"...debt is simply everywhere, at least to the extent we can see and measure it. Corporate and sovereign debt, of both the developed world and emerging market varieties, are at record levels. China’s debts certainly add to that record but who really knows to what extent? It’s the ultimate black box of leverage on Planet Earth... You cannot NOT worry about the Fed in this world...The simple truth is ending reinvestment would bring the bond market to its knees.”
As for the incredible realm, one explanation is that the Fed is scared stiff it has nothing left in its toolbox to combat the next recession. Few major downturns have begun with the fed funds rate so perilously close to zero. The ultimate Catch 22 is that the flatness of the yield curve makes any fantasy of a Fed rate hike all too real for a dead breed the world once knew as ‘bond market vigilantes.’ It’s altogether possible that one more hike would be all it takes to invert the yield curve. The rest, as history has never failed to repeat, would be just that – history.
Once again FOMC policy is at odds with what is taking place in deeper and far more intellectually-sound money markets. The TED spread confirms risk not policy as the underlying mechanism, while the eurodollar futures price reveals the growing pessimism about what that could mean for the intermediate and long terms in real economic conditions.
"... during the discussion, several participants commented on a few developments, including potential overvaluation in the market for CRE, the elevated level of equity values relative to expected earnings, and the incentives for investors to reach for yield in an environment of continued low interest rates."
"More striking, at least in our eyes, was his language on the Dollar, where he essentially made the case that weaker fundamentals elsewhere require a dovish offset from the Fed, to prevent the Dollar from appreciating. This language comes very close to “Dollar targeting."
"The current P/E expansion cycle is now one of the largest in history. Since September 2011, S&P 500 forward P/E has grown by 75% (from 10x to 18x). This expansion has only been surpassed twice since 1976, when the multiple rose by 111% from 1984-1987 (ending with the 22% Black Monday collapse) and by 115% from 1994-1999 (ending with the Tech Bubble pop)." - Goldman Sachs
Caution is called for because of Fed’s limited ability to reduce policy rate, Federal Reserve Bank of New York President William Dudley says, Dudley comments in text of speech in Bridgeport, CT. “Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted slightly to the downside”
"[There was] a lot of ‘let’s not forget the far more hawkish statements other Fed officials made last week,’ [but] this was not a bolt out of the blue. As she spoke, I couldn’t help picturing a mother lion swatting her misbehaving cubs back into line."
At the end of the day, it was all about the dollar and the reason for this morning's stock surge around the globe, as we noted last night, is absurdly delightful: Yellen signaled "weakening world growth" and "less confidence in the renormalization process." In other words, the "bad news is good news" mantra is back front and center.
Nefarious foreign hackers, blacked out CCTV systems, corrupt local bank managers, shifty go-betweens, and $30 million in cash delivered to an anonymous man of "Chinese origin" who disappeared into the shadows of Manila and will likely never be heard from again. This story has it all. It even has Bill Dudley.
Jason Gross was the latest former banker to make a mockery of the US judicial system when he was spared prison on Wednesday, for stealing NY Fed secrets on behalf of Goldman Sachs. Instead Gross, 37, was fined $2,000 by U.S. Magistrate Judge Gabriel Gorenstein in Manhattan and sentenced to a year of probation with 200 hours of community service after pleading guilty to a misdemeanor charge of theft of government property.