Archive - 2015 - Story

With QE terminated and expectations of a near-term rate hike looming, the Fed “put” is now much further out-of-the-money. More importantly, the discounting function for future cash flows is moving away from zero. In addition, as the Fed’s policy pivot is tightening the spigot of easy money, share buyback programs that have enhanced the illusion of the power of the equity market will wane. Going forward, prices will have to be supported by fundamental values rather than easy money and speculation. The upside vs. downside distribution now looks skewed to the ‘left-tail’. The Junk bond market started declining last June. The bottom line is that we expect a large equity price adjustment (down) to occur imminently.

The price of crude has collapsed by 50% in a few months (and 40% since the end of QE3), which can only mean one thing: the Wall Street penguin brigade is out in full force with its spate of energy sector downgrades, none of which is more bombastic than that of Citigroup's Robert Morris who in 118 pages just crucified the entire energy space, lowering his target price for every single company in his coverage universe, and declaring that "Goldilocks has left the building."

See - "everything is awesome" again!!

Presented with no comment...

Chicago Fed's Charlie Evans called the drop in rates at the longer-end of the Treasury yield curve "extraordinary," falling just short of screaming "sell, sell, sell bonds" and threw wrench in the Fed's policy path by noting "raising rates at the wrong time would be catastrophic." So it is noteworthy that damage control appears to have been engaged this morning by no lesser Fed mouthpiece than Wall Street Journal's Jon Hilsenrath. Reminding the public of Bill Dudley's fears, when he argued the Fed had the wrong reaction to lower long rates in the 2000s, a mistake that might have contributed to the housing boom that ended disastrously; when instead the Fed should push rates higher sooner or more aggressively than planned.

To question money-printing as the one-size-fits-all solution to every economic problem is to question the power structure of the status quo.

Initial claims dropped 4k on the week but missed expectations, printing 294k (vs 290k exp). This is a level first seen in July 2014 as the trend of improvement has ended for claims (the biggest 3 month rise in over a year). Layoffs were dominated by MI where manufacturing and waste management industries suffered (and Texas saw fewer layoffs but a shortened workweek). Perhaps more worrying, the continuing claims data surged by over 100k to 2.452 million (stunningly on a non-adjusted basis continuing claims surged 407k).

Despite stressing time and again that the ECB cannot dictate policy within individual nation states in Europe, Reuters reports Draghi's henchmen are playing 'bad cop' to Germany's 'good cop' for now as they threaten the withdrawal of Greek financial system funding if reforms are not carried out post election. Greek stocks are falling once again (led by the banks) and default risk has soared, with 5Y CDS +250bps at 1555bps.

• French policewoman killed in shoot-out, hunt deepens for militant killers (Reuters)
• The Bold Charlie Hebdo Covers the Satirical Magazine Was Not Afraid to Run (BBG)
• Evans Says Fed Shouldn’t Rush Rate Rise as Inflation Undershoots (BBG)
• Oil holds above $51 as traders search for floor (Reuters)
• Gross Helps Fuel New Fund With His Own Cash (WSJ)
• ECB warns Greek funding access hinges on keeping bailout (Reuters)
• Greece Jolts QE Juggernaut as ECB Gauges Deflation Risk (BBG)
• Analysts Say There's No Telling How Low Oil Prices Could Go (BBG)
• Scientists find antibiotic that kills bugs without resistance (Reuters)

Following yesterday's shocking murder of 12 people at the Charlie Hebdo headquarters, there has been much confusion and many rapidly moving parts in the hours that followed as authorities try to catch the two remaining killers, the 32 and 34-year old Kouachi brothers, after earlier the youngest of three French suspects turned himself in to police after, as BFM TV reported, he saw his in social media. The arrest was confirmed by an official at the Paris prosecutor's office said. Several people linked to two other suspected attackers were also in custody, the news agency AFP reported. The manhunt for the two remaining suspects goes on.

After subdued trading in the overnight session until a little after 8pm Eastern, algos went into overdrive just around the time the Fed's 2015 voting member and uberdove Charlie Evans told reporters that "raising rates would be a catastrophe", hinting that the first rate hike would likely be - as usual - pushed back from market expectations of a mid-2015 liftoff cycle into 2016 or beyond (but don't blame the US, it is the "international situation's" fault), in the process punking the latest generation of Eurodollar traders yet again. Whatever the thinking, S&P futures soared on the comments and were higher by just under 20 points at last check even as Crude has failed to pick up and the 10Y is barely changed at 2.00%.

On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money. There are many more to come.

The structure of history is held together by two essential and distinct kinds of links, two moments in time to which no one is immune: moments of epiphany, and moments of catastrophe. Sometimes, both elements intermingle at the birth of a singular epoch. Men often awaken to understanding in the midst of great crisis; and, invariably, great crises can erupt when men awaken. These are the moments when social gravity vanishes, when the kinetic glue of normalcy melts away, and we begin to see the true foundations of our world, if a foundation exists at all. That time is now...

"If your mother goes to a government-subsidized supermarket and buys two pounds of sugar and three pounds of meat, how many pounds does she have?"

The 114th Congress formally convened yesterday. In what follows, Goldman Sachs presents its views on some of the central questions regarding the political and policy outlook for the coming year. In general, Goldman expects most of the deadlines Congress faces over the coming year to result in only limited uncertainty, though the debt limit increase that will be necessary later in 2015 is the main potential exception. Additionally, they expect legislation to "audit" Fed monetary policy decisions is likely to pass the House again in 2015, but enactment looks less likely.