Clever Accounting Tricks (GAAP) Hides BIG Banks' Real Leverage Risks

America’s biggest banks aren't ready for next meltdown

When Audited  Leverage And Risks Are Hidden IN GAAP

WASHINGTON  — The main financial risk facing the United States today looks very similar to what caused so much trouble in 2007-2008: big banks with too much debt and too little equity capital on their balance sheets. Uneven global regulations, not to mention regulators who fall asleep at the wheel, compound this structural vulnerability.

We already saw this movie, and it ended badly. Next time could be an even worse horror show.

All booms are different, but every major financial crisis has at its heart the same issue: major banks get into trouble and teeter on the brink of collapse. Disruption at the core of any banking system leads to tight credit, with major negative effects on the real economy. In our modern world, in which finance is interwoven throughout the economy, the consequences can be particularly severe — as we saw in 2008 and 2009. Read More.

REMEMBER 2005!

Famous Accounting Frauds - Evaporating Wealth In Virtual Moments

INVESTORS' INSIGHTS  - "Today's Edge" 

Lets face it, since inception the purpose of Banks was to create liquidity in the economy through leverage of its own balance sheet. The premise for this excessive leverage was the collateral they held on the credits provided to others. But the sensibilities of this premise falls apart when credits are unsecured and leverage ratios climb to new heights by paying corrupt audit firms to create costume accounting practises. In the simple  vernacular - lies.  

Today, as a result, the leverage in the system could be as low as 35:1 or beyond 200:1. The point being, nobody truly knows - and consequently, the street's  sense is that the financial  mathematics is now so shaky that even a slight upward rise in rates will wipe out a substantive portion of the Banks' asset and equity values - leading to a complete systemic collapse. Enron's  chart above for instance is a foreshadowing test case for the whole system that we now have in place. Not a pretty picture.

That's  why everyone  is so worried. That's why CPI needs to be manipulated. That's why the US dollar could lose its reserve  currency status. That's why no one dare raise rates by the slightest percentage. 

That's why one day all the corruption, markets and economies are mathematically boxed into an algebra articulating  the certainty of "The Mother Of All Crashes",

" One day!"

International Offices

April 30, 2015

BAD #IRISH SIGNALS - Nutty Bonds Selling Like Crazy

Even Ireland’s weakest bank can raise money in bond market

The first Irish lender to sell Europe’s riskiest type of bank bond is also the nation’s weakest.

Permanent TSB, which failed European financial stress tests last year, is selling €125 million of so-called additional Tier 1, or AT1, bonds this week.

The undated securities convert into shares should capital drop below a certain threshold and carry coupons that issuers can just decide not to pay.

The sale will nonetheless “will go down extraordinary well,” said Liam Dunne, a fixed-income trader at Merrion Capital in Dublin. “The world has changed. There is huge demand for Irish assets at the moment.” Read More.

Do You Think This Guy Knows Something?

INVESTORS' INSIGHTS  - " Today's Edge" 

Any time Big Bankers come up with quasi debt/equity gimmicks you know one thing is certain-- there are HUGE underlying problems that they are looking to disguise. That means this is a key signal there  is turmoil ahead -  being on the short side of these securities makes much more sense.

All in all , we would  stay away from these marginal Banks anywhere in the World, but particularly the PIGS' afilliatates.

 There is a BIG Bubble out there that could spell utter disaster for these laggards.


International Offices
April 29,2015 

INVESTORS BEWARE - Too Good, For Too Long

Investment Environment Very Strong

HONEST INVESTMENT WISDOM:
 What Reality Is All About

After all, global equity markets have made stellar gains since the first quarter of 2009 despite enormous uncertainty and difficulties in the global economy and the global financial system over that period.My caution was misplaced last year and so far this year it appears to have little justification. Markets are still simply surging ahead.

So far this year the US S&P 500 has gained 14.5% in euro terms; the FTSE 100 has gained 16.3%; the German DAX has gained 22.6%; the Nikkei is up 29.8%; the French CAC is up 22.2% and even the Iseq has gained almost 21%.

Indeed since the first quarter of 2009 — just six years ago — the US S&P 500 has gained 210%; the FTSE 100 has gained 101%; the German DAX has gained 228%; the Nikkei is up 185%; the French CAC is up 107%, and the Iseq has gained 229%.  Read More.

The Optimism Or Stupid Bias  - Our Hard-Wired Brains Survival State

Watch THIS  Too

https://youtu.be/B8rmi95pYL0

Market Caution - US Biotech Stocks Look OverHeated

  

ARE BIOTECH STOCKS IN A BUBBLE?

   

ARE BIOTECH STOCKS IN A BUBBLE?

 This is a question that is being asked. According to an article by Bloomberg (Biotech Index in Nosebleed Territory - Up 500% In 4-years, Trades At 10X Revenues – Bloomberg Business, March 8, 2015) the 269 Biotech companies that are listed on the NASDAQ are up more than 500% in the past four years. The Biotech companies have the biggest weighting on the NASDAQ at 11.2%.

A 500% gain is impressive. The NASDAQ Biotechnology Index (NBI) is up a more modest 338%. The TSX Health Care Index (THC) is up an even more modest 187% in the same period.  It appears that some of the really high flyers are not even in the NBI. As to the THC, it has been led primarily by one stock – Valeant Pharmaceutical (VRX-TSX). VRX is up 665% in the same period. Read More.

Be Extra  Cautious As Rumors Began Last Year 

BEWARE: Futures Can Crash Stock Markets

How futures trading could crash stocks

Michael Mackenzie

The US equity market ‘flash crash’ of May 6 2010 has long highlighted the pronounced link between futures exchange contracts and the share prices of companies bought and sold by investors of all stripes. 

Regulators digging into what sparked an abrupt collapse of share prices, where the likes of Accenture briefly traded at 1 cent per share before a stunning rebound inside twenty minutes, concluded back in 2010 that trading via equity futures in Chicago was the spark that had lit the flash crash fuse. Financial Times - Read More

Who Knows What  Could Happen Next Time?

"#GREECE Will Be Worse Than 2008 Meltdown" - Dr. Peter G Kinesa

Why Greece May Be the New Lehman

Here we go again. This time it’s Europe’s fault, and the crisis could be worse than last time, at least politically.

Remember when in 2008 Hank Paulson’s U.S. Treasury Department decided to let Lehman Brothers go down, pour encourager les autres, and then found that it brought les autres crashing down too? Well, Germany and the other euro-zone members are now trying to repeat that brilliant trick with Greece. If you were looking for where the next big financial meltdown might begin, you need look no further. 

Chances are, it is about to happen in Europe.

If it does, the political consequences could be even worse than last time. Strangely enough, the political risks are easier to evaluate than the economic ones. The risk of a Greek default or exit from the euro begin in Greece: If the left-wing party that runs the new government, Syriza, is discredited, following the discrediting of the old establishment parties, this risks strengthening the fascist alternative, Golden Dawn. Read More.

Greek Dominoes Could Bring Down EuroZone

CHINA 2015 CRISIS: State -Run Bond Defaults On Interest

Not Concerned About China’s Financial Crisis? You Should Be

In February, IVN reported on a mostly ignoredstudy claiming that the world, especially China, was at risk of default (and possible economic meltdown) because of skyrocketing debt burdens.

On Tuesday, almost all media outlets worldwide picked up on the first Chinese-state owned business allowed to default.

Struggling in a cooling economy, Baoding Tianwei Baobian Electric missed its $13.8 million interest payment due on April 21 for bonds traded within China. Even though it is a state-owned company, Beijing let them default. Read More

What if rates begin to climb too? Oh my...

SPECIAL REPORT: #5 Patterns of Stock #Market Crashes

SPECIAL REPORT

This exclusive North American article will be broken into a series of five consecutive posts providing our readers with  useful market edges and insights that are unprecedented amoung peers, into the empirical patterns behind historical and "possibly future stock market crashes." The article is sourced and supported by the author's research; having first been published earlier in renowned European journals. Applying such knowledge wisely, thereby optimizes the chances for better decisions and increased wealth - First Financial Insights, Toronto, April 2015

New Stock Market Crash, A Pattern?

Part 5 - Will The Share Indexes Go Down Any Further?

Calculating share indexes as described before and showing indexes in historical graphs is a useful way to show which stage the industrial revolution is in.

Introduction, Growth, Flourishing and Decline

<< Fig Typical course of market development >>

The third industrial revolution is clearly in the saturation and degeneration phase. This phase can be recognized by the saturation of the market and the increasing competition. Only the strongest companies can withstand the competition or take over their competitors (like for example the take-overs by Oracle and Microsoft in the past few years). The information technology world has not seen any significant technical changes recently, despite what the American marketing machine wants us to believe.

During the pre development phase and the take off phase of a transition many new companies spring into existence. This is a diverging process. Especially financial institutions play an important role here. These phases require a lot of money. The graphs showing the wages paid in the financial sector therefore shows the same S curve as both revolutions.

<<  Fig Historical excess wage in the financial sector >>

Investors get euphoric when hearing about mergers and take overs. Actually, these mergers and take overs are indications of the converging processes at the end of a transition. When looked at objectively each merger or takeover is a loss of economic activity. This becomes painfully clear when we have a look at the unemployment rates of some countries.

New industrial revolutions come about because of new ideas, inventions and discoveries, so new knowledge and insight. Here too we have reached a point of saturation. There will be fewer companies in the take off or acceleration phase to replace the companies in the index shares sets that have reached the stabilization or degeneration phase.

In the graph below we see the share price/income ratio over the past two industrial revolutions. At the end of the 2^nd industrial revolution in 1932 this index reached 5. At the moment we are at 15. The index prices can still go down by a factor 3.

<< Fig industrial revolutions: share price / income ratio >>

Will history repeat itself?

Humanity is being confronted with the same problems as those at the end of the second industrial revolution such as decreasing stock exchange rates, highly increasing unemployment, towering debts of companies and governments and bad financial positions of banks.

<< Fig Two most recent revolutions: US market debt >>

Transitions are initiated by inventions and discoveries, the knowledge of mankind. New knowledge influences the other four components in a society. At the moment there are few new inventions or discoveries. So the chance of a new industrial revolution is not very high.

History has shown that five pillars are indispensable for a stable society

<< Fig The five pillars for a stable society >>

At the end of every transition the pillar Prosperity is threatened. We have seen this effect after every industrial revolution.

The pillar Prosperity of a society is about to fall again. History has shown that the fall of the pillar Prosperity always results in a revolution. Because of the high level of unemployment after the second industrial revolution many societies initiated a new transition, the creation of a war economy. This type of economy flourished especially since 1932  up to now. (i.e. US Hegemony)

Now, societies will have to make a choice for a new transition to be started. Without applied knowledge of the past there is chance for a better future, if any...

NEXT - Tomorrow... 

 ONE LAST PROFIT - CI ???

 Is This A Message? 
Why Do These Charts Trend Together?

WHO'S  NEXT?

And this happens...

COMPARE THESE CORRELATIONS: 
ANY VISUAL RELATIONSHIPS?

JUDGEMENT DAY...

ABOUT ARTICLE 

The article “A new stock market crash, a pattern?”, in dutch  "Nieuwe beurskrach, een wetmatigheid?” was published  in a magazine “Tijdschrift voor economisch onderwijs” (magazine for economical education), a monthly publication of the VECON, A union of teachers in economic and social subjects in the Netherlands. 


Wim Grommen writes: This paper advances a hypothesis of the end of the third industrial revolution and the beginning of a new transition. Every production phase or civilization or human invention goes through a so- called transformation process. Transitions are social transformation processes that cover at least one generation. In this paper I will use one such transition to demonstrate the position of our present civilization. When we consider the characteristics of the phases of a social transformation we may find ourselves at the end of what might be called the third industrial revolution. The paper describes the four most radical transitions for mankind and the effects for mankind of these transitions: the Neolithic transition, the first industrial revolution, the second industrial revolution and the third industrial revolution.

SPECIAL REPORT: #4 Patterns of STOCK #MARKET CRASHES

SPECIAL REPORT

This exclusive North American article will be broken into a series of five consecutive posts providing our readers with  useful market edges and insights that are unprecedented amoung peers, into the empirical patterns behind historical and "possibly future stock market crashes." The article is sourced and supported by the author's research; having first been published earlier in renowned European journals. Applying such knowledge wisely, thereby optimizes the chances for better decisions and increased wealth - First Financial Insights, Toronto, April 2015

New Stock Market Crash, A Pattern?

Part 4 -  Stock Index Graphs Are Fata Morganas.

What does a stock exchange index like DJIA, S&P 500 or AEX really mean?

The Dow Jones Industrial Average (DJIA) index is the oldest shares index in the United States. A select group of journalists of The Wall Street Journal decide which companies are included in the most influential stock exchange index in the world. Unlike most other indices the Dow is a price average index. This means that shares with a high price have a great influence on the movements of the index.

A History Lesson 

The S&P index is a market value index. This index, compiled by credit evaluator Standard & Poor’s, includes the 500 largest US companies, based on their market capitalization

The Amsterdam Exchange Index (AEX) is the most important stock exchange index in the Netherlands. It shows the development of share prices of the top 25 funds of the Amsterdam Stock Exchange, based on trading. The AEX is the average price of the shares of those funds.

In many graphs the y-axis is a fixed unit, such as kg, meter, liter or euro. In the graphs showing the stock exchange values, this also seems to be the case because the unit shows a number of points. However, this is far from true! An index point is not a fixed unit in time and does not have any historical significance.

An index is calculated on the basis of a set of shares. Every index has its own formula and the formula gives the number of points of the index. Unfortunately many people attach a lot of value to these graphs which are, however, very deceptive.

·        An index is calculated on the basis of a set of shares. Every index has its own formula and the formula results in the number of points of the index. However, this set of shares changes regularly. It is therefore very strange that different sets of shares are represented by the same unit.
After a period of 25 years the value of the original set of apples is compared to the value of a set of pears. At the moment only 6 of the original 30 companies that made up the set of shares of the Dow Jones at the start of the acceleration of the last revolution (in 1979) are still present.

Even more disturbing is the fact that with every change in the set of shares used to calculate the number of points, the formula also changes. This is done because the index which is the result of two different sets of shares at the moment the set is changed, must be the same for both sets at that point in time. The index graphs must be continuous lines. For example, the Dow Jones is calculated by adding the shares and dividing the result by a number. Because of changes in the set of shares and the splitting of shares the divider changes continuously. At the moment the divider is 0.132319125 but in 1985 this number was higher than 1. An index point in two periods of time is therefore calculated in different ways:

Dow 1985 = (x1 + x2 + ........+x30) / 1

Dow 2009 = (x1 + x2 + ........ + x30) / 0,132319125

In the nineties of  the last century many shares were split. To make sure the result of the calculation remained the same both the number of shares and the divider changed (which I think is wrong). An increase in share value of 1 dollar of the set of shares in 2009 results is 7.5 times more points than in 1985. The fact that in the 1990-ies many shares were split is probably the cause of the exponential growth of the Dow Jones index. At the moment the Dow is at 9665 points. If we used the 1985 formula it would be at 1279 points.

·        The most remarkable characteristic is of course the constantly changing set of shares. Generally speaking, the companies that are removed from the set are in a stabilization or degeneration phase. Companies in a take off phase or acceleration phase are added to the set. This greatly increases the chance that the index will rise rather than go down. This is obvious, especially when this is done during the acceleration phase of a transition.
This is actually a kind of pyramid scheme. All goes well as long as companies are added that are in their take off phase or acceleration phase. At the end of a transition there will be fewer companies in those phases.

<<Fig 3^rd industrial revolution and the S&P 500  >>

FINAL Part #5 -  Will The Shares Go Down Any Further?

THINK - Can You Draw Blood From A Floating Rock In Space?

ABOUT ARTICLE 

The article “A new stock market crash, a pattern?”, in dutch  "Nieuwe beurskrach, een wetmatigheid?” was published  in a magazine “Tijdschrift voor economisch onderwijs” (magazine for economical education), a monthly publication of the VECON, A union of teachers in economic and social subjects in the Netherlands. 

Wim Grommen writes: This paper advances a hypothesis of the end of the third industrial revolution and the beginning of a new transition. Every production phase or civilization or human invention goes through a so- called transformation process. Transitions are social transformation processes that cover at least one generation. In this paper I will use one such transition to demonstrate the position of our present civilization. When we consider the characteristics of the phases of a social transformation we may find ourselves at the end of what might be called the third industrial revolution. The paper describes the four most radical transitions for mankind and the effects for mankind of these transitions: the Neolithic transition, the first industrial revolution, the second industrial revolution and the third industrial revolution.

SPECIAL REPORT: #3 Patterns of STOCK #MARKET CRASHES

SPECIAL REPORT

This exclusive North American article will be broken into a series of five consecutive posts providing our readers with  useful market edges and insights that are unprecedented amoung peers, into the empirical patterns behind historical and "possibly future stock market crashes." The article is sourced and supported by the author's research; having first been published earlier in renowned European journals. Applying such knowledge wisely, thereby optimizes the chances for better decisions and increased wealth - First Financial Insights, Toronto, April 2015

New stock market crash, a pattern?
Part 3 - Three Drastic Transitions

Three Drastic Transitions

When we go back into the past, three transitions took place with far-reaching effects.

The First Industrial Revolution

The first industrial revolution lasted from around 1780 tot 1850. It was characterized by a transition from small scale handwork to mechanized production in factories. The great catalyst in the process was the steam engine which also caused a revolution in transport as it was used in railways and shipping. The first industrial revolution was centered around the cotton industry. Because steam engines were made of iron and ran on coal, both coal mining and iron industry also came to bloom.

This revolution ended in 1845 when Friedrich Engels, son of a German textile baron, described the living conditions of the English working class in “The condition of the working class in England“. The result of this revolution: an immense gap between rich and poor.

A New Philosophy Intoxicates Human Ideas, Systems And Deeds

The Second Industrial Revolution

The second industrial revolution started around 1870 and ended around 1930. It was characterized by ongoing mechanization because of the introduction of the assembly line, the replacement of iron by steel and the development of the chemical industry. Furthermore coal and water were replaced by oil and electricity and the internal combustion engine was developed. Whereas the first industrial revolution was started through (chance) inventions by amateurs, companies invested a lot of money in professional research during the second revolution, looking for new products and production methods. In search of finances small companies merged into large scale enterprises which were headed by professional managers and shares were put on the market. These developments caused the transition from the traditional family business to Limited Liability companies and multinationals.

Consumerism Transforms Into Religiosity

After the roaring twenties the revolution ended with the stock exchange crash of 1929. The consequences were disastrous culminating in the Second World War.

The Third Industrial Revolution

The third industrial revolution started around 1940 and is nearing its end. The United States and Japan played a leading role in the development of computers. During the Second World War great efforts were made to apply computer technology to military purposes. After the war the American space program increased the number of applications. Japan specialized in the use of computers for industrial purposes such as the robot. By now the computer and communication technology take up an irreplaceable role in all parts of the world.

How Long Can We Continue Making Stuff?

The acceleration phase of the third industrial revolution started around 1980 with the introduction of the micro processor. The third industrial revolution has clearly reached the saturation and degeneration phase.

Dow Jones Industrial Average

<< Fig Exchange rates of Dow Jones during the latest two industrial revolutions. During the last few years the rate increases have accelerated enormously.>>

NEXT Part #4 - Stock Index Graphs Are Fata Morganas.

THINK:  
Possible Train Wreck Ahead?

ABOUT ARTICLE 

Wim Grommen writes: This paper advances a hypothesis of the end of the third industrial revolution and the beginning of a new transition. Every production phase or civilization or human invention goes through a so- called transformation process. Transitions are social transformation processes that cover at least one generation. In this paper I will use one such transition to demonstrate the position of our present civilization. When we consider the characteristics of the phases of a social transformation we may find ourselves at the end of what might be called the third industrial revolution. The paper describes the four most radical transitions for mankind and the effects for mankind of these transitions: the Neolithic transition, the first industrial revolution, the second industrial revolution and the third industrial revolution.

The article “A new stock market crash, a pattern?”, in dutch  "Nieuwe beurskrach, een wetmatigheid?” was published  in a magazine “Tijdschrift voor economisch onderwijs” (magazine for economical education), a monthly publication of the VECON, A union of teachers in economic and social subjects in the Netherlands. 

SPECIAL REPORT: #2 Patterns of STOCK #MARKET CRASHES

SPECIAL REPORT

This exclusive North American article will be broken into a series of five consecutive posts providing our readers with  useful market edges and insights that are unprecedented amoung peers, into the empirical patterns behind historical and "possibly future stock market crashes." The article is sourced and supported by the author's research; having first been published earlier in renowned European journals. Applying such knowledge wisely, thereby optimizes the chances for  better decisions and increased wealth - First Financial Insights, Toronto, April 2015

New stock market crash, a pattern?
Part 2 - The S-Curve of Transition

Examples of historical transitions are -

the demographic transition and the transition from coal to natural gas which caused transition in the use of energy. A transition process is not fixed from the start because during the transition processes will adapt to the new situation. A transition is not dogmatic.

Can We More To A Sustainable System?

Four transition phases -

In general transitions can be seen to go through the S curve and we can distinguish four phases (see fig. 1):

1.      a pre development phase of a dynamic balance in which the present status does not visibly change

2.      a take off phase in which the process of change starts because of changes in the system

3.      an acceleration phase in which visible structural changes take place through an accumulation of socio cultural, economical, ecological and institutional changes influencing each other; in this phase we see collective learning processes, diffusion and processes of embedding

4.      a stabilization phase in which the speed of sociological change slows down and a new dynamic balance is achieved through learning

A product life cycle also goes through an S curve. In that case there is a fifth phase:

5.      the degeneration phase in which cost rises because of over capacity and the producer will finally withdraw from the market.

The S curve of a transition:

<< Fig Four phases in a transition best visualized by means of an S curve.>>

NEXT Part #3 - Three Drastic Transitions

THINK - is anything really too big to fail? 

ABOUT ARTICLE 

Wim Grommen writes: This paper advances a hypothesis of the end of the third industrial revolution and the beginning of a new transition. Every production phase or civilization or human invention goes through a so- called transformation process. Transitions are social transformation processes that cover at least one generation. In this paper I will use one such transition to demonstrate the position of our present civilization. When we consider the characteristics of the phases of a social transformation we may find ourselves at the end of what might be called the third industrial revolution. The paper describes the four most radical transitions for mankind and the effects for mankind of these transitions: the Neolithic transition, the first industrial revolution, the second industrial revolution and the third industrial revolution.

The article “A new stock market crash, a pattern?”, in dutch  "Nieuwe beurskrach, een wetmatigheid?” was published  in a magazine “Tijdschrift voor economisch onderwijs” (magazine for economical education), a monthly publication of the VECON, A union of teachers in economic and social subjects in the Netherlands.