The era of bondholder bailouts is ending and that of depositor bail-ins is coming.
In that context a move to increased allocation of savings including a prudent allocation of some 5% to 10% to precious metals, is a sensible policy.
Treasury yields are surging on the ADP's Good news this morning with 10Y topping 2.84% - its highest yield in almost 3 months. The USD is surging, stocks are fading; but despite an initial dip... gold is rallying.
- Deutsche Bank gets biggest combined penalty of €725.4mln.
- SocGen fined €445.9mln for Euribor manipulation.
- RBS agrees to pay €391mln in cartels
- JPMorgan fined €79.9mln in JPY LIBOR case.
- R.P. Martin Holdings Ltd fined €247,000
- UBS and Barclays escape fines as EU whistle-blowers.
While there was a plethora of macro data (starting with some ugly numbers out of Australia which clobbered AUD pairs overnight), China HSBC Services PMI dipping slighlty from 52.6 to 52.5, Final Eurozone PMI Services (printing at 51.2 up from 50.9 and beating expectations of the same on an increase in German PMI numbers from 54.5 to 55.7 and a decline in French PMI from 48.8 to 48.0), Eurozone retail sales declining by 0.2%, on expectations of an unchanged print, and much more (see below), perhaps the most important news of the day came from Japan which many expect will be the source of much more easing in the coming months and thus serve as marginal lever to push global fungible markets higher. However, not only did various BOJ officials for the first time in a while talk down expectations of a QE boost, but the head of the Japan GPIF said that it doesn't need to sell JGBs right now as it would "rock markets" and that instead can achieve its targeted 52% weighing as bonds mature, that it may buy foreign bonds instead to raise weighting to core target (as the Fed buys Japan bonds?), and that it will be very difficult for Japan to hit the BOJ's inflation target in 2 years. Is Japan already getting cold feet on rumors of more QE and did it realize there are only so many assets it can monetize. If so, watch out below on the EURJPY which has now priced in about 700 pips of expected BOJ QE boosting in early 2014.
A world, in which former permabears David Rosenberg, Jeremy Grantham and now Hugh Hendry have thrown in the towel and gone bull retard, and where none other than the Chief Investment Officer of General Re-New England Asset Management - a company wholly-owned by Warren Buffett's Berkshire Hathaway, has issued one of the direst proclamations about the future to date and blasts the Fed's role in creating the biggest mess in financial history, is truly upside down...
Faith in the current system is as high as it has ever been, and folks don't want to hear otherwise. If you're one of those people who thinks it prudent to have intelligent discussion on some of these risks -- that maybe the future may turn out to be less than 100% awesome in every dimension -- you're probably finding yourself standing alone at cocktail parties these days. A helpful question to ask yourself is: if I could talk to my 2009 self, what would s/he advise me to do? Don't put yourself in a position to relearn that lesson so soon after the last bubble. Exercise the wisdom to look like an idiot today.
The broad-based measure of Treasury bond volatility - MOVE - has broken higher, and, as BofAML's MacNeil Curry notes, confirms a base and change in trend (to higher or more volatility). With the month of December traditionally a strong month for the MOVE Index and Treasury volatility in general, Curry warns there are two ways the volatility can move higher - either higher rates or lower equities.
As we explained over two months ago, and as the Fed is no doubt contemplating currently, the primary topic on the agenda of central bankers everywhere and certainly in the Marriner Eccles building, is how to boost inflation expectations as much as possible, preferably without doing a thing and merely jawboning "forward expectations" (or more explicitly through the much discussed nominal GDP targeting) in order to slowly but surely or very rapidly and even more surely, get to the core problem facing the developed world: an untenable mountain of debt, and specifically, inflating it away. Of course, higher rates without a concurrent pick up in economic activity means a stock market tumble, both in developed and emerging countries, as the Taper experiment over the summer showed so vividly, which in turn would crush what many agree is the Fed's only achievement over the past 5 years - creating and nurturing the "wealth effect" resulting from record high asset prices, which provides lubrication for financial conditions and permits the proper functioning of capital markets. Perhaps this is the main concern voiced by JPM's chief US economist Michael Feroli who today has issued an interesting piece titled simply enough: "Raising inflation expectations: a bad idea." Is this the first shot across the bow of a Fed which may announce its first taper as soon as two weeks from today, in order to gradually start pushing inflation expectations higher?
"What keeps us up at night? Well I can’t speak for the others, having spoken too much already to please PIMCO’s marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the “New Normal” characterization of our post-Lehman global economy, now focuses on the possibility of a” T junction” investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world. ... investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. “You have no other choice,” their policies insinuate.... Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE." - Bill Gross
- With website improved, Obama to pitch health plan (Reuters)
- Joe Biden condemns China over air defence zone (FT)
- Tally of U.S. Banks Sinks to Record Low (WSJ)
- Black Friday Weekend Spending Drop Pressures U.S. Stores (BBG)
- Cyber Monday Sales Hit Record as Amazon to EBay Win Shoppers (BBG)
- Ukraine's Pivot to Moscow Leaves West Out in the Cold (WSJ)
- Investment banks set to cut pay again despite rise in profits (FT)
- Worst Raw-Material Slump Since ’08 Seen Deepening (BBG)
- Democrats Face Battles in South to Hold the Senate (WSJ)
- Hong Kong reports 1st case of H7N9 bird flu (AP)
- In Fracking, Sand Is the New Gold (WSJ)
Goldman Reveals "Top Trade" Reco #5 For 2014: Sell Protection On 7-Year CDX IG21 Junior Mezzanine TrancheSubmitted by Tyler Durden on 12/03/2013 07:22 -0500
If the London Whale trade was JPM selling CDS in tranches and in whole on IG9 and then more, and then even more in an attempt to corner the entire illiquid IG9 market and then crashing and burning spectacularly due to virtually unlimited downside, Goldman's top trade #5 for 2014 is somewhat the opposite (if only for Goldman): the firm is inviting clients to sell CDS on the junior Mezz tranche (3%-7%) of IG21 at 464 bps currently, where Goldman "would apply an initial spread target and stop loss of 395bp and 585bp, respectively. Assuming a one-year investment horizon, the breakeven spread on this trade is roughly 554bp (that is, 90bp wider than where it currently trades)." In other words, Goldman is going long said tranche which in an environment of record credit bubble conditions and all time tights across credit land is once again, the right trade. Do what Goldman does and all that...
Something snapped overnight, moments after the EURJPY breached 140.00 for the first time since October 2008 - starting then, the dramatic weakening that the JPY had been undergoing for days ended as if by magic, and the so critical for the E-Mini EURJPY tumbled nearly 100 pips and was trading just over 139.2 at last check, in turn dragging futures materially lower with it. Considering various TV commentators described yesterday's 0.27% decline as a "sharp selloff" we can only imagine the sirens that must be going off across the land as the now generic and unsurprising overnight carry currency meltup is missing. Still, while it is easy to proclaim that today will follow yesterday's trend, and stocks will "selloff sharply", we remind readers that today is yet another infamous double POMO today when the NY Fed will monetize up to a total of $5 billion once at 11am and once at 2 pm.
The markets seem to think we live in a largely riskless world. Are risk assets now riskless assets or are they risk assets disguised as riskless?
Are Another 1.3 Million Americans About To Drop Out Of Labor Force (And Send Unemployment Plunging)?Submitted by Tyler Durden on 12/02/2013 14:40 -0500
With even the Fed somewhat challenging the credibility of the official unemployment rate - as labor force participation collapses structurally - the possibility that if Congress does not act by Dec 28th, a further 1.3 million people will lose emergency aid and may be deemed 'out' of the labor force merely exaggerates an already farcical situation. As JPM's Mike Feroli notes, the "official" unemployment rate may drop up to 0.8 percentage points, but it won't mean the economy is any better. Is this the 'excuse' the Fed needs to transition from QE to forward guidance (with the public seeing only a rapidly collapsing unemployment rate as evidence of their success) even as the data that they are so "dependent" on becomes worse than useless?
The Fed is absorbing over 0.3% of all Ten Year Equivalents, also known as "High Quality Collateral", from the private sector every week. The total number as per the most recent weekly update is now a whopping 33.18%, up from 32.85% the week before. Or, said otherwise, the Fed now owns a third of the entire US bond market.