It's Happening - More US Allies Join The Anti-Dollar Alliance

The United States government just went from “Please, baby, don’t leave me,” to frustrated threats and whining. After the UK announced it will join new China-led Asian Infrastructure Investment Bank (AIIB) as a founding member late last week, Germany, France and Italy decided yesterday to follow Britain’s lead and join as well. Welcome to the beginning of the end of the US dollar’s domination. It’s happening.

Ben Bernanke Was Right: "No Rate Normalization During My Lifetime"

"At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate, the Fed's main benchmark interest rate, to rise back to its long-term average of around 4 percent in Bernanke's lifetime. "Shocking when he said this," the guest scribbled in his notes. "Is that really true?" he scribbled at another point, according to the notes reviewed by Reuters."

Goldman's FOMC Post-Mortem - "More Dovish Than Expected" But Hike Coming In September

The March FOMC statement and projections suggested that September rather than June appears to be the most likely date for the first hike of the fed funds rate. Although the change to the "patient" forward guidance was close to expectations, the shift in the "dot plot" was most consistent with two rather than three 25 basis point hikes to the target range occurring in 2015. In addition, changes to the Committee's economic assessment were a bit more dovish.

Yellen Admits "Market Valuations Are On The High Side", Adds "No Comment" On Biotech, Social Media Stocks

With a firm "no comment" Janet Yellen shied away from burstng the bubble in "extremely stretched" Biotech and Social Media stocks, but was forced to admit that "overall measures of equity valluations are on the high side." Then, rather oddly, she notes that The Fed sees unusually low spreads in corporate bond markets... which is odd since they have actually widened dramatically in the last year or so, perhaps signalling just how "high" valuations are in stocks...

"Flexible" Fed Loses "Patience"; Cuts Growth, Inflation Forecasts: Redline Comparison

Evan as The "boxed-in" Fed nears the vinegar strokes of its easing cycle, today's statement continued to offer something for everyone (hawks, doves, bulls, & bears) to hold onto:

  • *FED DROPS PATIENT STANCE ON INTEREST-RATE RISE GUIDANCE (hawk)
  • *FED SAYS ECONOMY `HAS MODERATED SOMEWHAT,' JOB MARKET IMPROVED (dove)
  • *FED SEES 2015 GDP GROWTH OF 2.3%-2.7% VS 2.6%-3% DEC. EST. (dove)
  • *FED WANTS TO BE `REASONABLY CONFIDENT' ON INFLATION FOR LIFTOFF (hawk)

So, despite previous Fed promises, we have seen dismal macro data, no consumption gain from low gas prices, and USD strength headwinds; and yet, as they shift growth expectations in their dot plot, we're supposed to believe that. The bottom line: Fed to Markets: "you're on your own"-ish: undertainty is back. Full redline below...

Pre-FOMC: S&P Futs 2059, EUR 1.0650, 10Y 2.05%, Gold $1152

How Far Will The Euro Fall?

What can strike a balance between the opposing forces operating on the euro-dollar exchange rate? No one can say for sure, but one thing is certain: Whereas the profits from playing transatlantic interest-rate differentials may run to 1% or 2% per year, investors can easily lose that amount in a single day – or even an hour – by buying the wrong currency when the trend turns. As we know from decades of Japanese and Swiss experience, selling a low-interest-rate currency simply to chase higher US yields is often a costly mistake.

ECB Prepares For Grexit, Anticipates 95% Loss On Greek Debt

Dear Greek readers: the writing is now on the wall, and it is in very clear 48-point, double bold, and underlined font: when the ECB "leaks" that it is modelling a Grexit, something Draghi lied about over and over in 2012 and directly in our face too, take it seriously, because it is time to start planning about what happens on "the day after." And incidentally to all those curious what the fair value of peripheral European bonds is excluding ECB backstops, the ECB has a handy back of the envelope calculation: a 95% loss.

European Bond Risk Spikes Most Since 2011 As "Graccident" Looms

Despite the constant blather of how cheap European stocks are (they are not) and how Draghi's QE will create something positive (priced in?), the last 2 days have seen Italian, Spanish, and Portuguese bond risk explode higher. The 20%-plus surge in bond spreads is the biggest since the beginning of the EU crisis in 2011 as Grexit fears (and redenonimation risks) continue to spread.

A Reminder Of The Fed's Interest Rate Conundrum

Talk of raising interest rates introduces a new Fed conundrum. Over the last few months, Federal Reserve Board members have maintained a less dovish tone which implies the eventuality of rate hikes despite economic data which has been slowing rapidly.... A case can be made that, excluding 2008, the economy is weaker now than prior to the announcement of the previous QE actions and Operation Twist. Further confounding the Fed stance is inflation, which as measured by CPI is running lower than at any time since 2009. Additionally the strong dollar and global deflationary trends point to lower inflation and possibly deflation in the coming months.

Oil Junk Bonds Cost Investors Billions

"The debt borne by the oil and gas sector has increased two and a half times over, from roughly $1 trillion in 2006 to around $2.5 trillion in 2014. As the price of oil is a proxy for the value of the underlying assets that underpin that debt, its recent decline may have caused significant financial strains and induced retrenchment by the sector as a whole. If the adjustment takes the form of increased current or future sales of oil, it may amplify the fall in the oil price.

Dollar Demand = Global Economy Has Skidded Over The Cliff

Borrowing in USD was risk-on; buying USD is risk-off. As the real global economy slips into recession, risk-on trades in USD-denominated debt are blowing up and those seeking risk-off liquidity and safe yields are scrambling for USD-denominated assets. Add all this up and we have to conclude that, in terms of demand for USD--you ain't seen nuthin' yet.

Hilsenrath's FOMC Preview: "No More Promises, Fed Is Injecting Uncertainty Back Into The Market"

There have been countless previews of the FOMC statement at 2pm today, all of them largely worthless and regurgitating the same exact stuff. The only one that matters, as it is the only one with the explicit blessing of the Fed (see "On The New York Fed's Editorial Influence Over The WSJ") in its attempt to manage expectations: that "drafted" by Jon Hilsenrath. And if what the WSJ economist writes in "Fed to Markets: No More Promises" is accurate, then fasten your seat belts, ladies and gentlemen, because we are about to enter some turbulence. "The Federal Reserve is about to inject uncertainty back into financial markets after spending years trying to calm investors’ nerves with explicit assurances that interest rates would remain low."

Surprise: Tech Company Valuations Are Completely Made Up

We thought private tech company valuations looked ridiculous, but as the VC world will patiently explain to you, things like cash flow and operating costs actually don't matter, and "valuation" doesn't mean what you thought it meant. 

WTI Slumps As Cushing Inventory & Production Hit New Record High

Following last night's massive 10.5mm barrel build (according to API), this morning's DOE inventories data was highly anticipated (with an expectation of just over 5 million barrels). It did not disappoint... printing at 9.622 million barrel inventory build, this is now the fastest inventory build on record... with record total inventory and record Supplies at Cushing. Storage concerns are growing. But, despite the collapse in rig counts, high-grading and cash-flow deparation remains as crude production also hit a new record high.

WTI Nears $41 Handle After Saudi Comments

WTI is now down over $2 from the massive API inventory build last nihgt and is testing down to a $41 handle. The latest leg is not halped by Saudi officials' comments that it "will not interfere with the oil market," and that "the oil market will fix itself," as they continue the line taken at the last OPEC meeting and pressure US Shale even further.