It's not just Halliburton ("What we are experiencing today is far beyond headwinds; it is unsustainable") and Intel (12,000 layoffs amid re-evaluation of programs) that are facing up to a new normal very different from expectations. As Avondale Asset Management notes, having poured over 100s of earnings transcripts, while most CEOs don’t see signs of an imminent downturn, the environment still feels a little fragile. It seems that almost everyone is on high alert for a macro curve-ball...
Unfortunately, when central-planners "drag forward" future consumption today, you leave a "void" in the future that must be filled. That future "void" continues to expand each time activity is dragged forward until, inevitably, it can not be filled. This is currently being witnessed in the overall data trends as seen in the deterioration in corporate earnings and revenues. The only question is whether Central Banks can continue to support asset prices long enough for the economic cycle to catch up. Historically, such is a feat that has never been accomplished.
Good news is still bad news after all. After last night's China 6.7% GDP print which while the lowest since Q1 2009, was in line with expectations, coupled with beats in IP, Fixed Asset Investment and Retail Sales (on the back of $1 trillion in total financing in Q1) the sentiment this morning is that China has turned the corner (if only for the time being). And that's the problem, because while China was a good excuse for the Fed to interrupt its rate hike cycle as the biggest "global" threat, that is no longer the case if China has indeed resumed growing. As such Yellen no longer has a ready excuse to delay. This is precisely why futures are lower as of this moment, because suddenly the "scapegoat" narrative has evaporated.
"...investors remain reluctant about chasing a tape so far off its lows. Even assuming the USD weakness, oil strength, and better-than-feared Q1 reports, it’s hard to get the ’16 EPS number more than few dollars above $120 and investors should be careful..."
“There have been three great inventions since the beginning of time: fire, the wheel, and Central Banking.” – Will Rogers
Gordon Brown, back when he was the UK Chancellor of the Exchequer, distinguished himself by selling off approximately one-half of Great Britain’s gold reserves at what turned out to be a near-bottom at the end of the secular bear market in gold which lasted from 1980 to 2000-ish. However, the news that the new Canadian Finance Minister Bill Morneau has completed selling all remaining Government of Canada gold reserves may remove Brown's laughing-stock status.
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.
"Bottom line, although 1,200-1,202 might hold in the near-term, there’s scope to extend much higher over time." - Goldman Sachs, Feb 10, 2016
"As we maintain our view of rising US rates and hence lower gold prices with a 3-month target of $1100/toz and 12-month target of $1000/toz, we are recommending shorting gold through a GSCI-style rolling index" - Goldman Sachs, Feb 15, 2016
We have transitioned from free markets to centrally-planned and financially-engineered markets as the PhDs attempt to control the greatest monetary experiment ever undertaken. But they are almost out of runway... and they know it as mainstream market participants belief in their omniscience is rapidly fading.
There’s no question that the world economy has been shaky at best since the crash of 2008. Yet, politicians, central banks, et al., have, since then, regularly announced that “things are picking up.” One year, we hear an announcement of “green shoots.” The next year, we hear an announcement of “shovel-ready jobs.” And yet, year after year, we witness the continued economic slump. Few dare call it a depression, but, if a depression can be defined as “a period of time in which most people’s standard of living drops significantly,” a depression it is.
There’s a specific sort of instability in the world today – a game theoretic instability – which means that it has an identifiable pattern and rhythm you can understand in order to improve your investment strategy. It’s the instability of the game of Chicken, and once you start looking for it, you will see it everywhere here in the Golden Age of the Central Banker. Greece vs. the Troika? Chicken. Western sanctions on Russia over the Ukraine? Chicken. OPEC vs. US energy producers? Chicken. ECB vs. the Swiss National Bank? Chicken. Fed monetary policy communications to markets? Chicken. Abenomics? Chicken. US policy towards China? Chicken. ISIS vs. the world? Chicken.
With the Fed's June FOMC statement in just over 7 hours and a Yellen press conference to follow shortly, one in which nobody expects the Fed will announces its first rate-hiking cycle in nine years despite repeated clues by Yellen that not only is there froth in the market but that the Fed has no dry powder to contain the next crisis when it emerges (even though a rate hike will catalyze the next crisis), traders have chosen to ignore the chatter from Greece which is getting worse by the hour, and unlike recent days, have bought risk overnight based on one simple technical: of the five press conferences in ten Fed meetings held by Yellen as Chairman, the S&P finished higher 80% of the time.
What happens if the Fed actually stop reinvesting TSY holdings after they reach lift-off? Net supply will on the private market will increase accordingly and market volatility will force the FOMC to reassess their fleeting exit strategy...again