Archive - Jan 2015

Again and again through history, first you have the massive deflation and then government is forced to debase the money supply that finally reverses the economy sending it into a inflationary spiral. The second phase is when gold will rise. But you first have the deflation (that we are seeing now) that reduces tax revenues and then you have the inflation set in motion by rising costs (waiting in the background).

Sometimes reality is NOT what we expected.

US Treasury yields are plunging again this morning. From 4Y maturities out, yields are around 10bps lower with 30Y under 2.30%, 10Y under 1.65%, 7% under 1.5%, and 3Y under 75bps!! Since QE3 ended, 30Y bond yields are 84bps lower, 2Y 3bps lower.

It was less than 24 hours after we posted that either oil will double from here allowing energy companies to grow into a normal P/E multiple, or energy stocks will have to crash by over 40% for the ridiculous 23x to return to its normal, long-term average of 13.6x. Moments ago energy giant Chevron admitted that not only does it not see oil doubling any time soon, but that energy prices are almost certain to go far lower from here, and as a result the company decided that after buying back $5 billion of its shares in 2014, i.e., buying high and higher before the stock crashes may not be the best use of dwindling cash flow, and as a result has just suspended its stock buyback program of the rest of 2015. Yes, energy giant Chevron just ended its buyback!

Amid the unforced errors of youth and inexperience, here is The Top 10 list of Wall Street rookie mistakes you should try hard to avoid...

"After putting considerable thought into making another run for president, I’ve decided it is best to give other leaders in the Party the opportunity to become our next nominee." - Mitt Romney

Presenting: the burger bubble.

Following finance minister Varoufakis' insistence that Greece will not accept more debt (or what EU calls a "bailout") and talks with the Eurogroup chief end, Greek bond yields have surged (and prices dropped) with 3Y GGBs back over 19% - the highest since the crisis. Greek bank stocks - after yesterday's exuberant penny stock squeeze - are falling once again.

... because debt restructuring would burst the $100 trillion bond bubble... and implode the big banks.

Having tumbled (and missed) for two straight months, hope triumped in January and pushed Chicago PMI above expectations printing 59.4 (against 57.4 consensus). This is still the 2nd worst print since July so let's not get all excited quite yet as only 4 components rose. This is the 4th month in a row of negative YoY prints. So just to clarify - US GDP misses notably and stocks say "meh" but Chicago PMI beats and stocks smash higher on a JPY lifeboat...

Back over 15 / USD for the first time since March 2009, the Mexican Peso is tumbling hard this morning... and the Brazilian Real is also tanking (back near 10-year lows) - no clear catalyst aside from further weakness in oil producer and EM FX sentiment.

Having explained last month why he would not bail out the stock market again, (non-voting) Fed member Jim Bullard trotted out the usual vicissitudes this morning on Bloomberg TV trying to sound as upbeat and positive as possible: ECB QE is good for the US economy, low oil prices "unambiguously positive" for US, and ses unemployment below 5% in Q3. But then he unleashed the awful truth:

*BULLARD SAYS HE'D LIKE TO GET OFF ZERO RATE SOONER, REASONABLE TO EXPECT RATE RISE JUNE OR JULY

Warning that "waiting to raise rates, risks falling behind the curve," which sent Treasury yields lower and stocks into a confused frenzy of "what did he say?" as they realize that the upbeat talk is just talk and The Fed will raise rates no matter - as we noted yesterday - it's the lesser of two evils.

UPDATE: "CONSTRUCTIVE TALKS" are over: VAROUFAKIS SAYS WILL NOT ACCEPT SELF-PERPETUATING CRISIS

As Eurogroup chief Jeroen Dijsselbloem (of "template" foot in mouth infamy) heads to Athens for talks today, Bloomberg reports the new Greek Finance Minister Yanis Varoufakis has a clear message for his European overlords of the past: “We don’t want the 7 billion euros...We want to sit down and rethink the whole program." While this exposes the nation's banking system to further runs, yesterday's revelation that Russia could step in with financing should they need it, leaves Dijsselbloem and Shulz with less and less leverage even as Spain's chief economic advisor warns, if Greece doesn't play along, "there will be problems on all fronts."