Archive - Nov 20, 2013 - Story

It's time to turn bearish on US Treasuries, is the clarion call from BofAML's Macneil Curry. The impulsive advance in US 10yr yields from 2.669%/2.630% and Tuesday Bearish Engulfing Candles in many of the futures contracts (WN, US & FV), Curry says, means the larger bear trend has resumed. In 10yr yields Curry targets 2.950%/2.992% (the high end of the 4m 2.47%/3.00% area range trade). Pullbacks should be seen as temporary, corrective and an opportunity to go short. This bearish view, he warns, is invalidated on a 10yr yield move below the 2.659% lows of Nov-18. From a trading perspective they express this view by selling USZ3. Downside targets are seen to 128-22/128-12, with a stop above 133-10.

The initial knee-jerk taper-on move was met with reactive buying (as per trading guru Steve Liesman's wisdom) but that hope bounce (really only seen in stocks) has faded now and assets are pressing their extremes. USD pushing higher, Treasury yields higher, stocks and gold lower... Of course, all it takes is for one algo to get the idea of pricing in the inevitable subsequent un-taper and to send the entire risk complex soaring. Silver is now below $20 and Gold is Limit Down

For the second time today (and 4th in the last 3 months) - at least this time on some actual news - Nanex notes that gold futures have been halted for 20-seconds following the release of the FOMC minutes. 1,500 contracts took us down at 6:26ET this morning, this time it was even more...

It took Hilsenrath just under a minute to pump out his 1057 (excluding the title) word thesis on the FOMC minutes. As usual, this is indicative of a comfortable embargo cushion which one can be assured was unbreached, as anything else would be very illegal. "Federal Reserve officials had a wide-ranging discussion about the outlook for monetary policy at their Oct. 29-30 policy meeting. The bottom line was that they stuck to the view that they might begin winding down their $85 billion-per-month bond-buying program in the “coming months” but are looking for ways to reinforce their plans to keep short-term interest rates low for a long-time after the program ends.  They struggled to build a consensus on how they would respond to a variety of different scenarios. One example: What to do if the economy didn’t improve as expected and the costs of continuing bond-buying outweighed the benefits? Another example: How to convince the public that even after bond buying ends, short-term interest rates will remain low."

With the schizophrenia that seems to have availed across the FOMC members (hawks are doves, doves are hawks, tapering is not tightening, etc.) it is not surprising that the minutes reflect some confusion:

• *FOMC SAW `SEVERAL SIGNIFICANT RISKS' REMAINING FOR ECONOMY
• *FED TAPER LIKELY IN COMING MONTHS ON BETTER DATA, MINUTES SHOW
• *METLIFE FOUNDATION, SESAME WORKSHOP PARTNER TO PROVIDE FINL
• *FOMC SAW DOWNSIDE RISKS TO ECONOMY, LABOR MARKET `DIMINISHED'
• *FOMC SAW CONSUMER SENTIMENT REMAINING `UNUSUALLY LOW'
• *FOMC SAW RECOVERY IN HOUSING AS HAVING `SLOWED SOMEWHAT'

So summing up - when we get to an unknown point in the future with an unknown state of parameters, we may do an unknown amount of tapering - maybe possibly. Pre-Minutes: SPX 1791, 10Y 2.75, EUR 1.3444, Gold $1262

Back in July, we highlighted a ridiculous and insulting campaign that McDonalds ran with Visa in which the company tried to help its impoverished employees plan a budget. The only thing the campaign did was embarrass the company by proving that you can’t survive working there. Well the company is right back at it in time for the holidays, with several pieces of advice for its legions of serf employees through its ”McResource” website. Three of the more insulting pieces of wisdom include...

While the FOMC Minutes due out in less than an hour is what everyone is looking forward to, the big surprise announcement of the day was the repeat of a rumor released initially 6 months ago, namely that the ECB is considering negative deposit rates - a concept we first speculated about back in June of 2012. Alas, just like last time, the latest incarnation of the NIRP rumor appears to be merely more hot air (and certainly will be exposed as such once the non-compliant mostly German ECB members hit the tape). One person who says not to hold your breath for an ECB negative rate, is Citi's Valentin Marino, who says not only is a negative deposit rate unlikely before the results of the AQR and stress tests as it would accelerate bank deleveraging, but that it "could worsen the pervasive credit crunch and add to the growth headwinds and deflation risks in in the currency block. It would erode investors’ confidence in Eurozone’s financial institutions and accentuate their relative underperformance."

The cheapest plan now has a deductible of $6350! Before it was $150. Employees making $9 to $10/hr, have to pay $30/wk and have a $6350 deductible!!! What!!!! They can't afford that to be sure. Obamacare will kill their propensity to seek medical care. More money for less care? How does that help them? Here is the craziest part. Employees who qualify for mediCAL (the California version of Medicare), which is most of my employees, will automatically be enrolled in the Federal SNAP program. They cannot opt out. They cannot decline. They will be automatically enrolled in the Federal food stamp program based upon their level of Obamacare qualification. Remember, these people work full time, living in a small town in California. They are not seeking assistance. It all seems like a joke. How can this be the new system? Pelosi, pass the bill to find out what's in it? Surprise! You've annihilated the working class.

The big trouble in massive China that we discussed here is weighing heavily on the liquidity in the debt-fueled nation. As The FT reports, several banks have had to delay or dramatically reduce Chinese bond issues as the impact of a tight onshore credit market begins to be felt. "China is much more funding dependent than in the past," warns one analyst, as issuers are dealing with a string of problems stemming from the drying up of interbank market liquidity and fierce competition from wealth management and trust products for investors’ funds. "Government and policy banks have suffered the most. Now pressure is coming to corporates," one trader pointed out, adding, ominously, "it's going to end pretty ugly unless PBOC changes its attitude to liquidity;" which, of course, is exactly the situation the 3rd Plenum outline is looking to change.

Gartman from November 19:  "... the simple things of economic growth, I don't think there's froth whatsoever."

Gartman from just ten days earlier, November 8: "Now with the S&P forging a massive reversal to the downside, we not only must abandon being bullish we must become bearish... and very so.... Our bearish friends, having been wrong for so long, are now right; it is time to be bearish of stocks, while the time for having been bullish is now past... We trust we are clear. The game’s changed and when the game changes, we change.... We had heretofore consistently erred bullishly of simple things… of coal; of steel; of railroads; of ships and shipping… but we are not now."

In today's finance lesson, JCPenney demonstrates what happens when one takes the X in TR=P*X a little too far. As for that "Old Normal" concept of of actually generating a profit on TR... well, just ask Amazon.

The U.K. faces a housing-market bubble unless the government boosts the supply of new homes, the OECD warned yesterday. U.K. home values have climbed 36.6% since 2004, the seventh-biggest rise among OECD nations and back near their 2007/8 bubble highs. The Bank of England said last week mortgage approvals had surpassed 60,000-a-month six months earlier than it had predicted. As Bloomberg's Niraj Shah notes, while the OECD raised its forecasts for U.K. economic growth, it said risks to the recovery include “vigorous” house-price increases that may curtail affordability. We are sure this will all end well - a speculative real estate bubble as the key driver of nominal economic growth? What could go wrong?... Is it any wonder that UK realtors see the crash coming and are asking the government to step back from this policy-induced euphoria?

At one point during the evening, when pressed about whether his Quantitative Easing program was good for Wall Street at the expense of Main Street, Ben Bernanke flat out denied it, saying that such a premise is "simply not true".   He defended his printing $85 billion per month, suggesting that fixing interest rates at zero is beneficial for society because, among other things, it allows people to 'buy cars'.  I saw these words coming out of his mouth and thought to myself, "Is this guy f'ing serious?" Cars. Wow. As if going into debt to purchase a rapidly depreciating consumer item is somehow a victory for the people.

First it was Carl Icahn, then Larry Fink, and now it is Fed "bellwether" Bullard who take the ECB's NIRP and doubles down with a "Taper"

• BULLARD WOULD LIKE STUDY OF NEGATIVE RATE FOR EXCESS RESERVES
• BULLARD SAYS THINGS ARE LOOKING BETTER
• BULLARD SAYS JOBS PICTURE LOOKING BETTER
• BULLARD SAYS QUESTION IS WHETHER JOBS PICKUP SUSTAINABLE
• BULLARD SAYS A STRONG JOBS REPORT FOR NOVEMBER WOULD INCREASE PROSPECT TO TAPER IN BOND BUYING IN DECEMBER

Yeah, everyone is falling for that one again. Sure. For now however, EURUSD is buying it, and is down 100 pips on the combined action of the NIRP rumor and the possibilty of a December Taper.

Given our earlier comment on the collapse of European earnings, it is perhaps unsurprisng that the CEB is throwing everything at the problem of a strong EUR:

• *ECB SAID TO WEIGH MINUS 0.1% DEPOSIT RATE IF MORE EASING NEEDED

Of course, we await the official denial but suspect this is nothing more than attempt to gauge market response to the policy idea (just as Draghi did in May). For now, EURUSD has dumped to 1.3480, and US equities are soaring...