Convexity

Here Is The Catalyst That Could Unleash A "Violent Rally In Risk" Today

After years of seeing the Fed operate within this “reflexivity conundrum. the markets have already spoken (meaning already financially tightened enough) to a point where the Fed ONCE AGAIN has to back away from their “hiking threat.”  Back to “none and done,” which will likely merit a pretty violent rally in risk and reversal in rates."

"It's Never Different This Time" PIMCO Warns "The Tides Of Risk Will Flow Eventually"

The old Wall Street expression is “They don’t ring a bell at the top.” This snarky adage is usually employed by those saddened financial managers who ride a successful investment to a peak and then watch in horror as it reverses course to a level below their cost basis. A pity this notion is misguided, since the market frequently “rings the bell.” It is just that most market participants are not listening. Perhaps they should be listening now.

Insanity, Oddities, And Dark Clouds In Credit-Land

Distortions in financial markets keep growing, as central banks all over the world are desperately intensifying monetary pumping. What is currently happening in various bond markets as a result of this and other interventions is simply jaw-dropping insanity. It is not so much that it defies rational explanation – in fact, all of these moves can be explained. What makes the situation so troubling is the fact that investors seem to be oblivious to the enormous risks they are taking.  They are sitting on a powder keg.

Central Banks Are In A Lose-Lose Situation: Low-Rate-Policy "Has Rendered The System Profoundly Fragile"

"...abandoning the low interest rate policy would likely trigger a severe recession... but, continuing this policy would distort and corrode the economic structure even more, which would jeopardize the business model of pension funds, insurers and banks, and further inflate the real estate and stock market bubbles. The low interest rate policy has rendered the system profoundly fragile, with central banks virtually in a lose-lose situation."

With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict

There is now $13 trillion of global negative-yielding debt. And, as the WSJ writes, even a small increase in interest rates could inflict hefty losses on investors. With the 2013 "taper tantrum" the Fed sparked a selloff as it discussed ending its bond-buying program known as quantitative easing. A repeat "would be very painful for a lot of people" said J.P. Morgan. This is just how painful.

Gundlach Reveals His Portfolio Which Is "Outperforming Everyone Else's"

"People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500."

When Narratives Go Bad

There’s a … tiredness … to the status quo Narratives, a Marie Antoinette-ish world weariness that sighs and pouts about those darn peasants all the way to the guillotine.

Goldman Expects Jump In Mortgage Refis, Blames "Burned Out" Borrowers

Due to the "new lower path for mortgage rates" Goldman is raising their estimate for 2016 MBS Issuance to $1.3 trillion from $1.2 trillion and raising their 2017 MBS issuance estimate to $1.3 trillion from $1.1 trillion. Goldman's  team cut their 10-Yr US TSY estimate to 2% from 2.4% ahead of an expected refinancing blitz.

The Last Castle To Fall: Can The Narratives Behind The S&P's Resilience Be Sustained

In the last few years, several markets/asset classes have shown signs of weakness, if not outright implosion: EU banks, EU stocks, Base Metals, Energy Commodities, Japan stocks, EM stocks and currencies. The bubble built in them by the excess liquidity provided by Central banks, as they were busy fighting structural deflationary trends (and crowding the private sector out of bonds), has deflated in most parts of the market, except two: US equity and G10 Real Estate.