Friday, October 31, 2014

Today's links

"The Fed courts a real danger of becoming, if it has not already become, the motor of a thoroughly corporatist political economy model for the United States, if not for the entire world." Walker Todd, former Fed staffer

1--Japan goes "all in", Reuters

U.S. stock index futures rallied on Friday after the Bank of Japan significantly ramped up its stimulus program just days after the U.S. Federal Reserve wound down its own package of economic incentives.

* The BOJ's board voted 5-4 to accelerate purchases of Japanese government bonds, increasing its holdings at an annual pace of 80 trillion yen ($723.4 billion), while tripling its purchases of exchange-traded funds and real-estate investment trusts.
* At the same time, Japan's $1.2 trillion Government Pension Investment Fund announced new allocations for its portfolio, including raising its holdings of domestic and foreign stock holdings to 25 percent each from 12 percent

2--Markets soar on uber-QE, zero hedge  (Nikkei Futures Halted Limit Up (+1100) As USDJPY Tops 112) trading halted on gov free money surge

You know the world's financial markets have become farce when the broad Nikkei 225 stock market of Japan rises 1000 points in 7 hours... The meme that stock 'markets' move on fundamentals not central bank liquidity is officially dead. Let that sink in for a moment...

Chart: Bloomberg

3---Consumer Spending Tumbles At Fastest Rate Since October 2009, zero hedge

Goodbye GDP hopes... Consumer Spending tumbled 0.2% against expectations of growing 0.1%, dropping at the fastest pace since October 2009. This is the biggest miss since Jan 2014 - in the middle of the PolarVortex... did it snow in October

4---Why that Economy of Ours Feels so Crummy , wolf street

Whether or not that annualized quarterly rate of 3.5% was a mirage – year over year, the economy grew by just 2.3%.
A growth rate barely above 2% is exactly where the US economy has been for the last five years! Nothing has changed. For a recovery by US standards, it’s a very crummy growth rate, and far from the escape velocity that Wall Street hype artists have predicted for years in their justification for the ceaselessly skyrocketing stock market.

But it gets worse. The population in the US has been growing too. And the economic pie has to be divvied up among more people. So the pie has to grow faster than the population or else, on an individual basis, that growing overall economy, gets cut into smaller slices of the pie....

Before the financial crisis, real per-capita GDP peaked in Q4 2007. Then it fell 5.5% to bottom out in Q2 2009. Since then, it has been working its way back up. In 2013, it surpassed its pre-crisis peak. Now, it is up a measly 2.3% from where it was nearly seven years ago! And it remains far below the long-term trend (red line):
On this per-capita basis, the economy grew only 1.7% from Q3 last year. That’s less than half the annualized quarterly rate that has been bandied about all day.

5---Number of billionaires doubles since financial crisis, cnbc

The super-rich club has become less exclusive, with the amount of billionaires doubling since the financial crisis, according to a report from global charity Oxfam.
There were 1,645 billionaires globally as of March 2014, according to Forbes data cited in the Oxfam report, up from 793 in March 2009.
Oxfam honed in on this figure to highlight the growing gap between the world's rich and poor. Hundreds of millions of people live in abject poverty without healthcare or education, while the super-rich continue to amass levels of wealth they may never be able to spend

6---Japan plans to prop up markets with pension funds, Bloomberg

Japan’s Government Pension Investment Fund said it will put half its holdings in local and foreign stocks, double previous levels, and invest in alternative assets. The Bank of Japan raised its annual target for monetary expansion to 80 trillion yen ($724 billion) from as much as 70 trillion yen. The Topix index soared the most in a year, leading a rally in equities around the world.

7---Fed Needs to Stop Asset Acquisitions for a Generation or So, naked capitalism

As of mid-2014, the Fed had expanded its balance sheet by $3.483 trillion since August 2007 (375 percent), with nearly all of the increase occurring since the onset of the crisis in September 2008. However, nominal GDP expanded by only $2.850 trillion over the same period (19.3 percent). In other words, only 81.8 cents of new GDP were created for every dollar of Fed-Treasury money printing, an exercise of remarkable inefficiency considering that, for the eleven years before the crisis, 1997-2007, about $13.88 of new GDP were created for every new dollar of money printing. Money printing is an inefficient way of creating GDP, after the crisis, but it has proved to be an efficient way of creating asset price bubbles

if you make interest rates low enough, people will save less and spend more, and businesses will borrow and invest more because money is on sale.
In fact, what has happened is that many of those people who swapped bonds for cash went out and bought other financial assets, goosing stock prices, lowering yields on risky debt, and sending money sloshing into emerging economies. There appears to have been a modest amount of economic lift from that due to wealth effect among the rich. But big companies for the most part didn’t invest.

They borrowed cheaply and are holding wads of cash that they can use to keep propping up their stock prices. Similarly, banks haven’t done much small business lending, in part because institutionally many have exited that business, and smaller enterprises themselves haven’t been too keen to borrow because in most regions and sectors, the recovery isn’t all that robust....

In 2007, the year before the crisis, a Fed balance sheet of “only” $929 billion sufficed to promote strong growth in a $14.5 trillion economy (nominal GDP). The Fed’s balance sheet was only 6.3 percent of the entire economy. After countless interventions in the economy and a never-ending series of Quantitative Easings (econospeak for money-printing) since then, the Fed’s balance sheet is nearly five times larger, but the economy is only 19.3 percent larger. The Fed’s balance sheet is now 25.5 percent of GDP.

One supposes that it takes a lot more money to make the world go around these days, but the economic outcome is far smaller than one would have expected given the amount of monetary input. If the Fed has an econometric model showing how much GDP growth it expects from each new dollar of monetary input, it should disclose that model to Congress now, and if the outcomes are suboptimal or as demonstratively inefficient as I think they are, then Congress should make the Fed stop using that model to drive FOMC policy choices, if the Fed refuses to do so voluntarily.

The Fed courts a real danger of becoming, if it has not already become, the motor of a thoroughly corporatist political economy model for the United States, if not for the entire world. A central bank balance sheet equal to 25 to 50 percent of GDP was considered a hallmark of corporatism in developing economies that the World Bank was trying to reform in the post-1980 years....
“The Fed appears to have recognized that QE was largely a failed experiment …”
QE was a huge success for the owners of the Fed … trillions in liquidity, tens of billions in bank subsidies. There was no question that the Fed knew exactly how QE would work. Everyone has fallen for the myth that the Fed is just another stumbling, bumbling Federal Agency when in fact their corporate charter is bankster charter.


  1. Yves Smith Post author
    I have written repeatedly that the banks do not own the Fed. This sort of inaccurate statement allows critics to be dismissed. The OCC and Treasury are every bit as bank friendly by virtue of mere cognitive capture.

  2. The shares that member banks own are nonvoting preferred shares, with dividends of 6% of par value. All the critical decisions relative to the regional Fed banks, like the selection of presidents, are made by the Board of Governors, who are nominated by the President and approved by the Senate. The boards of the regional Feds are meme advisory boards, to have tea and cookies with the staff of that Fed and advise them of local economic conditions. They are a holdover from the days when there was no economic data to speak of.
    The Fed is a bizarre public-private hybrid. It is most assuredly NOT owned by banks
8---Buybacks Can Juice Per-Share Profit, Pad Executive Pay, WSJ
Share Repurchases, Running at Fastest Clip Since Recession, Likely to Accelerate Through Year-End

Buying earnings growth cuts both ways.

In the most recent quarter, one in four companies in the S&P 500 index is expected to have juiced its earnings per share by 4% or more by snapping up its own stock, according to S&P Dow Jones Indices. That is up from one in five at the beginning of the year.

Corporations have long bought their own shares as a way of returning excess cash to shareholders. Reducing the number of shares outstanding gives the remaining investors a larger stake in the company. Buybacks also are often a sign of a company’s confidence in its future.

The other side of the blade: Some shareholders and analysts are questioning why companies aren’t instead plowing more money back into their business, and they say that buybacks may serve the interests of top management more than those of average shareholders. ....

While the economy has crawled back to life, many businesses remain reluctant to buy new equipment, build factories or hire workers. They blame the uneven recovery that has left many Americans behind and foreign markets that are stumbling.
Repurchases, meanwhile, can boost a company’s curb appeal. Illinois Tool Works used buybacks to post an EPS surge of 33%, nearly twice the latest quarter’s bottom-line profit growth. Bed Bath & Beyond Inc. ’s stock purchases turned a 10% drop from a year earlier in overall profit into a penny improvement in EPS. The housewares retailer didn’t provide comment....

“If you’re cash rich, and you have no better place to put it,” she said. “We’re such a cash cow. The last thing we’re going to do is sit on cash. That is value-destroying to our shareholders.”...

Still, investors should expect a year-end spending spree. While about 8% of a year’s buybacks historically take place October, the peak is in November, with 14% of repurchases, and another 10% come in December, according to David Kostin, senior U.S. equity strategist at Goldman Sachs Group Inc.

9--MH17-Chief Investigator Investigates Possibility of Air-to-Air Missile, Seeks Cooperation From Russia Mish

10--Subprime redux; Auto finance probe, zero hedge

subpoenas received from the DOJ include a broad request for documentation and other information in connection with its investigations of potential fraud and other potential legal violations related to mortgage-backed securities, as well as the origination and/or underwriting of mortgage loans.

In addition, we recently received a document request from the SEC in connection with its investigation related to subprime automotive finance and related securitization activities.
And this comes on the heels of GM Financial's admission of Subprime Auto Loan Probes (via Bloomberg)
Investigations of the subprime auto finance business are spreading as General Motors Co. (GM) said its lending arm received additional subpoenas seeking details of its underwriting practices.

GM Financial, which specializes in loans to people with spotty credit, said in a regulatory filing yesterday that attorneys general of states it didn’t identify and other government offices are demanding documents related to its business of making car loans and pooling them into bonds that are sold to investors. The Detroit-based lender, along with Santander Consumer USA Holdings Inc., disclosed a similar probe by the U.S. Department of Justice in August.

The scrutiny is intensifying at the same time more borrowers are falling behind on their payments and sales of securities backed by the loans increase. Auto-finance firms that lend to people with bad credit lowered their standards amid increased competition as new entrants flooded the business to capitalize on cheap funding, according to Moody’s Investors Service

11--The Bank of Japan’s expansion of record stimulus today may see it buy every new bond the government issues, zh

The BOJ could end up owning half of the JGB market by as early as in 2018, according to Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. 

12---Falling yen signals trouble in China and US, zh

Edwards' bottom line: "If a clear break in the yen downwards against both the dollar and euro is occurring, not only will this spell trouble for the beleaguered Chinese economy and exacerbate deflation in the west, but it will also break the spell of German economic dominance."

13---Killing people is still good for the economy.; Economic Lessons Not Learned, NYT

In economic growth data released on Thursday, government spending saved the day – or the quarter, to be more precise. Economists had expected growth of 3 percent for July through September. The initial reading came in at 3.5 percent, a chunk of which was from a big increase in outlays for defense. Without that defense spending, growth would have been 2.8 percent, all else being equal, and instead of celebrating outperformance, there would be hand wringing over slowing growth.....

For all its quarterly ups and downs, overall growth in the past several years has slogged along at roughly 2 percent to 2.5 percent, too slow to foster broad prosperity. This year, so far, is no exception. It would take an improbably strong finish to 2014 to propel the economy out of that range.
If anything, the economy is showing less momentum as the year comes to a close. Economic growth contracted in the first quarter (-2.1 percent), bounced back in the second (4.6 percent) and then backed off again in the third, to 3.5 percent. Consumer spending was lackluster last quarter, and with wage growth weak, there is no reason to expect a surge. The drop in oil prices will allow some consumers to free up cash for holiday shopping, in the same way that mild summer weather allowed for less spending on electricity and more on summer fun. But that’s catching a break, not getting ahead.
In a healthy economy, most Americans would be getting ahead. By that simple yet comprehensive measure, the economy has not been healthy for a very long time. That means, in turn, that government has a rightful economic role to play, in the near term, through spending that makes up for the slack in consumption and investment. But that’s not happening, and so neither is broad prosperity

14---Inflation? Deflation Is New Risk, NYT

what has the Fed accomplished?
It has helped the economy, although not nearly to the extent that might have been hoped. Inflation, far from accelerating as some conservative economists forecast, has been running consistently below the Fed’s 2 percent target. The Fed’s preferred measure, the index of personal consumption expenditures, is up 1.5 percent over the last 12 months, both overall and excluding volatile food and energy prices. It has been more than two years since either measure was up as much as 2 percent....

The much discussed ratio of national debt to gross domestic product also suffers. Consider the 18 nations in the eurozone. Collectively, their national debts rose by 7.8 percent in 2012 and 2013, forcing up the debt-to-G.D.P. ratio by 5.2 percentage points. From 2004 to 2006, their debts rose nearly as rapidly, by 7.4 percent. But the debt-to-G.D.P. ratio actually fell by a percentage point. At the time, European economies were growing and inflation was also pushing up the nominal gross domestic product figures. Now there is little if any growth or inflation, and the result is to worsen the debt picture....

But the bond market is not so confident. The market inflation forecast can be estimated by calculating the inflation rate at which a purchase of a normal Treasury security would be no better or worse than the purchase of an inflation-protected Treasury security of the same maturity. At the end of last year, the 10-year inflation forecast was 2.2 percent; now it is 1.7 percent. The one-year forecast then was 1.5 percent; now it is a forecast of deflation, negative 0.75 percent..

15---Afghan opium poppy cultivation hits all-time high, Guardian

Farmers grew 209,000 hectares of opium poppy despite US spending $7.6bn on counter-narcotics efforts since 2001

16---Rolling the dice on pensions, WSJ

Japan’s $1.2 trillion public pension fund said Friday it plans to take more aggressive bets by slashing how much money it puts in domestic bonds and ramping up its investments in stocks.
The dramatic portfolio shift at the Government Pension Investment Fund is aimed at boosting the retirement incomes of the fund’s 67 million participants, but it runs counter to moves by other global pension funds to scale back holdings in risky assets. The move is part of Prime Minister Shinzo Abe ’s efforts to make Japan stocks more attractive and speed up the nation’s economic recovery

Under the new allocation guidelines, Japanese stocks and foreign stocks will each take up 25% of the fund’s holdings, up from 12% each previously. The fund intends to put 35% of its money in domestic bonds, down from 60%, while the ratio for overseas bonds will rise to 15% from 11%.
Global fund managers have been paying close attention to how the pension fund changes its strategy because of the potential for hundreds of billions of dollars to flow into markets inside and outside of the country. Even a one-percentage-point change to its portfolio could mean a shift of more than 1 trillion yen ($9 billion

17---Fannie, Freddie to take on more credit risk, HW

Proposals to lower the minimum down-payment on Fannie Mae and Freddie Mac-backed mortgages at the same time as reducing banks’ exposure to put-back risk may help accelerate the modest loosening in mortgage credit conditions that is in train.
But, notes Capital Economics in a client note, the changes will mean Fannie Mae and Freddie Mac take on substantially more credit risk, which will do nothing for the long- term aim of reducing their role in the provision of mortgage credit. ?

18---GDP not what it's cracked up to be, Dean Baker

 if we can look all the way back to the beginning of 2014 we see that the average growth for the first three quarters so far this year is just 2.0 percent, the same as the average for the prior three years. And, just to remind folks, we had a really bad recession back in 2008-2009. This has left us at a level of output way below the economy's potential. To make up the ground lost the economy has to be growing faster than its 2.2-2.4 percent potential growth rate. At the 2.0 percent growth rate we have seen so far in 2014, we are making up none of the lost ground...

The second point that should have featured prominently in all discussion of the GDP report is that the major drivers of growth in the quarter, net exports and military spending, will almost certainly not be adding to growth in the same way in future quarters and will most likely be in part reversed. In other words, the strong growth in these components is reason for believing future growth will be weaker, not stronger.
Net exports added 1.32 percentage points to growth in the quarter, while military spending added 0.66 percentage points. If the contribution of these sectors to growth had been zero, GDP growth would have been 1.5 percent rather than 3.5 percent.
In short, Mr. Arithmetic thinks the celebrations of third quarter GDP were premature. The economy is likely still on the slow growth path of the last three years. We'll see whether or not he is right when the fourth quarter data are released in January...

Since the U.S. economy and Chinese economy are now roughly equal in size, even if China's growth slows to 5 percent it will still be providing far more of a boost to the world economy than any plausible growth rate for the U.S. With the Chinese economy growing much larger than the U.S. economy over the next decade, the days of the U.S. economy as the primary engine of world growth are history.
The other point is that the piece wrongly touts the prospect of improved consumer confidence leading to a surge in consumer spending. The implication is that consumer spending has been depressed. That is not true. The saving rate out of disposable income was 5.5 percent in the third quarter. This is higher than the 2.5 percent rate at the peak of the housing bubble, but well below the 8.0 percent average for pre-bubble years. In other words, there is little reason to expect consumption spending to rise much relative to income, even if consumers are more confident.

19--​1,000 per month: US airstrikes fail to stem tide of foreign fighters, RT

20--TBTF war games results no known, RT

With their limitless resources, we can be sure central bankers at the BIS have thoroughly computer modeled and gamed out the bursting of history’s biggest ever debt bubble. The decisions these wizards of money make on that day could determine whether millions of us live or die.
That’s why we need to know exactly what was being gamed at the Federal Deposit Insurance Commission in Washington on Monday 13th October, because if past events are anything to go by the banksters will simply use the opportunity to bounce both politicians and public further into wage slavery and debt. Osborne's promise to share the results of that 'economic war game' has come to nothing as yet.

21--Can an economy in which the majority of households are "just getting by" experience robust growth, i.e. "recovery"?  zero hedge

Other stories reflect an enduring interest in the questions, what is a living wage?and what is a middle-class income? These questions express the anxiety that naturally arises from the sense that we're sliding downhill in terms of our purchasing power--a reality that is confirmed by this chart:

22--Yen Declines to 7-Year Low on BOJ Monetary Easing , Bloomberg

23---Dollar Hits 6-Year High Against Yen, wsjBank of Japan Easing Sends Yen Plummeting Against Most Currencies

24--The American dream is dead, polling report

Americans are more pessimistic about the future, Polling Report
According to a CNN/ORC Poll May 29-June 1, 2014:
"Do you agree or disagree? The American dream has become impossible for most people to achieve."
Agree: 59%
Disagree: 40%
Unsure: 1%
According to a NBC News/Wall Street Journal Poll conducted by the polling organizations of Peter Hart (D) and Bill McInturff (R). April 23-27, 2014
"Do you agree or disagree with the following statement? Because of the widening gap between the incomes of the wealthy and everyone else, America is no longer a country where everyone, regardless of their background, has an opportunity to get ahead and move up to a better standard of living."
Agree: 54%
Disagree: 43%
Mixed: 2%
Unsure: 1%
Also, according to a CBS News Poll. Jan. 17-21, 2014. N=1,018 adults nationwide.
"Looking to the future, do you think most children in this country will grow up to be better off or worse off than their parents?"
Better off: 34%
Worse off: 63%
Same: 2%
Unsure: 1%

25---American Household Credit Card Debt Statistics: 2014, nerdwallet

Current as of September 2014

U.S. household consumer debt profile:
  • Average credit card debt: $15,607
  • Average mortgage debt: $153,500
  • Average student loan debt: $32,656
In total, American consumers owe:
  • $11.63 trillion in debt
    • An increase of 3.8% from last year
  • $880.5 billion in credit card debt
  • $8.07 trillion in mortgages
  • $1,120.3 billion in student loans
    • An increase of 11.5% from last year

Tuesday, October 28, 2014

Today's Links

1---Banks accept derivatives rule change to end 'too big to fail' scenario, Reuters

A plan to stop redemptions, and thus a run on the banks.

2---The  Gaping Difference Between Asia And America In One Depressing Chart, zero hedge

As Pew Research notes,
As they continue to struggle with the effects of the Great Recession, publics in advanced economies are pessimistic about the financial prospects for the next generation. Most of those surveyed in richer nations think children in their country will be worse off financially than their parents. In contrast, emerging and developing nations are more optimistic that the next generation will have a higher standard of living.

Asians are particularly optimistic about the next generation’s financial prospects. Fully 94% of Vietnamese, 85% of Chinese, 71% of Bangladeshis, and 67% of Indians think today’s children will be better off than their parents. Africans and Latin Americans are also on balance optimistic, while Middle Easterners tend to be pessimistic. And in Europe and the United States, pessimism is pervasive.
*  *  *
3---Stock markets threatened by collapse in Chinese consumer demand, Telegraph
A shocking slump in Chinese consumer demand will undermine World economic growth and stock markets

4---In Cross Asset Research last week, Albert Edwards at Societe General did just that. Emphasis in italics is mine. Mish
Fragile and vulnerable in itself, the US recovery now battles against the rest of the world, which like a horror movie is dragging it down into a hellish Ice Age underworld. The problem is that at these stratospheric valuations, the market does not need to suffer an ACTUAL recession to see a crash. Like October 1987, just the fear of recession will be enough to trigger a massive market move.

On these pages we have a very simple thesis as to what will bring an end to this grotesque, QE-fueled market overvaluation. Simply put, the central banks for all their huffing and puffing cannot eliminate the business cycle....

I have always thought that this would all end the way Christopher Wood explained in his GREED and fear publication last November: “The key issue is what might trigger a market correction . The market consensus continues to focus on the tightening in financial conditions triggered by “tapering”. Still such a hypothetical correction is not so big a deal to GREED & fear, since any real equity decline caused by tapering is likely to lead, under a Fed run by Janet Yellen, to renewed easing. The real threat to US equities is when the American economy fails to re-accelerate as forecast”. Certainly, in my view , at these elevated valuations, it will not take much to bring down the entire ‘pyramid of piffle’

The higher costs and concerns about buybacks are driving the decline in mortgages for home purchases. It will slow to $635 billion this year, a 13% drop from 2013, according to MBA estimates. Banks have constrained home lending to many borrowers deemed creditworthy by mortgage finance companies Fannie Mae and Freddie Mac. Applicants approved for mortgages to purchase homes had an average FICO credit score of 755 in August, according to Ellie Mae, a company that makes software used to process mortgage applications. In contrast, Fannie Mae and Freddie Mac guidelines allow for credit scores as low as 620 for fixed-rate mortgages in some cases. Lenders reported a 30% median increase in compliance costs this year from 2013

7--7 things the middle class can't afford anymore, USA Today

New vehicles
Very few people who earn the median income can afford to buy a new car or truck. recently analyzed the prices of new cars and trucks, as well as the median incomes across more than two dozen major cities, and found that new cars and trucks were simply not affordable to most middle-earners.
"Median-income families in only one major city [Washington DC] can afford the average price Americans are paying for new cars and trucks nowadays." As of 2013, new cars are priced at $32,086, according to the study. Mike Sante,'s managing editor reminds us, "just because you can manage the monthly payment doesn't mean you should let a $30,000 or $40,000 ride gobble up all such a huge share of your paycheck."

8---Federal spending lowest since recession began, marketwatch

Call it the anti-stimulus.

Real spending by the federal government has fallen for seven consecutive quarters and has now declined to the lowest level since the recession began more than six years ago, according to the Bureau of Economic Analysis.

While the level of real gross domestic product has increased by more than $1 trillion since the beginning of 2008, spending and investment by the federal government in the second quarter of 2014 was essentially unchanged (adjusted for inflation) from the level in the first quarter of 2008, the BEA reported in its revision to the GDP statistics.
Federal spending and investment has declined in 13 of the past 15 quarters, falling 13.2% since the third quarter of 2010. Investment outlays have dropped 20% and are now as low as they were in 2005.....The economy is growing, but Washington is still a drag on growth.

9--Why a stock-market selloff won’t crash the economy, Rex Nutting

10--The $2 billion Congress, wsws

11---MH17 might have been shot down from air – chief Dutch investigator, RT

12--Here's why renters in America feel trapped, yahoo

13---The housing bust deeply impacted people in a way economists can’t grasp with their macro-economic models; people no longer feel certainty that owning is stable and permanent. The Millennial generation, the generation that witnessed the housing bust but were too young to participate, the Millennials don’t view housing as the bedrock of their lives, and they correctly perceive the enormous weight imposed by a mortgage. To Millennials, the debt is large, real, and permanent, whereas the house is transitory, a complete reversal from the attitudes of previous generations.

pugy 27-10-2014, 09:09
For a lot of us the housing bubble had a large negative psychological impact on home ownership. I graduated college in the height of the bubble and was lucky enough to find irvinehousingblog and didn’t buy a house right after I got my first job. Currently, where I live it’s much cheaper to rent all things considered over say a 5-7 year time period. However, I’ve become so averse to the whole system behind home loanership that it would require housing to be much cheaper than renting for me to even consider it. Historically , I feel like emotional motivations have leaned towards buying, for many of us that has distorted towards renting instead now.

Monday, October 27, 2014

Today's links

1---The Fed Is Expected To Pull Its QE Punch Bowl This Week, BI

No More QE?

2--Why stocks keeping going higher; Biderman and Santelli, trim tabs video

3---Banks blackmail USG, WSJ

Policymakers and lenders have said banks are making credit standards tighter than they’d otherwise be due to broad authorities by Fannie and Freddie to “put back” defaulted loans to the mortgage giants. The companies on Monday announced a series of steps designed to give lenders more certainty about when they would and wouldn’t face put-backs, which have cost lenders billions of dollars after the housing bust.

“Lenders believe that too much uncertainty still exists in this area for them to ease their credit overlays,” Mr. Watt said.

--> 4---Cutting Through Washington’s Housing Recovery BS: September New Homes Sales Were Below 1966 Level!  Stockmans contra corner

5--About Those Massive New Homes Sales Revisions: Seasonally Maladjusted Noise, Stockman

6--Investors Resume Rush for Stocks, but Fears Lurk, WSJ

7---Total Home Sales Are At or Above Trend, CEPR

8--The bottom 90 percent are poorer today than they were in 1987, WA Post

Once upon a time, the American economy worked for everybody, and even the middle class got richer. But this story has only been a fairy tale for almost 30 years now. The new, harsh reality is that the bottom 90 percent of households are poorer today than they were in 1987.

This is actually a much more dramatic statement than it sounds. While the Federal Reserve has already told us that the median households is worth less now than it was in 1989 -- that's the household right in the middle -- it turns out that everybody but the richest 10 percent of Americans are worst off. That includes the poor, the entire middle class, and even what we would consider much of the upper class.
Source: Saez and Zucman

Once upon a time, the American economy worked for everybody, and even the middle class got richer. But this story has only been a fairy tale for almost 30 years now. The new, harsh reality is that the bottom 90 percent of households are poorer today than they were in 1987.

9--U.S. Regulators Approve Eased Mortgage Lending Rules, NYT

10--U.S. Loosens Reins, but Mortgage Lenders Want More Slack, NYT

11--The Mortgage Industry Is Strangling the Housing Market and Blaming the Government Dave Dayen

12--Weak Wage Growth Is Bigger Problem for Housing Market Than Student Debt, CEPR

13--Banks Again Avoid Having Any Skin in the Game, NYT

14--Regulators Skin Mortgage Risk Rules, wsj

Thursday, October 23, 2014

Today's Links

Today's quote:  Melvin Udall:  Sell crazy someplace else, we're all stocked up here." (Jack Nicholson, "As Good As It Gets")

Quote: “What everyone wants to believe is that when things reach a tipping point and go from being merely crappy for the masses to dangerous and socially destabilizing, that we’re somehow going to know about that shift ahead of time. Any student of history knows that’s not the way it happens. Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.” Nick Hanauer

1--The Fraud "Recipe" That Shaped the Crisis, William Black, op ed news

The Three Epidemics
The first epidemic was appraisal fraud. The second was "liar's" loans. These were the two epidemics of loan origination fraud led by the officers that controlled the home lenders. Because there is no fraud exorcist, once loans are fraudulently originated they can only be sold to the secondary market through fraudulent "representations and warranties." The officers that controlled the lenders that originated massive numbers of fraudulent loans made these fraudulent "reps and warranties."...

The Appraisal Fraud Epidemic
The Financial Crisis Inquiry Commission (FCIC) report should be read closely.
From 2000 to 2007, a coalition of appraisal organizations " delivered to Washington officials a public petition; signed by 11,000 appraisers". [I]t charged that lenders were pressuring appraisers to place artificially high prices on properties [and] "blacklisting honest appraisers" and instead assigning business only to appraisers who would hit the desired price targets (FCIC 2011:18)....
  1. Grow extremely rapidly by
  2. Making (buying) massive amounts of bad loans at premium nominal yield, while
  3. Employing extreme leverage, and
  4. Providing only trivial allowances for loan and lease losses (ALLL)
The Recipe Guarantees Three "Sure Things"
  1. The lender (buyer) will promptly report record (albeit fictional) profits
  2. The senior officers will promptly be made wealthy by modern executive compensation
  3. The firm will eventually suffer catastrophic losses
The title of George Akerlof and Paul Romer's 1993 explains the resulting "agency" problem -- "Looting: The Economic Underworld of Bankruptcy for Profit." The firm will suffer terrible losses, but the controlling officers can walk away wealthy.
The recipe is well known to bankers. Jamie Dimon, JPMorgan's CEO, almost stated the fraud recipe correctly in his March 30, 2012 letter to shareholders:
"Low-quality revenue is easy to produce, particularly in financial services. Poorly underwritten loans represent income today and losses tomorrow."...
The Second Loan Origination Fraud Epidemic: "Liar's" Loans

2--- How Quantitative Easing Contributed to the Nation’s Inequality Problem, NYT

Ms. Yellen’s speech seemed heartfelt. Yet, she has endorsed the Fed’s policies, started by her two immediate predecessors, Alan Greenspan and Ben S. Bernanke, that drove down interest rates to historically low levels – policies that have actually exacerbated the problem that she says she wants to correct.

She is failing to appreciate how Mr. Bernanke’s extraordinary quantitative easing program, started in the wake of the financial crisis, has only widened the gulf between the haves and have-nots. If she does understand, she certainly made no mention of it in her speech in Boston. Indeed, there was no mention whatsoever of the Fed’s easy monetary policies at all, let alone how they have helped to cause income inequality.

3--Big finance wins again: -U.S. Regulators Approve Eased Mortgage Lending Rules, NYT

Comments line:


Backwoods, PA Yesterday
So, now that we've eliminated all of the tighter mortgage lending and securitizing requirements that were imposed after the last bust, exactly how are we safer from the next bust?


Memphis, TN Yesterday
It is wonderful that the government, unable to learn from its mistakes, decides to repeat them. The real estate and banking industry have clearly made some really big contributions to the Democrats.

It is no favor to people without a down payment to let them buy a house they can't afford. A small glitch in their income stream causes them to lose their home.


usa Yesterday
"regulators identified a solid down payment as something that significantly reduced the likelihood of default on a mortgage."

Here we go again...another 7-year economic cycle comes to an end in an orgy of financial shenanigans. NINJA (no income, no job) mortgages are just around the corner. Why must we endure this financial spectacle time and time again? It's because a corrupt and entrenched lobbying infrastructure demands it, that's why

Soon after the housing bust, federal regulators working on repairing the mortgage market thought it was sound policy to have borrowers make sizable down payments on their new homes.
On Tuesday, the regulators completed that overhaul, but they left out any requirement for borrowers to make a down payment. The new regulations aim to strengthen the vast market for bonds that are backed with mortgages and other loans. The market is not back on its feet, despite low interest rates. But the regulators said that the new rules could set the stage for more lending.

“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” said Melvin L. Watt, director of the Federal Housing Finance Agency, one of the regulators that adopted the rule. “Lenders have wanted and needed to know what the new rules of the road are and this rule defines them.”

The regulators left out the down payment requirement after a firestorm of criticism from bankers and consumer advocates. They asserted that such a measure could restrain the flow of housing credit, particularly to borrowers who would have to save for many years to afford a down payment.
But some financial experts are disappointed with the new rules. They contend that, over time, the exclusion of a down payment requirement could once again allow banks to stoke dangerous risks in the financial system — and then evade the pain when the losses pile up.....

The overhaul has its roots in the years leading up to the financial crisis of 2008. Banks and Wall Street firms packaged billions of dollars of shoddy mortgages and sold them to bond investors, who later suffered huge losses when the loans went bad. To guard against that happening again, the Dodd-Frank Act of 2010 required banks to hold on to a slice of the loans they sold. As a starting point, the new rules require banks to hold onto 5 percent of the loans they sell. But there are exemptions in the so-called risk retention rule that may enable the banks to hold less or nothing.....

In the first draft of the rule, issued in 2011, regulators identified a solid down payment as something that significantly reduced the likelihood of default on a mortgage. Citing data to support their case, the regulators proposed that the exempt mortgages needed to have a down payment of at least 20 percent of the purchase price of the house.
In the following months, however, housing advocacy groups, mortgage bankers and even some bond investors called upon the regulators to get rid of the 20 percent down payment feature. Instead, they wanted the overhaul to simply apply another new set of home loan requirements — called “qualified mortgage” rules — that do not demand any down payments.

4---Bond funds stock up on Treasuries in prep for market shock, NYT

Corporate bond funds typically invest in a range of debt that includes mortgage-backed securities, U.S. Treasuries and bonds backed by student loans, credit cards and auto loans. Some corporate junk bond funds have guidelines that allow them to buy individual stocks. The move to buy Treasuries, which are more easily traded than most corporate bonds, show that managers anticipate market turmoil that could lead to redemption demands from investors.....

Michael Salm, co-head of about $60 billion in fixed-income assets at Putnam Investments, said slumping energy prices could also increase the rate of corporate defaults among junk-rated energy companies. He also said he sees subtle deterioration on the balance sheets of corporations outside the financial sector.  ....

Some corporations have been issuing new debt to repurchase more of their own stock, which is viewed as a negative for bondholders....

One trouble is that it's become harder than ever to buy and sell corporate bonds in the secondary market as new regulations and capital requirements since the financial crisis forced Wall Street banks to slash their inventories. That has left a vacuum in matching buyers and sellers, and bond managers say they don't want to get caught holding too much of it in a rout.
"Everyone sees the lack of liquidity as a potential risk in the corporate bond market," said Sumit Desai, the lead analyst for corporate credit funds at research firm Morningstar Inc. "But there hasn't been a major event to test the market."

The value of corporate bonds held by U.S. mutual funds has more than doubled since 2007 to about $1.7 trillion. Corporate bond issuance during the first nine months of 2014, driven by rock bottom interest rates, was $954 billion, compared with $1.08 trillion in the year-ago period, according to the Financial Industry Regulatory Authority.

5---The Signals From the High-Yield Bond Market, NYT
The benchmark BofA Merrill Lynch U.S. High Yield Master II index

“High yield is the first sign you have that something could be wrong,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies, an investment consultant. “It doesn’t have to give rise to a 2008 type of collapse, but it tells you there is excess liquidity in the system.”
Credit has been cheap and easy to obtain, he said, “but at some point a switch goes off, and people say it can’t go on forever.” He acknowledged that “it’s difficult to say what causes the turning point” but cautioned that the recent rise in yields could signal its arrival.

Tad Rivelle, fixed-income chief investment officer at the fund management company TCW, noted that there was more at stake than just the direction of bond prices.
“The credit cycle is actually the driver of the overall business cycle,” he said. “The durability of the economic expansion, such as it is, is largely dependent on the capital markets and the willingness of the junk bond market to continue to finance more marginal borrowers and more marginal deals. For clues for how late we are in the cycle, look no further than the high-yield market.”
If yields continue to rise, corporate activity is expected to feel the impact. Rising rates reflect a reduced supply of credit

6--Debate rages on quantitative easing’s effect on inequality, FT

These criticisms were fuelled by Bank of England research showing that QE boosted asset prices and household financial wealth, which is “heavily skewed with the top 5 per cent of households holding 40 per cent of these assets”.
When the study was published in 2012, the leftwing website “Left Foot Forward” wrote that QE had “made the rich richer [and] widened inequalities that already existed.”

7---Has the junk bond bubble deflated?, cnbc

8---Don't look toot close: This Is How Caterpillar Just Blew Away Q3 Earnings, zero hedge

in the new normal, if you can't grow, you just buy your way to growth. On margin.

...a stretch of declining global retail sales

... and since the start of 2013:


9---The Berlin Wall: Another Cold War Myth, counterpunch

A Response to Economic Sabotage...

It should be noted that in 1999, USA Today reported: “When the Berlin Wall crumbled [1989], East Germans imagined a life of freedom where consumer goods were abundant and hardships would fade. Ten years later, a remarkable 51% say they were happier with communism.”  

10---To keep markets afloat, however, as Bloomberg notes, $200 billion a quarter in QE from the central bankers is needed. The Fed is almost out, China has mostly withdrawn, Japan has too many domestic problems to look out the window, and the ECB can do just $15 billion a month. Confused? You won’t be .. after next week’s episode of .. the Eurosoap....NC

11---QE Timeline, Cal risk
With QE3 expected to end next week, by request, here is an updated timeline of QE (and Twist operations):

November 25, 2008: Press Release: $100 Billion GSE direct obligations, $500 billion in MBS

December 16, 2008 FOMC Statement: Evaluating benefits of purchasing longer-term Treasury Securities

January 28, 2009: FOMC Statement: FOMC Stands Ready to expand program.

March 18, 2009: FOMC Statement: Expand MBS program to $1.25 trillion, buy up to $300 billion of longer-term Treasury securities

March 31, 2010: QE1 purchases were completed at the end of Q1 2010.

August 27, 2010: Fed Chairman Ben Bernanke hints at QE2: Analysis: Bernanke paves the way for QE2

November 3, 2010: FOMC Statement: $600 Billion QE2 announced.

June 30, 2011: QE2 purchases were completed at the end of Q2 2011.
September 21, 2011: "Operation Twist" announced. "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less."

June 20, 2012: "Operation Twist" extended. "The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities."

August 31, 2012: Fed Chairman Ben Bernanke hints at QE3: Analysis: Bernanke Clears the way for QE3 in September

September 13, 2012: FOMC Statement: $40 Billion per month QE3 announced.

December 12, 2012: FOMC Statement: Announced completion of "Operation Twist", expanded QE3 to $85 Billion per month.

May 22, 2013: In Testimony to Congress, The Economic Outlook, Fed Chairman Ben Bernanke said “If we see continued improvement and we have confidence that that is going to be sustained, then in the next few meetings, we could take a step down in our pace of purchases.” (aka "Taper Tantrum").

June 19, 2013: In Chairman Bernanke’s Press Conference, Bernanke said "If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year."

December 18, 2013: FOMC Statement: Announced "tapering" of QE3. Note: QE3 tapered $10 billion per month at each meeting of 2014.

October 29, 2013: FOMC expected to complete QE3 (next week).

12---Will the big banks ever clean up their act?, by Mark Thoma: Federal Reserve Bank of New York President William Dudley delivered a stern warning to the largest banks in a speech earlier this week. Either clean up your illegal and unethical behavior through "cultural change" from within, he said, or be broken into smaller, more manageable pieces.In his conclusion, the warning was direct and explicit:
"...if those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist. If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively. In that case, financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively. It is up to you to address this cultural and ethical challenge

13---Low Down Payments Are Coming Back, WSJ

14--Wall Street execs, "Neither honest or moral", WSOP

Wall Street banking executives, who elect two-thirds of the Board of Directors of the New York Fed and have frequently served on its Board, have structured the institution to be its sycophant. Consider the fact that Jamie Dimon, CEO of JPMorgan Chase, sat on the Board of the New York Fed from 2007 through 2012 as the regulator failed to follow through on three separate staff recommendations that JPMorgan’s Chief Investment Office undergo a thorough investigation, as reported this week by the Federal Reserve System’s Inspector General.
JPMorgan’s Chief Investment Office in 2012 finally owned up to losing $6.2 billion of bank depositors’ money in wild bets on exotic derivatives in London.

A Wall Street regulator, like the New York Fed, which has staff positions called “relationship managers” that are considered senior to, and can bully and intimidate, their bank examiner colleagues, is in no position to be lecturing Wall Street on its culture. Indeed, the culture on Wall Street of “it’s legal if you can get away with it,” grew out of its cozy, crony relationships with its regulators like the New York Fed, an enshrined revolving door at the SEC, self-regulatory bodies delivering hand slaps and its own private justice system to keep its secrets shielded from the public’s view...

“Since 2008, fines imposed on the nation’s largest banks have far exceeded $100 billion. The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system. As a consequence, the financial industry has largely lost the public trust. To illustrate, a 2012 Harris poll found that 42 percent of people responded either ‘somewhat’ or ‘a lot’ to the statement that Wall Street ‘harms the country’; furthermore, 68 percent disagreed with the statement: ‘In general, people on Wall Street are as honest and moral as other people.

This summer, venture capitalist, Nick Hanauer, worried aloud to his fellow plutocrats in Politico Magazine about when public anger might spill over into pitchforks. Hanauer writes:
“What everyone wants to believe is that when things reach a tipping point and go from being merely crappy for the masses to dangerous and socially destabilizing, that we’re somehow going to know about that shift ahead of time. Any student of history knows that’s not the way it happens. Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.”

The Saudi business tycoon, who is a member of the Saudi royal family, told CNN on Monday that “some extremists in Saudi Arabia” provided financial support for the terrorists

18--The US-led coalition has reportedly launched four airstrikes on an oil field in eastern Syria.
19--Survey: US war on Isil "not working" press tv

The new national survey by the Pew Research Center, conducted Oct. 15-20, has found that nearly 6 in 10 Americans, 59 percent, say the US-led campaign against ISIL is not working.
Moreover, only 30 percent of Americans believe the US and its allies have a “clear goal” in launching military action in Iraq and Syria.

20--Obama administration considers sending more “advisers” to Iraq, wsws

21---Blackwater mercenaries convicted for role in 2007 Iraq massacre, wsws

Former Blackwater sniper Nicholas Slatten was convicted of first degree murder. Evan Liberty, Paul Slough and Dustin Heard were all found guilty of voluntary manslaughter and using a machine gun to carry out a violent crime. The convictions carry minimum sentences of 30 years in prison for Liberty, Slough and Heard and a potential life sentence for Slatten.
The decision is subject to appeal, which could take a year or more, and the verdicts could be overturned in the process.

After 28 days of deliberation following an 11-week trial, the jury in a federal district court in Washington decisively rejected the defense team’s arguments that the mercenaries had fired on the crowd in self-defense. This story had already been thoroughly debunked by an Iraqi government study and independent investigations by reporters at the New York Times and Washington Post .
On September 16, 2007, the security contractors opened up with machine guns and grenade launchers into stopped traffic, before turning their sights on crowds of civilians seeking to flee the scene. The Blackwater forces suffered virtually no damage during the incident...

Meanwhile, Blackwater, since renamed Xi and now Academi, remains a favored instrument of US foreign policy, with hundreds of its private gunmen serving as shock troops for the US-backed regime in Kiev in its terror war against the civilian population of east Ukraine. Supported by US intelligence, Blackwater operators have played a leadership role in the operations of neo-Nazi Right Sector militias and fascistic forces responsible for ongoing atrocities

22--Israeli Defense Minister Predicts The End Of Artificial ME States, moon of alabama
Moshe Ya'alon predicts the end of his country:
Israel's Defense Minister Moshe Ya'alon is known for his blunt manner, and in an interview with NPR, he says that a future map of the Middle East will look very different that the one that exists today.
"We have to distinguish between countries like Egypt, with their history. Egypt will stay Egypt," Ya'alon, who is on a visit to Washington, tells Morning Edition's Steve Inskeep. In contrast, Ya'alon says, "Libya was a new creation, a Western creation as a result of World War I. Syria, Iraq, the same — artificial nation-states — and what we see now is a collapse of this Western idea."
Which country in the Middle East is the most artificial? Which one was created as the result of a World War and is solely a "western" idea?
It seems to me that Ya'alon lacks the self awareness to detect the irony in what he said.

23---Saudi Arabia steps up beheadings; some see political message, Reuters

Saudi Arabia beheaded 26 people in August, more than in the first seven months of the year combined. The total for the year now stands at 59, compared to 69 for all of last year, according to Human Rights Watch. ...

In the most extreme version of the Saudi death penalty, known by the Arabic word for "crucifixion" and reserved for crimes that outrage Saudi society, the corpse is publicly hanged in a harness from a metal gibbet as a warning to others.
An online film dated April 2012 on the LiveLeaks website shows a man being executed and then "crucified" in this manner, reportedly for robbing a house and killing its occupants. A group of five men suffered this fate in May last year in the southern province of Jizan for a series of robberies.

Wednesday, October 22, 2014

Today's Links

 "When profits rise it’s growth, when wages rise it’s inflation." The Fed's motto

1---U.S. Stocks Surge; Nasdaq Up 2.4%, WSJ

U.S. stocks rallied Tuesday, with gains in technology stocks propelling the Nasdaq Composite to its biggest one-day percentage jump since January 2013.
The Dow Jones Industrial Average rose 215.14 points, or 1.3%, to 16614.81. The S&P 500 gained 37.27 points, or 2%, to 1941.28, marking its biggest one-day percentage gain in a year.
The Nasdaq Composite rose 103.40 points, or 2.4%, to 4419.48. Stocks closed near the highs of the session.

2---The Most 'Distrusted' News Sources In America, zero hedge

3--Fed's "put" still in place, Bloomberg

By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.

With the Fed and counterparts peeling back their net liquidity injections from almost $1 trillion in 2012 toward that magic marker, King’s team said “a negative reaction in markets was long overdue.”
“We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices,” they said in an Oct. 17 report to clients.

Bank of America Merrill Lynch strategists said in a report today that another 10 percent decline in U.S. stocks might spark speculation of a fourth round of quantitative easing from the Fed. That would mimic how the Fed acted following equity declines of 11 percent in 2010 and 16 percent in 2011

4--Regulator Tells Banks to Clean Up Bad Behavior or Face Downsizing, NYT

5--Has the junk bond bubble deflated?, cnbc

6---America's housing policy: The definition of insanity, yahoo

7--The Truth Hidden by IBM’s Buybacks, NYT

8--Germans Clear Russia in MH-17 Case, SChimp

9--Government Debt Isn't the Problem—Private Debt Is, atlantic

10--The Signals From the High-Yield Bond Market, NYT

11--Riyadh using oil as a weapon , alakhbar

Tuesday, October 21, 2014

Today's Links

1--GOLDMAN: We're Blaming The Stock Market Sell-Off On A Pullback In Buybacks, BI

2--Goldman Makes It Official That the Stock Market is Manipulated, Buybacks Drive Valuations

3--This is the 'doomsday' bond market scenario, cnbc

4--IMF warns of low interest rate threat, guardian

5--Values of Homes Owned by African Americans Take Outsized Hit Compared to Those Owned by Whites, A Prospect

6-Rebirth Of The Toxic Twins , Mel Watt, Subprime Redux, IBD

7--Corps reduce stock buybacks, WSJ

8---The Buyback Party Is Indeed Over: Stock Repurchases Tumble In The Second Quarter, zero hedge

9--Party's coming to a close for high-debt companies, cnbc

10--Lonely Bond Buyers Feel Deserted When Junk-Market Rout Heats Up , Bloomberg

11--Next worry—surging corporate debt levels, cnbc

12---New Dodd-Frank fix runs risk of Lehman-esque meltdown, the Hill

13---Market gyrations and the need for socialism, wsws

14---US boosts support for Kurdish militia in Syria, wsws

15---FHFA Director Watt Wants to Expand Credit Availability, Manage Risk to GSEs, DS News


Monday, October 20, 2014

Today's Links

1---Heavy borrowing to buy equities adds investors’ anxieties to skittish market, FT

Margin debt collated by the New York Stock Exchange peaked in February at $466bn and stood at $463bn in August. The peak in 2007 was $381bn. It hit a low of $173bn in early 2009.

Investors borrowed a record amount of money to buy US equities during the bull run, a risky strategy now casting a shadow over the S&P 500 amid market turbulence

Peaks in margin trading have been a precursor to bear runs in the past, notably in March 2000 and July 2007.

2---The Chart That Explains Why Fed's Bullard Wants To Restart The QE Flow, zero hedge
Tapering is Tightening.... as the flow of Fed free money slows... so equity performance suffers.

3---Rosengren: End QE? Maybe not., Reuters

The recent volatility in financial markets reinforces the need for the Federal Reserve to be patient with its policy stimulus and to clearly tie an eventual interest-rate rise to improving economic conditions, a top Fed policymaker told Reuters.....

Patient monetary policy probably makes sense," Rosengren, a dovish Fed official, said in an interview over the weekend. "Certainly the events of the last couple of weeks probably give some credence to thinking about being patient as well as trying to process some of the movements we're seeing."

4---Banks are lending again, but mostly to rich people, cnbc

Bank of America reported consumer loans down 3.5 percent from the same period a year ago. ...."
Meanwhile, Bank of America's Merrill Lynch Wealth Management reported loan growth up 8 percent.

5---“Liquidity is not what it used to be.” --- Leveraged Money Spurs Selloff as Record Treasuries Trade, Bloomberg

Risk aversion is growing at pension funds and insurance companies that have piled into less-liquid assets as the Federal Reserve maintained unprecedented stimulus for a sixth year. Investors owned $100 trillion of debt globally in the middle of 2013, up from $70 trillion six years earlier, according to the Bank for International Settlements.
The proportion of corporate-debt securities held by mutual funds has doubled since 2007 and now amounts to 27 percent of global high-yield debt, according to an October report by the International Monetary Fund. Investors placed a record $62.9 billion last year into mutual funds that buy leveraged loans, which are mostly speculative-grade, aren’t regulated as securities and trade by appointment only, Lipper data show.

Higher Risks

The mountain of assets held by investors has “raised market and liquidity risks in ways that could compromise financial stability if left unaddressed,” according to the IMF report. “The increased sensitivity of credit markets could make the exit process more volatile, potentially undermining the ability of the financial system to support the recovery.”
Measured by the value of stock trading, a figure increased by the 179 percent rally in the Standard & Poor’s 500 Index (SPX) during the last 5 1/2 years, volume was the highest since 2008.
Equity owners were blindsided by swings that erased the Dow Jones Industrial Average’s 2014 gain and wiped out $672 billion of global market value. The 30-stock gauge swung in a 458-point range on Oct. 15, the widest since 2011. Its 263-point rally on Oct. 17 trimmed the weekly decline to 1 percent, the fourth consecutive drop....

Leverage among hedge funds that speculate on rising and falling security prices is near the highest in the past five years, data compiled by Credit Suisse Group AG (CSGN) show....
The 22 dealers that do business with the Fed reduced their net holdings of high-yield bonds by $1.7 billion in the two weeks ended Oct. 8 to a net $6.3 billion, Fed data show. They were joining the crowd in selling, with high-yield bond mutual funds receiving $7.4 billion of withdrawals since mid-September, according to data compiled by Wells Fargo & Co. (WFC)

6--Death by CIA  Press TV reporter in Turkey killed in suspicious car accident, Press TV

7---Leaked documents expose secret contracts between NSA and tech companies, wsws

8---Pleas to major powers from Ebola-stricken countries, health professionals fall on deaf ears, wsws

The World Health Organization (WHO) reported Thursday that it has received only $100,000 in donations from world governments out of $20 million pledged...

The American ruling elite and the American media have whipped up an atmosphere of panic about the handful of US cases while virtually ignoring the massive crisis in West Africa....

Washington’s response to the Ebola crisis has followed that template. Last month, Obama ordered 3,000 US troops into Liberia, ostensibly to build Ebola treatment facilities. Last week another 1,000 troops were added to the deployment, which is intended to pave the way for a permanent base for the Pentagon’s Africa Command (AFRICOM) in the region.
The Pentagon is also using the crisis to flex its muscles at home, albeit on a small scale initially. Defense Secretary Chuck Hagel announced Sunday that he had tasked the US Northern Command, established by George W. Bush after the 9/11 attacks as the first-ever combat headquarters on US soil, to create a rapid response team for the Ebola crisis. This will consist initially of only 30 military personnel, mostly doctors and nurses, but it is a further step in conditioning the American population to the use of the military at home

9---Germany’s intel agency says MH17 downed by Ukraine militia – report, RT

10---Obscuring the Past: Intelligence Agency Destroyed Files on Former SS Members
By Klaus Wiegrefe, Der Speigel
Historians conducting an internal study of ties between employees of the German foreign intelligence agency and the Third Reich have made a shocking discovery. In 2007, the BND destroyed personnel files of employees who had once been members of the SS and the Gestapo.

11--Ebola: Made in the USA?, Info clearinghouse

12--The plot against higher education, politico

13---In April, 100% of economists thought rates would rise over next 6 months (sign of economic improvement), FT

No fewer than 97 per cent of economists surveyed by Bloomberg in January expected interest rates as set by the bond market to rise over the next six months. By April, this figure rose to 100 per cent. Instead, the yields fell steadily all year – until this week, when the fall turned into a rout. Many investors were caught betting the wrong way and had to abandon bets that had already lost them a lot of money.

14--What is global market turbulence telling us? (more on rising 10 year yields), FT

15---Housing affordability is hovering near post crisis lows, according to analysts at Bank of America Merrill Lynch in a note to clients. 
“Even though mortgage rates declined modestly this week, we believe they are still 50-100 basis points too high, and are creating low affordability conditions in the housing market. In order for housing affordability to move up from post-crisis lows, and allow for a sustainable and meaningful increase in housing activity, we think 30-year mortgage rates need to drop from the current reading of 3.93% down to the 3.0%-3.5% range,” they write.
“If that does not happen, and rates move higher on a sustained basis, we see further declines in both mortgage production and associated housing activity from the already anemic levels of 2014. The higher rate scenario remains a riddle for us, as we fail to see how an acceptable growth scenario happens without housing's participation.”
The widely held consensus that Federal Housing Finance Agency Director Mel Watt will announce loosening of GSE credit standards, in a speech at this week's Mortgage Bankers Association annual conference and expo, does not materially change the analysts’ view on persistent weakness in mortgage production.

16--PE funds fall behind index funds, Baker


As the chart shows, the median PE fund in each vintage since 2005 has failed to beat the stock market. Even this is not entirely accurate since it doesn’t take into account the much larger capital commitments by private equity partners during boom periods than during recessions. But the message is clear. Pension funds and other limited partners would have been better off investing in a passive stock market index fund.