The Fed seems to be facing two major risks: first, premature tapering disrupting markets and triggering global turmoil across asset classes, thereby threatening the fragile economy recovery; second, delayed tapering further fuelling asset price bubbles, which could burst eventually and do major damage. UBS' Beat Siegenthaler notes the September decision suggested a Fed more worried about the fragile recovery than about the potential for asset bubbles and other longer-term problems associated with extended liquidity injections. Whereas it had originally assumed that a gradual tapering would result in a gradual market reaction, Siegenthaler explains it is now clear that the situation is much more binary; and as such, the hurdles for tapering might be substantially higher than originally thought.
Remember all those YouTube clips (the same medium used to nearly justify World War III) that caught the president lying again and again with promises and assurances everyone would be able to keep their existing insurance plan under Obamacare even though he knew full they wouldn't, until a week ago, thanks to what is left of the non-brownnosing media, as much was revealed to the general public? Well, it's time to come clean, and once again via clip. Moments ago, in an interview with NBC, the charming and very photogenic president said he was "sorry."
Readers should consider carefully the fundamental difference between a “real economy” and a “financial economy.” In a real economy, the debt and equity markets as a percentage of GDP are small and are principally designed to channel savings into investments. In a financial economy or “monetary-driven economy,” the capital market is far larger than GDP and channels savings not only into investments, but also continuously into colossal speculative bubbles. It would seem to me that Karl Marx might prove to have been right in his contention that crises become more and more destructive as the capitalistic system matures (and as the “financial economy” referred to earlier grows like a cancer) and that the ultimate breakdown will occur in a final crisis that will be so disastrous as to set fire to the framework of our capitalistic society.
Once upon a time, a few deluded individuals held hope that quantiative easing may actually do something to improve the plight of the common person instead of simply transferring wealth from the poor to the rich at an ever faster pace. Five years of failed monetary policy later, which has done nothing to stimulate the economy and everything to stimulate unprecedented non-risk taking that makes even the epic asset bubble of 2007 pale by comparison, this naive assumption has been thoroughly destroyed. However, for all those who don't splurge on yachts, mega mansions, and private jets, the pain is just starting. The latest evidence of this comes from Japan where according to a survey by the Bank of Japan released today, the share of Japanese households with no financial assets rose to a record as falling incomes forced people to dig into their savings. According to Bloomberg, as a result of Abe's disastrous "reflation at all costs" policies, the proportion of Japanese households without financial assets reached 31 percent up from 26 percent a year earlier and the highest since the poll began in 1963.
Across the 50 states, the Bloomberg Muni team has collected the government financial statistics and adjudged the most (and least) under-funded pension plans. Wisconsin is least under-funded with a 99.91% funding ratio (beaten by the District of Columbia's 'over-funding' at 106.92%) with Illinois the most under-funded at a measly 40.37% funding ratio... It seems only one choice is left for those far from retirement in Illinois... move!
While attention was focused on the #winning (TWTR) and #failing (NASDAQ and TSLA and so on)... the fact is that the S&P 500 futures market saw its largest collapse from high to low intraday since June 24th. While the told-you-so dance seems so inappropriate, equity markets' dump - seemingly triggered by more than one levered JPY carry trader getting a tap on the shoulder after Draghi's surprise - merely catches down to credit market's lack of exberance for the last 2 weeks (though there is still more room to drop). Stocks are at 12-day lows by the close with very litle BFTATH'ers stepping in as VIX broke back above 14.00% (highest close in over 3 weeks). FX markets were insanely volatile with early USD strength obliterated by JPY and EUR strength in the afternoon. Commodities slid lower on the day and bonds rallied - with 30Y outperformance unwinding some of the week's steepening. Stocks closed on their lows with the best volume in a month.
Draghi introduced still-more-easing into Europe this morning as his surprise cut created turmoil in markets. What this means today, tomorrow, or next week is anyone's guess. What it means in a larger context is not...
The chart that puts it all in perspective, is the following, which shows the breakdown of total credit issued in the past year broken down between revolving (credit cards) and non-revolving (car and student loans). The latter amounts for 99% of all loans taken out in the past 12 months. It needs no additional commentary.
Because it's not about valuations.. and it's not about rational expectations... we present the only metric necessary to project TWTR's price into the oh-so-predictable future...
Endo Health Solutions just announced a big acquisition. The company’s rationale is to take advantage of a stunning tax loop hole. There are a couple of implications to highlight: 1. Endo’s shareholders are the clear winners; and 2. The USA is the big loser. Extrapolating beyond Endo, if one accepts the premise that companies are obligated to use legal means to minimize tax costs, and if one then takes this precedent to the logical conclusion, this transaction could/should be a road map for other companies to follow. Is Congress paying attention?
Goldman's (and NY Fed's) Bill Dudley: "I am not yet convinced that breaking up large, complex firms is the right approach. In particular, these firms presumably exist, in large part, because there are scale or network effects that allow these firms to offer certain types of services that have value to their global clients. These benefits might be lost or diminished if such firms were broken up. In addition, the costs incurred in breaking up such firms need to be considered. Finally, the breakup of such firms would not necessarily result in a significant reduction in overall systemic risk if the resulting component firms were still, collectively, systemic. "
No one has any good answers but it seems carry is being unwound in a hurry as US momos are hammered. Whether Draghi's move shocked EURJPY riders enough to spark some major anxiety is unclear but Japanese stocks are now down over 440 points from early highs (to one month lows), US equities at their lows, and USDJPY blown back below 98.00.
We previously discussed what happened the last time that IPOs were outperforming the broad market by as much as they are now but thanks to the exuberance of the last month, it seems we have broken another 'record'. Year-over-year absolute gains in Bloomberg's IPO index have only been higher once in history - in 1999; and current levels have been notable resistance for the exuberant spurts of the last 6 years...
As we reported previously, for the third quarter in a row, Obama's favorite punching bag bank - JPMorgan - reported a statistically impossible zero trading day losses. Some suggested that since in the New Normal market in which it is virtually impossible to lose money this was to be expected; either that or just because banks work purely to satisfy client flow and have little principal risk, there is little reason for them to actually lose money trading. Both these ideas got blown out earlier today when Goldman reported that in the third quarter, the FDIC-insured hedge fund's trading loss days soared to a total of 15 days: a whopping 23.4% of the total 64 trading days in the quarter.