The USD is soaring after somewhat hawkish Fed Minutes (up 1% this week) - pushing up towards critical resistance at 1-year highs. Treasury yields slammed 3-4bps higher and are holding those losses (30Y up 11bps this week). High yield credit is at the worst levels of the day as stocks retrace gains towards record highs. WTI crude jumped 1% on the minutes, back above $96 as gold slipped modestly back below $1290. Stocks, having kneejerked lower (below VWAP) have been ripped back higher by a VIX-slamming algo that decided that FOMC uncertainty is exactly the signal to buy certainty.
The Wall Street Journal's Jon Hilsenrath unleashed an instantaneous reaction to today's FOMC minutes and the message is clear - markets are much less uncertain than the Fed about the timing (sooner rather than later) of the first rate-hike. The minutes of the meeting, Hilsy notes, provide fresh evidence of an intensifying debate inside the central bank about when to respond to a surprisingly swift descent in the unemployment rate and rising consumer prices. The minutes appeared to reflect a slightly more aggressive stance than Ms. Yellen's testimony.
These are the minutes from when the Fed toned down deflation fears and raised concerns over labor slack, and expectations going in were for a slightly more hawkish tone from the minutes (and perhaps commentary on financial stability - bubbles - and exit strategies). This is what we got:
- *MANY FED OFFICIALS SAID JOB GAINS MIGHT BRING RATE RISE SOONER
- *FOMC AGREED BALANCE SHEET SHOULD BE CUT GRADUALLY, PREDICTABLY
- *SOME FOMC PARTICIPANTS MORE UNCOMFORTABLE WITH FORWARD GUIDANCE
Sounds pretty hawkish to us...
Pre-FOMC Minutes: S&P Futs 1982.5, 10Y 2.4175%, Gold $1294 , USDJPY 103.40, Oil $95.40
The disastrous blowback from inflating housing bubbles is painfully obvious: as housing becomes unaffordable, households impoverish themselves to "get in now before it's too late;" malinvestment (i.e. McMansions in the middle of nowhere) flourishes as housing becomes a speculative financial vehicle rather than shelter; retirement funds are sold designed-to-default mortgage-backed securities, and when the bubble finally pops, those lured into buying at the top are left underwater, owing more on their mortgage than their house is worth. But the euphoria and greed of the bubble mindset do serve one valuable purpose...
Pool: after statement Obama headed to the Vineyard Golf Club
— Zeke Miller (@ZekeJMiller) August 20, 2014
"Today’s environment, however, is quite distinct, as seen in the chart below, where we lay out the GMO seven-year forecasts in a volatility (an imperfect shorthand for risk) versus return format for the traditional asset classes, or betas. This beta desert is so challenging because not only are there no asset classes that we believe are priced to deliver 5% real return (the red line), there is also no safe place to hide and wait (the green circle)." - GMO
While it is not clear what President Obama will discuss this morning in his daily dictation; we suspect, on the heels of yesterday's gruesome American journalist beheading video from ISIS, that he will explain why 'humanitarian' airstrikes in Iraq will continue until morale improves. Perhaps he will re-dip his toe back into the ongoing Ferguson riots - noting his right hand man Holder is on the case? Or finally, perhaps he will opine on the surge in US stocks recently as proof America is beating Putin back? As a reminder, the President is back in Martha's Vineyard...
Reports are coming in that, following Russian ministry urging this morning that the humanitarian mission start as soon as possible (following ongoing Ukrainian attacks on Donetsk and Eastern Ukraine), that the white humanitarian trucks of the Russian convoy are crossing the border into Ukraine customs.
Sanctions blowback? Russian food safety watchdog Rospotrebnadzor has ordered the closure of four McDonalds restaurants in Moscow, according to Reuters, due to "numerous sanitary breaches."
*MOSCOW TEMPORARILY CLOSES SEVERAL MCDONALD'S RESTAURANTS
This was not entirely a surprise since Russia had previously raised concerns over McDonalds cheese and was angered when the fast-food restaurant ceased operations in Crimea. This also comes on the heels of McDonalds problems in China and Japan over food supply issues. It appears the "tangible losses" Putin promised, are beginning.
The algos and chart traders are making another run at 2000 on the S&P 500, attempting to convince the wary investor one more time that buying on the dips is a no brainer. And in that proposition they are, ironically, correct. To buy this utterly manipulated market at these nosebleed valuation levels is about as brainless of an undertaking as is imaginable.
For most (practically all) Americans, this is officially the worst recovery ever. As we pointed out previously, wage growth has never been slower in a post World War II recovery. However, not everyone is hurting...
*GOLDMAN SACHS SAID TO RAISE JUNIOR STAFF'S SALARIES ABOUT 20%
This comes just weeks after Morgan Stanley announced it would raise junior banker salaries by 25%. It appears President Obama's hopes for 'fair, livable' minimum wage is being heeded by the banking community - good patriots, they are.