Fraud is endemic in the financial system today. We know that the currency, stock, bond, and even commodity markets have ALL been manipulated by Investment Banks or Central Banks.
"China is reversing course on a major effort to tackle its hefty local government debt problem, marking a setback for a priority reform aimed at getting its financial house in order," WSJ reports. The abrupt about-face by Beijing, which will now allow local governments to once again tap shadow banking conduits for high interest loans, comes as the PBoC gets set to ramp up an LTRO-like program designed to essentially monetize trillions in local government debt. The interplay between the debt swap program, Chinese-style LTROs, and the decision to drop the ban on LGFV financing could set the stage for a dramatic increase in the country's already massive debt pile.
While the market was topping out, Tepper was actively adding to his bullish exposure, but not in the form of many new stock positions, when in fact he partially unloaded 15 of his 38 positions, while adding 12 new positions. It was 2 of these new additions that were particularly notable: just like in early 2014, Tepper is once again back to index investing, having added a whopping $939 million in notional-equivalent SPY Calls, and $413 million in notional-equivalent QQQ Calls. In other words, Tepper is once again making a very levered beta bet that the market will resume climbing, and he can capture the upside through SPY and QQQ calls.
"To critics who warn that pumping trillions of dollars into the economy in a short period is bound to drive up inflation, today's central bankers point to stagnant consumer prices and say, 'Look, Ma, no inflation.' But this ignores the fact that when money is nominally free, strange things happen, and today record-low rates are fueling an unprecedented bout of inflation across asset prices."
Not a day passes without one clueless pundit after another appearing on TV and reading from the teleprompter like a stoned zombie that one must not fight the Fed (and central banks) and buy stocks while shorting bonds. And yet what are central banks buying? Not stocks (at least not officially in the case of the Fed; only the BOJ and the SNB admit to openly monetizing equities).
The answer: bonds.
Reports of the death of the global bond bull market have been greatly exaggerated. Much to the chagrin of all the "told-you-so" tale-tellers on business-media this week, US Treasuries have been in great demand the last 2 days and all bonds 10Y maturity and below are now lower in yield on the week (with 30Y up a mere 4bps). Treasuries are now notably outperforming Bunds on the week.
"... some stressed more than others about it but all concluded that the last few weeks in rates were eye-opening. No-one really knew how to hedge or price for it in a world where you need to hit short-term performance targets. This supports my view that liquidity premiums will never be properly priced in this cycle and investors will stay in assets too long in order to maximise short-term performance.... when this cycle does end there is likely to be savage moves in markets where either investors need to sell or where they are able to sell."
Gold surged through its 100-day moving average at $1,210 per ounce like a knife through butter on Wednesday after the poor retail sales number. Silver’s nearly 7 per cent gains means that it is set for its biggest weekly gain in two months.
It is a cornerstone of orthodox economics that recessions are not just emotion and pessimism but spring out of an exogenous “shock.” There is none to be found here in sharp contrast to 2008 which at least had a deep financial panic. However, the trajectory of the economy since 2012 has been seeded by a distinct lack of growth especially in wages and incomes – what economists have been taking as slow but steady growth was actually much more nefarious. We may find out that recession shock includes just generic and basic attrition; that “demand”, despite all the attention and “stimulus” given it, can only hold out for so long without any actual (as opposed to purely statistical) alleviation.
- The fake: Avon-Offer Hoax Shows It’s Easy to Put One Over on SEC’s Edgar (BBG)
- And the real: US buyout group TPG snaps up UK discounter Poundworld (FT)
- El Niño near-certain to last through summer: U.S. climate center (Reuters)
- Oil Sands Land Becomes Alberta’s Hot Real Estate as Oil Rebounds (BBG)
- SEC a stumbling block in banks' forex guilty pleas: sources (Reuters)
- Pimco’s Stocks Chief Maisonneuve to Leave as Funds Closed (BBG)
- Bank of America’s Woes Test ‘Fixer’ CEO (WSJ)
- Puerto Rico Governor, Lawmakers Agree on Revenue Proposal (BBG)
Was that it for the "reflation" aka Bund-rout trade? One look at German bonds this morning and the sharp, panic selloffs seen in recent days are completely gone making one wonder if the ECB is done selling Bunds the CTAs who were riding the momentum train have all been squeezed out of their long positions and now the trend back to -0.20% can resume only to be followed by another abrupt 6-sigma move as the ECB once again sells inventory to buy itself more monetization runway. As a reminder, the ECB has to buy debt until September 2016 and it won't be able to if the 30-Year Bund is at -0.20% in a few months (or weeks).
It's worthwhile recalling that mainstream economists, the Federal Reserve, government agencies and the mainstream financial media all deny the economy is in recession until it falls off a cliff.
The fact is that much of the globe, particularly the developed west, is up to its eyeballs in debt. Mind, you, this is based solely on official public debt numbers. If you include unfunded liabilities, then the US, most of Europe, Japan, and even China are sporting Debt to GDP ratios well over 300%.
The current consternation among global equity markets is centered around the recent considerable rise in bond yields globally. Historical precedents, or the lessons they contain, which bear some resemblance to present market conditions suggest the recent spike in bond yields would appear to have historical evidence to back up those who harbor concerns about its potential negative impact on stocks – a negative impact that may be of a long-term nature.