Archive - Nov 13, 2014

Another chart to ignore... because - we are sure - it's different this time.

Caution should be advised next week.

"Barack Obama's not a stupid man, okay?" Gruber notes, adding that those pushing the bill took part in an "exploitation of the lack of economic understanding of the American voter," taking advantage of voters' "stupidity" to create a law that would ultimately be good for them. "If you made it explicit that healthy people pay in and sick people get money, it would not have passed, OK?"

"We are still amazed by the chart [below], but it summarises the problem for those seeking to short stocks with fundamental weaknesses. In the last three years, the MSCI World Index has risen by 38% (11% per annum) whilst reported profits have risen by just 3% (that’s just 1% per annum!). As the events of last month attest, central bank actions–not profits–are driving equities forward." - SocGen

WTI Crude plunged another 3.75% to as low as $74.06 today - the lowest since Sept 2010 and dropping at the fastest rate of collapse since Lehman. Airlines popped and Energy stocks dropped 2.7% (now worst sector of the year) but Small Caps were the worst performing major index of the day (turning first around 1030ET and dropping most in over 3 weeks). The S&P tested back into the red for the week but was VWAP-rescued twice. AAPL once again bid saved the Nasdaq. Treasury yields slid lower all day (down 2-3bps across the complex) but remain up 4-5bps on the week. The USD weakened very marginally (still up 0.25% on the week) led by EUR strength. Gold and silver were flat but copper tumbled back below $300 - its lowest close in a month (near lowest close since Jul 2010). HY Credit diverged bearishly this afternoon as stocks ramped to VWAP. VIX rose for the 3rd day in a row, back over 14. Dow record close, Russell biggest drop in 3 weeks.

Throughout history there have always been major shifts in the global financial system. Reserve currencies change. The way people engage in commerce changes. The rules of the game change. This time is no different. And we’re currently experiencing the early stages of yet another historic shift.

$8 trillion in QE spent by Central Banks failed to generate any sustained GDP growth or jobs. So what did the Central Banks do? They stopped talking about growth and began talking about “inflation.”

"Given such evidence, to believe that the Fed is targeting anything but another bubble in stock prices at this point would be an enormous leap of faith. How could one rationally conclude otherwise? Six years of easy money has unquestionably inflated asset prices but failed to have a proportionate effect on the real economy. If maintaining 0% interest rates was really about wage and economic growth, wouldn’t we have seen it by now after six years?"

Following al-Baghdadi's threats this morning, and General Dempsey's warnings, it appears things are escalating once again in The Middle East:

• *ISIS, AL-QAEDA AFFILIATE AGREE TO FIGHT TOGETHER IN SYRIA: AP

As AP reports, the deal could be a heavy blow to Washington's strategy against the Islamic State group, relying on arming moderate rebel factions to push back extremists in Syria. It appears The West is "gonna need a bigger coalition."

Despite President Obama's "promise" that there would be no combat troop boots-on-the-ground in the fight against ISIS in Iraq (and his doubling of 'military advisor' troop levels last week), The Guardian reports that General Martin Dempsey, the chairman of the joint chiefs of staff, indicated to the House of Representatives armed services committee that the strength of ISIS relative to the Iraqi army may be such that he would recommend abandoning Obama’s oft-repeated pledge against returning US ground troops to combat in Iraq. Dempsey added, rather uncomfortably, that "we're going to need about 80,000 competent Iraqi security forces to recapture territory lost, and eventually the city of Mosul, to restore the border." The irony of this is that the 'not-dead' leader of ISIS al-Baghdadi spoke today and exclaimed that the US will be soon compelled to come on the ground to fight his group.

Simply put, the dollar's rise could destabilize the entire global financial system. To understand why this is so, we have to start with the source of the risk: the world's central banks.

"It's important to remember  that a little gold goes a long way. If you had 5-10% allocation in your portfolio from 2000 to 2010, you wouldn't have suffered a lost decade" ... “I believe that now is a good time to take advantage of negative short-term trading sentiment,” Wickwire of Fidelity Investments said.

If yesterday's slightly tailing 10 Year auction was a non-event, today's $16 billion 30 Year refunding was one of the uglier long-end auctions in a while, which perhaps is to be expected in a world in which the Fed is, for the time being, no longer monetizing Treasurys and Dealers no longer have the option to turn around and flip the paper back to the Fed on a whim, and with guaranteed profit.

The "compromise" refrain from last week's devastating, for the democrats, midterm election result lasted about one week. Because according to the NYT, here comes Obama with a package of executive actions which will assure Congress full of furious Republicans, which will result in a broad overhaul of the nation’s immigration enforcement system but more importantly, will result in up to five million potential democrat voter illegal immigrants "from the threat of deportation and provide many of them with work permits, according to administration officials who have direct knowledge of the plan."