Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Could Volcker Rule Precipitate Next Financial Crisis?

Stock-Markets / Credit Crisis 2013 Dec 18, 2013 - 05:10 AM GMT

By: Pete_Grant

Stock-Markets

I am not certain how we should react out of the gate to the situation with Zions Bancorp. Utah’s largest banking group revealed that it will take a one-time $387 million post-tax charge, based on its interpretation of the Volcker rule. Essentially, Zions believes that the Volcker rule dictates that it can no longer hold CDOs of bank and insurer-issued trust preferred securities (TruPS).


Zions anticipates that in the fourth quarter of 2013 it will reclassify all covered CDOs that currently are classified as “Held to Maturity” into “Available for Sale,” and that all covered CDOs, regardless of the accounting classification, will be adjusted to Fair Value through an Other Than Temporary Impairment non-cash charge to earnings.

The size of the write down is “more than Zions has earned for any calendar year since 2007,” according to Bloomberg. If Zions is interpreting the rule correctly, the assets in question would have to be divested by July 21, 2015 (with the possibility of a 2-year extension), so the actual loss by the time the asset is disposed of could be far larger.

One can also be reasonably assured that the crack legal teams at all the other banks are closely examining the Volcker Rule to determine the possible implications. I have always felt that if the banks were forced to mark their derivatives to market rather than carrying them at cost, it could precipitate another financial crisis. As many of you already know, derivatives risks can quickly roll from one institution to the next as margin calls are made and securities dumped to meet them. That is why Warren Buffett once called derivatives ‘financial weapons of mass destruction.” The effect is like a nuclear chain reaction that could get out of control.

Zions movement of these questionable assets into the “Available for Sale” category is the first step toward dumping them, but one has to wonder who — if anyone — might be a buyer. This is not a situation where you want to be the last one out the door, and so there is the risk that this becomes a self-fulfilling prophecy even before there is any kind of final interpretation of the Volcker rule as it relates to such assets.

Bloomberg’s Jonathan Weil summed it up thusly:

“In other words, the accounting rules had been letting Zions maintain a fiction. The bonds didn’t refrain from falling in value just because they were classified as held-to-maturity. A bond doesn’t care what its owner intends to do with it.”

There are trillions of dollars worth of assets sloshing around the U.S. and global financial systems that are marked-to-fiction. If there is a mad dash to dump these assets, the beating the balance sheet of Zions is taking will look like child’s play.

Could a rule designed to re-instill confidence in the U.S. financial system instead end up shaking it to its very foundation? We smell smoke, so there very well could be a fire here. We will be monitoring this story closely in the weeks ahead.

Many of you will remember that the financial crisis of 2008 began quietly and then quickly spun out of control. This is exactly why our clients prefer to hold some of their wealth in a physical asset with no counter-party risk. That asset is of course gold. When I first read of Zions Bancorp and began to think abut the possible repercussions, I was reminded of a quote from Dow Theory Letter’s venerable Richard Russell posted here recently:

“A few thoughts about gold. Never buy gold for a profit, gold is a measure of wealth. Count your gold holdings in the number of ounces, not the current worth in dollars. You don’t price the home you live in every day, or with each passing week. Nor should you price your gold holdings in dollars with each passing day. Gold is a timeless wealth asset; an asset that will have a value with the passing of time.

Remember this: Of the original issues that made up the Industrial Average, only one remains. And that stock is General Electric. And what happened to all the rest? In investing, nothing is permanent except gold. But remember, do not buy gold with the idea of making a profit. Buy gold because it is pure wealth, and may be the last man standing.”

It is the part about “the last man standing” that I think is worth passing along again today in light of breaking events.

To get you on track with this situation, here are several good takes on the story:

As First Volcker Rule Victim Emerges, Implications Could “Roil The Market” from ZeroHedge

Zions bank becomes early Volcker casualty from The FT

Volcker Rule Blame Game Begins from Bloomberg

For a free subscription to our newsletters, please click here.

By Pete Grant , Senior Metals Analyst, Account Executive
USAGOLD - Centennial Precious Metals, Denver

For more information on the role gold can play in your portfolio, please see The ABCs of Gold Investing : How to Protect and Build Your Wealth with Gold by Michael J. Kosares.

Pete Grant is the Senior Metals Analyst and an Account Executive with USAGOLD - Centennial Precious Metals. He has spent the majority of his career as a global markets analyst. He began trading IMM currency futures at the Chicago Mercantile Exchange in the mid-1980's. In 1988 Mr. Grant joined MMS International as a foreign exchange market analyst. MMS was acquired by Standard & Poor's a short time later. Pete spent twelve years with S&P - MMS, where he became the Senior Managing FX Strategist. As a manager of the award-winning Currency Market Insight product, he was responsible for the daily real-time forecasting of the world's major and emerging currency pairs, along with gold and precious metals, to a global institutional audience. Pete was consistently recognized for providing invaluable services to his clients in the areas of custom trading strategies and risk assessment. The financial press frequently reported his expert market insights, risk evaluations and forecasts. Prior to joining USAGOLD, Mr. Grant served as VP of Operations and Chief Metals Trader for a Denver based investment management firm.

Disclaimer: Opinions expressed in commentary e do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules