Archive - Dec 13, 2015 - Story

This is where the Fed. now finds itself. Here they were. Just holding policy lines doing what they in their Ivory Tower contemplated and the so-called “smart crowd” insisted they do. And now the saying of “Between a rock and a hard place” might be an understatement. The world sits atop a tinderbox fueled by monetary policies that created them and awaits a match that could set it off in a blaze of who knows what. All in short order. Unless they don’t do anything except try their best Draghi impersonation and declare, “They too are once again at the ready to do what ever it takes!” Except – just not now.

When was the last time the same index was at precisely 17.24% and rising? The answer: the weekend Lehman Brothers filed for bankruptcy

A week ago, fear was tangible as France's far-right Front National party won an unprecedented 2 provinces in the nation's first elections since the Paris terror attacks. With 40% of the votes, Marine Le Pen's party dominated the mainstream political parties and status quo maintainers were beginning to quake. Now, a week later, with turnout surging from 50% to 59%, Front National has been "routed" according to AP, failing to win any regions.

In what is possibly the most inane political statement ever, U.S. Senator Charles Schumer and Governor Andrew M. Cuomo today announced a push to prevent known or suspected terrorists from purchasing guns in New York State. Schumer and Cuomo areasking the federal government to officially add the U.S. Terror Watch List to the criteria it uses for federal background checks in New York State, exclaiming "we need to move to close the Terror Gap once and for all."

We are nearing a crucial inflection point in the worldwide bubble finance cycle that has been underway for more than two decades. To wit, the world’s central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.

"It's a fraud really, a fake," says James Hansen rubbing his head. The former NASA Scientist, considered the father of global awareness of climate change, exclaimed "It's just bullshit for them to say: 'We'll have a 2C warming target and then try to do a little better every five years.' It's just worthless words. There is no action, just promises. As long as fossil fuels appear to be the cheapest fuels out there, they will be continued to be burned."

Another day, another military escalation between Russia and Turkey, this time not in the air, but on the water in the northern part of the Aegean sea, where the crew of the Russian "Smetlivy" destroyer was forced to use firearms on Sunday to prevent a collision with a Turkish seiner vessel according to a statement by Russia's Ministry of Defense.

"1Q16 bears potential downside risks, while 2Q16 Street estimates seem unrealistic: TSMC saw 10% order cuts in November, which we believe is from Apple business with the impact during the end of 1Q16 or early 2Q. We believe 45-50mn is a more reasonable target. We expect to see meaningful stock price corrections for Apple supply chain names in 1Q16 with lowered Street expectations and disappointing Apple sell-through numbers."

"The truth is that persons with evil intent know exactly what to do when they come here. That information spreads like wildfire. These new border controls are there for the sole purpose of reassuring the public. They have absolutely no effect on the influx of migrants."

The real problem for the Fed will be how foolish it will look if it does raise by 25 basis points and is then forced by a slowing economy to lower rates back to zero soon after liftoff. At that point, the markets should finally understand that the Fed is powerless to get out of the stimulus trap it has created. But it looks like the Fed would rather look foolish later when it's forced to cut rates, than look foolish now by not raising them at all. The Fed’s rocket to nowhere will hover above the launch pad for a considerable period of time before ultimately falling back down to Earth.

In a supreme twist of irony, Bear Stearns is back - maybe not the firm itself - but the people who were in charge of its distressed and junk bond trading group, and just like the summer of 2007, it is an ex "Bear"-run hedge fund that was the first to gate, just as the credit cycle is turning and the default cycle has begun, as we explained last week, just one day before everyone's attention finally focused on junk debt.

As many hedge funds are getting “crushed” this year it has become fashionable to bash the industry’s entire fee structure…typically [but not always] 2% management fee & 20% of profits. Obviously, there won’t be too many 20% profit distributions to the portfolio management teams this year but the 2% management fee has been/will be applied. And that may “piss off” some people.

Following Friday's further freefall in crude oil prices, The Middle East is opening down notably. Abu Dhabi, Saudi, and Kuwait are lower; Israel is weak and UAE and Qatar are tumbling, but Dubai is worst for now.  Dubai is down for the 6th day in a row (dropping over 3% - the most in a month) extending the opening losses to 2-year lows. The 11% drop in the last 6 days is the largest since the post-China-devaluation global stock collapse. Leading the losses are financial and property firms.