Archive - Aug 2013

The Wall Street Journal recently ran a front-page article reporting that the monetary-policy “doves,” who had forecast low inflation in the United States, have gotten the better of the “hawks,” who argued that the Fed’s monthly purchases of long-term securities, or so-called quantitative easing (QE), would unleash faster price growth. The report was correct but misleading, for it failed to mention why there is so little inflation in the US today. Those who believe that inflation will remain low should look more thoroughly and think more clearly. There are plenty of good textbooks that explain what too many policymakers and financial-market participants would rather forget.

Nothing like kicking a beached scapewhale when it's down.

It seems the headline-reading algos are in charge once again... as Fed's Bullard held an informal discussion this lunchtime, Bloomberg headlines sent the S&P 500 (the index that represents 500 major US corporations economic viability) up and down rapidly...

*BULLARD SAYS FED DOING 'WHAT IT CAN DO' TO AID U.S. RECOVERY (not so hopeful)
*BULLARD SEES 'A LOT OF RISK GOING FORWARD' OF HIGHER INFLATION (uh oh, Sell!)
*BULLARD: FED NEEDS TO MAINTAIN CRED. ON 2% INFLATION GOAL (oh wait, Buy!)
*BULLARD SAYS U.S. SHOULD MAKE BIGGEST BANKS SMALLER (umm, Sell!)

And so the game goes on...

Taper worries got you down? Then forget Europe, don't mess with China, and run from Emerging markets and instead do what all other professional traders do and chase the momentum in this best performing in 2013 stock market.

Just think of the Goldfish who wanted to die...

Yesterday I thought that Barack Obama was probably the worst President in the entire history of the USA given his record on unemployment and Gross Domestic Product since he has been in office. But, then again, on second thoughts...

“For my own part I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” - Janet Yellen, 2010

Unlike the previously 'staged' Muslim Brotherhood demonstrations, we suspect this 'real' clip of the escalating and deadly situation in Egypt will open a few eyes to how close the nation is to civil war.

With impeccable timing.

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It may be time for John Kerry to emerge from his boat and whisper a soothing word or two:

EGYPT VICE PRESIDENT ELBARADEI ANNOUNCES RESIGNATION: AFP
MURSI BACKERS SHOOT, KILL 4 POLICEMEN IN CAIRO STATION: REUTERS

But fear not: Israel has the Egypt's government's back: recall Israelis, Egyptians Cooperate on Terror. Then again, maybe escalating the region was the point all along.

As we noted last night, the current cluster of Hindenburg Omens is the most concentrated on record and today just made it worse. Critically, the Hindenburg Omen's underlying construction is indicative of a market in deep confusion with momentum, advancers, decliners, new highs, and new lows all in divergence. For the 6th day in the last 8, the market has flashed another warning that all is not well in this 'most levered ever' equity market.

Breaking from the "standard" of the past 8 months, in which JPM was drowning in Issues, for both House and Customer accounts, the firm's House accounts just saw the largest Stop (i.e. taking delivery) since December of 2012, amounting to over 210K oz.  Has JPM, flooded with demands for physical, finally thrown in the towel, and seeing that the deluge in delivery requests is "untapering", had no choice but to turn to the one place it has left to replenish its stocks: the market?

Don't be alarmed. These crabs only inflict superficial flesh wounds.

A low cost of capital is the underpinning of much of the exuberance that shareholders are showing for stocks as management are able to lever-up (in the face of deteriorating fundamentals) to reward shareholders (via buybacks or state-sponsored dividends). With rates surging in the last few days, a critical question is how much will it take to accelerate outflows from bond funds and lead to significantly wider credit spreads for corporations? As BofAML notes, the consensus is now that a 3.5% 10Y rate is enough to trigger a disorderly rotation by which institutional investors are unwilling (based on risk expectations) to bid for the yieldier credit market debt as retail flows out. This is crucial since if the credit markets sell-off, firms will be unable to fund the expectations priced into equity markets and lead to a shift back to the sidelines from risk-assets in general.