Archive - Aug 2014

Nowhere is the "financialization" of the US economy more evident than in this chart showing the relative net worth ratio of quntile to the next quintile right below it. Quote Census: "The distribution of net worth became more spread out between 2000 and 2011. The ratio of median net worth of the highest quintile to the second quintile increased from 39.8 to 86.8 between 2000 and 2011, and the ratio of the highest quintile to the third quintile increased from 7.7 to 9.2. The ratio of the highest quintile to the fourth quintile was 3.0 in 2000 and showed no statistically significant change over this period." 

Forget Bloomberg, ignore Reuters, dismiss that 'well-informed trader' source... Ukraine's Central Bank has decided that critical medium for expressing its desperation to stop the collapse of its currency is... Facebook.

Meet the new Boogeyman, the same as the old Boogeyman...

It appears that while most of the world's great unwashed sell-side Economists were not invited to J-Hole this year, this group of protesters managed to sneak in and had a message for QE-ing elite...

The current occupation of the markets is both "unbelievable in power and grandeur." There is simply no denying the current bull market trend as "silent crowds remain stupefied by its immensity, its endlessness and its splendid perfection." The thought for the day is simply this: "Like the many proud soldiers that occupied Brussels then, two or three years from now, how many investors will be alive to 'tell the tale' of the occupation of the bull market today?" It is within "resigned complacency" that the risks to portfolios are easily dismissed with the conviction of strength and control. Yet, it is also within this illusion that the greatest defeats in history have been delivered.

Despite the constant hum of talking heads explaining how investors are "hating this rally" just ready to pile their last penny into stocks any minute (as soon as rates rise and destroy bondholders), AAII sees bullishness at 2014 highs... it appears retail is very much all-in and praying for Yellen's blessing tomorrow...

If QE is ending because it was so successful, then why is aggressive forward guidance necessary? If QE worked so well, then why will Yellen likely need to mention ‘the elevated number of part time workers’, ‘under-utilization of labor resources’ or ‘room for improvement in the labor market’? In regard to its inflation mandate, there is no evidence that QE has had any impact other than causing asset price inflation.

For almost a hundred years a group of movers and shakers of the diamond mining world dominated the market and pulled off arguably THE most successful marketing campaign in corporate history

Rumors are rife that Burton Malkiel is preparing a sequel to his previous blockbuster that will be titled "A Random Straight Line On Wall Street." Because, simply put, random walks are so pre-central-planning...

Anytime there are negative or even close to negative real rates for bonds that is a sign that central banks need to change policy.

Following Russia's closure on several McDonalds in Moscow, the CEO of the American Chamber of Commerce is worried: "The question on my mind is: Is this going to be a knock on the door, or is this going to be the beginning of a campaign?" As Reuters reports, businessmen from both West and East are increasingly frustrated with the tit-for-tat sanctions (and their apparent lack of efficacy at anything but slowing global growth). Russian and Ukrainian CEOs joined Richard Branson to write "We, as business leaders from Russia, Ukraine and the rest of the world, urge our governments to work together to ensure we do not regress into the Cold War misery of the past." As we noted previously, Europe has suffered most, and the following European companies remain the most exposed to escalation.

The Fed likes to claim that its policies are aimed at helping Main Street. Ben Bernanke began this argument when he was still Fed Chairman. Janet Yellen has since taken it a step further claiming that she comes from an “intellectual tradition” that it is important to use “public policy” to “make the world a better place.”

In addition to the countless other reason already presented here over the past year why the bond market simply refuses to sell (scarcity of "high quality collateral", shadow banking lubrication, fears over a slowing economy, reverse rotation by pension funds from stocks into bonds, etc), here is one more reason: today the spread between the 30 Year Bund and the 30 Year Treasury just hit a record wide.

Was it ever in doubt? Bad news is great news for China and Europe and good new is great news for US because no matter what Yellen will go full dovetard tomorrow - at least that appears to be the total consensus view as the S&P hit record highs and bond yields plunge. Volume went from dismal to well dismal-er (we've run out of adjectives) to the lowest non-holiday of the year as we note Trannies (-0.25%) and Nasdaq lagged today. Credit markets snapped higher (tighter) today but remain less exuberant than stocks on the week. Gold staggered lower (-2% on the week) back under $1280 even as The USD rolled over notably on the day led by EUR strength. Treasuries rallied (30Y -3bps  and 10Y <2.40%) in the face of equity strength. VIX flash-smashed early on from 11.5 to over 13 (cracking stocks lower) but that was a great buying opportunity into J-Hole...

Despite caution from Bob Shiller that stocks are "hovering at worrisome levels," the FOMC Minutes yesterday (and various Fed speakers and talking heads this morning) have reassured the investing public that stocks are "cheap" and it's credit and bonds that are rich and bubbly. However, as the following simple table from Bloomberg Briefs shows, concerns over "frothy" valuations is warranted - especially in light of P/Es above previous bubble peak levels.