Pulling from an extensive record of public speeches and FOMC meeting transcripts, Goldman Sachs reviews Fed Chair-nominee Janet Yellen's views on a number of policy-relevant issues.
Based on inflation, unemployment, growth weakness, and cost of capital, Goldman notes that emerging market's "macro-misery" indices have pushed back to post-financial-crisis highs. It is hardly a surprise that macroeconomic hardship is surging since in the 15 years since the EM sovereign bonds have been liquid, levels remain extremely elevated, despite the mainstream-media's relegation of the problem. As Bank of Mexico's Agustin Carstens warns, "we cannot rule out the event that some advanced economies run into deeper trouble again... the world economy is still in a fragile situation."
Last week we showed the worrisome level of exuberance that IPOs were creating in terms of price outperformance over the broad market. It turns out the similarities to the prior dot-com busts runs considerably deeper (and more worrisome). As the WSJ reports, 68% of U.S.-listed technology debuts this year, or 19 out of 28 deals, have been companies that lost money in the prior fiscal year or past 12 months. That is the highest percentage since 2007, and 2001 before that.
Following three consecutive and increasingly more severe margin hikes by Interactive brokers (from Monday, Wednesday and Thursday), it was only a matter of time before the CME joined the party. And even if CME had hiked E-mini margins for all of two or three times since Lehman, whether it is due to recent surge in volatility or for whatever other reason, it had no problem doing so after the close on Friday, when moments ago it hiked initial and maintenance margins on the key market moving futures contracts including the E-Mini and big S&P, Nasdaq and Dow Jones, as well as pages of other contracts (see below) anywhere between 8% and 16%.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
A lack of news on deal progress in thelast 24-36 hours was not enough to stall an epic ramp in stocks to take 'most' indices back into the green on the week. The Russell is within a hair of all-time highs again (bouncing 4.6% off Wednesday's lows) but the Nasdaq closed the week -0.27% - breaking a 5-week winning streak. All equity indices are green post-shutdown but we note in sectors, the homebuilders are still -1.6% (and Discretionary with a small gain). Treasures ended the week modestly higher in yield (with Bills ignoring equities and notably higher in yield). Gold was slammed -3%, Oil and Silver -2% and Copper -1% (as the USD gained a mere 0.3% - driven by a 1% dump in JPY). VIX underperformed equity exuberance on the day but closed lower. The close saw a mini-melt-up in stocks taking us back to the highs.
In a day driven higher by one after another "optimistic" headline, it was natural that any bad news would be reported just after the close. Which is why we expect the White House press secretary Carney to have saved any negative news for the just started press conference. Watch it live below.
While one after another money market fund quietly announces they are liquidating "cash equivalent" Bill holdings, be they the mid/late October vintage or, now that a can kicking negotiation is in process, the Bills in close proximity to the Thanksgiving day 6 week extension period, over buck breaking concerns that the debt ceiling extension may be snagged due to political manoeuvering, someone was once again ahead of the curve. That someone are the 20 Primary Dealers, which as the NY Fed reports, sold out of the bulk of their Bill holdings in the last two weeks of September in the process taking their Bill holdings to the lowest in all of 2013. The last time Dealers sold off near-term Treasurys with such gusto: July 13 of 2011, just before the last debt ceiling extension fiasco, when Bill holdings dropped to a net negative ($10) billion position.
The Treasury Department has warned that the continued failure by Congress to raise the debt ceiling would leave the United States unable to pay all of its bills and may force the country to default on its government bonds. Here are some helpful answers to the most common questions about the debt ceiling crisis...
Of course, equity markets can only hear one thing (for fear of the consideration of Plan B) but as The Washington Post notes, the Senate Republicans can't agree on how their meeting with Obama went.
- Good - Sen. Bon Corker: "I was pleasantly surprised, I think there's a gelling that's beginning to take place."
- Bad - Sen. Susan Collins: "I don't want to give the impress that he endorsed it, but he indicated there were 'elements' with which he agreed."
- Ugly - Sen John Cornyn: "...what could have been a productive conversation was instead another predictable lecture from the President that did not lay out a new path forward."
Summing it all up (and mixing metaphors) - it's a Goldilocks meeting for stocks.
Contrary to the all "rose-colored glasses" reports by the Fed released in the past year, which constantly talked up the "economic recovery" only to punk everyone - economists and market participants alike - when it stunned markets with its no taper announcement in September, over fears what this would do to the economy, the Federal Advisory Council's view on things is decidedly less "rosy."
The dollar is the world’s go-to currency. But for how much longer? Will the dollar’s status as the only true global currency be irreparably damaged by the battle in the US Congress over raising the federal government’s debt ceiling? Is the dollar’s “exorbitant privilege” as the world’s main reserve currency truly at risk? Sane governments do not default when they have a choice – especially not when they enjoy the “exorbitant privilege” of issuing the only true global currency. We are about to find out whether the US still has a sane government.
It would appear - in a similar vein to last night's White House exit - the stock market is a little disappointed that Democrats and Republicans did not come out holding hands. Instead, we get the usual maybe good, maybe bad statements:
- SENATOR ORRIN HATCH SAYS OBAMA EXPRESSED CONCERNS OVER DURATION OF HOUSE REPUBLICAN DEBT LIMIT PLAN (well that's 'bad' news for a deal), but
- *OBAMA DIDN'T REJECT MEDICAL DEVICE TAX REPEAL, HATCH SAYS (well that's good news for a deal)
For now the Dow is 30 points off its highs on this lack of news.
In what has to be the most disingenuous bullshit comment of the day, Fed's Rosengren appears to have re-written history in his lame attempt to justify the Fed's in-action at the last FOMC Meeting. His comment:
*ROSENGREN: WEAK DATA, FISCAL DISRUPTION WARRANTED TAPER DELAY
Is a total lie... 1) US Macro data had reached its highest in a year in the data preceding the decision, and 2) the government shutdown and debt-ceiling both happened well after, and only after the infamous Cruz filibuster focusing on Obamacare, which the Fed certainly had no idea was coming. If anything, the Fed's decision to not taper served as the reason why government thought it could shut down: after all stocks, pardon the Fed's balance sheet, had just hit an all time high so what really was the downside.
Unlike the usual back-slapping reacharound that G-20 meetings are, the most recent one, just ended in Washington with a rather more aggressive set of comments...
- *JAPAN'S ECONOMIC PLANS MEET 'WIDESPREAD' SKEPTISM AT G-20: ZHU
- *U.S. SHOULD HEED GLOBAL CONCERNS ON DEBT CRISIS, ZHU SAYS (or else)
- *G-20: MONETARY POLICY MUST BE CALIBRATED, COMMUNICATED WELL (stop messing up Fed!)
- *G-20 SAYS U.S. MUST TAKE `URGENT ACTION' ON FISCAL UNCERTAINTY (come on Congress!)
In other words, you guys in the US and Japan with your crazy policies and lack of credibility and screwing up "the plan."