Archive - Nov 8, 2013

It's quite simple.

We are growing more concerned by the day by the actions of the central banks.  It isn’t just that markets popped and dropped dramatically before and after Draghi’s rate cut, or that any policy seems particularly bad, just that the policies don’t seem to be working great, and are leaving a changed landscape that will need to be corrected, somehow, in the future.  We are quite simply concerned that too much faith is being placed in untested theories that may or may not work, or may or may not even be correct.

The reaction to the non-farm payrolls report in the US Treasury complex has the bond bears out en masse this morning. A 10-12bps jerk higher in yield is nothing to sneeze at and certainly flushed more than a few uncomfortable longs out - but BofAML's MacNeil Curry warns "treasury bears beware." The completing 5 wave advance and confluence of support between 2.738%/2.759% says further yield upside is limited. Don't be max short into these levels. There should be better levels to sell in the days ahead.

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said, “OK, we will have an experiment in this class on Obama's plan." Here are the 5 key points about such an experiment...

With what few vacuum tube-based trading algos are left and reacting with rabid kneejerkiness to every flashing red headline, one would get the impression that what matters to the Fed's decision on how to adjust its balance sheet flow depends on the US economy. But if Deutsche Bank is correct, the next source of global economic contraction, which it will be up to the Fed to offset (just like China was the marginal growth dynamo in the months after Lehman filed), and result in an increase in QE nevermind taper, is not in the US at all, but in China where things are about to go bump in the night. Which means that just like that we have moved into the "New Normal paradigm" where the worse the news out of China, the better for stocks.

If Anything Goes Wrong,  the Whole World Could Be Affected For a Long Time

Speaking in New Orleans, the President is expected to discuss the economy and we are sure say "sorry" again for that... Perhaps the most interesting thing is that the local Democratic senator - up for re-election - will be skipping the speech. As USA Today notes, Sen. Mary Landrieu who is expected to face a tough re-election battle next year because of her support of Obama's health care law, has a long-standing commitment that will force her to miss the speech (but some political analysts suggest that the decision to skip the speech might be motivated in part by a desire to avoid images of her standing side-by-side with Obama).

Attention this week was focused on Europe's overall (disappointing) 0.7% inflation print - which sent Draghi back to drawing board - despite the world of sell-side strategists exclaiming that Europe has turned the corner and now is the time to load the boat. However, quietly out of sight for the mainstream, Greece just printed its worst deflation data on record. Consumer prices fell 2.0% on an annual basis as a combination of deep recession, wage cuts, and substantial spare capacity squeeze prices lower. Additionally, we already showed the dismal demise of the macro picture across the European union - heading in a very different direction that the stock markets.. but now, bottom-up, earnings are collapsing too... so remind us again why Europe is a "strong buy?"

QE failed for Japan. It has failed for the UK. It ha failed for the US. Collectively, countries comprising over a third of the world’s GDP have proven QE doesn’t work.

As gold prices have fallen, yet another nation is choosing to use the drop to build its reserves. As Bloomberg notes, Turkey’s gold imports that doubled this year are set to reach the highest level since 2005 as the metal's price heads for the first annual drop in 13 years. As Commerzbank notes "there seems to be a lot of interest in physical gold at the current low price," as Turkey imported 251.4 metric tons of gold since January - the biggest tonnage increase since at least 1995 (a rate almost 60% more than 2012's average monthly rate). Turkey was the fourth-largest buyer of gold last year, after India, China and the U.S., World Gold Council data show.

The following chart, from the Balyasny Asset Management Q3 letter to investors, show just that: the magic of hedge fund leverage in the New Normal.

Many will answer "yes" to the five questions - and that has profound implications on what kind of country the US will become for the next generation...

In case the world needed any additional proof that the latest housing bubble (not our words, Fitch's) was on its last legs, it came earlier today from Credit Suisse' Dan Oppenheim who in his monthly survey of real estate agents observed that October was "another weak month" for traffic, with "pricing power fading as sluggish demand persists." This naturally focuses on the increasingly smaller component of buyers who buy for the sake of owning and living in a home instead of flipping it to another greater fool (preferably from China or Russia, just looking to park their stolen cash abroad). Quantifying the ongoing deflation of the bubble, Oppenheim notes that the "weakness was again broad-based, and particularly acute in Seattle, Orlando, Baltimore and Sacramento.... Our buyer traffic index fell to 28 in October from 36 in September, indicating weaker levels below agents’ expectations (any reading below 50). This is the lowest level since September 2011."

Has a new preoccupation...