Archive - Feb 2015 - Story

If the U.S. economy is now dependent on marginal lenders and borrowers, then it is exceedingly fragile. The cure for systemic fragility is not low interest rates forever--it's a market that transparently prices credit and risk for lenders and borrowers, qualified and marginal alike.

So much for the Greek "conciliatory proposal" story, driven by yesterday's FT article, and the catalyst for Monday's late day market surge.

For anyone who has traded RadioShack's bonds or stocks over the last decade or so, the constant threat of an LBO has been the bane of any fundamental analysis as one Credit Suisse memorably described it as "a company in a virtual state of constant collapse." It appears, with multiple default notices this week and the news that NYSE will suspend/delist trading in the ever-on-the-block company, that the 'LBO rumor' threat is over. With several firms (Sprint, Sanpower, and Amazon) mulling post-bankruptcy purchases, the concept of a pre-petition savior appears dead in the water...

As Crude's bounce gathers pace so the world's beaten-down commodity-currencies are exploding higher. Aussie Dollar has given back all its RBA rate curt losses, The Russian Ruble is soaring, and the Canadian Dollar isd back under 1.24 against the USDollar... The USD Index is now down 1.3% since Friday.

Moments ago ISIS released a video showing a Jordanian pilot captured by the Islamic State extremist group being burned to death.  According to AP, which could not confirm tha authenticity of the video, the clip was released on militant websites and bore the logo of the extremist group's al-Furqan media service. The 20-minute-long video "featured the slick production and graphics used in previous videos released by the group."

Great news!! Oil prices have "bottomed" and WTI is up over $52 now... from under $44 just last week. But... gasoline prices have surged almost 24% in the last 3 weeks... the biggest seasonal rise in over a decade. Does the US consumer want rising or falling oil prices?

Just hours after apparently settling its suit with the USA (not at all retaliation for downgrading them), S&P has taken the big red marker out on a slew of European banks:

• Downgrades: Credit Suisse, Barclays, Lloyds, Bank of Scotland, RBS, HSBC, and Ulster Bank
• On Watch Negative: Raiffeisen Zentralbank, MBank, Unicredit, Commerzbank, and Deutsche Bank

The driver of the shift in perspective is the apparent removal of the 'bailout put', as the prospect of "extraordinary government support" appeared less likely under recently passed bail-in legislation.

With the recent collapse of Treasury yields, the massive short position in bonds has been dramatically unwound (though there is still plenty left). However, there is the other "most crowded" trade in the world - Long The USDollar - that remains... but is starting to show some cracks in the armor. Despite the highest levels of Short EUR, Long USD since the very peak of the EU Crisis in 2012 and still massively long net dollar positions across sell-side OTC indications and CFTC exchange-traded positions, the last 2 days have seen the biggest drop in the USD Index since September 2013... is the world's most crowded trade about to unwind?

It is no secret that January was a bad month for bulls: it was in fact the worst start to the year in years, especially following that surprising last day selloff, which took the YTD drop as of January 30 to an unheard of, at least under global central-planning, -3.1%. It wasn't just the broader market: some of the more marquee hedge funds names also found it a tough time to navigate the transition of global easing away from the Fed to the ECB even as other central banks like the SNB lost all credibility, such as Fortress, Third Point, Perry, Maverick, Brevan Howard and various others, all of which had negative returns for the majority of the month based on HSBC data. But it wasn't all bad news: in fact, as the table below shows, the January outperformers generated higher relative returns than the worst funds of the month,

"It's a man-made tragedy, and the men who made it won’t fix it." So it turns out Lenin wasn’t just right that the best way to destroy the capitalist system is to debauch the currency. It’s also the best way, as Venezuela can tell you, to destroy the socialist one.

In the realms of fantasy narrative, The Fed's Jim Bullard remains near the top, but this morning's statement that "there is a lot of momentum in the US economy" is simply remarkable in its total falsehooded-ness. As the following chart shows, we suspect when Bullard says "economy" he means "market" but even that is hardly showing momentum!!

On the heels of the biggest crash in ISM New York since May 2007 (swinging from 9 year highs at 70.8 to 6 year lows at 44.5 in one month), Factory Orders plunged 3.4% in December (against an expectation of a 2.4% drop) - the biggest drop since Mar 2013 (ex last year's Boeing swing). Factory Orders 3.6% YoY drop is the largest since Nov09. Which explains why stocks are soaring... (despite Fed's Bullard saying "there is a lot of momentum in the US economy.")

Well that escalated quickly... while the trend of Bund yield collapse continues, the biggest driver of this unprecedented shift. For the first time ever, German 10Y bund yields are trading below (3bps below) Japanese 10Y bond yields as since Q€ the spread has collapsed 35bps. A very weak JGB auction overnight suggests the BoJ is losing control of the world's biggest bond market...

The bottom-callers are out en masse as crude oil prices head for the 3rd up-day in a row and the biigest bounce since OPEC's last meeting. Overnight comments from the BP CEO on OPEC "wanting to test the market" and OPEC delegates warnings that this rebound may not be long-lasting,"prices are stabilizing around $40 to $45, but the world economy is not very strong and stocks are too high.'' Other OPEC delegates suggested prices will drop to $30-35 before this is over (in the first or second quarter)...