“Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans. If brokerages simply offload the margin loan risk to investors and use the proceeds to fund still more margin lending which can also be turned into still more ABS, and so on, then the effect will be to pile leverage on top of leverage. What happens in the event the underlying stocks become completely illiquid (i.e. Beijing decides to suspend trading on three quarters of the market again)? The punchline: the senior tranche (which accounts for CNY475 million of the total CNY500 million deal) is rated AAA.” Continue reading

“China’s 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth. U.S. stock indices dropped more than 1 percent and stocks also fell in Asia and Europe as investors contemplated the implications of a move designed to support China’s slowing economy and exports. Companies that sell to China were hit hard, with heavy equipment maker Caterpillar losing 3.13 percent and Germany’s Volkswagen dropping 4 percent. Energy and materials shares also tumbled on China demand concerns.” Continue reading

“Alan Greenspan, who served as Fed chairman between 1987 and 2006, told Bloomberg: ‘I think we have a pending bond market bubble. If we merely substitute the structure of equity prices, and we have the price of bonds, and instead of expected equity return we have expected interest rate return, that price earnings ratio is in an extraordinary unstable position.’ Mr Greenspan, who has been criticised for fuelling the US housing bubble by keeping rates down in the early 2000s and failing to keep a closer eye on banks, said behavioural economics was playing a central role in investor decision making. Mr Greenspan also said oil prices had further to fall.” Continue reading

“The hedge fund report, authored by a trio of former International Monetary Fund economists, noted that Puerto Rico’s education spending had risen 39 percent in a decade during which school enrollment actually fell by a quarter. Surely, there must have been some unnecessary fat in the system to cut. It’s easy to understand why this might seem outrageous. Firing teachers in the middle of what’s essentially a nine-year depression seems like a good way to further exacerbate Puerto Rican unemployment, possibly while sacrificing some childrens’ educations.” Continue reading

“Vermont’s first digital currency ATM has been ordered closed by state regulators who say the company operating the cash machine is violating state law. The move by the Department of Financial Regulation has disappointed the tech enthusiasts who used the new currency service. PYC CEO Emilio Pagan-Yourno admits the company doesn’t have any Vermont-specific licenses. But he says his company is licensed federally through the Financial Crimes Enforcement Network (FinCEN). The letters from the department warn Blu-Bin and PYC that they may be in violation of the law. But they also seem to show a lack of clarity about what, exactly, the two companies are even doing.” Continue reading

“An Australian government inquiry will recommend treating digital currencies as money, simplifying tax for people who trade with them while forcing bitcoin exchanges to monitor customers for potential money laundering and terrorism financing activities. The Senate committee recommendations underscore governments’ growing acceptance of the role of so-called ‘cryptocurrencies’ around the world. If implemented, the changes would align Australia with the United Kingdom and Spain by having people pay sales tax just once if they buy something with bitcoin, while leaving other nations like Sweden to fret over its true legal status. The changes would also match Australia with Canada and Singapore.” Continue reading

“You probably will be very surprised to learn who aided and abetted the drug operation: it was US banking giant Wachovia. After an investigation that took years, Wells Fargo, which now owns Wachovia, paid a $160 million fine to settle the case. You might also be surprised to hear that Wachovia’s fine wasn’t an isolated case. Citibank was caught laundering money for a Mexican drug kingpin in 2001. American Express Bank admitted to laundering $55 million in drug money in 2007. And the FBI accused Bank of America of helping a Mexican drug cartel hide money in 2012. You’ve probably never heard these stories before. The big banks pay a lot of money to keep it that way.” Continue reading

The Fed Joins the War on Drugs

“The Federal Reserve is now in the business of enforcing the US government’s drug laws, even if that means making a mockery of both state governments’ right to set their own drug policies and the Fed’s own governing statutes. The Fed’s involvement in drug prohibition became official last month, when the Federal Reserve Bank of Kansas City informed Denver’s Fourth Corner Credit Union — a non-profit cooperative formed by Colorado’s state-licensed cannabis manufacturers — of its decision to deny its application for a master account. The Fourth Corner Credit Union isn’t taking this sitting down. On the contrary: it is suing the Federal Reserve Bank of Kansas City.” Continue reading

J.P. Morgan makes it easier for rich to take out mortgages

“J.P. Morgan Chase & Co. is loosening its underwriting criteria for big mortgages, as lenders ramp up competition to grab a bigger share of the high-end housing market. The nation’s largest bank plans to announce as soon as Tuesday that it is lowering the minimum credit score and down payment it requires for mortgages as big as $3 million. At the same time, some big banks are backing away from smaller loans where they see higher regulatory costs and litigation risks. By dollar volume, jumbo mortgages given out by lenders last year accounted for about 20% of all first-lien mortgages. That is up from 5.5% in 2009. The last time jumbo mortgages accounted for a larger share was in 2005.” Continue reading

The Next Financial Disaster Starts Here

“Because junk bond ETFs appear liquid, most investors don’t see the danger. They think they can sell their junk bonds ETFs just as easily as they could sell shares of Apple. But if too many people decide to sell junk bonds at once, it could overwhelm the market and cause prices to crash. None of this has been a problem yet because junk bonds have been in a bull market. According to Bank of America, junk bonds have gained 149% since 2009. But all bull markets eventually end. And when this one ends, junk bonds could cause massive losses to investors who don’t know about these risks.” Continue reading

Central Banks and Our Dysfunctional Gold Markets

“First, it remains unclear whether or not much of the gold that is being sold as shares and in certificates actually exists. Second, paper gold can theoretically be printed into infinity just like regular currency — although private-sector paper-gold sellers have considerably less leeway in this regard than central banks. Third, new electronic gold pricing — replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 — has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them.” Continue reading