Archive - 2015

The December FOMC statement revealed a lack of agreement among Fed officials over communication, BofAML explains, as evidenced by the complicated extension of the forward guidance language and the dissents from both sides of the hawk-dove spectrum. While Standard Chartered expects the Minutes to show The Fed in no rush to raise rates, UBS warns the Minutes “could upset market perceptions of what is important to the Fed’s decision-making process."

No reason to sell.  No reason to buy.  That about sums it up.  Unfortunately, that is about as optimistic a scenario as we can come up with, supported by equally optimistic growth expectations. In reality, the market has no support.  We can only hope that it will not crash at the first sign of trouble. There are always good reasons to own a home, a place to raise a family. However, home ownership via extremely leveraged financing carries enormous and unprecedented risk. We think many potential buyers recognize the risk and are correctly staying out of the market. The new normal in real estate terms is unlikely to be what the market is hoping for.

The Queen has sent "sincere condolences" to French President Hollande over the Paris attack (as have Obama, Merkel, and Cameron) as he puts Paris on high terrorist alert as the manhunt for the reported 3 killers continues. Front National's Marine Le Pen has been more vociferous in her remarks, wanting to "defend against war waged on France," and calling for "rejection of fundamental islam." The remarks and actions of the day are even more chilling in light of Chrlie Hebdo's editor's comments in 2012 that "our job is not to defend freedom of speech but without it we're dead. We can't live in a country without freedom of speech. I prefer to die than to live like a rat."

Clash of civilizations? Basically, 12 people have been murdered today for drawing stupid cartoons...

It appears Germany is indeed very concerned about a Greek bank run and its concomitant contagion possibilities across the European Union's banking system...

*GERMANY OPEN TO GREEK DEBT TALKS AFTER ELECTION, LAWMAKERS SAY

Although careful to point out that they are "not open to debt write-offs," German lawmakers (who preferred to remain anonymous) suggested "possible easing of repayment terms."

While various CNBC anchors may be willing to say that the US is "growing gangbusters" yet again confusing the liquidity-oozing equity markets with the economy, there are a couple hundred million Americans who would bet to differ (which incidentally may also explain why the Comcast channel no longer wishes to have its viewership calculated by Nielsen): the reason is that according to the latest Bankrate survey released today, more than three in five Americans don't have money in their savings accounts to cover any unexpected bills such as a $500 car repair or a $1,000 emergency room visit. In fact, only 38% of respondents said they have enough funds in their bank accounts to cover even the most mundane of spending emergencies.. Most others would need to take on debt or cut back elsewhere.

The world has habituated to the never-ending undeclared war over ownership and access to hydrocarbons. Now we are entering a new phase of asymmetric war being waged not over oil but the price of oil.

Who owns Greece's public debt? That's the 322 billion-euro question, according to the Finance Ministry's figures from the third quarter of last year. Most of the debt has changed hands since a bailout in 2010, a second in 2012 and a restructuring involving private creditors that same year. Private owners now hold only 17 percent. The secondary market has become very thin — bear that in mind when looking at 10-year bond yields. A default would have to be absorbed instead by official creditors, holding the remaining 83 percent of outstanding loans and bonds. These include euro-area governments (62 percent), the International Monetary Fund (10 percent) through its participation in the two bailouts, and the European Central Bank (8 percent), which purchased bonds in 2010 through its Securities Market Program. The remaining 3 percent are repurchase agreements and assets held by the Central Bank of Greece. It is unclear where losses on that portion would fall.

Judging by the excitement this morning across the mainstream media, one could be forgiven for assuming WTI was trading back at $100 and everything was fixed again. However, we have seen these 'dead-cat-bounces' numerous times in the past few months and there is one way to know if professionals are buying the stability-is-here-to-stay meme or not... the credit market for energy names remains practically bidless...

"Should the ECB announce EUR500bn in government bond purchases to be implemented over a one-year period, as our European Economics team expects, this programme would compare in size to the average monthly purchases of USTs by the Fed during QE3, but it would be significantly larger than the average monthly Fed purchases since the beginning of the global financial crisis. ... The ECB's stock of eligible Euro area government bonds is EUR7trn (by comparison, the stock of US government securities is about $12trn) and we estimate 2015 net government bond issuance to be around EUR90bn and gross issuance to stand at around EUR800bn (see Macro Rates Monitor, December 19, 2014). The ECB would, hence, buy about 62% of gross issuance of long-term bonds in the Euro area countries and more than five times as much as the net issuance."

 Globally, there are over $22 TRILLION worth of derivatives trades involving commodities. ALL of these were at risk of blowing up if the US Dollar rallied. And the Dollar is rallying HARD.

The Russian ruble fell a further 7% Monday. What is the “reason” cited in the Corporate media for this latest, further plunge in its “value” (i.e. exchange rate)? An “economic report” which shows that Russia’s economy is shrinking. Here we see the pattern of the economic terrorism perpetrated by the One Bankexposed.

Greek 10Y bond prices (and stocks) are tumbling, pushing the yield well north of 10% once again - the highest in 15 months - as Bild reports Germany warning of bank runs and systemic financial system collapse. Having noticed the weakness in financial assets that this caused, several European talking heads are out now trying to calm the waters with Germany's Michael Fuchs confirming "systemically [Greece] is not relevant anymore," but as one trader noted, for now, "investors seem wary of catching the falling knife."

Can the US economy ignore or even benefit from the winds of deflation blowing from offshore? With a current CAPE (Cyclically Adjusted PE) in excess of 27X, the US market is clearly answering this question in the affirmative. It is worth pausing to ponder just how much this optimism for a US de-coupling has already been reflected in prices. The Solid Ground was very bullish on global equities from 1Q 2009 to 1Q 2011, but then turned bearish, believing that QE was insufficient to prevent deflation. The failure of QE to generate ever higher inflation is now a matter of record, but very clearly US equities cheered this failure and the need for continual QE from 2011 to 2014.