February 1, 2010 – 1:00 pm
Last week, I mentioned to several friends that there’s a big set of assumptions built into the behavior of large US banks these days. They’ve spent much of the past year executing an extremely profitable “carry trade.”
Basically, they borrow money on an overnight basis, which the Fed thoughtfully provides to them for free. And then they lend the funds to the US Treasury at substantially higher rates of interest.
They do this by buying the midcurve and long-dated notes and bonds that Treasury issues in gargantuan quantities to fund the budget deficit. The banks are essentially investing in the long end of the yield curve, even as foreign investors and central banks are generally doing the opposite, moving leftward along the curve.
Built into this strategy is an assumption that interest rates will stay low. If there should be an uptick in medium and long rates, these banks will be in a really interesting bind. They’ll either get out of the trade at lightning speed, which would cause a big spike in rates and a break in the stock market. Or else they’ll get stuck sitting on massive capital losses, making them even less able to expand business and…
January 12, 2010 – 2:27 am
Interpreting the Chinese press is always an interesting problem, because so much of it is planted by official sources to play their preferred story line. The Chinese very successfully stimulated their economy last year. They did so well that they ended up growing almost 10% on the year.
December 14, 2009 – 9:40 am
President Obama says he’s going to have a “serious talk” with bankers today to pressure them to provide more credit. Why? Well, because if you’re upside down on your house today and want to take advantage of low rates, your bank is just as likely to say, “eh, no thanks, we’ll just keep making money.” We’ll discuss this and more on today’s edition of Coffee and Markets.
December 14, 2009 – 9:11 am
Essentially, we’re talking about a situation now where if you want to refinance to take advantage of screamingly good interest rates, your bank says “no way, Jose! We’re going to keep taking your high interest payments as we finance your mortgage with free money for as long as you’re not willing to let your credit rating get damaged.”
December 3, 2009 – 9:31 am
Market participants will pay very close attention to two key upcoming readings on employment. This morning, the Labor Department reports initial claims for unemployment for last week. And tomorrow, they’ll give the initial reading (subject to revision) on job creation in November. A sense is growing that the readings will surprise on the upside, and show an employment picture that is improving slowly but steadily, suggesting that economic conditions are finally on the mend.
November 20, 2009 – 10:43 am
Negative interest rates finally materialize, Tim Geithner falls on his face at Congress, and the House moves forward with their policy of gutting the Federal Reserve. That’s three big stories to talk about on today’s Coffee and Markets.
By Francis Cianfrocca
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Posted in Features, Market, Podcasts
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Also tagged Allen Grayson, Audit the Fed, Barack Obama, Coffee and Markets, Podcast, Podcasts, Ron Paul, Tim Geithner, Wall Street
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October 23, 2009 – 9:35 am
Today’s podcast focuses on the rumors circulating about the Federal Reserve’s plans for an interest rate hike, and an update on where things stand on health care reform on Capitol Hill in the wake of a failed vote on doctor’s payments.
By Francis Cianfrocca
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Posted in Features, Podcasts, Politics
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Also tagged AMA, Coffee and Markets, Federal Reserve, Harry Reid, health care, Olympia Snowe, Pharma, Podcast, Podcasts
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September 24, 2009 – 8:33 am
In today’s Coffee and Markets podcast we’ll be discussing the outcome of the Fed’s decision on interest rates, as well as a look back at what the stimulus package has accomplished or not accomplished after six months.
The latest story about AIG shows where a lot of continuing exposure to financial losses is concentrated, and also how the process of buying and selling risk contributed to these problems.
