“Poor performance will be most acutely felt by small hedge fund firms,” Sandy Kaul, global head of business advisory services at Citi. “These funds simply did not generate enough performance-fee revenues in 2014 to cover their gap.” In other words, "small" hedge funds, those who tried valiantly for 1, 2 or more years to generate alpha, and failed, well they can continue to manage "small" amounts of money, however it will be of the paper variety. Which they are welcome to do on the one venue which has taken over for Yahoo Finance as the sole place where everyone pretends to not only trade but certainly never have even a single losing day: Twitter.
It is my expectation, unless these deflationary trends reverse course in very short order, that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy. However, I also believe that the Fed understands that we are closer to the next economic recession than not. For the Federal Reserve, the worst case scenario is being caught with rates at the "zero bound" when that occurs. For this reason, while raising rates will likely spark a potential recession and market correction, from the Fed’s perspective this might be the “lesser of two evils.”
In a day in which silver was pounded the most since September 2013 without any fundamental reason to explain this weakness (aside for the extensively discussed Precious Metals-USDJPY funding pair trade, so favored by the central banks to punish gold/silver while pushing risk higher), many are wondering: what was the reason for this crash? Well, in a day in which Yellen now openly advised Democrats in a non-public setting about Fed policy, is it that ludicrous to assume that someone leaked the following announcement made after the close by the CME, namely that silver margins were just hiked by 11%?
At the end of the day, there is nothing behind the curtain at the Eccles Building except for the specious doctrine of wealth effects. Fractional changes in the money market rate are of relevance only to the day traders and robo machines which occupy the casino. Fed policy is designed to keep them dancing. It rests on the delusional hope that the drug of ZIRP or near-ZIRP can keep the stock market averages rising and a trickle down of extra spending by the wealthy flowing into the reported GDP and job numbers. History proves beyond a shadow of doubt that bubbles fueled by bad money ultimately splatter into a world of harm. The Fed is not only ignoring the coming storm, but is actually fueling its intensity with malice of forethought.
We suggested the Greek pivot from Europe to Russia was building previously, and now, we get confirmation from Russia's finance minister Anton Siluanov that the pivot could be mutual, who told CNBC in the interview below:
*RUSSIA WOULD WEIGH FINANCE FOR GREECE IF ASKED, SILUANOV: CNBC
With fire and brimstone spewing from Germany over the potential for Greece to veto any and everything, it seems Russia may just have stymied Europe's leverage over the newly democratic nation.
It appears markets are on the verge of learning just how damaging the unintended consequences will be from multiple years of extreme central bank promises now that the Fed has run out of the ammunition to keep the utopian market façade alive. The structure of the ECB QE and the Greek situation make the backdrop considerably more troubling and difficult.
Bill Gross Slams Broken Capitalism: "Policymakers Must Promote A Future Which Offers Hope As Opposed To Despair"Submitted by Tyler Durden on 01/29/2015 08:17 -0500
"Officials at the Federal Reserve – the most powerful and strongest of Parker Brothers – seem to now appreciate the hole that they have dug by allowing interest rates to go too low for too long.... While there is no better system than capitalism, it is incumbent upon it and its policymakers to promote a future condition which offers hope as opposed to despair. Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates."
For those keeping track of currency wars around the globe, 2015 - a year in which two central banks, those of Switzerland and Singapore have already admitted defeat, is shaping up as nothing short of historic. As DB's summarizes: just about 31 countries have, in less than a month, eased in the form of 13 mostly "surprise" rate cuts, while just 5 have tightened monetary policy.
Over the last 100 years the Fed has had many mandates and policy changes in its pursuit of becoming the chief central economic planner for the US. Not only has it pursued this utopian dream of planning the US economy and financing every boondoggle conceivable in the welfare/warfare state, it has become the manipulator of the premier world reserve currency. All this effort by thousands of planners in the Federal Reserve, Congress, and the bureaucracy to achieve a stable financial system and healthy economic growth has failed. It must be the case that it has all been misdirected. And just maybe a free market and a limited government philosophy are the answers for sorting it all out without the economic planners setting interest and CPI rate increases. A simpler solution to achieving a healthy economy would be to concentrate on providing a “SOUND DOLLAR” as the Founders of the country suggested.
In the QE era, monetary policy has lost any semblance of discipline and coherence. As Draghi attempts to deliver on his nearly two-and-a-half-year-old commitment, the limits of his promise – like comparable assurances by the Fed and the BOJ – could become glaringly apparent. Like lemmings at the cliff’s edge, central banks seem steeped in denial of the risks they face.
Suppose you could print up counterfeit dollars, euros or yen that were identical to the real things. Fun, you think? Here's how it plays out.
Another Ex-Central Planner Speaks Up: Currency War Policy "Risks Major Downward Shock To Asset Prices"Submitted by Tyler Durden on 01/28/2015 19:20 -0500
Merv "The Swerv" King - former governor of The Bank of England - has joined the ranks of those ex-central-planners-who-feel-the-need-to-protect-their-legacy-by-rewriting-history-and-admitting-the-entire-thing-is-crazy. Speaking in Tokyo overnight, King said he’s concerned that financial markets believe real interest rates will remain very low for a very long time which has created "a significant disequilibrium in the world economy," adding that he does "not believe and expect a market economy to thrive on real interest rates that are close to zero." Warning that many nations realize "they have pushed monetary policy as far as it can go," King added that with the additional risk of currency wars, "markets will discover that they have been pushing asset prices to an excessively high level and there will be a major downward shock to asset prices."
As central banks rush to depreciate their currencies and push yields into negative territory, what's becoming scarce globally is real yield in an appreciating currency.
Forget rate hikes… an entire generation of investors and money managers (anyone under the age of 55) has been investing in an era in which risk has generally gotten cheaper and cheaper. What happens when the bond bubble bursts?
Shortly after yesterday’s open, the S&P 500 was down nearly 2% and off its recent all-time high by 3.5%. But soon the robo-machines and day traders were buying the “dip” having apparently once again gotten the “all-clear” signal. Don’t believe it for a second! The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.