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Shadow Banking The shadow banking system is something you're probably not familiar with. Until today! the shadow banking system is made up of mainly investment banks i.e. your market whales or market makers, money market funds i.e. like schwab and vanguard, and hedge funds. these financial entities dont give out loans to you or I, but rather trade amongst themselves. which is what is known as the shadow banking system. one of the main functions of the Shadow Banking system is to provide liquidity aka money (which is mostly made up anyways) to the financial system. for example if a whale wants to move a massive amount of money into a position, or what happened to Zimbabwe a while back and give an entire nation a loan at a ridiculous amount of interest they're able to do so, or take a massive position in a promising opportunity and need capital fast! How does this work? How do you ensure that a hedge fund will pay back on their loan? collateral! Usually in the form of government issued bonds and bills. one can trade an equilivent amount of t-bills plus interest for X-amount of dollars to carry out said transaction. example: Hedge fund A wants to take a position shorting the RMBS market. (strictly coincidental) Hedge Fund A is so confident in their analysis they are willing to take a whales position. they need the capital. well like all good risk management practices they have off set their high beta shares with low risk positions. the lowest risk investment you can have is a US Bond or Treasury Bill. So, Investment bank A says okay I can lend you 10 Billion Dollars at a 4% interest rate per day for 3 days, if you default I keep your Bonds. The swap happens. Now, Hedge Fund A has not only to make their money back on the bond trade, but they have to make at least 4.01% to make the trade profitable and they have 3 days to do it. Another way this can be done is Hedge Fund B says I too am going to short the RMBS market but i am going to offer it to all the investment banks and other hedge funds. So they offer it as an investment opportunity. the offering fund takes a small fee and the winnings or losings are dealt accordingly. while this might sound a a little familiar... well it is! names and places have been changed to protect the innocent. The major critique the financial system has with this Shadow Banking is that its not really regulated. becasue going back to our example with Hedge Fund A If Hedge Fund A Doesnt pay then Investment Bank A can shoot their interest rate from 4% to 40% in one day making the loan almost impossible to pay back causing the Hedge Fund to collapse and all the unsuspecting investors in the Hedge Fund are out of pocket. Or my personal favorite. Lets Say Hedge Fund (HFA) A is going to short the RMBS market with a 10 Billion dollar Position for 3 days and Investment Bank A (IBA) wants to short the CMBS market with a $20 billion position for 5 days. well the trade between HFA and IBA happens 10 billion will float to HFA at a 4% interest rate per day for 3 days. Now, IBA wants to short CMBSs they will approach Life Insurance Group A (LIA) and will offer $20 billion dollars in bonds 10 from their reserve and the 10 billion from HFA. at a 5% per day interest rate for 5 days. Now, you might see the problem. but i will continue. Day 3 is up. HFA made their little profit. IBA doesnt have their bonds (because theyre with LIA). So, IBA will probably give HFA 10 billion of their own bonds which for this post is what happens. HFA is squared away with IBA. Now, in the 5 days that IBA is holding LIAs money the fed decided to raise interest rates 200 base points. the bond market yields sky rocket causing their prices to plummet. but fortunately IBA made 10% on their risk they pay LIA their 5% interest and take a 5% loss on their bonds and come out BE or Break even. As you can see in this overly simplified example how if any one part of these parties failed it could be detrimental for a lot of people. Because peoples pensions are held by hedge funds, countries and other governments have their investments with the Investment Bank peoples money and loans are held with the Life Insurance groups. I believe this shadow banking system is also the Stock Markets (yes the entire stock markets) Stop Loss!
K
by ARegularGuy
10 Year Note Yield - 2%+ Ahead Into June - AugustThe Price Objective remains 2.28%. Beyond sewing the usual seeds of discontent, observe the Larger Monthly Indications. The above Chart is of extreme importance, it demonstrates how Capital Stocks begin to turn, Glacial at first, as Momentum builds, they begin to accelerate. This will end up a 4 or 5 part series discussing the potential impacts. _____________________________________________________________________________ Price has broken above 2 Key Downtrends. It is attempting to reach the 3rd, which has acted as resistance for years. This is a material change in the underlying Bond Market Note Structure. It is no longer the conventional depository for Principal and Coupon as a great many believe. ______________________________________________________________________________ Capital Stocks are in need of review: Real Estate - the Hybrid / Principal and Coupon (Rents) A Negative correlation to Higher Rates with cascading effects to Higher Rates. A 70% increase in Conventional and Jumbo Mortgage Rates would see a 18 to 24% drop in the Price of Residential Real Estate. Equities - the Buyback / Prop where Corporate Debt is used for Buybacks Increased borrowing Costs temper Buybacks, Inflows do not. This is a double edged sword we will discuss in detail. Bitcoin - The repository (Not Depository) for excess Liquidity. BTC has a Positive correlation to rising Rates. BTC has a Price Objective near $137K at the extreme extensions for Rates of the 10 Year Note Yield. Bills / Notes / Bonds / - Debt instruments with attendant Hybrid function of Principal / Coupon. ______________________________________________________________________________ Bonds (prior to 2006) were traditionally a function of the Business Cycle which has been supplanted by the Credit Cycle (no longer a Cycle by appearances). Prior to 2008 Congress would pass a Bill in the Legislature, after speaking with the US Treasury to determine how to "Finance" its Fiscal requirements. Once the Bill was passed and signed into Law, the US Treasury would conduct operations with the Federal Reserve Central Bank in New York to issue the increased Credit/Debt (The FED taking their statutory 6% issuance) to the US Government. Bills, Note and Bonds would be placed with Primary Broker Dealers (Fed Member Banks) and offered at "Auction" to the Public, Institutions, exogenous Central Banks, Funds, Swaps and overnight Swaps for shorter duration T-Bills sweeps. This funding mechanism for DEBT no longer exists. FASB 56 - took the Governments Budgets and Funding "Dark" as a "Matter of National Security". The General Purpose Federal Financial Reports are Classified Documents. The material Facts of FASB 56 - files.fasab.gov 13 Short Pages well worth educating one's self as to how the Government conducts itself. TARP/TALF were undisclosed Operations which maintained their Shadow Financing for years. 94% of Americans were against Commercial Bank Bailouts. Privatizing Gains while publicly subsidizing losses was viewed with extreme displeasure. ___________________________________________________________________________________ Over the past 14 Year, we see the outcome(s) - Interventions in Auctions by the Federal Reserve, Yield Curve Control, the Outright Purchase of RMBS/MBS again (this began in 2004 in size as the Federal Reserve's concerns over Real Estate began to mount). The FED has become the buyer of Last Resort - currently @ $8.758 Trillion in Assets of which $8.296 are "Securities" - this excludes "Shadow Operations" of FASB 56. In less than 2 years, the Federal Reserves Balance Sheet rose from $4.212 Trillion to more than Double that amount (NET of Shadow Operations) I estimate Shadow Operation under FASB 56 to be in excess of $3.8 Trillion - this excludes the Trillions missing from the Federal Coffers @ DOD, HUD and a great many other Agencies. _________________________________________________________________________________ Follow - On commentary will begin breaking down the Trends and discuss the potent outcomes and timeframes for each Capital Stock. There is a large amount of information to be discussed, requiring a methodical analysis of all points on the outcome curve. More to follow - HK
TVC:TNX
by HK_L61
5
AC Indicator - Oscillator Throttle: Guide Part 27The Accelerating Oscillator is an indicator that measures the acceleration or deceleration of the current driving force of the market. The start of the Accelerating Oscillator performance is based on the assumption of its author Bill Williams that prior to the change of direction of the cost shift, the stimulus of its change must fall. How to use the accelerator oscillator The accelerator oscillator is an indicator that fluctuates near a mean degree of 0.00 (zero) corresponding to a relative equilibrium of the market driving force with acceleration. Positive values ​​indicate a growing uptrend, whereas negative values ​​have the possibility of qualifying as a downtrend development. The AC indicator changes its direction before any real trend change is generated in the market, therefore it serves as an early warning signal of possible changes in the trend direction. To enter the market along with its driving force, one should be attentive to both cost and color. 2 consecutive green columns above zero degree would suggest you enter the market with a long stance. They have the ability to take at least 2 red columns below zero degree for a command to fall short. The wrong signals prevail in periods of time less than 4 hours. Throttle Oscillator Formula (Calculation) In the throttle oscillator formula, the CA bar graph is the difference between the 5/34 value of the driving force bar graph and the 5-period simple moving average, taken from that bar graph. AO = SMA (average price, 5) -SMA (average price, 34) AC = AO-SMA (AO, 5) The throttle oscillator indicator is calculated as a difference between the impressive oscillator (AO) and the 5-period moving average of the AO.
Education
by UnknownUnicorn18500526