Within the last fourteen years, there have been two major market corrections, both of which saw drops of 55% from their highs. That, or more, is the potential for what lies ahead. For those who went through these markets, it was not enjoyable... and those who 'stayed long' have been lucky. To put into perspective how lucky he was, it took 25 years for the Dow Jones to recover to its pre-crash highs after the Great Depression. Likewise, the Dow hit an intraday high of 1,000 in 1962 but never closed above 1,000 until about twenty years later. Whether recent market behavior proves to be merely a dip in the chart is almost irrelevant. The country and financial markets are nearing what could very well be an existential event. Do not be investing like your father or grandfather. Markets today are more like casinos than a way to invest in American growth. Unfortunately, the Federal Reserve has made it impossible to go elsewhere other than your mattress.
With Ukraine no longer paying for Russian gaz, and with Gazprom making it clear Kiev has to a) first pay the overdue $2+ billion in invoice and then b) prepay some $5 billion in gas until the end of the year of Europe gets it, it was only a matter of time before the US Treasury stepped in and paid off part or all of Gazprom's demands. That time is now, when moments ago Jack Lew announced a $1 billion loan guarantee for Ukraine - very much the same way that the US provided billions in loan guarnatees for the now long overthrown Mursi regime in Egypt. And in other news, many more "costly" and "damaging" US sanctions are surely headed Russia's way any second now.
While the so-called "experts" were adamant in repeating that one must ignore all Q1 economic data (because of harsh weather you know), one thing the same "experts" pounded the table on was the earnings growth in 2014 which confirmed that the Fed was correct in tapering and that the corporate sector was well on its way to achieving "escape velocity" and a stable recovery. And then this happened...
What was worst, and naturally will not be discussed at all by the peanut gallery, about Citi's just announced results is that the amount of Citigroup mortgage originations - that key aspect of the trumpeted "housing market recovery" - did what it has done at every other bank. It plunged. Only at Citigroup, it plunged so badly, it just reached a new record low which at $5.2 billion is a 71% drop from a year ago! Long live the housing recovery... in which nobody seems to be participating.
- Three dead in shootings at Kansas Jewish centers; man to face charges (WSJ)
- Sanctions Blowback in Russia Targets Burgers to Movies (BBG)
- Deadly Virus's Spread Raises Alarms in Mideast (WSJ)
- China group buys $6bn Glencore Peru copper mine (BBG)
- Iran lodges complaint against United States over U.N. envoy ban (Reuters)
- Russian assets down sharply on Ukraine conflict fears (Reuters)
- ECB comments knock euro, but not much (Reuters)
- World-Leading $25 Hourly Wage Roils Swiss Businesses (BBG)
Futures are treading water once more now that Ukraine has stormed to center stage from the backburner after everyone was convinced Putin would let the situation cool off after annexing Crimea. Guess not. Adding the renewed geopolitical jitters to what has already been a beta stock bloodbath into a holiday shortened week assures some high volatility fireworks. Cautious sentiment was observed over in Asia (Nikkei 225 -0.36%) amid renewed fears that geopolitical tensions in Ukraine will flare up again following reports of exchange gunfire with pro-Russian militants. This sentiment carried over into the European session with stocks lower across the board (Eurostoxx50 -0.71%). EUR is lower after ECB’s Draghi said any further strengthening of the EUR would warrant further action by the ECB, including non-standard measures such as quantitative easing - it is amazing how frequently and often the Virtu algos still fall for Draghi's jawboning trick which has now become all too clear will never be implemented and certainly not if he keeps talking about it daily, as he does.
For a decade or two, it's been dubbed the widowmaker (though truth be told, the losses are more bleed than massive capital loss like those holding US growth stocks currently), but as Barclays notes the Japanese bond market 'conundrum' (that nothing like a recovery is priced into the JGB curve, which is failing to price even a partial, eventual success of the Abe government's reflationary agenda) may finally be ready to be played..."We are always on the lookout for asset prices that seem inconsistent with the more plausible economic and financial scenarios. Sometimes these discrepancies point toward necessary alterations of our fundamental world view. In other cases, they point toward investment opportunity. At the moment, one of the most glaring discrepancies between macro and markets is the long end of the Japanese curve."
In light of the recent "triumphant" return of Greece to the capital markets with its brand new 5 Year bond issuance (which much to the chagrin of the flippers is already trading below its breaking price), one of our Greek readers decided to provide his "on the ground" perspective on what is really happening in Greece: "I am writing you in an effort to get you to provide a more public and harsh(I mean realistic) description of what has been going on, for the past few days with relation to what’s left of my country. I doubt it will not take you long to discover its mostly spent on “political commissions” and interest payments (I’d bet only 6-7% actually flows through). I am sure you are aware that according to Greek law all political parties receive some kind of (substantial) financial support from the government budget. The government has not delivered. There are still over 900,000 people working for public and government related services, for a population of roughly 11 million. The banks still maintain negative real equity and have consistently defrauded investors over the past few years."
After tens of millions in legal fees, a river of negative press, and ripple effects to other local municipalities, we have U-turned and are back to where we started.
Much has been made of the "sharp acceleration" in bank lending in the last few months promulgated by the status quo huggers that 'animal spirits are reviving' and, despite a collapse in equity market valuations for 'growth' stocks, that escape velocity growth and that so-longed-for surge in Capex is just around the corner. However, when put in context... when looked at over more than a few months, and when considered against the typical economic cycle... this is anything but sustainable and merely reflects on the inventory-stacking mal-investment debacle of Q4 that is now unwinding en masse as hoped for 'aggregate demand' shows no signs of appearing.
Following Fed Governor Tarullo's comments this week on central bank policies and the recovery benefiting high-income earners disproportionately - potentially damaging the "nation's democratic heritage", we thought it ironic that this week's Bloomberg Comfort Index data showed that the rich (high incomes) just got a whole lot more comfortable and the poor (low incomes) got a whole lot less comfortable. In fact, the rich-poor comfort divide jumped back to 2-month highs.
Almost 10 million out of 43.7 million part-time workers in the European Union were under-employed in 2013. As Bloomberg Brief's Niraj Shah notes, based on Eurostat's Labour Forces Study, a record 72 percent of Greek part-time workers wished to work more hours compared with 4.2 percent in the Netherlands. As we explained in great detail here, the Greek "recovery" is a mirage and these numbers do not lie.
This is the key issue for market participants: Is the dollar breaking lower or is it just testing the lower end of its range ? Here is my take.
Chief Economist Of Central Banks' Central Bank: "It's Extremely Dangerous... I See Speculative Bubbles Like In 2007"Submitted by Tyler Durden on 04/11/2014 18:05 -0400
Yet again, it seems, once senior political or economic figures leave their 'public service' the story changes from one of "you have to lie, when it's serious" to a more truthful reflection on reality. As Finanz und Wirtschaft reports in this great interview, Bill White - former chief economist of the Bank for International Settlements (who admittedly has been quite vocal in the past) - warns of grave adverse effects of the ultra loose monetary policy everywhere in the world... "It all feels like 2007, with equity markets overvalued and spreads in the bond markets extremely thin... central banks are making it up as they go along." Some very uncomfortable truths in this crucial fact-based interview.