by Tyler Durden on 8/24/11
Sometimes the general public can get confused in attempting to explain the complexities and the inefficiency of the banking sector when one simple chart brings the message home. A chart like that comes from the latest "Eye on the Market" from JPM's Michael Cembalest, who compares total bank deposits ($8.4 trillion), or bank liabilities, and total bank loan (about $2 trillion less) assets, or sources of cash flows that are supposed to fund bank liabilities and generate retained earnings, while the bank performs credit, maturity and risk transformation: a bank's three key functions. As the chart below shows, perhaps the primary reason why the economy is in its current deplorable state, is that instead of lending dollar for dollar to catch up with deposit growth, banks now rely on roughly $1.7 trillion in excess reserves with the Fed, an amount roughly equal to the difference between total deposits and loans, to plug the credibility gap. This also explains why according to Cembalest one of the expectations by the market from Jackson Hole is that IOER will be cut to 0% to promote bank lending, and thus the conversion of reserves into loans (something which the inflationistas out there will tell you is a big risk to a sudden surge in out of control inflation). So how does the Fed's direct intervention in bank balance sheets look like? Here it is
Full article at
http://www.zerohedge.com/news/charting-biggest-structural-problem-us-banks-and-what-market-expects-jackson-hole-version-n1
Thursday, August 25, 2011
Downside Hedge Fund Bets On S&P500 Highest Since 2008 | ZeroHedge
by Tyler Durden on 24/08/11
Who says hedge funds are ambivalent about the current market? As of last week, they have not been
more bearish on the S&P since
before Lehman. From SocGen: "Hedge funds have opened the biggest net short positions since early 2008, concentrated on the most liquid segment of the market, i.e. the S&P 500. Meanwhile, positioning on small caps hardly moved (slight increase in net shorts on the Russell 2000). Surprisingly, they actually stuck to their net long positions on Technology (Nasdaq)." As usual, the amusingly named "hedge" funds defy their purported nature (as in, to
hedge), and merely pursue momentum, and should be more appropriately called "career risk" funds as the only variable is doing precisely what everyone else is doing: remember - to get a bonus at the end of the year, you don't have to outrun the market, you just have to outrun the biggest institutional fool out there. "Hedge funds have closed their net short positions on 10-year Treasuries and strongly diminished their net shorts on the long end (30Y), as recession fears have crunched expectations for higher bond yields, and endorsed by the Fed's announcement that it will keep rates low until at least 2013." Hedge fund infatuation with metals continues: "Hedge funds' enthusiasm for gold and platinum remains strong, as indicated by the high net long positions on these metals. Meanwhile, net long positions on base metals (copper) have been strongly reduced. Net long positions on crude oil remain relatively stable, less impressed by the perceived recession threats." Expect to see numerous short covering sprees until the end of the year, even as the market continues it secular decline back to fair value somewhere around 400.
Full article at
http://www.zerohedge.com/news/downside-hedge-fund-bets-sp500-highest-2008
BD
Who says hedge funds are ambivalent about the current market? As of last week, they have not been
more bearish on the S&P since
before Lehman. From SocGen: "Hedge funds have opened the biggest net short positions since early 2008, concentrated on the most liquid segment of the market, i.e. the S&P 500. Meanwhile, positioning on small caps hardly moved (slight increase in net shorts on the Russell 2000). Surprisingly, they actually stuck to their net long positions on Technology (Nasdaq)." As usual, the amusingly named "hedge" funds defy their purported nature (as in, to
hedge), and merely pursue momentum, and should be more appropriately called "career risk" funds as the only variable is doing precisely what everyone else is doing: remember - to get a bonus at the end of the year, you don't have to outrun the market, you just have to outrun the biggest institutional fool out there. "Hedge funds have closed their net short positions on 10-year Treasuries and strongly diminished their net shorts on the long end (30Y), as recession fears have crunched expectations for higher bond yields, and endorsed by the Fed's announcement that it will keep rates low until at least 2013." Hedge fund infatuation with metals continues: "Hedge funds' enthusiasm for gold and platinum remains strong, as indicated by the high net long positions on these metals. Meanwhile, net long positions on base metals (copper) have been strongly reduced. Net long positions on crude oil remain relatively stable, less impressed by the perceived recession threats." Expect to see numerous short covering sprees until the end of the year, even as the market continues it secular decline back to fair value somewhere around 400.
Full article at
http://www.zerohedge.com/news/downside-hedge-fund-bets-sp500-highest-2008
BD
Wednesday, June 9, 2010
Oil Price - the long term bet !!
Oil for me is black gold and sooner or later is going to run out of supply, which would then lead us either to cut consumption (or stop consumption) or look for alternative means of energy for running out cars (Solar/hydro energy? May be?). Here are few reasons why I think so.
Peak oil theory
People have argued it long and are still arguing whether the oil production has peaked in 2005-2006 and we are on the verge of consuming what is left only for few years. There are evidences of large water reservoirs getting disappeared in OPEC region especially Saudi Arabia, leading us to believe that OPEC is pumping water in the field to take out oil. This would in turn mean that OPEC is struggling hard to maintain the production growth.
Oil Budget Deficit or OPEC Quota
10 of the 12 countries in OPEC 12 are producing within there quota’s which were decided years ago (see latest Oil report of May 2010), now these are the countries where Oil is the only official business income for the government to balance the budget and most of these countries are ~70-80% dependent on it. This would make a case of arguing that it’s not really the quota’s which is limiting there production, its there I inherent capacity to produce which cannot be enhanced. Think of this as other way, why didn’t a country like Iran or Nigeria produce more when oil was near $140, which would have solved there problems of deficit for years to come.
Most of the oil rich countries now need a price of around $40-$50 at least to balance there budgets and many of them have a marginal cost of producing an additional barrel at $60-$70.
Is it Speculation or demand driven price rise
Well, some people have long argued that oil price is about 60% speculation, while other says it’s purely a demand supply driven case though there might be little bit impact due to financial transactions. However, CFTC has already argued long back about the case (see this report ) still we seem to have the same notion. I do agree that commodities are an alternative class of assets and prove to be a measure for diversification in this crisis; however that’s true for the entire commodity complex and not just for oil. The only way to take a long exposure of oil or to protect yourself through the adverse price movement (in case you are a consumer) is through futures. Also looking how India and china are growing and there demand numbers peaking, why do we have to blame the entire price rise to financial markets?
Oil Spill
Does it mean something for me? Am I concerned about the environment now? Well honestly, this Deepwater disaster in USA (GOM) caused headlines around the world estimating the loss to the environment, damage to life, etc but yet there are so many other countries where this happens on a regular basis yet no one notices the same. This is largely because all the new discoveries of oil are in unconventional places in countries which are politically unstable, and where oil is the backbone of the economy and big oil giants just bend the rules.
Nonetheless, this disaster might lead to renewed curbs on offshore oil drilling for the near term, which was removed not so long ago by the house due to increasing demand of oil. We can see the visible impact of this spill on the longer term prices of oil.
Peak oil theory
People have argued it long and are still arguing whether the oil production has peaked in 2005-2006 and we are on the verge of consuming what is left only for few years. There are evidences of large water reservoirs getting disappeared in OPEC region especially Saudi Arabia, leading us to believe that OPEC is pumping water in the field to take out oil. This would in turn mean that OPEC is struggling hard to maintain the production growth.
Oil Budget Deficit or OPEC Quota
10 of the 12 countries in OPEC 12 are producing within there quota’s which were decided years ago (see latest Oil report of May 2010), now these are the countries where Oil is the only official business income for the government to balance the budget and most of these countries are ~70-80% dependent on it. This would make a case of arguing that it’s not really the quota’s which is limiting there production, its there I inherent capacity to produce which cannot be enhanced. Think of this as other way, why didn’t a country like Iran or Nigeria produce more when oil was near $140, which would have solved there problems of deficit for years to come.
Most of the oil rich countries now need a price of around $40-$50 at least to balance there budgets and many of them have a marginal cost of producing an additional barrel at $60-$70.
Is it Speculation or demand driven price rise
Well, some people have long argued that oil price is about 60% speculation, while other says it’s purely a demand supply driven case though there might be little bit impact due to financial transactions. However, CFTC has already argued long back about the case (see this report ) still we seem to have the same notion. I do agree that commodities are an alternative class of assets and prove to be a measure for diversification in this crisis; however that’s true for the entire commodity complex and not just for oil. The only way to take a long exposure of oil or to protect yourself through the adverse price movement (in case you are a consumer) is through futures. Also looking how India and china are growing and there demand numbers peaking, why do we have to blame the entire price rise to financial markets?
Oil Spill
Does it mean something for me? Am I concerned about the environment now? Well honestly, this Deepwater disaster in USA (GOM) caused headlines around the world estimating the loss to the environment, damage to life, etc but yet there are so many other countries where this happens on a regular basis yet no one notices the same. This is largely because all the new discoveries of oil are in unconventional places in countries which are politically unstable, and where oil is the backbone of the economy and big oil giants just bend the rules.
Nonetheless, this disaster might lead to renewed curbs on offshore oil drilling for the near term, which was removed not so long ago by the house due to increasing demand of oil. We can see the visible impact of this spill on the longer term prices of oil.
Thursday, May 27, 2010
Deja Vu all over again?
The elephant or so to say "bear" in the room today, (recent market free fall) might be construed as a possible parallel to the 2008 but here are few reasons, it might not turn out to be the same?
- Government Action: The government of all nations is much more receptive and active to the idea of bailing out and systematic risk consequences (Lehman crisis). This can be evident from the New Reform Bill passed by US and EU and the recent bailout of Greece by EU and desperate action by Greece on the ban of naked selling. While we still agree that there are Dangerously over leverage AAA super powers (DOLTAS), but the chances of them bursting are quiet minimal if not low.
- Economic environment: In, autumn of 2008, the common conception was regarding "worst global recession since the 1930s." Today, many people are counting on stimulus package (75% unspent) and foresee this to be major economic boost. Some relief can be seen from the recovering commodities (Oil!!!!) owing to consumption.
- Earnings Forecast: In contrast to the "worst earnings recession since the 1930s" that was taking place in late 2008, Most people are of view that Earnings will be robust in the current year and 2008 scenario is unlikely to repeat.
PE Ratio Thesis : While President Obama said " What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it". Many people are of view that its time again to be a stock pickers market with PE of S&P being close to 12.In August 1982, the PE Ratio dropped below 7 (see chart), in both July 1932 and July 1921 it went below 6. This would imply that there is further downside of 50% of S&P, if we were to see the same level of PE which isn't the case right now seeing the earnings.
Comments welcome!
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