The black line's trend is nobody's friend.
Over the past 2 years the Obama administration has been desperate to boost minimum wages, usually over tedious bickering with republicans and corporations who have resisted such an increase, with neither party realizing that such a measure would not do much to actually boost aggregate spending. Instead, what Obama should have been focusing on was to limit the maximum number of hours worked per week, because as the following chart shows, the reason why weekly pay is rising and aggregate earnings is not due to an increase in hourly wages but because Americans are simply working longer hours every week: not quality but quantity.
So much for the "self-sustaining", "escape-velocity" recovery. Again. After rising at an annualized pace of 4.6% and 5.0% in Q2 and Q3, the final Q4 GDP estimate (a number which will still be revised at least 3-4 times in the coming years), slid more than half to 2.2%, the same as the second estimate from a month ago, and below the consensus Wall Street estimate of 2.4%.
- Google's new CFO to make $70 million (WSJ)
- Senate passes Republican budget with deep safety net cuts (Reuters)
- With Yemen strikes, Saudis show growing independence from U.S. (Reuters)
- Banks Slash Dividends as Loans Sour From Beijing To Pearl River (BBG)
- North American Railroads Caught by Speed of Crude-Oil Collapse (BBG)
- Japan’s Zero Inflation a Setback for Abenomics (WSJ)
- Cooperman Says U.S. Seeks Information About Omega Trades (BBG)
After a few days of dollar weakness due to concerns that the Fed's rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the "strong dollar is bad for risk" trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of "risk-off" in a long time.
About half the world's oil production is moved by tankers on fixed maritime routes, according to Reuters. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs and thus, these checkpoints are crucial to global energy security. While Hormuz remains the largest chokepoint (and along with Bab el-Mandeb explains why Yemen matters so much), Malacca (as we noted previously) is quickly becoming another area of potential problems.
In a somewhat surprising turn of events, this morning's futures reaction to last night's shocking start of a completely unexpected Yemen proxy war, which has seen an alliance of Gulf State launch an air, and soon land, war against Yemen's Houthi rebels, is what one would expect: down, and down big. This is surprising, because on previous occasions one would expect the NY Fed, or its pet hedge fund, Citadel, or the BOJ or ECB (via the CME's "Central Bank Incentive Program") to aggressively buy ES to prevent a slide, something has changed, and for the BTFDers, that something may be very fatal with the e-Mini rapidly approaching a 1-handle yet again. The offset to tumbling stocks, as previously observed, is oil, with WTI soaring over 6% in a delayed algo response to the Qatar headlines.
The negative divergence of the markets from economic strength and momentum are simply warning signs and do not currently suggest becoming grossly underweight equity exposure. However, warning signs exist for a reason, and much like Wyle E. Coyote chasing the Roadrunner, not paying attention to the signs has tended to have rather severe consequences. When the market eventually cracks, the "disposition" effect will trump all the good intentions of "buying and holding" for the long-term. The eventual "panic to sell" will lead to a significant destruction in investment capital and a reversion in investor psychology to extreme negativity. While the basic premise of investing is to "buy low" and "sell high," repeated studies show that there are precious few who do.
Does it really take purportedly intelligent people six years to see that the macros are not responding? Better still, isn’t it time for the Fed to explain the exact channel by which its interest rate pegging and forward guidance is supposed to be transmitted to the main street economy? After all, if these channels are blocked or ineffective - then its flood of liquidity never leaves the canyons of Wall Street. In that event, the central bank actually functions as a financial doomsday machine, inflating the next financial bubble until it bursts. Then, apparently, its job is to rinse and repeat.
According to AXA’s Nick Hayes, the EGB bubble may end in a 2000 Nasdaq-style collapse. "The comfort with which investors are embracing negative yields is similar to behavior of those who had been underweight technology stocks in 1999 before rushing in."
After three days of unexpected market weakness without an apparent cause, especially since after 7 years of conditioning, the algos have been habituated to buy on both good and bad news, overnight futures are getting weary, and futures are barely up, at least before this morning's transitory FX-driven stop hunt higher. Whether this is due to the previously noted "blackout period" for stock buybacks which started a few days ago and continues until the first week of May is unclear, but should the recent "dramatic" stock weakness persist, expect Bullard to once again flip flop and suggesting it is clearly time to hike rates, as long as the S&P does not drop more than 5%. In that case, QE4 is clearly warranted.
"There's a liquidity conundrum in fixed income markets facing policy makers and investors: how it’s resolved will have long term investment implications across banks, asset managers and infrastructure players," a new report from Morgan Stanley and Oliver Wyman notes. The joint effort is an attempt to dig deep into the all important issue of credit market liquidity (or lack thereof) and determine the short term and long term implications.
If the US intervention in Iraq created the “unintended consequences” of ISIS and al-Qaeda, how is it that more US intervention can solve the problem? A war based on lies cannot be fixed by launching another war. We must just march home. And stay home.
"I'm not sure [European QE] is going to do anything - certainly, nothing that's good. The fundamental problem here, as I see it anyway, is that the European banking system is still broken... I think, increasingly, bankers are discomforted more than anything else (it's not just the ex central bankers but increasingly the people that are still holding the levers)... they are starting to ask whether they have somehow been backed into a place where they don't really want to be.... Unfortunately, [it] is getting bigger and bigger. There is a possibility at least that this whole exercise could end very badly."
"Leverage is risky. Purchasing assets with borrowed money can amplify small movements in prices into extraordinary gains or crippling losses, even default."
- San Fran Fed