Macroeconomia Crisi finanziaria e sviluppi (1 Viewer)
- Creatore Discussione METHOS
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Imark
Forumer storico
Aggiornamento sulla vicenda dell'ampiezza delle restrizioni che gli USA potrebbero varare alla operatività delle banche commerciali... pare che il punto di vista di Volcker per un ritorno alla situazione sancita dalla Glass Steagall Act in ordine al divieto (o a forti limiti) per le banche commerciali nelle attività di proprietary trading possa essere fatto proprio da Obama nel rafforzamento di un progetto di riforma del settore finanziario predisposto dal Parlamento USA.
Official: Obama seeks bigger banking restrictions - Yahoo! Finance
Official: Obama seeks bigger banking restrictions - Yahoo! Finance
troppidebiti
Forumer storico
evasione fiscale delle banche...tutto il mondo è paese
Banks' Derivatives Activity Falls Under IRS Scrutiny - Cerca con Google
Banks' Derivatives Activity Falls Under IRS Scrutiny - Cerca con Google
stockuccio
Guest
Obama: «Le banche lavorino
con noi e non contro di noi»
Barack Obama ha annunciato un progetto di riforma bancaria che si propone di restringere le attività e le dimensioni delle banche americane per evitare che in futuro ci sia una banca «troppo grande per poter fallire».
L'obiettivo è ambizioso: passare una riforma bancaria che torni a separare, ad esempio, in modo più netto le attività di banca commerciale da quelle di banca d'affari, per evitare che si formino posizioni di rischio pericolose per il sistema finanziario.
Le banche commerciali che hanno filiali e depositi dei risparmiatori avranno anche nuovi limiti sulle percentuali dei depositi che potranno accumulare in relazione ai depositi totali del paese. E non potranno più fare il cosiddetto "propriety trading", operazioni sul mercato per conto del proprio portafoglio. Obama costringerà così importanti banche come JP Morgan Chase o Bank of America a decidere che direzione vorranno imboccare. Una potenziale rivoluzione dunque, senza che vi siano per ora dettagli specifici. E una nuova battaglia politica che il presidente ingaggerà in Congresso, dove le lobby bancarie sono fortissime.
L'annuncio di Obama è giunto dopo un incontro con Paul Volcker, ex numero uno della Federal Reserve e attuale presidente dell'Economic Recovery Advisory Board della Casa Bianca. «Il sistema finanziario è più solido ora di quanto non fosse un anno fa, ma opera ancora in base alle stesse regole che lo hanno quasi portato al collasso», ha detto Obama, ribadendo che «una riforma è necessaria» e invitando i colossi del sistema finanziario a «lavorare con noi, non contro di noi».
«I contribuenti americani non saranno presi in ostaggio dalle banche too big to fail», ovvero quegli istituti che, fallendo, metterebbero a rischio l'intero sistema finanziario. Se la proposta di Obama fosse approvata dal Congresso, le banche andrebbero incontro a limitazioni sulle dimensioni e la natura degli istituti, che nell'arco dell'ultimo decennio sono cresciuti a dismisura attraverso un'ondata di operazioni di consolidamento aziendale. E per chi ritiene che Obama sia debole politicamente o chi, come il Nobel Paul Krugman, minaccia di toglierli il suo appoggio, come ha ammonito oggi nel suo blog, perché il Presidente «ha una leadership debole» dovrà ricredersi.
Obama promette di andare fino in fondo: «È una battaglia che sono pronto a combattere», ha detto l'inquilino della Casa Bianca puntando l'indice contro le banche e «quel genere di irresponsabilità che rende questa riforma necessaria». Possiamo credergli perché per lui è ormai una questione di sopravvivenza politica: questa battaglia diventa centrale per Obama perché ha un risvolto populista. Ed il populismo è l'unica arma con cui il Presidente può cercare di ricollegare la sua credibilità politica con l'opinione pubblica.
Nello specifico, la proposta del presidente, che ha in questo senso accolto un suggerimento di Volcker, vieterebbe alle banche commerciali e alle società che controllano banche di possedere o investire in hedge fund e private equity. Inoltre sarebbero limitate le dimensioni di ogni istituto finanziario in relazione all'intero settore: sarebbe rivisto l'attuale limite del 10% sulla quota di depositi totali che ogni banca può detenere.
«Stiamo facendo tutto il possibile per riportare il paese in carreggiata. Assisto al ritorno al vecchio modo di condurre gli affari, vedo banche riportare profitti record ma allo stesso tempo dire di non potere concedere prestiti alle piccole imprese, sento dire alle banche che non possono restituire i prestiti del Governo. Per questo sono sempre più risoluto a portare avanti questa riforma». Tra le banche coinvolte ci potrebbero essere Wells Fargo, Bank of America, JpMorgan Chase, che controllano ampie fette dei depositi americani, ma anche Goldman Sachs, Morgan Stanley e Citigroup, autentici moloch di Wall Street.
http://www.ilsole24ore.com/art/Sole...ac-11df-95a1-a27b81b5948d&DocRulesView=Libero
con noi e non contro di noi»
Barack Obama ha annunciato un progetto di riforma bancaria che si propone di restringere le attività e le dimensioni delle banche americane per evitare che in futuro ci sia una banca «troppo grande per poter fallire».
L'obiettivo è ambizioso: passare una riforma bancaria che torni a separare, ad esempio, in modo più netto le attività di banca commerciale da quelle di banca d'affari, per evitare che si formino posizioni di rischio pericolose per il sistema finanziario.
Le banche commerciali che hanno filiali e depositi dei risparmiatori avranno anche nuovi limiti sulle percentuali dei depositi che potranno accumulare in relazione ai depositi totali del paese. E non potranno più fare il cosiddetto "propriety trading", operazioni sul mercato per conto del proprio portafoglio. Obama costringerà così importanti banche come JP Morgan Chase o Bank of America a decidere che direzione vorranno imboccare. Una potenziale rivoluzione dunque, senza che vi siano per ora dettagli specifici. E una nuova battaglia politica che il presidente ingaggerà in Congresso, dove le lobby bancarie sono fortissime.
L'annuncio di Obama è giunto dopo un incontro con Paul Volcker, ex numero uno della Federal Reserve e attuale presidente dell'Economic Recovery Advisory Board della Casa Bianca. «Il sistema finanziario è più solido ora di quanto non fosse un anno fa, ma opera ancora in base alle stesse regole che lo hanno quasi portato al collasso», ha detto Obama, ribadendo che «una riforma è necessaria» e invitando i colossi del sistema finanziario a «lavorare con noi, non contro di noi».
«I contribuenti americani non saranno presi in ostaggio dalle banche too big to fail», ovvero quegli istituti che, fallendo, metterebbero a rischio l'intero sistema finanziario. Se la proposta di Obama fosse approvata dal Congresso, le banche andrebbero incontro a limitazioni sulle dimensioni e la natura degli istituti, che nell'arco dell'ultimo decennio sono cresciuti a dismisura attraverso un'ondata di operazioni di consolidamento aziendale. E per chi ritiene che Obama sia debole politicamente o chi, come il Nobel Paul Krugman, minaccia di toglierli il suo appoggio, come ha ammonito oggi nel suo blog, perché il Presidente «ha una leadership debole» dovrà ricredersi.
Obama promette di andare fino in fondo: «È una battaglia che sono pronto a combattere», ha detto l'inquilino della Casa Bianca puntando l'indice contro le banche e «quel genere di irresponsabilità che rende questa riforma necessaria». Possiamo credergli perché per lui è ormai una questione di sopravvivenza politica: questa battaglia diventa centrale per Obama perché ha un risvolto populista. Ed il populismo è l'unica arma con cui il Presidente può cercare di ricollegare la sua credibilità politica con l'opinione pubblica.
Nello specifico, la proposta del presidente, che ha in questo senso accolto un suggerimento di Volcker, vieterebbe alle banche commerciali e alle società che controllano banche di possedere o investire in hedge fund e private equity. Inoltre sarebbero limitate le dimensioni di ogni istituto finanziario in relazione all'intero settore: sarebbe rivisto l'attuale limite del 10% sulla quota di depositi totali che ogni banca può detenere.
«Stiamo facendo tutto il possibile per riportare il paese in carreggiata. Assisto al ritorno al vecchio modo di condurre gli affari, vedo banche riportare profitti record ma allo stesso tempo dire di non potere concedere prestiti alle piccole imprese, sento dire alle banche che non possono restituire i prestiti del Governo. Per questo sono sempre più risoluto a portare avanti questa riforma». Tra le banche coinvolte ci potrebbero essere Wells Fargo, Bank of America, JpMorgan Chase, che controllano ampie fette dei depositi americani, ma anche Goldman Sachs, Morgan Stanley e Citigroup, autentici moloch di Wall Street.
http://www.ilsole24ore.com/art/Sole...ac-11df-95a1-a27b81b5948d&DocRulesView=Libero
stockuccio
Guest
Scandal: Albert Edwards Alleges Central Banks Were Complicit In Robbing The Middle Classes
We apologize in advance for the NY Magazine-style headline, but this is a report that has to be read by all Senators who are preparing to reconfirm Bernanke for a second term. When voting for the Chairman, be aware that all of America will now look at you as the perpetrators who are encouraging the greatest inter and intra-generational theft to continue, and as prescribed by Newton 3rd law, sooner or later, an appropriate reaction will come from the very same middle class that you are seeking to doom into a state of perpetual penury and a declining standard of living.
America spoke in Massachusetts, and will speak again very soon if you do not send the appropriate signal that you have heard its anger - Do Not Reconfirm Bernanke.
You have been warned.
We present Albert Edwards' latest in its complete form as it must be read by all unabridged and without commentary. These are not the deranged ramblings of a fringe blogger - this is a chief strategist for a major international bank.
Theft! Were the US & UK central banks complicit in robbing the middle classes?
by Albert Edwards, Societe Generale
Mr Bernanke’s in-house Fed economists have found that the Fed wasn’t responsible for the boom which subsequently turned into the biggest bust since the 1930s. Are those the same Fed staffers whose research led Mr Bernanke to assert in Oct. 2005 that “there was no housing bubble to go bust”? The reasons for the US and the UK central banks inflating the bubble range from incompetence and negligence to just plain spinelessness. Let me propose an alternative thesis. Did the US and UK central banks collude with the politicians to ‘steal’ their nations’ income growth from the middle classes and hand it to the very rich?
Ben Bernanke?s recent speech at the American Economic Association made me feel sick. Like Alan Greenspan, he is still in denial. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence.
The US and UK have seen a huge rise in inequality over the last two decades, as growth in national income has been diverted almost exclusively to the top income earners (see chart below). The middle classes have seen median real incomes stagnate over that period and, as a consequence, corporate margins and profits have boomed.
Some recent reading has got me thinking as to whether the US and UK central banks were actively complicit in an aggressive re-distributive policy benefiting the very rich. Indeed, it has been amazing how little political backlash there has been against the stagnation of ordinary people?s earnings in the US and UK. Did central banks, in creating housing bubbles, help distract middle class attention from this re-distributive policy by allowing them to keep consuming via equity extraction? The emergence of extreme inequality might never otherwise have been tolerated by the electorate (see chart below). And now the bubbles have burst, along with central banks? credibility, what now?
After reading Ben Bernanke?s speech, once again denying culpability for the bubble, I really didn?t know whether to laugh or cry (remember that Ben Bernanke, like Tim Geithner, was a key member of the Greenspan Fed). I feel like Peter Finch in the film Network, sticking my head out of the window and shouting "I'm as mad as hell and I'm not going to take it anymore!" Although criticism of the Fed (and the Bank of England) has now become louder and more widespread, I feel my longstanding derision for their actions during the so-called ?good years? puts me in a stronger position than some to offer further comment.
Opening my 2002-2005 file of old weeklies I did not have to go any further than the first paragraph of the top copy (end of December 2005). “As far as Alan Greenspan’s tenure at the Fed is concerned, we have spared few words of derision. We have made plain our views that the supposed US prosperity that has accompanied his tenure has been based on a grotesque mountain of debt. We have likened the economy to a Ponzi scheme which will ultimately collapse. He has allowed the funding of strong economic activity by mortgaging the US’s future against one bubble (equity) and then another (housing), which is now beginning to implode”. These are almost consensus thoughts now, but not then.
The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion. Blaming the banks is simply a pathetic attempt to deflect the public fury from their own gross and unforgivable incompetence. We have stated before that banks are not the primary cause of the bust. Just as in Japan, a decade earlier, bank problems are a symptom of the bust. It is the monetary and regulatory authorities that are responsible for this mess. And it is not just obvious in retrospect. It was perfectly obvious from the beginning.
I was shocked by a recent survey of Wall Street and business economists, published in the Wall Street Journal (see Bernanke View Doubted 14 Jan? link). Asked whether they agreed or disagreed with the proposition ‘excessively easy Fed policy in the first half of the decade helped cause a bubble in house prices’, some 42, or 74% agreed with the proposition. So unbelievably there are still 12 economists surveyed who did not agree! Even more incredible, a majority of academic economists did not agree with the proposition. Maybe they have sympathy for a fellow academic or maybe they actually believe the preposterous proposition that the western central banks were not in control of the bubbles which were primarily due to tidal waves of surplus savings washing across from Asia.
John Taylor shows this to be nonsense. There was no global savings glut (see chart below)
John Taylor is well known for his famous ?Taylor Rule? for the appropriate level of interest rates and he has been very vocal in his criticism of Fed laxity in the aftermath of the Nasdaq crash in his paper ?The Financial Crisis and Policy Responses: An Empirical Analysis of What Went Wrong’, Nov. 2008 and elsewhere - link. His thesis is simple. Lax monetary policy caused the boom in housing upon which euphoric credit excesses were built. The subsequent bust was an inevitable mirror image of the boom. This simply would not have occurred had the Fed (and the Bank of England) acted earlier to tighten policy as shown in the Taylor?s counterfactual profiles (see charts below).
More recently, the San Francisco Fed published a paper this month showing that those countries which saw the steepest run-up in house prices over the last decade also saw the largest rise in household sector leverage (see charts below and link). Of course the causality runs both ways. Loose monetary policy generates higher borrowing which pushes up house prices. Subsequently this prompts other households to borrow against the rising value of their houses to finance consumption via net equity extraction.
Generally most commentators have fallen for the populist line that the banks are to blame. Very rarely does a leading commentator pin the blame where it deserves to be ? on the central banks. Hence, I was very interested to read the Financial Times Insight column on Tuesday from the deep-thinking columnist, John Plender (interestingly his title in the print edition was “Blame the central bankers more than the private bankers” was changed to “Remove the punchbowl before the party gets rowdy” in the web edition - link).
Plender?s point is classic Minsky. An unusually long period of economic stability, also known as The Great Moderation, engineered by Central Bank laxity inevitably created the conditions for the subsequent bust. “Central banks clearly bear much responsibility for past excessive credit expansion. The Fed’s gradualist and transparent approach to raising rates in middecade also ensured that bankers were never shocked into a recognition that unprecedented shrinkage of bank equity was phenomenally dangerous. Despite the popular perception that financial innovation caused so much of the damage in the crisis, the rise in bank leverage was a far more important factor”. His point that it takes guts to remove the punch-bowl when the party is in full swing is spot on. The Fed and the Bank of England were both gutless and spineless. Their love affair with The Great Moderation meant they simply were not prepared to tolerate a little more pain now to avoid a Minsky credit bust and massive unemployment later.
But what is the relationship, if any, between this extreme central bank laxity in the US and UK and these countries being at the forefront for the extraordinary rise in inequality over the last few decades (see cover chart)? And does it matter?
I was reading some typically thought-provoking comments from Marc Faber in his Gloom, Boom and Doom report about current extremes of inequality. It reminded me that our own excellent US economists Steven Gallagher and Aneta Markowska had also written on this. To be sure, the rise in inequality has been staggering in the US in recent years (see charts below).
It is well worth visiting the website of Emmanuel Saez of the University of California who has written extensively on this subject and now has updated his charts up until the end of 2008 (data available in Excel Format ? link). The New York Times reported on the recently released Census Bureau data and showed not only that median income had declined over the last 10 years in real terms, but that this is the first full decade that real median household income has failed to rise in the US - link. What is also so interesting from Professor Saez?s cross-sectional research is how inequality has clearly risen fastest in the Anglosaxon, freemarket economies of the US and the UK (also note that France, with much higher levels of equality, saw much more subdued growth in household leverage).
Our US economists make the very interesting point (similar to Marc Faber) that peaks of income skewness ? 1929 and 2007 ? tell us there is something fundamentally unsustainable about excessively uneven income distribution. With a relatively low marginal propensity to consume among the rich, when they receive the vast bulk of income growth, as they have, then the country will face an under-consumption problem (see 9 September The Economic News ?- link. Marc Faber also cites John Hobson?s work on this same topic from the 1930s).
Hence, while governments preside over economic policies which make the very rich even richer, national consumption needs to be boosted in some way to avoid underconsumption ending in outright deflation. In addition, the middle classes also need to be thrown a sop to disguise the fact they are not benefiting at all from economic growth. This is where central banks have played their pernicious part.
I recalled seeing another article from John Plender on this topic back in April 2008. His explanation for why there had been so little backlash from the stagnation of ordinary people?s income at a time when the rich did so well was simple: ?"Rising asset prices, especially in the housing market, created a sense of increasing wealth regardless of income. Remortgaging homes over a long period of declining interest rates provided a convenient source of funds via equity withdrawal to finance increased consumption” – link.
Now you might argue central banks had no alternative in the face of under-consumption. Or you might conclude there was a deliberate, unspoken collusion among policymakers to ?rob? the middle classes of their rightful share of income growth by throwing them illusionary spending power based on asset price inflation. We will never know.
But it is clear in my mind that ordinary working people would not have tolerated these extreme redistributive policies had not the UK and US central banks played their supporting role. Going forward, in the absence of a sustained housing boom, labour will fight back to take its proper (normal) share of the national cake, squeezing profits on a secular basis. For as Bill Gross pointed out back in PIMCO?s investment outlook ?Enough is Enough’ of August 1997, "?When the fruits of society’s labor become maldistributed, when the rich get richer and the middle and lower classes struggle to keep their heads above water as is clearly the case today, then the system ultimately breaks down.”- link. In Japan, low levels of inequality and inherent social cohesion prevented a social breakdown in this post-bubble debacle. With social inequality currently so very high in the US and the UK, it doesn?t take much to conclude that extreme inequality could strain the fabric of society far closer to breaking point.
We apologize in advance for the NY Magazine-style headline, but this is a report that has to be read by all Senators who are preparing to reconfirm Bernanke for a second term. When voting for the Chairman, be aware that all of America will now look at you as the perpetrators who are encouraging the greatest inter and intra-generational theft to continue, and as prescribed by Newton 3rd law, sooner or later, an appropriate reaction will come from the very same middle class that you are seeking to doom into a state of perpetual penury and a declining standard of living.
America spoke in Massachusetts, and will speak again very soon if you do not send the appropriate signal that you have heard its anger - Do Not Reconfirm Bernanke.
You have been warned.
We present Albert Edwards' latest in its complete form as it must be read by all unabridged and without commentary. These are not the deranged ramblings of a fringe blogger - this is a chief strategist for a major international bank.
Theft! Were the US & UK central banks complicit in robbing the middle classes?
by Albert Edwards, Societe Generale
Mr Bernanke’s in-house Fed economists have found that the Fed wasn’t responsible for the boom which subsequently turned into the biggest bust since the 1930s. Are those the same Fed staffers whose research led Mr Bernanke to assert in Oct. 2005 that “there was no housing bubble to go bust”? The reasons for the US and the UK central banks inflating the bubble range from incompetence and negligence to just plain spinelessness. Let me propose an alternative thesis. Did the US and UK central banks collude with the politicians to ‘steal’ their nations’ income growth from the middle classes and hand it to the very rich?
Ben Bernanke?s recent speech at the American Economic Association made me feel sick. Like Alan Greenspan, he is still in denial. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence.
The US and UK have seen a huge rise in inequality over the last two decades, as growth in national income has been diverted almost exclusively to the top income earners (see chart below). The middle classes have seen median real incomes stagnate over that period and, as a consequence, corporate margins and profits have boomed.
Some recent reading has got me thinking as to whether the US and UK central banks were actively complicit in an aggressive re-distributive policy benefiting the very rich. Indeed, it has been amazing how little political backlash there has been against the stagnation of ordinary people?s earnings in the US and UK. Did central banks, in creating housing bubbles, help distract middle class attention from this re-distributive policy by allowing them to keep consuming via equity extraction? The emergence of extreme inequality might never otherwise have been tolerated by the electorate (see chart below). And now the bubbles have burst, along with central banks? credibility, what now?
After reading Ben Bernanke?s speech, once again denying culpability for the bubble, I really didn?t know whether to laugh or cry (remember that Ben Bernanke, like Tim Geithner, was a key member of the Greenspan Fed). I feel like Peter Finch in the film Network, sticking my head out of the window and shouting "I'm as mad as hell and I'm not going to take it anymore!" Although criticism of the Fed (and the Bank of England) has now become louder and more widespread, I feel my longstanding derision for their actions during the so-called ?good years? puts me in a stronger position than some to offer further comment.
Opening my 2002-2005 file of old weeklies I did not have to go any further than the first paragraph of the top copy (end of December 2005). “As far as Alan Greenspan’s tenure at the Fed is concerned, we have spared few words of derision. We have made plain our views that the supposed US prosperity that has accompanied his tenure has been based on a grotesque mountain of debt. We have likened the economy to a Ponzi scheme which will ultimately collapse. He has allowed the funding of strong economic activity by mortgaging the US’s future against one bubble (equity) and then another (housing), which is now beginning to implode”. These are almost consensus thoughts now, but not then.
The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion. Blaming the banks is simply a pathetic attempt to deflect the public fury from their own gross and unforgivable incompetence. We have stated before that banks are not the primary cause of the bust. Just as in Japan, a decade earlier, bank problems are a symptom of the bust. It is the monetary and regulatory authorities that are responsible for this mess. And it is not just obvious in retrospect. It was perfectly obvious from the beginning.
I was shocked by a recent survey of Wall Street and business economists, published in the Wall Street Journal (see Bernanke View Doubted 14 Jan? link). Asked whether they agreed or disagreed with the proposition ‘excessively easy Fed policy in the first half of the decade helped cause a bubble in house prices’, some 42, or 74% agreed with the proposition. So unbelievably there are still 12 economists surveyed who did not agree! Even more incredible, a majority of academic economists did not agree with the proposition. Maybe they have sympathy for a fellow academic or maybe they actually believe the preposterous proposition that the western central banks were not in control of the bubbles which were primarily due to tidal waves of surplus savings washing across from Asia.
John Taylor shows this to be nonsense. There was no global savings glut (see chart below)
John Taylor is well known for his famous ?Taylor Rule? for the appropriate level of interest rates and he has been very vocal in his criticism of Fed laxity in the aftermath of the Nasdaq crash in his paper ?The Financial Crisis and Policy Responses: An Empirical Analysis of What Went Wrong’, Nov. 2008 and elsewhere - link. His thesis is simple. Lax monetary policy caused the boom in housing upon which euphoric credit excesses were built. The subsequent bust was an inevitable mirror image of the boom. This simply would not have occurred had the Fed (and the Bank of England) acted earlier to tighten policy as shown in the Taylor?s counterfactual profiles (see charts below).
More recently, the San Francisco Fed published a paper this month showing that those countries which saw the steepest run-up in house prices over the last decade also saw the largest rise in household sector leverage (see charts below and link). Of course the causality runs both ways. Loose monetary policy generates higher borrowing which pushes up house prices. Subsequently this prompts other households to borrow against the rising value of their houses to finance consumption via net equity extraction.
Generally most commentators have fallen for the populist line that the banks are to blame. Very rarely does a leading commentator pin the blame where it deserves to be ? on the central banks. Hence, I was very interested to read the Financial Times Insight column on Tuesday from the deep-thinking columnist, John Plender (interestingly his title in the print edition was “Blame the central bankers more than the private bankers” was changed to “Remove the punchbowl before the party gets rowdy” in the web edition - link).
Plender?s point is classic Minsky. An unusually long period of economic stability, also known as The Great Moderation, engineered by Central Bank laxity inevitably created the conditions for the subsequent bust. “Central banks clearly bear much responsibility for past excessive credit expansion. The Fed’s gradualist and transparent approach to raising rates in middecade also ensured that bankers were never shocked into a recognition that unprecedented shrinkage of bank equity was phenomenally dangerous. Despite the popular perception that financial innovation caused so much of the damage in the crisis, the rise in bank leverage was a far more important factor”. His point that it takes guts to remove the punch-bowl when the party is in full swing is spot on. The Fed and the Bank of England were both gutless and spineless. Their love affair with The Great Moderation meant they simply were not prepared to tolerate a little more pain now to avoid a Minsky credit bust and massive unemployment later.
But what is the relationship, if any, between this extreme central bank laxity in the US and UK and these countries being at the forefront for the extraordinary rise in inequality over the last few decades (see cover chart)? And does it matter?
I was reading some typically thought-provoking comments from Marc Faber in his Gloom, Boom and Doom report about current extremes of inequality. It reminded me that our own excellent US economists Steven Gallagher and Aneta Markowska had also written on this. To be sure, the rise in inequality has been staggering in the US in recent years (see charts below).
It is well worth visiting the website of Emmanuel Saez of the University of California who has written extensively on this subject and now has updated his charts up until the end of 2008 (data available in Excel Format ? link). The New York Times reported on the recently released Census Bureau data and showed not only that median income had declined over the last 10 years in real terms, but that this is the first full decade that real median household income has failed to rise in the US - link. What is also so interesting from Professor Saez?s cross-sectional research is how inequality has clearly risen fastest in the Anglosaxon, freemarket economies of the US and the UK (also note that France, with much higher levels of equality, saw much more subdued growth in household leverage).
Our US economists make the very interesting point (similar to Marc Faber) that peaks of income skewness ? 1929 and 2007 ? tell us there is something fundamentally unsustainable about excessively uneven income distribution. With a relatively low marginal propensity to consume among the rich, when they receive the vast bulk of income growth, as they have, then the country will face an under-consumption problem (see 9 September The Economic News ?- link. Marc Faber also cites John Hobson?s work on this same topic from the 1930s).
Hence, while governments preside over economic policies which make the very rich even richer, national consumption needs to be boosted in some way to avoid underconsumption ending in outright deflation. In addition, the middle classes also need to be thrown a sop to disguise the fact they are not benefiting at all from economic growth. This is where central banks have played their pernicious part.
I recalled seeing another article from John Plender on this topic back in April 2008. His explanation for why there had been so little backlash from the stagnation of ordinary people?s income at a time when the rich did so well was simple: ?"Rising asset prices, especially in the housing market, created a sense of increasing wealth regardless of income. Remortgaging homes over a long period of declining interest rates provided a convenient source of funds via equity withdrawal to finance increased consumption” – link.
Now you might argue central banks had no alternative in the face of under-consumption. Or you might conclude there was a deliberate, unspoken collusion among policymakers to ?rob? the middle classes of their rightful share of income growth by throwing them illusionary spending power based on asset price inflation. We will never know.
But it is clear in my mind that ordinary working people would not have tolerated these extreme redistributive policies had not the UK and US central banks played their supporting role. Going forward, in the absence of a sustained housing boom, labour will fight back to take its proper (normal) share of the national cake, squeezing profits on a secular basis. For as Bill Gross pointed out back in PIMCO?s investment outlook ?Enough is Enough’ of August 1997, "?When the fruits of society’s labor become maldistributed, when the rich get richer and the middle and lower classes struggle to keep their heads above water as is clearly the case today, then the system ultimately breaks down.”- link. In Japan, low levels of inequality and inherent social cohesion prevented a social breakdown in this post-bubble debacle. With social inequality currently so very high in the US and the UK, it doesn?t take much to conclude that extreme inequality could strain the fabric of society far closer to breaking point.
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Guest
delle regole se ne strafregano comunque New off-balance sheet rule: Little impact on Wells | Analysis & Opinion | Reuters
consolidano 10 miliardi di SPEs e VIEs con oltre 2000 fuori bilancio
New off-balance sheet rule: Little impact on Wells | Analysis & Opinion | Reutersconsolidano 10 miliardi di SPEs e VIEs con oltre 2000 fuori bilancio
Ultima modifica di un moderatore:
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Guest
The $700 Billion U.S. Funding Hole; Desperately Seeking A Very Indiscriminate Treasury Buyer
A month ago we observed that in 2010, the supply/demand picture for US fixed income would be very problematic, as there was no immediate apparent substitute to fill the void resulting from the departure of the constant bid provided by the Federal Reserve's Quantitative Easing in both the UST and the MBS markets. The conclusion was that there would need to be a dramatic increase in demand for debt securities across the board, with an emphasis of Treasuries and MBS.
Today, we focus on the most critical segment of debt issuance for 2010 - those ever critical US Treasuries, without whose weekly uptake by various investors, the multitrillion budget deficit will become unfundable. Using estimates from Morgan Stanley for 2010 Treasury supply and demand, the conclusion is that there will be a demand shortfall of at least half a trillion, and realistically $700 billion, to satisfy the roughly $1.7 trillion in net ($2.4 trillion gross) coupon issuance in the upcoming year.
The implication is that back end prices will decline sharply due to an ever increasing supply overhang, even as nearly $800 billion in Bills are paid down, thereby further accentuating the steepness of the bond curve. And with ever more emphasis put on the coupon supply, the marginal yield on long-dated Treasuries will likely find it needs to be increasingly more attractive to find bidders, which in turn will jar mortgage rates out of hibernation. We are now certain that Q.E. will continue: the weakness in the mortgage backed-market is already becoming a topic of contention, and when it becomes apparent that there is an additional $700 billion demand void in Treasuries, then it is merely a matter of time before Ben (or his successor) realizes the dollar destruction comeback tour has to resume asap. Those cynically inclined may wonder why Bernanke's reconfirmation should take place prior to any potential Q.E. 2 announcement. Perhaps this country's Senators would further evaluate their support of the Chairman once they experience the popular anger which will accompany the next leg down in the US currency the minute Mr. Bernanke announces that the Fed will need to continue being the market in treasuries and mortgage backed securities, further eroding the collateral behind the greenback.
First, based on Morgan Stanley's expectations, and further corroborated by yesterday's disclosure that the next increase in the debt ceiling by $1.9 trillion net, to $14.3 trillion, would last the country only through early 2011, we present the estimated supply of gross coupon issuance in the upcoming fiscal year (keep in mind one quarter of issuance has already been absorbed and the run-rate validates the projections).
After issuing a $1.9 trillion gross amount of coupons in F2009, in 2010 this amount is expected to increase by 30% to $2.4 trillion, with an emphasis on long-dated maturities: per the chart above, the average age of new gross coupon issuance (excluding Bill impact) will increase from 5.9 years to 6.4 years in 2010.
In 2010, net issuance will be substantially lower than gross according to MS, due to an increase in maturities, and "only" $1.7 trillion in net new coupon bonds, $425 billion more than 2009, are expected to be issued by the US Treasury: this number may well be an underestimation as the Senate, which likely has far more granular issuance projections, is calling for $1.9 trillion in net issues (in addition to the $300 billion temporary increase which passed late last year) which would fund the US budget for about a year. One offsetting feature of net issuance in 2010 will be a surge in paydowns in Bills, which are expected to be a net negative contributor to issuance to the tune of $775 billion (of which $275 billion has already taken place in Q1 of fiscal 2010, primarily as a function of the $195 billion in SFP bills rolling off).
So far so good- the supply picture is clear, and in reality the final amount will probably end up being substantially higher than $1.7 trillion net, as the runaway deficit-creating machine in D.C. will stop at nothing to prove that any one failed auction will destroy this country.
Where things get tricky is on the demand side.
As we pointed out previously, the number one defining feature of 2009 was the Fed's blatant support of the bond and MBS markets. Bernanke monetized $300 billion in Treasuries, and indirectly will have purchased another $1.4 trillion in bond/MBS hybrids (we say indirectly, because Fed MBS purchases effectively allowed MBS holders to switch their holdings to Treasuries at preferential terms, better known as the "reallocation trade" in essence achieving the same effect as if the Fed has purchased these - see Bill Gross). With the Fed out of the demand picture (at least temporarily), the questionmarks emerge.
Combining the supply and demand for Treasuries yields the following chart. Fact: in 2010, a best case of demand projections, indicates there will be a $400 billion shortfall for total Treasury supply... and a worst case of a stunning $700 billion funding shortfall. This is "just" a little worse than Greece, yet the latter's CDS trades trades nearly ten times wider than the U.S. Logical? You decide.
The key variable in this exercise is quantized and overall demand, which is why a detailed analysis of each end segment must be performed to understand the demand mechanics.
Foreign Accounts
On December 31, 2009, a majority of U.S. debt (marketable Bill, Coupons, TIPS) was held by foreigners, making America a net foreign creditor nation. Compare this with Japan, where 93% of sovereign bonds are held by domestic accounts. Yet over the past several years, the US has become increasingly reliant on foreign generosity: foreign demand has grown from $143 billion in 2007 to $794 billion in 2009. And even as foreigners have purchased an increasingly greater amount in absolute terms, the relative composition has in fact declined in the past year: foreign demand dropped from 76% in 2008 to 46% in 2009.
An even more granular analysis of foreign purchases, indicates that as foreigners rushed into the safety of Bills, demand for coupons actually declined. Also notable is that foreign demand for coupons has never moved too far, and has stayed in the range of $192-$370 billion each year.
The biggest problem this data indicates is that foreign demand will not go willingly with the Treasury's demand to extend the average Treasury maturity from 4 to 7 years: foreigners purchased 145% of the Fiscal 2008 net issuance of $255 and a meager 26% of the Fiscal 2009 of $1,271 billion.
And herein lies the rub, as MS points out, the foreign bid is usually a direct function of the amount of global trade and the associated trade gap experienced by the U.S. Historically, the excess trade gap was not an issue, as China, Japan and net exporter partners had to recycle their otherwise useless dollars back in the U.S., and they did so by purchasing U.S. bonds, thereby allowing U.S. consumers to borrow ever cheaper and to purchase yet more Chinese and Japanese trinkets, rinse, repeat.
As Zero Hedge pointed out some time ago, the deputy governor of the PBoC, Zhu Min, said the most logical, yet scariest, thing for the US Treasury.
Based purely on global trade surplus/deficits, it is likely that the foreign bid would purchase $300-$400 in coupon Treasuries in 2010. However, in evaluating foreign demand in 2010 one has to consider the Bill/MBS reallocation trade. A big question mark for 2010 will be whether foreigners will reinvest Bill holdings purchased at an above average rate in 2008 and 2009 (see Foreign Bill Vs Coupon Purchases). The demand for Bills occurred due to reallocation away from Agencies/MBS and corporates, which can be seen from the below chart. Here it becomes visible why the Fed's MBS program was the practical equivalent of a Treasury QE extension. The Fed was acquiring foreigners' MBS and Agencies at prices that would allow them to buy Bills (and sometimes Coupons) in kind.
With non-Fed demand for MBS still non-existent (and, in fact, everyone selling into the Fed's bid), and a reduced issuance of Bills in 2010, it remains to be seen what assets foreigners will reallocate to. This "reallocation" trade will likely add another $200 billion to the $300-400 billion estimated above, thus bringing total demand for Coupons to $500-600 billion, offset by a Bill outflow of $300-400 billion.
Household Sector
Recently the "Household" sector as defined in the Federal Reserve's Flow of Funds, attained some notoriety after, as Zero Hedge disclosed first, Eric Sprott brought up allegations of covert monetization and general ponziness by the Fed via the "Household" sector. We will stay away from semantics, and present what is known: at the end of 2009, "households" held 12% of Treasury debt, or $800 billion: less than a quarter of Foreign holdings of $3.6 trillion. The inappropriately-named household sector consists of individual households, nonprofits, hedge funds, private equty, private foundations, labor unions and others, and Treasury holdings allocated to it, are calculated as a differential between total USTs outstanding and known amounts held by other investors. Basically, it serves as a plug to "everything else."
Regardless of semantics, a critical point must be added to the Sprott analysis, and also to Goldman's optimistic outlook on bonds, which is predicated on increased household purchases. As a reminder, Goldman speculates:
The chart below demonstrates the historical holdings progression between Savings Bonds and Other Treasuries. As can be seen, actual households have not been active purchasers at all in the recent bond buying spree.
Yet while it will take much more to convince Goldman in its faulty assumptions, what is without doubt, is that the same "reallocation" trade that has taken place in Foreign purchasing, has been paralleled in the Household sector. As the chart below shows, while Treasury holdings have surged over the past year, this has been purely a function of a collapse in Agency/MBS holdings. In fact, in the past year, MBS holdings in the Household category have fallen by a stunning $772 billion, from $840 billion a year ago to just $68 billion most recently. This has been accompanied by a less than half increase in Treasuries in the last 12 months: from $493 billion to $860 billion, a $367 billion increase, and less than half the decline in MBS.
Just like the reallocation trade has been critical to spur demand in foreign purchasers for USTs as they have rotated out MBS with the Fed lifting any and all foreign offers, so has the Fed been busy domestically. Comparing the action over the past 3 years, from the peak of the housing bubble (2006-2009 period), indicates that the reallocation trade accounts for nearly a dollar-for-dollar move out of MBS, which declined by $352 billion from $420 billion to $68 billion, into Treasuries, which in turn increased by $344 billion, from $516 billion to $860 billion.
With just $68 billion left in Households' MBS holdings, the reallocation is over, which means that the household sector will no longer be a major purchaser of Treasuries, and all of this on the backdrop of actual consumers, whose Saving Bonds holdings have dropped from $197 billion to $192 billion over the past two years. On the other hand, should "Households" end up purchasing substantially more than expected, then the Sprott thesis will have to be seriously revisited.
Commercial Banks
A major wildcard for 2010 Treasury demand will come from commercial banks, whose $1+ trillion in excess reserves, courtesy of flawed monetary policy, may be used if not to spur consumer lending, then at least to acquire treasuries. As was shown previously, banks held only $200 billion in Treasuries at the end of 2009, making them the second to last holder, yet the massive dry powder on their books, as well as possible political prerogatives, will likely make this sector a major purchaser of Treasuries.
Empirically, banks add to their Treasury holdings at the end of recessions, when banks have capital to allocate, yet consumer and small-business loan opportunities remain weak. This can be seen on the chart below:
This is also evident when one considers that change in bank UST holdings, compared against the steepness of the yield curve: it makes all the sense in the world that banks would increase Treasury holdings in a steep yield curve environment.
Yet even if banks unleash the full power of their excess reserve holdings it will likely not do much for back end supply. The reason is that banks traditionally purchase USTs in the 2-4 year sector, as they get most of their duration via their mortgage holdings, and with rising rates, existing duration has grown. As banks receive much better returns by lending direct, moves along the curve are i) rare and ii) merely placeholder measures until the economy improves, which explains their unwillingness to stray far on the back end of the curve.
The reason why this may be problematic is that there is an incremental $350 billion in new gross issuance in the 5Y - 30Y part of the curve alone, which is precisely the part that is least attractive to the banking sector.
Another major concern to banks is the prevalent uncertainty about possible future inflation: the Fed's liquidity spigot is as worrying to banks as it is to all but the staunchest deflationists. Today, inflation uncertainty is near decade highs. Furthermore, even as 10 Year yields remain near all-time lows, 10 Y inflation expectations are rising fast.
In order to determine the pace of Treasury purchases, a comparison with prior recessions (including those of the 1970s, 1980s, and 1990s) indicates that following major recessions, banks increase their UST holdings by 1.6% to 2.7% of total assets (with an average increase of 2.2%), and this increase takes two years on average.
Of the $16.9 trillion in total banking assets as of June 2009, USTs accounted for $141 billion or 0.8%. Growing this number in value to 2.2% of projected total bank assets of $18.6 trillion in June 2011 in the low case, and 2.7% in the bear case, implies that between $421 and $513 billion in Treasuries would have to be purchased over the next two years. As $82 billion was purchased in H2 2009, this implies banks need to ramp up purchases to $225 billion per year in the low case, or about $4 billion per week. This represents about one-third the pace with which the Fed was monetizing/buying back bonds in 2009. The high case corresponds to an annual pace of $287 billion per year, or $6 billion per week: about half of the Fed's rate of purchases. Both cases, as noted above, would focus on Treasuries in the front-end of the curve.
As a result, it is expected that banks will purchase between $190 and $240 billion in Treasuries in 2010, which number also includes the $24 billion already purchased by domestic banks in Q1.
Broker-Dealers
Broker dealers, unlike the other mentioned purchasers, do not have an outright preference for Treasuries as a yielding instrument, but merely as a hedge for spread-product books (including corporates, CDS, MBS and agencies). As banks deleveraged in 2008 and 2009, they covered massive amounts of UST shorts as they sold off the underlying hedged securities. Indeed, in Fiscal 2009, B/Ds purchased a record $119 billion of Treasuries, following $86 billion in 2008. Not surprisingly, these coupon purchases occurred in the front end of the curve (1Y-5Y), again indicating B/D's aversion toward dated paper.
As of June 2009, the B/D deleveraging process appears to have ended, and in fact has reversed as leveraging has once again commenced: B/Ds sold $21 billion of Treasuries in Q4 2009. Therefore, Broker Dealers are expected to sell $25-50 billion in coupons in 2010.
Insurance/Pension Funds
Insurance funds are essentially banks-lite: they prefer to purchase treasuries in a steep yield curve environment. In 2009, insurance/pension funds were the fifth largest buyer of Treasuries ($56 billion from insurance firms and $37 billion from pension funds). With expectations of a steep yield curve (for now) likely staying in the 270-280 bps range, Insurance funds are expected to purchase about $100-$150 billion.
An upper ceiling to purchases is likely to come from the discount rate on defined benefit pension plans (around 6.5%), implying the yield on purchased Treasuries has to be at least 5.25%. Currently the highest yielding P-STRIPS in the 30 year sector offer just 5%. Insurance companies could very well become a purchasing force... however at materially lower levels.
Mutual Funds
In 2009 the fixed income mutual fund/ETF space saw unprecedented activity: doubling the $104 billion in 2008 inflows (2009 closed at $204 billion). Yet the vast majority of this amount went to chase higher-yielding, riskier assets: only $33 billion (16%) was allocated for UST purchases.
As allocation to these buyers seeks to outperform benchmarks, the allocation to USTs has traditionally stayed limited, and as a result 2010 demand from mutual funds/ETFs is expected to stay in line at around $50-75 billion. Furthermore, as has been repeatedly pointed out, equity inflows have been negative in 2009. If there is a reallocation trade whereby investors seek even riskier assets, 2009 could see a rotation out of broad fixed income into equities and even riskier assets (CDOs are already stirring).
Money Market Mutual Funds
As money-markets only invest in ultra-short dated Treasury products, this demand category would not have an impact on the back-end. Furthermore, money-markets will probably continue to unwind the $332 billion in front-end paper purchased in Fiscal 2008: already last year $34 billion in Bills and short-end coupons was sold. If ZIRP persists, and if the Volcker doctrine manages to make money markets sufficiently unattractive, this category will at best have a neutral impact on USTs and more realistically will continue to be a net seller. As such, in 2010 this segment is expected to sell $100-200 billion in Bills and front-end paper.
Municipalities
Municipalities are expected to provide a token amount of demand, to the tune of $25-50 billion: this source of demand is low in a rising rate environment. In 2009 only $3 billion in demand came from money market funds.
Federal Reserve
Up to this point, we have demonstrated that under realistic assumptions, the traditional buyers of Treasuries will be insufficient to plug the demand hole. As the Fed will not sell any of the roughly $770 billion in Treasuries on its balance sheet with a ZIRP policy still in place, the only question is whether Ben Bernanke will step in and roll out QE 2. Of course, the implications to the stock and currency markets will be drastic should the Fed relapse to its old financial heroin-dispersing ways.
Conclusion
While near end supply will likely not be as difficult to satisfy, the back-end will face increasing yield pressure in order to stimulate demand. This means that long yields will begin a slow trickle higher to attract the missing demand that currently is unaccounted for. Should this happen, and should the likes of Morgan Stanley be correct in expecting even further steepening, the implications on mortgages will likely be severe. Which is why we are confident that the Fed, which is all too aware that the economic situation is far worse than what is presented in the mainstream media, will expand quantitative easing not only to more MBS purchases (mostly to facilitate yet more reallocation trades), but to direct Treasury purchases once again. In doing so, the Fed will surely short-circuit the market beyond all repair.
A practical idea on how to approach this binary outcome, would be the implementation of the kind of barbell trade that has made John Paulson a billionaire: should the Fed announce QE 2, the dollar will plunge, and gold will surge. Due to negative convexity between these two asset classes, we anticipate a non-linear acceleration in the price of gold compared to the DXY. Alternatively, should the Fed stay pat and do nothing to prevent the verticalization in the yield curve, the other side of the barbell would be to reward those who would benefit the most from the resultant even greater curve steepness, expressing this with long financial exposure (the more levered, the better). Another levered way to play the increasing curve steepness would be putting on the Julian Robertson-proposed Constant Maturity Swap trade (discussed previously in depth here).
Lastly, should the Fed attempt to stimulate an endogenous flight to safety and boost demand for Coupons artificially, we believe, as we have said before, that the FRBNY will certainly implement a stock market crash. The alternatives, an interest rate hike and QE. We believe that while the probability of QE 2 is increasing with every day, the likelihood of a rate raise is negligible, leaving the market crash theory as the wildcard. We will not handicap this outcome and instead let every reader decide for themselves. Nonetheless, as this week demonstrated all too well, once the market gains downward momentum, even the much expected daily offer-lifters may be mysteriously elusive. Hedge appropriately.
A month ago we observed that in 2010, the supply/demand picture for US fixed income would be very problematic, as there was no immediate apparent substitute to fill the void resulting from the departure of the constant bid provided by the Federal Reserve's Quantitative Easing in both the UST and the MBS markets. The conclusion was that there would need to be a dramatic increase in demand for debt securities across the board, with an emphasis of Treasuries and MBS.
Today, we focus on the most critical segment of debt issuance for 2010 - those ever critical US Treasuries, without whose weekly uptake by various investors, the multitrillion budget deficit will become unfundable. Using estimates from Morgan Stanley for 2010 Treasury supply and demand, the conclusion is that there will be a demand shortfall of at least half a trillion, and realistically $700 billion, to satisfy the roughly $1.7 trillion in net ($2.4 trillion gross) coupon issuance in the upcoming year.
The implication is that back end prices will decline sharply due to an ever increasing supply overhang, even as nearly $800 billion in Bills are paid down, thereby further accentuating the steepness of the bond curve. And with ever more emphasis put on the coupon supply, the marginal yield on long-dated Treasuries will likely find it needs to be increasingly more attractive to find bidders, which in turn will jar mortgage rates out of hibernation. We are now certain that Q.E. will continue: the weakness in the mortgage backed-market is already becoming a topic of contention, and when it becomes apparent that there is an additional $700 billion demand void in Treasuries, then it is merely a matter of time before Ben (or his successor) realizes the dollar destruction comeback tour has to resume asap. Those cynically inclined may wonder why Bernanke's reconfirmation should take place prior to any potential Q.E. 2 announcement. Perhaps this country's Senators would further evaluate their support of the Chairman once they experience the popular anger which will accompany the next leg down in the US currency the minute Mr. Bernanke announces that the Fed will need to continue being the market in treasuries and mortgage backed securities, further eroding the collateral behind the greenback.
First, based on Morgan Stanley's expectations, and further corroborated by yesterday's disclosure that the next increase in the debt ceiling by $1.9 trillion net, to $14.3 trillion, would last the country only through early 2011, we present the estimated supply of gross coupon issuance in the upcoming fiscal year (keep in mind one quarter of issuance has already been absorbed and the run-rate validates the projections).
In 2010, net issuance will be substantially lower than gross according to MS, due to an increase in maturities, and "only" $1.7 trillion in net new coupon bonds, $425 billion more than 2009, are expected to be issued by the US Treasury: this number may well be an underestimation as the Senate, which likely has far more granular issuance projections, is calling for $1.9 trillion in net issues (in addition to the $300 billion temporary increase which passed late last year) which would fund the US budget for about a year. One offsetting feature of net issuance in 2010 will be a surge in paydowns in Bills, which are expected to be a net negative contributor to issuance to the tune of $775 billion (of which $275 billion has already taken place in Q1 of fiscal 2010, primarily as a function of the $195 billion in SFP bills rolling off).
Where things get tricky is on the demand side.
As we pointed out previously, the number one defining feature of 2009 was the Fed's blatant support of the bond and MBS markets. Bernanke monetized $300 billion in Treasuries, and indirectly will have purchased another $1.4 trillion in bond/MBS hybrids (we say indirectly, because Fed MBS purchases effectively allowed MBS holders to switch their holdings to Treasuries at preferential terms, better known as the "reallocation trade" in essence achieving the same effect as if the Fed has purchased these - see Bill Gross). With the Fed out of the demand picture (at least temporarily), the questionmarks emerge.
Foreign Accounts
On December 31, 2009, a majority of U.S. debt (marketable Bill, Coupons, TIPS) was held by foreigners, making America a net foreign creditor nation. Compare this with Japan, where 93% of sovereign bonds are held by domestic accounts. Yet over the past several years, the US has become increasingly reliant on foreign generosity: foreign demand has grown from $143 billion in 2007 to $794 billion in 2009. And even as foreigners have purchased an increasingly greater amount in absolute terms, the relative composition has in fact declined in the past year: foreign demand dropped from 76% in 2008 to 46% in 2009.
And herein lies the rub, as MS points out, the foreign bid is usually a direct function of the amount of global trade and the associated trade gap experienced by the U.S. Historically, the excess trade gap was not an issue, as China, Japan and net exporter partners had to recycle their otherwise useless dollars back in the U.S., and they did so by purchasing U.S. bonds, thereby allowing U.S. consumers to borrow ever cheaper and to purchase yet more Chinese and Japanese trinkets, rinse, repeat.
As Zero Hedge pointed out some time ago, the deputy governor of the PBoC, Zhu Min, said the most logical, yet scariest, thing for the US Treasury.
"The United States cannot force foreign governments to increase their holdings of Treasuries," Zhu said, according to an audio recording of his remarks. "Double the holdings? It is definitely impossible."
"The US current account deficit is falling as residents' savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world," he added. "The world does not have so much money to buy more US Treasuries."
Zero Hedge has previously demonstrated the problem associated with China's trade surplus, which while still positive, saw a significant drop from the prior year. And compounding this is the concern that while China is still accumulating FX reserves, it may now be diversifying its US-denominated holdings. Yet setting diversification concerns aside, the bigger picture indicates that China UST purchases usually are a function of FX reserves: should the US continue on the recent protectionist path, this will implicitly make Chinese demand for Treasuries even scarcer."The US current account deficit is falling as residents' savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world," he added. "The world does not have so much money to buy more US Treasuries."
Household Sector
Recently the "Household" sector as defined in the Federal Reserve's Flow of Funds, attained some notoriety after, as Zero Hedge disclosed first, Eric Sprott brought up allegations of covert monetization and general ponziness by the Fed via the "Household" sector. We will stay away from semantics, and present what is known: at the end of 2009, "households" held 12% of Treasury debt, or $800 billion: less than a quarter of Foreign holdings of $3.6 trillion. The inappropriately-named household sector consists of individual households, nonprofits, hedge funds, private equty, private foundations, labor unions and others, and Treasury holdings allocated to it, are calculated as a differential between total USTs outstanding and known amounts held by other investors. Basically, it serves as a plug to "everything else."
Regardless of semantics, a critical point must be added to the Sprott analysis, and also to Goldman's optimistic outlook on bonds, which is predicated on increased household purchases. As a reminder, Goldman speculates:
Increased saving by households and businesses creates a potential demand for Treasury securities as well as less competition for lenders' funds; flow of funds data and bank balance sheet reports confirm that the domestic private sector is increasing its allocation to Treasury securities.
Is Goldman overly optimistic on their expectation that U.S. households will finally do what their Japanese equivalents have been doing for decades? The answer is yes. But before we get into this, we need to point out that the recent surge in "Household" buying has not been effected in one bit by actual households and individual investors. Why is this? After all, the household savings rate has increased from 0.8% in April 2008 to 4.8% in December 2009. Yet as a reminder, the two key components of Household Treasury holdings include Savings Bonds, which are what households actually buy when they wish to purchase government debt, and Other Treasuries, which are marketable Treasuries, and which average households have no access to. It is a notable observation, that while the savings rate has indeed increased, holdings of savings bonds have not only stayed flat, but have declined over the past year: this is perfectly explainable by the combination of an increasing savings mentality coupled with a desire to deleverage: i.e., Rosenberg's new frugal normal. Goldman, which has bet the house on household Treasury purchasing to keep rates low, will be disappointed.
The chart below demonstrates the historical holdings progression between Savings Bonds and Other Treasuries. As can be seen, actual households have not been active purchasers at all in the recent bond buying spree.
With just $68 billion left in Households' MBS holdings, the reallocation is over, which means that the household sector will no longer be a major purchaser of Treasuries, and all of this on the backdrop of actual consumers, whose Saving Bonds holdings have dropped from $197 billion to $192 billion over the past two years. On the other hand, should "Households" end up purchasing substantially more than expected, then the Sprott thesis will have to be seriously revisited.
Commercial Banks
A major wildcard for 2010 Treasury demand will come from commercial banks, whose $1+ trillion in excess reserves, courtesy of flawed monetary policy, may be used if not to spur consumer lending, then at least to acquire treasuries. As was shown previously, banks held only $200 billion in Treasuries at the end of 2009, making them the second to last holder, yet the massive dry powder on their books, as well as possible political prerogatives, will likely make this sector a major purchaser of Treasuries.
Empirically, banks add to their Treasury holdings at the end of recessions, when banks have capital to allocate, yet consumer and small-business loan opportunities remain weak. This can be seen on the chart below:
The reason why this may be problematic is that there is an incremental $350 billion in new gross issuance in the 5Y - 30Y part of the curve alone, which is precisely the part that is least attractive to the banking sector.
Of the $16.9 trillion in total banking assets as of June 2009, USTs accounted for $141 billion or 0.8%. Growing this number in value to 2.2% of projected total bank assets of $18.6 trillion in June 2011 in the low case, and 2.7% in the bear case, implies that between $421 and $513 billion in Treasuries would have to be purchased over the next two years. As $82 billion was purchased in H2 2009, this implies banks need to ramp up purchases to $225 billion per year in the low case, or about $4 billion per week. This represents about one-third the pace with which the Fed was monetizing/buying back bonds in 2009. The high case corresponds to an annual pace of $287 billion per year, or $6 billion per week: about half of the Fed's rate of purchases. Both cases, as noted above, would focus on Treasuries in the front-end of the curve.
Broker-Dealers
Broker dealers, unlike the other mentioned purchasers, do not have an outright preference for Treasuries as a yielding instrument, but merely as a hedge for spread-product books (including corporates, CDS, MBS and agencies). As banks deleveraged in 2008 and 2009, they covered massive amounts of UST shorts as they sold off the underlying hedged securities. Indeed, in Fiscal 2009, B/Ds purchased a record $119 billion of Treasuries, following $86 billion in 2008. Not surprisingly, these coupon purchases occurred in the front end of the curve (1Y-5Y), again indicating B/D's aversion toward dated paper.
Insurance/Pension Funds
Insurance funds are essentially banks-lite: they prefer to purchase treasuries in a steep yield curve environment. In 2009, insurance/pension funds were the fifth largest buyer of Treasuries ($56 billion from insurance firms and $37 billion from pension funds). With expectations of a steep yield curve (for now) likely staying in the 270-280 bps range, Insurance funds are expected to purchase about $100-$150 billion.
An upper ceiling to purchases is likely to come from the discount rate on defined benefit pension plans (around 6.5%), implying the yield on purchased Treasuries has to be at least 5.25%. Currently the highest yielding P-STRIPS in the 30 year sector offer just 5%. Insurance companies could very well become a purchasing force... however at materially lower levels.
In 2009 the fixed income mutual fund/ETF space saw unprecedented activity: doubling the $104 billion in 2008 inflows (2009 closed at $204 billion). Yet the vast majority of this amount went to chase higher-yielding, riskier assets: only $33 billion (16%) was allocated for UST purchases.
Money Market Mutual Funds
As money-markets only invest in ultra-short dated Treasury products, this demand category would not have an impact on the back-end. Furthermore, money-markets will probably continue to unwind the $332 billion in front-end paper purchased in Fiscal 2008: already last year $34 billion in Bills and short-end coupons was sold. If ZIRP persists, and if the Volcker doctrine manages to make money markets sufficiently unattractive, this category will at best have a neutral impact on USTs and more realistically will continue to be a net seller. As such, in 2010 this segment is expected to sell $100-200 billion in Bills and front-end paper.
Municipalities are expected to provide a token amount of demand, to the tune of $25-50 billion: this source of demand is low in a rising rate environment. In 2009 only $3 billion in demand came from money market funds.
Federal Reserve
Up to this point, we have demonstrated that under realistic assumptions, the traditional buyers of Treasuries will be insufficient to plug the demand hole. As the Fed will not sell any of the roughly $770 billion in Treasuries on its balance sheet with a ZIRP policy still in place, the only question is whether Ben Bernanke will step in and roll out QE 2. Of course, the implications to the stock and currency markets will be drastic should the Fed relapse to its old financial heroin-dispersing ways.
Conclusion
While near end supply will likely not be as difficult to satisfy, the back-end will face increasing yield pressure in order to stimulate demand. This means that long yields will begin a slow trickle higher to attract the missing demand that currently is unaccounted for. Should this happen, and should the likes of Morgan Stanley be correct in expecting even further steepening, the implications on mortgages will likely be severe. Which is why we are confident that the Fed, which is all too aware that the economic situation is far worse than what is presented in the mainstream media, will expand quantitative easing not only to more MBS purchases (mostly to facilitate yet more reallocation trades), but to direct Treasury purchases once again. In doing so, the Fed will surely short-circuit the market beyond all repair.
A practical idea on how to approach this binary outcome, would be the implementation of the kind of barbell trade that has made John Paulson a billionaire: should the Fed announce QE 2, the dollar will plunge, and gold will surge. Due to negative convexity between these two asset classes, we anticipate a non-linear acceleration in the price of gold compared to the DXY. Alternatively, should the Fed stay pat and do nothing to prevent the verticalization in the yield curve, the other side of the barbell would be to reward those who would benefit the most from the resultant even greater curve steepness, expressing this with long financial exposure (the more levered, the better). Another levered way to play the increasing curve steepness would be putting on the Julian Robertson-proposed Constant Maturity Swap trade (discussed previously in depth here).
Lastly, should the Fed attempt to stimulate an endogenous flight to safety and boost demand for Coupons artificially, we believe, as we have said before, that the FRBNY will certainly implement a stock market crash. The alternatives, an interest rate hike and QE. We believe that while the probability of QE 2 is increasing with every day, the likelihood of a rate raise is negligible, leaving the market crash theory as the wildcard. We will not handicap this outcome and instead let every reader decide for themselves. Nonetheless, as this week demonstrated all too well, once the market gains downward momentum, even the much expected daily offer-lifters may be mysteriously elusive. Hedge appropriately.
troppidebiti
Forumer storico
MF Dow Jones - Economic Indicator
Pil: Ref stima +1% in 2010, +0,8% in 2011
ROMA (MF-DJ)--Il Pil dell'Italia dovrebbe crescere dell'1% nel 2010 e dello 0,8% nel 2011.
Lo stima il Ref, centro ricerche e consulenze per l'economia e la finanza, aggiungendo che "l'Italia segue l'Europa, mantenendo ritmi di sviluppo insufficienti per recuperare le perdite di prodotto del passato biennio". Inoltre, "il mercato del lavoro continuera' a peggiorare frenando le decisioni di consumo".
Per quanto riguarda i conti pubblici, il rapporto tra indebitamento netto e Pil dovrebbe attestarsi al 5,7% nel 2010 e al 5,5% nel 2011, mentre il debito della P.A. dovrebbe essere pari al 118% nel 2010 e al 120,6% nel 2011. Secondo il Ref, "siamo tra i paesi con un minore livello del deficit pubblico, ma anche fra quelli a minore crescita. Dal 2011 occorrera' avviare l'aggiustamento dei conti pubblici". pev
Pil: Ref stima +1% in 2010, +0,8% in 2011
ROMA (MF-DJ)--Il Pil dell'Italia dovrebbe crescere dell'1% nel 2010 e dello 0,8% nel 2011.
Lo stima il Ref, centro ricerche e consulenze per l'economia e la finanza, aggiungendo che "l'Italia segue l'Europa, mantenendo ritmi di sviluppo insufficienti per recuperare le perdite di prodotto del passato biennio". Inoltre, "il mercato del lavoro continuera' a peggiorare frenando le decisioni di consumo".
Per quanto riguarda i conti pubblici, il rapporto tra indebitamento netto e Pil dovrebbe attestarsi al 5,7% nel 2010 e al 5,5% nel 2011, mentre il debito della P.A. dovrebbe essere pari al 118% nel 2010 e al 120,6% nel 2011. Secondo il Ref, "siamo tra i paesi con un minore livello del deficit pubblico, ma anche fra quelli a minore crescita. Dal 2011 occorrera' avviare l'aggiustamento dei conti pubblici". pev
stockuccio
Guest
toto-bernacca ... obama fa di tutto per riconfermare il disastroso helicopter ben mentre tutti elogiano Volcker
Latest Bernanke Vote Tally: Yes - 35; No - 17; Undecided - 29 | zero hedge
The Latest On Bernanke: Obama Now Directly Calling Senators To Generate Favorable Votes | zero hedge
... obama fa di tutto per riconfermare il disastroso helicopter ben mentre tutti elogiano VolckerLatest Bernanke Vote Tally: Yes - 35; No - 17; Undecided - 29 | zero hedge
The Latest On Bernanke: Obama Now Directly Calling Senators To Generate Favorable Votes | zero hedge
troppidebiti
Forumer storico
mi capitava tra le mani una news di un giornaletto cinese....era messo ben in evidenza un neto deflusso di capitali dai fondi..i cinesi stanno vendendo e portano a casa i guadagni