Archive - Nov 2014 - Story

"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.

"In announcing that it will boost purchases of government bonds to a record annual pace of $709 billion, the central bank has just added further fuel to the most obvious bond bubble in modern history -- and helped create a fresh one on stocks. Once the laws of finance, and gravity, reassert themselves, Japan's debt market could crash in ways that make the 2008 collapse of Lehman Brothers look like a warm-up. Worse, because Japan's interest-rate environment is so warped, investors won't have the usual warning signs of market distress. Even before Friday's bond-buying move, Japan had lost its last honest tool of price discovery. When a nation that needs 16 digits in yen terms to express its national debt (it reached 1,000,000,000,000,000 yen in August 2013) sees benchmark yields falling, you've entered the financial Twilight Zone. Good luck fairly pricing corporate, asset-backed or mortgage-backed securities."

Factory orders in September printed a drop of 0.6% MoM following August's 10.0% revised tumble off the spurious spending in July. This is the first 2-month-in-a-row drop in factory orders since January - amid the economy-crushing polar vortex.

With French youth revolting, Spanish regions seeking secession, and GREXIT back on the cards, Europe's social unrest concerns are starting to rise once again to troubling levels. However, it is in Europe's poorest nation, Bulgaria that the message of dissatisfaction is loudest. As The BBC reports, a woman has set herself ablaze near the presidency building in the Bulgarian capital Sofia. There were six similar self-immolations in Bulgaria last year, amid anger over chronic poverty and alleged corruption.

In a dramatic example of the unprecedented collusion between predatory (HFT) client and predator-enabling (and HFT-pandering) exchange, in which the prey is any naive, witless order block that makes its way onto the exchange only to be frontrun with impunity and assure Virtu even more flawless trading days, we now see just who calls the shots for America's exchanges. "Virtu Financial LLC executive Chris Concannon will be appointed as president of BATS Global Trading Inc., an upstart Kansas City, Mo., firm that has grown into one of the country’s top stock-exchange operators, BATS said."

In just one month, St.Louis Fed President Jim Bullard has eviscerated what little credibility he had with his desperate pleadings to the Dow-Data-Dependent Federal Reserve gods.... today we find out that there is "no need for more QE for now, the economy is in good shape" and 1400 Dow points higher than when it was crucial to "delay the end of QE." What is more worrying is the fact that in the last 2 weeks of total market melt-up since Bullard spoke, earnings outlooks for Q4 have collapsed and macro data has done nothing but disappoint.

As the chart below shows, US trade excluding Petroleum, just tumbled to $48.3 billion, essentially matching the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services, aside from the Shale revolution of course, as ever.

This could be a problem for the escape velocity believers... The US trade balance printed its biggest deficit since April at -$43.0bn (missing expectations of -$40.2bn) bn. This mainly reflected a decrease in exports (but, but decoupling!?) though imports also slid.

Overnight saw the weakness in the crude complex continue with WTI dumping to its lowest since October 2011 at $75.84. Treasury yields tracked crude lower and 30Y yields are now down 4bps on the week (having been up 5bps at their peak yesterday before Saudi Arabia's pricing decision). Stocks are sliding in the pre-market but have room to fall to catch down to oil/bonds implied weakness. Gold, silver, and copper are also lower even as the dollar slides lower.