Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Dow Trend Forecast Current State - 22nd Apr 21
Gold Rebounds Amid Positive Economic Reports - 22nd Apr 21
China's record first quarter fuels strong expansion in 2021 - 22nd Apr 21
Gold Price Next Key Level - 22nd Apr 21
Here's What to Look For When Hiring a Real Estate Agent - 22nd Apr 21
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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