Financial thread

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Silly analysis.

Putin is good at what he does but not that good - even he couldn't plot to install someone as utterly useless as LS as our head of government.

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Here is something else that covid and putin can take the blame for (sarcasm). The future is bright.

uk.finance.yahoo.com/news/fx-swap-debt-80-trillion-120500158.html

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Can we really point the finger blame at these 2 villains of 2022!

In my opinion QE went on far too long - interest rates were too low for to long and resulted in capital misallocation in all places- crypto and big tech being 2 examples.

This is a cause of inflation now as in the 12 years since 2008 on asset prices went stratospheric but Covid changed that as lockdowns , supply chain blockages and breakdowns and furlough payments created the right moment for the toxic inflation to seep into all our lines.

The evil Putin chose this very moment to deploy his attack on the energy market - after the Winter games in China he said go and so what was already a very bad situation became tortuous 2022.

The $80 Trillion fx debt swap risk is just the unknown risk made worse by the soaring inflation seeping through every pore of 2022.

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Not Russia's fault anyway. Clad the Vunt said only yesterday that they didn't start it, so it must be true.☹️😝🥴🤬🤯🥵😈🦾🖕

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Dec 8, 2022 19:07:10 GMT sennockian69 said:

Can we really point the finger blame at these 2 villains of 2022!

In my opinion QE went on far too long - interest rates were too low for to long and resulted in capital misallocation in all places- crypto and big tech being 2 examples.

This is a cause of inflation now as in the 12 years since 2008 on asset prices went stratospheric but Covid changed that as lockdowns , supply chain blockages and breakdowns and furlough payments created the right moment for the toxic inflation to seep into all our lines.

The evil Putin chose this very moment to deploy his attack on the energy market - after the Winter games in China he said go and so what was already a very bad situation became tortuous 2022.

The $80 Trillion fx debt swap risk is just the unknown risk made worse by the soaring inflation seeping through every pore of 2022.

My reference to Putin and Covid was meant to have a sarcastic tone to it, newswires and politicians like an easy target, and I agree with all you say.

The only thing I would add is that prior to covid the Fed was desperate for any reason to charge up the printing presses again, as the financial system was on the verge of collapse. In many ways covid gave the Fed the opportunity to protect the cartel, and continue to kick the can down the road.

With regard to the FX issue it is, along with excessive CDS activity related to Credit Suisse, just another potential black swan. If BIS states that there will have to be a market bail out (which will probably be on a scale not seen before), what form will it take in a high inflationary environment that does not look like it will be going away any time soon?

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What I find to be bizarre is that a supposedly safe bank will take on so many Credit Default Swaps to earn commissions but not have the intelligence enough to see that it is holding enough bombs on its balance sheet to threaten its existence. What ever happened to the concept of risk management.

Credit Suisse cannot be allowed to enjoy the advantage of being too big to fail.

A way must be found to allow these institutions to suffer the consequences of their own stupidity without the rest of society paying for the crazy risk taking.

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This final scene from 'The Big Short' sums it up, and Credit Suisse know that, as far as they are concerned, there are no risks.

www.youtube.com/watch?v=Nmxox3oqRZo

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Another bomb waiting to explode!

Off balance sheet derivatives.

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With today's news that core inflation in the US dropped by more then expected, I will still expect the Fed to raise rates by a half of one percent tomorrow, with the UK following suit the day after. Although the markets have reacted to the news very positively, I would assume that Powell will play it down and put a dampener on it after the rate decision.

One point of interest going forward into 2023. Once Central Banks start to make interest rate cuts, probably sometime from early summer onward, historically, after a period of high inflation, it has eventually resulted in a major stock market downturn or crash (capitulation), probably due to recessionary forces (doom and despair everywhere). When markets capitulate it has also been one of the best times to be contrarian, and to invest in the markets, even if it does not feel like it at the time.

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Dec 11, 2022 13:42:05 GMT sennockian69 said:

Another bomb waiting to explode!

Off balance sheet derivatives.

Just found this guy who explains the situation quite well.

www.youtube.com/watch?v=fLGMxH9KFa8

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Dec 13, 2022 14:44:01 GMT @cgr said:

With today's news that core inflation in the US dropped by more then expected, I will still expect the Fed to raise rates by a half of one percent tomorrow, with the UK following suit the day after. Although the markets have reacted to the news very positively, I would assume that Powell will play it down and put a dampener on it after the rate decision.

One point of interest going forward into 2023. Once Central Banks start to make interest rate cuts, probably sometime from early summer onward, historically, after a period of high inflation, it has eventually resulted in a major stock market downturn or crash (capitulation), probably due to recessionary forces (doom and despair everywhere). When markets capitulate it has also been one of the best times to be contrarian, and to invest in the markets, even if it does not feel like it at the time.

Could the Fed pause first in Feb , Match 2023 as the effects of the interest rates of 2022 become evident?

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Dec 14, 2022 13:39:42 GMT sennockian69 said:

Dec 13, 2022 14:44:01 GMT @cgr said:

With today's news that core inflation in the US dropped by more then expected, I will still expect the Fed to raise rates by a half of one percent tomorrow, with the UK following suit the day after. Although the markets have reacted to the news very positively, I would assume that Powell will play it down and put a dampener on it after the rate decision.

One point of interest going forward into 2023. Once Central Banks start to make interest rate cuts, probably sometime from early summer onward, historically, after a period of high inflation, it has eventually resulted in a major stock market downturn or crash (capitulation), probably due to recessionary forces (doom and despair everywhere). When markets capitulate it has also been one of the best times to be contrarian, and to invest in the markets, even if it does not feel like it at the time.

Could the Fed pause first in Feb , Match 2023 as the effects of the interest rates of 2022 become evident?

I can still see the Fed raising 25 basis points in Feb, and possibly hold from there. Not really sure that the holding period will last long, as the consensus seems to be that they will find that they have overcooked the hikes in trying to control inflation, as the effects of a possible severe recession starts to bite hard. In reality the Fed started to raise rates far too late, and as a result ended up far behind the curve. Why not just raise rates gradually by following the 2 yr note as it starts to rise after QE stimulus, rather then wait for yields to invert? Well the Fed had their reasons, and I suspect that they were not in the interest of the majority. 

Another effect that may add fuel to recessionary forces is the Fed's activity of demand destruction, which seems to be having the desired effect (at present winning the oil price battle with OPEC, and a reduction of demand of chinese imports into the US), and a recession is probably the only way the Fed really knows that inflationary / stagflationary forces can come under control.

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So things continue to ramp up in the States, as recent retail and inflation data continue to rise, putting more pressure on the Fed to raise rates month on month, and they will, until the consumer has been well and truly stamped down on. Current forcasts are for three quarter point rate rises, and to hold steady for the remainder of this year, with no cuts until 2024. Will the Fed go too far, and cause a hard landing, and a global economic meltdown? I would say the chances are quite high.

With the consumer running out of easy money last year, instead of cutting back, the spending spree has continued on credit card debt, which stands at around 1 trillion usd. With continued interest rate rises, something will have to give, and it is likely to be the consumer being unable to pay back the debt. This will probably herald the recession as the consumer reigns in spending drastically. Once rates of unemployment start to accelerate, and the Fed realise the economy is going down the pan, they will be forced to pivot, even if the terminal interest rate is 5%+ (currently forecast to be 5.3%, although some economists are now seeing a 6% terminal rate).

The Fed keep spouting a soft landing narrative, but with 50% of the yield combinations deeply inverted, I can't see this situation ending well. The nearest similarity to the current inversion levels that ended with a soft landing was in the 1960s, however, the yield inversion then was nowhere near as deep, and interest rates were only 3% or so, a level at which interest rate cuts were a comfortable option.

Historically, when yield curves are inverted, and central banks stop raising interest rates, markets have always sold off drastically over varying periods of time, and there is no reason to suppose this time it will be different.

Happy days, from a grumpy old git.

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Oops! Looks like the Fed have broken something. SVB was a small bank (in comparison to the big boys)  that was unable to raise capital, and it wasn't even a zombie. Goldman Sachs estimates that 13% of US listed companies are zombies. With easy money running out, continued interest rate rises are probably going to see many of these going down.

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update on SVB situation - In the UK, SVB’s unit is set to be declared insolvent, has already ceased trading and is no longer taking new customers. On Saturday, the leaders of roughly 180 tech companies sent a letter calling on UK Chancellor Jeremy Hunt to intervene. Bailout? You can't make it up.

Here's the post. I think the original info came from Bloomberg. themalaysianreserve.com/2023/03/12/svb-fallout-spreads-around-world-from-london-to-singapore/

And here is what gov.uk have got to say about it.

www.gov.uk/government/news/chancellor-update-on-silicon-valley-bank-uk

As far as I am concerned, if any company does not use due diligence in its financial operations, in this case not covering a large investment in Treasuries when interest rates were at their lowest, and not accounting for inflation as it started to take hold, along with the programme of federal rate hikes, that is their problem. Period. And that also goes for investors in that company, even if they have been misled. DO NOT PUT ALL YOUR EGGS INTO ONE BASKET. Grow a pair and take a hit.