"The opposite of currency wars is not necessarily currency peace; it can easily be interest rate wars," is the warning Citi's Steve Englander sends in a note toda, as EM and DM bond yields have relatively exploded in recent weeks. The backing up of yields represents an increase in risk premium, so this will likely have negative effects on asset markets and the wealth effect abroad as well. It is difficult to explain the magnitude of the yield backup in terms of normal substitution effects, and broadly speaking, if you were to compare the backing up of bond yields with the beta of the underlying economy and asset markets there would be a good correspondence. So, Englander adds, it is fear, not optimism that is driving bond markets.
As more and more "baby boomers" head into retirement the need for high quality, independent, registered investment advisors will continue to grow. The need for firms that do organic research, analysis and make investment decisions free from "conflict," and in the client's best interest, will continue to be in high demand in the years to come as more "boomers" leave the workforce. While the "Wall Street" game is not likely to change anytime soon; the trust of Wall Street is fading and fading fast. The rise of algorithmic, program and high frequency trading, scandals, insider trading and "crony capitalism" with Washington is causing "retail investors" to turn away to seek other alternatives.
Residential housing is the single largest "tangible" US real estate asset, worth roughly $18 trillion (but well below the total financial assets in circulation in the US).Housing inventory as of May was 133.2 million units, of which owner occupied is 78.9 million, renter occupied was 41.7 million, but most troubling: 12.6 million was Vacant. Some shortage... It is this mismatch between 11.1 million in negative equity "owner occupied" units and 12.6 million vacant units that all those who peddle the rent-to-own dream are focused on as America becomes increasingly a society of rents. It also means that the millions in soon to be formerly owner-occupied homes have to stay on bank books and not enter the market in other to generate the illusion of scarcity or else the myth that there is a housing shortage will be blown right out of the water.
Housing Bubble Pop Alert: Colony Pulls IPO On "Market Conditions", Blue Mountain Rushes To Cash Out Of Own-To-RentSubmitted by Tyler Durden on 06/04/2013 22:08 -0500
Here is a simple way to test if the last year of housing market gains have been due to a real, fundamental, consumer-led recovery, or nothing but the latest iteration of the Fed's money bubble machine manifesting itself in the place of least du jour resistance - houses: Assume rising interest rates.
Some of my first memories of television are of a series called The Rocky and Bullwinkle Show, which was a witty combination of animated cartoons about the exploits of the title characters, Rocket "Rocky" J. Squirrel and Bullwinkle J. Moose and their nemeses, two Pottsylvanian nogoodniks spies, Boris Badenov and Natasha Fatale. The show was filled with current event commentary, political and social satire. The show was also filled with commentary on economic and market conditions that resonated with the parents watching the show while the kids focused on the cartoons. Each show ended with the narrator describing the current cliffhanger with a pair of related titles, usually with a bad pun intended. So let's adapt some of my favorite Rocky and Bullwinkle episode titles to modern day; we might see that there are some political and economic challenges that are timeless, as it appears we have been doing the same thing over and over for decades and expecting different results.
Over a year ago we wrote "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement" in which we explained that due to ZIRP, management teams are left with just two (very shareholder-friendly) capital allocation choices: stock buybacks and dividends, to the detriment of such much more long-term critical uses of funds as capital expenditures, and to a lesser extent M&A. So far, this observation has proven spot on with buybacks (most of which using leverage to arb the record low cost of debt, notably in the case of Apple) dominating cash allocation decisions. However, there is a key drawback to this strategy: corporate assets whose age has hit all time highs across the globe. Naturally, this is a critical issue in a world in which the return on assets is now rapidly declining as seen in two years of deteriorating profit margins, and in which as much utility has been extracted as possible from an asset base which in many cases is well beyond its functional age. Logically, more and more companies will have no choice but to reasses capital deployment and in the coming months formerly very shareholder friendly companies will have no choice but to redeploy cash from dividends and buyback and to long-ignored capex once more. We bring this up because moments ago Dole Food just provided the missing piece to this capital allocation puzzle.
We are approaching a critical point (again) in the “battle royal” between the forces of inflation and deflation. Deflationary forces are threatening to overwhelm the reflationary push-back of the world’s central banks - although this is not reflected in most equity markets (especially the US). Open-ended QE was only announced by the Fed last Autumn, but the impact on (market-based) inflation expectations plateaued within months and has started turning down. A decision to taper QE would obviously be negative for equities in the absence of a sufficiently strong offsetting improvement in economic fundamentals – which is difficult to envisage right now.
Up until today, the narrative was one trying to explain how a soaring dollar was bullish for stocks. Until moments ago, when Bill Dudley spoke and managed to send not only the dollar lower, but the Dow Jones to a new high of 15,400 with the following soundbites.
- DUDLEY: FED MAY NEED TO RETHINK BALANCE SHEET PATH, COMPOSITION
- DUDLEY SAYS FISCAL DRAG TO U.S. ECONOMY IS `SIGNIFICANT'
- DUDLEY: FED MAY AVOID SELLING MBS IN EARLY STAGE OF EXIT
- DUDLEY: IMPORTANT TO SEE HOW WELL ECONOMY WEATHERS FISCAL DRAG
- DUDLEY SAYS HE CAN'T BE SURE IF NEXT QE MOVE WILL BE UP OR DOWN
And the punchline:
- DUDLEY SEES RISK INVESTORS COULD OVER-REACT TO 'NORMALIZATION'
Translated: the Fed will never do anything that could send stocks lower - like end QE - ever again, but for those confused here is a simpler translation: Moar.
In the absence of major data releases, the focal point of the week for markets becomes the release of the minutes of the May FOMC meeting. The most notable change in the statement was the inclusion of the new language: “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” In the May meeting minutes, the market will be looking for any clarification of the motivation behind this change as well as any evidence that the committee members may be becoming less comfortable with the unemployment rate threshold or more specific about tapering timelines and dates.
Aside from light volume there’s no argument with the tape. It’s quite positive but much overbought. Earnings news is beginning to wane leaving less for bulls to respond to. Many previous reliable technical indicators are succumbing to all the money printing. Looking at those markets where QE is not taking place perhaps reveals the real market conditions.
On one hand we have bad Hilsenrath sending mixed messages saying the Fed may taper sooner (with good Hilsenrath chiming in days later, adding it may be later after all), depending on whether HY bonds hit 4% YTM by EOD or mid next week at the latest. On the other, even resolute Fed doves are whispering that a tapering may occur as soon the summer, so in a few months, and halt QE by year end. Bottom line - confusion. So who better to arbitrate than the firm that runs it all, Goldman Sachs, and its chief economist Jan Hatzius, who issues the following Q&A on "tapering." His view: "not yet." Then again, Goldman is the consummate (ab)user of dodecatuple reverse psychology, so if Goldman says "all clear" the natural response should be just as clear.
Philly Fed Misses, Key Indicators Negative Across The Board: Employment Index Lowest Since September 2009Submitted by Tyler Durden on 05/16/2013 09:13 -0500
It's just getting plain stupid out there. Just as stocks were exploding into the green (perhaps on expectations of an epic Philly Fed miss), the Philly Fed did not disappoint, printing at -5.2, down from 1.3, and crushing expectations of an increase to +2.0, the biggest miss since February and confirming that the Empire Fed index plunge was not a fluke. Virtually every components in the Philly Fed was red except for Inventories (up to 4.1 from -22.2 in March) and Prices Paid (up to 6.9 from 3.1 in March). Among the plungers, the key New Orders tumbled from -1.0 to -7.9, Shipments crashed from 9.1 to -8.5, Average Workweek slide from -2.1 to -12.4, and the Number of Employees imploded from -6.8 to -8.7, the lowest print since September 2009. And if all of this doesn't send the Stalingrad & Poor 500 to new historic highs, we don't know what will. All one can do now is just laugh at this "market."
Like an infectious disease without a cure, the contagion within Europe widens its grasp…
I think it's indicative of a problem when, half-jokingly, the vernacular increasingly being used in the popular media includes: being "Corzined" and "Cyprus'd". The former meaning having your money stolen from or via the equities market, and the latter being theft directly via the banking system.