http://www.zerohedge.com/news/2013-06-25/bonds-its-lehman-repeat
Submitted by Tyler Durden on 06/25/2013 16:43 -0400
Submitted by Tyler Durden on 06/25/2013 13:16 -0400
Submitted by Tyler Durden on 06/25/2013 10:42 -0400
Muni Bonds are issued when Cities need to borrow money to build infrastructure, schools. hospitals, etc..
It’s gotten so bad, that cities are now borrowing money to pay for the money they’ve already borrowed. But now, they’ve come to a point where they can’t borrow any more, which will cause massive nationwide govt collapse…
http://market-ticker.org/akcs-www?post=222007
and....
http://www.zerohedge.com/news/2013-06-25/some-hard-numbers-western-banking-system
Submitted by Tyler Durden on 06/25/2013 18:54 -0400
For Bonds, It's A Lehman Repeat
There is plenty of discussion of outflows but we though the following chart was perhaps the most insightful at why this drop is different from the last few year's BTFD corrections. As we noted here, corporate bond managers have desperately avoided selling down their cash holdings (since they know dealer liquidity cannot support broad-based selling and its an over-crowded trade) and bid for hedges in CDS markets. But it seems, given the utter collapse in the advance-decline lines for high-yield and investment-grade bonds that the liquidations have begun. While the selling in high-yield bonds is on par with the Lehman liquidation levels, it is the collapse in investment grade bond demand that is dramatic (and worse than Lehman). It's not like we couldn't see it coming at some point (here) and as we warned here, What Happens Next? Simply put, stocks cannot rally in a world of surging debt finance costs.
Corporate Bond Advance-Decliners lines are as liquidation-based bad as during Lehman (worse in fact for IG)...
Do Not Panic!! This is orderly...
The current decline in the high yield market, now at 30 trading days, has been the fastest since the end of the 2008 recession, with yields widening 159 bp. Only the July - October 2011 market decline had a greater ultimate magnitude than the current period.
As we noted here:
Remember - and it's important -there is no rotation that drives high-yield credit spreads wider without punishing equities. They are liabilities on the same capital structure and rise and fall in a highly correlated (well non-linear co-dependence) manner as the underlying business risk rises and falls. Do not, repeat do not, see high yield credit weakness as a sign of rotation to stocks - if the credit cycle has turned then stocks are set to fall. And bear in mind that while HY yields are at all-time lows, spreads are not and in fact being short stocks relative to credit makes more sense if you are you are a bear on the credit cycle here. The only problem being that the epic flows that sustained a credit market at non-economic levels for so long will exit in a hurry.
Charts: Bloomberg
http://www.zerohedge.com/node/475681
Chinese Sovereign Risk Spikes Most Since Lehman
With the nation's short-term funding markets in crisis mode - no matter how much they are jawboned about temporary seasonal factors - it seems yet another indicator of stress is flashing the red warning signal. China's sovereign CDS has spiked by the most since Lehman in the last 3 days - up 55% to 140bps. This is the highest spread (risk) in 18 months and looks eerily similar to the period around the US liquidity market freeze. Hedging individual Chinese bank counterparty risk is hard (given illiquidty) and so it would seem traders are proxying general risk of failure via the nation's sovereign risk (and stocks which also languish at post-Lehman lows). On a related note,Aussie banks have seen there credit risk rise 50% in the last month as they suffer domestically and from the China contagion.
China's 5Y CDS spiked to 18 month highs...
as CDS is tracking 1-month SHIBOR extremely closely...
and the more liquid derivative play on this weakness - Aussie Bank CDS (pressure by domestic and Chinese issues)...
Charts: Bloomberg
http://ransquawk.com/headlines/china-market-liquidity-may-be-better-in-july-according-to-china-securities-journal-25-06-2013
China market liquidity may be better in July, according to China Securities Journal
Update details:
- The tightening of the liquidity conditions in China has been in an effort to squeeze the risky shadow banking sector into reducing its risks. One area of focus has been to slow the issuance of wealth management products that are seen as extremely risk to stability, Fitch estimates that more than CNY 1.5trl in wealth-management products will mature in the last 10-days of June. Borrowing from the interbank market is among the most common sources of repayment for these WMPs.
- Once the WMPs mature and payout we could see an easing of the situation.
- Once the WMPs mature and payout we could see an easing of the situation.
22:50, 25 Jun 2013 - Asian News - Source: China Securities Journal
http://www.zerohedge.com/node/475671
China Is Now More Capitalist Than The US: Main Communist Mouthpiece Says Bailouts Are Bad
Given the earlier rumors of PBOC bailing out the funding markets (followed rapidly by their actual denial/explanation of what is going on which is much less supportive than an exuberantly bouncing market implies), it is perhaps ironic that the nation's government mouthpiece - The People's Daily - explains that help is not coming:
A bailout of the stock market is not beneficial to the development of a sound capital market, although some analysts are suggesting the China Securities Regulatory Commission and the People's Bank of China should intervene
Indeed; it seems the Communist party did learn something about the failures of the US' version of Capitalism and the snowballing impacts of bailout-based unintended consequences.
http://beforeitsnews.com/economy/2013/06/collapse-is-happening-cities-cant-sell-their-muni-bonds-2532244.html
Collapse Is Happening, Cities Can’t Sell Their Muni Bonds.
Tuesday, June 25, 2013 10:51
It’s gotten so bad, that cities are now borrowing money to pay for the money they’ve already borrowed. But now, they’ve come to a point where they can’t borrow any more, which will cause massive nationwide govt collapse…
With yields on the U.S. municipal bond market rising, local issuers on Monday postponed another six bond sales, totaling $331 million, that were originally scheduled to price later this week.People have no idea that cities have been gambling taxpayers money in the LIBOR rigged gambling ring called swaps…
Since mid-June, on the prospect that the Federal Reserve could change course on its easy monetary policy as the economy improves, the municipal bond market has seen a total of $2.6 billion in sales either canceled or delayed.
Last week a total of nine deals for $2.3 billion were postponed.
http://www.cnbc.com/id/100841164
The issue turns on the “credit default swaps” that the banks tricked cities into taking. This is another financial weapon of mass destruction, like sub-prime mortgage loans. Cities issue bonds to get cash for projects, thus they must make regular payments on the bonds. Wall Street is the aggressive party here, not the cities. The financial boys try to sell the cities a form of insurance called an “interest-rate swap”. The deal is that if interest rates stay high, the bank will pay them extra as insurance, but if the rates stay low, then the cities pay the bankers.
Somehow the Banksters were eerily prescient: since 2008, the Fed has kept interest rates at zero “to stimulate the economy”. Now cities, school districts and water boards pay the banks millions of dollars a month. But the kindly bankers do permit cities to pay exorbitant termination fees. Between 2006 and 2008, banks collected at least $28 billion from cities on top of the swap payments. (3)
The Office of the Comptroller of the Currency reported in 2012 that U.S. banks held $183.7 trillion in interest rate contracts. Only four firms represent 93% of total derivative holdings: JPMorgan Chase, Citibank, Bank of America and Goldman Sachs. (4) They are the bedrock of the derivative market.
http://market-ticker.org/akcs-www?post=222007
Detroit About To Blow Up The World?
From Bloomberg:
Now everyone who raised your hand -- go find the nearest can of Drano and drink it. You're that dumb -- or hopeful.
Maybe both.
Remember how I've been talking for years about REMICs and how during the bubble years there were lots of "not quite right" acts when it comes to transfers of documents that simply never happened?
What if Orr finds that in his pretty little (far too little) pension funds?
This is the 900lb Gorilla in the china shop that nobody has wanted to go anywhere near, because it infests virtually everything when it comes to duration-matched funds (which pensions must be in order to "work") to some degree.
It's faded off the front page, of course, as the market has "recovered."
But that you don't smell the dead fish doesn't mean that it suddenly came back to life, or stopped rotting.
It just means that the bag it was put in has held up -- so far.
I've got the popcorn ready...
Detroit Emergency Manager Kevyn Orr ordered an investigation into employee benefit programs, including the insurance and pension systems.Everyone raise their hand if they think this is just about people scamming "disability" and other pension-related things to which they're not really entitled.
Orr told the city’s inspector and auditor general, agencies that both have subpoena power, to report within 60 days in an order dated today.
The document should cover “next steps, and any corrective, prospective, legal, additional investigatory or other action designed to address any waste, abuse, fraud or corruption uncovered,” according to Orr’s order.
Now everyone who raised your hand -- go find the nearest can of Drano and drink it. You're that dumb -- or hopeful.
Maybe both.
Remember how I've been talking for years about REMICs and how during the bubble years there were lots of "not quite right" acts when it comes to transfers of documents that simply never happened?
What if Orr finds that in his pretty little (far too little) pension funds?
This is the 900lb Gorilla in the china shop that nobody has wanted to go anywhere near, because it infests virtually everything when it comes to duration-matched funds (which pensions must be in order to "work") to some degree.
It's faded off the front page, of course, as the market has "recovered."
But that you don't smell the dead fish doesn't mean that it suddenly came back to life, or stopped rotting.
It just means that the bag it was put in has held up -- so far.
I've got the popcorn ready...
and....
http://www.zerohedge.com/news/2013-06-25/some-hard-numbers-western-banking-system
Some Hard Numbers On The Western Banking System
Submitted by Simon Black via Sovereign Man blog,
At our Offshore Tactics Workshop in Santiago three months ago, Jim Rickards (author of the acclaimed Currency Wars) told the audience of roughly 500 people– (paraphrased)
‘If one of you stands up right now and heads for the exit, the rest of the audience probably won’t pay much attention. If ten of you do it, one or two people may notice and follow. But if 400 of you suddenly head for the exit, the rest of the audience would probably follow quickly.’
It’s a great metaphor for how our financial system works. The entire system is based on confidence. And as long as most people maintain this confidence, everything is fine.
But as soon as a critical mass of people loses confidence in the system, then it starts a chain reaction. More people start heading for the exit. Which triggers even more people heading for the exit.
This is the model right now across the system. And it’s especially pervasive in the banking system.
Modern banking is based on this ridiculous notion that banks don’t actually have to hang on to their customers’ funds.
Banks in the United States typically hold less than 10%, and even less than 5%, of their customers’ savings. This is particularly true among smaller regional banks.
As an example, BB&T bank is holding about $3.2 billion in cash equivalents on $131 billion in customer deposits. That’s a ratio of just 2.4%.
The rest of customer deposits are mostly invested in residential mortgage backed securities (similar to those which collapsed in 2008) and commercial loans. In fact, the bank’s loan portfolio exceeds total customer deposits. Not exactly the picture of financial health.
In the UK, the situation has become so absurd that British regulators are allowing some banks (Lloyds, Royal Bank of Scotland) to plug their gaping capital deficits with FUTURE earnings.
Now, I’m not trying to badmouth any particular bank here; these example are representative of the entire western financial system.
Yet few people give much thought to where they park their hard-earned savings. We’re deluded into believing that our bank is safe. It must be, after all. It’s a bank! And… it’s backed by the government!
Sure, never mind that the balance sheets of insurance funds and sovereign governments are in even worse shape.
That this system is still functioning at all is due almost entirely to confidence. There is no fundamental support propping it up. And a system built exclusively on confidence can unravel quickly.
This is why it’s so important to give a lot of thought to your financial partner. Do they have a fundamentally safe balance sheet? Or is it just smoke and mirrors?
Take a look at your own bank’s balance sheet. How much cash do they hold as a percentage of deposits? How big is the loan portfolio as a percentage of deposits? How much equity does the bank have as a percentage of deposits?
If you’re not satisfied, find another bank. And you may have to look overseas at stronger jurisdictions.
Singapore is one place where I’m happy to park capital. OCBC for example, holds a whopping 38% of customer deposits in cash equivalents… ten times as much as many banks in the West.
Its total loan portfolio is far less than customer deposits. Total equity exceeds assets by a margin of 2:1. And it resides in a nation with effectively no net debt.
I’m not necessarily endorsing OCBC, but rather citing it as an example of what a healthy bank balance sheet is supposed to look like. Many banks in Singapore hold similar figures.
Bottom line, it matters where you hold your savings. Balance sheet fundamentals are critical.
And moving your hard-earned savings to a well-capitalized, highly liquid bank is one of those things that makes sense, no matter what.
If nothing happens, you won’t be worse off for it. Yet if the confidence game collapses, you’ll be one of the few left standing with your savings intact.
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