Archive - May 2015

His music enchants the world...

The social media slump continues...

"From the BIS to BlackRock, and Jamie Dimon to Jose Vinals, everyone seems to be talking about market liquidity," Citi's Matt King writes, before taking an in-depth look at just how broken the 'markets' truly are. To summarize: no depth in the Treasury market, a duration mismatched powder keg in "long-term" mutual funds thanks to the fact that ZIRP has destroyed money market yields causing investors to find a new 'cash substitute,' and a magically shrinking repo market in the wake of new regulations ironically meant to promote stability.

Greenlight's David Einhorn has come out swinging at the Fed-fueled fracking frenzy and, after pointing out facts that are extremely widely known, and have been explained innumerable times here, sent Shale stocks tumbling... led by the so-called "MotherFracker" - Pioneer Natural Resources... Einhorn concludes, "Either way the frackers are fracked."

The new age of Economic Totalitarianism is upon us all. As we warned previously, Australia will be the first to introduce a compulsory tax on savings. This is the ultimate Marxist state for now anyone with spare cash is the enemy of the Conservative Tony Abbott government. The introduction of this tax on money in Australia led by Tony Abbott is the trial balloon for the global economy.

“When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress.” We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. A rational investor must indeed have a sense of an ending, not another Lehman crash, but a crush of perpetual bull market enthusiasm.

While the ECB is representing that it has no limitations on total monthly volume purchases, it is suddenly finding itself forced to buy increasingly more bonds on the short end. Which brings up the question: is this due to the specific shift in the purchasing strategy of the ECB, or has the ECB simply run out of bond sellers on the long end and as a result is forced to buy ever shorter-maturity paper?

Yesterday, around 7 pm, dozens of people were at a contest hosted by New York-based American freedom Defense Initiative at the Curtis Culwell Center in Garland, Texas when police said two men pulled up in a vehicle and shot a Garland Independent School District Security guard in the ankle at about 7 p.m. The men were then shot and killed by Garland police. While the FBI did not have any immediate comments or speculation on the reason behind the attac, according to the Site intel group, overnight it was Islamic State supporters who took "credit" for the bungled shooting attack.

Nowhere is the new normal more evident than the frenzied hording of so-called "trophy homes" by the world's 1800 billionaires. As Bloomberg reports, the ultra-luxury housing market is scaling new heights as a record number of properties around the world command prices topping $100 million. Demand is growing among affluent Americans and Europeans; billionaires from unstable economies, such as Russia and Middle Eastern countries; and buyers from mainland China, who were barred from investing overseas before 2012. Why - simple (to them?)... "They’re a scarce commodity. And they’re better than gold because you can boast about it."

Turkey is currently trying to decide which of the two similar though competing projects - the Eurasian or the European Energy Union - would be more beneficial for the country. Russia’s attempts to build an ever closer relationship with Turkey - and the latter’s openness to such gestures - will complicate regional energy geopolitics further. Thus, Brussels and Ankara are likely to disagree on strategically important energy security issues over the coming years unless Turkey and the EU can achieve tighter cooperation under the framework of the European Energy Union. But if Turkey instead starts to pursue a more independent policy, particularly one at odds with the European Union, the Eurasian region will experience ever more unstable and competitive energy geopolitics.

Considering:

1) governments are unable to eliminate deficits
2) global government debt is increasing exponentially
3) 0% interest rates are allowing governments to borrow more to pay off old loans and fund deficits
4) Global growth is declining despite money printing and bailouts And, we've saved the latest and greatest fact for last: as stunning as 0% interest rates sound, the mathematically-challenged-fantasyland called Europe has just one upped everyone by introducing NEGATIVE INTEREST RATES.

"They're buying the yield and they think 'Oh, bonds are going to go up,' but when they start coming down, there's going to be a great run to the exits and at least in 2008 you had a bit of a safety net with the prop desks at banks, but now with the Volcker rule you can't even depend on that."

"We can understand that Mr. Bernanke doesn’t like being tagged with any responsibility for poor economic results. He absolved himself for any mistakes before the financial crisis too. But sooner or later he and the Fed have to stop using the financial crisis as the all-purpose excuse for slow growth. Even President Obama has stopped blaming George W. Bush for everything. Maybe Mr. Bernanke should stop blaming everyone else too."

After 6 months of MoM drops (something not seen outside of a recession),  February saw a modest 0.2% rise in Factory orders which has spurred economists to extrapolate a 2.0% expectation for March. However, while Factory Orders rose 2.1% in March, Feb was revised lower (to a -0.1% drop) leaving US Manufacturing Orders down 4.0% YoY. The series of YoY drops continues (now at 5 consecutive months) to indicate a recessionary environment. The ratio of inventories-to-shipments remains stuck at extremely elevated levels.

"We are sellers this morning of the Russell and we are buyers of the S&P, for the chart of the former is ominously bearish while the chart of the latter is interestingly bullish."