve, which posits a stable inverse relationship between the rate of inflation and the unemployment rate. Yale professor James Tobin and others argued that the social outcome could be improved by a more activist monetary and fiscal policy. Specifically, they contended that the unemployment rate could be lowered while only resulting in slightly higher inflation.

The argument posited the notion that economic policymakers had sufficient knowledge to intervene or fine-tune the economy with tools like those of a surgeon. Presidents Johnson, Nixon, and Carter (two Democrats and one Republican) followed this policy. At one point, President Nixon made the famous statement that “We are all Keynesians now.” Moreover, as the White House led, the Fed chairmen of the era – Martin, Burns, and Miller – generally acquiesced.

To judge the effectiveness of this policy, an objective standard is needed. Arthur M. Okun, Yale colleague of Tobin, developed such a standard, which he called the Misery Index – the sum of the inflation and unemployment rates.

Under the activist, Phillips Curve-based policy, some reduction in unemployment was temporarily achieved. However, inflation accelerated much more than was anticipated, and the net result was higher unemployment and faster inflation, an outcome not at all contemplated by the Phillips Curve. The Misery Index surged from an average of 6.7% in the 1950s, to 7.3% in the 1960s, to 13.6% in the 1970s, with peak rates above 20% in the early 1980s.

Many US households suffered. Wages of lower-paying positions failed to keep up with inflation, and when higher unemployment resulted, many of those people lost their jobs. Those on the high end had far more resources that enabled them to protect their investments and earned income, so the income/wealth divide worsened. A half-century later, the United States has never regained the prosperity of the 1950s.

Working independently in the late 1960s, economists Milton Friedman and Edmund Phelps, who would both eventually be awarded the Nobel Prize in economics, had determined that while the Phillips Curve was observable over the short run, this was not the case over the long run. While the economics profession debated the Friedman/Phelps research, the US had to learn its findings the hard way.

Growing Evidence of the Long-term Depressants from Activist Policies

In addition to the compelling evidence that more active monetary and fiscal policy involvement did not produce beneficial results over the short run, three recent academic studies, though they differ in purpose and scope, all reach the conclusion that extremely high levels of governmental indebtedness diminish economic growth. In other words, deficit spending should not be called “stimulus” as is the overwhelming tendency by the media and many economic writers.

Whereas government spending may have been linked to the concept of economic stimulus in distant periods, these studies demonstrate that such an assertion is unwarranted, and blatantly wrong in present circumstances. While officials argue that governmental action is required for political reasons and public anxiety, governments would be better off to admit that traditional tools only serve to compound existing problems.

These three highly compelling studies are:

  • Debt Overhangs: Past and Present, by Carmen M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff, National Bureau of Economic Research, Working Paper 18015, April 2012;
  • Government Size and Growth: A Survey and Interpretation of the Evidence, by Andreas Bergh and Magnus Henrekson, IFN Working Paper No. 858, April 2011;
  • The Impact of High and Growing Government Debt on Economic Growth – An Empirical Investigation for the Euro Area, by Cristina Checherita and Philipp Rother, European Central Bank, Working Paper Series 1237, August 2010.

These papers reflect serious research by world-class economists from the US, Europe, and Sweden – and they all confirm the detrimental consequences of extreme governmental indebtedness.

Misery on the Rise Again

In the past year, Okun’s impartial arbiter averaged 10.5%, the highest on record for the third year of an officially recognized economic recovery and almost double the average of the 1950s. The latest readings have occurred despite US gross public debt in excess of 103% of GDP and with the Federal Reserve’s unprecedentedly large balance sheet that approaches nearly $3 trillion.

Other measures of well-being confirm the Misery Index. The Poverty Index in 2011 appears to have reached 15.7%, the highest reading in five decades. Not surprisingly, two unenviable records have been set: 46 million, or 14.6% of the population, are now in the food stamp program, up from 7.9% in 1970 and a record-high 41% pay zero national income tax.

In the eleven quarters of this expansion, the growth of real per-capita GDP was the lowest for all of the comparable post-WWII business cycle expansions. Real per-capita disposable personal income has risen by a scant 0.1% annual rate, remarkably weak when compared with the 2.9% post-war average. It is often said that economic conditions would have been much worse if the government had not run massive budget deficits and the Fed had not implemented extraordinary policies. This whole premise is wrong.

In all likelihood the governmental measures made conditions worse, and the poor results reflect the counterproductive nature of fiscal and monetary policies. None of these numerous actions produced anything more than transitory improvement in economic conditions, followed by a quick retreat to a faltering pattern while leaving the economy saddled with even greater indebtedness. The diminutive gain in this expansion is clearly consistent with the view that government actions have hurt, rather than helped, economic performance. Sadly, many of those whom the government programs were supposedly designed to help the most have suffered the worst.

The Way Out

The original theoretical argument in favor of deficit spending originated in J.M. Keynes’ The General Theory of Employment, Interest and Money. A search of Keynes’ work reveals no recognition of the “bang point,” or the condition where a government engages in deficit spending for such a prolonged period of time that a massive buildup of debt leads to denial of additional credit to the government because of fear that the existing debt will not be repaid. Nor did Keynes address the situation where a large number of countries are all simultaneously getting deeper and deeper in debt and there are gradations of debt among these countries – serious shortfalls in the basic Keynesian theory.

Keynes, as opposed to some of his interpreters and predecessors, may have implicitly recognized that a bang point could occur, because he did not recommend constant budget deficits. Instead, he advocated cyclical deficits, counterbalanced by cyclical budget surpluses. Under such a system, government debt in bad times would be retired in good times. However, Keynes’ original proposition was bastardized in support of perpetual deficits, something Keynes himself never advocated.

Milton Friedman, whom many consider to have been the polar opposite of Keynes, also never addressed the concept of a bang point, but he may also have understood implicitly that such a situation could occur. The reason is that Friedman advocated balanced budgets, which if followed or required constitutionally as Friedman argued, would prevent a buildup of debt. This view was largely rejected as being inhumane since in a recession, government policy would not be responsive to unemployment and other miseries of such a condition. What should have been discussed is whether some short-term misery is a better option than putting the entire country and economic system in jeopardy, as numerous examples in Europe currently illustrate.

The most sensible recognition of budget policy came not from Keynes nor Friedman, but from David Hume, one of the greatest minds of mankind, whom Adam Smith called the greatest intellect that he ever met. In his 1752 paper Of Public Finance, Hume advocated running budget surpluses in good times so that they could be used in time of war or other emergencies. Such a recommendation would, of course, prevent policies that would send countries barreling toward the bang point. Countries would have to live inside their means most of the time, but in emergency situations would have the resources to respond.

In the context of today’s world, this approach would be viewed as unacceptable because it would limit the ability of politicians to continue their excessive spending, thereby saddling future generations with obligations and promises that cannot be honored. But isn’t Hume’s recommendation exactly what we teach our children in preparing them to manage their own personal finances?

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Bank Of America Has Lost Money Trading On Only Three Days In 2012

From the just released Bank of America 10-Q: “During the three months ended June 30, 2012, positive trading-related revenue was recorded for 95 percent, or 60 of the 63 trading days of which 75 percent (47 days) were daily trading gains of over $25 million and the largest loss was $11 million. These results can be compared to the three months ended March 31, 2012, where positive trading-related revenue was recorded for 100 percent (62 days) of the trading days of which 95 percent (59 days) were daily trading gains of over $25 million. There were no daily trading losses recorded during the three months ended March 31, 2012.” This vaguely reminds us of the JPM’s trading performance. Just before they got busted for hiding a $350 billion hedge fund in the firm’s “risk hedging” aka CIO/Treasury division that is. Also, if anyone else has problems believing that BofA’s trading desk, with or without Merrill, both of which are better known as the C-grade (and that is being generous) of Wall Street traders, could generate profits on 122 of 125 trading days, please lift your hand.

Also, for those who are far more interested by the firm’s imminent plethora of putback settlements, in the aftermath of the July 17 Syncora agreement, among which with MBIA, here is what the Bank has to say about that:

Recent Syncora Settlement


On July 17, 2012, we, including certain of our affiliates, entered into an agreement with Syncora Guarantee Inc. and Syncora Holdings, Ltd. (Syncora) to resolve all of the monoline insurer’s outstanding and potential claims related to alleged representations and warranties breaches involving eight first- and six second-lien RMBS trusts where Syncora provided financial guarantee insurance. The agreement, among other things, also resolves historical loan servicing issues and other potential liabilities to Syncora with respect to these trusts. The agreement covers the five second-lien RMBS trusts that were the subject of litigation and nine other first- and second-lien RMBS trusts, which had an original principal balance of first-lien mortgages of approximately $9.6 billion and second-lien mortgages of approximately $7.7 billion. As of June 30, 2012, $3.0 billion of loans in these first-lien trusts and $1.4 billion of loans in these second-lien trusts have defaulted or are 180 days or more past due (severely delinquent). The agreement provided for a cash payment of $375 million to Syncora. In addition, the parties entered into securities transfers and purchase transactions in connection with the settlement in order to terminate certain other relationships among the parties. The total cost to the Corporation was approximately $400 million and was fully accrued for by the Corporation at June 30, 2012.


Unresolved Repurchase Claims


At June 30, 2012, the total notional amount of our unresolved representations and warranties repurchase claims was approximately $22.7 billion compared to $12.6 billion at December 31, 2011. These repurchase claims do not include any repurchase claims related to the Covered Trusts. Unresolved repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. For a table of unresolved repurchase claims, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. In the case of first-lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases, mortgage insurance or mortgage guarantee payments. Claims received from a counterparty remain as outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty, or the claim is otherwise resolved. When a claim is denied and we do not receive a response from the counterparty, the claim remains in the unresolved claims balance until resolution. We expect unresolved repurchase claims to continue to increase due to, among other things, our differences with Fannie Mae (FNMA) regarding our interpretation of the governing contracts ongoing litigation with monoline insurers, and a continuing submission of claims by private-label securitization trustees in combination with the lack of an established process to resolve disputes with private-label securitization trustees. For more information see Estimated Range of Possible Loss – Government-sponsored Enterprises on page 60.


The notional amount of unresolved GSE repurchase claims totaled $11.0 billion at June 30, 2012. We continued to experience elevated levels of new claims from FNMA, including claims related to loans on which borrowers have made a significant number of payments (e.g., at least 25 payments) and, to a lesser extent, loans which defaulted more than 18 months prior to the repurchase request. Unresolved claims from FNMA totaled $10.1 billion at June 30, 2012, including $7.3 billion of claims related to loans on which the borrower has made at least 25 payments. During the six months ended June 30, 2012, we received $6.3 billion of claims from FNMA, including $5.5 billion of claims related to loans originated between 2005 and 2007. This amount includes $4.4 billion of loans on which the borrower had made at least 25 payments, including $2.1 billion of loans on which the borrower had made at least 37 payments. Historically, for those claims that have been approved for repurchase from the GSEs, our loss severity rate on loans originated between 2004 and 2008 has averaged approximately 55 percent of the claim amount, which may or may not be predictive of future loss severity rates. We continue to believe that our interpretation of the governing contracts is consistent with past practices between the parties and our contractual obligations. For further discussion of our experience with the GSEs, see Government-sponsored Enterprises Experience on page 61.


The notional amount of unresolved monoline repurchase claims totaled $3.1 billion at June 30, 2012. We have had limited repurchase claims experience with monoline insurers due to ongoing litigation and have not received a significant amount of new repurchase claims from the monolines in recent periods. We have reviewed and declined to repurchase substantially all of the unresolved claims at June 30, 2012 based on an assessment of whether a breach exists that materially and adversely affected the insurer’s interest in the mortgage loan. Further, in our experience, the monolines have been generally unwilling to withdraw repurchase claims, regardless of whether and what evidence was offered to refute a claim. Substantially all of the unresolved monoline claims pertain to second-lien loans and, except those that have been resolved in the Syncora Settlement, are currently the subject of litigation. In addition, $674 million of monoline claims outstanding at June 30, 2012 were resolved through the Syncora Settlement on July 17, 2012. For further discussion of our experience with the monoline insurers, see Monoline Insurers on page 63.


The notional amount of unresolved claims from private-label securitization trustees, whole-loan investors and others increased to $8.6 billion at June 30, 2012 compared to $3.3 billion at December 31, 2011. The increase is primarily due to increases in submission of claims by private-label securitization trustees. We anticipated an increase in aggregate non-GSE claims at the time of the BNY Mellon Settlement a year ago, and such increase in aggregate non-GSE claims was taken into consideration in developing the increase in our reserves at that time. We do expect unresolved repurchase claims from private-label securitization trustees to increase as claims continue to be submitted by private-label securitization trustees and there is not an established process for the ultimate resolution of claims on which there is a disagreement. At least 25 payments have been made on approximately 63 percent of the defaulted and severely delinquent loans sold to non-GSE securitizations or as whole loans between 2004 and 2008. For further discussion of our experience with whole loans and private-label securitizations, see Whole Loans and Private-label Securitizations on page 64.


During the three months ended June 30, 2012, the Corporation received $8.2 billion in new repurchase claims, including $4.4 billion submitted by the GSEs for both legacy Countrywide originations not covered by the GSE Agreements and legacy Bank of America originations, $3.7 billion submitted by private-label securitization trustees and $119 million submitted by whole-loan investors. During the three months ended June 30, 2012, $1.6 billion in claims were resolved, primarily with the GSEs. Of the claims resolved, $876 million were resolved through rescissions and $704 million were resolved through mortgage repurchases and make-whole payments.

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Risk. Not. On.

After a brief spike higher (just to flush all those stops) in front of Draghi’s ‘dis-believe’ press conference this morning, markets plunged. Some wanted more but algos tickled us up to VWAP into the close once again though we note that once there – volume and average trade size surged, allowing those bigger momo players a better exit than mere mortals. Equities and broad risk assets stayed in very close sync all day with cross asset class correlation surging systemically, VIX rose and fell on the day ending down 1.4 vols at 17.5%  (after touching 19.25% after the European close) – but notably VIX is now more back in line with equity/credit implied values. The USD ends today up 0.8% on the week, and implicitly commodities tumbled (copper and oil  down 3-3.5% on the week and gold/silver -2%). Treasury yields bounced higher as stocks nibbled back to VWAP into the close but ended down 2-4bps (long-end outperforming). All in all – no capitulation, but a broad based derisking that seemed to benefit from some pre-positioning in protection (and help from the VWAP algos twice). Wil tomorrow’s NFP be good enough to be bad or bad enough to be good (high volume and low average trade size suggests few want to position for it too aggressively).

S&P 500 e-mini futures (ES) saw two reversions to VWAP (red rectangles) – at Europe close and US close that were accompanied by heavy volume and large block size exits…


VIX surprised a few with its ‘weakness’ today as stocks sold off – but hopefully this will clarify – as it seems the warning we noted a few days ago of pre-emptive positioning was indeed what occurred and likely supported today’s market modestly…


But broadly speaking risk markets clung together in a non-capitulative manner today – and notably gold (beta-adjusted) underperformed…


and across all risk-asset-classes correlation picked up (lower right) and equities tended to cling to risk all day (upper right). Despite some early shenanigans into the European close (upper left), equities stayed true to their rates/vol/credit capital structure. The VIX vs ‘fair’ equity/credit relationship reverted today (lower left) and it will be interesting to see if today’s vol selling (unwinds of hedges) was accompanied by derisking in the underlying or simply a lifting of hedges (we suspect – given the VWAP reversion, high volume, and pick up in average trade size at VWAP that this was real money exits)…


Charts:Bloomberg and Capital Context


Bonus Chart: Terrible Truth – How many more jobs are gonna be lost thanks to algos? Knight Capital trades with a $1 handle after hours…

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