Goldman Explains What Yellen Really Said: "Hawkish Shift"

Who best to summarize what Yellen just said (aside from Bernanke of course, however he will demand at least $250,000/hour for his profound insight), than the bank which actually runs the NY Fed: Goldman Sachs. So without further ado, here is Goldman's Jan Hatzius on what Yellen really said. "BOTTOM LINE: The Q&A of Yellen's semi-annual monetary policy testimony contained a few bits of interesting information, including a slightly hawkish shift in her description of when FOMC participants think the first rate hike may occur."

Wall Street "Throws In The Towel" On Q3/Q4 Revenue Growth Expectations

Wall Street analysts are "already throwing in the towel" on 3Q, 4Q revenue growth with forecasts for the 30 Dow Jones Industrial Avg. companies of 2.5%, 1.6% versus predictions of 3% or more just 2 months ago. ConvergEx's chief market strategist Nicholas Colas explains these lowered forecasts fly "in the face of a general consensus from the economic community, the Federal Reserve included, that the back half of 2014 will be better than the Polar Vortex-damaged first half of the year." As Colas warns, rather ominously, "we aren’t pricing 1.6% revenue growth for Q4 2014 with price/earnings multiples at 17-18x. If you are buying Dow 17,000 or S&P 1980, you expect better. Now, companies and the macro economy have to deliver."

VIX Slammed As Algos Forget Why They Sold 30 Mins Ago

It would appear 'they' are reaching deep into the playbook to save stocks from the Fed's negativity... First they tried JPY momentum ignition - that failed... Then they tried the precious metals dump  - that failed... and now it's VIX slam time (as we predicted) and that is starting to have an effect... Machines are "fighting the fed" and BTFDing as they forget entirely why they were all selling in size 30 mins ago.

Gold Plunges Back Below $1300 As "Someone" Dumps $2.3 Billion In Futures

With The Fed proclaiming bubbles in some of the most-loved segments of the stock market and explaining that the economy is doing "ok" but they must remain dovish for longer for feasr of "false dawns"... what better time than now to dump $2.3 Billion notional in futures... of course the dump in gold's anti-status quo price coincided with an odd v-shaped recovery in stocks... Gold remains above its pre-June FOMC levels still.

The Next Domino: Espirito Santo Holding Company Preparing To File Bankruptcy

While Banco Espirito Santo continues to exist on fumes and life support (that last ditch equity injection by Baupost a week ago may not have been Seth Klarman's wisest investment), a key link in the Espirito Santo Holding Company structure is preparing to default. According to Reuters:

ESPÍRITO SANTO GROUPS HOLDING COMPANY RIOFORTE PREPARING TO FILE FOR CREDITOR PROTECTION IN LUXEMBOURG - SOURCES

For those confused, "creditor protection" =  bankruptcy.

JPY Pump Failing As Momos Refuse To "Fight The Fed", Small Caps Slump On Yellen Warning

Everyone knows that you "don't fight the Fed" - and sure enough, traders are selling momo, social media, and biotech stocks, sending the Russell 2000 ands Nasdaq to the lows of the day. Despite the best efforts of USDJPY momentum igniters - which has now shifted to tracking Treasury yields, pushing them modestly hgher. No bounce at all in broad US equity markets (though we expect the spin to be a rotation from growth to value once again very soon). Gold jumped on the dovishness but fell back to unch as did the USD. The S&P 500 is now in the red post-payrolls. Summing it all up - saying that these sectors are 'stretched' but the market is within 'norms' just won't cut it... Yellen is losing control and this level of specificity (and honesty) implies some degree of panic at the Fed.

Yellen's "Irrational Exuberance" Moment Arrives As She Pops Momo, Biotech, Social Media Bubble

"... signs of risk-taking have increased in some asset classes. Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms. Beyond equities, risk spreads for corporate bonds have narrowed and yields have reached all-time lows. Issuance of speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened. For example, average debt-to-earnings multiples have risen, and the share rated B or below has moved up further for leveraged loans." - Janet Yellen

Janet Yellen Testifies About The Fed's Dovish Future - Live Feed

Fed Chair Janet Yellen will provide Congress with an update on the state of the economy, how rosy the future is, why she needs to keep rates lower for longer, and that there are no bubbles (oh apart from in bonds which everyone should sell because we need the collateral). These are her first comments since the FOMC press conference in mid-June and stocks have soared since then (as bond yields have tumbled) and she will have to tread a fine line between exuberant over headline job improvements and the need to keep over-inflated bubbles pumped full of cheap/free money for longer...

How The World Feels About Pervasive US Surveillance And Spying: One Curious Finding

Perhaps the only thing more surprising that someone actually needed a poll to "discover" how the rest of the world feels regarding the NSA constant snooping of every form of electronic communication, is that a majority of the respondents in India, Nigeria and the Phillippines actually approve of having zero privacy. Oh, and the United States too. As for the 10% of Russians who said "approve", we assume they were either seriously drunk or even more seriously hung over when responding to the poll.

Meanwhile In Europe: Juncker Approved, Hague Out, Lord Hill To Brussels: What Does It Mean?

This morning and last night saw three developments with importance for the UK’s Europe debate:

William Hague resigned as Foreign Secretary, replaced by Phillip Hammond, with the Cabinet becoming more Eurosceptic overall,
In nominating Lord Hill – the current leader of House of Lords – as the UK’s European Commissioner, Number 10 prioritised a ‘fixer’ and avoiding by-election over sending a heavy-hitter,
MEPs approved Jean-Claude Juncker as European Commission President by 422 votes to 250, marking the starting point of a more politicised European Commission.

June Retail Sales Miss Across The Board, May Revised Higher

Following disappointing retail sales number for both April and May, or two thirds of Q2, there was hope that June would finally be the month retail sales would soar. Alas, that would not be the case, following the release of the latest retail sales data by the Department of Commerce which reported that in June retail sales rose just 0.2%, well below the 0.6% expected and matching the lowest end of the forecast expectations (from 0.2% to 1.1%). Misses were also reported for retail sales ex-autos (0.4%, Exp. 0.5%) and ex-autos and gas (0.4%, Exp. 0.5%). Perhaps the only saving grace was the upward revision of May data from 0.3% to 0.5% for the headline number and from 0.0% to 0.3% for the ex-autos and gas. If anything, however, today's retail sales increase which was the slowest in 5 months confirms that the trend we warned about in April, namely that the US consumer tapped out in March to fund that month's mad spending spree, and the spending trend has been deteriorating ever since.

The Middle East Is "Fixed" - WTI Crude Drops Below $100 For First Time Since May

We can hear the headlines now... thin of the tax cuts, think of the improved discretionary spending, see Iraq was a storm in a teacup... WTI Crude's drop back below $100 provdes so much great news for the world that many perhaps are missing that the world and his brother were long black gold into this and this squeeze appears anything but reflective of the rising tensions... (or is it due to tumbling demand?) Russia won't be happy - time to escalate.

Empire Fed Soars To 4-Year Highs But Outlook Collapses Most In 3 Years To 13-Month Lows

The exuberant reaction in stocks at the Empire Fed's 3rd beat in a row soaring to its highest since April 2010 is perhaps missing a much more critical point - looking forward, survey respondents are their least positive about future business conditions in 13 months. This is the biggest MoM drop in over 3 years with a big drop in new orders expected along with less employees (the worst in 2014) and notably lower capex.

Portugal Contagion Spreads: Espirito Santo To Default On Portugal Telecom Loan, Business Lending Drops Most On Record

Despite reassurances from US asset-gatherers and TV 'personalities' that Portugal must be fixed (because US equities are up), it is anything but. Today's triple whammy from the 'recovered' Portugal starts with Banco Espirito Santo bonds and stocks hitting new record lows (down over 10% more on the day). The contagion has rippled across to Rioforte, which controls Grupo Espirito Santo's non-financial arm - and is likely to default on a EUR 847 million payment to Portugal Telecom. And just to add further salt to that wound, Portuguese business lending in May collapsed at a record pace (down 8.23%). But apart from that, yeash Portugal is all fixed and their sovereign bonds are worth every penny...

Goldman Is Baaack: Slide In Trading Volume Offset By Second Highest "Prop" Trading Revenue Since Lehman

Moments ago Goldman Sachs surprised Wall Street by trouncing expectations of a $3.09 EPS print with a beat over $1, printing at $4.10, coupled with a surge in revenue which declined from Q1's $9.3 billion by far less than consensus (Est. $7.98 billion) had expected, printing at $9.125 billion. What drove this? Clearly not a pick up in trading volumes: FICC declined 10% Y/Y and 22% from a quarter ago, while total Institutional Client Services dropped 11% Y/Y. Investment Banking did pick up modestly, up 15% from last year's $1.552 billion to $1.781 billion but this too did not explain the difference. The answer: Goldman's prop trading group is baaaaack.

Frontrunning: July 15

  • Microsoft to announce biggest round of job cuts in 5 years (BBG)
  • Palestinian rocket fire persists, Israel warns truce at risk (Reuters)
  • China tells U.S. to stay out of South China Seas dispute (Reuters)
  • Merkel Resists Sundering U.S. Ties Over Spying Affair (BBG)
  • BES slide, tumbling German sentiment hit markets (Reuters)
  • Top 1 Percent Is Even Richer Than Surveys Say, ECB Paper Finds (BBG)
  • Puerto Rico Utility May Default on January Interest Payment (BBG)
  • Can't Get a Job From an Algorithm, or So It Seems as Hot Resumes Go Nowhere Fast (BBG)
  • Bank of China-CCTV drama may reveal power struggle in Beijing (SCMP)

JPM Earnings Slide 8% On Drop In Trading Volume, Mortgage Production Offset By $1.5 Billion Stock Buyback

While JPM stock is trading modestly higher in the pre-market following its earnings report which beat expectations on the top and the bottom line, it doesn't hide a troubling trend seen across all the banks that have reported so far, one we forecast would take place in an environment of plunging trading volumes and near-record low mortgage production: slumping earnings. J.P. Morgan Chase JPM +0.88% & Co. said second-quarter earnings sank 7.9% as the bank continued to grapple with weak trading revenue. Indeed, as WSJ summarized, "J.P. Morgan Chase & Co. said second-quarter earnings sank 7.9% as the bank continued to grapple with weak trading revenue."

Futures Unchanged Before Janet Yellen's Congressional Testimony

It has been a mixed overnight session, following data out of China first showing that any hopes of ongoing PBOC tapering are dead and buried, following the June report showing money and loan creation (1.08 trillion Yuan up from 871 billion in May and above the 980 billion expected) in China soared, slamming expectations and indicating that Beijing is once again set on masking slowing growth with a surge in money creation. Should the Chinese not so secret any more money laundering channel be plugged this means local inflation may be set to surge in the coming months. More worrying was the release of a big drop in the German ZEW Survey expectations print at 27.1, down from 29.8 and below the expected 28.2. The low print has prompted several banks to warn that Europe's growth spurt has finally ended and there may be substantial downside surprises ahead, and certainly even more cuts to the IMF "forecast" for European growth. Finally, the Portuguese situation may be out of sight, but it is certainly not out of mind as the stock of BES continues to tumble and now the contagion has finally moved over to Espirito Santo Financial Group whose shares dropped to the lowest since 1993. Keep a close eye on this "not so lonely" cockroach.

Anti-Dollar Alliance Prepares Launch Of BRICS Bank

Three months ago we discussed in detail the growing anti-dollar hegemony alliances that were building across the BRICS countries (Brazil, Russia, India, China and South Africa). Their efforts at the time, to create a structure that would serve as an alternative to the IMF and the World Bank (which are dominated by the U.S. and the EU), appear to be nearing completion. As AP reports, Brazil's President Dilma Rousseff and Russia's Vladimir Putin have discussed the creation of a development bank to promote growth across the BRICS and hope to produce an agreement on the proposed institution at this week's BRICS Summit. As Rousseff concluded (rather ominously), the five countries "are among the largest in the world and cannot content themselves in the middle of the 21st century with any kind of dependency."

China's "Secret Money Laundering" Story Goes Mainstream; Is Promptly Censored

When we broke the story of China's "secret" money laundering into US real estate scheme, we said "So what happens next? Assuming there is the anticipated resulting backlash and crackdown on Chinese banks, which will finally enforce the $50K/year outflow limitation, this could well be the worst possible news not only for Chinese inflation, which suddenly - no longer having a convenient outlet for the unprecedented liquidity formed in the country every month - is set to soar, but also for the ultra-luxury housing in the US. Because without the Chinese bid in a market in which the Chinese are the biggest marginal buyer scooping up real estate across the land, sight unseen, and paid for in laundered cash (which the NAR blissfully does not need to know about due to its AML exemptions), watch as suddenly the 4th dead cat bounce in US housing since the Lehman failure rediscovers just how painful gravity really is." What we forgot to add is that virtually every other financial mainstream outlet would promptly pick up on the story even as the original source back in China took its secrets to the grace. Metaphorically speaking, we hope...