There was much hope that when Q3 GDP soared to 5%, primarily on the back of Obamacare spending recalendarization and a massive consumption/personal saving data revision, that the US economy would finally enter lift-off mode. Those hopes were reduced by about 60% when moments ago the BEA announced that Q4 GDP was revised from the original 2.64% print to only 2.18%, which while better than expected, was the lowest economic growth rate since the "polar vortex."
If there isone thing that is virtually certain about today's trading (aside from the post Rig Count surge in oil because if there is one thing algos are, it is predictable) is that despite S&P futures being a touch red right now, everything will be forgotten in a few minutes and yet another uSDJPY momentum ignition ramp will proceed, which will push the S&P forward multiple to 18.0x on two things i) it's Friday, and an implicit rule of thumb of central planning is the market can't close in confidenece-sapping red territory ahead of spending heavy weekends and ii) the Nasdaq will finally recapture 5000 following a final push from Apple's bondholders whose recent use of stock buyback proceeds will be converted into recorder highs for the stock, and thus the Nasdaq's crossing into 5,000 territory because in the New Normal, the more expensive something is, the more people, or rather algos, want to buy it.
Despite some compression today in anticipation of ECB QE (as if that was not anticipated enough in the idioctically marginal yields across European peripheral bonds), it appears Europe is 'not' fixed. With Brexit odds around 1 in 6 and Podemos' lead in Spain extending, it appears redenomination risk (as we discussed, clearly lacking in many spreads) is re-emerging. Since the Greek election, Spanish credit risk is up 30%... more than Greece!
Following a quiet overnight session in which the main event appears to be a statement by Chinese premier Li for more active fiscal policy, which has pushed the metals complex higher, although technically every other asset class as well, with US equity futures set to open in fresh record high territory, even as 10Y yields around the world continue to decline, attention today will fall on the CPI print due out shortly, because if consensus is correct, January will be the first month this decade when US inflation posts a negative print, mostly due to the delayed effect of sliding commodity prices. As Deutsche recaps, the most important number today is the headline CPI where the headline YoY rate is predicted to be negative by the market (-0.1%) for the first time since 2009. Over this period the YoY rate stayed negative for 8 months. However before this we hadn't seen a full year decline since August 1955. In other words, a few months before what may be the first US rate hike for a new generation of traders, the US is set to print its first annual deflation since Lehman, transitory or not.
As a frequent contributor to Bloomberg, I would welcome the opportunity to debate this with Barry.
What say you @ritholtz ? : )
Stocks In Holding Pattern Following Blow-Off Top, Oblivious Of Fed's Warning Of "Stretched" ValuationsSubmitted by Tyler Durden on 02/25/2015 07:00 -0500
Following the first of two Janet Yellen testimonies to Congress, the market read between the lines of what the Fed Chairman said when she hinted that "the Fed needs confidence on recovery and inflation before beginning to raise rates" and realized that the case of a June rate hike is suddenly far less realistic than previously expected, as a result not only did we see another blowoff top in stocks to fresh all time highs, a move which sent the USD lower, has pushed the median EV/EBITDA multiple to the mid 11x (!) range and the forward PE to just shy of 18x ironically coming on a day when the Fed itself warned about "stretched" equity valuations, and led to brisk buying of global Treasurys across the board, pushing the 10 Year in the US back under 2%, and due to the global convergence trade (because if the Fed returns to QE, it will be forced to buy up Treasuries not just in the US but around the globe, since net issuance including CBs globally is now negative) and leading to today's German 5 Year bond auction pricing at a negative yield for the first time ever.
"The economy is booming, according to recent data. GDP grew by 2.6% annualized in the last quarter. And yet oil prices have dropped faster than they did in the crisis of 2008. The US dollar is at record strength. And the gold price has spiked in many currencies ... Something’s not right here." So says Eric Sprott in his latest report observing what may lie in store for oil and gold in the near future.
A recent business innovation that has seen wide market acceptance is the bundling of goods and services. The government bundles its products, too. However, unlike private businesses, the government gives us no choice but to purchase its one “mega-bundle”. From the viewpoint of the state, to not purchase its bundle is considered a crime rather than freedom and comes with punishments that can be extreme. Being forced to purchase the government bundle is decidedly not freedom.
If you thought the Greek tragicomedy is over, you ain't seen nothing yet, because despite the so-called Friday agreement, the immediate next step is for Greece to submit its list of reform measures to the Troika, which will almost certainly result in an immediate revulsion in Germany's finance ministry, and lead to another protracted back and forth between the Troika and Greece, which may once again well end with a Grexit, especially if the Greek liquidity situation, where bash is bleeding from both the banks and the state at a record pace, remains unhalted. It is therefore not surprising that the ongoing decline in the EURUSD since the inking of the agreement, and the fact that the pair briefly dipped below 1.13 this morning - over 100 pips below the euphoric rip on Friday - is a clear indication that the market is starting to realize that absolutely nothing is either fixed, or set in stone.
The Ultimate "Easy Money Paradox": How The ECB's Previous Actions Are Assuring The Failure Of Its Current ActionsSubmitted by Tyler Durden on 02/22/2015 17:35 -0500
The problem, as several sources told Reuters last week, is that there simply aren’t a lot of willing sellers. Ironically, the ECB’s own policy maneuvers are ultimately responsible for creating this situation. That is, the fallout from previous forays into ultra accommodative monetary policy is now hampering the implementation of quantitative easing - call it the ultimate easy money paradox.
We would do well to consider the possibility of war strategies when it comes to the global stockpiling of petroleum reserves. In the years leading up to the German invasion of Poland, the world witnessed dramatic decreases in the price of oil as well as massive increases in petroleum inventories, especially as the Texas fields began to produce. These shifts in the global oil markets ran parallel to the deflation which had begun in October, 1929, and as such, we can see the same pattern repeating today as oil prices collapse, inventories are growing, and world wide deflation is deepening.
Government mandated fiat currency simply does not work in the long run. We have empirical evidence galore – every fiat currency system in history has failed, except the current one, which has not failed yet. The modern fiat money system is more ingeniously designed than its historical predecessors and has a far greater amount of accumulated real wealth to draw sustenance from, so it seems likely that it will be relatively long-lived as far as fiat money systems go. In a truly free market, fiat money would never come into existence though. Greenspan was wrong – government bureaucrats cannot create something “as good as gold” by decree.
Past: Scarily Prescient Analysis of @Grexit meets Present: Analysis of the Goldman Hedge meets Future: Goldman DisintermediationSubmitted by Reggie Middleton on 02/20/2015 15:12 -0500
A literal Tour de Force, likely the most indepth, practical analysis of the Grexit situation as you will ever read. This is why I like blogging... You can never find stuff like this in the mainstream media.
"... we almost hope those forecasts are proven wrong. They imply a widening gap between valuations and traditional fundamental relationships. They imply a dearth of yields and spreads that will almost invariably push more and more investors into positions they would ultimately rather not take. But if the old adage that markets move in the direction that causes the most pain to the largest number of people is anything to go by, then we suspect that this is what will happen. Depressingly, our instinct is that those new forecasts are more likely too conservative than too aggressive. Longer-term, sweet dreams really aren't made of this."