Thursday, in a long-awaited opinion, the Second Circuit Court of Appeals in New York' three-judge panel ruled that the NSA program that secretly intercepts the telephone metadata of every American was illegal. It’s now up to Congress to vote on whether or not to modify the law and continue the program, or let it die once and for all. Lawmakers must vote on this matter by June 1, when they need to reauthorize the Patriot Act. A key factor in that decision is the American public’s attitude toward surveillance. Given the vast amount of revelations about NSA abuses, it is somewhat surprising that just slightly more than a majority of Americans seem concerned about government surveillance. Which leads to the question of why?
- ‘Flash Crash’ Overhaul Is Snarled in Red Tape (WSJ)
- ECB Considers Tighter Noose on Greek Banks (BBG)
- Dollar Falls as U.S. Data Cast Doubt on Fed Policy Tightening (BBG)
- Market U-Turn Rams Hedge Funds (WSJ)
- Greece makes 200 million euro IMF payment due Wednesday (Reuters)
- Greek unemployment was 25.4 percent in February (Reuters)
- J.P. Morgan’s Barista-Turned-Banker Sees Good Things Brewing (WSJ)
It's not easy being a millionaire in the New Normal.
“When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress.” We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. A rational investor must indeed have a sense of an ending, not another Lehman crash, but a crush of perpetual bull market enthusiasm.
Nowhere is the new normal more evident than the frenzied hording of so-called "trophy homes" by the world's 1800 billionaires. As Bloomberg reports, the ultra-luxury housing market is scaling new heights as a record number of properties around the world command prices topping $100 million. Demand is growing among affluent Americans and Europeans; billionaires from unstable economies, such as Russia and Middle Eastern countries; and buyers from mainland China, who were barred from investing overseas before 2012. Why - simple (to them?)... "They’re a scarce commodity. And they’re better than gold because you can boast about it."
The week that passed has been nothing short of a roller coaster ride for many nervous investors. And for some: a realization that the once hyped, hawked, and levered Billion dollar babies can indeed “come off the rails.” Turning the once joyride into something more in common with a free fall into the abyss. However, you’re told not too worry: For if you loved the ride when the prices were higher, then surely you should be ecstatic to “ride again” since the new ticket prices are clearly “on sale!”
Something serious is brewing under the hood...
Whatever happens with the nuclear negotiations this summer, and as much as Tehran wants cooperation and not confrontation, Iran is bound to remain - alongside Russia - a key US geostrategic target. What the Pentagon - with customary hubris - does not see is Moscow and Tehran easily identifying the power play; the US government's hidden agenda of manipulating a "rehabilitated" Iran to sell plenty of oil and gas to the EU, thus undermining Gazprom.
It appears the ammunition for another leg higher in bond yields and small cap stocks is running dry quickly. As BofAML notes, speculators added to Russell 2000 positions for the 5th of the 6 weeks, reducing small cap shorts to smallest in a year. Spec buying of crude continues unabated with the 4th week in a row lifts net long to highest since August. The bond complex is at extremes everywhere: large specs bought 2Y bonds for the 7th week in a row, lifting the 2Y bond net long to a 2-year high; but levered funds have never been more short the long-bond. Finally, VIX Spec shorts have soared to one-year highs. All-in-all positions are extreme to say the least.
It has been a story of two markets so far, with China's Shanghai Composite up another 3% in today's continuation of the most ridiculous, banana-stand driven move of the New Normal (and there have been many ridiculous moves in the past 6 years) on the previously reported hints that the PBOC is gearing up to start its own QE, while Europe and the Eurostoxx are lagging, if only for the time being until Citadel and Virtu engage in today's preapproved risk-on momentum ignition, on Greek jitters, the same jitters that last week were "fixed"and sent Greek stocks and bonds soaring. Needless to say, neither Greek bonds nor stocks aren't soaring following what has been the worst week for Greece in months.
With the USDJPY's ascent to 125, 150 and higher having seemingly stalled just under 120, with concerns that the BOJ may not monetize more than 100% of its net debt issuance suddenly surfacing, the BOJ and the Nikkei would take any help they could get. They got just that an hour ago when Fitch downgraded Japan's credit rating from A+ to A, citing lack of sufficient structural fiscal measures in FY15 budget to replace deferred consumption tax increase.
Judging by the action today, all that mattered today was 2117.39 - that is the S&P 500's previous closing record high from March 2nd. One glimpse at the charts below and the VIX-slamming is evident (especially at the close) as each time it came close to losing the record high, a miraculous deep-pocketd volatility-seller stepped in...
Great News, the Chinese manufacturing economy is contracting at its fastest pace in a year... at least that is the reaction in the Shanghai Composite. After selling off from the open, when HSBC China Manufacturing PMI printed a considerably worse than expected 49.2 - the lowest since April 2014 - stocks took off, energized the future easing expectations that are assured to come from a PBOC now hell-bent on providing speculative tools for any- and every-one just to keep the populace from revolting.
From 8x over-subscribed to 60c on the dollar in one year: (almost) well played "yield chasers" with other people's money!