Archive - Feb 2014

In less than 30-seconds, the always eloquent founder of the Interest Rate Observer 'translates' Yellen's Fed speak into reality:-

"What we mean to do is continue to nationalize the yield curve... and we would like to enlist the stock market in a program of wealth creation for the security holders of America."

The Fed has manipulated interest rates for 100 years but Grant adds, "never - until now - has it manipulated the stock market as if it were a lever of public policy." His discussion ranges from the bubble in Biotech to holding Gold (which he describes as "nature's bitcoin") because it is "the reciprocal of faith in Central Banks."

Unfortunately many investors, with central banks having slashed deposit rates to de minimis levels, have gone ‘all-in’ with regard to risk assets in the desperate pursuit of yield. Be careful what you wish for. It is quite clear that central banks will do literally anything within their power to attempt to avert deflation – to ensure that “it cannot happen here”. That does not mean they will succeed – but they may end up destroying fiat currencies in the process (one of the reasons we have consistently held gold). It is “quite obvious” what the Fed will ultimately do... Six years into this crisis, and in the words of Lily Tomlin, things are going to get a lot worse before they get worse.

The clean debt ceiling bill has just passed the House where it got the required majority in a 221 to 201 final vote, with just 28 Republicans voting Yea (and 199 voting Nay) - a vote that has made history with the fewest number of votes from a majority on a bill that passed the House since 1991. It also means means that with a Senate passage assured, the US can now spend away until March 15, 2015. The final breakdown:

• GOP: Yea - 28; Nay -199
• DEM: Yea - 193; Nay -2
• Total: Yea - 221; Nay - 201

Considering that the vast majority of Republicans voted against John Boehner's latest "plan" to do the Democrats' work for them, and pass a clean debt ceiling, perhaps it is time to look for a speaker who represents the interests of more than just a tiny fraction of the party... and the Democrats of course.

If you needed another reason to buy stocks, trust in the growth meme, and have your faith in Abenomics confirmed... look away. Japanese Machine orders for December just printed -15.7% in December - the biggest MoM plunge since 1992. This is the biggest miss to expectations since 2006 and what is considerably more problematic for Abe et al. is that YoY expectations of a core machine order rise of 17.4% was hopelessly missed with a small 6.7% gain (and this is data that excludes more volatile orders). While machine orders are completely irrelevant, even if on their own they portend a recession; what would be far more troubling to the Kool aid addicts is if the BOJ were to announce that just like the Fed, it too is tapering its Open-ended QE ambitions. Considering this is precisely what BOJ board member Kiuchi just did, that relentless USDJPY meltup overnight may not be such a slamdunk...

As the torch of responsibility is rapidly handed off from exchange to exchange to the Bitcoin source code, Gavin Andersen (one of Bitcoin's protocol core developers) explains just what is going on - and what it means for the 'wealth' stored in the virtual currency - "Users of the reference implementation who are bitten by this bug may see their bitcoins “tied up” in unconfirmed transactions" - so that's what 'bit' stands for in bitcoin...

We have become a delusional state dependent upon fallacies to convince ourselves our foolhardy beliefs, ludicrous economic policies, corrupt captured political system, and preposterously fraudulent financial system are actually based on sound logic and reason. The fallacy being flogged by government drones and the legacy media about companies not hiring new employees because it has been cold and snowy during the winter is beyond absurd. The other fallacy being pontificated by retail executives in denial, cheerleaders on CNBC and the rest of the propaganda press is weather is to blame for terrible retail sales over the last quarter. Revealing the truth about pitiful employment growth and dreadful retail sales would destroy the fallacy of economic recovery stimulated by the monetary policies of the Federal Reserve and fiscal policies of the Federal government. We have a country built on a Himalayan mountain of fallacies.

In what has to be the most disappointing denial of central bank manipulation of a market in recent history, and probably never, the Bank of England today announced that it "has seen no evidence to back media allegations that it condoned or was aware of manipulation of reference rates in the foreign exchange market." As a reminder, last week we reported, that according to a Bloomberg, "Bank of England officials told currency traders it wasn’t improper to share impending customer orders with counterparts at other firms" or, in other words, the highest monetary authority in England, and the oldest modern central bank, explicitly condoned and encouraged manipulation. Fast forward to today when Andrew Bailey, the Bank's deputy governor and chief executive of the Bank's Prudential Regulation Authority, told parliament's Treasury Select Committee on Tuesday it had no evidence to suggest that bank officials in any sense condoned the manipulation of the rate-setting process. In other words, it very well may have... but there just is no evidence - obviously in keeping with the bank's very strict "smoking manipulation gun document retention policy."

Will John Boehner fold - as he always does - with style, or will he fail to whip enough Republicans to where he can't even do the Democrats' "clean debt ceiling hike" bidding for them and round up the required 218 vote majority? Find out momentarily.

Crowdfunding is set to disrupt the finance industry. Its about time!

Bitcoin plunged another 15% or so from its bounce highs this morning as volatility has picked up dramatically in the virtual currency. The reasons are numerous: JPMorgan has come out with a scathing attack - "bitcoin looks like an innovation worth limiting exposure to;" CoinDesk reports that major exchanges are under a "massive and concerted attack" by a bot system - creating a "fog of confusion" over the system; and perhaps most critically, BitStamp has followed Mt.Gox and halted withdrawals "due to inconsistent results from their bitcoin wallet" - due to the DDoS attacks...

That's it for your pump and dump scheme. 

As the United States Taxpayer Advocate Nina Olsen recently told Congress in her scathing report about US tax policy: "tax requirements have become so confusing and the compliance burden so great that taxpayers are giving up their U.S. citizenship in record numbers," and added, FATCA has the potential to be burdensome, overly broad, and detrimental to taxpayer rights." It’s not the Obamaphone recipients who are renouncing their citizenship in record numbers and leaving the country. These are smart, talented, energetic people who could have actually contributed something. You are who you are no matter what color your passport is.

For only the 5th time in the last 25 years, the S&P closed up over 1% on Humphrey-Hawkins testimony day. Today's screamfest seems all about a growing "common knowledge" that the economy is weaker than everyone hoped and Yellen will untaper as soon as possible (despite her saying the absolute opposite of that). Stocks surged (S&P's best 4-day run in over 2 years); Credit spreads collapsed. Gold soared to 3-month highs (+5% from Taper). The USD roller-coastered notably on JPY & EUR weakness. While bonds sold off (not un-tapery) the move was very modest (and bond yields have dislocated notably from stocks). Of course, USDJPY was in charge keeping the S&P over 1,800; and Nasdaq in the green year-to-date - Mission Accomplished (but Dow lost 16k into the close). A massive squeeze of shorts in the last few days has doubled the market's impressive performance. VIX tested down to almost 14%. Why not BTFATH, Yellen said there was no bubble so we are good to go?

The ideal system for middlemen is the exact opposite of an open competitive market: low-risk fat profits flow to monopolies or cartels that obscure costs, and turn sellers and buyers into involuntary participants who have no other choice but to give money to the middlemen. The Internet is enabling sellers and buyers to bypass the predatory State and the parasitic middlemen the State enforces. Banks--no longer needed. Sickcare cartels--no longer needed. Higher education cartel--no longer needed.

While January was a bad month for the market, it was certainly one which the majority of hedge funds would also rather forget as we showed yesterday. So with volatility, the lack of a clear daily ramp higher (with the exception of the last 4 days which are straight from the 2013 play book), and, worst of all, that Old Normal staple - risk - back in the picture. what is a collector of 2 and 20 to do (especially since in the post-Steve Cohen world, one must now make their money the old-fashioned way: without access to "expert networks")? For everyone asking this question, here is Deutsche Bank with its take on which will be the best and worst performing strategies of 2014. So without further ado, here is the Deutsche Bank Asset and Wealth Management's forecast of hedge fund performance matrix...