The Banking System Improves, Surprising the "Experts"
By Jeffrey P. Snider
Conventional wisdom regarding the banking system is leaning again toward "zombie" banks being propped up by bailouts leading to a "lost decade". This argument is upside down, and bank earnings reports are proving it. Yet the media and "analysts" have no idea what is actually happening, content to recycle clichés and uneducated generalizations.
In the Japanese version, banking loans were priced at full value even though they were worthless - they were not receiving full (or any) principal and interest payments. The current American crisis is the opposite - syndicated loans are priced as near worthless even though they are receiving full interest and principal payments, or in the case of synthetic CDO's, full protection payments within reference portfolios.
The banks and brokerage firms were not heavy investors in the bottom rungs of credit structures. If you do some cursory research in readily available public filings the biggest source of writedowns were super senior tranches - even AIG's biggest problems are related to screwy pricing of the most senior tranches. As bad as subprime is, the loss rates and recovery rates will never be bad enough to force the senior tranches to suffer any dollar losses - yet they are typically priced below 50 cents on the dollar.
Why?
Credit default swap (CDS) illiquidity, complexity and fear coupled with screwy mathematical properties, such as the negative convexity produced by using the Gaussian copula. The fact that CDS pricing is producing insane results, like correlations above 100%, is a real indication that current valuations (the exact same valuations that the mark-to-market accounting rules forces to be "real") are not remotely predictive of cash flow reality.
The bottom line is that banks are reluctant to part with their "toxic" assets because they are, and will continue to be, money-good. The zombie bank image has been created by esoteric, nonsense CDS pricing mechanisms, but that is the reality the public has bought because of uneducated and dishonest reporting. Just because the banking system has little credibility doesn't mean it is wrong.
Rather than having a "propped-up" banking system, we really have an artificial crisis (that isn't to say there aren't real problems or even real losses, but they aren't where people think and are of an order of magnitude less). Without mark-to-market phantom/paper losses creating doubt there would never have been the commercial paper runs that took down Bear, Lehman, etc.
The gulf of perception about "toxic" assets is really a function of mathematical complexity. It is far easier to label all subprime assets as "toxic", and negative convexity simply reinforces that. But pulling apart the myth really doesn't require too much math, and even negative convexity can be explained to unsophisticated people.
In a simple example, in order for a super senior tranche to be priced at 50 cents on the dollar (Merrill Lynch sold some for 22 cents last summer) default rates would have to be 100% with a recovery rate well below 40%. Even subprime mortgages of the worst vintages (originated in the second half of 2006 or the first half of 2007) are not seeing anything close to that. At its worst, reasonable estimates are for 40% defaults with 65% recoveries. For a super senior tranche with a low attachment point of 70%, that would mean zero actual losses. In fact, that dire scenario would mean every tranche above a 14% attachment point would pay out fully (most likely all the seniors and perhaps a mezzanine).
Again, this cannot be stated more forcefully, the banks were exposed to super senior tranches. Even in synthetic CDO's (which most super seniors were) the credit structure provides more than enough protection. Didn't any "experts" wonder why nobody could come up with a price to soak up "toxic" assets? Because banks wanted full price (or near) the government worried it would look like a bailout - the difference in perceptions should have been a wakeup. Instead of decrying the insanity of bankers, the media should have been investigating exactly why banks wanted to keep "toxic" assets "experts" were convinced would ruin them. Those that think it was an attempt by Wall Street to game the government through handouts need to explain why negative convexity and 100%2B% correlations are proper and appropriate.
The vicious cycle of paper losses and inaccurate reporting was transmitted through hedging activities. Haywire spreads increased exposures, creating even more hedging activity (based on deltas). The values of the hedges continually declined as spreads widened past logical values, but accounting rules required phantom losses even though there will never be any actual dollar losses. AIG, with its naked default swap portfolio, was not brought down by actual losses - it was sunk by collateral calls created from these insane pricing methods, calls that were too big for its cash position. At that point if AIG wasn't bailed out, the unfilled collateral calls would have created even bigger phantom paper losses through mathematical delta hedging exposure changes.
While this shadow system operates outside the grasp of the media and bank analysts, the "experts" are focused on something seemingly simple - stress tests. But what they are actually measuring escapes the "experts". The true goal of the stress tests is to measure if the phantom loss repatriation will be enough to cushion against actual loan losses from non-mortgage credit. In other words, will the market value increases in super senior exposures be enough to offset recession-driven losses on credit cards and auto loans?
First quarter earnings reports from Wells Fargo, Goldman Sachs, JP Morgan and even Citigroup show that super senior valuations are, indeed, rising fast enough to offset loan loss reserve increases. But the "analysts" who cover the banks have no idea it is happening, which is why these earnings reports are a "surprise". The media is also unaware, as news articles and talking heads simply point to better results from "bond trading", when in fact no actual trading took place. Instead it is the increase in value (due to a belated realization by accounting regulators of the affects the phantom losses have produced) from credit derivatives, those pesky "toxic" assets, that is driving the banks' resurgence.
It is vitally important for investors to find a trusted source of information. Investing in the next decade is going to be almost entirely economics-driven, a period not unlike the 1970s, where the normal boom/bust cycle is interrupted by government-produced inflation and stagnation, maybe even a depression. Keeping on top of economic forces will be the key to successful investing - economic dislocations create investment opportunities for the informed.
Jeffrey P. Snider is President and Portfolio Manager for Atlantic Capital Management. You can find more information on the mark-to-market issue at http://www.client-centered.net/research.html Institutional investors can go to http://www.acminstitutional.com/research.html for more reports.
=======================================
Signs of an Oil and Gas Investment Scam
By Helga Bowl
In the recent times, due to the fall in the stock markets across the world, more and more people have started to invest in other avenues of investments, like forex and real estate. Oil and gas investment is such an alternative form of investment. Now, it is important to note that the current trends have also given rise to scams and frauds. Therefore, if in case, you are interested in making an investment, then in that case, you should always make sure that you do not fall into the trap of such scams and frauds.
As it is, many of these so called oil and gas investment companies would try to sweet talk you into believing that it is a no risk high return investment option. However, the truth is that there is actually no such investment option, because, if at all there would have been such an investment option, then every body would have been investing in it. So, while you are talking to an oil and gas investment firm, then in that case, before you makean investment, make sure that you search for possible signs of scams. The following are a few signs of possible scams:
1. The most common sign of a scam is when an investment company tells you that it has found an oil well, which is guaranteed to churn out huge money. As it is, noone can guarantee that an oil well is not actually dry. So, if the company was so sure, then it would rather make it a well kept secret and not share it with others.
2. Similarly, as explained earlier, in case an oil and gas investments company tries to make you believe that there is no risk involved in the investment, then it is definitely a scam. This is because, oil is a risky investment option and you can lose every bit of it and although you can earn a lot, yet there are also chances that you can lose all your hard earned moey.
3. Another common smooth talking of a scammer is that it has landed on a big discovery and would like to share it along with you for a minimum price. Now, why would someone want to share his profits with you, unless, he is an angel; and you do not usually come across angels. You should therefore be doubtful about anything like this.
In case you are looking forward to oil and gas investment, then it is important that you do a lot of research. You must therefore, always verify that, whatever they have been saying is absolutely true.
To read more about Finance Advisor Board visit Finance Advisor Board. Learn more about Finance News
====================================
What is an E2 Investor Visa?
By Helga Bowl
Getting a green card is something which a lot of people tend to work towards. This is something, which would allow you to reside, as well as work in the USA visa may be obtained in several ways and for several purposes, as well. The process of getting a visa is quite long, costly and, most of all, frustrating. It entails a lot of medical exams, paperwork, as well as documents which need to be presented with the US agencies.
Apart from green card, there are several other kinds of US visas, one of them being the e2 investor visa. An individual who is an associate of a profession with higher degree can seek to classify in e2 investor visa group. An advanced degree is believed to be higher than baccalaureate degree or possessing such a baccalaureate degree, along with five years of experience in a particular profession.
In case of the later situation, the five years of experience in combination with a baccalaureate degree has been considered to be at par with a master's degree. However, in the case of a particular occupation a doctoral degree is required which that person requires one. Any blend of a degree along with years of experience has not been considered to be equivalent. However, having a degree would not mean that you would surely acquire an e2 investor visa.
An individual who wants to get a visa like that should have a well designed business plan which consists of detailed information in regard to the nature as well as functions of future business, how high would be the initial investment, or the employment projections. Along with these things you may include the prices of real estate property, cost of materials, employee wages and financial statements as well as others.
Although there are a number of sources of information one can choose, nothing is better than talking to business immigration attorney. Now, this is a better choice for the e2 investor visa applicant, so as to receive the detailed answers which he seeks for all his questions. As it is, such an attorney may help you to create formal documents which are necessary, in case you provide with the required information.
Apart from that, there is another category, which is included in e2 investor visa, which includes the persons who has an exceptional ability in some area. This ability may be defined as a level of expertise which is higher than average in arts, sciences, or business. For somebody to qualify as part of this category, some criteria of USCIS should be fulfilled.
To read more about Finance Advisor Board visit Finance Advisor Board Learn more about Finance fiesta
By Jeffrey P. Snider
Conventional wisdom regarding the banking system is leaning again toward "zombie" banks being propped up by bailouts leading to a "lost decade". This argument is upside down, and bank earnings reports are proving it. Yet the media and "analysts" have no idea what is actually happening, content to recycle clichés and uneducated generalizations.
In the Japanese version, banking loans were priced at full value even though they were worthless - they were not receiving full (or any) principal and interest payments. The current American crisis is the opposite - syndicated loans are priced as near worthless even though they are receiving full interest and principal payments, or in the case of synthetic CDO's, full protection payments within reference portfolios.
The banks and brokerage firms were not heavy investors in the bottom rungs of credit structures. If you do some cursory research in readily available public filings the biggest source of writedowns were super senior tranches - even AIG's biggest problems are related to screwy pricing of the most senior tranches. As bad as subprime is, the loss rates and recovery rates will never be bad enough to force the senior tranches to suffer any dollar losses - yet they are typically priced below 50 cents on the dollar.
Why?
Credit default swap (CDS) illiquidity, complexity and fear coupled with screwy mathematical properties, such as the negative convexity produced by using the Gaussian copula. The fact that CDS pricing is producing insane results, like correlations above 100%, is a real indication that current valuations (the exact same valuations that the mark-to-market accounting rules forces to be "real") are not remotely predictive of cash flow reality.
The bottom line is that banks are reluctant to part with their "toxic" assets because they are, and will continue to be, money-good. The zombie bank image has been created by esoteric, nonsense CDS pricing mechanisms, but that is the reality the public has bought because of uneducated and dishonest reporting. Just because the banking system has little credibility doesn't mean it is wrong.
Rather than having a "propped-up" banking system, we really have an artificial crisis (that isn't to say there aren't real problems or even real losses, but they aren't where people think and are of an order of magnitude less). Without mark-to-market phantom/paper losses creating doubt there would never have been the commercial paper runs that took down Bear, Lehman, etc.
The gulf of perception about "toxic" assets is really a function of mathematical complexity. It is far easier to label all subprime assets as "toxic", and negative convexity simply reinforces that. But pulling apart the myth really doesn't require too much math, and even negative convexity can be explained to unsophisticated people.
In a simple example, in order for a super senior tranche to be priced at 50 cents on the dollar (Merrill Lynch sold some for 22 cents last summer) default rates would have to be 100% with a recovery rate well below 40%. Even subprime mortgages of the worst vintages (originated in the second half of 2006 or the first half of 2007) are not seeing anything close to that. At its worst, reasonable estimates are for 40% defaults with 65% recoveries. For a super senior tranche with a low attachment point of 70%, that would mean zero actual losses. In fact, that dire scenario would mean every tranche above a 14% attachment point would pay out fully (most likely all the seniors and perhaps a mezzanine).
Again, this cannot be stated more forcefully, the banks were exposed to super senior tranches. Even in synthetic CDO's (which most super seniors were) the credit structure provides more than enough protection. Didn't any "experts" wonder why nobody could come up with a price to soak up "toxic" assets? Because banks wanted full price (or near) the government worried it would look like a bailout - the difference in perceptions should have been a wakeup. Instead of decrying the insanity of bankers, the media should have been investigating exactly why banks wanted to keep "toxic" assets "experts" were convinced would ruin them. Those that think it was an attempt by Wall Street to game the government through handouts need to explain why negative convexity and 100%2B% correlations are proper and appropriate.
The vicious cycle of paper losses and inaccurate reporting was transmitted through hedging activities. Haywire spreads increased exposures, creating even more hedging activity (based on deltas). The values of the hedges continually declined as spreads widened past logical values, but accounting rules required phantom losses even though there will never be any actual dollar losses. AIG, with its naked default swap portfolio, was not brought down by actual losses - it was sunk by collateral calls created from these insane pricing methods, calls that were too big for its cash position. At that point if AIG wasn't bailed out, the unfilled collateral calls would have created even bigger phantom paper losses through mathematical delta hedging exposure changes.
While this shadow system operates outside the grasp of the media and bank analysts, the "experts" are focused on something seemingly simple - stress tests. But what they are actually measuring escapes the "experts". The true goal of the stress tests is to measure if the phantom loss repatriation will be enough to cushion against actual loan losses from non-mortgage credit. In other words, will the market value increases in super senior exposures be enough to offset recession-driven losses on credit cards and auto loans?
First quarter earnings reports from Wells Fargo, Goldman Sachs, JP Morgan and even Citigroup show that super senior valuations are, indeed, rising fast enough to offset loan loss reserve increases. But the "analysts" who cover the banks have no idea it is happening, which is why these earnings reports are a "surprise". The media is also unaware, as news articles and talking heads simply point to better results from "bond trading", when in fact no actual trading took place. Instead it is the increase in value (due to a belated realization by accounting regulators of the affects the phantom losses have produced) from credit derivatives, those pesky "toxic" assets, that is driving the banks' resurgence.
It is vitally important for investors to find a trusted source of information. Investing in the next decade is going to be almost entirely economics-driven, a period not unlike the 1970s, where the normal boom/bust cycle is interrupted by government-produced inflation and stagnation, maybe even a depression. Keeping on top of economic forces will be the key to successful investing - economic dislocations create investment opportunities for the informed.
Jeffrey P. Snider is President and Portfolio Manager for Atlantic Capital Management. You can find more information on the mark-to-market issue at http://www.client-centered.net/research.html Institutional investors can go to http://www.acminstitutional.com/research.html for more reports.
=======================================
Signs of an Oil and Gas Investment Scam
By Helga Bowl
In the recent times, due to the fall in the stock markets across the world, more and more people have started to invest in other avenues of investments, like forex and real estate. Oil and gas investment is such an alternative form of investment. Now, it is important to note that the current trends have also given rise to scams and frauds. Therefore, if in case, you are interested in making an investment, then in that case, you should always make sure that you do not fall into the trap of such scams and frauds.
As it is, many of these so called oil and gas investment companies would try to sweet talk you into believing that it is a no risk high return investment option. However, the truth is that there is actually no such investment option, because, if at all there would have been such an investment option, then every body would have been investing in it. So, while you are talking to an oil and gas investment firm, then in that case, before you makean investment, make sure that you search for possible signs of scams. The following are a few signs of possible scams:
1. The most common sign of a scam is when an investment company tells you that it has found an oil well, which is guaranteed to churn out huge money. As it is, noone can guarantee that an oil well is not actually dry. So, if the company was so sure, then it would rather make it a well kept secret and not share it with others.
2. Similarly, as explained earlier, in case an oil and gas investments company tries to make you believe that there is no risk involved in the investment, then it is definitely a scam. This is because, oil is a risky investment option and you can lose every bit of it and although you can earn a lot, yet there are also chances that you can lose all your hard earned moey.
3. Another common smooth talking of a scammer is that it has landed on a big discovery and would like to share it along with you for a minimum price. Now, why would someone want to share his profits with you, unless, he is an angel; and you do not usually come across angels. You should therefore be doubtful about anything like this.
In case you are looking forward to oil and gas investment, then it is important that you do a lot of research. You must therefore, always verify that, whatever they have been saying is absolutely true.
To read more about Finance Advisor Board visit Finance Advisor Board. Learn more about Finance News
====================================
What is an E2 Investor Visa?
By Helga Bowl
Getting a green card is something which a lot of people tend to work towards. This is something, which would allow you to reside, as well as work in the USA visa may be obtained in several ways and for several purposes, as well. The process of getting a visa is quite long, costly and, most of all, frustrating. It entails a lot of medical exams, paperwork, as well as documents which need to be presented with the US agencies.
Apart from green card, there are several other kinds of US visas, one of them being the e2 investor visa. An individual who is an associate of a profession with higher degree can seek to classify in e2 investor visa group. An advanced degree is believed to be higher than baccalaureate degree or possessing such a baccalaureate degree, along with five years of experience in a particular profession.
In case of the later situation, the five years of experience in combination with a baccalaureate degree has been considered to be at par with a master's degree. However, in the case of a particular occupation a doctoral degree is required which that person requires one. Any blend of a degree along with years of experience has not been considered to be equivalent. However, having a degree would not mean that you would surely acquire an e2 investor visa.
An individual who wants to get a visa like that should have a well designed business plan which consists of detailed information in regard to the nature as well as functions of future business, how high would be the initial investment, or the employment projections. Along with these things you may include the prices of real estate property, cost of materials, employee wages and financial statements as well as others.
Although there are a number of sources of information one can choose, nothing is better than talking to business immigration attorney. Now, this is a better choice for the e2 investor visa applicant, so as to receive the detailed answers which he seeks for all his questions. As it is, such an attorney may help you to create formal documents which are necessary, in case you provide with the required information.
Apart from that, there is another category, which is included in e2 investor visa, which includes the persons who has an exceptional ability in some area. This ability may be defined as a level of expertise which is higher than average in arts, sciences, or business. For somebody to qualify as part of this category, some criteria of USCIS should be fulfilled.
To read more about Finance Advisor Board visit Finance Advisor Board Learn more about Finance fiesta
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