Free Republic

Central banks around the world, led by the US Fed, have increased liquidity with lots of cheap cash for big banks, the headlines tell us this morning. One or two pundits have even implied that this will avert the next episode in the West's unfolding financial drama.

Eric Burroughs Warning signs on market liquidity risks May 15, 2011 07:28 EDT If the great commodity selloff of 2011 shows nothing else, it is that markets are undergoing serious structural changes that need to be followed closely. Our commodities analyst John Kemp has compared the oil plunge with the May 2010 flash crash in U.S. shares, and rightfully so. Four standard deviation moves in oil futures are not normal, even if Gaussian distributions underestimate the chance of such a move. The rise of high-speed electronic trading appears to be creating imbalances between buyers and sellers in nanoseconds that lead...

One may be forgiven to believe that via its FX liquidity swap lines the Fed only bailed out foreign Central Banks, which in turn took the money and funded their own banks. It turns out that is only half the story: we now know the Fed also acted in a secondary bail out capacity, providing over $350 billion in short term funding exclusively to 35 foreign banks, of which the biggest beneficiaries were UBS, Dexia and BNP. Since the funding provided was in the form of ultra-short maturity commercial paper it was essentially equivalent to cash funding. In other words,...

The United States, Japan and large parts of Europe have exhausted their policy arsenal, leaving them defenceless against a double-dip recession as recovery slows to ‘stall speed’. “The US has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a caste of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como. “More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5pc yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency...

NEW YORK (Reuters) – Stocks ticked higher on Monday on speculation the Federal Reserve would add liquidity in a move to strengthen the economy just days after a weaker-than-expected jobs report, the latest to suggest the recovery was losing momentum. Gains in the Dow were limited, though, as Hewlett-Packard (HPQ.N) shares tumbled following the chief executive's resignation. The Fed, while widely expected to renew its vow to keep interest rates near zero for an extended period, may indicate it is prepared to print more money to boost the economy as signs point to a slowing recovery. The bank is expected...

Presenting a detailed look at "Repo 105" - the next soundbite sure to fill the airwaves over the next weeks and months, as more and more banks are uncovered to be using this borderline criminal accounting gimmick to make their leverage ratios look better. This is the first time we have heard this loophole abuse by a bank, be it defunct (Lehman) or existing (everyone else). There should be an immediate investigation into how many other banks are currently taking advantage of this artificial scheme to manipulate and misrepresent their cap ratio, and just why the New York Fed can...

Solving the US Debt Crisis with More Liquidity By Eric Fry 06/02/10 Laguna Beach, California – It is not for nothing that seasoned stock market participants advise, “Sell in May and go away.” During the last 60 years, the month of May has delivered the fourth worst average monthly return on the calendar. But that’s only the beginning of the story. The three worst months are June, August and September. July isn’t too shabby, but it has the misfortune of sitting between the only two months – June and September – that have produced losses, on average, since 1950. August...

David Kotok: Widening LIBOR Is Signaling A Solvency Crisis, Not Just Concerned About Liquidity Joe Weisenthal Jun. 2, 2010, 9:42 AM We've been following closely the ongoing widening of the TED Spread, which has been signaling that banks are spending more and more on short-term capital. But what does it all mean? Could it be something minor, that banks need more liquidity? David Kotok of Cumberland Advisors thinks it's something deepr than that. The Fed has responded to the perceived demand for dollar liquidity in Europe by reinstituting the swap lines with foreign central banks. This time the lines are...

Bill Gross (PIMCO): World In The Midst Of A Flight To Liquidity Joe Weisenthal May. 20, 2010, 2:42 PM Well we were wondering when PIMCO would weigh in... Reuters: Bill Gross, the co-chief investment officer of Pimco and manager of the firm's Total Return Fund, told Reuters that "fiscal tightening momentum" is increasing in almost every corner of the world. That comes as financial markets are exhibiting "a mini-relapse of a flight to liquidity as hedge funds and other leveraged positions are liquidated to preserve capital," Gross said. Read the whole thing >[snip]

Above the Restoration Hardware in this Jersey Shore town, not far from the Navesink River, lurks a Wall Street giant. Here, inside the humdrum offices of a tiny trading firm called Tradeworx, workers in their 20s and 30s in jeans and T-shirts quietly tend high-speed computers that typically buy and sell 80 million shares a day. But on the afternoon of May 6, as the stock market began to plunge in the “flash crash,” someone here walked up to one of those computers and typed the command HF STOP: sell everything, and shutdown.Across the country, several of Tradeworx’s counterparts did...

Federal investigators probing the “flash crash” that briefly sliced nearly 1,000 points off the Dow Thursday are zeroing in on a series of “unusually high-volume” trades in S&P futures that originated in Chicago, a government official told POLITICO. Those trades set off a chain reaction of trades that caused the biggest drop within a single day in the Dow Jones Industrial Average’s storied history.

Size doesn’t matter, says white paper on systemic risk Author: Mark Pengelly Source: Risk magazine | 26 Feb 2010 The idea of imposing a levy on large financial firms is a “flawed policy”, with economic costs outweighing any potential benefits, according to a recent white paper prepared by Washington, DC-based Nera Economic Consulting.! Such a process is not only subject to gaming by firms, but is conceptually flawed The white paper, which was prepared for the Property Casualty Insurers Association of America, is being distributed to members of the Senate Committee on Banking, Housing and Urban Affairs this week. Democrats...

Dear Fed: The Problem is Solvency, Not Liquidity John M. Mason The Federal Reserve, the Bank of England, and the European Central Bank are all keeping interest rates exceedingly low and are continuing to engage in “quantitative easing.” The central banks have claimed that they are caught in a “liquidity trap” and cannot force interest rates to go any lower, especially below zero. Their solution is to continue to force liquidity into the banking system in order to keep the financial system functioning and to encourage commercial banks to start lending again. /snip The classic central bank response to a...

We Are in the Mother of All Carry Trades: Roubini Published: Monday, 26 Oct 2009 | 9:20 AM ET Text Size By: Antonia Oprita Associate Web Producer, CNBC.com Most investors follow the same strategy of borrowing in dollars and investing in assets across the world and when the greenback's downward trend will reverse, there may be a crash in global assets, Nouriel Roubini, Chairman, RGE Monitor, told CNBC Monday. cnbc.com "There is a wall of liquidity…chasing assets," Roubini told "Squawk Box." "Now we are in the mother of all carry trades," he added. Asset prices have been inflated by the...

FLASH** Goldman Code Theft BOMBSHELL? Something really ugly popped up on Daily Kos yesterday late in the afternoon..... ...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world. Two things come out of this: 1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to...

Something really ugly popped up on Daily Kos yesterday late in the afternoon..... ...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world. Two things come out of this: 1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen... (2. ... is...

In light of what I said before about drains of liquidity.... (click for larger image) The salmon-colored day is the one to pay attention to. It is always dangerous to assume that an expiring block of paper will not be rolled. It usually is. But - if it is not, in this case, roughly $100 billion in cash will come out of the "sloshing cash" in the banking system. Of late it has been unusual for there to be visible OMO. Note that the table's first three columns are zeros - this is the result of The Fed's "unusual" policies,...

Central clearing of derivatives seen adding risk Tue Jun 9, 2009 4:31pm EDT NEW YORK, June 9 (Reuters) - Proposals to require that all contracts in the $450 trillion derivatives market be centrally cleared could tie up valuable capital and constrain the liquidity of companies that use the contracts to hedge their businesses, derivatives users and dealers warned on Tuesday. The use of central clearinghouses is viewed as key to removing systemic risks posed by the contracts, should the failure of a large dealer spark a chain of losses globally. The issue arose after the collapse last year of Lehman...

Federal Reserve chairman Ben Bernanke is seeing "tentative signs" of economic improvement, which makes it time for the central bank to begin talking about its exit strategy. In a talk at Morehouse College, Bernanke summarized much of his own recent commentary and insisted that he remains optimistic despite the Fed's March downward revision of GDP forecasts and expectation that unemployment will rise into 2010. "Recently we have seen some signs that the sharp decline in economic activity may be slowing," Bernanke said. Bernanke's speech comes on the front-end of a week filled with speeches from various Federal Reserve presidents, as...

The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans Posted by Tyler Durden at 3:40 PM "Anyone who is doing anything sensible right now is either losing money or is out of the market entirely." These are the words of a quant trader, who is seeing something scary in the capital markets. Scary enough to merit a warning that we could be on the verge of another October 87, August 2007, or January 2008. Let's back up. I recently posted a chart which tracks equity market neutral strategies: in essence a cross section of quant funds...