Archive - Dec 17, 2014

Mortgage applications for home purchases fell almost 7% last week, fading recent gains and hovering once again back at 20 year-lows (entirely unable to reflect the housing 'recovery' for the average joe). The plunge in applications comes as mortgage rates crash back to 4% - the lowest in 19 months. The reason - apart from unaffordability - is explained by Citi's Will Randow who notes the spillover effects of the "unequivocally good for everyone" drop in oil prices has a dramatic effect on both jobs (prolonged price drop means a loss of ~200k jobs) and housing (starts expected to drop 100k if oil prices remain low). Maybe talking-heads should reconsider that "unequivocally good" narrative.

One of the biggest conspiracy theories in recent weeks has nothing to do with the stock market and the Fed, or with HFT manipulation, or with Ukraine's gold, or with who brought down the two Malaysian airliners, but whether the now beyond ridiculous drama surrounding Seth Rogen and James Franco's latest movie, The Interview, which has its very own cast of C-grade characters, including an alleged furious North Korean dictator and his hacker disciples, a mega corporation whose servers were hacked releasing the content of thousands of emails into the open, and of course, delighted marketing stuiod execs, has been staged and planned from the beginning. Because the latest development in this soap opera is almost as surreal as today's shocking detente with Cuba: as the Hill reports, America's top five movie theater chains have decided to pull the Sony Picture's comedy "after cyberattackers on Tuesday threatened Sept. 11-style attacks against any theater showing the movie."

What Americans STILL Don't Know…

"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."

Moments ago, after Yellen earlier explained that the Fed may hike rates at any moment, and certainly not only during press-briefing days, she also explicitly, and very unexpectedly, said that the Fed will likely not hike for a "couple" of meetings. And when she was subsequently asked to explain what "a couple" means, she further explained that it means "two." As a reminder, this comes from a Fed chairwoman who had a trial by fire when, fresh after replacing Bernanke, she locked herself in the "6 month" calendar interval. In other words, she knows not to give the market a timing bogey. And still she did so. Which, quite explicitly, means that anything starting with the 3rd meeting, currently scheduled for April 28-29, 2015, and onward is very fair game and the market will be foolish to expect the Fed not to follow through with this warning, a Fed which is already dangerously close to losing all credibility it has.

The fall of the rouble this year has been severe, with a 50 percent fall against the dollar and of course gold this year. The slide has been precipitous as in the past two days alone, it fell about 20 percent against the dollar and gold.

On Monday, the ruble fell 10% against the dollar and gold followed by another crash of 11% on Tuesday, despite a massive rate hike.

It was all going well for Janet - stocks were up, crude was down - and then she said...

YELLEN SAYS ALMOST ALL PARTICIPANTS SEE RATE INCREASE IN 2015

Sending stocks back below pre-FOMC levels and sparking a tumble in Gold, a surge in The Dollar, and slip higher in yields.

Stocks are up and crude oil is down following The Fed's confusing statement. Treasury yields whiplashed lower then higher and are holding slightly lower. Gold did the same - holding slightly above pre-FOMC levels.

Having added further confusion to the markets by keeping "considerable" and adding "patient", suffered 3 dissents (1 dove, 2 hawks), and explaining that the energy price drop is "transitory", we suspect Fed Chair Janet Yellen will have some 'splainin' to do during today's press conference. Is "patient" longer than "considerable time" and just what (Dow Jones Industrial Average) data is the Fed dependent on now?

Presenting the quarterly change of the Fed's "dot plot", showing where the Fed thinks the Fed Funds rate will be at the end of 2016. The Fed is so hawkish about the upcoming rate hikes, that since September, when the median dot was at at 2.875%, the dots, "surprisingly", have declined across the board and now have a median of 2.50%.

Just when you thought it was safe to assume The Fed had any kind of handle on things, they ramp up the confusion level and generate more words than last month to explain their machinations. Though well below the peak confusion levels of September, we hope the trend is not rising again...

With expectations that the FOMC would drop "considerable time," ignore foreign market instability, and shrug off HY credit's demise (as they had previously said it was a bubble), the members did not let anyone down...

• *FOMC SAYS IT CAN BE 'PATIENT' IN APPROACH TO RAISING RATES
• *FOMC DECLINES TO MENTION RECENT GLOBAL MARKET INSTABILITY
• *FOMC SAYS PATIENT APPROACH 'CONSISTENT WITH OCT. STATEMENT'
• *FISHER, PLOSSER, KOCHERLAKOTA DISSENT IN FOMC DECISION

For the 3rd FOMC meeting in a row, equity markets have surged (and decoupled from bonds); we will soon see if history repeats a third time.

Pre-FOMC: S&P Futs: 1988.00, 10Y 2010%, Gold $1195, WTI $57.50

Since the beginning of this year, Wall Street economists and analysts have been consistently prognosticating that following the Federal Reserve's latest bond buying campaign, economic growth would gather steam and interest rates would begin to rise. This has consistently been the wrong call. The recent decline in interest rates should really not be a surprise as there is little evidence that current rates of economic growth are set to increase markedly anytime soon. Consumers are still heavily levered; wage growth remains anemic, and business owners are still operating on an "as needed basis." This "economic reality" continues to constrain the ability of the economy to grow organically at strong enough rates to sustain higher interest rates. This is a point that seems to be lost on most economists who forget that the Federal Reserve has been pumping in trillions of dollars of liquidity into the economy to pull forward future consumption.

Having missed the entire shale boom, and with heavily-indebted shale companies now scrambling to boost liquidity or else face bankruptcy if crude prices remain at current levels, moments ago - in the latest example of blatant populist pandering -  New York Governor Andrew Cuomo said Wednesday his administration would prohibit hydraulic fracturing statewide, citing health concerns and calling the economic benefits to drilling there limited.  “I cannot support high-volume hydraulic fracturing in the great state of New York,” acting health commissioner Howard Zucker said, adding that he wouldn’t allow his own children to live near a fracking site. He said the “cumulative concerns” about fracking “give me reason to pause.”

"consistency"