Archive - Sep 23, 2015

In case anyone should ask you to explain Fed reflexivity in under 100 words, here is the answer...

As powerful as the Fed is, it isn’t stronger than the markets. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed. At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will do whatever it takes, no matter what the eventual damage to the dollar’s value. Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today.

It appears Darwin was on to something after all. In the most stunning statistic of the new narcissistic normal's sharing economy, The Sydney Morning Herald reports that, since 2013, deaths from shark attacks have been outnumbered by deaths while taking a selfie. In Russia, the danger has apparently become so acute that in July police launched a campaign urging people to take care after about 100 people were reportedly injured while taking selfies.

And just like that Weimar 2.0 is born.

Great companies like Hewlett-Packard are now being run not by adult professionals but day-trading punters. Carly Fiorina was one of the latter. She excelled at mastering her flash cards and pitching financial bubbles from the time of the misbegotten Lucent IPO, to her campaign for the Compaq acquisition, to her final days at Hewlett-Packard. What she didn’t excel at was learning a single thing that qualifies her to be President of the United States - not the least of which is humility. Fiorina needs to shut-up, sit down and flush her flash cards. The furtherance of liberty, prosperity and peace are not what Torquemada’s do.

According to Interfax, Russia may deploy Iskander ballistic missiles to its enclave of Kaliningrad should the US go ahead with plans to send 20 nukes to Germany.

As tipped last month, the IAEA is allowing Iran to self-police the sample collecting process at a controversial military installation. Although inspectors and Iranian officials give conflicting accounts, what's clear is that Tehran is not at all prepared to accept a situation that causes the Rouhani government to lose credibility with the Iranian public. Expect GOP lawmakers (not to mention presidential candidates) to hold this up as yet another example of why the deal is likely to blow up (figuratively speaking we hope) in the face of the Obama administration.

Not surprisingly, the failure of the Federal Reserve to hike overnight lending rates sent a clear message to the markets that the economy was simply not strong enough to withstand tighter monetary policy. While Chairwoman Janet Yellen did her best to pass off the recent disinflationary trends as transient due to the decline in oil prices, the discussion of the potential for negative rates sent a very different message. The failure at overhead resistance, combined with a continued weak technical backdrop of momentum and relative strength, suggests that a retest of lows in the weeks ahead is a likely probability.

As Citi's Matt King notes in what may be the only chart which traders should be obsessing over, "why has it suddenly stopped working", by which he means the market's favorable reaction to central bank liquidity injections. His question: "have central banks lost their touch" The answer will determine whether the next move in the market is 20% higher or lower.

One of these is the head of an organization with millions of religiously fanatical followers...

"The politicians cannot understand that they are destroying your future. All they can see is their need to retain power... We are reaching the end of this noose around our neck that was placed there by Marx. What you need to do is take back government. You cannot create a solution with the same line of thinking that created the current mess. The future belongs to the youth. Understand the devil you are dancing with. It is time to become politically active and challenge the establishment for that is the only way to save the future."

"We are proceeding with caution in several areas of the portfolio: many of our absolute return managers are accumulating increasing amounts of cash; we are being careful about not over-committing into illiquid investments in potentially frothy markets, while still ensuring we will be involved if market dislocations arise. ...  An interesting question emerges: could rising interest rates in 2016 have an analogous impact to falling house prices in 2007, where a range of largely unanticipated second-order effects was triggered?"

Newly-upgraded Portugal unleashed a budget bombsell on Wednesday when it revised its 2014 deficit higher by some 60% after a failure to liquidate the predecessor to bailed out Banco Espirito Santo left taxpayers holding a €5 billion bag. 

Not even sand can withstand the most powerful market force imaginable.