Financial markets are upside down. Financial repression and belief in the “Fed put” pushed investors further and further out the risk curve over the past six years. Too many asset managers have remained fearful of underperforming peers and benchmarks; a powerful incentive to stay ‘risked-up’. The psychology of bullish, and faith in Fed abilities, have been too firmly embedded in the investor class. Given that markets don’t seem to want to believe that a June hike looks probable, we expect an outsized market reaction to a hike, lower long yields to accompany it, a flatter curve, wider credit spreads, higher market volatility, and materially lower equity markets.
Oh well, some are more equal than others. One day after Eurogroup head Dijsselbloem says France won’t get any more lenience... "France must respect EU budge rules," ... the EU over-rules him "France gets more time to meet EU budget rules."
Janet Yellen is very alarmed that some members of Congress want to conduct a comprehensive audit of the Federal Reserve for the first time since it was created. During testimony this week, she made “central bank independence” sound like it was the holy grail. Even though every other government function is debated politically in this country, Janet Yellen insists that what the Federal Reserve does is “too important” to be influenced by the American people. Does any other government agency ever dare to make that claim? If the Fed is doing everything correctly, why should Yellen be alarmed? What does she have to hide?
Although it may be unrealistically optimistic, I believe my paraphrase of a Churchill quote:
Back in March 2014 we forecast that it in the aftermath of the US State Department-sponsored military coup in Kiev, it was only a matter of time before Ukraine (all of its sovereign gold having since "vaporized") succumbed to full blown hyperinflation and economic implosion. Less than a year later, precisely this outcome has finally played out, and as a result, the entire nation has finally entered its economic endgame, one which has two conclusion: either it joins Greece in becoming a ward of Europe (of which it is not an official member) and the IMF (thank you Joe Q Public taxpayer), or it quietly fades away into insolvent "failed state" status.
Ukraine Enters Hyperinflation: Currency Trading Halted, "Soon We Will Walk Around With Suitcases For Cash"Submitted by Tyler Durden on 02/25/2015 11:02 -0500
The Ukraine central bank tried to call a halt on Wednesday by banning banks from buying foreign currency on behalf of their clients for the rest of this week. Although banks could still trade with each other, by mid-morning there were no registered trades at any rate, leaving the currency in limbo. A construction worker exchanging dollars at a kiosk in a grocery shop in return for a bag filled with thousands of hryvnia, laughed and told shoppers: "Soon we will have to walk around with suitcases for cash, like in the 1990s."
As a frequent contributor to Bloomberg, I would welcome the opportunity to debate this with Barry.
What say you @ritholtz ? : )
Janet Yellen once again repeats that the economy is “looking stronger” although still it has yet to manifest into actual strength. In fact, it is still so weak that the Fed cannot even suggest that rates will raise anytime over the next several FOMC meetings. In short, the economy is still very sick. The Pundits (Liesman) are suggesting Janet feels the economy is strong but that the “data just isn’t cooperating”. What does that even mean?? The market is a red herring of sorts keeping our attention away from the reality of the economy. And so, to give up the market strength would be synonymous to removing the one remaining support holding up that 100 storey building that is otherwise completely rotted. Only when the economy is able to withstand a market repricing will the Fed allow the market to reprice.
"The best environment for man is the environment of liberty." - former President of the Czech Republic, Vaclav Klaus
Liberty is a fundamental human right; it is the cornerstone of our existence. But liberty is under attack from all directions, whether through higher state control or individuals themselves. Liberty is in search for its protector.
"For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is hap-pening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions. ... we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This down cycle is likely to be remembered in a hundred years . Sadly this down cycle will cause a great deal of damage, precisely because it will happen despite the efforts of the central banks to thwart it."
If there was any debate whether Yellen's testimony today was hawkish or dovish, the bond market certainly made it clear what it thinks, when first the 10 Year yield tumbled back under 2.00%, and then moments ago, the Treasury auction of $26 billion in 2 Year paper continued to trend of strong demand for government paper, when 3.45 bidders lined up for every dollar for sale, at a closing yield of 0.603%, 0.5 bps through the When Issued.
With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.
It may signal that the ECB and Eurozone are set to embark on a gold accumulation programme. More likely, it is simply a way to bolster confidence in the euro due to increasing doubts about the viability of the single currency.
The nebulous threat of NIRP in the US "some time in the future" became tangible after J.P. Morgan Chase, the largest US bank by assets (and second largest in the US by total derivative notional) is preparing to charge large institutional customers for some deposits. WSJ adds that JPM "is aiming to reduce the affected deposits by billions of dollars, with a focus on bringing the number down this year. "The moves have thrown into question a cornerstone of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding."