Borrowing Costs

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DoubleLine's Gundlach Warns "These Markets Are Falling Apart"





The odds of a December rate hike have slipped in recent days from over 70% intraday to 64.0% today as, while economists remain convinced that rates will rise in December, traders appear a little less confident. One of the most outspoken - having doubted The Fed (and questioned the economy's ability to handle even a 25bps rate hike) since Spring - DoubleLine Capital co-founder Jeffrey Gundlach said on Sunday that the Fed may hesitate to raise rates given rocky economic and financial conditions making it clear, as Reuters reports, "certainly [a Fed] No-Go is more likely than most people think. These markets are falling apart."

 
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The ECB Should Stop QE Before Draghi Causes A "Financial Crisis", German "Wise Men" Warn





"The ECB’s bond buying programme has created favourable financing conditions and provides member states with an incentive to defer much-needed budget consolidation and structural reforms. However, further structural reforms to strengthen markets and competitiveness are crucial for a self-sustaining economic recovery. In addition, monetary policy is leading to a build-up of risks to financial stability which could pave the way for a new financial crisis."

 
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"No QE For You!": ECB May Cut "Lifeline" To Portugal After Socialists Overthrow Government





In what sounds like the plot of a McCarthy-era propaganda spy novel, the Socialists and Communists have overthrown the government in Portugal. That means it's time for the troika to start pushing back against the undesirables by threatening the country with financial ruin. Just call it "tough love." 

 
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Wholesale Money Markets Are "Perverted" - US Swap Spreads Hit Record Lows





At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread, as Bloomberg notes, what Fabozzi's bible of swap-pricing calls a "perversion" is now the rule all the way from 30Y to 2Y maturities. As one analyst notes, historical interpretations of this have been destroyed and if the flip to negative spreads persists, it would signal that its roots are in a combination of regulators’ efforts to head off another financial crisis, massive corporate issuance (which we are seeing), China selling pressure (and its impact on repo markets) and "broken" wholesale money-markets.

 
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Bring On 'Operation Switch' - Bill Gross Calls For A Reverse 'Operation Twist' To "Benefit Savers And The Economy"





"But they won’t, you know. Yellen and Draghi believe in the Taylor model and the Phillips curve. Gresham’s law will be found in the history books, but his corollary has little chance of making it into future economic textbooks. The result will likely be a continued imbalance between savings and investment, a yield curve too flat to support historic business models, and an anemic 1-2% rate of real economic growth in even the most robust developed countries."

 
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Mario Draghi Admits Global QE Has Failed: "The Slowdown Is Probably Not Temporary"





"The conditions in the economies of the rest of the world have undoubtedly proved weaker compared with a few months ago, in particular in the emerging economies. Global growth forecasts have been revised downwards. This slowdown is probably not temporary."

 
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Dear Janet, Seriously!!





The Fed's confidence trick this week was, once again, the Keyser Soze gambit (via Beaudelaire)-  "convincing the world of Yellen's hawkishness, when no such character trait exists." However, unlike the movies, stocks and FX markets have already seen through the con, leaving Fed Funds futures alone to believe the hype. As we noted previously, "The Fed Can't Raise Rates, But Must Pretend It Will," repeating its pre-meeting hawkishness to dovishness swing time and again in a "Groundhog Day" meets "Waiting For Godot"-like manner. Time is running out Janet, tick tock...

 
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3 Things: "You Should Buy, Professionals Need To Sell"





Every day when you flip on the media, there is someone telling you that now is the time to "buy" into the market. Of course, if you are buying, then who is selling? The only "net buyers" of equities this year have been "individuals," while "professional" firms have been "net sellers." This is the epitome of the classic "smart money/dumb money" analysis where individuals are used by institutions to offload positions that are no longer optimal. The question is with corporate profits and earnings declining, weak economic data, and the threat of tighter monetary policy - will individuals once again be left "holding the bag" while institutions derisk portfolios in advance of the next decline?

 
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NIRP Panic: Over Half Of European 2-Year Bonds Trade At Record Negative Yields; Italy Paid To Issue Debt





Europe has unleashed yet another monetary panic, and nowhere is it more visible than in what happened today across the short end of Europe's government curve.  As the table below shows, more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields!

 
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Pavlov's Market





It was only a couple of months ago that a rapidly rising dollar was pushing the global economy closer to a new crisis. It seems unlikely that the conditions that made a rapidly rising dollar a problem in August have all been resolved by October. Those who bought stocks last week in response to hints of more easing from Draghi – and the rate cut in China – may find themselves in the same position as Pavlov’s dogs, wondering why no meal follows the ringing of the bell.

 
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The Fed Can’t Raise Rates, But Must Pretend It Will





"We can look forward... not precisely to a 1929-type depression, but to an inflationary depression of massive proportions."

 
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Why Europe Is About To Plunge Further Into The NIRP Twilight Zone, And What It Means For Depositors





If you thought we'd seen the depths of NIRP, think again because as Deutsche Bank notes, the ECB, Riksbank, SNB, and Nationalbank will likely dive further into the monetary Twilight Zone in the months ahead. Only when rates become negative enough to spark a depositor revolt will we have reached the "real" lower bound, but at that point, it will be far too late...

 
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China Calms Fears, Says "Stock Plunge Is Normal Correction" As Panic-Buying Resumes On Japanese Open





After last night's bloodbathery in China, analysts and officials are out en masse to ensure a newly re-leveraged Chinese investors that the "stock plunge is a normal correction." Disappointingly, Chinese stocks are barely bouncing at the open, which is not what we can say for Japan, where the mysterious uneconomic panic-buyer-of-first-resort appeared once again and smashed the Nikkei 225 200 points higher at the open (after weakness in the US).

 
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QE vs Negative Rates: A Cost-Benefit Analysis Of The Monetary Twilight Zone





Since either NIRP, or QE, or most likely both, are about to cross the Atlantic and make landfall in the US before the Fed is forced to launch the monetary helicopter, those who want to know what is really coming - no, not rate hikes - are urged to read this.

 
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