Rajiv Sethi Mon 2010-09-20 10:04 EDT

An Extreme Version of a Routine Event

Rajiv

The flash crash of May 6 has generally been viewed as a pathological event, unprecedented in history and unlikely to be repeated in the foreseeable future...far from being a pathological event, the flash crash was simply a very extreme version of a relatively routine occurrence...the flash crash can provide us with insights into the more general dynamics of prices in speculative asset markets...The crash revealed with incredible clarity how (as James Tobin observed a long time ago) markets can satisfy information arbitrage efficiency while failing to satisfy fundamental valuation efficiency...Aside from scale and speed, one major difference between the flash crash and its more routine predecessors was the unprecedented cancellation of trades...this was a mistake: losses from trading provide the only mechanism that currently keeps the proliferation of destabilizing strategies in check...

extreme version; Rajiv Sethi; routine event.

zero hedge Fri 2010-01-15 17:46 EST

Is The Mysterious "Direct Bidder" Simply China Executing 'Quantitative Easing' On Behalf Of The Federal Reserve?

...we make the claim that the Fed has now informally offloaded the Treasury portion of Quantitative Easing to China, which does so via the elusive Direct Bid. It also explains why the Fed has generically been much less worried about TSY purchases under Q.E. (a mere $300 billion out of a total $1.7 trillion in monetization). It does beg the question of just how much Chinese holdings of US Debt truly are, as this number is likely hundreds of billions higher than the disclosed $799 billion...if there is indeed an implicit understanding between Bernanke and his Chinese colleagues, it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield. Lastly, implications for world trade are great, as Asian countries will have to deal not only with the Chinese behemoth, which will constantly seek to keep its currency as low as possible, thus exacerbating the rest of Asia's foreign trade balances, but that of the US itself. The immediate implication is that China (or the US for that matter) will likely not reflate their currencies out of their own volition any time in the foreseeable future. Look for a much weaker dollar in the coming months.

behalf; Direct bidders; Federal Reserve; mysteriously; Quantitative Easing; Simply China Executing; Zero Hedge.

Tue 2009-09-29 11:43 EDT

The Post-Bubble Malaise

Mike Whitney

...the Fed is building excess bank reserves (nearly $1 trillion in the last year alone) with the tacit understanding that the banks will return the favor by purchasing Uncle Sam's sovereign debt. It's all very confusing and circular, in keeping with Bernanke's stated commitment to "transparency". What a laugh. The good news is that the trillions in government paper probably won't increase inflation until the economy begins to improve and the slack in capacity is reduced. Then we can expect to get walloped with hyperinflation. But that could be years off. For the foreseeable future, it's all about deflation...The question is, how long can the Obama administration write checks on an account that's overdrawn by $11 trillion (the national debt) before the foreign appetite for US Treasurys wanes and we have a sovereign debt crisis? If the Fed is faking sales of Treasurys to conceal the damage--as I expect it is--we could see the dollar plunge to $2 per euro by the middle of 2010...The consumer is maxed out, private sector activity is in the tank, and government stimulus is the only thing keeping the economy off the meat-wagon. Bernanke might not admit it, but the economy is sinking into post-bubble malaise.

Post bubble malaise.

Tue 2008-08-26 00:00 EDT

The End of the Beginning -- Developments in the Credit Crisis

The End of the Beginning - Developments in the Credit Crisis, by Satyajit Das (Prudent Bear); 2008-05-27; ``limited recognition of the massive de-leveraging of the global financial system that is under way.'' ``The banking systems ability to supply credit is significantly impaired and will remain so for the foreseeable future.'' ``Changes in financial markets will have a significant impact on many companies that now rely on financial engineering rather than real engineering'' Das proposes: ``holdings and values of risky assets held by banks and investment banks must be accurately determined...Risky assets must be valued on a hold-to-maturity basis...Mark-to-market accounting should be suspended...Capital levels should be set on a bank-by-bank basis by regulators...Capital requirements should be eased...government [should] guarantee of all major bank liabilities''

Begins; credit crisis; develop; ending.

Wed 2008-05-28 00:00 EDT

The Institutional Risk Analyst: Fed Risk: Interview with Richard Alford

Fed Risk: Interview with Dick Alford; Institutional Risk Analytics; former fed economist Richard Alford argues Fed misread inflation for deflation, Fed fighting the wrong battles; "US population is not ready to hear that their real levels of income, assets prices and other indicia of national well being may be falling or relatively stagnant for the foreseeable future."

Fed Risks; Institutional Risk Analyst; interview; Richard Alford.