Capital Markets

Scary Chart Of The Day: Average Foreign Purchases Of US Securities Take Out Lehman Low

The chart is very disturbing: it shows that as the S&P rises higher and higher (on ever declining volumes), foreigners are buying fewer and fewer US securities. In fact, on a 12 Month Moving Average basis, foreigners bought less long-term US securities than they did when Lehman crashed!  And so we have come full circle, because while, understandably, nobody had any apetite for US securities around the Lehman crash when until the Fed stepped in and singlehandedly took over the US capital markets it was unclear if there even would be a US capital markets, now that five years later the S&P has risen to a level nearly three times the March 2009 lows thanks entirely to the Fed's $4.1 trillion balance sheet backstop, the interest in US securities is... lower than it was in the days just after Lehman!

"From Self-Reinforcing Speculation To Fragile Instability"

While the only fun-durr-mentals that matter appear to be global central bank liquidity injections (and thus the level of leverage entrusted to the JPY carry trade), the crowd is swayed by truthisms and "common knowledge" memes that recovery is here, that things are improving, that earnings are 'solid', that markets are still cheap, and that historical analogs are different this time. However, with monetary policy at a turning point, we also appear (fundamentally and technically) to be at "the inflection point from self-reinforcing speculation to fragile instability."

Chinese Capital Markets Frozen As Bad Loans Soar To Highest Since Crisis

Chinese capital markets are quietly turmoiling as debt issues are delayed and demand for "Trust" products - the shadow-banking-system's wealth management 'investments' - is tumbling. As Nikkei reports, since January, 9 companies have postponed or canceled issuance plans (around $1 billion) and is most pronounced in privately-owned companies (who lack an implicit government guarantee). This, of course, is exactly what the PBOC wanted (to instill some fear into these high-yield investors - demand - and thus slow the supply of credit to the riskiest over-capacity compenies) but as non-performing loans in China surge to post-crisis highs, fear remains prescient that they will be unable to "contain" the problem once real defaults begin (as opposed to 'delays of payment' that we have seen so far).

 

The Crisis Circle Is Complete: Wells Fargo Returns To Subprime

Those of our readers focused on the state of the housing market will undoubtedly remember this chart we compiled using the data from the largest mortgage originator in the US, Wells Fargo. In case there is some confusion, as a result of rising interet rates (meaning the Fed is stuck in its attempts to push rates higher), the inability of the US consumer to purchase houses at artificially investor-inflated levels (meaning housing is now merely a hot potato flipfest between institutional investors A and B), and the end of the fourth dead-cat bounce in housing (meaning, well, self-explanatory), the bank's primary business line - offering mortgages - is cratering. So what is a bank with a limited target audience for its primary product to do? Why expand the audience of course. And in a move that is very much overdue considering all the other deranged aspects of the centrally-planned New Normal, in which all the mistakes of the last credit bubble are being repeated one after another, Reuters now reports that the California bank "is tiptoeing back into subprime home loans again."

A Tale Of Two Extremes: Global Inflation In One Chart

While Europe, and the bulk of the Developed World is struggling to dig out of its unprecedented credit crunch (in which central banks are the only source of credit money which instead of entering the economy is stuck in the capital markets via the reserve pathway) and resulting deflation, the rest of the Emerging Market world is doing just fine. If by fine one means inflation at what Goldman calls, bordering on "extreme levels." This is shown in the chart below which breaks down the Y/Y change in broad prices across the main DM and EM countries, and which shows that when talking about inflation there are two worlds: the Emerging, where inflation is scorching, and Developing, where inflation is in a state of deep freeze.

Gold In Gartman Terms? There's An ETF For That

Dennis Gartman, already humiliated beyond any hope of reputation salvage in the media, appears to be refocusing his keen talents and acute sense of extrapolating instantaneous market momentum 1 millisecond into the future, to a renewed direct exposure in the capital markets. And while hoping that market junkies have forgotten the epic disaster that was his last foray into ETF-land with ONN and OFF, Gartman today announced that he is now launching his signature shtick as a brand new ETF: gold... in non-dollar terms.

When Forward Guidance Fails

While The White House crows of the falling unemployment rate (which everyone now knows is entirely useless as an indicator of anything), the rapid-drop in this indicator is a major headache for the Fed. While forward-guidance is crucial in replacing the "common knowledge" that the Fed remains easier-for-longer as bond-buying is tapered, despite it's dismissal by vice-chair Stan Fischer and BoE's Carney (and even an almost admission of its weakness by Bernanke), Yellen faces a market that is betting massively (actually in record size) that short-term rates will rise and Fed heads like Lacker shift to "more qualitative ways" of maintaining the punchbowl.

Puerto Rico Re-Junked, This Time By Moody's - Full Report

Three days ago it was S&P that opened the can of Puerto Rico junk worms. Moments ago it was Moody's turn to downgrade the General Obligation rating of the Commonwealth from Baa3 to Ba2, aka junk status. We note this just in case someone is confused what the catalyst was that just sent stock to a new intraday high in the aftermath of today's disappointing jobs number which until this moment barely managed to push the S&P higher by 1%. From the report: "While some economic indicators point to a preliminary stabilization, we do not see evidence of economic growth sufficient to reverse the commonwealth's negative financial trends. Without an economic revival, the commonwealth will face difficult decisions in coming years, as its debt and pension costs rise. The negative outlook signals the remaining challenges facing the commonwealth."

Pivotfarm's picture

Death of the Dollar

We’ve all done it, haven’t we? Chucked something in the wash and turned it on too high, only to see it pop out at the end of the cycle and it ends up the size of your hamster. Well, Obama has been doing the same. Except this time it’s not your winter woollies that he’s shrinking, it’s the greenback.

Pre-Central Planning Flashback: These Are The Five Old Normal Market Bottom Indicators

The biggest fear the market currently has is not the ongoing crisis in the Emerging Markets, not the suddenly slowing economy, not even China's credit bubble popping: it is that Bernanke's successor may have suddenly reverted to the "Old Normal" - a regime in which the Fed is not there to provide the training wheels should the S&P suffer a 5%, 10% or 20% (or more) drop. Whether such fears are warranted will be tested as soon as there is indeed a bear market plunge in stocks - the first in nearly three years (incidentally the topic of the Fed's lack of vacalty was covered in a recent Reuters article). So, assuming that indeed the most dramatic change in market dynamics in the past five years has taken place, how does one trade this new world which is so unfamiliar to so many of today's "younger" (and forgotten by many of the older) traders? And, more importantly, how does one look for the signs of a bottom: an Old Normal bottom that is. Courtesy of Convergex' Nicholas Colas, here is a reminder of what to look forward to, for those who are so inclined, to time the next market inflection point.

The $3 Trillion Hole - Why EM Matters To European Banks

How many times in the last few days have we been told that Turkey - or Ukraine or Venezuela or Argentina - are too small to matter? How many comparisons of Emerging Market GDP to world GDP to instill confidence that a little crisis there can't possible mean problems here. Putting aside this entirely disingenuous perspective, historical examples such as LTCM, and ignoring the massive leverage in the system, there is a simple reason why Emerging Markets matter. As Reuters reports, European banks have loaned in excess of $3 trillion to emerging markets, more than four times US lenders - especially when average NPLs for historical EM shocks is over 40%.