The Fed’s zero interest rate policy has provided a subsidy to investors for the past 7 years. The lure of easy profits from cheap money was wildly attractive and readily accepted by investors. The Fed “put” gave investors great confidence that they could outperform their exceptionally low cost of capital. These implicit promises by central banks encouraged trillions of dollars into ‘carry trades’ and various forms of market speculation. Complacent investors maintain these trades, despite the Fed’s warning of a looming reduction in the subsidy, and despite a balance sheet expected to shrink in 2016. It has been a risk-chasing ‘game of chicken’ that is coming to an end. Changing conditions have skewed risk/reward to the downside. This is particularly true because financial assets prices are exceptionally expensive...There are warning signs and visible market stresses beyond those mentioned yesterday.
"The wealth management arm of Bank of America Merrill Lynch is liquidating its clients’ money from one of Paulson & Company’s funds and has put another fund under "heightened review,'" NY Times reports. As it turns out, this was not the year to be long Greece and Puerto Rico.
Varoufakis Tells All: Tsipras Was "Dispirited" With "No" Vote, Referendum Was Meant As "Exit Strategy"Submitted by Tyler Durden on 08/05/2015 13:40 -0400
"I could tell [Tsipras] was dispirited. It was a major victory, one that I believe he actually savoured, deep down, but one he couldn’t handle. He knew that the cabinet couldn’t handle it. It was clear that there were elements in the government putting pressure on him. Already, within hours, he had been pressured by major figures in the government, effectively to turn the no into a yes, to capitulate."
"Ilias Zagoraios, the chief prosecutor of the Athens First Instance Court, has asked Greece’s cyber crime unit to investigate whether the public revenues service was hacked as part of an effort to create a parallel payment system under ex-Finance Minister Yanis Varoufakis," Kathimerini reports.
- Turkey says coalition to launch 'comprehensive battle' against Islamic State (Reuters)
- Buffett’s Celebration Tempered by 50th Anniversary Stock Slump (BBG)
- SEC Set to Approve CEO Pay-Gap Disclosure Rule (WSJ)
- Greece wants full bailout, not bridge loan, ruling party says (Reuters)
- Stocks Rise Fueled by Strong European Corporate Earnings and Chinese Data (WSJ)
- JPMorgan Reclaims Place Among U.S.'s Top 10 Biggest Stocks (BBG)
- Eurozone retail sales fall sharply in June (MW)
'Death of gold' has been greatly exaggerated. It is important to consider gold in local currency terms. In euro, gold is up 2% in 2015, after 13% gain in 2014.
• All surveyed analysts expect the Bank of England to keep monetary policy unchanged, with the bank rate at 0.5% and the Asset Purchase Facility at GBP 375bln
• Focus expected to instead by on minutes and Quarterly Inflation Report (QIR) release with minutes expected to show a 7-2 vote split on keeping rates on hold
• QIR will be analysed to see if it compares or contrasts to recent hawkish BoE rhetoric
Futures Rebound On Ongoing Dollar Strength; Commodities Rise, China Slides, Greek Banks Continue PlungingSubmitted by Tyler Durden on 08/05/2015 06:51 -0400
In many ways the overnight session has been a mirror image of yesterday, with the dollar accelerating its Lockhart-commentary driven rise, which curiously has pushed ES higher perhaps as a result of more USDJPY correlation algos being active and various other FX tracking pairs. Indeed, the weak yen is all that mattered in Japan, where the Nikkei 225 (+0.5%) rose amid JPY weakness, despite opening initially lower as index heavyweight Fast Retailing (-4.5%) reported a 2nd consecutive monthly decline in Uniqlo sales. Elsewhere in mirror images, China slid 1.7%, undoing about half of yesterday's 3.7% jump, and is now down for 4 of the past 5 days.
What if the assumptions about a U.S. economic recovery and Fed rate hikes were wrong? Could observers be mistaken now about the trajectory of the Dollar vs. the Euro as they were back in 2000? Confidence is the only thing that really undergirds modern fiat currencies. But confidence can be very ephemeral...disappearing as quickly as it arrives. The U.S. Dollar benefits from confidence that the Euro currency may just be unworkable, that the U.S. economy will continue to improve, and that the Fed will raise rates throughout the remainder of 2015 and into 2016. If these expectations are unfulfilled, there could be a Euro reversal.
Now it is time for Merkel to face the unpleasant truth. Her aiming for a pain-free solution has failed. Now, she sits in the lower left box with unlimited costs for Germany, a tarnished reputation in Europe and a soon-to-come domestic backlash.
"Increasingly concerned about the markets, I’ve taken more aggressive action than in 2007, the last time I soured on the equity markets. Let me explain why and what I’m doing to try to profit from what may lie ahead."
"I am speechless. Not since yesterday or last week. I have been speechless since July 13th when the Greek left-wing coalition government agreed to burden the country and the people with a new loan, the third bailout for Greece since 2010 together with the strictest austerity program ever. I really don’t care if Varoufakis wears tasteless shirts and why he wanted to ‘hack’ taxpayers’ numbers while sitting with his team of skilled hackers and childhood friends... I just don’t care. It doesn’t affect my life, not even a tiny little bit. I give neither a a whole dam nor half of it for this so-called Greek political agenda after July 13th. What do I care about is watching my country and the people falling into pieces."
After trading limit-down on Monday when Greek stocks opened for trading for the first time since PM Alexis Tsipras called a referendum, shares of Greek banks once again flirted with the daily 30% loss limit on Tuesday as there were simply no bids for a set of institutions that everyone knows is insolvent. Meanwhile, Kathimerini reports that "the state’s losses from indirect taxes alone in the first couple of weeks of capital controls and the shuttering of banks [amounted to] more than half a billion euros."
- Unhappy Voters Shake Up Presidential Race (WSJ)
- China stock exchanges step up crackdown on short-selling (Reuters)
- China Dethroned as World’s Most Liquid Stock Market After Curbs (BBG)
- Xiaomi retakes the smartphone lead in China as Apple slips (Engadget)
- Impact of EPA’s Emissions Rule on Industry to Vary (WSJ)
- Citadel’s Ken Griffin Leaves 2008 Tumble Far Behind (WSJ)
- Greece says expects bailout deal by Aug 18 (Reuters)
After a lukewarm start by the Chinese "market", which had dropped for the past 6 out of 7 days despite ever escalating measures by Beijing to manipulate stocks higher, finally the Shanghai Composite reacted favorably to Chinese micromanagement of stock prices and closed 3.7% higher as Chinese regulators stepped up their latest measures by adjusting rules on short-selling in order to reduce trading frequency and price volatility, resulting in several large brokerages suspending short sell operations. At this pace only buy orders will soon be legal which just may send the farce of what was once a "market" limit up.