And we're back!
Started by Tamas, May 25, 2022, 05:15:04 AM
Quote from: Admiral Yi on September 28, 2022, 02:56:24 PMThe US market rallied in August because there were indications inflation was not going to be as high as forecast, therefore the Fed would not have to hike as much.Powell "found his balls" when these indications proved to be false and inflation did in fact stay high.A hike of 50 bips instead of 75 is not "a new round of money printing." It's less contractionary than had been expected.
Quote from: Iormlund on October 03, 2022, 11:44:50 AMSo, what the Hell is going on with Credit Suisse and Deutsche Bank?
Quote from: Tamas on September 28, 2022, 05:39:43 AMThen today, in comes the Bank of England, announcing what amounts to renewed Quantitative Easing: purchase of government bonds to stop yields from going to the moon.
Quote from: Sheilbh on October 08, 2022, 04:12:59 PMThe interesting (alarming) thing is that from what I've read the Treasury wasn't aware of this risk within the financial system and neither was the BofE until it materialised - it's not clear any other central bank was either.
Quote from: The Minsky Moment on October 09, 2022, 10:34:53 AMThat's an extraordinary statement. That isn't seem obscure risk tucked into a shadowy corner of the financial system. It's a very common risk in the hands of the largest holders of assets.
Quote from: The Minsky Moment on October 09, 2022, 02:10:19 PMBecause of the dollar's unique role in the international financial system, the US has been able to get away with some degree of fiscal flexibility without causing too much disruption to the treasury securities market. But sterling has not been in the same position since the era of jodhpurs and pith helmets.
QuoteA key weakness of the Trumpian flavored neo-Thatcherism now in vogue with some Tory Party cadres is the same weakness that has infected British policymaking for decades - the failure to recognize that ends are limited by means. Muggings by reality do not discriminate between political camps.
QuoteNEW YORK – Risk gauges in Germany's government debt market rose last week to levels higher than recorded in the 2008 world financial crash, as margin calls forced the liquidation of derivatives positions held by banks, insurers and pension funds.Big institutional investors that spent the past ten years insuring their portfolios against falling interest rates now face massive losses as hedges blow up. A key measure of market risk, the spread between German government bonds (Bunds) and interest rate swap agreements jumped above the previous record set in 2008.The cost of hedging German government debt with interest-rate options, or option-implied volatility, meanwhile rose to the highest level on record.The blowout in the euro derivatives market follows a near-collapse of the British government debt, or gilts, market, averted at the last minute by a 50 billion pound bond-buying spree by the Bank of England.The world's central banks responded to the 2008 world financial crash and the European financial crisis of 2011 by pushing bond yields down."Real" yields, namely the yield on inflation-indexed government bonds, went deeply into negative numbers in Germany and the UK, followed by the US market. That pulled the rug from under insurance companies and pension funds, which invest pension payments and insurance premiums to provide for future income.To compensate, European and UK institutions locked in long interest rates with derivative contracts, or interest-rate swaps, that receive a long-term interest rate while paying a short-term interest rate. Swaps are a leveraged position that requires collateral worth a fraction of the notional amount of the contract.When the Fed jacked up interest rates in late 2021, the value of interest rate swaps that pay fixed and receive floating imploded. Pension funds and insurers were stuck with the equivalent of a ten-to-one margin position in long government bonds. The price of long government bonds fell by nearly 20% across the Group of Seven countries, and the value of derivatives contracts evaporated.That left the institutions with margin calls that they could meet only by liquidating assets. That in turn led to a run on the UK government bond market, followed closely by the rest of European bond markets. The Bank of England's emergency bond-buying delayed a market crash, but the UK gilts market remains on a knife edge, with option hedging costs at an all-time high.A portfolio manager at one of Germany's largest insurance companies said, "It's a global margin call. I hope we survive."Weaker European banks may have trouble finding short-term funding. The cost of credit default swaps that insure 5-year bonds of Credit Suisse is now higher than it was in 2008, at nearly 400 basis points (4 percentage points) above the cost of interbank funding.The venerable Swiss institution is a special case, with a series of losses due to poor risk controls. Credit Suisse probably will survive – bank regulators will force it to sell assets and shrink – but it will also call in collateral from customers.American pension funds and insurers haven't faced the same kind of margin calls, but they stand to suffer painful losses. As interest rates fell, they shifted to real income-earning assets like commercial real estate. The value of commercial real estate investment companies on the US stock market has fallen by 35%, about the same amount as the tech-heavy NASDAQ Index.If that's any indication, the $20 trillion value of the commercial real estate market has lost about $7 trillion this year, in addition to losses of nearly 20% on corporate bond and stock portfolios.Stocks and bonds, the largest components of pension portfolios, are down about 20% during 2022.European stocks are down 30% in dollar terms, and Japanese stocks are down by 25%. The publicly traded stock of private equity firms like Blackstone and KKR has lost 35% during 2022 to date.All in – depending on which survey of pension fund asset allocation you believe – the average US pension has probably lost more than 20% of its asset value this year.The Fed-driven asset bubble of the past ten years brought US pension funds up to minimum funding requirements to meet liabilities as of 2021. Now the Fed may take it all away again, and the biggest problem for major US corporations may be unfunded pension fund liabilities.
Quote from: Sheilbh on October 09, 2022, 03:16:28 PMOut of interest how do you think that weakness was reflected in, say, the Cameron, Blair or Major years? I can see an argument on Blair's foreign policy but less clear on Cameron, Major - or Thatcher for that matter.
QuoteI also didn't think there was any real Trump flavour to Johnson, but there's even less to Truss. I can't honestly think of a single Trumpian feature of Truss.
Quote from: The Minsky Moment on October 09, 2022, 03:53:01 PMI don't think it applies to any of them, even Blair who was careful to maneuver under the wing of American hard power (but not careful enough to consider the limits of that power). It's more a throwback to an older era, a kind of minor league financial Suez.
QuoteI don't think it's a feature of her personally, rather it's a leakage of American style polarized rightwingery into the Tory Party ranks.
QuoteTamas - interesting and worrying but it feels like there's a real disconnect with the real economy (especially in the US). And one of the big challenges for policymakers is surely narrowing the gap between the two?
Quote from: Syt on August 26, 2022, 05:59:01 AMOn the plus side, I will get a one time payment for increasing inflation (EUR 250), and a one time payment for increasing energy prices (EUR 250 from the government). (I'm not eligible for the EUR 120 energy bill voucher, because my salary is too high )
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