Archive - 2014 - Story

It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some..." The problem today is that some people believe inflation is lower than it actually is. The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction. You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate. Under reporting inflation has led to many predictable outcomes.

US equities converged down to VIX's warnings from the holiday period as for the 3rd day in a row equities dropped. This is the worst start to the year for the S&P 500 since 2005. Equities improved during the European session but top-ticked at the US open, tumbling to 10-day lows by the time Europe closed. A leak higher with a vertical ramp to VWAP in the afternoon gave way to selling in the last hour. Trannies are the worst year-to-date (-2.2% from 2013 close highs). Treasuries gained further today, with yields down 6-8bps on the year. The USD lost ground during the European session then flatlined for the rest of the day (-0.25% on the day). From Friday's close, commodities are ending almost unchanged but all had a very volatile ride today (most notably in gold and silver).

Presented with no comment...

2013 was the year that the mainstream financial media went aggressively anti-gold. So, why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

While there were some concerns that due to adverse weather conditions, the Yellen vote may take longer than usual with many senators’ return to Washington D.C. delayed, for now proceedings are going according to schedule: the vote is expected to proceed at 5:30 pm Eastern, with one option being that the roll call could begin as planned, leaving the tally open for a number of hours to allow latecomers to vote. As a reminder, Yellen needs a simple majority (51 votes if no senators abstain) with Democrats holding 55 seats in the Senate, so there will be no major surprises and Yellen will receive confirmation. The only open question is how many Republicans will abstain from supporting Yellen, and whether this will surpass the previous record of 30 Senators refusing to support Ben Bernanke during his 2010 renomination. .  In the meantime, the actual debate surrounding Yellen's confirmation is set to begin at 3 pm Eastern.

The predictions of Blackstone's octogenarian Byron Wien (born in 1933) have been all over the place in the past 10 years, some correct, most wrong (with a recent hit rate of about 25%) - his 2013 year end S&P forecast was for 1300 - yet always entertaining. Which is the only value in the latest release of his 10 forecasts for 2014. Naturally, take all of these with a salt mine.

The possibility of a French recession is not exactly new: even the venerable Economist penned an an extensive article - with a humorous cover - over a year ago describing just such a possibility (the French were unamused). Yet to this date, not only has France managed to avoid the dreaded "Triple Dip" but its bonds continue to be well-bid, with the yield on the 10 Year well inside the US, at only 2.53%, nearly 1% below the wides seen in 2011. However, and especially now that Hollande's 75% millionaire tax has finally been enacted, the fuse on the baguette time bomb is getting shorter. So a French recession would be a bad thing, right? Well, yes - for the French population, and certainly whatever is left of its middle class. However, it is the wealthiest 1% and the stock market which, in keeping up with the old bad news is good news maxim, that may be the biggest beneficiary of a French triple dip. The reason, at least according to GaveKal and increasingly others, is that a French re-re-recession would be precisely the catalyst that forces the ECB out of its inaction slumber and pushes it to engage in what every other "self-respecting" bank has been doing for the past five years - unsterilized quantitative easing: an event which the soaring European stocks have largely been expecting in recent weeks and months.

Are current underwriting practices overly stringent? Yes and no. With the exception of the sub-prime era, underwriting has never been easier. At the same time, it has never been more difficult for many qualified borrowers to get a loan. This strange phenomenon is among the unintended consequences of ill-guided public policies. 

The volatility in JPY crosses has been considerable since the start of the new year - likely sending many carry-trade-driven risk manager's to the trading floors. USDJPY just broke back below 104.00 for the first time since 12/23, dragging the Nikkei 225 to its lowest level since the Taper. Notably, the Nikkei - having almost caught back up to the Dow on Boxing Day - is now at its cheapest in a month. The Nikkei is down 300 points from tofsay's highs (tripe that of the Dow).

While America is preparing to usher in the coldest days of the 21st century, some other places around the globe are hardly as worried. Below is a photo from Rio's Ipanema beach over the weekend, where temperatures hit 51 degrees. Celsius.

Faced with dramatically declining demographics, sliding macro fundamentals, cost pressures on firm margins, slumping support among the people, and a recently rising JPY, Shinzo Abe, Japan's Prime Minister has decided an Op-Ed is the way to go to unveil his 'government knows better' concerted effort to raise Japanese worker's pay. The collective denial is strong among the leadership - no better expressed than this gem: "Abenomics, I am proud to say, has been successful in a more fundamental sense: we have rebooted Japan’s collective psyche." However, Abe's approval rating has never been lower - falling dramatically in the last month or two.

With Trader Monthly magazine having, ironically, gone out business long ago, all those traders whose egos demanded that their insider trading connections put them at least in one of the iconic "Top X under X" league tables, pardon, rankings, had to bide their time in expectation of one day when their prowess to frontrun others or move markets with repeated calls to 555-7617 (with or without references to Anacott Steel) would be appreciated by such sterling Wall Street "experts" as Anthony Scaramucci. Well, for this year's crop of some 30 traders under 30, the day has arrived. And while Forbes may not be Trader Monthly, the amusement, the hubris and the behind the scenes dealing to appear in such a list, sure are still the same...

Velocity Logic is designed to detect market movement of a predefined number of points either up or down within a predefined time. Velocity Logic introduces a momentary suspension in matching by transitioning the futures instrument(s) and related options into the Reserved/Pause State. When a lead month futures instrument is placed in the Reserved State, the following actions occur in the corresponding options markets: Options auto-reserve functionality automatically pauses matching in the associated options and options strategies markets. All resting mass quotes are canceled when the auto-reserve functionality is initiated. This Reserved State is maintained for a few seconds after the futures instrument has resumed trading. During the reserved period, customers can submit, modify and cancel orders. Mass quotes are rejected. Allowing the user community this momentary opportunity to enter, modify, or cancel orders in this situation provides the ability to re-establish the proper market prices. The market data Security Status (tag 35-MsgType=f) message is used to communicate the instrument status during the Velocity Logic event.

US equities, despite the Bernanke bounce on Friday afternoon and the first POMO of the year today, are in trouble (relatively speaking). The last 3 days in the S&P are the worst since pre-Taper and take stocks back to 10-day lows.  Trannies are the most troubled, down over 2% from the 2013 closing highs. Gold and silver are back in the green (up for the 3rd day as stocks drop for the 3rd day in a row). Treasuries are well bid (10Y at 2.95% - 10-day low) while the USD is being sold this morning (on JPY strength which is carrying stocks lower).

So far, city employees of bankrupt Detroit have stoically withstood all direct and indirect eliminations of their entitlements and retirement benefits, which was to be expected: after all as per a recent finding, they are merely an unsecured claim in an insolvent entity. However, following the latest shot across the bow from Detroit's emergency manager Kevyn Orr, which freeze pension plans for all non-uniform employees, said stoicism will likely be acutely tested.