Archive - Nov 13, 2015

It's not supposed to be that easy...

While the U.S. equity markets, until the last few days, seemed unconcerned about the prospects of the rate hike, the so called canaries in the coal mine are once again sending troubling signals, as the consequences of a reversal of Fed policy after 7 years of crisis management are significant, and the stresses are amplified as policy change looks likely to occur while most other central banks are taking the opposite monetary policy tact.

“The authorities have arrested a lot of people, but we still don’t have a clear picture regarding the real reasons behind it. Sometimes we just tell ourselves that we don’t really need to know the truth, as long as the market goes up.”

In his rejection of an SEC settlement with Citigroup, Judge Jed Rakoff vowed to "see that the truth emerges." After presiding over the most high-profile insider trading cases since the crisis -- including Raj Rajaratnam and Rajit Gupta -- Judge Rakoff has come to symbolize the mantra that "nobody is above the law." In determining that Valeant and hedge fund manager Bill Ackman must face insider trading charges for their failed takeover of Allergan, U.S. District Judge David Carter may be the "new Rakoff."

It appears "Likes" just were not innovative enough after all...

"Joaquim Levy’s departure is certain"...

The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era. The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators like jobs and GDP components, while ignoring the explosive leading indicators starring them in the face on CNBC. The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street.

Time to hike rates then?

Business Inventories jumped 0.3% MoM in September (notably more than the 0.0% change expected) and the highest since June led by a surge in Retailers restocking (+0.8% despite sales being unchanged). With Sales unchanged (manufacturers -0.4%), the inventories-to-sales ratio surged to 1.38x - the highest since the financial crisis.

The S&P Retail Sector ETF is down almost 9% in the last 8 days. That is the fastest collapse in this bellwether industry since August 2011... and it may be about to get a lot worse...

Having fallen for 7 of the last 8 days, WTI Crude just traded with a $40 handle for the first time since August 27th. Oil is now down over 14% in the last 8 days, the fastest collapse since December 2014...

The Dow is now down almost 600 points from last week's bounce highs and has broken notably below its 200-day moving-average. This tumble has erased all the briefly held gains since the end of QE3...

"We fear we have been bullish over the course of the past several weeks… indeed rather aggressively so… and did not pay sufficient heed to the warning signs of lesser volume.  We are not wise enough to say that a bear market is now upon us, and indeed we are wise enough NOT to say that but discretion is the far better part of valor and the safety of the sidelines after several weeks of real bullishness on our part is to be sought."

- Dennis Gartman

The past few weeks have brought a resurgence of the deflation theme. All matters of commodities and their associated equities have, to varying degrees, resumed the selling pressure that has characterized much of the past 18 months. The aluminum industry is no exception. In fact, using the Dow Jones U.S. Aluminum Index as a gauge, aluminum stocks closed today at their lowest levels since April 2009.

And now, the Fed is confused.