Monetary Policy

Beware The "Massive Stop Loss" - JPM's Head Quant Warns This Unexpected Downside Catalyst Looms Next Week

"There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market. This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. "

The Era Of The Rock-Star Central Banker Is Far From Over

Paul Volcker and Alan Greenspan were the Elvis and Beatles of this movement – the first to see widespread fame for their efforts. Then came Ben Bernanke, perhaps the Jimi Hendrix or Led Zeppelin of his day, taking existing tools and pushing them in new, previously unconsidered, directions.  Now, we have Janet Yellen and Mario Draghi, whose legacies are as yet undefined. They may end up like the next generation of rock stars from the 1970s – something like Bruce Springsteen, with a deep focus on common people in his music. Or, they could be the Bee Gees, who focused simply on commercial success. Only time will tell.

European, Asian Stocks Jump As Iron Ore Joins Oil Below $40 For First Time Since May 2009

With Draghi's Friday comments, which as we noted previously were meant solely to push markets higher, taking place after both Europe and Asia closed for the week, today has been a session of catch up for both Asian and Europe, with Japan and China up 1% and 0.3% respectively, and Europe surging 1.4%, pushing government bond yields lower as the dollar resumes its climb on expectations that Draghi will jawbone the European currency lower once more, which in turn forced Goldman to announce two hours ago that it is "scaling back our expectation for Euro downside."

BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History

"While funding continued to be available, such a large negative basis indicates potential market dislocations. And this may call into question how smoothly US dollar funding conditions will adjust in the event of an increase in US onshore interest rates. Similar pricing anomalies have also emerged in interest rate swap markets recently, raising related concerns."

It Begins: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens

Over the last few months, in a prime example of currency failure and euro-defenders' narratives, Finland has been sliding deeper into depression. Almost 7 years into the the current global expansion, Finland's GDP is 6pc below its previous peak. As The Telegraph reports, this is a deeper and more protracted slump than the post-Soviet crash of the early 1990s, or the Great Depression of the 1930s. And so, having tried it all, Finnish authorities are preparing to unleash "helicopter money" to save their nation by giving every citizen a tax-free payout of around $900 each month!

The Problem With "Rules-Based" Monetary Policy

Monetary policy 'rules' are no more accurate at determining interest rates than meteorologists are at forecasting the weather. The only difference between the two is that weathermen are precise on occasion, whereas the federal funds rate under the Taylor Rule is, at best, less wrong. Setting the price of money and credit in the name of unleashing the economy’s supposed potential output is the equivalent of enacting price controls on milk to unlock its full buying power. It’s a fallacy that cannot be achieved. The sooner the Fed pawns off its printing press, the sooner its market distortions will be lifted; and the sooner that each individual will be able to make rational decisions that make sense for not only himself or herself, but for the economy at large as well.

"Don't Believe The Hope" - When Forward Guidance Becomes Forward Mis-Direction

As we approach the Fed meeting expect markets to get more volatile. While the odds favor a move, it isn’t a sure thing until it is actually done. We found out last week what happens when forward guidance turns out to be forward misdirection. All those traders who thought they had a sure thing, who assumed that Draghi wouldn’t dare disappoint the market, got whipped. Whipped good.

What Polarized Politics Teaches Us About Stock Market Uncertainty

It’s important to respect the power of econometric models. It’s important to work with econometric models. But we don’t care who you are... whether you’re the leader of the world’s largest central bank or you’re the CIO of an enormous pension fund or you’re the world’s most successful financial advisor... it’s a terrible mistake to trust econometric models. But we all do, because we’ve been convinced by modeling’s henchman, The Central Tendency.

Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts

With an all time high of 293 ounces of paper per ounce of registered physical gold, it appears hedge funds continue to ignore systemic risk and surging physical demand, merely following the trend lower in paper gold prices by adding to already record short positions in gold last week. With the speculative world near-record long the USDollar and record short gold, how much longer can the status quo boat can remain upright with so many on the same side. After this week's shake-out of USD longs courtesy of Draghi, one wonders if the gold squeeze is about to begin?