The Mess That Greenspan Made - Part 40

One More Thing to Worry About

The innocuous looking graphic below from this WSJ story ($) has more than a few people worrying a little more today than they did yesterday about what might go wrong in the financial system as we bear down on the worst two months of the year for equities.

According to the report,  the repo market is “a critical part of the plumbing that keeps money flowing”, enabling “hedge funds, investment banks and other financial firms to borrow and lend short-term funds, often overnight” and has recently seen some lenders pull back due to new regulations.

A less sanguine take can be found in this item at Quartz that characterizes repos thusly:

The bottom line is that repos are leverage. They are a way for banks to use borrowed money, instead of their own, to take positions in the market. When times are good this works pretty well. But in a crisis, things get bad quickly.

Just in case you needed it, that’s one more thing you can worry about.

Thursday Morning Links

Enough is enough in Ferguson – Vox
Eurozone growth slows to a halt – BBC
German GDP signals stalling euro-zone recovery – MarketWatch
Italy’s Renzi must bring back the lira to end depression – Telegraph
Charting Nouri al-Maliki’s turbulent eight-year tenure as Iraq’s prime minister – Quartz
JPMorgan Joins Goldman in Designing Derivatives for a New Generation – Bloomberg
Cisco Terminates 8% Of Workforce While Buying Back $1.5 Billion In Stock – Zero Hedge
Brown Signs $7.5 Billion Plan to Ease California Drought – Bloomberg
Canadian dollar nears 92¢ again (but hold that thought) – Globe & Mail
Richer, But Not Happier: Hong Kong’s Quality of Life Drops – WSJ
These guys used to issue the world’s reserve currency too – Sovereign Man
The oil spike that wasn’t: Prices defy global turmoil – CNBC
I’m 57 and owe $152,000 in student loans – CNN/Money

Here’s why stocks can keep going higher – CNBC
30 reasons not to worry about a stock market crash – MarketWatch
Junk Bonds Gain Favor as Europe’s Banks Reduce Lending – NY Times
Blackrock Examines The High-Yield Bond ETF Exodus – Barron’s
German bond yields drop below 1% for first time – MarketWatch
U.S. 30-Year Bonds Outperform Stocks in 2014 Before Sale Today – Bloomberg
Gold down as Putin comments help shares; soft data, dollar limit losses – Reuters
Total Gold Demand Falls 16% Year-Over-Year To 963.8 Tons In Q2 – Kitco
Global gold demand returning to positive long term trends – Mineweb
India Gold Imports Seen Dropping as Rajan Protects Rupee – Bloomberg
London gold fix lawsuits to be consolidated in New York – Reuters
U.S. gold stocks jump to highest since March 2013 as demand wanes – Reuters

It Really Is Deflating – Alhambra Partners
The Middle Class Is A Power Behind Wage Inequality – Forbes
What should the European Central Bank actually do? – Marginal Revolution
China’s retail sales maintain steady growth in July – xinhuanet
Chinese Buyers Are Driving a Boom in Australian Real Estate – WSJ
Stated income loans make comeback as mortgage lenders seek clients – Reuters
Levine on Wall Street: Repo Fails and Defaulted Mortgages – Bloomberg
Boston Fed Chief Warns of Dangers to Repo Market – NY Times
One of the biggest cracks in the financial system still isn’t fixed – Quartz
How The Fed Turned A Flood Of Treasuries Into A Scarcity Of Repo Collateral – Contra Corner
Uh-oh: Trouble is brewing again in the repo market – CNBC


The Commerce Department reported(.pdf) that retail sales were unchanged in July following a modest 0.2 percent gain in June and, for the second month in a row, auto sales declined.

Motor vehicle sales dropped 0.2 percent after falling 0.3 percent the month prior, but the July weakness was not only in autos as retailers in five of the thirteen major categories reported lower receipts. Excluding motor vehicles, sales rose just 0.1 percent and, excluding both autos and gasoline, sales were also up just 0.1 percent.

General merchandise stores saw sales drop 0.5 percent and smaller declines were reported at furniture stores, electronics stores, and at nonstore retailers (e.g., internet sales). Strength was reported at clothing stores and health stores where sales rose 0.4 percent and miscellaneous store retailers saw an even larger increase of 0.9 percent for the month.

After robust GDP growth during most of the second quarter, it appears the American consumer may be taking a break over the summer, at least when it comes to buying cars.

Tagged with:  

Wednesday Morning Links

Japanese economy contracts sharply – BBC
China’s July economic data points to softness – Reuters
Crisis stalks Europe again as deflation deepens, Germany stalls – Telegraph
Kurds Push Attack in North Iraq as Maliki Clings to Power – Bloomberg
Russia’s Soul: What Crimea Says about Putin’s Future – Spiegel
Ukraine to Block Russian Aid Trucks as It Tightens Noose Around Rebels – Bloomberg
Companies Deal With Employees Who Refuse to Take Time Off by Requiring Vacations – WSJ
World Awash in Oil Shields Markets From 2008 Price Shock – Bloomberg
A timely warning from the feds: Bitcoins are the ‘Wild West’ – LA Times
Debt: The big threat to a happy retirement – USA Today
Robin Williams’ estate plan: Good, but not great – CNBC
The Bottom Line by Carl Icahn – Yahoo!

To find out what Tim thinks of today’s news, subscribe to Iacono Research

Stocks higher, Japan shrugs off GDP drop – AP
Oil prices dip to lowest level in nine months – BBC
Could weaker oil be signaling doom for stocks? – CNBC
Junk Bond Funds Just Experienced A 6-Sigma Event – Business Insider
David Rosenberg: Market correction? Was that it? – Finnacial Post
Treasuries at Week Low Versus G-7 Peers Before Sale – Bloomberg
Gold above $1,300 on Ukraine worries; firmer shares, dollar weigh – Reuters
Seasonal Pickup In Physical Gold Demand Uncertain – Analysts – Kitco
Confusion Prior To New “London Silver Price” Launch This Friday – GoldCore
Gold imports in India to decline under new norms – BullionStreet
Shanghai Silver In Backwardation – BullionStar

Proof of a Structural Change in the U.S. Workforce – Advisor Perspectives
Latest economic data from China raises doubts over growth – BBC
China’s new yuan loans down in July – China Daily
China industrial output up 9.0% on-year in July – CNA
Japan GDP growth collapses amid sales tax shock – CNN/Money
French prices plunge in July, sparking deflation fears – AFP
Mortgage volume weakens as summer wanes – CNBC
Record income gap fuels US housing weakness – FT
The GOP’s latest brainwave for the Fed is another terrible idea – Bloomberg
Bank of England: no early interest rate rise as wages forecast slashed – Telegraph
‘Living Wills’ For Banks Are Pointless Without Market Discipline – RCM

© 2010-2011 The Mess That Greenspan Made