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When The "Worked So Far" Meme No Longer Works

Submitted by Tyler Durden on 06/17/2013 - 16:53

We have discussed the idea of a VaR shock (driven by Abe/Kuroda's loss of control) a number of times recently but as Saxo's Steen Jakobsen fears, reality is about to hit as the marginal cost of capital normalizes. The world, so far, has been kept in artificial equilibrium by the way quantitative easing (QE) and fiscal policies bring support and endless liquidity to the 20 percent of the economy that mostly comprises large and already profitable companies and banks with good credit and good political access. The premise for supporting these companies is based on the non-existent wealth effect which unfairly culminates in supporting the haves to the detriment of the have-nots. However, as Jakobsen notes below, things are rapidly changing; the recent increase in yields has happened despite no real improvement in the underlying data. The the next few days are potential major game changers – the bloated VaRs will make people hedge and over hedge, and the normalization process of rising risk premiums and higher real rates (higher yield plus lower inflation) will lead to more selling off of those trades that have "worked so far"... and increase volatility in their own right.
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Volatility Gets A Harding On Taper Chatter

Submitted by Tyler Durden on 06/17/2013 - 16:19

Equity markets were very much in a land of their own relative to broad risk asset classes all day until the FT's Harding "mo' Taper" memo hit and slammed reality back into the herding masses. Still convinced that the Fed will 'only' taper if the data confirms it, we suspect the broad market is missing the signals from broken markets and frothy levels that mean the Fed will use the modest improvements as a crutch upon which to jawbone tapering into our minds. Today's price action was - in the words of the great Bob Pisani, "just silly." A ramp out of the gate following Japan's lead which followed a Hilsenrath-inspired ramp-job from Friday combined with a beat for NAHB (and Empire Fed) sent all the high-beta into overdrive (builders +2.2%) - but nothing else was really moving (FX was relatively flat, bonds went sideways, commodities wriggled in a small range). The Harding hit and we gave back all the post-Hilsenrath gains, 330-ramped to VWAP and held it magically into the close (though the USD ended at its lows of the day, bond yields at their highs, and credit markets at their lows).
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Bonds Versus Stocks - Just Ask Japan

Submitted by Tyler Durden on 06/17/2013 - 16:03

The impact of substantially higher interest rates are not good for the economy or the financial markets going forward.  In the short term consumers, and the financial markets, can withstand small incremental shifts higher in interest rates.  There is clear evidence historically to suggest the same.  However, sustained higher, and rising, interest rates are another matter entirely. Before we get too excited, it is important to keep in perspective the recent "surge" in interest rates that has gotten the market's attention as of late. In reality, this is nothing more than a bounce in a very sustained downtrend. While there is not a tremendous amount of downside left for interest rates to go currently - it also doesn't mean that they are going to substantially rise anytime soon.  Weak economic growth, an aging demographic, rising governmental debt burdens and continued deflationary pressures can keep interest rates suppressed for a very long time.  Just ask Japan.
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Hilsy Come; FT Go!

Submitted by Tyler Durden on 06/17/2013 - 15:35

This is what our 'markets' have become...
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What The Fed Is Looking At

Submitted by Tyler Durden on 06/17/2013 - 15:10

A sense among investors that the global economy is unraveling has injected tremendous volatility into the markets. As Bloomberg's Rich Yamarone notes, if the global equity market decline is not a “Sell in May” event, but the beginning of a great unwinding, then the economy, skating on thin ice, may be even more susceptible to recession. However, most of the US equity disconnect from the reality of weak data (and other markets) can be laid at the feet of the Fed's ever-generous monetary policy. However, given all of this 'weakness' - or missing of Fed benchmarks that we discuss below - that the Fed is well aware of, we ask again, why would so many members have been out discussing 'Taper' if it were not due to their concerns of broken markets and bubble conditions.
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Guest Post: Gold Is Being Supplied By Western Governments

Submitted by Tyler Durden on 06/17/2013 - 14:49

There has been considerable throughput of gold in western capital markets, with substantial buying from all round the world following the April price crash. The supply can only have come from two sources: the general public, or one or more governments. It really is that simple. Two months later the gold price has only partially recovered, so physical supplies have continued to be made available. Physical demand cannot have been entirely satisfied by ETF liquidations, confirming governments are involved. This article looks at the dynamics of the gold market around this event and the implications.
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FT Joins The Fray: "Fed Likely To Signal Tapering Move"

Submitted by Tyler Durden on 06/17/2013 - 14:13

It seems not only the entire developed world is sick and tired of Hilsenrath's "leaks" which have now become so grotesquely self-contradictory, not even Hilsenfollowers can make out the Hilsenfact from the Hilsenjoke. So it appears the Fed has now picked the FT as its interim pass through vehicle: "Ben Bernanke is likely to signal that the US Federal Reserve is close to tapering down its $85bn-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy."
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Which Of These 4 Markets Would You Invest In?

Submitted by Tyler Durden on 06/17/2013 - 13:56

We have removed the levels to protect the innocent but which of these equity (or bond) markets would you be adding to today?
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Greek Prime Minister Folds, Will Restart Public Broadcaster

Submitted by Tyler Durden on 06/17/2013 - 13:54


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Guest Post: The Real Story Of The Cyprus Debt Crisis (Part 1)

Submitted by Tyler Durden on 06/17/2013 - 13:19

Why do the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter? They matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis--the "bail-in" confiscation of 60% of bank depositors' cash in an involuntary exchange for shares in the bank (which are unlikely to have any future value)--may provide a template for future official resolutions of other banking/debt crises. In other words, since the banking/debt crisis in Cyprus is hardly unique, we can anticipate the resolution (confiscation of deposits) may be applied elsewhere.
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On This Day In 2017

Submitted by Tyler Durden on 06/17/2013 - 12:50

With the meaningless focus on such distracting noise as daily POMOs, will/won't the Fed taper, how many shorts will the Fed's Markets desk squeeze today, and how massive will the second Fed housing bubble be, it is easy to lose sight of the big picture, namely just where is the debt juggernaut that is the US, heading? Conveniently, the US debt clock has a "time machine" function that extrapolates, at current rates of change, what the key metrics behind the US economic facade will look like.
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The European "Bail-Ins" Will Continue Until Morale Improves

Submitted by Tyler Durden on 06/17/2013 - 12:16

While we have been told vehemently that the Cypriot deposit confiscation was not a template, yet another European nation is embarking on an until-now-considered-safe asset class to recapitalize its banks. As The Telegraph reports, pensioners and other retail investors in the Co-operative Bank are facing massive losses under a GBP1.5 billion rescue plan for the ailing mutual as investors and the bank's parent would make "a joint contribution" to the bank's recapitalisation, without any help from taxpayers. It seems the days of 'hoping' for a bail-out are over and perhaps that is why European financial credit has been underperforming - as that reality has yet to strike equity holders. The realization that deposits (or their mutual equivalent) are nothing more than loans to highly levered institutions may begin to dawn on a European (or in fact global) depositor base.
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Failed Projections Or Just Another Government Lie? You Judge!

Submitted by Tyler Durden on 06/17/2013 - 11:46

Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion. But hold on a minute... The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year! The U.S. has been the family that spends more than it earns for many years now. In the short term, spending more than one takes in can work (especially if the Fed just prints new money and gives it to the government to pay its bills). But in the long term, if fundamental changes are not made to the government’s spending habits, financial chaos just starts all over again. Posting a budget deficit year after year is not sustainable. The debt-infested eurozone nations did very much the same; they borrowed to spend. Look where they are now.
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Edward Snowden Is Conducting A Live Q&A Session

Submitted by Tyler Durden on 06/17/2013 - 11:20

Eager to take advantage of NSA-whistleblower Edward Snowden's current unincarcerated status and to ask him questions about his motives or thoughts? Here is your chance courtesy of the Guardian which is holding a live Q&A session with the famous leaker. As the Guardian notes: "He will be online today from 11am ET/4pm BST today. An important caveat: the live chat is subject to Snowden's security concerns and also his access to a secure internet connection. It is possible that he will appear and disappear intermittently, so if it takes him a while to get through the questions, please be patient." Some more from the Guardian:

  • Edward Snowden is answering your questions about the NSA leaks live
  • Post your questions in the comment section below and recommend your favorites
  • We are posting Snowden's replies above the line
  • You can also follow along on Twitter using the hashtag #AskSnowden

The live blog can be reached at the following link.



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Guest Post: Market Punditry As Astrology

Submitted by Tyler Durden on 06/17/2013 - 11:04

Is recent market behavior the beginning of a market turndown? No one knows, although it is easy to find people providing “answers.” The value of these predictions approach those of astrologers and fortune-tellers.
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