Category — Banks

It’s not often we agree with US Federal Reserve chairman, Dr Ben S Bernanke.

But over the weekend, Dr Bernanke claimed, ‘Both humanity’s capacity to innovate and the incentives to innovate are greater today than at any other time in history.‘

We couldn’t agree more. It’s why we’ve hired a specialist analyst – Sam Volkering – to help us launch a new technology investment service. While others preach doom and gloom, and fear modern technology, we look forward to it. Why? Because we believe technology improves the quality of life.

We’ll reveal more on this new service in the coming weeks.

Of course, we’re not about to give Dr Bernanke a free kick on his running of US (and indirectly, global) monetary policy. It has been a total disaster. Despite that, it has opened up a lot of opportunities for investors to make money, and that’s set to continue… [Read more →]

Well, it looks like the major financial institutions can’t learn a lesson. They’re neck deep in yet another financial scandal of global proportions.

U.S. and international securities regulators investigating manipulation of LIBOR, the world’s most important set of benchmark interest rates, have uncovered another price-rigging scheme, this one in the $379 trillion market for interest rate swaps.

$379 Trillion, not Billion. Trillion.

The Commodity Futures Trading Commission (CFTC) has already issued subpoenas to Wall Street’s biggest banks and is interviewing a dozen former and current brokers from the Jersey City, NJ, offices of ICAP Plc.

For investors in the big banks, new revelations may put an end to the upward push to the groups’ stock prices, whose earnings of late have been helped by reductions in reserves meant as a cushion against future asset hits and litigation expenses. [Read more →]

Switzerland is the place that has traditionally stood above all the rest in its reputation for financial stability.

Why? Because the currency was well-managed, the banking system was sound, and the country had a long tradition of treating capital well.

Over the last few years, however, these advantages have collapsed.

Switzerland has voluntarily surrendered banking privacy, and the many Swiss banks are now haemorrhaging cash.

Even worse, the Swiss government destroyed its reputation for respecting capital when they pegged the Swiss franc to the euro in 2011 to arrest the franc’s rapid rise.

The country’s top central banker at the time, Philipp Hildebrand, claimed that he would buy foreign currencies in ‘unlimited quantities’ to defend the peg.

This is not something a responsible steward of currency should ever say. The currency peg was nothing more than a form of capital controls…and it effectively screwed anyone that had trusted the Swiss system with their savings.

Since then, the market’s need to find a financial safe haven has only become more desperate. One only needs to look at Cyprus to see why.

Yet just a small handful of countries inspire confidence in the marketplace. And the most popular seems to be Australia.  [Read more →]

You need to know the truth about banks.

Why? Because they rob you.

Why? Because they can.

It’s the Willie Sutton bank robber quote in reverse. Willie was asked, ‘Why do you rob banks?’

He famously answered, while in handcuffs, ‘Because that’s where the money is.’

But, banks can’t keep robbing the public if they keep shooting themselves in their feet. That’s where central banks come in.

They are the real kingpins keeping their robber minions in pinstripes — instead of prison stripes.

Estimates now are that US banks — the too big to fail ones — will end up paying more than $100 billion in fines, settlement costs, to buy back bad mortgages, to right some of the past wrongs related to the mortgage crisis they caused. [Read more →]

Yes, this is getting old, but this week a new Mediterranean country became the centre of the financial world’s attention.

It’s not even big enough to be one of the PIIGS, which used to make all the headlines.

But Cyprus is important for a whole new reason.

This time around, bank depositors will take a hit in the effort to bail out the banks.

And that’s causing panic across Europe…

What you need to know about this isn’t in the details. They’re a complete mess and keep changing from one hour to the next. One moment all depositors will lose a few percent of their deposits, the next only some will.

What’s really important is the signal this sends. We’re entering into the next stage of the financial crisis. The stage where governments turn on their citizens.

This is exactly in keeping with Kris’ theme in Money Morning. He’s written about this for over four years, including the Australian government’s attempts to take your wealth, like they’re going to do in Cyprus. It’s not just Cyprus, by the way. [Read more →]

I got my start studying economics at UCLA. That started me on a career that’s lasted for more than 30 years, trading equities, bonds, commodities, currencies, derivatives, and real estate. It continues to be a great, rewarding career and it’s afforded me a wonderful lifestyle.

No one is born with a mastery of these fields. It takes careful study and years of experience before one gets a real grasp of economics, money, and the markets.

But you have a great head start. [Read more →]

Central bankers around the world are enthralled by quantitative easing, says Bill Gross. That should make investors very nervous, says the co-founder of PIMCO, the world’s biggest bond fund.

In his January newsletter, he notes that ‘the world’s six largestcentral banks have collectively issued six trillion dollars’ worth of checks since the beginning of 2009 in order to stem private sector deleveraging.’

Why do they like QE so much? Well for them it must feel like they’ve found a way to game the financial system, says Gross. ‘The Fed and other central banks such as the Bank of England (BOE) actually rebate the interest they earn on the Treasuries and Gilts that they buy.’ That means that they give the interest back to the government so the Treasury gets to issue debt for free.

Even if interest rates were to rise and losses accrue to the central bank portfolio as bond prices fall, they can just ‘record it as an accounting liability owed to the Treasury, which need never be paid back.’

From a government’s point of view ‘this is about as good as it can get’, says Gross. ‘Money for nothing. Debt for free.’

And that’s exactly why investors should be worried, he continues. Because whenever governments think they’ve found a way to game the financial system, it always goes horribly wrong.

The Madness of Men Doesn’t ChangeTo make his point he cites the example of the South Sea Bubble in England in the 1700s, whengovernment bonds were sold to finance the exploitation of a far-off, resource-rich land.

‘At the time Sir Isaac Newton was asked about the apparent success of the plan and he responded by saying that “I can calculate the movement of the stars but not the madness of men”. The madness he referred to was the rather blatant acceptance by government and its citizen investors, that they had discovered the key to perpetual prosperity: “essentially costless” debt financing.’

The trouble is, says Gross, that nothing apart from the air we breathe is actually costless. ‘The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold.’

Given that the Fed says it will keep QE until US unemployment falls to 6.5%, the associated economic distortions will continue to grow.

Investors also need to reposition their portfolios, says Gross. They ‘should be alert to the long-term inflationary thrust of such check writing’. That means avoiding long-term bonds ‘confine your maturities and bond durations to short/intermediate targets supported by Fed policies.’ Translation? Beware the bursting of the QE-powered bond bubble.

James McKeigue
Contributing Writer, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek.

This article is contributed by Money Morning. Click Here to Subscribe to their free newsletter.