As equities celebrate today's better than expected jobs report (for now), apparently comfortable in the knowledge that it's good-enough-but-not-too-good, we are reminded that just six short months ago, none other than the Fed chairman himself uttered these crucial words during his June 19th press conference:
"...when asset purchases ultimately come to an end the unemployment rate would likely be in the vicinity of 7%"
So here we are at 7.0%... and no taper in sight as excuse after excuse is rolled out for keeping the floodgates open. Whocouldanode? This appears to right up there with "subprime is contained", "nobody really understands gold", and "tapering is not tightening." But still we are supposed to give great credibility to their forward guidance?
"There are going to be consequences to central bank balance sheet expansion all over the world," Kyle Bass tells Steven Drobny in his new book, The New House of Money, adding "It’s a beggar-thy-neighbor policy, but everyone is beggaring thy neighbor." The Texan remains concerned at QE's effects on wealth inequality and worries that "at some point this is going to ignite and set cost pressures off." While Gold-in-JPY is his recommended trade for non-clients, his hugely convex trades on Japan's eventual collapse remain as he explains the endgame for his thesis, "won't buy back until JPY is at 350," and fears "the logical conclusion is war."
Following Kyle Bass' earlier comments on Herbalife's ability to tap the capital markets for a major buyback: HERBALIFE WILL BE ABLE TO BORROW AS MUCH AS $2B, BASS SAYS; An HLF spokesperson has noted that Carl Icahn will not be selling (following the stock's close above a key level that enables him to sell). This has sent the stock to $77.39 - an all-time high. HERBALIFE SAYS ICAHN HAS NO PRESENT INTENTION TO SELL SHARES. We can only imagine how Ackman feels as day after day of theta is sucked out of his puts...
Are Another 1.3 Million Americans About To Drop Out Of Labor Force (And Send Unemployment Plunging)?Submitted by Tyler Durden on 12/02/2013 14:40 -0500
With even the Fed somewhat challenging the credibility of the official unemployment rate - as labor force participation collapses structurally - the possibility that if Congress does not act by Dec 28th, a further 1.3 million people will lose emergency aid and may be deemed 'out' of the labor force merely exaggerates an already farcical situation. As JPM's Mike Feroli notes, the "official" unemployment rate may drop up to 0.8 percentage points, but it won't mean the economy is any better. Is this the 'excuse' the Fed needs to transition from QE to forward guidance (with the public seeing only a rapidly collapsing unemployment rate as evidence of their success) even as the data that they are so "dependent" on becomes worse than useless?
Nope, no bubble here... and no complacency either. And while just like last time, the tech companies still have no profits, at least this time they have revenues... most of which originate from the seemingly infinite advertising budgets at struggling discretionary retailers. By way of gentle reminder - In 2000, total US debt was $5.7 trillion. Now it is three times greater, or $17.2 trillion. As Kyle Bass once warned, "we are right back there! The brevity of financial memory is about two years."
That the Fed has a problem is increasingly well known - despite the blather from the mainstream media that QE monetization can continue ad infinitum. Their problem, of course, is running out of government-provided liabilities to monetize (as deficits shrink and their ownership of the entire Treasury complex surges). They face other problems (as we have noted before) but the admission that they are boxed in would have major ramifications in the market's faith. So, how does the Fed, faced with the knowledge that they have created asset bubbles, broken the bond market, and are boxed in by their own excess still meet the market's undying desire to keep the flow going? Bill Dudley just, perhaps inadvertently, dropped a hint of the next 'market/scapegoat' for monetization - Student loans.
"Frustrated" Liquidity Addicts Demand Moar From BOJ As Nikkei Rally Stalls, Abenomics Founders And "Hope Fades"Submitted by Tyler Durden on 11/13/2013 09:25 -0500
While the only topic of discussion for "sophisticated" investors everywhere is when (and if) the Fed will ever dare to reduce its monthly flow injection into US markets from $85 billion to a paltry $75 billion, everyone has forgotten that across the Pacific, for the past seven months the BOJ has been calmly injecting another $75 billion each and every month into the market, with no risk of this liquidity boost ever being tapered (since the broad 2% inflation target relies on ever broader wage increases that will never come). However, much to Japan's chagrin, in the current insta-globally fungible capital markets, over the past five months the bulk of this liquidity has found its way to the US stock bubble, leaving the Nikkei in the dust. As a result, the local Japanese liquidity junkies have started to loudly complain once again, and now the FT reports that "as excitement over the world’s second-biggest stock market has faded, some are now crying out for another jump-start." In other words: the BOJ must do "moar" to push the Nikkei bubble even higher following its rangebound trade since May which, worst of all, is now the primary reason why "hope is fading."
While chart analogs provide optically pleasing (and often far too shockingly correct) indications of the human herd tendencies towards fear and greed, a glance through the headlines and reporting of prior periods can provide just as much of a concerning 'analog' as any chart. In this case, while these 3 pictures can paint a thousand words; a thousand words may also paint the biggest picture of all. It seems, socially and empirically, it is never different this time as these 1936 Wall Street Journal archives read only too well... from devaluations lifting stocks to inflationary side-effects of money flow and from short-covering, money-on-the-sidelines, Jobs, Europe, low-volume ramps, BTFD, and profit-taking, to brokers advising stocks for the long-run before a 40% decline.
This morning has seen a plague of talking-head-based soundbites propagated through the mainstream media as 'fact' and actionable. One that caught our eye, from none other than "largest asset manager in the world" Larry Fink of Blackrock, simply beggared belief:
- *FINK SAYS JAPANESE INVESTORS QUESTIONING INVESTING IN U.S. DEBT
As we recently noted, the Japanese bond market is now dead (for all intent and purpose) but a glance at the following chart of credit reality suggests those Japanese investors might stop to reflect a little on their own reality...
"Debt matters... even if it is possible to pretend for many years that it doesn't," is the painful truth that, author of "Avoiding The Fall", Michael Pettis offers for the current state of most western economies. Specifically, Pettis points out that Japan never really wrote down all or even most of its investment misallocation of the 1980s and simply rolled it forward in the form of rising government debt. For a long time it was able to service this growing debt burden by keeping interest rates very low as a response to very slow growth and by effectively capitalizing interest payments, but, as Kyle Bass has previously warned, if Abenomics is 'successful', ironically, it will no longer be able to play this game. Unless Japan moves quickly to pay down debt, perhaps by privatizing government assets, Abenomics, in that case, will be derailed by its own success.
Despite what the talking heads continue to spew to justify all-time high stock market valuations, the 'fact' is that year-to-date, US Macro data has now performed the worst of all global macro indices. Furthermore, the pace of collapse in the last 4-weeks is the fastest in 8 months. What is perhaps most ironic is that US Macro peaked at the last FOMC meeting (when the Fed decided that data was not supportive enough to Taper) so any surprise today simply supports the fact that the Fed's decision is anything but fundamentally driven (and instead perhaps driven by the four 'bad' reasons for a tapering.)
Having previously exposed the world to the "nominal stock market cheerleaders," it is clear that Kyle Bass sees things as only having got worse among developed nations. In fact, the following interview shows that he does not fear US losing its credibility since "developed western economies with the largest debt loads are all in the same boat." The discussion expands from the debt ceiling debacle to bonds and stocks, "given the lack of nominal yield in the bond market, all of the new money is going to continue into stocks. The interesting thing is it’s going to make the rich people richer and the middle and lower class won’t be any better off, which is the opposite of what the administration is trying to pull off," adding that being in stocks "is not your choice," thanks to Fed repression and that deficit contraction is all that can stop the Fed now.
"If the politicians lead us into a 'prioritization of payments' situation for Treasury Secretary Lew or an actual missed payment, there is nothing you can do to protect yourself from that!" are the ominous words that Kyle Bass uses to describe the farce that is rapidly approaching (and for now being ignored by stocks). Bass went on to pull no punches in his "disappointment" in JCPenney's performance (and dilution) coming as close as he can to saying "sell." But his piece de resistance was a dismal destruction of any silver lining for Puerto Rico and the significant implications that will have on Muni bonds in general.
"Has J.C. Penney (JCP) bottomed? How many times have I heard that one? It has to be the most asked question now that we are seeing some of the highest quality hedge funds in the situation, including Perry Capital (run by my old friend Rich Perry) as well as Glenview Capital and Kyle Bass. Suffice it to say that I don't think there could be many investors as wise as these people. They aren't approaching the situation idly and I think they are going to be right. To me, that's a lot of ways to get the stock to $18.... Can this stock go up $5 on a new CEO and a better holiday season? Yes. And that's why it is worth joining these great hedge funds. Not because they are in it. But because the time and the price are right. You don't need to know anything else for the moment."
- Jim Cramer, September 5, 2013
A few years back Chairman Bernanke was asked by a financial reporter how confident he was that the Fed could easily start the process of withdrawing from the accommodation of “unorthodox” monetary policy. Some might argue (ourselves included) that the answer 'should' be something like “very confident” or “We feel we have the right tools and the right people to manage that process”. Instead the answer given was “100%”. At last week's press conference, Chairman Bernanke, in CitiFX Technicals' view, looked like the “cat that got the cheese", despite the more downbeat message he was giving? Why? Because he got his way. In their “conspiracy theory” interpretation it is likely that Janet Yellen’s nomination will indeed be announced in the near future and that tapering is now firmly back off the table despite the guidance given in recent months to the contrary. Bonds seem to agree (so far).