"Our take was that perhaps up to half of the earlier decline could be unwound. We believe, though, that one should not overstay one’s welcome in the bounce. The medium-term risk-reward for equities has worsened significantly, in our view, and the risk of a downside economic scenario is far from adequately priced in."
As the FED may find it impossible to finalise their plan for 4 rate hikes this year (25bps each in March, June, Sept and Dec, of which ~40% is priced in by markets currently), due to inflation expectations plummeting in addition to recession in US manufacturing, Oil, Commodities, China, EMs etc.. the 5y interest rate differential may have to capitulate and compress over the course of 2016.
Retail investors generally buy an off-the-shelf portfolio allocation model that is heavily weighted in equities under the illusion that over a long enough period of time they will somehow make money. Unfortunately, history has been a brutal teacher about the value of risk management.
For the 13th month in a row, The Dallas Fed Manufacturing Outlook was contractionary with a stunning -34.6 print following December's already disastrous collapse back to -20.1, post-crisis lows. With "hope" having plunged back into negative territory (-2.2) in December, January saw a complete collapse to -24.0 as one respondent exclaimed, "we expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction."
If the Wall Street Journal meant to reach for reassuring comfort, they fell far short. After spending late summer last year and into the fall proclaiming that manufacturing didn’t matter (12%), the newest round of talking points are “false positives.” In other words, manufacturing and industry does matter, after all, but just “not enough” to tip into full recession. Last year was supposed to be “the” year because of faith in only the BLS’ numbers. It was advertised as full deliverance of the promises of QE and ZIRP, but instead 2015 delivered only recessionary impressions.
The world has yet to fully digest what is currently happening in Japan.
The status quo "solution" to the decline of opportunities for meaningful work is predictably top-down: guaranteed income for all, a.k.a. "welfare for all." This is of course a re-hash of the Keynesian Cargo Cult's 1930 fix for the Great Depression, except on a far grander scale. If the "solution" doesn't enable the accumulation of capital in all its forms by individuals and households, it isn't a real solution--it's just another top-down scheme that institutionalizes subsistence serfdom.
After the white-knuckle sell-off of global equities that was finally punctuated by a rally late last week, everyone wants to know: Was this the bottom for stocks? And now Moody’s weighs in with an unwelcome warning... "it’s hard to imagine why the equity market will steady if the US high-yield bond spread remains wider than 800 basis point."
- Oil Drops as Saudis to Maintain Spending, China Diesel Use Falls (BBG)
- Saudi Arabia is able to withstand low prices says Saudi Aramco Chairman (WSJ)
- Recession Warnings May Not Come to Pass (WSJ)... or they May
- Stocks moving in tandem are squeezing short sellers (FT)... as first noted here in 2013
- Problems Found at Theranos Lab (WSJ)
- New York rebounds after blizzard, Washington shuts down government (Reuters)
- China business confidence, recruitment hit record lows in January - SMI survey (Reuters)
After the biggest two-day surge in oil in seven years, early in the overnight session both Brent and WTI continued their run for a third day, entering a bull market, 20% up from recent lows hit just last week (still 15% down on the year) when Saudi Arabia spoiled the momentum party after the world’s biggest crude exporter said it’s keeping up investments in energy projects while diesel consumption in China dropped for a fourth consecutive month, signaling an industrial slowdown. And thanks to the near record correlation between equities and oil, global stocks and US equity index futures initially rose only to slide following the Saudi comments.
Earlier today we showed an amazing schematic courtesy of Citi's Matt King: if one includes the reserve liquidation by various EMs and SWF, and nets it against liquidity injections by DM central banks (and the PBOC), one gets a perfect quantitative, not just qualitative, walk thru on how to trade markets: in other words one can measure, using high frequency data in real-time, just where markets should trade based on liquidity flows and promptly profit from any arbitrage opportunities. But aside from the potential for substantial profits, there are more profound implications. Matt King lays them out as follows..
The game is simple: we know that macroeconomics is a fiction from top to bottom, the challenge is to expose it as such. Here are some apparently innocent questions to ask of economists, journalists, financial commentators and central bankers, which are designed to expose the contradictions in their economic beliefs. A pretence of economic ignorance by the questioner is best, because it is most disarming.
"There are so many dangers and disadvantages associated with cash, we have concluded that it should be phased out..."
As we put it on Friday, "the Texas recession is only in its early innings," because we are just now beginning to witness the bankruptcies and shut-ins that will soon become endemic and sweep across the entire US oil patch as revolvers are reigned in and Wall Street suddenly refuses to finance uneconomic producers' funding gaps. So how bad can things get in Texas, you ask? Goldman has ventured a guess.
Why the Black Hole of Deflation Is Swallowing the Entire World … Even After Central Banks Have Pumped Trillions Into the EconomySubmitted by George Washington on 01/24/2016 13:58 -0500
We Ask 3 Top Economists to Explain What the Heck Is Going On ...