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Federal Reserve Raises Discount Rate

breaknnews

The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve’s lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. (more…)

Four Steps to Taking Bigger Risks

1. Create an information edge so that you are ahead of the curve.

 

2. Have a thesis that you can support with data.

 

3. Assess the sources of the data.

 

4. Trade on the basis of this data against others in the marketplace.

 

The trader who understands risk will pay attention to corporate numbers and guidance and will try to analyze the relevance of these numbers to where the company stands relative to its major competitors. He is also able to differentiate between companies and does not simply trade noise or daily movement.

 

The best traders focus on the company balance sheet, earnings reports, and an assessment of the growth prospects of the company. They also compare the company on a relative valuation basis to other companies in the same space. They consider the state of the economy and any significant macroeconomic variables, such as Federal Reserve interest rate cuts, the cost of energy, and the cost of doing business, and try to assess the nature of the market at the time.

To improve your data, ask yourself: Is this a market that is trading on fundamentals, or is it trading on macroeconomic variables and market sentiment? Then try to get a handle on relevant short-term catalysts — fresh earnings news, changes in top executives, new technology, for example — that may influence the market’s perception of the value of a stock. Once you take these steps, you can try to make a calculated bet on the impact this data will have on the price of the stock. (more…)

Kiss That V-Shaped Recovery Good-Bye: The U.S. "Worse Than Greece," Says Economist

There’s been many letters and symbols used over the last year to describe the shape of the U.S. economic recovery.  There’s the strong V-shaped recovery; the square root shaped recovery to connote a strong recovery followed by a period of flat to no growth; and the W-shaped recovery favored by those believing in a double dip recession.

Tech Ticker guest Michael Pento has a new twist on the discussion. Pento, senior market strategist with Delta Global Advisors believes this is a tee-pee shaped recovery with the top of that tee-pee having already formed in the fourth quarter.

Pento is negative on America’s near term economic prospects for three main reasons:  too little bank lending, too few jobs and too much public and private debt. “I’ve never seen a v-shaped recovery occur when commercial bank lending was down 7% year over year.  So, small business are not getting loans to create capital goods and to expand and hire individuals,” he observes.

Exacerbating the problems at home, is what he describes, as a weak economy abroad.  With China looking to clamp down on growth, the EuroZone struggling with its own debt problems, Pento asks, “Where is the growth going to come from in demand from overseas?

When he says “demand” he’s referring not only to products and services but also to our growing debt burden.  As the price of servicing our deficit grows, when the Federal Reserve tightens monetary policy, Pento is confident others will realize what he already does: the situation in the U.S. is “worse than Greece.”

The way he sees it, there’s a strong potential for a bond and dollar crisis when China starts selling Treasuries.  “Tell me which shape recovery that will yield for the United States?”

$673 Billion In Commercial Paper Maturing Through July 16 As CP Rates Creep Higher

As an increasing number of analysts evaluate the impact of Europe’s rolling defaults and failed auctions on Europe’s liquidity and particularly its shadow liquidity system, best seen in rising European Commercial Paper rates, is it about time to take a look at our own back yard. According to the Federal Reserve there is $673 billion in Commercial Paper maturing in the next 6 weeks alone, of which the bulk, Non-ABL Tier 1 CP amounts to $328 billion, ABL CP totals $292 billion, and Non-ABL Tier 2 CP totals $34 billion. What is concerning is that just like in Europe, rates here in the US for the various tranches of Commercial Paper have started rising. And as this is arguably one of the biggest components of the US shadow liquidity system, it bears close watching, especially if spreads continue leaking wider as they have recently. One thing to keep in mind: the Fed’ CPFF emergency facility has now been retired, and any hitch in the CP market will necessitate another brand new involvement in broad liquidity provisioning by the Fed. Then again, just as in the Central Bank liquidity swap case, which was reactivated on a moment’s notice, we don’t see any problem with the Fed announcing the CPFF program going live with no notice.

The chart below shows a maturity distribution of various CP tranches over the next six weeks.

And the recent rates on the three key CP tranches can be seen in the chart below. All three are trading at their 2010 wide levels.

New Glossary of Finance Terms

glossaryBonus:  A form of extortion whereby employees of a company extract either shareholder or taxpayer money for their own pleasure regardless of the success or failure of said company.

Derivatives:  Trading vehicles created by over-educated  finance professionals for whom speculating in stocks and bonds was not quite risky or volatile enough.

Bulge Bracket Firm:  A Wall Street investment bank that is literally “bulging” with off-balance sheet leverage and bloated pay packages for the architects of said leverage.  They used to be referred to as “Too Big to Fail”, circa 2007-2008; they are now extinct.

Credit Ratings:  These are fictitious opinions of health and financial strength that are sold to the highest bidder.  The business of assigning credit ratings to bonds is similar to the business of receiving payola at a radio station for playing a particular record more often than others.  

Department of the Treasury:  This is a government agency in charge of rescuing companies and executives who make bad decisions or investments.  Oh yeah, another minor function they serve is printing the nations currency.

Federal Reserve:  An institution that ensures the inflation and subsequent bursting of asset bubbles roughly every 7 years.

Hedge Fund:  A betting pool, similar to a group of employees or friends who all contribute their money to a pot and buy lottery tickets.  Only in this case, a few of the participants charge everyone else involved a fee for picking which lotto numbers they will play. (more…)

It Would be A Mistake To Think That The Bailout Is Actually A Bailout Of Greece

The ECB has talked more hawkish than the Federal Reserve but basically they are all money printers. Some are better at it, and faster and have more efficient machines the others are slower but basically central banks, they run a print and print.

And it would be a mistake to think that the bailout is actually a bailout of Greece. Greece is a write-off. You can`t have the kind of debt Greece has with Olive Oil income. They have no industries to speak of. They have shipping but the shipping industy does not pay taxes in Greece.

So basically the bailout is actually a bailout of the ECB itself because they already have a lot of paper of Spain, portugal and Greece in their portfolio and a bailout of the banks in Europe. They lent money to Greece, Spain and Portugal, so they are all in the same boat.