Archive - Mar 23, 2015 - Story

*FISCHER SAYS RATE LIFTOFF LIKELY WARRANTED BEFORE END-2015

With the world now convinmced that Janet Yellen is as dovish as she has ever been on rate hikes, today comes the first post-FOMC speech. None other than Vice-chair Stanley Fischer is due to address The Economic Club of New York on the topic of "Monetary-policy lessons and the way ahead." As Art Cashin warned this morning, Fischer "seems to feel that the Fed must raise rates this year. He is also the only Fed official to concede that any rate hike will be different than any seen before."

A shift in the mutual fund industry's stance towards grossly overvalued private tech startups may be embedding risk into the retirement accounts of unsuspecting Americans, suggesting that the rather creative valuations VCs and founders place on the latest app may be imperiling your 401k. It's called "chasing unicorns."

It has not been a good week for Spain's embattled Prime Minister Mariano Rajoy. Following what Bloomberg calls "its worst election result in 25 years," in Andalusia (the nation's most populous region); the corruption scandals re-rear their ugly head:

*SPAIN RULING PEOPLE'S PARTY MAY HAVE HAD SECRET ACCOUNTS; COURT SEES POSSIBLE TAX FRAUD BY COUNTRY'S RULING PARTY

Spanish bond risk widened 4-5bps on the day as both events confirm the rise of anti-EU parties Podemos and Ciudadanos.

Can stocks keep hitting new highs even as sales and profits fall?

We often hear various Fed officials described as hawks or doves but Janet Yellen’s Fed brings to mind another avian metaphor. They are afraid to raise rates for fear that doing so would upset the asset market inflation process and derail what is left of their theory. In her press conference last week Yellen said that stock market valuations were on the high side of historical norms, an appellation that only works if one includes the stock bubble of the late 90s. It seems that she and the other members of the FOMC have decided that another epic stock market bubble is better than admitting they were wrong. This FOMC doesn’t have any hawks or doves, only chickens.

Following January's disastrous dive in Existing Home Sales (which must be weather, right? Nope!) to a SAAR 4.82 million homes, February (with its even worse weather) saw a 4th month of missed expectations with a 4.88mm print against 4.90 mm expectations. As always, weather was blamed - which is odd given that the only drop in sales that occurred happened in The Northeast which accounts for just 12% of total transactions. Perhaps more worrisome is NAR's Larry Yun noting  "unsuitable price levels" as a reason for weak sales due to low inventories (despite inventories rising 1.6% in February?!). May be it's time to blame The Fed... for not creating more rich people to buy more houses...

Gilead is, by far, the largest income producer in the Nasdaq Biotech Index and today's warning from the Biotech behemoth which has dragged the stock down 2.8% this morning, is weighing heavily on the exponentially-expanding index. As Bloomberg reports, GILD said nine patients taking its hepatitis C drugs Harvoni or Sovaldi along with the heart treatment amiodarone developed abnormally slow heartbeats and one died of cardiac arrest. Now, of course, it's "just" 9 patients... so analysts will spin the diversification. The Nasdaq Biotech Index now trades with a P/E of 50x, with over 80% of the entire sector's earnings concentrated in just 5 companies... and the biggest of all just warned on the drugs that make up half its revenues!

The hunt for yield is driving investors into riskier debt at just the wrong time. With liquidity in the corporate bond market drying up thanks to new regulations, the rush to the exit is likely to be "very unpleasant," one analyst says.

"Proactive central banks figure this out early and fight the inevitable slowdown by implementing QE and weaker currencies. They grab the other guy’s pizza slice. Their asset markets soar.  As Figure 5 shows, 70% of the world’s developed markets have inflation below 0.5% – almost as high as the depths of the 2008 financial crisis. So the USD8.6tn in central bank balance sheet expansion (from the Fed, ECB, BOE, BoJ, and PBoC, which amounts to 130% growth over Dec-07 to now) has been unable to get inflation going." - Bank of America

January's "optimistic" +0.13 print for CFNAI was revised drastically lower to -0.10 and now February prints -0.11 against an expectation of +0.10 for the 3rd miss in a row - the worst run since Q3 2011. The Chicago Fed National Activity Indicator (which has gained in prominence in recent months) indicates a 3rd month of "below trend growth," for the first time since June 2011.

Following Friday's manic quad-witching melt-up in oil (and everything else), the exuberance (surprise surprise) is fading as fundamental reality is slapped back onto the face of the energy complex by Saudi Arabia. As Reuters reports, Saudi oil minister Ali al Naimi also said the kingdom was now pumping a record high 10 million barrels per day (bpd), and would only cut if non-OPEC countries cut production. The 'supply' weakness in crude has been tempered somewhat by a tumbling USD (EUR surging) for now (and also by news from Sinopec of major capex cuts).

Former Dallas Fed president Dick "Feral Hogs" Fisher may be worried about a major correction in a market that is "hyper overpriced", and he may be confused and unable to grasp that the only reason "traders are lazy" is because the Fed's Chief Risk Officer has made risk, and selling, illegal but when it comes to finding sources of funding there are no conerns or confusion at all. Because promptly after he officially resigned from the Dallas Fed, on Thursday March 19, the very next day the board of Pepsi announced that "On March 20, 2015, the Board of Directors (the "Board") of PepsiCo, Inc. ("PepsiCo") elected Richard W. Fisher as an independent member of the Board, effective March 23, 2015. Mr. Fisher will serve on the Audit Committee of the Board, effective March 23, 2015."

• Saudis keep on pumping, oil prices keep on slumping (Reuters)
• Tenet Healthcare Nearing Deal to Buy United Surgical Partners (WSJ)
• Dizzying Pre-IPO Tech Values Spurred by Rush of Hedge-Fund Money (BBG)
• Russia threatens to aim nuclear missiles at Denmark ships if it joins NATO shield (Reuters)
• Torrent of Cash Exits Eurozone (WSJ)
• Draghi Cheerleads for Euro-Area Economy as Greek Risk Looms (BBG)
• Fortescue Mines for More Financing Options (WSJ)
• Topix Charts Evoke Calm Before ’13 Rout as Momentum Gains (BBG)