Archive - Jun 2014 - Story

You name the Obama administration scandal/screw-up and Hillary Clinton is distancing herself from it as she prepares to run in 2016 on a clean slate of 'well, I would have done it better/different'. As Reuters reports, recent interviews on Fox and CNN show her claiming she tried but failed to persuade Obama to arm the rebels fighting Syrian President Bashar al-Assad; that NSA spying was "absolutely uncalled for"; and that "changes need to be made at the IRS" seemingly disagreeing with Obama's claims that it was a "phony scandal." With friends (party colleagues) like this, who needs enemies.

Because when it comes down to it (as we explained here), all that matters is the resources...

The Army general who oversaw the U.S. military’s surge of troops into Iraq in 2007 issued a stark warning Wednesday on any further military action. As WaPo reports, Retired Gen. David Petraeus says a number of preconditions should be met before Washington intervenes in the growing crisis - the United States should not offer military support unless Iraqi Prime Minister Nouri al-Maliki (whoc has stated "it's too late fort regret," is able to adjust political conditions there so that his Shiite-led government is seen as fair and representative throughout the country. The bottom line, he warns, "this cannot be the United States being the air force for Shia militias or a Shia on Sunni Arab fight. It has to be a fight of all of Iraq against extremists."

Moments ago, Janet Yellen was asked if there is something out of place with the S&P hitting all time highs at a time when even she (not to mention numerous other Fed presidents) discuss froth in the bond markets. Her answer: no. Specifically, based on some "model" the Fed watches to get a "feeling" for valuations, she concluded the equity valuations are not out of historical norms. In other words, "no bubble here."

And here is what JPM had to say about that.

Cognitive biases are an anathema to portfolio management as it impairs our ability to remain emotionally disconnected from our money.  As history all too clearly shows, investors always do the "opposite" of what they should when it comes to investing their own money.  They "buy high" as the emotion of "greed" overtakes logic and "sell low" as "fear" impairs the decision making process. Here are 5 of the most insidious biases that will keep you from achieving your long term investment goals. As individuals, we are investing our hard earned "savings" into the Wall Street casino. Our job is to "bet" when the "odds" of winning are in our favor. With interest rates at abnormally low levels, inflation rising, economic data continuing the "muddle" through and the Federal Reserve extracting their support; exactly how "strong" is that hand you are betting on?

Violence has escalated in Iraq in recent weeks as the Sunni Islamist militant group ISIS has seized control of numerous cities and continued its advance toward the capital, Baghdad. Here is [Onion's] primer to help understand the ongoing developments in the troubled nation

Having been told that there's no bubble in low quality credit, valuations are 'normal' in stocks, low volatility does not mean complacency, and there's no inflation (it's all noise you idiot); VIX was monkey-hammered to new cycle lows back to a 10-handle (lowest since Feb 2007). This smashing of vol led to a surging of "most shorted" stocks with the S&P hitting new all-time record highs. Post-FOMC, the S&P 500 rose 10 points, 10Y -4bps, 2Y unch, gold was unch, and the USD was -0.1%.

After 2 days of weakness following the SCOTUS decision against them, Argentina unveiled a plan to restructure their debt - swapping existing foreign law debt to local law (more manipulatable and less legally enforceable) bonds, though Citi warns "implementing [the swap] may be technically challenging.". This 'voluntary swap' action is not a clear 'default event' but CDS spreads surging to over 3000bps and longer-dated bond prices tumbling once again suggest the market believes the path is clear as holdouts will once again hold out. As we explained here, there are five main scenarios and it appears, given these actions - that Argentina is playing hardball and will restart negotiations over the debt exchange. As Jefferies warns, "there's a high chance of default," but Argentina's economy minister Kicillof explained "everyone stay calm, the reconstruction of Argentina is not jeopardized." This plan was then ordered in violation of the anti-evasion policy SCOTUS set in place.

Don't worry about the surging food and gas prices you face each and every day... Janet Yellen says "it's just noise" and is actually "evolving exactly as they expected." It is this kind of mind-blowingly ignorant of the facts statement that has the central banks of the world losing more and more credibility (just take a look at the dot plot's 0.5 to 4.25% rate expectations for 2015). The following exchange between Yellen and Liesman is simply priceless in its ignorance.

What is there to add here: clearly the central-planning academics at the Marriner Eccles building are doing a great job at pushing the Russell 2000 to, well, 2000. Oh wait, this was an article about the Fed's GDP "forecast." Lol.

The short-end of the Treasury curve is unch but the longer-end is flattening notably with 10Y -4bps from pre-FOMC. S&P futures are surging (because why not) on the news that there's more taper, less growth, and higher rates than expected. Perhaps the most critical aspect is the collapse in VIX, which is now 1 vol lower than when Dudley warned of "complacency" at almost a 10-handle. Gold is up modestly higher nd the USD Index is down..

While trying to avoid 'foot in mouth' disease, Janet Yellen begins another press conference. We wish her luck in explaining how great the new is that they are tapering and yet have slashed growth expectations for the year... key will be any comments on complacency (as VIX collapses to a 10 handle)...

Nine minutes after the release of the new 'most important' data of the year, The Wall Street Journal's Jon Hilsenrath has unleashed a briefer than normal 530 word summary of what "common knowledge" we should understand from Janet Yellen's latest statement. While the Fed is a little less optimistic about the outlook for economic growth in the short-term, Federal Reserve officials nudged up their projections for short-term interest rates in 2015 and 2016 in a modestly hawkish manner. Taken together, the Fed's new interest rate forecasts imply slightly more aggressive credit tightening plans taking shape in the next two years than previously thought.

Perhaps the one most important, if completely meaningless chart (because it will be revised countless times in the next year and the final outcome will be anything but what the Fed is predicting) that everyone was looking for in today's FOMC forecast materials, is the so-called "dots" - the Fed's estimates of where the Fed Fund's rate will be at the end of 2016. The big picture: the median Fed Funds rate forecast for 2016 was raised from 2.25% to 2.5% which means that preliminary fears about a lowering of the terminal growth rate appear to be, for now at least, overblown. As for the individual dots, and how they compare to the April statement, here is the chart.

With modest positive growth adjustments expected, a continued taper (of $10bn), and no "rate-hikes-are-imminent" warnings, the FOMC statement provides more dovish confidence...

• FED REPEATS LOW RATE LIKELY FOR CONSIDERABLE TIME AFTER QE ENDS
• FED SAYS HIGHLY ACCOMMODATIVE POLICY `REMAINS APPROPRIATE'
• FED TAPERS BOND BUYING TO $35 BLN MONTHLY PACE FROM $45 BLN

But...

• FED: 2014 GDP GROWTH OF 2.1%-2.3% VS 2.8%-3.0% IN MARCH

So everything's fine, taper is on... but we are slashing growth this year dramatically. Pre-FOMC: S&P Futs 1933, Gold $1271, 10Y 2.62%, 2Y 0.46%