Archive - May 2015

And you thought the preliminary 0.2% Q1 GDP print from last month was bad. Moments ago, just as we warned, the BEA released its latest, first, revision of Q1 GDP (pre second-seasonal adjustments of course), and we just got confirmation that for the third time in the past four years, the US economy suffered a quarterly contraction, with the Q1 GDP revised drastically from a 0.2% growth to a drop of -0.7%: the worst print since snow struck, so very unexpectedly, last winter.

Ross Ulbricht, the convicted founder of Silk Road, has been sentenced to life in prison for running the underground online drug bazaar. The punishment is a heavy price to pay for the 31-year-old, who had pleaded with the judge to spare him his old age and “leave a small light at the end of the tunnel.”

According to Gallup, America is now fatter than it has ever been before.  But how can this possibly be?  After all, Americans spend an astounding 60 billion dollars a year on weight loss programs and products.  After putting so much time, effort and energy into losing weight, shouldn’t we be some of the healthiest people on the entire planet? 

Q. How else does this period of apparent equity overvaluation compare to equity booms in the past?

Robert Shiller: This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren't. It's an interesting phenomenon.

Central banks took over everything and thus changed everything; they cannot simply declare themselves successful and just give it all back. That might (stress might) have been possible had it actually worked, a true and robust economic recovery to smooth the shift, but the majority part of that November 2013 recoil was the growing acceptance, throughout 2014 and into 2015, that it was never coming in the first place.

Rates have been so low for so long, that many of the traders who will be on the front lines if and when the Fed ever does decide to start down the long path to normalizing policy have never, in their professional careers, seen a rate hike. “The experience that many investment operations have with rising rates for most of us is very low for some it’s nonexistent," Jeff Gundlach warns.

Like Houston, the financial system has been flooded with liquidity over recent years which has ultimately only had one place to flow - the financial markets. That excess liquidity has sent prices soaring to record highs despite weakting macro economic data. While many hope that the Central Banks can somehow figure out how to keeps the rivers of liquidity from overflowing their banks, history suggests that eventually bad things will happen. Of course, for investors, that translates into a significant and irreperable loss of capital.

The lessor of two evils...

In a hilariously absurd twist of fiscal fate, we can now add "incarcerated bikers" to the list of things which are imperiling state and local government finances in America. It should also be noted that this serves to validate an important point we made earlier this month. Namely, that when it comes to "true biker shootouts", accurately assessing the fallout ahead of time is virtually impossible.

"The oil rebound has run out of gas and now you are seeing nervous investors with itchy trigger fingers bailing out of USO," notes Bloomberg, as the biggest US ETF that tracks oil is heading for the largest two-month outflow in six years, raising concern that crude’s 30% rally may stall. As BNP points out, "we do not think that the bulls have enough supporting fundamental factors to make a case for a higher oil price," and judging by the mass exodus from USO, as Bloomberg concludes, knife-catching 'investors' "don’t want to get burned by another drop in oil."

Catch me if you can...

Just when you thought Wall Street's best paid, yet worst weatherman couldn't come up with any more gut-busting, roaring humor, he unleashes what is surely today's biggest financial trollery.

The Russell 3000 — to which more than $5 trillion in assets were benchmarked as of 2013 — will be reconstituted next month based on market capitalizations calculated at the end of trading today. Here's what you need to know...