Only Gold lasts forever

This current state of play won’t last forever. Only Gold lasts forever

 Some days it can feel a little rough being a gold investor. In today’s article Dominic Frisby is certainly feeling that way. Sometimes it can be all too easy to get caught up in the day to day chat around prices. Some forget that the reasons why they invested are still strong, even if it feels like the price isn’t.

Frisby reminds us that ‘We know government finances do not pass basic safety standards. We know there’s too much debt. We know asset prices are overvalued.’ and we must keep reminding ourselves that this is unsustainable and cannot go on forever.

What will last forever is gold. This is one of the major reasons for investing in bullion; it is not just because of the price. Prices change according to the damage done by governments as well as other factors, but gold’s physical form, intrinsic value and role is here to stay.

Dominic Frisby via MoneyWeek

Remember the Noughties? What a decade that was for the gold bug.

“Gold is undervalued”, you began the decade by saying. “Silver too – even more so. Gordon Brown is a fool to have sold at these prices. There is only one way this market can go and that’s higher.”

Gold? Silver?” people would say with a slightly confused expression on their faces. “Why would I buy them? Why would anybody buy them? And how do you buy them? Do I just go and buy ingots or something?”

“Yes”, you would say. And they thought you were even more barking.

But then the gold price rose. Silver too. By 15% one year, by 20% the next. You might have been potty, but, fair play, you’d called the market. Anyway, it’s moved now. Too late.

“No, you don’t understand”, you would say by about 2005. “It’s not too late. There are new ways to buy now. Exchange-traded funds, online bullion dealers, you name it. You really should buy some. You want to have some of your wealth outside of the system.”

You may as well have been howling at the moon. Yet every year the price would rise by another 10%, 15% or 20%. Sometimes by even more. When they called you batty, you just shrugged and pointed to the ticker. There’s no arguing with the ticker.

House prices got more and more inflated. Stock prices did too. Fine art and other collectibles reached stupidity pitch.

“The monetary system’s broken”, you warned. “There’s too much debt. There’s too much leverage. It’s going to go tits up.”

“He’s really lost it this time,” they would think. “Apparently there’s going to be some kind of meltdown. LOL.”

And sure enough, 2008 came along. By now, you might not have achieved guru status, but you certainly weren’t the crackpot people once thought you were. People quietly came to you for advice – out of the earshot of their friends – “so how do I go about buying gold?”

And you would tell them. And the bull market went on. Every year another gain. Every year, the S&P 500 was outperformed by gold. Every year a chart showing gold v. other assets since 2000 – gold always the winner.

It was all happening just like you said it would.

The turning tides of fashion leave gold stranded

And then something changed. It’s hard to say what, but since 2011-12, the golden dream has turned base. Instead of rising by 10%, 15% or 20% a year, it has fallen by a similar amount.

With each decline in price, the arguments of the Noughties have started to look more and more far-fetched. Many have deserted the cause altogether. With each 10% fall, the stockmarket has risen by 10%. When you factor in the opportunity cost, the loss to the gold bug has been enormous.

Then some tech whizz called Satoshi Nakamoto invents something called bitcoin – and deliberately models it on gold. It does everything gold was supposed to do. It rises by thousands of percent. A cult of devotees proclaims it spells the end of government currency. People actually use it to buy and sell stuff. The young embrace it – and thus the future embraces it. $10,000 bitcoin is coming, they say.

“We used to say the same thing about gold”, mutter a few wise, grey-haired men. They shake their heads. They know they were right. But somehow the once and future money was not the right vehicle.

Like an improbable Rocky movie, in 2016 gold somehow staged a comeback. The price rallied. The mining companies rallied by even more. The Brexit vote happened. Sterling plummeted. UK gold owners saw the value of their holding rise by close to 50% at one stage.

“They’re losing control again”, said the gold bugs, no longer muttering, but gaining in confidence.

But then it all petered out again. By the end of 2016, the gains were OK, but negligible in the context of what had gone earlier. Gold continues to go nowhere in 2017, up for a bit, then down for a bit. The price as I write is $1,245 an ounce – same as it was in 2010.

Once upon a time gold charts began in the bottom left and finished on the top right. Now they start in the middle and end in the middle. Below we see the last four years of frustrating meandering. False dawns a plenty – but not crashing either. Just a boring nowhere investment, while money is made elsewhere.

In Frisby Towers we survey the lay of the land and we sigh. We know government finances do not pass basic safety standards. We know there’s too much debt. We know asset prices are overvalued.

We know that quantitative easing (QE) and zero-interest-rate policy (ZIRP) have breathed life into that which should long be six-feet under. We know rates have to go up eventually. We know that when they do, all hell breaks loose. We know that gold’s time will come again, even more so than before.

The problem is we don’t think that time is nigh. We hope we’re wrong. But that’s what we think. We just can’t see a major imminent move or a change in sentiment.

We note that each low gold makes is higher than the last – $1,120, then $1,180, then $1,200, then $1,220. Some might call that an uptrend.

But we also note that this move is unconfirmed by the miners, which have yet again been bleeding investors’ capital, as is their wont. For a proper bull market to happen, the two must dance together.

Our outlook is for more frustrating range-trading. As it stands, $1,050 looks like it’s the low. Maybe it needs to be re-tested again – just as $250 was in 1999 and 2001. Maybe not. The next line of support must be the $1,130-$1,140 zone.

On the upside, $1,300 is a barrier, $1,380 another. There’s a long way to go even before we get the almost insurmountably large hurdle that is $1,500.

I’m sorry to say it, but we could be range-trading for a few years yet. But this current state of play won’t last forever. Nothing lasts forever.

I take that back. One thing does last forever – gold. Gold is, by its very nature, eternal. The current mood of investors is not. There are worse things to own – for the long term.

This is Dominic Frisby’s latest article for MoneyWeek.

News and Commentary

Gold prices rise from 5-week lows as dollar eases (Marketwatch)

Gold steadies as oil plunge dampens U.S. rate hike expectations (Reuters)

U.S. Stocks Drop on Brent Bear Slump, Gold Rises: Markets Wrap (Bloomberg)

U.S. existing home sales unexpectedly rise in May (Reuters)

Belgium Tightens Security After Failed Brussels Bombing (Bloomberg)

What is going on with Turkey’s gold trade? (Harriet Daily News)

Perth Mint considering banning staff from wearing underwire bras (IB Times)

Anti-Gold Propaganda Flares Up (IRD)

Owning Gold Is The First Step To “Freedom Insurance” (Zerohedge)

Automation’s Destruction Of Jobs: You Ain’t Seen Nothing Yet… (Zerohedge)

Gold Prices (LBMA AM)

22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce
21 Jun: USD 1,247.05, GBP 989.04 & EUR 1,118.98 per ounce
20 Jun: USD 1,246.50, GBP 981.99 & EUR 1,117.24 per ounce
19 Jun: USD 1,251.10, GBP 976.86 & EUR 1,117.73 per ounce
16 Jun: USD 1,256.60, GBP 984.04 & EUR 1,124.03 per ounce
15 Jun: USD 1,260.25, GBP 992.57 & EUR 1,127.67 per ounce
14 Jun: USD 1,268.25, GBP 995.83 & EUR 1,131.41 per ounce

Silver Prices (LBMA)

22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce
21 Jun: USD 16.51, GBP 13.03 & EUR 14.81 per ounce
20 Jun: USD 16.59, GBP 13.10 & EUR 14.88 per ounce
19 Jun: USD 16.67, GBP 13.02 & EUR 14.87 per ounce
16 Jun: USD 16.76, GBP 13.11 & EUR 14.99 per ounce
15 Jun: USD 16.86, GBP 13.19 & EUR 15.10 per ounce
14 Jun: USD 16.96, GBP 13.32 & EUR 15.14 per ounce


Recent Market Updates

– Your Future Depends on What You Decide to Keep and Invest in Now
– Inflation is no longer in stealth mode
– James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply
– Billionaires Invest In Gold
– Brexit and UK election impact UK housing
– In Gold we Trust: Must See Gold Charts and Research
– Pension Funds, Sovereign Wealth Funds, Central Banks “Stock Up” on Gold “Amid Uncertainty”
– 4 Charts Show Gold May Be Heading Much Higher
– Gold in Pounds Surges 1.5% To £1,001/oz – UK Political Turmoil Likely
– Gold Prices Steady On UK Election Risk; ECB Meeting and Geopolitical Risk
– Gold Breaks 6-Year Downtrend On Safe Haven and 50% Surge In Chinese Demand
– Deposit Bail In Risk as Spanish Bank’s Stocks Crash
– Terrorist attacks see Gold Stay Firm

www.GoldCore.com

The post Only Gold lasts forever appeared first on crude-oil.news.

Only Gold lasts forever

This current state of play won’t last forever. Only Gold lasts forever

 Some days it can feel a little rough being a gold investor. In today’s article Dominic Frisby is certainly feeling that way. Sometimes it can be all too easy to get caught up in the day to day chat around prices. Some forget that the reasons why they invested are still strong, even if it feels like the price isn’t.

Frisby reminds us that ‘We know government finances do not pass basic safety standards. We know there’s too much debt. We know asset prices are overvalued.’ and we must keep reminding ourselves that this is unsustainable and cannot go on forever.

What will last forever is gold. This is one of the major reasons for investing in bullion; it is not just because of the price. Prices change according to the damage done by governments as well as other factors, but gold’s physical form, intrinsic value and role is here to stay.

Dominic Frisby via MoneyWeek

Remember the Noughties? What a decade that was for the gold bug.

“Gold is undervalued”, you began the decade by saying. “Silver too – even more so. Gordon Brown is a fool to have sold at these prices. There is only one way this market can go and that’s higher.”

Gold? Silver?” people would say with a slightly confused expression on their faces. “Why would I buy them? Why would anybody buy them? And how do you buy them? Do I just go and buy ingots or something?”

“Yes”, you would say. And they thought you were even more barking.

But then the gold price rose. Silver too. By 15% one year, by 20% the next. You might have been potty, but, fair play, you’d called the market. Anyway, it’s moved now. Too late.

“No, you don’t understand”, you would say by about 2005. “It’s not too late. There are new ways to buy now. Exchange-traded funds, online bullion dealers, you name it. You really should buy some. You want to have some of your wealth outside of the system.”

You may as well have been howling at the moon. Yet every year the price would rise by another 10%, 15% or 20%. Sometimes by even more. When they called you batty, you just shrugged and pointed to the ticker. There’s no arguing with the ticker.

House prices got more and more inflated. Stock prices did too. Fine art and other collectibles reached stupidity pitch.

“The monetary system’s broken”, you warned. “There’s too much debt. There’s too much leverage. It’s going to go tits up.”

“He’s really lost it this time,” they would think. “Apparently there’s going to be some kind of meltdown. LOL.”

And sure enough, 2008 came along. By now, you might not have achieved guru status, but you certainly weren’t the crackpot people once thought you were. People quietly came to you for advice – out of the earshot of their friends – “so how do I go about buying gold?”

And you would tell them. And the bull market went on. Every year another gain. Every year, the S&P 500 was outperformed by gold. Every year a chart showing gold v. other assets since 2000 – gold always the winner.

It was all happening just like you said it would.

The turning tides of fashion leave gold stranded

And then something changed. It’s hard to say what, but since 2011-12, the golden dream has turned base. Instead of rising by 10%, 15% or 20% a year, it has fallen by a similar amount.

With each decline in price, the arguments of the Noughties have started to look more and more far-fetched. Many have deserted the cause altogether. With each 10% fall, the stockmarket has risen by 10%. When you factor in the opportunity cost, the loss to the gold bug has been enormous.

Then some tech whizz called Satoshi Nakamoto invents something called bitcoin – and deliberately models it on gold. It does everything gold was supposed to do. It rises by thousands of percent. A cult of devotees proclaims it spells the end of government currency. People actually use it to buy and sell stuff. The young embrace it – and thus the future embraces it. $10,000 bitcoin is coming, they say.

“We used to say the same thing about gold”, mutter a few wise, grey-haired men. They shake their heads. They know they were right. But somehow the once and future money was not the right vehicle.

Like an improbable Rocky movie, in 2016 gold somehow staged a comeback. The price rallied. The mining companies rallied by even more. The Brexit vote happened. Sterling plummeted. UK gold owners saw the value of their holding rise by close to 50% at one stage.

“They’re losing control again”, said the gold bugs, no longer muttering, but gaining in confidence.

But then it all petered out again. By the end of 2016, the gains were OK, but negligible in the context of what had gone earlier. Gold continues to go nowhere in 2017, up for a bit, then down for a bit. The price as I write is $1,245 an ounce – same as it was in 2010.

Once upon a time gold charts began in the bottom left and finished on the top right. Now they start in the middle and end in the middle. Below we see the last four years of frustrating meandering. False dawns a plenty – but not crashing either. Just a boring nowhere investment, while money is made elsewhere.

In Frisby Towers we survey the lay of the land and we sigh. We know government finances do not pass basic safety standards. We know there’s too much debt. We know asset prices are overvalued.

We know that quantitative easing (QE) and zero-interest-rate policy (ZIRP) have breathed life into that which should long be six-feet under. We know rates have to go up eventually. We know that when they do, all hell breaks loose. We know that gold’s time will come again, even more so than before.

The problem is we don’t think that time is nigh. We hope we’re wrong. But that’s what we think. We just can’t see a major imminent move or a change in sentiment.

We note that each low gold makes is higher than the last – $1,120, then $1,180, then $1,200, then $1,220. Some might call that an uptrend.

But we also note that this move is unconfirmed by the miners, which have yet again been bleeding investors’ capital, as is their wont. For a proper bull market to happen, the two must dance together.

Our outlook is for more frustrating range-trading. As it stands, $1,050 looks like it’s the low. Maybe it needs to be re-tested again – just as $250 was in 1999 and 2001. Maybe not. The next line of support must be the $1,130-$1,140 zone.

On the upside, $1,300 is a barrier, $1,380 another. There’s a long way to go even before we get the almost insurmountably large hurdle that is $1,500.

I’m sorry to say it, but we could be range-trading for a few years yet. But this current state of play won’t last forever. Nothing lasts forever.

I take that back. One thing does last forever – gold. Gold is, by its very nature, eternal. The current mood of investors is not. There are worse things to own – for the long term.

This is Dominic Frisby’s latest article for MoneyWeek.

News and Commentary

Gold prices rise from 5-week lows as dollar eases (Marketwatch)

Gold steadies as oil plunge dampens U.S. rate hike expectations (Reuters)

U.S. Stocks Drop on Brent Bear Slump, Gold Rises: Markets Wrap (Bloomberg)

U.S. existing home sales unexpectedly rise in May (Reuters)

Belgium Tightens Security After Failed Brussels Bombing (Bloomberg)

What is going on with Turkey’s gold trade? (Harriet Daily News)

Perth Mint considering banning staff from wearing underwire bras (IB Times)

Anti-Gold Propaganda Flares Up (IRD)

Owning Gold Is The First Step To “Freedom Insurance” (Zerohedge)

Automation’s Destruction Of Jobs: You Ain’t Seen Nothing Yet… (Zerohedge)

Gold Prices (LBMA AM)

22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce
21 Jun: USD 1,247.05, GBP 989.04 & EUR 1,118.98 per ounce
20 Jun: USD 1,246.50, GBP 981.99 & EUR 1,117.24 per ounce
19 Jun: USD 1,251.10, GBP 976.86 & EUR 1,117.73 per ounce
16 Jun: USD 1,256.60, GBP 984.04 & EUR 1,124.03 per ounce
15 Jun: USD 1,260.25, GBP 992.57 & EUR 1,127.67 per ounce
14 Jun: USD 1,268.25, GBP 995.83 & EUR 1,131.41 per ounce

Silver Prices (LBMA)

22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce
21 Jun: USD 16.51, GBP 13.03 & EUR 14.81 per ounce
20 Jun: USD 16.59, GBP 13.10 & EUR 14.88 per ounce
19 Jun: USD 16.67, GBP 13.02 & EUR 14.87 per ounce
16 Jun: USD 16.76, GBP 13.11 & EUR 14.99 per ounce
15 Jun: USD 16.86, GBP 13.19 & EUR 15.10 per ounce
14 Jun: USD 16.96, GBP 13.32 & EUR 15.14 per ounce


Recent Market Updates

– Your Future Depends on What You Decide to Keep and Invest in Now
– Inflation is no longer in stealth mode
– James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply
– Billionaires Invest In Gold
– Brexit and UK election impact UK housing
– In Gold we Trust: Must See Gold Charts and Research
– Pension Funds, Sovereign Wealth Funds, Central Banks “Stock Up” on Gold “Amid Uncertainty”
– 4 Charts Show Gold May Be Heading Much Higher
– Gold in Pounds Surges 1.5% To £1,001/oz – UK Political Turmoil Likely
– Gold Prices Steady On UK Election Risk; ECB Meeting and Geopolitical Risk
– Gold Breaks 6-Year Downtrend On Safe Haven and 50% Surge In Chinese Demand
– Deposit Bail In Risk as Spanish Bank’s Stocks Crash
– Terrorist attacks see Gold Stay Firm

www.GoldCore.com

The post Only Gold lasts forever appeared first on crude-oil.news.

Fed “Stress Test” Results Are Out: Everyone Passes Even As VIX Hits 70

Moments ago the Fed released the first phase of its annual stress test which, once again, found that all thirty-four of the US largest banks “passed”, exceeding minimum projected capital and leverage ratios under severely adverse scenarios, based on their projected ability to withstand economic shocks, which  as Bloomberg notes, shows that “firms are getting the hang of the once-dreaded reviews.” The result marks the third straight year all firms cleared the minimum requirements in the exams’ first phase, begging the question just how “stressful” this test truly is.

Today’s results covered the “Dodd-Frank Act Stress Test” that measures banks’ capital under stress over the nine quarters. This year, the Fed projected supplementary leverage ratios at the largest banks. Morgan Stanley’s projected 3.8 percent ratio in a potential economic downturn was lowest – though it still cleared the 3 percent minimum, according to Bloomberg.

Under the worst case scenario, banks are projected to suffer $383 billion in losses on loans. Some other findings, courtesy of Bloomberg

  • Bank of America Corp. would suffer a $26.4 billion hit to its pretax profit under that scenario, the most of any lender.
  • Goldman Sachs Group Inc.’s projected loan-loss rate of 8.1 percent was surpassed only by commercial lenders or card issuers such as American Express Co., Capital One Financial Corp., and Discover Financial Services.
  • Wells Fargo & Co.’s $7.7 billion in trading and counterparty losses came close to firms with larger Wall Street operations, with Morgan Stanley at $9.5 billion. JPMorgan Chase & Co. led the group with $25.2 billion in losses.

Of the participant banks, every single one exceeded minimum thresholds, although Morgan Stanley performed worse than the rest on a key leverage measure, the second year it has underperformed its peers. During the second phase of last year’s stress test the bank was forced to resubmit its plan to address a “material weakness”, before it was allowed to pay out capital to shareholders. Results from that round are due next week.

Another notable finding: in the Fed’s forecasts for loan losses in a “severely” adverse scenario, Goldman’s projected loan-loss rate of 8.1% was surpassed only by commercial lenders or card issuers such as American Express, Capital One, and Discover Financial Services. Wells Fargo & Co.’s $7.7 billion in trading and counterparty losses came close to firms with larger Wall Street operations, with Morgan Stanley at $9.5 billion. JPMorgan Chase & Co. led the group with $25.2 billion in losses.

“This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” Fed Governor Jerome Powell said in a statement announcing the central bank’s findings Thursday.

It remains to be seen if that will also be the case when over $2 trillion in excess reserves which pad the bank’s balance sheets are eventually drained.

The “successful” outcome will boost the industry’s arguments that the banking system is safe enough to allow for cutting back some regulations. Furthermore, once the second round is released, expect all banks to further boost payouts to investors.

The “test” designed to boost confidence in the banking sector after the financial crisis, assesses how banks would handle hypothetical turmoil, such as surging unemployment, a sharp drop in housing prices or an extended stock slump. Firms that handily clear the first phase typically have more room to make payouts to shareholders.

The tests have become less dramatic in recent years with fewer quantitative failures. And under regulators selected by President Donald Trump, that may continue. The Treasury Department issued a report last week proposing tests occur less frequently, that highly capitalized banks be exempt from the process and that one of the toughest hurdles be scrapped.

Here are the parameters for what the Fed defined as the “Severely Adverse”, or worst-case, scenario:

The adverse scenario is characterized by weakening economic activity across all of the economies included in the scenario. This economic downturn is accompanied by a global aversion to long-term fixed-income assets that, despite lower short rates, brings about a near-term rise in long-term rates and steepening yield curves in the United States and the four countries/country blocks in the scenario.

 

The severely adverse scenario is characterized by a severe global recession that is accompanied by a period of heightened stress in corporate loan markets and commercial real estate markets. In this scenario, the level of U.S. real GDP begins to decline in the first quarter of 2017 and reaches a trough in the second quarter of 2018 that is about 6½ percent below the pre-recession peak. The unemployment rate increases by about 5¼ percentage points, to 10 percent, by the third quarter of 2018. Headline consumer price inflation falls to about 1¼ percent at an annual rate by the second quarter of 2017 and then rises to about 1¾ percent at an annual rate by the middle of 2018.

 

As a result of the severe decline in real activity, short-term Treasury rates fall and remain near zero through the end of the scenario period. The 10-year Treasury yield drops to ¾ percent in the first quarter of 2017, rising gradually thereafter to around 1½ percent by the first quarter of 2019 and to about 1¾ percent by the first quarter of 2020. Financial conditions in corporate and real estate lending markets are stressed severely. The spread between yields on investment-grade corporate bonds and yields on long-term Treasury securities widens to about 5½ percentage points by the end of 2017, an increase of 3½ percentage points relative to the fourth quarter of 2016. The spread between mortgage rates and 10-year Treasury yields widens to over 3½ percentage points over the same time period.

 

Asset prices drop sharply in this scenario. Equity prices fall by 50 percent through the end of 2017, accompanied by a surge in equity market volatility, which approaches the levels attained in 2008. House prices and commercial real estate prices also experience large declines, with house prices and commercial real estate prices falling by 25 percent and 35 percent, respectively, through the first quarter of 2019.

 

The international component of this scenario features severe recessions in the euro area, the United Kingdom, and Japan and a marked growth slowdown in developing Asia. As a result of the sharp contraction in economic activity, all foreign economies included in the scenario experience a decline in consumer prices. As in this year’s adverse scenario, the U.S. dollar appreciates against the euro, the pound sterling, and the currencies of developing Asia but depreciates modestly against the yen because of flight-to-safety capital flows.

In other words, neither inflation, nor 10Y yields drop negative even as VIX surges to 70. Mmmk then.

And here is the VIX scenario that the Fed believes all banks will survive:

 

Considering none other than JPMorgan last week predicted that a token increase in the VIX from 10 to 15 would lead to “catastrophic losses” for vol sellers, we wish the Fed – and banks – the best of luck surviving, as the Fed expected, when the VIX hits the level it was at when the US banking system was collapsing 9 years ago.

Some other findings courtesy of Bloomberg:

  • Firms boosted share of agency MBS, Treasuries in securities portfolios, cut holdings of less-liquid assets like securitized products
  • Loan portfolios grew, driven by strong growth in corporate, commercial real estate (CRE), credit-card loans
    • Residential mortgage growth lagged, as healthy growth in first-lien mortgages was offset by notable decline in home- equity loans
  • Credit quality of some loan portfolios — including first-lien mortgages and commercial mortgages — has improved, largely due to recent gains in real estate prices
  • At the same time, improvements in portfolios secured by real estate were partially offset by continued stress on some corporate loans due to persistently low oil prices, recent uptick in delinquency rates in credit-card portfolios
  • Results overall show banks have strong capital levels, retain ability to lend to households and businesses during severe recession
    • Most-severe hypothetical scenario projects $493b in losses at the 34 participating banks during the 9 quarters tested, with $383b in accrual loan portfolio losses, $86b in trading and/or counterparty losses at the 8 cos. with substantial trading, processing, custodial operations
    • Companies’ aggregate common equity tier 1 capital ratio would fall to minimum level of 9.2% from actual 12.5% in 4Q 2016
    • In “adverse” scenario (featuring moderate recession), aggregate common equity capital ratio fell to minimum 10.7% from actual 12.5% in 4Q
  • Since 2009, the firms have added >$750b in common equity capital

On June 28, at 4:30pm, the Fed will release the results of the second round of the Stress Test, the Comprehensive Capital Analysis and Review (CCAR).

Full stress test below (Federal Reserve link)

The post Fed “Stress Test” Results Are Out: Everyone Passes Even As VIX Hits 70 appeared first on crude-oil.news.

Fed “Stress Test” Results Are Out: Everyone Passes Even As VIX Hits 70

Moments ago the Fed released the first phase of its annual stress test which, once again, found that all thirty-four of the US largest banks “passed”, exceeding minimum projected capital and leverage ratios under severely adverse scenarios, based on their projected ability to withstand economic shocks, which  as Bloomberg notes, shows that “firms are getting the hang of the once-dreaded reviews.” The result marks the third straight year all firms cleared the minimum requirements in the exams’ first phase, begging the question just how “stressful” this test truly is.

Today’s results covered the “Dodd-Frank Act Stress Test” that measures banks’ capital under stress over the nine quarters. This year, the Fed projected supplementary leverage ratios at the largest banks. Morgan Stanley’s projected 3.8 percent ratio in a potential economic downturn was lowest – though it still cleared the 3 percent minimum, according to Bloomberg.

Under the worst case scenario, banks are projected to suffer $383 billion in losses on loans. Some other findings, courtesy of Bloomberg

  • Bank of America Corp. would suffer a $26.4 billion hit to its pretax profit under that scenario, the most of any lender.
  • Goldman Sachs Group Inc.’s projected loan-loss rate of 8.1 percent was surpassed only by commercial lenders or card issuers such as American Express Co., Capital One Financial Corp., and Discover Financial Services.
  • Wells Fargo & Co.’s $7.7 billion in trading and counterparty losses came close to firms with larger Wall Street operations, with Morgan Stanley at $9.5 billion. JPMorgan Chase & Co. led the group with $25.2 billion in losses.

Of the participant banks, every single one exceeded minimum thresholds, although Morgan Stanley performed worse than the rest on a key leverage measure, the second year it has underperformed its peers. During the second phase of last year’s stress test the bank was forced to resubmit its plan to address a “material weakness”, before it was allowed to pay out capital to shareholders. Results from that round are due next week.

Another notable finding: in the Fed’s forecasts for loan losses in a “severely” adverse scenario, Goldman’s projected loan-loss rate of 8.1% was surpassed only by commercial lenders or card issuers such as American Express, Capital One, and Discover Financial Services. Wells Fargo & Co.’s $7.7 billion in trading and counterparty losses came close to firms with larger Wall Street operations, with Morgan Stanley at $9.5 billion. JPMorgan Chase & Co. led the group with $25.2 billion in losses.

“This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” Fed Governor Jerome Powell said in a statement announcing the central bank’s findings Thursday.

It remains to be seen if that will also be the case when over $2 trillion in excess reserves which pad the bank’s balance sheets are eventually drained.

The “successful” outcome will boost the industry’s arguments that the banking system is safe enough to allow for cutting back some regulations. Furthermore, once the second round is released, expect all banks to further boost payouts to investors.

The “test” designed to boost confidence in the banking sector after the financial crisis, assesses how banks would handle hypothetical turmoil, such as surging unemployment, a sharp drop in housing prices or an extended stock slump. Firms that handily clear the first phase typically have more room to make payouts to shareholders.

The tests have become less dramatic in recent years with fewer quantitative failures. And under regulators selected by President Donald Trump, that may continue. The Treasury Department issued a report last week proposing tests occur less frequently, that highly capitalized banks be exempt from the process and that one of the toughest hurdles be scrapped.

Here are the parameters for what the Fed defined as the “Severely Adverse”, or worst-case, scenario:

The adverse scenario is characterized by weakening economic activity across all of the economies included in the scenario. This economic downturn is accompanied by a global aversion to long-term fixed-income assets that, despite lower short rates, brings about a near-term rise in long-term rates and steepening yield curves in the United States and the four countries/country blocks in the scenario.

 

The severely adverse scenario is characterized by a severe global recession that is accompanied by a period of heightened stress in corporate loan markets and commercial real estate markets. In this scenario, the level of U.S. real GDP begins to decline in the first quarter of 2017 and reaches a trough in the second quarter of 2018 that is about 6½ percent below the pre-recession peak. The unemployment rate increases by about 5¼ percentage points, to 10 percent, by the third quarter of 2018. Headline consumer price inflation falls to about 1¼ percent at an annual rate by the second quarter of 2017 and then rises to about 1¾ percent at an annual rate by the middle of 2018.

 

As a result of the severe decline in real activity, short-term Treasury rates fall and remain near zero through the end of the scenario period. The 10-year Treasury yield drops to ¾ percent in the first quarter of 2017, rising gradually thereafter to around 1½ percent by the first quarter of 2019 and to about 1¾ percent by the first quarter of 2020. Financial conditions in corporate and real estate lending markets are stressed severely. The spread between yields on investment-grade corporate bonds and yields on long-term Treasury securities widens to about 5½ percentage points by the end of 2017, an increase of 3½ percentage points relative to the fourth quarter of 2016. The spread between mortgage rates and 10-year Treasury yields widens to over 3½ percentage points over the same time period.

 

Asset prices drop sharply in this scenario. Equity prices fall by 50 percent through the end of 2017, accompanied by a surge in equity market volatility, which approaches the levels attained in 2008. House prices and commercial real estate prices also experience large declines, with house prices and commercial real estate prices falling by 25 percent and 35 percent, respectively, through the first quarter of 2019.

 

The international component of this scenario features severe recessions in the euro area, the United Kingdom, and Japan and a marked growth slowdown in developing Asia. As a result of the sharp contraction in economic activity, all foreign economies included in the scenario experience a decline in consumer prices. As in this year’s adverse scenario, the U.S. dollar appreciates against the euro, the pound sterling, and the currencies of developing Asia but depreciates modestly against the yen because of flight-to-safety capital flows.

In other words, neither inflation, nor 10Y yields drop negative even as VIX surges to 70. Mmmk then.

And here is the VIX scenario that the Fed believes all banks will survive:

 

Considering none other than JPMorgan last week predicted that a token increase in the VIX from 10 to 15 would lead to “catastrophic losses” for vol sellers, we wish the Fed – and banks – the best of luck surviving, as the Fed expected, when the VIX hits the level it was at when the US banking system was collapsing 9 years ago.

Some other findings courtesy of Bloomberg:

  • Firms boosted share of agency MBS, Treasuries in securities portfolios, cut holdings of less-liquid assets like securitized products
  • Loan portfolios grew, driven by strong growth in corporate, commercial real estate (CRE), credit-card loans
    • Residential mortgage growth lagged, as healthy growth in first-lien mortgages was offset by notable decline in home- equity loans
  • Credit quality of some loan portfolios — including first-lien mortgages and commercial mortgages — has improved, largely due to recent gains in real estate prices
  • At the same time, improvements in portfolios secured by real estate were partially offset by continued stress on some corporate loans due to persistently low oil prices, recent uptick in delinquency rates in credit-card portfolios
  • Results overall show banks have strong capital levels, retain ability to lend to households and businesses during severe recession
    • Most-severe hypothetical scenario projects $493b in losses at the 34 participating banks during the 9 quarters tested, with $383b in accrual loan portfolio losses, $86b in trading and/or counterparty losses at the 8 cos. with substantial trading, processing, custodial operations
    • Companies’ aggregate common equity tier 1 capital ratio would fall to minimum level of 9.2% from actual 12.5% in 4Q 2016
    • In “adverse” scenario (featuring moderate recession), aggregate common equity capital ratio fell to minimum 10.7% from actual 12.5% in 4Q
  • Since 2009, the firms have added >$750b in common equity capital

On June 28, at 4:30pm, the Fed will release the results of the second round of the Stress Test, the Comprehensive Capital Analysis and Review (CCAR).

Full stress test below (Federal Reserve link)

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Obama Lashes Out At GOP Healthcare Plan: “This Bill Will Do You Harm”

Laying the groundwork of Leftist talking points for the next few days, former President Barack Obama took to his Facebook page to defend Obamacare against the GOP’s Healthcare Plan… [emphasis added]

Our politics are divided. They have been for a long time. And while I know that division makes it difficult to listen to Americans with whom we disagree, that’s what we need to do today.

 

I recognize that repealing and replacing the Affordable Care Act has become a core tenet of the Republican Party. Still, I hope that our Senators, many of whom I know well, step back and measure what’s really at stake, and consider that the rationale for action, on health care or any other issue, must be something more than simply undoing something that Democrats did.

 

We didn’t fight for the Affordable Care Act for more than a year in the public square for any personal or political gain – we fought for it because we knew it would save lives, prevent financial misery, and ultimately set this country we love on a better, healthier course.

 

Nor did we fight for it alone. Thousands upon thousands of Americans, including Republicans, threw themselves into that collective effort, not for political reasons, but for intensely personal ones – a sick child, a parent lost to cancer, the memory of medical bills that threatened to derail their dreams.

 

And you made a difference. For the first time, more than ninety percent of Americans know the security of health insurance. Health care costs, while still rising, have been rising at the slowest pace in fifty years. Women can’t be charged more for their insurance, young adults can stay on their parents’ plan until they turn 26, contraceptive care and preventive care are now free. Paying more, or being denied insurance altogether due to a preexisting condition – we made that a thing of the past.

 

We did these things together. So many of you made that change possible.

 

At the same time, I was careful to say again and again that while the Affordable Care Act represented a significant step forward for America, it was not perfect, nor could it be the end of our efforts – and that if Republicans could put together a plan that is demonstrably better than the improvements we made to our health care system, that covers as many people at less cost, I would gladly and publicly support it.

 

That remains true. So I still hope that there are enough Republicans in Congress who remember that public service is not about sport or notching a political win, that there’s a reason we all chose to serve in the first place, and that hopefully, it’s to make people’s lives better, not worse.

 

But right now, after eight years, the legislation rushed through the House and the Senate without public hearings or debate would do the opposite. It would raise costs, reduce coverage, roll back protections, and ruin Medicaid as we know it. That’s not my opinion, but rather the conclusion of all objective analyses, from the nonpartisan Congressional Budget Office, which found that 23 million Americans would lose insurance, to America’s doctors, nurses, and hospitals on the front lines of our health care system.

 

The Senate bill, unveiled today, is not a health care bill. It’s a massive transfer of wealth from middle-class and poor families to the richest people in America. It hands enormous tax cuts to the rich and to the drug and insurance industries, paid for by cutting health care for everybody else. Those with private insurance will experience higher premiums and higher deductibles, with lower tax credits to help working families cover the costs, even as their plans might no longer cover pregnancy, mental health care, or expensive prescriptions. Discrimination based on pre-existing conditions could become the norm again. Millions of families will lose coverage entirely.

 

Simply put, if there’s a chance you might get sick, get old, or start a family – this bill will do you harm. And small tweaks over the course of the next couple weeks, under the guise of making these bills easier to stomach, cannot change the fundamental meanness at the core of this legislation.

 

I hope our Senators ask themselves – what will happen to the Americans grappling with opioid addiction who suddenly lose their coverage? What will happen to pregnant mothers, children with disabilities, poor adults and seniors who need long-term care once they can no longer count on Medicaid? What will happen if you have a medical emergency when insurance companies are once again allowed to exclude the benefits you need, send you unlimited bills, or set unaffordable deductibles? What impossible choices will working parents be forced to make if their child’s cancer treatment costs them more than their life savings?

 

To put the American people through that pain – while giving billionaires and corporations a massive tax cut in return – that’s tough to fathom. But it’s what’s at stake right now. So it remains my fervent hope that we step back and try to deliver on what the American people need.

 

That might take some time and compromise between Democrats and Republicans. But I believe that’s what people want to see. I believe it would demonstrate the kind of leadership that appeals to Americans across party lines. And I believe that it’s possible – if you are willing to make a difference again. If you’re willing to call your members of Congress. If you are willing to visit their offices. If you are willing to speak out, let them and the country know, in very real terms, what this means for you and your family.

 

After all, this debate has always been about something bigger than politics. It’s about the character of our country – who we are, and who we aspire to be. And that’s always worth fighting for.

Yeah, but apart from that…

We are still somewhat bemused at why the Trump’s administration didn’t just let this disaster fail totally and utterly before saving it, especially as NBC proclaims today – in a poll – that Americans now love Obamacare more than ever (must be the collapsing coverage and spiking premiums).

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Bonds Bid, Banks Skid But Healthcare Hope Saves Stocks

Oil bounced a bit (on Saudi noise)… banks dropped (ahead of CCAR)… Healthcare ripped again (on a bill that appears to be DOA)… and stocks gave up hope in the last few minutes…

 

Everything was awesome briefly – an opening ramp on crude and some healthcare hope steadied stocks early but that was it. After Europe closed, stocks went nowhere until slumping into the close…

 

FANG Stocks ended marginally lower, stuck in a very tight range fo rthe last 4 days…

 

Equities advanced after two days of losses as crude broke a three-day downturn. Treasury yields continued lower with a flatter 2s/10s curve as a strong reopening of a $5b 30-year TIPS auction helped to keep yields in check throughout the afternoon. Fed’s Bullard, in an interview with WSJ, said the Fed’s projected rate path may be too aggressive. S&P reversed early session losses led by advances in health-care stocks with biotech and pharmaceuticals leading the way. The Canadian dollar advanced after a strong retail sales beat while Mexico’s peso gained over 1% vs the greenback.

VIX was clubbed like a baby seal today, but notably S&P Futs did not react too exuberantly… and once VIX had reached Tueaday;s losw it snapped back higher…

 

Banks were the biggest losers today as Healthcare soared after the GOP Bill was released… (and retail bounced)

 

Bank Stocks have taken a hit in the last few days…

 

Hospital stocks soared after the release of the Obamacare replacement bill…

 

And Biotech stocks are now up almost 10% in the last 4 days to its highest since Jan 2016…

 

HY Energy credit risk has spiked back to 7-month wides…

 

But Credit markets continue to show signs of stress…(HY CDX at 2-month wides)

NOTE: Virgin Media pulled a $3.43b 1L TL refinancing from syndication due to market conditions, according traders and portfolio managers who aren’t authorized to speak publicly. Co. launched the repricing on June 15, seeking to shave 25bps off its existing loan. Virgin Media is the 16th loan to be pulled this year…About 10 loans in all were withdrawn from syndication in 2016.

Treasury yields fell on the day across the entire complex (even as stocks rallied) with further flatteniing in 2s30s…

 

All yield curve bets are collapsing…

 

Banks remain at a premium to the yield curve’s collapse (ahead of tonight’s CCAR)

 

The Dollar Index fell for the 2nd day in a row, having stalled at the payrolls-ledge…

 

WTI and RBOB rallied modestly on the day after Saudi comments on $60 oil price hope for the Aramco IPO….

 

Gold rose for the second day (as the dollar slid), pushing back above the 200-day moving average

 

Dip-Buyers remain absent as Central Bank balance sheets drop most since December…

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