- Bank-run dark pools swelling in U.S. stock markets (H/T PineCarr)
- BRIC Countries Kick Sand in the Face of 98-pound-weakling US Dollar (MachineHead Masterpiece)
- Week #23, Bank Failure #37
- Fantasy (Fidelity Speak) Translated Into Reality, from Biiwii.com Fidelity: Will Bond Yields Derail the Rally?
- Lessons from Argentina's economic collapse (H/T iDoctor)
- Big government spending programs having opposite desired effect...
- Canadians: Real Estate for sale for less than a new car
- Interest Rates and Equities Diverging
- Hotel Owner "Walking Away"
- The Team Obama Con Game Gets Official Notice
- More on What the Consumer Is Up To
Economy
Bank-run dark pools swelling in U.S. stock markets (H/T PineCarr)
TORONTO (Reuters) - Big banks are executing an increasing percentage of U.S. stock trades within their own walls, capitalizing on the credit crisis and enticing the most active traders away from the traditional exchanges.
"Dark pools," where orders are anonymously matched so that traders do not alert the wider market to their intentions, have triggered concerns that stock pricing may not be transparent.
But the growth of those run by broker-dealers such as Goldman Sachs and Credit Suisse are squeezing other "dark" electronic trading venues, as well as exchanges, resulting in lower fees. [When everyone tries to be a crook, being a crook becomes less profitable]
The bank-run dark pools have only recently gained some traction in Europe, while other countries, such as Canada, are watching closely for signs of success or failure as U.S. equity markets fragment into some 40 venues. [Notice Canada NOT allowing dark pools.]
Although executives and market watchers expect to see new U.S. rules to ensure public and accurate pricing of stocks, they also expect the private pools to grow beyond the relatively small niche they now occupy.
"The dark pools are definitely going to grow; the wild card is any new regulation [dark pools unstated primary purpose is insider trading, and insider trading does not coexist well with regulation. In other words, if dark pools are effectively regulated, they will disappear.]," said Dmitri Galinov, director and head of liquidity strategy at Credit Suisse's advanced execution services, running the bank's CrossFinder dark pool.
Banks' internal dark pools have benefited from Regulation NMS, rules enacted in the last few years to help investors get the best price [the passage of Reg NMS extended the trade-through rule to all US exchanges that trade equities—including the NYSE (New York Stock Exchange), Nasdaq and AMEX (the American Stock Exchange). It was the most sweeping and controversial change to US markets in 30 years, and made manipulating all US exchanges far easier], and from the pricing of stocks in smaller increments, known as decimalization.
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BRIC Countries Kick Sand in the Face of 98-pound-weakling US Dollar (MachineHead Masterpiece)
Well, there they go again, as Ronald Reagan used to say. The Russians, that is, sniping at our powerful, globally-respected currency. Get a load of this commie carping --
June 5 (Bloomberg) -- Russian President Dmitry Medvedev questioned the U.S. dollar’s future as a global reserve currency and said using a mix of regional currencies would make the world economy more stable. The dollar “is not in a spectacular position, let’s be frank, and its prospects cause various questions as do the prospects for the global currency system,’’ Medvedev, who today hosts an international economic forum in St. Petersburg, said in an interview published by the Moscow-based Kommersant newspaper.
A new world currency may be on the agenda when Medvedev meets counterparts from Brazil, India and China on June 16 at a summit in the Ural Mountains city of Yekaterinburg, the Kremlin said this month. “This idea has potential, even though some of my G-20 colleagues aren’t actively discussing it at the moment,’’ Medvedev told Kommersant. “However, for example, in the opinion of our Chinese colleagues it is quite a possible step. The most important thing is not to walk away from discussions on this topic.’’
Turning the ruble into a reserve currency is still a possibility, especially if some of Russia’s partners start making payments for their oil and gas in rubles, Medvedev said. Russia might consider setting up ruble-yuan swap positions similar to the recent accord suggested between China and Brazil, he said.
Kidding aside, let's examine some facts. At 2.85 billion, the population of the BRIC countries is more than nine times higher than that of the U.S. Their combined GDP is slightly larger, too.
Currently, the English-speaking financial centers of New York and London have carved out a role for themselves as global cross-rate middlemen. If you want to exchange rubles for yuan, typically you must do back-to-back transactions -- rubles to dollars, then dollars to yuan. Forex dealers love the fat spreads and dual commissions.
If the BRIC countries decide to walk away from this exploitative, anachronistic scam, there won't be a damned thing that the Anglosphere can do about it.
More significant than the eroding economic leadership of the U.S. is its eroding intellectual leadership. Bretton Woods I, circa 1944, was an Anglo-American production. Bretton Woods II, circa 1971-1973, was an abortion caused by U.S. default on its promise to redeem overseas dollars for gold.
Now, virtually all innovative thinking on global monetary reform comes from the BRIC countries, while Anglo-Americans stand by sucking their thumbs, navel-gazing, and tweaking their high-speed presses. Does the unmerited privilege of seignorage make you poor and stupid? The evidence points that way, comrades.
Week #23, Bank Failure #37
Bank of Lincolnwood, Lincolnwood, Illinois, was closed today by the Illinois Department of Financial and Professional Regulation, Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Republic Bank of Chicago, Oak Brook, Illinois, to assume all of the deposits of Bank of Lincolnwood.
Bank of Lincolnwood's two offices will reopen on Saturday as branches of Republic Bank of Chicago. Depositors of Bank of Lincolnwood will automatically become depositors of Republic Bank of Chicago. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Republic Bank of Chicago can fully integrate the deposit records of Bank of Lincolnwood.
Over the weekend, depositors of Bank of Lincolnwood can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
As of May 26, 2009, Bank of Lincolnwood had total assets of approximately $214 million and total deposits of $202 million. Republic Bank of Chicago agreed to purchase approximately $162 million in assets. The FDIC will retain the remaining assets for later disposition.
...
The FDIC estimates that the cost to the Deposit Insurance Fund will be $83 million. Republic Bank of Chicago's acquisition of all the deposits was the "least costly" resolution for the DIF compared to alternatives. Bank of Lincolnwood is the 37th FDIC-insured institution to fail in the nation this year and the sixth in Illinois. The last bank to fail in the state was Citizens National Bank, Macomb, on May 22, 2009.
Fantasy (Fidelity Speak) Translated Into Reality, from Biiwii.com Fidelity: Will Bond Yields Derail the Rally?
Up until the past two weeks, the Federal Reserve, in its extraordinary efforts to push down mortgage rates to help the housing market, had kept a lid on long-term market rates by purchasing Treasurys. But this effort has led to concerns among some investors that this monetization of debt could lead to higher inflation down the road. --Not only 'could' it lead to inflation down the road, the monetization of debt is mainlining inflation right into the veins of FrankenConomy. It is inflate or die, but then, some dark recess of your soul knows that, doesn't it? But let's keep it sanitary for Fidelity's clients.
Lessons from Argentina's economic collapse (H/T iDoctor)
Editor's note: the article that follows is a very sobering account of the effect that the collapse of the Argentine economy (1999 - 2002) had on its citizens, as seen through the eyes of one of them. The economic collapse wiped out the middle class and raised the level of poverty to 57.5%. Central to the collapse was the implementation of neo-liberal policies which enabled the swindle of billions of dollars by foreign banks and corporations. Many of Argentina's assets and resources were shamefully plundered. Its financial system was even used for money laundering by Citibank, Credit Suisse, and JP Morgan (sound familar?). The net result was massive wealth transfers and the impoverishment of society which culminated in many deaths due to oppression and malnutrition. I am not sure the same thing is about to happen here, but I am sure that there is a distinct possibility that it might. Just food for thought - JSB)
Wednesday, 13 December 2006
For western countries such as the UK, the first major problems of Peak Oil, assuming there are no oil shocks, will not be the shortage of oil but the economic crises that will occur. Argentina is a recent example of a country that suffered a serious economic crisis, and although Argentina and the UK are not identical, anyone interested in how economic crises can affect individual lives will be very interested in the following vivid description of life for an Argentinian following the economic collapse.
My brother visited Argentina a few weeks ago. He's been living in Spain for a few years now.
Big government spending programs having opposite desired effect...
NEW YORK (AP) - The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.
But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation.
That's the Catch-22 threatening to make an awful housing market potentially worse and keep the economy stuck in a funk. Kick-starting the economy requires higher spending, but rising rates mean fewer Americans will be able to refinance their home loans. And some potential buyers will be shut out of the market by higher monthly payments they won't be able to afford.
To understand how this is all connected, you have to think like a bond trader. Inflation is their enemy because it means the purchasing power of the dollars they receive when bonds eventually are paid off will be diminished. The only question is by how much.
Yields on 10-year Treasury notes, a benchmark for home mortgages and other consumers loans, jumped from 2.5 percent in March around the time of the Fed announcement to as high as 3.7 percent in recent days as signs that efforts to stabilize the financial system and economy were starting to pay off. And 30-year mortgage rates jumped more than a quarter-point this week to 5.29 percent, the highest level since December, Freddie Mac reported.
"If the meltdown continues in the bond market, then mortgage yields will soon be at levels that choke off refinancing activity," said economist Ed Yardeni, who runs his own investment firm. "Even worse, they could abort any necessary recovery in home sales and prices."
Yardeni coined the term "bond vigilantes" in 1983 to describe how traders took matters into their own hands when they felt the Fed wasn't doing enough to fight inflation, which was running at an annual rate of more than 3 percent at that time.
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Canadians: Real Estate for sale for less than a new car
WINDSOR, Ont. - Real estate prices in Windsor-Essex are dropping lower than what it would cost to buy a new car.
Mark Imeson, president of the Windsor-Essex County Real Estate Board, says he has seen houses selling for just $25,000. He blames the low prices on the rising number of so-called power-of-sale properties, which have been taken back by the bank and turned over to the Canada Mortgage and Housing Corp. for sale.
Imeson says some houses are selling for what the lot alone is worth.
He says last month, the majority of real estate sales in Windsor-Essex were for less than $100,000.
But he also says the lower prices could be a catalyst for people thinking of moving into the area.
Interest Rates and Equities Diverging…
This is no typical recession. That average is found by looking at the Great Depression, the collapse of the Nikkei in 1980, and the collapse of our Nasdaq in 2000. Two and a half years from October of 2007 brings us to April 2010, plus or minus. It is my judgment that the fundamental conditions have not improved, but have in fact worsened. The underlying debt has gone largely without default and new debt is being added to the Federal Government like crazy… as in insane (what I call “Economic Mass Psychosis… (EMS – silent P) ” .
Because no REAL solution to the debt problem has been implemented, we are likely to encounter even more severe problems in the future.
We descended into the 666 SPX low in what many Elliot Wave (EW) experts (like McHugh and Caldaro) are calling the larger Wave A. They believe, and I am not one to argue, that we are currently in wave B up – the eye of the storm.
EW technicians are NOT always right, and if you review my article from this past January entitled, “Wave B... What a Wonderful World!” you will see that they believed at that time that we were in wave B but they now believe that was wave 4 and it was wave 5 that took us into the 666 low. Of course they could be totally wrong about that, it’s still just one possibility. If they are correct and this is wave B up, then wave C down – the devastating leg down – is still to come.
This chart from that article shows a typical bear market in Elliott Wave terms. You can see that I was thinking we were either in wave 4 or wave B - turns out we were probably in 4 and are likely in wave B now:
Hotel Owner "Walking Away"
"At some point, you just stop the bleeding and hand the keys back." - John Arabia, an analyst with real estate research company Green Street Advisors
Sunstone Hotel Investors Inc. intends to forfeit the 258-room W San Diego to its lenders after its efforts to reach a compromise on the luxury hotel's $65 million securitized mortgage failed.
Sunstone ... bought the W for $96 million in 2006 ... Sunstone estimates the W San Diego is worth much less than the $65 million balance on its mortgage. At the end of last year, the hotel posted an occupancy of 69% and generated revenue per available room of nearly $153.
Much less than $65 million? That means the price has probably fallen 50% or more since 2006.
The Team Obama Con Game Gets Official Notice
It has been noteworthy that some formerly more balanced outlets have swung to at least a high proportion of cheerleading headlines, in particular Bloomberg and the Financial Times (although with the FT, one might argue that it is attempting to cater to a US market).
But if one was paying only a teeny bit of attention, it would be hard to miss the persistent, nay insistent efforts of the officialdom to put the best possible spin on matters economic. The very fact that Geithner said not more than once that the stress tests were about restoring confidence was such a brazen admission as to be breathtaking. But on another level, it was spin within spin, since the idea that the authorities would openly talk of the tests as a ruse to restore confidence (which is what predetermining the answers, as Geithner also did) is tantamount to saying the skeptics are all wrong, and all we need to do is drown them out for saner heads to prevail.
While the "nary a bad word will be said", or to the extent it is, it is countermanded by an even more positive take, has gotten some notice in the MSM. But I cannot recall anyone taking issue with it frontally. So an article today in the New York Times, "The Economy Is Still at the Brink" by Sandy Lewis and William Cohan, is a badly needed contribution:
President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible...
Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.
Yves here. Put more simply, confidence is a necessary but not sufficient condition for recovery. Indeed, many readers have argued that boosterism will backfire when the policy measures come up short. This is, as we have said repeatedly, an effort to restore status quo ante rather than deal with serious, deeply rooted problems.
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More on What the Consumer Is Up To
Whether or not the current unraveling turns out to be a modern day version of the Great Depression -- which I've argued against because, among other reasons, the policy responses we've seen so far and those I expect to see in future point to another sort of unhappy ending -- spending won't fall to zero. People will still need to eat, put a roof over their heads, find clothes to wear, etc.
Given that, I try to help visitors to Financial Armageddon -- especially those who are investors or who make key business decisions -- keep tabs on what Americans are or are not doing with their money. Recent examples of posts on this subject include "Where the Axe Is Falling," "Green Shoots in Escapism," and "Proving Me Wrong" -- as well as the one you are reading now, which highlights an interesting New York Times article entitled "The Recession, Wal-Mart Style":
With the recession in its 18th month and unemployment now topping 9 percent, even semi-conspicuous consumption is a distant memory. Consumers are hunkered down. But when they do venture out, chances are they’re on their way to places like Wal-Mart and other big discount chains.
“Our sales — it’s like holding up a mirror to our society,” said John E. Fleming, the chief merchandising officer for Wal-Mart, the nation’s largest retailer.
So what are Wal-Mart, with 4,100 stores across the country, and other major retailers seeing?
Less browsing in the aisles, for one thing. Consumers now are “very disciplined in terms of making sure that they don’t go beyond what they have on their lists,” Kathryn A. Tesija, Target’s executive vice president of merchandising, told investors recently.
Food, of course, is high on those lists (discretionary items like clothes and furniture are not). But consumers are cracking their wallets only so far. Many are trading down to private label groceries. At Wal-Mart, sales of refrigerated pizza were up last month compared with a year ago. Lower grades of meat are outselling the higher-grade, pricier cuts. A recession protein hierarchy has emerged, with ground beef trumping steak, and chicken trumping beef. Some consumers are forgoing protein altogether, opting for pasta.
“We’re seeing a movement away from protein into carbohydrates,” Mr. Fleming said. “It stretches the dollar a lot further.”
Retailers generally don’t divulge details of their sales by category of goods. But they were willing to discuss trends. One stood out: consumers are discovering there’s no place like home.
“This whole idea of staying home and entertaining at home, we’re seeing that everywhere,” Mr. Fleming said, “from the ‘take and bake’ pizza to the $5 movies.” Ms. Tesija noted that “sales of popcorn poppers and microwave poppers are very strong.”
Retailers say consumers are trying to make being cooped up as painless as possible. Mr. Fleming said that would explain why even in this economy, sales of flat-panel and high-definition televisions at Wal-Mart are strong. After all, the retailer’s $378, 32-inch RCA LCD television is more affordable than a vacation. (Which may be why retailers like Macy’s say luggage sales are among their weakest categories.)
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