"My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices. However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time."
After 6 weeks of the ECB's (3rd) Covered Bond Purchase Program, the cumulative buys amount to a mere EUR 10.485 billion. It appears they are limited (by collateral availability and market liquidity.. and dealers unwillingness to sell) to around EUR3 billion per week - around the same amount The Fed's QE3 would suck up in 1-2 days of POMO. At this rate, it's a long way to go to reach the $1 trillion goal. Is it any wonder that Mario Draghi once again used the 'w' word - uttering ECB will do "whatever it takes" (cough within its mandate).
The USD seemed to get a sudden flush at 10am, which sparked bond (10Y -3bps), stock (S&P +5pts), and gold buying (up over $15).... no catalyst as far as we can see other than UMich inflation expectations plunging...
"Most Important Chart For Investors" Updated: Edwards Sees USDJPY 145 Next And "A Tidal Wave Of Deflation Westward"Submitted by Tyler Durden on 11/13/2014 09:38 -0500
What happens next? Here, straight from the horse's mouth that got the first part of the rapid Yen devaluation so right, is the answer. As Edwards updates with a note from this morning, "the yen is set to follow the US dollar DXY trade-weighted index by crashing through multi-decade resistance - around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards."
Because when you have no POMO, and no QE on the horizon, you can always break a stock exchange and send the entire market... higher!?
The question that remains to be answered is whether the economy and the financial markets are strong enough to stand on their own this time? The last two times that QE has ended the economy slid towards negative growth and the markets suffered rather severe correction...
Last 2 Year Auction Of QE3 Prices At Lowest Yield Since May, Lowest Bid-To-Cover Since September 2013Submitted by Tyler Durden on 10/28/2014 12:17 -0500
Altogether, an unremarkable auction in a week where the longer-maturities will be far more closely watched, especially after tomorrow once the FOMC announcement is in the history books.
You just short some more...
When QE ends today, the Fed balance sheet will stop expanding. Which means stocks will be standing on their own two legs for the first time in the last two years. Unfortunately, those two legs: economic growth and earnings are both weak.
For those who follow the Fed's daily intervention in the stock market, today is a historic, if bittersweet day: this is the day when the Permanent Open Market Operations (or POMO) as a result of the QE3 program launched in December 2012, finally die (at least until they are reincarnated yet again). Today, at 11:00 am, the NY Fed's market desk will conclude its 933rd POMO since August 25 of 2005, when it will inject just about a $1 billion in the stock market in the form of a $0.85-$1.05 billion buyback of long-end bonds. And with that, Simon Potter's open market operations desk located on the 9th floor of Liberty 33, will be put on temporary hiatus.
ECB Stress Test Fails To Inspire Confidence Again As Euro Stocks Slide After Early Rally; Monte Paschi CrashesSubmitted by Tyler Durden on 10/27/2014 06:09 -0500
It started off so well: the day after the ECB said that despite a gargantuan €879 billion in bad loans, of which €136 billion were previously undisclosed, only 25 European banks had failed its stress test and had to raised capital, 17 of which had already remedied their capital deficiency confirming that absolutely nothing would change, Europe started off with a bang as stocks across the Atlantic jumped, which in turn pushed US equity futures to fresh multi-week highs putting the early October market drubbing well into the rear view mirror. Then things turned sour. Whether as a result of the re-election of incumbent Brazilian president Dilma Russeff, which is expected to lead to a greater than 10% plunge in the Bovespa when it opens later, or the latest disappointment out of Germany, when the October IFO confidence declined again from 104.5 to 103.2, or because "failing" Italian bank Monte Paschi was not only repeatedly halted after crashing 20% but which saw yet another "transitory" short-selling ban by the Italian regulator, and the mood in Europe suddenly turned quite sour, which in turn dragged both the EURUSD and the USDJPY lower, and with it US equity futures which at last check were red.
Ebola in NYC, no problem. Crappy housing data, all good. School shooting in WA, buying opportunity... and that is how the S&P 500 broke back above its 100-day-moving-average (proving the world is fixed again), and had its biggest low-to-high swing since Dec 2011. It wasn't all great BTFD news today though as small caps underperformed - though still green (just like last Friday), and only Trannies and Russell are green in October. Despite equity exuberance, Treasuries rallied modestly today (ending the week up 8-9bps on the week). HY credit slightly underperformed stocks but compressed 27bps - the biggest weekly drop in spreads since July 2013. The USD rose for the first time in 3 weeks led by JPY and EUR weakness. Oil fell once again, copper rose (since China data), gold and silver mirrored USD's gains. VIX closed down 5 from last week's close just above 16, but like small cap, and JPY carry, decoupled this afternoon. The last 2 weeks were the biggest squeeze of "most shorted" stocks since July 2013.
Albert Edwards is angry, and understandably so: almost exactly two weeks after warning readers to "sell everything and run for your lives" and the market was on the verge of its first correction in years, several powerful verbal interventions by central banks from the Fed, to the BOJ to the ECB have staged yet another massive rebound which has nearly wiped out all the October losses. Central-planning aside (and ask how much the USSR would have wished for central planning to indeed have been "aside") we share his frustrations, almost to the point where we would reiterate word for word Edwards' furious outburst, as follows: "Simply put, the central banks for all their huffing and puffing cannot eliminate the business cycle. And they should have realised after the 2008 Great Recession that the longer they suppress volatility, both economic and market, the greater the subsequent crash. Will these morons ever learn?"
And the overnight futures ramp started off so promising.