Yesterday it was Philly Fed's Plossner, today it is Richmond Fed's Jeff Lacker who joins the chorus demanding an end to Bernanke's insane monetary policy of drowning the market with unprecedented liquidity which is not getting to consumers but merely propping Amazon stock at a bubblelicious 100x P/E. In a speech before the Charlotte Chamber of Commerce, Lacker stated: "The perception of inflation risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves that has occurred, and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion... If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. In assessing when we will need to begin taking monetary stimulus out, I will be looking for the time at which economic growth is strong enough and well-enough established, even if it is not yet especially vigorous. Although it is hard to predict when that will occur, I can confidently predict that monetary policy will remain particularly challenging for some time to come." Then again, the stock market does not seem to share Mr. Lacker's concerns.
As Zero Hedge presented previously, the sharp divergence between the Nikkei and the S&P indexed in gold continues. The two reindexed indexes, which have correlated 0.91 since March, have diverged sharply in the past three weeks, and now stand at an over 11% divergence in performance since the year lows. Whether this is due to the "shocking" recent realization that Japan is caught in an ever increasing deflationary vortex (which the US likely will not avoid, at least not in the near term), or simply due to momo quants deciding that the Nikkei is no longer fun to chase, a convergence trade on the two broad indexes (long Nikkei, short S&P) seems like a rather painless way to pick 10%. Then again, ask Boaz Weinstein about "surething" convergence trades.
Goldman's latest bull market propaganda makes CNBC looks like champions, and provides data that contradicts that presented by none other than Goldman Sachs itself: GDP growth for 2010 is somehow going to be both 4.4% and 2.1%, claims Goldman. And idiots keep on buying stocks based on Goldman's "hedged" recommendations.
Update: it appears Mr. O'Neill is in fact referencing world GDP, whereby the divergence in GDPs of course makes sense. Nonetheless, we would still like a swig of his Kool Aid, and we still would expect him to present a counterpoint to the numerous bearish points highlighted by Mr. Hatzius previously. We believe it is only fair if one is presenting top picks in an overly optimistic environment, while Goldman's head economist has recently been refuting just these ebullient observations.
Will New Derivative Trading Regulation Cost JPM $3 Billion? According To Bernstein Analysts It Very Well MightSubmitted by Tyler Durden on 12/02/2009 - 12:35
John McDonald at Bernstein is concerned that the impact from upcoming derivative reform on JPMorgan may be substantial - to the tune of $0.20/share. McDonald points out that based on a conversation with Steve Black, the Exec. Chairman of JPM's Investment Bank, JPM's blockbuster FICC revenues "will be difficult to repeat in 2010" and that the firm could be on the hook for up to a $3 billion current revenue loss as derivatives move to exchange-based trading, as proposed by the current regulatory overhaul bill. It is likely that the impact on another derivative Fixed Income trading powerhouse, Goldman Sachs, will also be profound as a result of comparable analyses.
A new report by VoxEU provides some detailed perspectives on just how bad the collapse in world trade has been as a result of the last year's events. In a nutshell: the current Great Recession/Depression has plunged the world into an unprecedented collapse of global trade, with the resultant blowing of liquidity bubbles having been the only way for individual governments to respond to this massive loss of GDP. And while drops in world trade are nothing new, with a 5% drop in the 1982 and 2001 periods, as well as a more severe 11% contraction in the 1970s, the current plunge of over 15% YoY is truly unprecedented and demonstrates the fragile nature of "globalization." What the outcome of this fact will be, depends entirely on the traditional dynamo of world economic growth - the US consumer, and unfortunately he is still down for the count.
The dollar just spiked on more concerns that Japan's currency posturing may be more than just bureaucratic jawboning. The algos that trade the market as a derivative of the dollar decide to puke stocks. Somewhere Bernanke is rehearsing his reconfirmation speech which emphasizes the Fed's strong dollar policy
US consumers keeps on purchasing Kindles on credit cards which they apparently have no intention of every paying off. The most recent Fitch report disclosed that October delinquencies have continued their steady climb, and together with charge-offs, are at near record highs: "Consumer credit quality remains under significant strain as a result of the persistent weakness in the labor markets," noted managing director Michael Dean. The Labor Department will report unemployment data Friday; the jobless rate is expected to hold steady at 10.2%, the highest level in decades, while the decline in payrolls is seen mitigating from the previous month.
- RBS Says ‘Restrictive’ Bonuses May Prompt Staff Exits (Bloomberg)
- The Nobel peace prize winner escalates inherited war (Bloomberg)
- Roubini's bubbles float on flimsy credit source (Bloomberg)
- As repeatedly highlighted on Zero Hedge, devaluations threaten a trade war (FT)
- Who would want to be a Vampire Squid at Christmas (Telegraph)
- More posturing out of Japan: Yen falls after PM Hatoyama says currency must be dealt with (Bloomberg)
- Alwaleed says 'mature' banks made wrong assumptions about Dubai debt risks.
- Asian stocks rose for a third day, lifting the MSCI Asia Pacific Index to a 6-week high.
- Economic reports signal modest growth ahead
- Stocks climb as falling dollar boosts commodities
- US may reap $3.17B from the first auctions of warrants for bailing out banks
- Gold hit an exchange-record above $1,200 at one point, before settling just below it.
RANsquawk 2nd December Morning Briefing - Stocks, Bonds, FX etc.
All those charts of one thing in terms of another...all of them so, so stupid...unless of course you happen to live in North Korea today and just found yourself 100x poorer and scrambling to exchange whatever is in your wallet for dollars, ovens, bananas, penguins, horses, toothpicks, hookers, Kindles (never mind if you can't read: that will just make you a targeted Amazon customer), matches, or... gold. And as Bernanke will soon be converting Benjamins into brand spanking new Obama-portraited dollar denominations, the S&P, in "real" terms (represented in ounces of gold) is now back to April levels, and receding fast.
More On The Futility Of Groupthink Quant Strategies, And Why Momos Are Guaranteed To Lose Money Over TimeSubmitted by Tyler Durden on 12/01/2009 - 19:41
Following up on the earlier post in which Robert Litterman basically told his quant colleagues that they either have to stop competing with Goldman or die, we present the following presentation from GSAM titled "Maybe it really is different this time" from the June 2009 Nomura Quantitative Investment Strategies Conference. In essence Goldman finds that when one factors in liquidity and trading costs, the returns by momentum and value (as well as most other strategies) strategies have in fact underperformed miserably over the years. Furthermore, with everyone now enjoying the tools of the trade courtesy of $29.95/month TradeBiot programs, the crowding in the quant arena will generate more volatile returns as well as lower Sharpe ratios, while the stronger results will be available to the smaller managers who focus on less liquid stocks or markets. But we thought liquidity was what all buyers were demanding and benefiting from? It is ironic that the quants most likely to succeed are those who stray from the beaten bath. Of course the only ones who profit are those who provide the liquidity, courtesy of every more generous exchanges which are exponentially losing traffic to non-exchange ATS.
Just in time for the holidays (but carefully timed to avoid contributing to the Black Friday numbers) we've refreshed the offerings at the Zero Hedge Cafepress store! We won't bother describing the outstanding wares we now offer here. Just go take a look.
With everyone expecting the Chairman's reconfirmation process on Thursday to be merely a formality, Senator Bob Corker throws this wrench after he "said he wasn't sure yet whether the chairman had the votes on the Banking committee or in the Senate as a whole." The Hill reports, "I don't know where that sits," Corker told reporters when asked if Bernanke would have the votes to get a second term, adding he wasn't sure whether Bernanke would have the votes in the 23-member Senate Banking Committee, either.
Spreads were tighter in the US today with HY outperforming IG as the dollar fell overnight and early macro data appeared less than terrible (though some underlying indices showed weak outlooks). HY skews have narrowed significantly in the last couple of days (with intrinsics underperforming) and as we discuss in detail below, today's moves take indices back to unch from 11/25 but scratching the surface shows some clear signals of change.