Market Conditions

Having suffered a little recently on the heels of retailer concerns, Nike - the best performer in The Dow this year - is surging back towards all-time record highs after unleashing a new share buyback program (upping the limit from $8bn to $12bn), a stock split and a dividend boost.

The Fed was out in force yesterday peddling some pretty heavy-duty malarkey about the up-coming rate liftoff at the December meeting..."If we begin to raise interest rates, that’s a good thing." That’s not a bad thing." Goldman is putting out the final mullet call for this Bubble Cycle because it knows that this bull is dying; that insiders still have massive amounts of stock winnings to unload; and that the clock is fast running out. The expiring clock is evident in the S&P 500’s one-year round trip to nowhere. Despite the fact that the Fed has ponied-up a stick save at every single meeting this year, the market’s 27 separate efforts to rally have all failed for the simple reason that the jig is up.

People are scared, the market is uncertain and the world is for all intents and purposes in a constant state of turmoil and flux.

The market's reaction to today's FOMC Minutes was, to some, a little odd given the "December is on" hawkish narrative being sold to the public. Stocks rallied, longer-dated bonds rallied, gold managed gains, and the US Dollar sold off... not exactly the reaction one would expect from a 'hawkish' Fed statement. But there is one thing that would explain those moves... and it appears Goldman Sachs found it buried deep inside the 12 pages of Minutes...

Well, we got a look at the IBC-Br monthly real GDP indicator on Wednesday and as you can probably imagine given the stagflationary nightmare currently unfolding in Brazil, the picture was not pretty. If fact, we just witnessed the largest Y/Y contraction in series history.

With everything red since the October 28th "hawkish" FOMC meeting - which greenlit a December rate hike and convinced the world that everything is awesome in America (well why else would The 'smart' Fed raise rates?) - today's minutes suggest an FOMC that is perhaps not quite as "whatever it takes" committed to a December liftoff...

• *FOMC MEMBERS WANTED TO CONVEY DEC. LIFTOFF MAY BE APPROPRIATE
  
• *SOME FED OFFICIALS: UNLIKELY LIFTOFF CONDITIONS MET BY DEC.
  
• *FED OFFICIALS SAID ACTUAL LIFTOFF DECISION TO DEPEND ON DATA

But bear in mind there is a lot of data between now and December 16th (including payrolls) and what if stocks drop? Pre-Minutes: 68% rate-hike odds, S&P Futs 2064, 10Y 2.28%, EURUSD 1.0640, Gold $1070, WTI $40.45

Ten years after Symantec paid $13.5bn for Veritas, Carlyle Group agreed in August to buy the data-storage business for just $8 billion (the biggest LBO of the year). Of course, the buyout deal made sense when the cost of funding was negligible and The Fed had your back but, as Bloomberg reports, amid soaring borrowing costs, banks have pulled the $5.5 billion debt offering for Veritas signaling a clear end to the reach-for-yield, nothing is a problem, bond market's risk appetite.. and if 'growthy' deals like this are being killed, what does that say for distressed bets on Energy M&A deals?

Rolls Royce just delivered a shocker of a profit warning as new CEO Warren East said the company will take a $990 million hit in 2016 attributable to "sharply lower" sales in the corporate jet space. The shares fell as much as 22% and CDS blew out to three-year wides. 

As we noted previously, for the first time ever, primary dealers' corporate bond inventories have turned unprecedentedly negative. While in the short-term Goldman believes this inventory drawdown is probably a by-product of strong customer demand, they are far more cautious longer-term, warning that the "usual suspects" are not sufficient to account for the striking magnitude of inventory declines... and are increasingly of the view that "the tide is going out" on corporate bond market liquidity implying wider spreads and thus higher costs of funding to compensate for the reduction is risk-taking capacity.

The ongoing failure of China to achieve any stabilization in its economy, after already cutting interest rates six times in the past year, and the prospect of a U.S. interest rate hike in December, had made markets increasingly jittery and worried which is not only why the S&P 500 Index had its biggest drop in a month, but thanks to the soaring dollar emerging market stocks are falling for a fourth day - led by China - bringing their decline in that period to almost 4 percent, and the global stock index down for a 5th consecutive day.

With the third quarter earnings season almost over, and 90% of companies having reported, here is a quick look at where we stand and what has emerged as the 4 main themes during earnings calls.

In the aftermath of the Volkswagen emissions manipulation scandal, things for the giant German car maker appear to be going from bad to worse with every passing week.

The fundamental problem facing today’s economy is the flagrant contempt by governments the world over for the free exchange of goods and services and private stewardship of property. Perhaps it is power and control governments are after. Maybe they believe they are improving the economy and making the world a better place for all. No one really knows for sure. But what is lucidly clear is the muddled disorder modern day economic policies have wrought upon us.

While there are certainly reasons to be "hopeful" that stocks will continue to rise into the future, "hope" has rarely been a fruitful investment strategy longer term. Therefore, let's analyze each of the optimist's arguments from both perspectives to eliminate "confirmation bias." 

Having disappointed an expectant market by voting overwhelmingly (8-1) to leave monetary policy unchanged, the initial plunge in USDJPY and Japanese stocks has found a mysterious (and massive) JPY seller and Nikkei 225 buyer. USDJPY is now 100 pips and Nikkei 225 500 points above post-BOJ dip lows... because hawkish is the new bullish...