Archive - Nov 4, 2014 - Story

It appears the excitment of US midterm election sparked a "sell-everything-American" strategy today as stocks, bonds, WTI crude, the dollar, Treasuries, and credit all sold off to a lesser or greater amount. Trannies started off liking weak oil prices but faded as WTI could not bounce off multi-year lows but stocks were jolted lower (before v-shape recovering to VWAP) by Mutiny at the ECB (and desk chatter that - as we have warned - QE is not coming). The decouplings continue as high yield presses to 2-week lows and Nikkei futures diverge from USDJPY. The dollar weakened back to unch on the week after Draghi but commodities saw no gains from that as gold, silver, and copper slipped. WTI dropped to as low as $75.85 at 3-year lows. VIX - helped by numeous CBOE 'breaks' today - jerked back below 15 (after trading above 16 briefly).

"Japan is no Zimbabwe. Neither was Israel, yet from 1972 to 1987 its inflation averaged nearly 85%. As its CPI rose nearly 10,000 times, its stock market rose by a factor of 6,500 … Regular readers know that I don’t generally make forecasts, but that every now and then I do go out on a limb. This is one of those occasions. Mapping Israel’s experience onto Japan would take the Nikkei from its current 9,600 [as of October 2010] to 63,000,000. This is our 15-year price target." - Dylan Grice

Presented with little comment aside to suspect the answer to our implicit question is something like "it's the new economy" or "you don't understand the new valuation metrics"

Watch Spain closely in the months ahead. It will be another canary in the coal mine for the entire Western world.

When (0.94) correlation is causation...

Because when you have no POMO, and no QE on the horizon, you can always break a stock exchange and send the entire market... higher!?

"I think that a good victory for Democrats on Tuesday, you know, should be rewarded with some fried chicken." - Michelle Obama

We’ve been keeping the long lost idea of our long lost society alive by squeezing our own children wherever we can, and telling them that if they only work hard enough, they can be whoever they want to be. But they can’t, that notion is also long lost. When you keep home prices artificially high, homeowners don’t suffer as much, even if they bought at insanely high prices, but the suffering is switched to potential buyers, who remain just that, potential, while they live in their mom’s basements for years. A surefire way to kill a society while everyone’s eagerly awaiting the growth that is just around the corner and will forever remain there. Take it from your kids. Take it from somewhere else in the world. And that’s where we’re now passing a barrier: there’s no-one to take it from anymore.

The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices... "it's the economy, stupid!"

"Nobody can predict how long governments can get away with fake growth, fake money, fake financial stability, fake jobs, fake inflation numbers and fake income growth. Our feeling is that confidence, especially when it is unjustified, is quite a thin veneer. When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors."

"The situation is universal, a consequence of incompetent leaders and careless (or ignorant) citizenry."

Who'll be smiling at the end of the day?

Here is Goldman with the loudest warning yet, courtesy of its internal RETINA model, that Europe is now effectively in a triple-dip recession, with Q3 GDP for the Euro area at -0.2%: "We are less than a fortnight away from Eurostat's publication of its flash estimate of Q3 GDP growth in the Euro area. In today's Daily, we look through the lens of our contemporaneous tracker of real-time inflation and activity. Since our previous update in mid-October, RETINA's median estimate of Q3 GDP growth has moved deeper into negative territory, driven largely by a disappointing print for area-wide industrial production in August. The downside risks to our +0.1%qoq judgemental forecast for Q3 GDP now look skewed to such an extent that our point estimate no longer falls within a 50% confidence interval around RETINA's median reading."

“On October 15th 2014, if only for a few short minutes, market forces broke out and the failure of central bankers was briefly evident... There is a very simple lesson that when the markets finally break through the manipulation they move to price in deflation and not inflation. This is key because it means financial repression has failed.” These days, you don’t tend to hear the words ‘failure’ and ‘central bankers’ in the same sentence (unless the topic happens to be Zimbabwe). But perhaps the omniscience and omnipotence of central bankers is somewhat overstated.

Game changer? It appears there is a mutiny afoot in Europe as Reuters and Bloomberg report that a number (rumored to be between 7 and 10) central bankers are set to challenge ECB head mario Draghi's leadership style and question his decisions on quantitative easing. As Reuters reports, bankers faulted his secretiveness and communication style making it hard for ECB to take bolder steps. Stocks are not happy and peripheral bond risk is cracking higher.