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.


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