Archive - Oct 19, 2015

Free trade, as a matter of practicality, can only exist where all trade partners exist on a perfectly “level playing field”

"This positioning squeeze should have now run its course. Both positioning analysis based on our proprietary flows and the CFTC data suggest that the market is now short USD and long risk for the yea. A further increase in risk appetite will depend on central bank action, starting with the ECB this week."

Whoever get elected in 2016 is going to face a crisis every bit as terrible as the crisis of 1860, only this time when the country blows it could come from a dozen different directions and be a lot harder to fix than the secession of Dixieland.

Now that mortgage rates are sliding back to 2015 lows, any sense of urgency from the demand side of the pricing equation has been removed. So what is the alternative? Pushing the supply into overdrive of course, and doing more of precisely what got the US financial system (and the bailed out GSEs) in trouble in the first place: today Freddie Mac, together with Quicken Loans, announced a new lending program, one which would enable "eligible borrowers" and focusing on millennials, to finance a house with a "down payment of as little as three percent."

It would appear there is nothing to fear but fear itself. With The Fed firmly back on the sidelines, VIX has collapsed from its 50-plus highs on Black Monday back to a 14 handle - the same level it was trading before China devalued in mid-August... everything is awesome once again.

The one-month-ish Treasury Bills that mature November 18th are collapsing. Following comments this morning by Treasury Secretary Jack Lew that the US will run out of cash on November 3rd and his warning of a "terrible" debt limit accident, the 11/18/15 T-Bills have seen yields explode from -1bp to 7bps - an unprecedented 8bps spike as investors panic-sell beyond the deadline. WI 1month bills are over 11bps! As Barclays Joseph Abate warns, "This is the beginning...Nervousness is ratcheting higher”

This is why the system is heading for another, far larger crisis than 2008.

Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies. This observer believes the two countries cannot long withstand the pain they have brought upon themselves - and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.

Weaight Watchers' shorts were the biggest losers this morning as Oprah Winfrey unveils a 10% stake in the greed-is-not-good company. WTW rose 100% on the news as Oprah takes a board seat and has begun a 'program' to lose weight. With 57% of the float short, (and Oprah with an option to take 5% more), all she has to do is convince 30% of investors to pull their borrow and the 100% gains suddenly become a "Volkswagen"-situation...

For the second time this year, China's GDP deflator turned negative, meaning that in addition to any deliberate misrepresentations, Beijing may also be overstating GDP by way of a statistical shortcoming. Ultimately, they're habitually understating inflation for domestic output which means that "real" GDP is probably less "real" than nominal GDP. 

Some initial weakness in precious metals after China reported its data last night gave way to a very narro wrang trade until the US morning began to going. At the ubiquitous 8amET witching hour, Gold (and silver) ramped notably (on modest volume) as crude and copper lost ground... but as soon as US markets opened, the precious metals mashing began and both silver and gold are back below China GDP levels (with both breaking back below their 200DMA)

For those wondering if Hillary Clinton's feud with the pharmaceutical industry in general, and with Turing Pharma's Martin Shkreli in particular, is over we just got the answer: it is only just getting started. Moments ago Reuters reported that Clinton has sent a letter to the FTC for recommendations on "changing laws to prevent anticompetitive practices", with a focus on Turing which has become a poster child for all that is wrong with the US specialty pharma industry, and the pharmaceutical industry in general.

The geopolitical and financial risks facing the global economy are well-known. Hot wars and currency meltdowns garner headlines around the world. But few even hear, much less discuss, four ticking global time-bombs

It is a generally quiet week on the economic front, with updates mostly on the housing front where following today's euphoric NAHB Housing Market Index, we have housing start and permits, blaims and existing home sales. Elsewhere, Fed speakers continue to speak, with Lacker, Dudley (again) and Powell confusing traders once more. The big news this week is earnings as some of the most prominent companies report, including IBM, Verizon, GM, Ebay, Coke, Boeing, Amazin, AT&T, CAT, Microsoft and P&G.

Homebuilders are optimistic... When you career relies on confidence, what more would one expect? But in this case, despite some weakness in current data and stangant buyer traffic, the HANB sentiment index surged to new cycle highs - at the highest since Oct 2005 - thanks to a surge in "futures sales expectations." Seems to us like betting on homebuilders' ability to see the future, given 2006 onwards is lkike believing Yellen has everything "contained" this time too...