Borrowing Costs

Frontrunning: March 7

  • Trump or Cruz? Republicans face tough choices as primary race churns forward (Reuters)
  • The Week the Republican Party Melted Down (BBG)
  • Rust Belt Could Be Donald Trump’s Best Route to White House (WSJ)
  • China’s Leaders Put the Economy on Bubble Watch (WSJ)
  • Top Chinese Official Rebutts Soros Prediction for Hard Landing (BBG)

Why Globalization Reaches Limits

We have been living in a world of rapid globalization, but this is not a condition that we can expect to continue indefinitely.

With $1.8 Trillion In Debt Maturing This Year, Two Big Problems Emerge

The first big problem, or rather first 9.5 trillion problems: that is how much debt the corporate buyback binge will cost companies over the next 5 years as the debt matures. The second big problem is even more important: the disappearance of virtually all demand from the primary bond market, most certainly in the junk space, and gradually, in investment grade as well.

This Is The Last Stage Before Recession

The probability of recession is increasing. Contrary to popular belief, the beginning of a recession is not deflationary but the exact opposite. We expect a recession by the end of 2016, and if that projection turns out to be wrong due to a massive turnaround in Fed policy, the cataclysmic event will only be postponed till 2017.

Kuroda's NIRP Backlash - Japanese Interbank Lending Crashes

Not only has the Yen strengthened and stocks collapsed since BoJ's Kuroda descended into NIRP lunacy but, in a dramatic shift that threatens the entire transmission mechanism of negative-rate stimulus, Japanese banks (whether fearing counterparty risk or already over-burdened) have almost entirely stopped lending to one another. Confusion reigns everywhere in Japanese markets with short-term interest-rate swap spreads surging and bond market volatility spiking to 3 year highs (dragging gold with it).

Stephen Roach: "Central Banking Has Lost Its Way, Is In Crisis"

In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.

Why The Keynesian Market Wreckers Are Now Coming For Your Ben Franklins

Larry Summers is a pretentious Keynesian fool, but we refer to him as the Great Thinker’s Vicar on Earth for a reason. To wit, every time the latest experiment in Keynesian intervention fails - as 84 months of ZIRP and massive QE clearly have - he can be counted on to trot out a new angle on why still another interventionist experiment or state sponsored financial fraud is just the ticket. Right now he is leading the charge for the greatest stroke of foolishness yet conceived.

Why Aren't Presidential Candidates Discussing Who They Would Pick For Fed Chairman?

The large and eclectic field of presidential contenders is in full-out campaign-promise mode, as voters demand positions on everything from ISIS to ethanol.  With the economy so fragile, now might be a good time to seek commitments on who our next president will appoint to the Federal Reserve, and statements on what the proper role of the Fed should be.

Yellen Hints At Slowing Economy, Dropping Stocks, Accommodative Fed, But Does Not Go "Full Dove"

With world markets begging for moar, Janet Yellen's prepared Humphrey-Hawkins Testimony was a disappointment:

  • *YELLEN: FED EXPECTS ECONOMY TO WARRANT ONLY GRADUAL RATE RISES (everything is fine)
  • *YELLEN: JOB, WAGE GAINS SHOULD SUPPORT INCOMES AND SPENDING (everything is awesome)
  • *FED REPORT: LEVERAGE RISKS IN FINANCIAL SECTOR `REMAIN LOW' (so don't worry about banks)
  • *YELLEN: FINANCIAL STRAINS COULD WEIGH ON OUTLOOK IF PERSISTENT (so, there's chance)

The bottom line this is simply a rerhash of the Jan FOMC Statement and does not offer enouigh dovishness for the market.

The Mechanics Of NIRP: How The Fed Will Bring Negative Rates To The U.S.

Now that talking about NIRP in the US is no longer anathema but a matter of survival for market participants for whom frontrunning the Fed's policy failure has emerged as a prerequisite trade, the question is: what are the mechanics of NIRP, what are the implications of negative rates for US markets. Here is the handy answer

The Dollar Is Getting Hammered, Gold Jumps

It appears The ADP Employment report was not good enough to support fed rate-hikes as across the majors, traders are selling USDs... Gold is also surging. It appears someone is betting large that this week's payroll data will be weak...

Groundhog Day Trading: Stocks Slide As Oil Plunge Returns; BP Suffers Biggest Loss On Record

It certainly does feel like groundhog day today because while last week's near record oil surge is long forgotten, and one can debate the impact the result of last night's Iowa primary which saw Trump disappoint to an ascendant Ted Cruz while Hillary and Bernie were practically tied, one thing is certain: today's continued decline in crude, which has seen Brent and WTI both tumble by over 3% has once again pushed global stocks and US equity futures lower, offsetting the euphoria from last night's earnings beat by Google which made Alphabet the largest company in the world by market cap.