Deutsche Bank executive woes continue

Deutsche Bank announced over the weekend that its top C-Suite executives would not be getting a bonus again this year.

CEO John Cryan strangely made the announcement Friday night at Austin’s South By Southwest conference, stating that for the third consecutive year top execs would forego year end payouts as the bank struggles to pull itself out of the mire of questionable trading practices.

As many of you may know I wrote extensively three years ago about the rash of suicides within the bank just as the Libor scandal was breaking.

The German uber bank did note that bonuses for other employees would total just over $2B for 2017.

The news comes as the 10-year anniversary of Bear Stearns’ demise hits Thursday, which led to the Great Recession. On March 14th 2008, the Federal Reserve agreed to provide a $25B loan to keep the bank solvent for 28 days as they unwound Jimmy Cayne’s troubled bank.

As the Fed dug deeper into Bear’s books that offer was pulled a day later and on the 16th of March, JPM CEO found the pot gold scooping up Bear for seven cents on the dollar with a $2 a share offer.

Dimon also made sure that nothing on the troubled bank’s books could come back and bite him with Fed chief Ben Bernanke assuring Dimon the Fed would take the hit as it put up $29B and JPM invested $1B for the sale.

In the following week a Bear shareholder lawsuit was filed and JPMorgan raised its offer price from $2 a share to $10 a share to quell the suit. As a point of contrast Bear Stearns stock was trading at $93 a share in late February 2008.


Can the Fed chair, please take a seat

Today at 2 pm The Federal Reserve will most likely announce a 0.25 bps move higher in Fed Funds rate taking it toward 0.75 bps.

I say most likely since it would only be the second rise in eight years, so I feel I want to couch that comment.

Nevertheless, the more important aspect comes a half-hour later, when Fed chief Janet Yellen holds her press conference.

Yellen’s comments on the incoming Trump administration will be what drive the bond and equity markets.

The Fed chair needs to tell markets the board’s  policy will take its keys off of the incoming Trump policy, not that it will assess that policy and then move in a counter-direction in order to keep the status quo.

I believe the Fed chief  and the board of governors need to take a back seat on monetary policy and get off of the TV. With the exception of the last two Fed chiefs — Ben Bernanke and Yellen — most Americans never knew who led the Federal Reserve.

Monetary leadership should come from the White House, not the Marriner S. Eccles Federal Reserve Board Building just off of the Great Mall. Unfortunately, this has not happen under the Obama Administration. Both Tim Geithner and Jack Lew — Obama’s two Treasury chiefs — had their photos on a milk carton because no one knew where they were and what they thought.

The question is how do you put these “genies” back in the bottle after they have been enjoying more celebrity status than the Treasury Secretary for the last eight years?

The bombastic Trump, when it comes to the Fed, could overwhelm the academics and eggheads at the central bank. We may get a taste of this on Twitter at 2:01 pm today from the President-elect on his reaction.

No yen for helicopter money, maybe?

Wednesday night news out of Tokyo said Bank Of Japan was going to launch a Y10 to Y20 TRILLION in helicopter money.

Helicopter money is where the government gives cash to the general population in leiu of the banks to spur spending and growth.

Well the headlines drove high frequency traders to buy, buy, buy on the news. By Thursday morning Bank of Japan chief Kuroda said there is no plan to execute that plan and in fact the news was a month old.

The news had credence, since ex-Fed chief Ben Bernanke was said to be talking to the Japanese central bankers about what to do to break an almost 30-year economic malaise.

The news had the markets gyrating due to USD-YEN movements. Stock markets move higher on a weaker yen, which helicopter money in the trillions would do. So when the announcement from central banker Kuroda walked back that news the yen strengthened and US futures fall.

There is such a coorelation between $/Y and US equity markets that trumps all other economic/monetary news. The yen carry trade is mother’s milk to high-frequency trading algorythms

Now don’t be surprised if the market takes the news that Kuroda said no helicopter money a month ago and says that he might be for it now. Stranger things have happen.

And just for good measure we get ECB chief Mario Draghi talking Thursday morning on what that central bank may or may not do with Italian banks.


Omaha, Omaha: It's the old 5pm audible from Asia market

The helipads around the world are about to get busier.

That’s the central bankers of the world jawboning about “helicopter money coming soon from Japan, Europe and even in the US, while the UK cuts its prime lending rate and perhaps launches a new round of easing.

Does this sound like things are going well and that the equity markets should be making all-time highs? Yup, welcome to the new world.

It all starts at roughly 5PM in NYC. Futures markets are down for the Dow, S&P and Asia while precious metals are rising. In Asia the markets look very soft on a strengthening yen.

The Bank of Japan puts out a — what seems like a daily statement saying that the government will be in the market “to protect” the yen, which really means BOJ wants a weaker, not stronger yen. When it came close to 100 yen  to the dollar on the Fx exchanges due to Brexit, that was too strong.

And we use to laughed at Mexico, when on vacation the peso felt like monopoly money at 25 pesos to the dollar. Whose the third-world country now?

So what does the Bank of Japan suggest during a visit by ex-Fed chief (Helicopter) Ben Bernanke? To give cash to the general population to spur spending, which may spur growth.

Asian stock markets soar, Europe can’t wait to open and US futures rise, bond yields rise, precious metal sink. Got it, ok we’ll do it again tomorrow night.

So now, we still have Deutsche Bank and many Italian banks teetering. We have a Bank of England starting a Quantitative Easing program. And we have a Federal Reserve still divided on want to do this month with rates?

So the short answer is: In a world awash with debt, let’s created more debt — albeit at a very low-interest rates — to get out of this quagmire called stagflation.

Doesn’t sound to me like equities are on a long-term growth cycle to me, but it is election time here in the US, so all bets are off.


Fed chiefs gather for Yellen pep rally

Federal Reserve Chairwoman Janet Yellen participated in a roundtable with three of her predecessors: Ben Bernanke, Alan Greenspan and Paul Volcker, Thursday in Manhattan.

To begin with there was no disagreement between the four Fed chiefs, which represented 37 years of Fed leadership, which is 1/3rd of the history of the private institution.

The one glaring aspect that most of the panelist agreed upon: Strong dollar does not equal strong US economy.

While history shows that US Treasury secretaries are the ones to defend the strong dollar, it appears the Fed chiefs believe a strong dollar is detrimental to the global economy, which then weakens the US economy.

Bernanke said the benefits of the US dollar being a the global reserve currency are generally overblown and that there are costs that go along with that status.

Yes, but being the global reserve currency allowed the Fed to increase its balance sheet by $3 trillion during the crisis. Some of the costs associated with King Dollar is the amount of money used to bail out European and Asian banks during post-crisis, that is now put on the backs of US taxpayers.

Most of the conversation involved theory, but the theories they brought up don’t seem to be working anymore, except for one they did not mention.

In a debt-ridden economy, more debt will not spur growth. That is an axiom that no one on the panel would talk about.

Yellen spoke about if the US is growing, then the global economy should be doing better. We can’t drive growth, since we can only achieve anemic growth ourselves.

“When the U.S. is doing well, it tends to be a plus for the global economy,” Yellen said.

No one on the panel thought the US was on the cusp of a recession, despite calls of that on the campaign trail from both Republican candidate Donald Trump and Democratic contender Bernie Sanders.

“I don’t see any particular reason to believe a recession is any more likely in 2016 than it was in 2015 or 2014,” Bernanke said.

Chair Yellen said, “We certainly don’t see those imbalances,” in comments on expansion of private sector debt.

Perhaps she is missing the equity market run up on the back of companies borrowing money to fund stock buybacks?

All in all it was an otherwise historic event bringing the panel together, but the discussion seem to be more pep rally for Yellen’s policies than constructive talk.