The following Top Ten Market Themes, represent the broad list of macro themes from Goldman Sachs' economic outlook that they think will dominate markets in 2014.
- Showtime for the US/DM Recovery
- Forward guidance harder in an above-trend world
- Earn the DM equity risk premium, hedge the risk
- Good carry, bad carry
- The race to the exit kicks off
- Decision time for the ‘high-flyers’
- Still not your older brother’s EM...
- ...but EM differentiation to continue
- Commodity downside risks grow
- Stable China may be good enough
They summarize their positive growth expectations: if and when the period of stability will give way to bigger directional moves largely depends on how re-accelerating growth forces the hands of central banks to move ahead of everybody else. And, in practice, that boils down to the question of whether the Fed will be able to prevent the short end from selling off; i.e. it's all about the Fed.
That the Fed has a problem is increasingly well known - despite the blather from the mainstream media that QE monetization can continue ad infinitum. Their problem, of course, is running out of government-provided liabilities to monetize (as deficits shrink and their ownership of the entire Treasury complex surges). They face other problems (as we have noted before) but the admission that they are boxed in would have major ramifications in the market's faith. So, how does the Fed, faced with the knowledge that they have created asset bubbles, broken the bond market, and are boxed in by their own excess still meet the market's undying desire to keep the flow going? Bill Dudley just, perhaps inadvertently, dropped a hint of the next 'market/scapegoat' for monetization - Student loans.
Economics is all about making rational decisions given some set of likes and dislikes. It doesn’t presume to tell you what you should like or dislike, and it assumes that you do in fact know what you like or dislike. Or at least that’s what economic theory used to proclaim. Today economic theory is used as the intellectual foundation for a political stratagem that goes something like this: you do not know what you truly like, and in particular you do not know your economic self-interest, but luckily for you we are here to fix that. This is the common strand between QE and Obamacare. The former says that you are wrong to prefer safety to risk in your investments, and so we will fix that misconception of yours by making it extremely painful for you not to take greater investment risks than you would otherwise prefer. The latter says that you are wrong to prefer no health insurance or a certain type of health insurance to another type of health insurance, and so we will make it illegal for you to do anything but purchase a policy that we are certain you would prefer if only you were thinking more clearly about all this.
It took Hilsenrath just under a minute to pump out his 1057 (excluding the title) word thesis on the FOMC minutes. As usual, this is indicative of a comfortable embargo cushion which one can be assured was unbreached, as anything else would be very illegal. "Federal Reserve officials had a wide-ranging discussion about the outlook for monetary policy at their Oct. 29-30 policy meeting. The bottom line was that they stuck to the view that they might begin winding down their $85 billion-per-month bond-buying program in the “coming months” but are looking for ways to reinforce their plans to keep short-term interest rates low for a long-time after the program ends. They struggled to build a consensus on how they would respond to a variety of different scenarios. One example: What to do if the economy didn’t improve as expected and the costs of continuing bond-buying outweighed the benefits? Another example: How to convince the public that even after bond buying ends, short-term interest rates will remain low."
The big trouble in massive China that we discussed here is weighing heavily on the liquidity in the debt-fueled nation. As The FT reports, several banks have had to delay or dramatically reduce Chinese bond issues as the impact of a tight onshore credit market begins to be felt. "China is much more funding dependent than in the past," warns one analyst, as issuers are dealing with a string of problems stemming from the drying up of interbank market liquidity and fierce competition from wealth management and trust products for investors’ funds. "Government and policy banks have suffered the most. Now pressure is coming to corporates," one trader pointed out, adding, ominously, "it's going to end pretty ugly unless PBOC changes its attitude to liquidity;" which, of course, is exactly the situation the 3rd Plenum outline is looking to change.
It's Bullard's Turn To Pour Cold Water On Stock Ramp, Says December Taper Possible, Considers Negative Rates As WellSubmitted by Tyler Durden on 11/20/2013 10:39 -0500
First it was Carl Icahn, then Larry Fink, and now it is Fed "bellwether" Bullard who take the ECB's NIRP and doubles down with a "Taper"
- BULLARD WOULD LIKE STUDY OF NEGATIVE RATE FOR EXCESS RESERVES
- BULLARD SAYS THINGS ARE LOOKING BETTER
- BULLARD SAYS JOBS PICTURE LOOKING BETTER
- BULLARD SAYS QUESTION IS WHETHER JOBS PICKUP SUSTAINABLE
- BULLARD SAYS A STRONG JOBS REPORT FOR NOVEMBER WOULD INCREASE PROSPECT TO TAPER IN BOND BUYING IN DECEMBER
Yeah, everyone is falling for that one again. Sure. For now however, EURUSD is buying it, and is down 100 pips on the combined action of the NIRP rumor and the possibilty of a December Taper.
Talking-heads and commission-takers have momentum-chased clients' hard-earned money into Europe's 'what works now' markets - on the basis of what has now proved to be entirely fallacious macro- and micro-fundamental improvement (as we noted here and here). But, while "whatever it takes" has smashed bond spreads lower and has blown stock prices higher; most critically, the 'confidence' has seen the EUR rise almost 15% against the USD from its July 2012 "whatever It Takes" lows. The effect of this EUR strength is to collapse earnings growth expectations as European competitiveness is crushed (core or periphery). Of course, bulls can rest assured, as the following chart shows, 2014 is expected to hockey-stock back to record EPS growth (just like 2013 was supposed to?).
“This is different" and "this location is different" is the mantra of every property bubble. We will soon see if the London property bubble is truly different or will suffer the fate of the bubbles throughout history. Of the four charts in our market update today, which ones do you think show characteristics of a bubble? Those diversifying and buying gold in the UK will be rewarded in the coming years. The smart money is reducing exposure to overvalued London property and increasing exposure to undervalued gold.
After the DJIA and S&P briefly crossed the key resistance levels of 16000 and 1800, the upper bound on the markets has been looking increasingly more distant and this morning's lack of an overnight ramp only makes it more so. Perhaps the biggest concern, however, is that with both Yellen and Bernanke on the tape yesterday, the S&P still was unable to close green. This follows on Monday's double POMO day when the S&P once again closed... red. Not helping things was the overnight announcement by the Japanese government pension fund, the GPIF, in which the fund announced it would lower its bond allocation further however the new law to reform the GPIF could be written by spring 2015. This was hardly as exciting as the market had expected, and as a result both the USDJPY and the ES-moving EURJPY find themselves at overnight lows. Will the EURJPY engage in its usual post 8 am ramp - keep a close eye, especially since the usual morning gold and silver slam down just took place.
Jim Rogers hope-driven wish is that the politicians were smart enough at some point to say (to the central bankers), "we've got to stop this, this is going to be bad." He adds, on the incoming QEeen, "she’s not going to stop it, first of all she doesn't believe in stopping it, she thinks printing money is good." However, Rogers warns in this excellent interview with Birch Gold, "eventually the markets will just say, "We're not going to play this game anymore", and we'll have a serious collapse." The world is blinded by central bank liquidity, and as Rogers somewhat mockingly notes "if everybody says the sky is blue, I urge you to look out the window and see if it's blue because I have found that most people won't even bother to look out the window..." Rogers concludes, "everybody should own some precious metals as an insurance policy," because as he ominously warns, when 'it' collapses, "there will be big change.
Minutes ago, the Chicago Fed's Charlie Evans went dove-retard and tongue-in-cheekly announced that QEternity may have to be increased by 50% in the coming year!
#CharlesLEvans our purchases will continue to be open ended. We may need to purchase 1.5 trillion in assets until January 2015
— ChicagoFed (@ChicagoFed) November 19, 2013
Ignore the fact that the US deficit will be less than half this number in the coming year. More importantly, based on what everyone now knows is the only driver of US equity "market" performance, the Fed is implicitly announcing its 2014-year-end target for the S&P 500 of 2,220 - so BTFATH (because it's the fundamentals that matter).
As everyone knows, and as we showed yesterday in our infographic du jour, Wall Street manipulates everything, EVERYTHING.... except gold. Which is why were absolutely floored by what just flashed on Bloomberg:
- GOLD BENCHMARKS SAID TO BE UNDER REVIEW BY U.K. AS PROBE WIDENS
More from Bloomberg: "The FCA review is preliminary and hasn’t risen to the level of a formal investigation, said the person, who asked not to be identified because the matter isn’t public. The person declined to say which gold benchmarks were under scrutiny. One of the key benchmarks is the London gold fixing, which determines the spot price for physical gold and is set twice daily by a panel of five banks."
No. That's not true. That's impossible.
Bitcoin has increased more than tenfold since the beginning of 2013. One of the reasons for the incredible surge is that bitcoin is a freely traded market and not subject to rigging or price manipulation by banks or government. Physical Gold, either in your possession or in allocated accounts, remains a far safer alternative both to bitcoin, to digital gold platforms and to paper and electronic currencies in what is still a vulnerable banking system.
It is time for the centrally-planned markets to "try" for the round number trifecta of 16000, 1800 and 4000 again, although it may be a tad more difficult on a day in which there is no double POMO and just $2.75-$3.50 billion will be injected by the NY Fed into the S&P - perhaps it is Bitcoin that will hit the nice round number of $1000 first? Overnight, the Chinese Plenum news rerun finally was priced in and the SHComp closed red, as did the Nikkei 225 as the Asian euphoria based on communist promises about what may happen by 2020 fades. What's worse, the Chinese 7-day repo rate is up 140bp this morning to 6.63% amid talk of tightening domestic liquidity conditions, and back to levels seen during the June liquidity squeeze. All this is happening as China continues leaking more details and hope of what reform the mercantilist country can achieve, and how much internal consumption the export-driven country can attain: overnight there were also additional reports of interest rate liberalization and that the PBOC are to set up a floating CNY rate. Good luck with that.
In 1997, the SE Asian Tigers all faced severe economic stresses, partially triggered by a primarily foreign capital-funded massive real estate bubble in Thailand. Today the EXACT same thing is happening as untempered foreign investment into Thailand’s real estate market has created not a “soaring” real estate market as economists always incorrectly explain them, but massive real estate market distortions better known as a bubble.