As noted yesterday morning, "Goldman does it again" when just hours after Goldman said the "bearish cash for iron ore was intact," the commodity recorded its biggest surge in history crushing anyone short, and soaring 20% across the globe. That however has not dented Goldman's conviction that the commodity rally is overdone (we actually agree with Goldman for once) and just hours ago the head of commodities at Goldman Jeffrey Currie doubled down on Goldman's bearish commodities call saying "market views on reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.
For those wondering whether we’ll be riding the short squeeze euphoria wave higher, Goldman’s answer is definitively “no.” In a note out this morning, the bank says short covering and positioning have fueled the bounce and that a sustained rebound is exceptionally unlikely until either valuations get significantly more attractive or inflation expectations stabilize.
Not only don't we have economic activity driving inflation, the reality is that any inflation today is coming from just three places: 1. Obamacare; 2. Minimum wage hikes; 3. Real estate aka shelter
Inflation targeting has been a giant cover story for a monumental power grab. The academics who grabbed the power had no idea what they were doing in the financial markets that they have now saturated with financial time bombs. When these FEDs (financial explosive devices) erupt in the months and years ahead, the central bankers will face a day of reckoning. And they will surely be found wanting. The immense social damage from the imploding bubbles dead ahead will be squarely on them.
Everything went from bad to worse once Europe opened, and things started going "bump in the morning" across the European banking sector, where not only has it been more of the same with CDS spreads for major banks - most notably Deutsche Bank - continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014, and other peripheral nations following.
"... When stocks are falling this much, it's hard to justify not acting"
"... Davos - where he mingled with central bankers such as ECB President Mario Draghi and leading company executives - likely prompted him to pull the trigger"
"The BoJ actions should lead to further intensification of global currency wars with central banks around the world trying to engineer sustained competitive devaluation against the background of slowing global trade and growth as well as persistent commodity price disinflation. With its latest measures the BoJ will allow Japan to borrow more growth from its trading partners and limit the severity of the imported disinflation."
At this point, the longer China does nothing, the greater its problems will become. As such Beijing needs to choose: either collapse the economy in a deflationary wave, leading to a debt crisis and widespread social unrest, or devalue massively overnight in hopes of stimulating inflation, leading to collapsing profit margins, and even more widespread social unrest.In short, our condolences China: having decided to adopt Western neo-Keynesian economics, with the typical monetarist bent, you too are now trapped with no way out. But don't worry: so is everyone else. Good luck.
"The trouble is that rents are running high not because house prices are booming and/or construction is sawing but because structurally new entrants to the housing market are renters not owners. This is reflected in the very low first time homebuyer rate, less than 30 percent."
- Oil heads for third straight weekly loss as supply weighs (Reuters)
- BOJ's $2.5 Billion ETF Boost Seen Having Little Impact on Stocks (BBG)
- Japan core CPI seen flat in November, household spending down (Reuters)
- Dollar gets altitude sickness as BOJ disappoints (Reuters)
- Fed Hikes, but Some Rates Veer Lower (WSJ)
- White House calls for 'common sense steps' to help Puerto Rico (Reuters)
"The party's over and bond investors who always tend to be more sober types, realize this and have headed for the exits whereas equity investors are so intoxicated they haven't realized that the music has stopped. Equity investors are still gyrating around the dance floor - just as in 1999 and 2007... I believe the Yellen Fed will soon be treated with the same contempt the Greenspan Fed was in the aftermath of the 2008 financial crisis. And they will deserve it."
Just hours before the FOMC sits down in the Marriner Eccles to discuss just how it will announce the first rate hike in 9 years, 7 years to the day after it cut rates to zero, it got the best gift from the BLS it could have asked for: core inflation rose precisely the amount the Fed wanted from a year ago, ot 2.0% on the dot, the highest annual core CPI increase in the past year. Why the jump? "About two-thirds of this increase is accounted for by the shelter index, which rose 3.2 percent over the span."
Price for Thanksgiving dinner pre-Fed: $0.50
Price for Thanksgiving dinner 102 years after establishement of the Fed: $50
What do you do when you're a government statistician and the economic data doesn't say what you want it to say? Why you "adjust" it of course.
Just a day after a dismal read on GDP, the latest data out of Brazil shows a spike in both inflation and unemployment, as the country's economic outlook continues to deteriorate at an alarming pace.