Monetary Policy

Howard Marks Warns "Investor Behavior Has Entered A Zone Of Imprudence"

"Security prices are not low. I wouldn’t say high, but full. So people are thinking cautiously but they’re acting bullish and they’re behaving in a pro-risk fashion. While investor behavior hasn’t sunk to the depths seen just before the crisis, in many ways I feel it has entered the zone of imprudence... The market is not an accommodating machine. It will not go where you want it to go just because you need it to go there."

Even The Big Banks Now Admit It: "This Is How The Fed's 'Massive Manipulation' Broke The Market"

"Essentially central banks, by unfairly inflating asset prices have compressed risk like a spring to unfairly tight levels. Unfortunately, the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant."

Bernie Sanders: We Need A "Full And Independent Audit" Of The Federal Reserve

"Unfortunately, an institution that was created to serve all Americans has been hijacked by the very bankers it regulates.” 2016 Democratic presidential candidate and Senator from Vermont Bernie Sanders said in an op-ed on Wednesday that a full independent audit of the Federal Reserve is necessary “to reign in Wall Street."

Why The Fed Will Never Succeed

The Fed will never succeed in its attempt to manage inflation and unemployment by varying interest rates. This is because it and its economists do not accept the relationship between, on one side, the money it creates and the bank credit its commercial banks issue out of thin air, and on the other the disruption unsound money causes in the economy. This has been going on since the Fed was created, which makes the question as to whether the Fed was right to raise interest rates recently irrelevant.

BofAML Fears "Violent" Unwinds As Central Bank 'Put' Expires

The market is well aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade by central bank (CB) intervention. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant, creating a highly unstable (fragile) situation that breaks violently when a sufficient catalyst causes risk to rise – overly crowded positioning meets a market with little conviction. Catalysts From BofAML's global equity derivatives desk's vantage point, it becomes clear that the biggest visible risk to financial markets is a loss of confidence in this omnipotent CB put.

Equity Markets Will Be Increasingly Accident Prone In 2016

Having anticipated 2015 as the starting point to a turn in volatility for the last two years, BofAML warns that from here on, based on the 'Economics of Volatility framework', they expect to see a rising trend in equity volatility levels, a trend that could last 1-2 years, transporting us from the low volatility regime of the last 3 years towards a sustained high volatility regime.

Six Signs That 2016 Will Be Much Worse Than 2015

2015 has witnessed several events that had, and will have, negative repercussions on individual freedom. Orwellian totalitarianism is increasingly creeping into our everyday lives. How much more intrusive will the violations of our liberties become and for how long will the establishment get away with this? With regards to the financial system, no real solution was found to issues such as those in the euro zone. Furthermore, the financial system as a whole once again got deeper into debt. For how much longer can central banks and governments continue kicking the can down the road without any real reform?

"When Is The Crash Going To Happen?" - Mark Spitznagel Revisits "The Ticking Time Bomb"

Timing a crash can be a fool's errand, and fortunately such efforts are largely irrelevant if you are tail hedging (though they are quite relevant if you aren't). But this doesn't mean that exercises in timing are without merit. Without a doubt (or at least with over 99% confidence), bad things happen with increasing expectation when conditioning on higher Q ratios ex ante. Factoring time into the equation, and again based on history, the confidence interval around the median time would point to an expectation that the crash should commence right about now.

Technically Speaking: It's Now Or Never For Santa

With the market now back to oversold conditions and redemptions complete, it is now or never for the traditional “Santa Rally.” Statistically speaking, the odds are high that the market will muster a rally over the next couple of weeks. While the short-term trends are indeed still bullishly-biased, the longer-term analysis (monthly) reveals a more dangerous picture emerging.

The Fed's Grinchmas Message To Markets: This Is As Good As It Gets, Mizuho Warns

The first Fed rate hike in seven years was supposed to trigger a powerful equity rally as the bulls expected money to pour out of bonds into stocks; especially into the cyclicals. Unfortunately for the equity bulls,, as Mizuho's Steve Ricchiuto notes, this time things are different and instead of the Fed rate hike triggering the traditional Santa Claus rally; it looks like the FOMC is actually the Grinch. The key message delivered by the Fed though the SEP, the DOTS and the Chair’s post meeting press conference is that this is the best the economy is going to get.