DrStool Posted April 18, 2022 Report Share Posted April 18, 2022 I've been featuring this chart lately as a canary in the coal mine for what's really going on in the banking system. The Fed has published it in its weekly H8 banking data for oh, the past 30 years or so. It doesn't like what it sees, or what it tells the rest of us about the state of the bulk of bank portfolios. The vast majority of those portfolios are invested in Treasury bonds and MBS which are NOT marked to market. They're carried at cost, in the world of bank balance sheet make believe. That looks like this. This chart is the fantasy. The first chart is the reality. When the forced selling begins, the reality will rear its ugly head. So the reality is bad, very bad. And the Fed doesn't like us to see things that are very bad. So what does it do? It stops publishing those things. This notice was included on the weekly H8 release on the weekly aggregate balance sheet of the US commercial banking system: Quote The following line item changes have been made on the release: The two Memoranda items covering net unrealized gains (losses) on available-for-sale securities have been discontinued: previous line item 42, Net unrealized gains (losses) on available-for-sale securities; and previous line item 43, Net unrealized gains (losses) on available-for-sale securities, U.S. Treasury and agency securities, MBS. So there you have it. The Fed doesn't want us to see the bad news, so it just stops showing it to us. Meanwhile, Europe is closed today, so not much doing in the ES S&P futures. We'll have to wait for the US pre market opening at 8 AM ET to get a better idea of what's coming today. As the first NY traders get to their desks, the futures look bottomy on the basis of the 3 and 5 day cycles we watch here. That's as it should be with the liquidity floodgates opening wide over the next 4 weeks. To get anything going on the upside, I'd say that they need to clear 4395 by lunchtime. If they pull back instead, I'd look for sport at 4350-55. Meanwhile: The Dow, Macro Liquidity, and the Fate of Russian Generals April 18, 2022 Stocks Are Not Breaking Bad April 16, 2022 Gold’s Last Chance Before Summer Vacation April 15, 2022 Primary Dealers Still Long and Wrong, But A Gift Rally Looms! April 11, 2022 Why March Withholding Taxes Showing Red Hot Economy Is Bearish April 3, 2022 Fragile and Dangerous Semi Blind Spot March 28, 2022 If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter. Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 Swing Trade Chart Pick Screens Flip to Buy Side April 18, 2022 Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 They had it and they coughed it up. Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 If at first you don't suck, cede! Link to comment Share on other sites More sharing options...
Jorma Posted April 18, 2022 Report Share Posted April 18, 2022 $60bn is really just chump change if you think about it. Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 Yes, but you have to extrapolate that to the entirety of bank securities holdings. This represents just the assets held for sale, the artist formerly known as Trading Assets. These are an infinitesimal percentage of banks' total portfolios. It's the tip of the iceberg of banks total securities holdings, which are not marked to market. The reality is that the banks have crushing unrealized losses hiding in the books, just waiting for forced sale as bond prices continue to decline. I don't think anyone can truly grasp just how bad this is, even me. But that chart illustrates it. Think of it as a tiny, but representative sample of the true scope of the problem. Fragile and Dangerous Semi Blind Spot Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 WTF alert. Link to comment Share on other sites More sharing options...
potatohead Posted April 18, 2022 Report Share Posted April 18, 2022 excellent liquidity report. The charts above are eye opening, if one only knows where to look. Are you able to come on the twitter spaces call tomorrow to discuss? The Fintwit crowd has been looking for a bond rally 100 bps ago and leading their followers right off a cliff. Link to comment Share on other sites More sharing options...
No Einstein Posted April 18, 2022 Report Share Posted April 18, 2022 1 hour ago, DrStool said: ........ It's the tip of the iceberg of banks total securities holdings, which are not marked to market. The reality is that the banks have crushing unrealized losses hiding in the books, just waiting for forced sale as bond prices continue to decline. I don't think anyone can truly grasp just how bad this is, even me. But that chart illustrates it. Think of it as a tiny, but representative sample of the true scope of the problem. why would there be forced selling...couldn't they just hold since they are not MTM.. yes they will under perform for many months or longer but why not hold since they are making something... Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 2 minutes ago, No Einstein said: why would there be forced selling...couldn't they just hold since they are not MTM.. yes they will under perform for many months or longer but why not hold since they are making something... Leverage. Margin calls. Link to comment Share on other sites More sharing options...
No Einstein Posted April 18, 2022 Report Share Posted April 18, 2022 3 minutes ago, DrStool said: Leverage. Margin calls. thx Link to comment Share on other sites More sharing options...
No Einstein Posted April 18, 2022 Report Share Posted April 18, 2022 27 minutes ago, DrStool said: Leverage. Margin calls. not trying to be an asshole...just trying to understand...I have a banker friend and this is his take.. "Any leverage they have in their portfolios would have been used to make loans. So that leverage has two assets behind it 1) The MBS and UST and 2) The loans they made with that borrowed cash (although this prob isn’t pledged directly as collateral). So my question back would be: would the cash flows from these two groups of assets not service the debt and prevent margin calls?" Link to comment Share on other sites More sharing options...
potatohead Posted April 18, 2022 Report Share Posted April 18, 2022 17 minutes ago, No Einstein said: not trying to be an asshole...just trying to understand...I have a banker friend and this is his take.. "Any leverage they have in their portfolios would have been used to make loans. So that leverage has two assets behind it 1) The MBS and UST and 2) The loans they made with that borrowed cash (although this prob isn’t pledged directly as collateral). So my question back would be: would the cash flows from these two groups of assets not service the debt and prevent margin calls?" This might be a dumb question but with interest rates at all time lows the last few years, what cash flow is the banker talking about? Would not take much for the level of volatility and leverage to wipe the cashflow out. Link to comment Share on other sites More sharing options...
DrStool Posted April 18, 2022 Author Report Share Posted April 18, 2022 40 minutes ago, No Einstein said: not trying to be an asshole...just trying to understand...I have a banker friend and this is his take.. "Any leverage they have in their portfolios would have been used to make loans. So that leverage has two assets behind it 1) The MBS and UST and 2) The loans they made with that borrowed cash (although this prob isn’t pledged directly as collateral). So my question back would be: would the cash flows from these two groups of assets not service the debt and prevent margin calls?" Not if the prices of the assets keep falling, which they will. Eventually, they'll need to raise more capital. Th only leverage is used to make loans? Hardly. There are plenty of repos on the books too. Capital ratios are also under severe pressure. Covered in depth here. Fragile and Dangerous Semi Blind Spot Link to comment Share on other sites More sharing options...
Jimi Posted April 18, 2022 Report Share Posted April 18, 2022 54 minutes ago, No Einstein said: not trying to be an asshole...just trying to understand...I have a banker friend .... Help me out here. Doesn't... having a banker friend... make you an asshole? I'm just kidding, good man! Link to comment Share on other sites More sharing options...
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