Archive - Oct 2014

UPDATE: Nevache confirmed that the "suspicion was over" and the people were allowed to leave

Following news of the death of a British man in Macedonia from Ebola, RTL reports that 60 people are locked inside a Department of Medical and Social Coordination (DASS) building in Cergy-Pontoise (on the northeast edge of Paris) following Ebola-like symptoms in 4 people who returned from Guinea.

Regarding the two violent selloffs this week: there is no mystery. Recall that Deutsche Bank warned late in the summer this would happen for one simple reason: there are just three more weeks of POMO left after which the Fed's balance sheet flatlines, and with it, the S&P500. The only question is whether those who "sell ahead of everyone else", manage to take the S&P far below "unchanged", as prior QE ends have done, proving once again that it is all about the flow not the stock, and as a result the Fed will once again have to resort to even more QE.

If yesterday's 10 Year auction was very weak, despite the market reaction post the Fed minutes ramping the paper to highs not seen since last May, moments ago the Treasury concluded this week's auctions by selling another $13 billion in the August 30-Year reopening, in another relatively weak issue, which priced at 3.74%, a small 0.2 bps tail to the 3.72% When Issued. In any event, the high yield of just over 3% was the lowest since the May 2013 Taper Tantrum freak out. As a reference, the lowest the 30 Year has sold at auction was 2.58% in July 2012 at the peak of the European debt crisis and just before Draghi uttered the magic words "whatever it takes." The internals were also somewhat weak, with the Bid To Cover dropping from 2.67 to 2.404, just below the 2.44 TTM. And yet, unlike yesterday's 10 Year when the Direct takedown crashed to multi-year lows, today's Direct allotment was a decent 21.5%, well above the recent average, and in line with some of the higher Direct bids in recent years.

Why Don't We Do THIS?

Just yesterday evening, the exuberance was palpable (in stocks)... today, with WTI collapsing (under $85) to 18-month lows, Energy stocks are being monkey-hammered across the board (S&P Energy sector -4% from yesterday highs)...

To everyone expecting material upside surprise in terms of company earnings, guidance, balance sheet improvement, and/or capital spending, Goldman has one word: don't: "We expect a disappointing quarter for revenues. Weaker macro data and dollar strengthening increase the likelihood of sales misses. We also anticipate increased negative earnings guidance as companies quantify the FX headwind."

Who could have seen that coming?

Despite all the 'promises', all the 'whatever it takes', all the jawboning... actions and words appear unable to shift the world away from its disinflationary spiral that Central Bankers are so afraid of... US forward inflation expectations have cratered in recent weeks (to levels that in the past have triggered money-printing largesse) but it is European forward inflation expectations that have collapsed to record lows leaving Draghi caught between a deflationary rock and a Bundesbank-bating, Treaty-busting sovereign QE hard place that he knows deep-down-inside (given the cleasr evidence from the US and The Fed) simply does not work how it is supposed to (in the textbooks). As Deutsche Bank warned, "QE in Europe will be ineffective, but it will happen anyway - it is the only tool the ECB has to protect its mandate."

Copious amounts of monetary whiskey have been downed in the global economy and yet the recovery remains weak at best. The mother of all monetary hangovers awaits us all and will likely manifest in stagflation and sharply higher inflation.

Curious how Bill Gross feels in his new digs at Janus Capital (aka old digs in Newport Beach)? Curious how much money he is managing now or how he will manage it? Curious why he has a band aid under his right eye? All should be revealed in the Janus Capital live webcast going on now.

Because humor like this obviously costs money. As always, from the one and only Dennis Gartman: "Down 35 points one day; up 35 points the next! The Bulls were taken out and shot Tuesday; the Bears were shot yesterday and all we know for certain is that the upward sloping trend still holds and that weakness is to be bought with the Fed still behind the market."

"...the world goes through frequent cycles of redefinition and these periods mean increased tensions and higher volatility. China and Russia are now forming a strong anti-US and anti-dollar alliance. This alliance is expanding in magnitude and impact as China increases its presence not only in Africa but also in Club Med via infrastructure investments." The new world order means less US dominance, a gradual weakening of reserve currency advantages and trade areas away from from Europe and the US. Add to this the much-needed fight against radical Islamism and we have a potential for geopolitical risk finally becoming part of risk assessment and return.

The market is primed to drop. Now is the time to prepare.

Tepid response to yesterday’s rally turned negative this morning. Risk off in pre-market with /es -6.00. Asian markets mostly positive. European markets turned lower in anticipation of US open. 10 year yield at 2.318%, maintaining the-under 2.4% stance.

In his latest note Albert brings up in his latest note titled '?Basket trade?' suggests "Sell everything and run for your lives” (which has nothing to do with Edwards being a correct permabear in a world in which the house of cards is kept standing day after day only thanks to over $10 trillion and rising in central bank liquidity, and everythning to do with this). The point is whether increasing volatility across all major asset classes (notably FX and increasingly so in equities) will finally spill over into bonds, but in an inverted way - one where unlike stocks where vol surges when prices crash, would see bond volatility soar as a result of matched surge in bond prices, something which as we showed earlier today is becoming an increasing concern as bond yields around most places in the world have tumbled to record lows.