An interesting dynamic taking place in financial markets on Thursday as Gold saw some substantial buying interest up $22 to the $1295 an ounce area.
Larry Fink told the world this morning that central banks are holding a floor under stock prices (but wouldn't expect to see large price increases) - and judging by the gamma imbalances in volatility-land, they are using options markets to unriggedly manage that implicit put. However, given the utter dominance of the machines in the market and any reaction when real volume hits stocks (always down), we thought, courtesy of Nanex, a gentle reminder of just how quickly the Fed put disappears would be useful in this new "we can never get hurt, valuations are within norms, there is no complacency" normal.
Gold has surged over $41 and silver over 70 cents to over $1,314 and $20.46 per ounce or 3% and 4.2% respectively as oil ticks higher on the tinder box that is Iraq ... Faber recently said how he will “never sell his gold”, he buys “more every month” and believes storing gold in Singapore is "safest”.
Many market participants are scratching their head as to whether the low VIX levels are an anomaly or some kind of utopian new normal. JPMorgan's Quant Derivatives shop warns the current environment is not similar to the great moderation of 2004-2007 as volatility appears to be disconnected from fundamentals and pressured by structural effects, including central bank intervention, low trading volumes, and pressure from option hedging. Crucially, based on an examination of 'gamma imbalances', the current (low) volatility regime may change significantly after the June expiry.
As he said all along "investors should have some exposure to gold" and Marc Faber has been adding recently as gold (and gold stocks) are so much cheaper than over-inflated stocks. Faber holds around 25% of his assets in gold becaquse he believes eventually the monetary policies of central banks will lead to a further loss of purchasing power in the value of paper money. The CNBC anchor is perturbed as the market is selling gold and buying stocks; to which Faber rebuffs; investors are shunning gold "because the media doesn't like gold, nobody at CNBC owns gold. Nobody at Bloomberg owns gold. Gold is being constantly talked down by the media, and Fed officials, and economists, who also don't own any gold. They're all stocked up in equities." "When people talk about people who are optimistic about gold, they call them 'gold bugs.' A bug is an insect. I don't call equity bulls 'cockroaches.' Do you understand? There is already a negative connotation with the expression of 'gold bug.'"
Don't worry about the surging food and gas prices you face each and every day... Janet Yellen says "it's just noise" and is actually "evolving exactly as they expected." It is this kind of mind-blowingly ignorant of the facts statement that has the central banks of the world losing more and more credibility (just take a look at the dot plot's 0.5 to 4.25% rate expectations for 2015). The following exchange between Yellen and Liesman is simply priceless in its ignorance.
We discussed earlier that China does not have the capacity to feed itself as it simply doesn’t have enough fertile land in production to support its population’s growing food demand. Theoretically this is fixable. With a bit of time, patience, and technology, barren soil can be rehabilitated In other words, China doesn’t have enough enough productive land capacity to support its population. But the far greater issue is China’s massive freshwater deficiency.
Now, for the first time, we have empirical proof that hedge funds are indeed on the verge of extinction. In its hedge fund quarterly note (which it clearly ripped off from Goldman), Bank of America has concluded what we said in the beginning of the decade: "Hedge Funds are less attractive post the financial crisis with lower alpha and less diversification benefits." Or, in other words, hedge funds (for the most part: this excludes those extortionists also known as activists who successfully bully management teams into levering up in order to buyback record amounts of stock, in the process burying their companies and employers when the next downturn arrives) no longer provide a service commensurate to their astronomical fees.
When the masses just won't play along and BTFATH (with only central banks buying), the real 'wealth' transfer is much more insidious (and more voting)...
You can ignore and even downplay for a while, but eventually and as sure as the fundamental law of nature that everything has a cost....
Disappasionate overview of what to expect from the 2-day FOMC meeting that begins today
The Fed is now pre-occupied with an unanswerable and fanciful question, according to Jon Hilsenrath’s pre-meeting missive on the Fed’s current monetary policy “debate”. Figuratively estimating the number of angels which can dance on the head of a pin, Fed officials and economists suppose they can specify the the appropriate money market rate down to the decimal place for virtually all time to come... Of course, every one of these three magic numbers are perfectly arbitrary, academic and silly. Due to the structural failures of the US economy owing to decades of destructive Washington policies, the “unemployment rate” today is not remotely comparable to what was being measured in the 1950s and 1960s when today’s Keynesian theology with respect to the Phillips Curve, Okun’s Law and full-employment policy was being formulated.
Back in Feb 2013 we introduced the "Brent Vigilantes" and reminded traders how stock markets (and macro economies) react to shifts in the oil price with the two trading together to a 'tipping point' at which point strocks belief in growth breaks. We further confirmed that this is even more worrisome in the case of an oil price shock which strongly suggests that VIX at 12 is not pricing in the volatility that we have seen in the past when the oil complex starts to shake.
Bad data, don't worry, the central bank's got your back; Good data, don't worry, the central bank promised to stay easier for longer and longer (no matter how good things appear from the data). That's the meme that has driven the short-end of the world's largest bond markets to record lows. And then, just as the world's bond traders think they have the central banks understood, the Bank of England drops a tape-bomb...