Archive - Sep 2014 - Story

Poll after poll confirms what we're sure you’ve already been feeling. People are disenchanted with the existing system. They don’t trust the government, they don’t trust the banks, and they don’t trust the media. You can hear the rumblings of grumblings, and it’s only growing louder and louder. It doesn’t have to be this way.

Market reversions, when the occur, are extremely rapid and tend to leave a rather brutal "scar" on investment portfolios. There is clear evidence that economic growth is being impacted by deflationary pressures on a global scale. This suggests that the sustainability of current and projected growth rates of profits is questionable given the magnitude to which leverage has been used to boost margins through share repurchases. Here are three things to consider that may help you question your faith.

Sure, it could be front-running the inevitable post-product-launch "it's great but not that great" sell-off... but one wonders if more is at play here...

Some believe that actions today were jointly agreed to by the Fed and ECB to allow the stimulus baton to be passed from one major central bank to another. Could this be to help ease the risk-off fallout that is likely to ensue in anticipation of the first Fed hike? Maybe the price action in US equity markets today should serve as an early warning signal.

Just when one thought the embarrassment for Obamacare, and its epically flawed website Healthcare.gov, which according to some accounts had over 100 million lines of code, the vast majority of which did not work as it is after all a government project, could not get any worse it just did following a report in the WSJ that the website which is reasonably expected to be the safest in the world (and at a price of over $500 million it should be the safest in the world) considering it holds not only the financial but personal and healthcare data of millions of Americans, has been hacked. According to the WSJ, a hacker broke into part of the HealthCare.gov insurance enrollment website in July and uploaded malicious software. And the punchline: neither the government, nor the security contractor, Blue Canopy Group, found out it had been hacked until two months later.

"The entire problem we face going ahead stems from the very idea of Karl Marx that government is capable of managing the economy either through communism or autocratic-socialism where the state dictates to the economy under the pretense of caring for the people, that has truly become a derivative of fascism where the state comes first."

Simply put, "Savers are being exploited by government under the pretense of managing the economy."

Draghi did it (or didn't), blame him... From record intraday highs (on vapid volume) to 5-day lows in the S&P 500 as Mario Draghi cut rates even negative-er and promised to do more QEing. EURUSD collapsed over 2 big figures to 14-month lows below 1.2950. The implicit USD strength sparked selling in everything else. Treasuries pushed notably higher in yield (30Y +13bps on the week, 5Y +8bps) and held their yield highs as stocks started to collapse after Europe closed. The standard late-day machine-driven VWAP ramp lifted stocks off the lows, but S&P 2,000 remained elusive. Gold, silver, and oil all pushed lower as USD jerked higher. High-yield spreads jumped most in 6 weeks to 3-week wides and provided a warning to stocks all day. Bottom line - USD up, everything else down... (except Trannies).

It has been a while since Tepper warned of "nervous time" and told his hedge fund pals "don't be too freakin' long." Since then the manipulated equity market bubble has gone straight up with every single dip bought massively by the algos, in the process surely eliminating any nervous thoughts Tepper may have had. So in a world starved for pundit philosophy, Bloomberg just reported that the bond market bubble is about to pop, at least according to the folicularly challenged billionaire. The reason, paradoxically enough, the ECB's decision to monetize private assets and cut rates.

Who could have seen this coming? Well, credit markets for one. US equity markets have slipped into the red for the week, catching down to High-Yield credit's early warnings. The S&P 500 cash index is back at the magical 2,000 (so expect a magic bid). Treasury yields remain at the highs of the week (+12bps) but are beginning to limp lower. EURUSD is holding near its lows under 1.2950.

Encouraging and supporting asset bubbles is essentially the only force remaining to keep the system intact as we know it.

"when we look at wages for the 25th percentile of college graduates, the picture is not quite so rosy. In fact, there is almost no difference in the wages for this percentile ranking of college graduates and the median wage for high school graduates throughout the entire period. This means that the wages for a sizable share of college graduates below the 25th percentile are actually less than the wages earned by a typical worker with a high school diploma. While we can’t be sure that the wages of this group wouldn’t have been lower if they had never gone to college, this pattern strongly suggests that the economic benefit of a college education is relatively small for at least a quarter of those graduating with a bachelor’s degree."

A recent Fed paper reports that the Fed's wild money printing orgy has failed to produce much CPI inflation because “consumers are hoarding money”. It is said that this explains why so-called "money velocity" is low. Sadly, they are misinformed: In short, “hoarding” cannot possibly harm the economy. The same, alas and alack, cannot be said of money printing.

It seems like it was only yesterday when Goldman was predicting either two-thirds chance of a 10% correction in stocks, said that the S&P is either 30% or 45% overvalued relative to its historical value, or warned about a market slide when it downgraded the S&P500 "to neutral over 3 months as a sell-off in bonds could lead to a temporary sell-off in equities." Alas, that was the old Goldman: the one which still considered the impact of fundamentals in a centrally-planned world. The new one is far more pragmatic for the New Normal times, and overnight David Kostin, who has consistently fluctuated on either his year end S&P500 price target in 2014, or the justification for getting there (first higher bonds yields, then lower), came out with his latest thesis why now is the time to own stocks. Naturally, his catalysts have nothing to do with actual fundamentals, and instead all focus on the three only relevant metrics of the new normal: beta, momentum and career risk, which can be summarizes as follows: buy stocks because Hedge Funds suck.

Last week, many woke up to news that the UK had raised its terror threat level from “substantial” to “severe.” Considering the competence and trustworthiness of the nation’s Joint Terrorism Analysis Centre, there must be some specific threat they’re concerned about to justify instilling fear in a population of 65 million. Nope. Although the new threat level rates the risk of an attack on the UK to “highly likely,” Home Secretary Theresa May stated that “there was no evidence to suggest one was imminent.” Well then. It makes you wonder if the the change in threat level is being used in part to justify the extraordinary $80 million sum spent on building a fortress around the Newport and Cardiff city centers in Wales, which many are describing as “similar to the Berlin Wall,” or a “zoo,” in an unprecedented display of protection for many of the world’s most corrupt politicians.

Shelling is reported to have started on the eastern outskirts of Mariupol, Ukraine, according to local reporters on social media. This crucial city, due to its standing as the last major city standing in the way of a land connection to Crimea (from Russia) across the Southern border. Furthermore, Mariupol's strategic importance as a port and major industrial city is crucial to Kiev who are reinforcing the city after losing Novoazovsk last week, with the Ukrainian army on full alert. NATO has been actively sabre-rattling this morning, pulling a full Draghi by threatening to do "whatever it takes" to defend ourselves and our allies, and offering training and support for Ukraine (as they report over 3,000 Russian troops in Ukraine). Escalation?