Archive - Nov 2013 - Story

Credit markets have been nervous for over a week. Treasury yields have been rising notably. The USD has been pushing higher and with all eyes focused on the momo name du jour (and indices 'near' all-time highs) it seems few have noticed US equities have actually had 3 down days in the last 5 days. Only NASDAQ managed a green close. Of course, this is merely an excuse buy moar with all the money on the sidelines but today's move in Treasuries (and intraday volatility in stocks) suggest some anxiety is back that a flow-slowing Taper is closer on the horizon of hope than many believe. Oil and Gold lost ground on the day - though the latter is the best of the commodities on the week. The USD is back to unchanged on the week (with CAD and EUR weakness in charge). VIX diverged higher into the close with its first up-day in the last six.

Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.

Well over a year ago, we first suggested that the conventional wisdom thesis for the bounce in home prices - namely a spurt in household formation - was dead wrong. Sure enough, as has been confirmed empirically, the only reason for the latest dead cat bounce in home prices has been the Fed, and banks complicit in engaging in "foreclosure stuffing." And while it was easy to deflect the topic of just what is driving the housing market (because none of the bulls would want to admit it is just another credit and liquidity-driven bubble) for over a year, with the traditional "things will be back to normal soon" fall back used every time, as time passed and none of the traditional ingredients for a housing recovery fell into place, some started scratching their heads. This came to a boiling point today, when real-estate firm Trulia, looking at the latest Census Bureau data on household formation, finally threw in the towel and rang the panic button as not only have young Americans set anchor in their parents' basement, but even refuse to get a job.

It would appear the main FOX News homepage has been hacked (most likely a DNS hack given some see no changes)... or perhaps this is what the mainstream media has become... "stuff yo!"... although the lack of slideshows and kittens suggests otherwise.

On the day when the CFTC begins considering 'speculative position limits', believed to be "the signal rule of [his] tenure at the Commission," Bart Chilton has had enough. Having "left traders in their own" during the shutdown, Chilton expressed "excitement" at his new endeavours after sending his resignation letter to President Obama this morning (more poetry? - or body doubles?) "I'm reminded of the old Etta James song, 'At Last,'" said Mr. Chilton, one of the agency's three Democratic members. "At last, we've got this rule here," and at last, he would be leaving the CFTC. This leaves us wondering whether Chilton, no longer burdened by the shackles of his meagre compensation, perhaps can finally do what he has been promising to do for years - become a whistleblower - after all he has insinuated so many times he knows where all the "dirt" is; unless, of course, it was all for show.

Global stock markets are soaring and near record highs. Credit markets are exuberant and near record tight spreads and low yields; and volatility (bond, FX, and stock) has been suppressed to the point of non-existence. So why is it that just 3 months after Nigeria issued debt (in an oversubscribed auction) at a yield below that of Portugal's, Nigerian lender Diamond Bank has suspended the launch of its seven-year $550 million bond? It appears it's the Fed's fault! as the bond's marketers noted "pricing turbulence in the international debt market," in a presentation seen by Reuters on Tuesday. Still think the Fed will ever actually exit?

As the S&P 500 continues to push to one new high after the next, the bullish arguments of valuation have quietly given way to "it's all about the Fed."  The biggest angst that weighs on professional, and retail investors alike, are not deteriorating economic strength, weak revenue growth or concerns over the next political drama - but rather when will the Fed pull its support from the financial markets. For the Federal Reserve, they are now caught in the same "liquidity trap" that has been the history of Japan for the last three decades.  Should we have an expectation that the same monetary policies employed by Japan will have a different outcome in the U.S?  More importantly, this is no longer a domestic question - but rather a global one since every major central bank is now engaged in a coordinated infusion of liquidity. Will the Federal Reserve "taper" in December or March - it's possible.  However, the revulsion by the markets, combined with the deterioration of economic growth, will likely lead to a quick reversal of any such a decision.

One quarter ago, when we performed our regular update on trends in US homeownership and rents, we said that "The American Homeownership Dream is officially dead. Long live the New Normal American Dream: Renting." What happened since then is that the American Dream briefly became a full-blown nightmare when in Q3 mortgage rates exploded, pummeling the affordability of housing, and ground any new mortgage-funded transactions to a complete halt (don't believe us - just ask the tens of thousands of mortgage brokers let go by the TBTF banks in the past 6 months). Which is why it was not at all surprising to find that the just updated Q3 homeownership rate has remained stuck at 65.1%: the lowest since 1995. And yet Americans have to live somewhere. That somewhere is as renters of Wall Street and other landlords. As the next chart shows, the median asking rent has once again risen in Q3, this time by just $1 from $735 to $736 per month.

With Twitter's pre-IPO price range rising by the hour and its oversubscription levels growing exponentially - matched only by the volume of "why you must buy Twitter" discussions on CNBC, Reuters created the following simple interactive calculator to enable the retail investor to 'judge' whether buying it out of the gate is the best use of your 401(k)...

The time has come for the monthly status check on the performance of the now largely anachronistic hedge fund industry: a 2 and 20 anachronism (whose every phone call is monitored by the FBI nowadays, thanks Stevie Cohen) because in Bernanke's centrally-planned world, risk is verboten, as are any selloffs, and if indeed one does come and the Fed has no "tools" left to counteract it, no amount of hedges will protect an investing community that has now largely eliminated any short positions on their books. So without further ado, here are the best and worst performing hedge funds of 2013.

A little over a year ago, we wrote an article titled:  You Know You Are a Conspiracy Theorist If… It proved a useful description of the varied afflictions that might overcome your fellow man on the path toward becoming a sentient human being. These include critical thinking, the enjoyment of nature and the distrust of mainstream media. Well now we have the United States Government Terrorist Identification Chart. This should further aid you in identifying if there are enemies in your midst. Pay close attention serfs.

Despite the ubiquitous BTFATH dip in stocks, Treasury yields continue to press higher from Rosengren's earlier comments. Combining overnight concerns about China's relative 'tightening' and Goldman's views that Taper may be sooner than many expect (even if it is counter-balanced with more dovish forward-guidance), bonds seem less than amused at the prospect of slower flow sometime soon. 30Y yields are back over 3.75%, the highest in 3 weeks and jumping the most in 2 months.

"The major themes are unchanged – anaemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose (monetary) policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy. As I expect marginal higher highs before the big reversal, and while my target for this high in the S&P over the next five months remains anchored around 1800, an ‘extreme’ upside target could see the S&P trade up to 1850. Put it another way – before we see any big risk reversal over 2014 and 2015, we need to see more complacency in markets. I am looking – as a proxy guide – for the VIX index to trade down at 10 between now and end Q1 2014 before I would recommend large-scale positioning for a major risk reversal over the last three quarters of 2014 and over 2015.... Beyond Q1 2014, the longer term will all likely be driven by the growth data and the credibility of policymakers and what seems like an all-in ‘bet’ on QE as the solution to our ills."

"The Fed is playing a very dangerous game," Starwood Capital's Barry Sternlicht warns,"and they need to stop." Sternlicht has quadrupled his firm's net worth in this time and, to the incredulity of the CNBC anchors, warns, "this is bad, this is a heroine addiction.. and now they are printing more money than the deficit." The outspoken CEO of the $29 billion fund, noted "all my friends who are money managers.. are much closer to the sell button than they ever were before," adding that "everyone's holding cash," since if they start to get nervous "volatility will come back instantly." Simply put, he concludes, "you know when this ends, it's gonna get ugly."

Deutsche's Jim Reid has been on quite a flight of fancy in the past few days. His latest comment, mixing the metaphysical and monetary, is merely the latest indication showing just how ubiquitous the Fed's influential tentacles have spread. "We are not alone. After going through the FT this morning it’s clearly a bit quiet as the story that has most caught my attention is the one suggesting that new research has estimated that there are more than 20bn Earth-like planets in our Milky Way with temperatures that could sustain life. A remarkable number. Maybe as we speak 5bn of them are contemplating tapering, 10bn have already tapered and 5bn are simply having too much fun to care!"