| Last | Change | Percent | |
| S&P Futures | 1554.0 | 4.0 | 0.26% |
| Eurostoxx Index | 2739.8 | 35.1 | 1.30% |
| Oil (WTI) | 92.27 | -0.3 | -0.27% |
| LIBOR | 0.28 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 83.05 | 0.158 | 0.19% |
| 10 Year Govt Bond Yield | 2.05% | 0.03% | |
| RPX Composite Real Estate Index | 193.5 | 0.0 |
Stock index futures are up (again) after initial jobless claims came in lower than expected, and inflation readings at the producer level showed inflation well contained. Initial Jobless claims came in at 332k, better than the street estimate of 350k. Bonds and MBS are down.
Since the early Feb, the US dollar has been on a tear, as nascent US economic strength is drawing assets from overseas and the Bank of Japan attempts to devalue the Yen. We have yet to see manufacturers complain, but at some point, they will. It will be interesting to see if Jack Lew expresses support for a strong dollar or damns it with faint praise.
A proposal by the Dallas Fed would cap assets at deposit-insured divisions of the largest US banks at $250M and force them to separate investment banking and traditional lending. It isn't a full re-institution of Glass-Steagall - it would require separate capitalization and funding for the investment banking and trading units, but would not formally force them to break up. That said, for all practical purposes, it would effectively re-instate Glass Steagall. The reason why we repealed Glass Steagall in the first place was because the US investment banks (Goldman, Merrill, etc) couldn't compete with the big international banks in the US derivatives business because the overseas giants had such a huge funding advantage. The big international giants like Barclay's, UBS, and Nomura could borrow at depositor rates (which were often 0%), while the US investment banks were forced to borrow at higher, market-driven LIBOR rates. This meant that Barclay's etc. could offer much better financing rates on derivatives than Goldman or Merrill. The rest of the world does not separate commercial and investment banking, or even draws a distinction between the two.
This proposal would eliminate the reason why investment banks and commercial banks joined up in the first place - cheap financing. Since the big giants are trading with a holding company discount, they will undoubtedly face shareholder pressure to spin off their investment banking operations to eliminate the discount. The reason why the Fed is doing this is to make it easier for the FDIC to close down a failing unit of a big bank. It isn't a systemic risk issue. That said, I have always been highly skeptical of the Glass Steagal theory of the financial crisis. Residential real estate bubbles are the Hurricane Katrinas of banking, and it doesn't matter if you were long real estate through a mortgage loan on your balance sheet, through a holding of mortgage backed securities, or because you sold protection on a basked of CDOs, you were still long real estate and still got crushed when it dropped. People forget the rationale for Glass Steagall, which was to prevent investment banks from using their captive commercial banks or insurance companies as a "back book" for holding soured underwritten bond offerings. The financial crisis did not occur because JP Morgan was stuffing bad paper onto Chase's balance sheet - it happened because we had a real estate bubble. And because we are in "do something, anything" mode, we are attacking the wrong reason (Glass Steagall) while ignoring the real reason - the Fed.
RealtyTrac reported that foreclosure filings increased 2% MOM in February, but are down 25% YOY. "At a high level, the U.S. foreclosure inferno has been effectively contained and should be reduced to a slow burn in the next two years" according to Daren Blomquist, VP at RealtyTrac. Nevada, Maryland, Washington, and New York are the states with more work to do, and they have reported big increases in foreclosure starts.
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