oil pipelines and financial plumbing pdf

PROFITS BY INDUSTRY Q2 2019 (Spreadsheet)



  1. Cameron says:

    Rich in information and analysis. Thank you.

    “huge losses that followed the reverse in sovereign interest rates earlier in August when 10 year yields rose 0.25%”. Wasn’t it closer to 0.5%?

    “cash rich banks are reluctant to lend to them even against high quality collateral. ”
    The quality of the collateral is debatable. The sharp rise in 10 year yield in one week by .5% caused sharp drop in the value of the collaterals. The sudden and sharp fluctuations in yields makes US Treasuries risky collaterals. It is possible that the cash rich banks were expecting 10% fluctuations in the value of collaterals. My guess is that that’s were the 10% interest came from but then I am speculating. The second reason is that the same collateral (U.S. Treasury) may be used several times. In other words, it is possible that three banks can claim ownership over one U.S. Treasury. The cash rich banks are not certain of ownership of collaterals. Here is excerpt from FEDS Note “The Ins and Outs of Collateral Re-use” https://www.federalreserve.gov/econres/notes/feds-notes/ins-and-outs-of-collateral-re-use-20181221.htm
    “However, the free circulation of collateral comes at a cost. Namely, the re-use of collateral increases interconnectedness and can contribute to fragility in financial markets by increasing the uncertainty regarding who holds the collateral, the ability of counterparties to return the collateral, and who is entitled to the collateral in case of default. The use and re-use of collateral can create long “collateral chains” in which one security is used for multiple transactions. These collateral chains have the potential to propagate uncertainties and amplify fragility in times of market stress.

    • Excellent. We need to keep an eagle eye on what is going on in the financial plumbing. Reminds me of the calm before the storm in 2008 when mortgage funds seemed to be defying the gravity of defaults. Thank you for alerting me to the insight provided by that FED link. I was not aware that collateral could be shared in such a manner. A bit like six mortgages on one house.

      Regarding the drop in interest rates I think we are both right. If we take the starting point as September 14 there were two 0.25% falls. If we take only October when the damage appears to have been done then there was that one 0.25% drop. Reading the latest reports it seems that there is growing financial distress in a number of highly indebted sectors. This includes high end residential property and now commercial property courtesy of WeWork’s potential defaults. So let us keep peering into the murk and if you find anything interesting please comment on it.

  2. Harold Grae says:

    Hey! This is my first visit to your blog! We are a collection of volunteers and starting a new project in a community in the same niche. Your blog provided us beneficial information to work on. You have done a marvellous job!

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