Morgan Stanley says many of its clients are preparing for an imminent loss of central bank control
The Federal Reserve is contemplating unwinding its quantitative easing program, which at $85 billion in bond buying per month has constituted the single largest provision of marginal liquidity to global financial markets since this latest iteration of the stimulus program was launched in September 2012.
And while the Fed is in the spotlight, it’s not the only central bank that is trying to lean more heavily on forward guidance these days – these “open-mouth operations” are currently all the rage at the Bank of England, the European Central Bank, and the Bank of Japan as well.
However, investors don’t think central banks will be successful with these new forward guidance tactics, which are expected to ramp up soon.
“Most clients I met buy our story that the Fed, the Bank of England and the ECB will step up their efforts to push back on expectations of earlier and faster rate hikes in the next few weeks and months,” says Morgan Stanley global head of economics Joachim Fels in a Sunday note. “However, many doubt that Bernanke, Carney, Draghi & Co will be successful in their forward guidance efforts in the face of further improvements in the economic data.”
In other words, despite continued efforts by central banks to keep interest rates low, improving economic conditions will force interest rates up.
JPMorgan Closes Precious Metals Sell Recommendation, Goes “Tactically Overweight” Commodities
zerohedge ‏@zerohedge 2 min
FED DISTRICT BANKS SEE ‘ESCALATING THREATS’ TO PAYMENT SYSTEM. they need fingerprint scanners
Hank “World Should Prepare For New Financial Crisis” Paulson Versus Jim “0% Chance” Gorman
Five years after the financial crisis former Treasury Secretary Henry Paulson says “the world shouold prepare for a new financial crisis” in tomorrow’s Handelsblatt newspaper. His view, based on the “unacceptable” nature of too-big-to-fail banks and the lack of reform of the GSEs and the shadow-banking industry, stands in direct opposition to the leader of one of those TBTF banks. James ‘not Jim’ Gorman, CEO of Morgan Stanley, told Charlie Rose last week that “the probability of [it] happening again in our lifetime is as close to zero as I could imagine.”
Gorman’s reasoning is consensus:
“The way these firms are managed, the amount of capital that they have, the amount of liquidity that they have, the changes in their business mix — it’s dramatic.”
5 yrs after the financial crisis, the Fannie Mae, Freddie Mac reform has made no progress and the market of shadow banks hasn’t been addressed, Paulson writes, according to a preview of the commentary
Paulson calls the too-big-to-fail phenomenon “unacceptable” and proposes more stringent capital and liquidity requirements in order to minimize the advantages enjoyed by larger financial institutions: Handelsblatt
Who would you trust?
$1 Trillion In US Bank Deposits Held Abroad Will No Longer Be Insured
In the aftermath of the Cyprus bail in (and to a lesser extent the Polish pension fund debacle), it is understandable if depositors are a little sensitive about the insurance, and thus confiscability (sic), of their deposits. Starting today, following a 5-0 vote by the FDIC, depositors in foreign US bank branches will officially no longer have recourse to a $250,000 in deposit insurance. The notional amount of deposits at risk: $1 trillion. This is not a new development: the FDIC rule to curb insurance on this category of deposits was proposed earlier this year, and today was the formalization. However, questions do arise: if a major US depository institution does fail domestically, the financial state of their depositors abroad will hardly be the biggest issue.
The move rejects what officials called a “creative” legal proposal from the banking industry. “We don’t want to become the deposit insurer for the world,” FDIC officials said at a briefing.
The FDIC’s action was prompted by the move last year by U.K. regulators to propose changes in the way deposits held at overseas branches should be treated. FDIC officials said the U.K. proposal potentially opened the door to those deposits being insured by the FDIC; the rule being finalized Tuesday clarified that isn’t the case, said FDIC Chairman Martin Gruenberg.
“The final rule protects the deposit insurance fund, while at the same time recognizing both the FDIC’s commitment to maintaining financial stability through the prompt payment of deposit insurance and the evolving nature of the global banking system,” Mr. Gruenberg said in a statement.
Naturally, the whole point is to generate the “risky” impetus for foreign depositors to pull their money out of the “safety” of deposit accounts and buy risky assets, a trend which started with Cyprus but will certainly not end there.
However, a different question emerges: if the US offshore bank branches will no longer be insured by the US, the logical implication is that deposits of foreign banks in the US are not insured either. Of course, the good thing about deposits held by foreign banks in the US are mostly Fed excess reserve derived, as the following chart shows, which once again shows that of the $2.4 trillion in deposits in all US commercial banks, a majority, or $1.25 trillion belongs to foreign banks operating in the US. It also whos the total amount of Fed reserves in the system. The fact that the two are identical is not a coincidence.
Hank Paulson: The Too-Big-To-Fail Phenomenon Is “Unacceptable”
Top Economists, Financial Experts and Bankers Say Giant Banks Are Hurting Economy
The Treasury Secretary at the start of the 2008 financial crisis – Hank Paulson – says:
5 yrs after the financial crisis, the Fannie Mae, Freddie Mac reform has made no progress and the market of shadow banks hasn’t been addressed, Paulson writes ….
Paulson calls the too-big-to-fail phenomenon “unacceptable” and proposes more stringent capital and liquidity requirements in order to minimize the advantages enjoyed by larger financial institutions ….
Paulson joins the following top economists and financial experts who believe that the failure to rein in the “too big to fail” banks is unacceptable:
- Nobel prize-winning economist, Joseph Stiglitz
- Nobel prize-winning economist, Ed Prescott
- Nobel prize-winning economist, Paul Krugman
- Current chairman of the Federal Reserve, Ben Bernanke
- Former chairman of the Federal Reserve, Alan Greenspan
- Former chairman of the Federal Reserve, Paul Volcker
- Former Secretary of Labor Robert Reich
- Current Vice Chair and director of the Federal Deposit Insurance Corporation – and former 20-year President of the Federal Reserve Bank of Kansas City – Thomas Hoenig (and see this)
US has 5 weeks until X Date
BTFATH Is Back; Nasdaq At 13-Year Highs, 10Y Nears 3.00%