Archive - Sep 18, 2014

Reflecting on the farce that was the FOMC statement and press conference yesterday, Bloomberg's Richard Breslow jabs that it appears Janet Yellen's 'splaining can be summed up, "we can’t know what considerable time means because we’re told it’s a very nuanced concept." In other words, we are just not smart enough, leave it to the PhDs in the room. Even Goldman was struggling to find the dovish side reflecting that market movements were more driven by positioning than anything new policy-wise. As Breslow sums up so eloquently, "a 'true normal' balance sheet remains a very distant dream, perhaps end of decade, and who knows if they’ll ever get back there."

In a passionate speech to a joint meeting of Congress, Ukraine's President Petro Poroshenko dropped some tape-bombs:

• *POROSHENKO SAYS RUSSIA `HAS NOW INVADED UKRAINE'
• *POROSHENKO SAYS UKRAINE `URGENTLY' NEEDS LETHAL AID
• *POROSHENKO WARNS RUSSIANS WILL NEXT CROSS EUROPEAN BORDER

Supported by rounds of applause by US politicians, Poroshenko called for the US solidarity and to lead the offensive against Russia as they "fan the flames of war." Stocks dipped (but recovered) though PMs are higher still.

The long awaited moment finally arrived after Scots began voting at 7am BST on whether to break away from the U.K. and end the 307-year union, even as latest opinion polls show the campaign against independence maintaining a narrow lead over those favoring independence.  And while the No's are said to have a slim lead into the vote, even if it is really the Undecideds whose vote will determine the final outcome, somewhat surprisingly, the Yes camp got an unexpected boost just hours before the polls opened when 27 year old tennis star, and Scot, Andy Murray declared his support for Scottish independence in an 11th hour intervention on Thursday morning, after years of keeping silent on the issue.

What's up with the Troika?

Once again, there's a little something for everyone in yet another soft survey macro data point. The headline Philly Fed print missed expectations by the most since February and fell from 28 to 22.5 in September. So that's the bad news... The great news is that the employment sub-index surged to iuts highest since May 2011. That great news comes despite a plunge in the average workweek and collapse in hope as the outlook index fell to 3-month lows.

In a surprise for the market, South Africa's Reserve Bank chief Gill Marcus has announced she will not be available for another term when her contract is up in November. On the heels of an expected decision to leave rates unchanged, this has sent the Rand tumbling to its lowest since February. While Marcus exporessed every confidence in her successor, it appears the market is less confident (for now). Forget the economy, sell ZAR because the true leader of the nation's wealth is to step down...

Given that all the leading candidates for Global Hegemon are hastening down paths of self-destruction, perhaps there will be no global hegemon dominating the 21st century.

Since it is the NY Fed, headed by an ex-Goldmanite, which will ultimately be tasked with exiting 6 years of "unconventional monetary policy" - at some point during this "recovery" if not now or any time soon for that matter - it is probably best to listen to Goldman for its post-mortem on what the chairwoman did or did not say. Which is why we present a "Q&A" with Goldman's head economist, Jan Hatzius, known to occasionally exchange a sandwich and the occasional policy guidelene, with NY Fed's Bill Dudley at the Pound and Pence, in which he explains how Yellen managed to be both more dovish and more hawkish than the "market" expected.

As we discussed earlier in the week, Janet Yellen has released a speech this morning explaining why the poor need to get rich. In the speech below, she stresses, "how important it is to promote asset-building, including saving for a rainy day, as protection from the ups and downs of the economy," despite falling incomes, rising costs, and extending credit, we assume she means. The Fed Chairman has some words of encouragement for the tens of millions of Americans who live at or below the poverty level, including that threatened with extinction class, affectionately known as "the middle." Her message? It is important to build assets, or said otherwise...  get rich and she promises to "continue to promote asset-building."

For everyone whose bucket list included seeing a billionaire gathering which includes Warren Buffett, Mike Bloomberg and Lloyd Blankfein live at least one time, you can now cross that particular item off.

One look at the August housing starts and permits data, and one will wonder just how is it possible that yesterday NAHB homebuilder confidence rose to a 9 year high, when according to the US Department of Commerce both Housing Start and Permits tumbled in the past month, with the housing "leading indicator" that is Permits sliding 5.6% from 1040K to 998K, and declining sequentially in every region of the US, with double digit drops in the Northeast and the Midwest, while Housing Starts tumbled by 14.4% from 1117K, to only 956K, wildly missing Wall Street expectations of "only" a 5.2% drop to 1037K.

Last week's "blip" higher in initial claims to over 300k - its highest in almost 3-months - has been demolished by the always-reliable, never-noisy data this week. At 280k, dramatically better than expectations of 305k, initial claims has only been lower once in the last 14 years... just don't tell Janet. The prior week was upwardly revised leaving a 36k drop this week - the biggest percentage drop since 2005. The all-important 4-week average is back under 300k and the labor department reports nothing unusual about this week's data... apart from the fact that non-seasonally-adjusted claims rose 6k to 241k.

With a Fed hinting at exit strategies, gold has tumbled to 2014 lows (and almost in the red year-to-date) as traders apparently forget Japan, China, and European central banks continue to (or are set to) print more money into the global reflation trade. It appears that as the West continues to sell 'paper' gold, the East remains enamnored as the PBOC announced this morning:

*CHINA TO FORM SHANGHAI GOLD BENCHMARK, PBOC GOVERNOR SAYS GOLD MARKET IMPORTANT PART OF FINANCIAL MARKET
*SHANGHAI GOLD MARKET HAS TO AVOID SYSTEMIC RISK: PBOC'S ZHOU

Furthermore, traders have noted physical buying interest continues in the Asian region as premiums rise in China and India.

While the rest of the world is focused on what any given "developed" (or Chinese) central bank will do to continue the relentless liquidity-driven rally to new record highs, China has bigger problems as it continues to scramble in its attempts to figure out how to halt the slow motion housing crash that has now firmly gripped the nation. So firmly, that according to overnight data from the National Bureau of Statistics, monthly house prices dropped in some 68 of 70 tracked cities, the most in over three years, since January 2011 when the government changed the way it compiles the data.

• House votes to arm Syrian rebels (Reuters).... aka ISIS
• Fed Plots Cautious Course on Rate Rises  (Hilsenrath)
• Scots vote in independence referendum to seal the United Kingdom's fate (Reuters)
• Yes or No, the Winner of the Referendum Is Brand Scotland (BBG)
• Draghi Loan Plan Missing Estimates Hampers ECB Stimulus (BBG) - get with the spin, it simply means "Moar QE"
• Obama Plans to Tightly Control Strikes on Syria (WSJ)
• IMF warns of risks from 'excessive' financial market bets (Reuters)
• Russia Praises Ukraine's Autonomy Law for Rebel Areas (WSJ)