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Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 6:57 am
by Kismet
But as we all discovered back in 2008, the system works fine...until it doesn't.
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 7:20 am
by Farfromgeneva
I’ve seen PACE financing utilized somewhat heavily, often on hotel construction. What’s worse is when it’s combined with an SBA loan (a hotel is considered an operating business rather than real estate which is not allowed to be financed under the 7a program and only on owner occupied real estate under the 504 program, neither of which should qualify in these cases 504 where you have 90% loan to cost construction financing and pace equity so the developers have zero skin in the game and take 20% developer fees out, pulling forward all cash flows into their pocket basically). It’s not that bad as it at least has positive impacts socially and ultimately probably to taxpayers as it does create more efficient assets. The program where you can raise foreign capital and that investor can get visas whos program name escapes me at the moment is far more abused and problematic.
On my other story, I think it’s a sign of underpricing credit risk that a CLO mgr can finance at similar levels of leverage and cost as a insured bank. But don’t want to make any declaration about credit crumbling, it’s been a concern of mine for probably 1-2yrs now and I’ve been wrong (it largely driven by low and again declining interest rates which can prop up zombie companies for a long time).
Another interesting anecdote, saw a story about a mid cap exploration and production (oil and gas) co tanking yesterday called whiting petroleum and asked a buddy more in that space and he told me the large integrated oil and gas companies have been buying up the debt of these smaller players last few weeks/month or so. It’s a good bet for them as they can absorb the business and assets in a bankruptcy or if they survive the debt will go back up in price in the secondary market and they’ll make a strong ROI. Big difference is a BP can drill to breakeven in the low $40/barrel while these smaller guys need like $55/barrel which is where we are at now
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 9:50 am
by foreverlax
Trump trying to get another clown on the Fed...after failing with Stephen "Kook" Moore, Hermain "666" Cain and now Judy "Gold Standard" Shelton.
She was against low rates under BHO, she now likes low rates. She is also against FDIC insurance.
#winning.
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 9:59 am
by Brooklyn
Trumpism is for winners like this:
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 10:10 am
by Farfromgeneva
Great cartoon.
Not endorsing any Fed pick but as a former bank investment banker I am actually against FDIC insurance as well. I’ve seen hundreds of poorly run spread lending banks that pose risk every day they exist because they so heavily rely on subsidized leverage (artificially cheap deposits that are govt gtd) to exist.
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 10:17 am
by Farfromgeneva
Farfromgeneva wrote: ↑Wed Feb 12, 2020 10:34 pm
This may be a bit esoteric for some but interesting sign of markets these days.
I work with a alternative asset manager in the credit space, specifically their CLO manager arm which buys a portfolio of syndicate (aka leveraged) loans and securitizes it in a revolving/managed pool of assets. They use securitization to more efficiently leverage their equity capital investment in the pool of loans, in a deal that prices last week at 10:1 leverage and an average cost of liabilities (debt) of 2.04%. This is on about $300mm in assets.
I also do a lot of community and regional bank M&A, capital markets execution and advisory work and am close to a privately owned Ga bank that has three branches and highly reliant on wholesale funding (brokered CDs which still retain FDIC insurance but can raise millions or tens of millions in a day or few days as needed typically). They have some FHLB funding and some degree of core (cheap, far lagging fed funds) deposits. This bank is owned by a few sibling billionaires out of Chicago that made their money in electrical part distribution so well backed. The bank has approx $350mm in assets and a 105% loan/deposit ratio along with a 1.25-1.4% ROA. They carry a Tier 1 Capital (“equity”) ratio of approx 11%. The banks cost of funding which is all govt insured is 2.05% and they are an operating entity with all those risks but in theory a safer book of loan assets (worse asset/liability mismatch however).
May not resonate but it is a sign of the times that this FDIC insured funding cost for the bank at similar levels of leverage is basically on top of a good but Tier 2 CLO asset manager that owns a book of syndicated corporate loans.
Hopefully this will make sense to some. It’s just strange. Can’t say it means anything but there’s some mispricing if either liquidity and/or credit risk for this to be the case. Strangely the govt agencies are killing banks for owning these “cash flow” loans and the financial news is constantly raising alarms (possibly correct) about risks in leveraged lending.
https://www.vanityfair.com/news/2020/02 ... rket-crash
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 10:42 am
by foreverlax
Farfromgeneva wrote: ↑Thu Feb 13, 2020 10:10 am
Great cartoon.
Not endorsing any Fed pick but as a former bank investment banker I am actually against FDIC insurance as well. I’ve seen hundreds of poorly run spread lending banks that pose risk every day they exist because they so heavily rely on subsidized leverage (artificially cheap deposits that are govt gtd) to exist.
I've not given this topic much thought in the past.....seems to me, we need to have a net under our banking system. If FDIC is creating an artificial support system for poorly run institutions, it would seem that the standards are too low.
Bank Failures in Brief – Summary 2001 through 2020
From the above -
2001 to 2005 - 22 institutions failed, totaling $6.3b....in 2005 there were no failures
2006 to 2010 - 325 institutions failed, totaling $64.25b...in 2006 there were no failures
2011 to 2015 - 193 institutions failed, totaling $63.98b...failures every year
2016 to 2019 - 17 institutions failed, totaling $7.02b...in 2018, there were no failures.
There have been no failures so far in 2020.
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 10:47 am
by youthathletics
Thanks for the link.
So help us understand how this relates to partisan bickering when...
Mark Spitznagel believes the central banks have created a monster they don’t know how to stopand not government. Or is going to be the chicken and egg scenario so there can be blame.
He also thinks central bankers don’t know how to stop the monster they have created. “I do not think that central bankers will ever be able to pull away from this,” he explains. “They will never be able to ‘normalize’ rates. In our lifetime, recessions and stock market crashes really have been instigated or started by central banks sort of pulling away the punch bowl. They raise rates and that has led to a slow down and ultimately has led to these crashes that we see. Every single one, that’s how it’s happened.
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 10:52 am
by Farfromgeneva
Those timeframes are misleading it’s really 2008-2012 excepting a fraudulent situation involving a converted thrift in Louisiana 2-3yrs ago called First NBC (Ashton Ryan the CEO was adored and treated like something special, looked like Colonel Sanders and I’ll never forget the really long finger nails, a $3.5Bn bank that failed due to accounting fraud around low income and historic housing tax credit valuations as well as a god awful loan book but the FDIC also caused its failure by allowing HancockWhitney bank to cherry pick the loan book and branch network at par and leave the adversely selected loan pool behind only for the bank to fail and the FDIC to absorb $900mm in losses on loans when HancockWhitney took over the rest of the institution except refusing those bad loans).
But the mark to model exercise of bank risk management and accounting combined with the subsidized leverage (insured deposits) and the subsequent excise it gives the govt to meddle inside of banks for their own political benefit leading to absolutely no risk based pricing in the banking system is what led to the crisis which led to the failures. The insurance effectively created a large chunk of the problem that led to the failures which they in turn get to say is why deposit insurance exists. It’s perverse. A better system would have a smoother profile of smaller failures and banks having to prove their worthy of having deposits and at competitive rates.
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 10:56 am
by Farfromgeneva
youthathletics wrote: ↑Thu Feb 13, 2020 10:47 am
Thanks for the link.
So help us understand how this relates to partisan bickering when...
Mark Spitznagel believes the central banks have created a monster they don’t know how to stopand not government. Or is going to be the chicken and egg scenario so there can be blame.
He also thinks central bankers don’t know how to stop the monster they have created. “I do not think that central bankers will ever be able to pull away from this,” he explains. “They will never be able to ‘normalize’ rates. In our lifetime, recessions and stock market crashes really have been instigated or started by central banks sort of pulling away the punch bowl. They raise rates and that has led to a slow down and ultimately has led to these crashes that we see. Every single one, that’s how it’s happened.
Central banks are more political than most realize, so they are tools of the govt. And even if ours was less political for a long time (still political) it had to be responsive to a global economy. Funny how the 10yr US Treasury has tracked the 10yr German bund by approx 150bps (1.5%) for many years now no? That’s the market adjusting and why we lowered fed funds last year. We simply couldn’t ignore where rates were going globally and had to respond...
Or not (where I wish we hadn’t lowered rates last year).
I’m addition, fiscal policy, or inaction, forces central banks to act. The blame is on govt(s) for not properly adjusting the fiscal side and treating central bankers and monetary policy as some elixir
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 11:58 am
by foreverlax
youthathletics wrote: ↑Thu Feb 13, 2020 10:47 am
Thanks for the link.
So help us understand how this relates to partisan bickering when...
Mark Spitznagel believes the central banks have created a monster they don’t know how to stopand not government. Or is going to be the chicken and egg scenario so there can be blame.
He also thinks central bankers don’t know how to stop the monster they have created. “I do not think that central bankers will ever be able to pull away from this,” he explains. “They will never be able to ‘normalize’ rates. In our lifetime, recessions and stock market crashes really have been instigated or started by central banks sort of pulling away the punch bowl. They raise rates and that has led to a slow down and ultimately has led to these crashes that we see. Every single one, that’s how it’s happened.
Considering how he makes his money, he makes a lot of sense....as a Black Swan fund, his approach has it's place in the quiver, during tough times.
'Black Swan' Investors Lose Big as Stocks Thrive
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 7:34 pm
by jhu72
Re: The Nation's Financial Condition
Posted: Thu Feb 13, 2020 8:26 pm
by Typical Lax Dad
Re: The Nation's Financial Condition
Posted: Fri Feb 14, 2020 3:33 pm
by Kismet
Mnuchin and Kudlow say they are working on a plan for a tax incentive to participate in the stock market.
https://www.cnbc.com/2020/02/14/white-h ... tocks.html
Clowns
Re: The Nation's Financial Condition
Posted: Fri Feb 14, 2020 4:06 pm
by Typical Lax Dad
Brooklyn wrote: ↑Thu Feb 13, 2020 9:59 am
Trumpism is for winners like this:
I am pretty sure I passed her on my drive up to Cornell.
Re: The Nation's Financial Condition
Posted: Fri Feb 14, 2020 5:04 pm
by Trinity
I bought hot dogs there, just south of Ithaca.
Re: The Nation's Financial Condition
Posted: Fri Feb 14, 2020 7:03 pm
by Farfromgeneva
That’s either/or the rte 79 or rte 14 corridor, depending on where you are coming from.
I will never, ever, get tired of the shortstop cafe in Ithaca on my way to Geneva however.
Re: The Nation's Financial Condition
Posted: Fri Feb 14, 2020 7:26 pm
by Brooklyn
Typical Lax Dad wrote: ↑Fri Feb 14, 2020 4:06 pm
I am pretty sure I passed her on my drive up to Cornell.
We have plenty more look alikes for that type in the Upper Midwest.
Re: The Nation's Financial Condition
Posted: Fri Feb 14, 2020 7:28 pm
by Typical Lax Dad
Farfromgeneva wrote: ↑Fri Feb 14, 2020 7:03 pm
That’s either/or the rte 79 or rte 14 corridor, depending on where you are coming from.
I will never, ever, get tired of the shortstop cafe in Ithaca on my way to Geneva however.
My kind of place!
Re: The Nation's Financial Condition
Posted: Sat Feb 15, 2020 10:25 am
by Farfromgeneva
foreverlax wrote: ↑Thu Feb 13, 2020 11:58 am
youthathletics wrote: ↑Thu Feb 13, 2020 10:47 am
Thanks for the link.
So help us understand how this relates to partisan bickering when...
Mark Spitznagel believes the central banks have created a monster they don’t know how to stopand not government. Or is going to be the chicken and egg scenario so there can be blame.
He also thinks central bankers don’t know how to stop the monster they have created. “I do not think that central bankers will ever be able to pull away from this,” he explains. “They will never be able to ‘normalize’ rates. In our lifetime, recessions and stock market crashes really have been instigated or started by central banks sort of pulling away the punch bowl. They raise rates and that has led to a slow down and ultimately has led to these crashes that we see. Every single one, that’s how it’s happened.
Considering how he makes his money, he makes a lot of sense....as a Black Swan fund, his approach has it's place in the quiver, during tough times.
'Black Swan' Investors Lose Big as Stocks Thrive
I’m sure you understand you have to be in it perpetually and take little losses all the time to have it serve as insurance in “tough times” though. The value lies in obtaining many cheap, out of the money options and paying those premiums, once the world turns those options skyrocketing buying fire insurance at the moment your neighbors to the left and right have their houses on fire.
However, the more the world/investment management industry goes to passive/index investing, which creates a lot of overlap up and down (negative feedback loop on downside, everyone sells), the more valuable this strategy becomes IMO. Think of how portfolio insurance (a glorious Nobel prize winner like Merton who was balls deep in Long Term Capital Mgt failure) caused the crash in 1987.