"We Are Becoming Convinced That The System Won't Stabilize" - Citi Explains How Central Banks Broke The MarketSubmitted by Tyler Durden on 05/21/2016 14:10 -0400
"Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly. As such, managers are struggling to justify their fees, while the sellside wonders whether it is really worth the continuing commitment to market-making in the face of increased capital requirements and legal and back-office overheads."
"Capitalism Has A Crisis" - Deutsche Sees No Light At The End Of The Tunnel "Until There Is A Recession"Submitted by Tyler Durden on 05/09/2016 12:42 -0400
If Deutsche Bank is right, the Fed - which has staked not only its credibility but its very existence on keeping the US stock market propped up and artificially inflated - has a big problem.
"Together with a divergence forming in the VIX index, and with the seasonality getting toppish we continue to see the risk of a significant and longer lasting tactical correction leg in the US and global equities into summer."
Silver was battered so low in recent years’ gold bear that it’s spent 2016 trading near stock-panic levels relative to gold. Such super-low prices aren’t sustainable, so silver is due for a massive mean reversion higher
Falling profit margins and rising valuations (as earnings fall) make for a pretty bearish one-two punch for the stock market. Investors will surely become less eager to pay higher valuations for companies growing more slowly. That equation usually works in reverse. And there’s no reason we can see to expect these challenges to corporate profit margins to let up any time soon. The S&P 500 now trades at its highest price-to-earnings ratio since the bull market began even as the index remains well off its recent price highs. And profit margins still could have a long way to fall before even reaching their average level since 1950.
In mid-February, we warned of the looming carnage for equity market-neutral funds, and sure enough, as Bloomberg reports, one of the most popular (and successful) hedge fund trades - playing the difference between high- and low-momentum stocks - crashed by the most since 2009 in Q1. After 6 years of almost unstoppable gains, equity market-neutral funds suffered their biggest losses since 2012 - comparable to the 2007 quant crisis devastation - as weak momo stocks massively outpeformed crushing the hedgies' models.
The Stock Market Is A Monetary Policy Junkie - Quantifying The Fed's Unprecedented Impact On The S&PSubmitted by Tyler Durden on 03/24/2016 12:10 -0400
The bulls will presumably argue that this Fed impact is now part of the accepted wisdom, and that P/Es should remain higher than history in order to reflect the Greenspan/Bernanke/Yellen Put. The bears will suggest that if ever there were a time for the scales to fall from investors’ eyes over the Wizard-of-Oz-like nature of the Fed, then this is it. We are inclined to the latter view. Betting on the Fed’s ability to generate continued market levitation seems like a dangerous game to us, but as Newton long ago opined, “I can calculate the motion of heavenly bodies, but not the madness of people.”
"The FX market is confusing this year. More easing by the BoJ, the RBNZ, the Riksbank, the ECB and the Norges Bank, led to stronger currencies, despite delivering more than markets had expected in all cases. The market seems to be taking recent monetary policy easing as evidence that central banks are reaching their limits, as their forward guidance has sent mixed signals."
What remains most remarakable about Horseman Capital is that even as it modestly boosted its gross exposure to 59%, as of February the fund's net short exposure has risen from what was a previous record of 76%, to a whopping -88%, an unprecedented record even for one of the world's most bearish hedge funds!
Just hours after Goldman Sachs issued a report in which it said the iron ore rally is likely to be short lived "in the absence of a material increase in Chinese steel demand, and steel raw materials will once again drive steel prices rather than the other way around", overnight Iron Ore futures traded on the Singapore SGX exploded as much as 19% higher to $58.95 in one session, its biggest jump on record.
“When it rains, it pours.” That is most assuredly one of the most heavily used cliches in the history of the English language but a failure to understand it apparently causes Citi’s economics team to get it wrong when it comes to forecasting the depth and trajectory of EM recessions.
"... the growing perception that central banks are moving away from QE-style programmes to negative interest rates is less supportive for equities, in our opinion. With little evidence so far that negative rates boost aggregate economic activity, the risk is that this policy tool increasingly resembles a more blatant form of 'beggar thy neighbour' currency devaluation. A shift towards a more nationalistic and perhaps less coordinated global policy response could signal a quickening in the pace of fiat currency debasement and augurs badly for risk appetite, in our view."
The recent reversal is definitely positive. Both false breakouts and false breakdowns often turn out to be reliable trend change signals. An additional bonus in this case was that the initial breakdown has induced widespread capitulation. Contrary to the immediately preceding rally attempt, the current one has been a “scared rally” so far. The mainstream financial press is still busy penning obituaries on gold, which is generally a good sign as well.
Oil prices around USD 30/bbl mean that an increasingly significant volume of future oil projects no longer make sense. Although Deutsche Bank does not expect US crude inventories to reach capacity, rising US inventories and high US crude imports may heighten downside pressures to push prices closer to marginal cash costs of USD 7-17/bbl for US tight oil, with few plausible scenarios for a strong price recovery in the short term,