Archive - Dec 28, 2015 - Story

One year ago, the two most crowded trades going into 2015 were being long the USD and short US Treasurys. While the former trade had questionable success, the latter most certainly did not work and while hedge-fund managers and other large speculators spent December 2014 setting the biggest bets against Treasuries in four years, fast-forwarding 12 months later we find that the smartest money in the room has fully abandoned those massive short Treasury bets.

As Americans stuffed their faces with food and stuffed their sacks with gifts, three young German men had another 'stuffing' on their mind. As The Guardian reports, a man died on Christmas Day in Germany after he was hit in the head by a flying piece of metal from a condom machine that he and two accomplices blew up in an apparent robbery attempt.

"Don't run with sharp objects" ... "If everyone jumped off the cliff - Would you do it too?" ...and "Don't talk to strangers!"

“There’s no question that Barack Obama and his Democrat supporters constantly, daily, pick winners and losers depending on who supports them and their politics"...

Despite the increasing perception of policy divergence between The US and the rest of the world, it appears 'factors beyond the control of the central planners' has stymied hope for any US-based sparking of global growth. Between The Fed's liquidity withdrawal and the deflationary tsunami from an emerging world buried in credit-fueled mal-investment, it is increasingly clear that central banks have lost control and everything is now going down together. As Citi's Willem Buiter recently noted, "everything's failed" so how long before we see the money drop?

Congress ended the U.S. crude oil export ban last week. There is apparently no longer a strategic reason to conserve oil because shale production has made American great again. At least, that’s narrative that reality-averse politicians and their bases prefer. Congress’ decision to lift the 40-year U.S. ban on crude oil exports reflects the same misinformed and distorted thinking that declares that the world’s highest cost producer - tight oil - can somehow also be the world’s swing producer.

"This year is a wake-up call to think about lower returns for the next several years," notes BMO's Lowell Yura, warning that "investor expectations for both equities and bonds have been [mistakenly] elevated by recent history." According to data compiled by Bianco Research, 2015 could be the worst for asset allocation funds since World War I. Simply put, nothing worked, as for the first time since 2001, none of the major asset-classes returned more than 10%.  As Jim Bianco concludes, “The Fed stimulus lifted all boats, and then the Fed withdrawing the stimulus is holding the boats down."

In a bid to shore up its finances in the face of self-inflicted oil wounds, Saudi Arabia is shaking up the welfare state by raising prices on everything from domestic fuel to water. Apparently, persisting in the war of attrition against the US shale complex is paramount - even if it means making life harder for everyday Saudis so the monarchy can buy itself some budget breathing room.

Sadly, for Germany, this is precisely what is not happening. According to Deutsche Welle, a new survey has revealed that most Germans believe the influx of refugees will not provide an economic boost, in fact quite the opposite: only 16 percent of those surveyed agreed with the statement "the influx of refugees will result in more economic opportunities than problems for us."  The worst news for Merkel is that a majority of Germans - 56 percent - believe the country is not up to the challenge of dealing with the influx. In small towns of less than 5,000 people, this figure rose to 66 percent.

Crude is at the lows of the day. Credit markets are at the lows of the day. Treasury yields are near the lows of the day. So it makes perfect sense that as Europe closed, "someone" would take the monkey-hammer to VIX ETFs (in particular UVXY - the Ultra-VIX ETF) and that rips stocks higher. What is most odd is that VIX (the underlying index) is not falling (as the ETFs appear driven more by futures out-months shifts and position-squaring).

When the When Issued data hit minutes ahead of the auction pricing, we were expecting a number well through the 1.073% When Issued.This is precisely what happened as the Treasury confirmed moments ago when it announced it had sold $26 billion in 2 Year notes at a yield of 1.056%, a whopping 1.7 bps through the When Issued: just like that, the short squeeze worked again.

We are lost in raptures of techno-narcissism. We’re convinced that all the unanticipated consequences of our brief techno-industrial orgy can be solved by… more and better technology! Notice that this narrative is being served up to a society now held hostage to the images on little screens, by skilled people who, more and more, act as though these screens have become the new dwelling place of reality.

"Essentially central banks, by unfairly inflating asset prices have compressed risk like a spring to unfairly tight levels. Unfortunately, the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant."