• Tim Knight from...
    02/06/2016 - 00:25
    What we must remember is this: we are in a bear market, and the risk of a countertrend rally is present, but confined. The opportunity on the downside movement dwarfs the risk of a push higher, as...

Monetary Policy

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Frontrunning: January 19





  • Spot the common thread: China's growth hits quarter-century low, raising hopes of more stimulus (Reuters)
  • And here: China stocks climb on hopes for new economic stimulus (Reuters)
  • Welcome to the Crisis Economy, Where Tumult Reigns (WSJ)
  • IEA Sees Risk of World Drowning in Oil (BBG)
  • IEA Sees Iran's Return Intensifying Battle for Europe Oil Market (BBG)
  • China 2015 power, steel output drop for first time in decades (Reuters)
 
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The Fed's Stunning Admission Of What Happens Next





"The events of 1929 taught us that the absence of any rise in prices did not prove that no crisis was pending. 1937 has taught us that an abundant supply of gold and a cheap money policy do not prevent prices from falling."

 
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US Economy – Slip-Sliding Away





It must be China. Or the weather, which is usually either too cold or to warm – somehow the weather is just never right for economic growth. Surely it cannot be another Fed policy-induced boom that is on the verge of going bust? Sorry, we completely forgot – the Fed is never at fault when the economy suffers a boom-bust cycle. "[An] oversold market can easily become more oversold when it keeps being inundated with evidence that economic conditions are not what they were thought to be."

 
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When Omnipotence Fails: JPMorgan Warns Upside Uncompelling As Central Bank Put Wanes





It would be hard for a year to start any worse than 2016 has... "Prices are oversold and sentiment hasn’t been this despondent in a long time (even Aug/Sept wasn’t this palpably negative) but any bounce will not be particularly impressive and in a lot of ways that is the main problem as the upside just isn’t compelling enough to make a major stand...as Western central banks attempted to mollify sentiment with dovish rhetoric but to no avail."

 
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How QE Crushes The Real Economy & Why The Secular Low In Treasury Yields Lies Ahead





The economy was supposed to fire on all cylinders in 2015. Sufficient time had passed for the often-mentioned lags in monetary and fiscal policy to finally work their way through the system according to many pundits inside and outside the Fed. Surely the economy would be kick-started by: three rounds of QE and forward guidance; a record Fed balance sheet; and an unprecedented increase in federal debt to $18.63 trillion in 2015, a jump of 86%. Further, stock prices had gained sufficiently over the past several years, thus the so-called wealth effect would boost consumer spending. But the economic facts of 2015 displayed no impact from these massive government experiments.

 
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Too Many "Think Tanks" Are Just Kool-Aid Fueled Group-Think





Over the last 5 years the various Fed QE (quantitative easing) interventions into the capital markets has facilitated dumb luck trading into “genius” status, and no clue analysis into “spot on brilliant” prognostications. The real issue at hand is many believed their own press, and the current state of egg on their face would make many a Denny's blush. As bad as that sounds – it gets worse.

 
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The Great Unraveling Looms - Blame The 'Austrians'?





Decades of accumulated market distortions appear to be on the brink of a great unwind, most of which can be blamed on expansionary monetary policies. If so, the banking crisis of 2008 was a prelude, rather than the crisis itself. The Keynesians will blame the Fed for a complete policy failure. The reality is, that by implementing conventional policies on the recommendation of group-thinking macroeconomists, the central banks have dug a hole too deep to escape. Recognition of the merits of Austrian sound money theory will simply expose this reality sooner than later.

 
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The Game Of Chicken Between The Fed & The PBOC Escalates





There’s more than a whiff of 2008 in the air. The sources of systemic financial sector risk are different this time (they always are), but China and the global industrial/commodity complex are even larger tectonic plates than the US housing market, and their shifts are no less destructive. There’s also more than a whiff of 1938 in the air, as we have a Fed that is apparently hell-bent on raising rates even as a Category 5 deflationary hurricane heads our way, even as the yield curve continues to flatten.

 
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Norway Pushes Panic Button: "We're In A Crisis Now, We Can't Deny That"





Slumping crude prices are weighing heavily on Norway's economy as the government looks to its $830 billion sovereign wealth fund to plug budget holes and pay for fiscal stimulus. Officials hope a weaker krone can serve as a shock absorber but with Mario Draghi stuck in easing mode, that may prove to be an increasingly dubious proposition.

 
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S&P Enters The Latest European Scandal: Downgrades Poland From A- To BBB+





As so often happens, whenever there is a political spat in Europe, the rating agencies are quickly involved (thing S&P and Moody's downgrades and upgrades of Greece depending on how well the vassal nation is "behaving"), and moments ago S&P downgraded Poland from A- to BBB+ outlook negative, precisely due to Poland's new media law which has been the topic of so much consternation over the past week. In other words, S&P is now nothing more than a lackey for Brussels, threatening to send Polish yields higher if Poland does not fall in line.

 
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Presenting Turkey's "Vicious" Depreciating Currency Cycle





With Erdogan calling (loudly) for lower rates and 5 of 7 MPC seats opening up between April and November, some fear Turkey may eschew policy normalization leading directly to what Morgan Stanley calls "a vicious cycle" of a depreciating currency, rising inflation, and lower real policy rates.

 
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Global Markets Slide, US Futures Wipe Out Overnight Gains In Volatile Session





European shares tumbled, wiping out gains from a two-day rally, Asian stocks slid and the cost of insuring corporate debt rose as investor concern over global growth prospects resurfaced. U.S. equity-index futures pared gains of as much as 0.9 percent. Government bonds rose, with yields falling to records in Japan and China amid anxiety over the world economy. U.S. crude prices stabilized after dropping below $30 a barrel on Tuesday to touch the lowest since 2003 as Iran moved closer to boosting exports.

 
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If You Don't Agree With Obama You Are "Peddling Fiction"





Prosperity is not complicated. People figured out thousands of years ago that if you wanted to do well, you had to produce more than you consumed. But the American system is the exact opposite, favoring those who recklessly borrow and spend, rather than those who work hard and responsibly save. The President of the United States boldly accused everyone who doesn’t share his view as just making things up. In his words, “Anyone claiming that America’s economy is in decline is peddling fiction.” This is an extraordinary (and delusional) statement.

 
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Order Book For Biggest Bond Sale Ever Takes Shape: Over $100BN In Orders For $40BN AB InBev Offering





While the market for corporate bond issuance has been relatively quiet among the recent broader market turbulence, in a few hours a historic new bond is about to price and be sold to investors. Earlier today, Anheuser-Busch InBev NV, the acquiror in the second largest M&A deal of 2015 valued at $117 billion and just shy of Pfizer's massive $160 billion merger with Allergan, started offering bonds that will back its takeover of SABMiller Plc in a sale that according to Bloomberg will stretch into Europe and is set to become the biggest corporate-debt offering on record.

 
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Albert Edwards Hits Peak Pessimism: "S&P Will Fall 75%", Global Recession Looms





"To bottom on a Shiller PE of 7x would see the S&P falling to around 550. I will repeat that: If I am right, the S&P would fall to 550, a 75% decline from the recent 2100 peak."

 
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