On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health". This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace". Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them. But it isn't the truth. As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.
The Canadian economy is rolling over and their recent jobs situation is worse than the US (and it's always cold weather-y up there?!) but the last great pillar of the 'recovery' in Canada is perhaps about to get crushed. As the WSJ noted recently, Canada's housing market is the most expensive in the world (60% over-valued by historical standards) and one simple reason explains it - Canada has been very open to foreign investors, which means that in an age of unprecedented global liquidity cash-rich wealthy individuals who are looking for places to park their excess funds can do so in its housing market. Until now... As SCMP reports, Canada’s government has announced that it is scrapping its controversial investor visa scheme, which has allowed waves of rich Hongkongers and mainland Chinese to immigrate since 1986. Soft landing?
"Take a long, hard look, Janet," warns Grant Williams, "the landscape over which you cast your eyes when you accepted the poisoned chalice prestigious role of Fed Chair changed last week." Just two days before you were confirmed in a rather lovely ceremony, in an interview in Mumbai, Raghuram Rajan (one-time Chief Economist at the IMF and current Governor of the Reserve Bank of India) rather UNceremoniously dropped something of a bombshell that went largely unreported (perish the thought, in this era of dogged journalism). The standout feature of central bank policy over the last five years has been the spirit of cooperation... then came the taper. It is every man for himself now, and the Fed will screw them all. The splintering of central bank policy is just the beginning. This is the end of the innocence.
While loathed to admit it, US auto makers have done it again. As we have vociferously explained month after month (and has been vocally denied until now by the car makers themselves), much of the recovery in auto sales has been a massive channel-stuffing make-work program (mal-investment once again triggered by 'false' signals created by Fed intervention). Now, as the WSJ reports, Detroit's big 3 are trying to sweeten discounts to clear a massive inventory of unsold vehicles from dealer lots (desparate not to start a profit-killing price war). "We believe we can sell our way out," said GM, but as Morgan Stanley warns, "the best of the U.S. auto replacement cycle is over." Good luck...
Many have opined that while the unemployment rate may be 6.6%, down from a peak of 10% three and a half year ago, the so-called recovery sure doesn't feel like one: after all so many Americans are still struggling to find work and as so many complain, employers are simply not hiring. Well, as it turns out, all those complaining are absolutely correct....
In what has to be the most surreal "news" of the past 24 hours, we learned that Spain, caught in the vice of an unprecedented historic depression, endless "recovery" propaganda notwithstanding, and Turkey, the country whose currency crashed to record lows against the dollar a few short days ago and whose government has been defending itself from a tsunami of corruption allegations and busy firing all the judges who dare to voice disagreement with PM Erdogan, have decided to jointly build ... wait for it ... an aircraft carrier.
Yellen confirmed that the U.S. recovery is fragile and said more work is needed to restore the labor market. She signalled the Fed’s ultra loose monetary policies will continue and the Fed will continue printing $65 billion every month in order to buy U.S. government debt.
Despite being told by Bullard, Yellen (and numerous other Federal Reserve thinkers) that quantitative easing was aimed at improving the housing market, the data suggests that - somewhat predictably - it did very little for mom-and-pop organic real home-buyer but stoked speculation and fervor among fast-money cheap-funding investors (and as Marc Faber noted actually hurt the average homebuyer via un-affordability). The week-to-week ebbs and and flows in mortgage applications are notable (this week saw purchase applications drop 5% and back near recent lows) but a bigger picture glance at just where this "recovery" has been tells a very different story about confidence among home-buyers.
As Deutsche Bank revealed in a note overnight, the GCC may have, quite deliberately, opened a Pandora's Box with its decision which according to Europe's largest bank, and the one whose derivatives exposure makes that of JPM pale by comparison, (i) made it clear it regards OMT as exceeding the competences granted to the ECB by the European Treaty and that (ii) would not consider itself bound by a positive ruling of the European Court of Justice. And while in DB's opinion this action does not have any immediate market consequences, the report's authors think that it "alters substantially the level of insurance we could expect from the ECB against any return of sovereign turmoil."
Here comes the latest one - Pax. Weather.com's description of what is about to be unleashed on Atlanta and the entire Eastern Seaboard is nothing short of a review of the movie The Day After Tomorrow: "Potentially "catastrophic" Winter Storm Pax began unfolding before dawn Wednesday in the Atlanta area as temperatures dropped below freezing and sleet and freezing rain began to fall." The National Weather Service's warning was not exactly cheery: "Let’s just start by saying this winter storm may be of historic proportions for the area,” the agency said in a forecast analysis. “We’re looking at significant snowfall totals north and significant, crippling ice totals, especially along the Interstate 20 corridor.” Eli Jacks, a meteorologist with National Weather Service, said forecasters use words such as "catastrophic" sparingly. Not in this case. "Sometimes we want to tell them, 'Hey, listen, this warning is different. This is really extremely dangerous, and it doesn't happen very often,'" Jacks said. The service's memo early Wednesday called the storm "an event of historical proportions." It continues: "Catastrophic ... crippling ... paralyzing ... choose your adjective."
After initially sending the all important USDJPY carry pair - and thus all risk assets - into rally mode, the initial euphoria over manipulated Chinese trade data (see China Trade Puzzle Revived as Hong Kong Data Diverge), has all but fizzled and at last check the USDJPY was sliding to its LOD, approaching 102 from the wrong side. That, and a statement by the ECB's Coeure that the ECB is "very seriously" considering a negative deposit rate (and that the OMT is ready to be used even though it obviously isn't following the latest brewhaha from the German top court) have so far defined the overnight session, the latter having sent the EUR sliding across all major pairs.
Japan Machine Orders Crumble At Fastest Pace In 22 Years As BOJ Board Member Warns More QE May Not Be ComingSubmitted by Tyler Durden on 02/11/2014 19:13 -0500
If you needed another reason to buy stocks, trust in the growth meme, and have your faith in Abenomics confirmed... look away. Japanese Machine orders for December just printed -15.7% in December - the biggest MoM plunge since 1992. This is the biggest miss to expectations since 2006 and what is considerably more problematic for Abe et al. is that YoY expectations of a core machine order rise of 17.4% was hopelessly missed with a small 6.7% gain (and this is data that excludes more volatile orders). While machine orders are completely irrelevant, even if on their own they portend a recession; what would be far more troubling to the Kool aid addicts is if the BOJ were to announce that just like the Fed, it too is tapering its Open-ended QE ambitions. Considering this is precisely what BOJ board member Kiuchi just did, that relentless USDJPY meltup overnight may not be such a slamdunk...
We have become a delusional state dependent upon fallacies to convince ourselves our foolhardy beliefs, ludicrous economic policies, corrupt captured political system, and preposterously fraudulent financial system are actually based on sound logic and reason. The fallacy being flogged by government drones and the legacy media about companies not hiring new employees because it has been cold and snowy during the winter is beyond absurd. The other fallacy being pontificated by retail executives in denial, cheerleaders on CNBC and the rest of the propaganda press is weather is to blame for terrible retail sales over the last quarter. Revealing the truth about pitiful employment growth and dreadful retail sales would destroy the fallacy of economic recovery stimulated by the monetary policies of the Federal Reserve and fiscal policies of the Federal government. We have a country built on a Himalayan mountain of fallacies.
For only the 5th time in the last 25 years, the S&P closed up over 1% on Humphrey-Hawkins testimony day. Today's screamfest seems all about a growing "common knowledge" that the economy is weaker than everyone hoped and Yellen will untaper as soon as possible (despite her saying the absolute opposite of that). Stocks surged (S&P's best 4-day run in over 2 years); Credit spreads collapsed. Gold soared to 3-month highs (+5% from Taper). The USD roller-coastered notably on JPY & EUR weakness. While bonds sold off (not un-tapery) the move was very modest (and bond yields have dislocated notably from stocks). Of course, USDJPY was in charge keeping the S&P over 1,800; and Nasdaq in the green year-to-date - Mission Accomplished (but Dow lost 16k into the close). A massive squeeze of shorts in the last few days has doubled the market's impressive performance. VIX tested down to almost 14%. Why not BTFATH, Yellen said there was no bubble so we are good to go?
While January was a bad month for the market, it was certainly one which the majority of hedge funds would also rather forget as we showed yesterday. So with volatility, the lack of a clear daily ramp higher (with the exception of the last 4 days which are straight from the 2013 play book), and, worst of all, that Old Normal staple - risk - back in the picture. what is a collector of 2 and 20 to do (especially since in the post-Steve Cohen world, one must now make their money the old-fashioned way: without access to "expert networks")? For everyone asking this question, here is Deutsche Bank with its take on which will be the best and worst performing strategies of 2014. So without further ado, here is the Deutsche Bank Asset and Wealth Management's forecast of hedge fund performance matrix...