With the Fed taking a slow walk to the sidelines, diminished returns ahead seem to be on the minds of many market participants.» Read More
Recent findings that much—or perhaps all—of the ability of some investors to outperform others raise the question—is the stock market unfair? And if it is unfair, what should be done about it?
The Brookings Institute recently completed a study which found that the returns to a passive investor in a diversified portfolio can differ strikingly over the long-term depending on the market conditions the occur over the lifetime of the investor. Similarly, findings by scholars studying the markets with an eye to the efficient market hypothesis suggest that there is little support for the idea that skill plays a large role in the success of actively managed funds. It seems to be mostly luck at work.
Citigroup is very confident that it has properly reserved for the potential impact of mortgage repurchase requests. But if Citi’s confidence is based on the work of KPMG, it may be misplaced.
As NetNet has reported , Citi has an enormous portfolio of mortgages it services but does not hold—which it says is a good proxy of mortgages it sold to outside investors in mortgage-backed securities. All told, Citi has over a half-trillion dollars of these mortgages that could potentially create put-back exposure.
To date, Citi says it has only set-aside slightly less than $1 billion of reserves against repurchase risk. The bank has told us that they feel comfortable with this level of reserves because historically realized repurchase risk has been quite small. In short, they haven’t had to pay out much on these claims in the past, so they figure they won’t pay out much in the future.
As my colleague Ash Bennington and I have explained at length, we think that the historical size of claims and payouts may not be a good guide to future claims and payouts. A quick summary of our reasoning:
Truth is a rare commodity in a crisis.
The truth of this is borne out once again today by FT Alphaville's discovery of two statements by top BP executives that the rumors of credit markets and trading partners shutting down business with BP over the summer were accurate. At the time, company representatives as well as other market players were denying the rumors.
As it turns out, it wasn't the rumors that were wrong. It was the denials.
The GOP leadership have been out in force in the media to communicate their message for change.
From kick starting jobs to slashing the deficit, Americans are getting an earful of what the Republicans hope to achieve in the next two years. One of the strongest voices on the bailouts, cutting spending as well as oversight is Representative Darrell Issa, incoming Oversight and Government Reform Committee Chairman. Issa's not shy about his mission in overhauling oversight.
I decided to kick off the decision on what will be his first item on his agenda when he becomes Chairman.
Fed Officials Debate the Wisdom of $600 Billion of Asset Purchases—Publicly (CNBC.com with Reuters) The view among Federal Reserve board governors on QE2 seems far from uniformly positive, even among those who voted for easing, based on recent public statements.
Everyone these days is citing the findings of Narayana Kocherlakota of the Minneapolis Federal Reserve explaining why unemployment rate has risen even while the job vacancy rate has as well.
In the aftermath of the Wall Street bailouts, nearly everyone agreed that one of the greatest priorities for reforming the financial system was to make sure that this wouldn't happen again.
"Never again will the American taxpayer be held hostage by a bank that is too big to fail," Barack Obama told the American people.
The primary mechanism put in place to avoid another round of bailouts is called "resolution authority." The idea is that instead of keeping failing financial giants alive, regulators will swoop into a failing financial institution, fire the executives, cram down the creditors and wipe-out shareholders.
The dire prospects of falling into resolution are supposed to discipline managers to avoid excessive risk and incentivize bondholders to monitor risk at banks. The combination of management and bondholder risk awareness should improve performance and decrease systemic risk.
How much is Citi likely to have to spend to buy back mortgages from investors?
Well-known banking sector analyst Dick Bove thinks that Citi is at risk for $40 billion in put-back claims. Only $8 billion of those claims will ulimately be successful, in Bove's view. And, after recovering on the mortgages which it will have to repurchase, the total loss could be as low as $5 billion.
Bove begins his analysis of Citigroup's potential repurchase exposure with Citigroup's $504 billion portfolio of serviced but not held (SBNH) loans.
Bove nets out 22 percent of Citi's SBNH loan portfolio, to account for Citi's third party indemnifications. \(Third party indemnifiers have agreed, according to Citigroup, to cover losses on the indemnified portion of the SBNH portfolio.\) Once the indemnified portion of the portfolio is removed, we are left with the remaining 78 percent, or $393 billion. This number represents the total unhedged exposure of Citi's SBNH loan portfolio.
Silver has been rallying off the charts, fueled in part by some of the same issues behind the gold rally: very low interest rates, easy money and fear of inflation.
But, here are three things to consider before jumping into the pool.
John Carney is a senior editor for CNBC.com, covering Wall Street and finance and running the NetNet blog.
Jeff Cox is finance editor for CNBC.com.
Lawrence Delevingne is the ‘Big Money’ enterprise reporter for CNBC.com and NetNet.
Stephanie Landsman is one of the producers of CNBC's 5pm ET show "Fast Money."
Mastercard capped a busy year by executing one of the main drivers of the stock rally: A buyback.
With the Fed taking a slow walk to the sidelines, diminished returns ahead are on the minds of many market participants.
It's time for bond traders to place their bets on whether the Fed is ready to begin tapering its bond buying program.