Reverse Repo: A Taper By Any Other Name?
Don’t look now but there seems to be a growing number of people who believe that the Fed will announce the end of QE tomorrow. Consider the slew of positive economic data we’ve seen since September and, perhaps more importantly, the shift in Washington from “Let’s just torch the place to get what we want” to “Look at us all sharing and stuff!” (Look at that picture of Paul Ryan about to bash in Paty Murray’s brains with a giant club! Kinda betrays their whole Team Gridlock Breakers thing). Here’s an interesting argument to consider: The Fed is running out of stuff to buy. Peter Fisher of BlackRock plots Fed US Treasury Purchases against Issuances over the last 5 years and suggests that “economic growth, increased tax revenues and lower spending mean the US Government is issuing less debt” and therefore means the Fed could hit the ceiling on Treasury purchases in 2014. Could that be why the Fed is looking for other tools to maintain total dominance over markets and rates? I kinda think tomorrow’s announcement will announce some tapering without actually having to use the word “taper”; could “reverse-repo” become QE4? Again, this sort of trumps all of the above: the consumer price index advanced 1.2% in November over the last 12 months, still well below the Fed’s target of 2% inflation. Also, in case you were wondering about core vs. headline inflation, here’s why energy prices aren’t relevant to a gauge of inflation anymore.
Zions Bancorp, a $55bn bank based in Utah, is one of the first banks to be crushed by the Volcker Death Grip: “As a result of the Volcker rule’s treatment of collateralised debt obligations comprised of trust preferred securities, Zions has now marked [their CDO] assets to market value, triggering a $387mn charge to earnings.” The bank must reclassify their CDOs from “held to maturity” to “available for sale,” which will bring their tier one common equity ratio from 10.47 (Basel III approved) to 9.47% (Basel III not approved). Zions CFO Doyle Arnold says, “I don’t think others are too far behind,” and even though Volcker makes them Now For Sale!, “we’re not going to just go out and dump those things tomorrow.” We may want to keep in mind, however, that Volcker isn’t really crushing Zions Bank so much as their biblical bank accounting, and most banks have been doing the opposite as Zion: “building up massive AFS portfolios of higher-yielding assets to make up for a lack of profit margins on traditional lending.”
Meet Sheldon Adelson, the Casino magnate worth $30 billion who has avoided paying nearly $3 billion in estate/gifting taxes “by shuffling his company stock in and out of more than 30 trusts.” Richard Covey, the long time tax evasion mad scientist lawyer genius behind this loophole says it has probably “cost the federal government more than $100 billion since 2000.” Covey, who likes to use the words “beautiful” and “romantic” when talking about tax loopholes, has been helping the rich get richer since the 80s: first coming up with the GRIT estate-tax shelter and now the GRAT (Grantor Retained Annuity Trust) which, with enough separate trust entities and some elbow grease, makes paying estate taxes more an option than an obligation. Then again, for people like Sheldon Adelson, paying estate taxes has always been an option: “Mr. Adelson did tell me to tell you that he has no intention of ever dying.” Well.
“A federal judge ruled Monday that the National Security Agency’s bulk collection of phone records violates the Constitution’s ban on unreasonable searches, but put his decision on hold pending a near-certain government appeal.” Meanwhile, Barack Obama (of “Lie of the Year” fame) is meeting with Tech CEOs from Google, Twitter and Apple about NSA surveillance and some crappy healthcare website.
Bloomberg terminals will soon introduce a screen for bank compliance officers to monitor traders’ instant messages and chat conversations. In the wake of the Libor scandals in Europe, regulators are now more aware of how these chat rooms were “used to rig interest rate markets, where they left a colorful trail of promised steak dinners and champagne.” Meanwhile, Jamie Dimon would prefer it if you don’t go rigging rates all over the internet with chat room names like “The Cartel” and “The Bandit’s Club.”
China: Rise of Chinese Materialism
Chinese consumers are really embracing their hoped for role in the business world: according to Ipsos, a worldwide market research company, the Chinese are at the top of the world when it comes to measuring success by the things they own (71%, USA: 21%, Global Average: 34%) and feeling under pressure to be successful and make money (68%, USA: 46%, Global Average: 46%).