"We Are Becoming Convinced That The System Won't Stabilize" - Citi Explains How Central Banks Broke The MarketSubmitted by Tyler Durden on 05/21/2016 14:10 -0400
"Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly. As such, managers are struggling to justify their fees, while the sellside wonders whether it is really worth the continuing commitment to market-making in the face of increased capital requirements and legal and back-office overheads."
When it comes to the economic future, a Trump presidency could bring either a shitstorm or salvation. Regrettably, the odds of the former are immensely the higher. That’s because Trump is a welcome, but extremely unguided missile.
For many students who went to school and took on student loans under the expectation of getting a six figure petroleum engineering job, a rude awakening is likely ahead. Petroleum engineering became a much more attractive field thanks to the shale boom, which meant that these engineers were no longer likely to have to take a job abroad or on an offshore platform. If shale is dead or partially dead, that changes the calculus for many petroleum engineers. To employ a meaningful number of the current stock of engineers, oil prices would likely have to get back to around $70 a barrel which would make shale at least reasonably profitable in many geographies.
The first big problem, or rather first 9.5 trillion problems: that is how much debt the corporate buyback binge will cost companies over the next 5 years as the debt matures. The second big problem is even more important: the disappearance of virtually all demand from the primary bond market, most certainly in the junk space, and gradually, in investment grade as well.
"The property bubble is everything to this economy and the country’s citizens, whether they know it or not, are 'all in'." Those who so to speak 'live inside the bubble' are no longer aware of its dangers. The mentality of Australians is generally well aligned with the country’s great weather – their outlook usually tends to be 'happy-go-lucky' and optimistic; but Australia’s citizens have far greater exposure to the bubble than is immediately obvious.
A report on China's stock market crash authored last year by former senior officials, including former central bank vice governor Wu Xiaoling, said Chinese retail investors are short-sighted, have a weak investment philosophy and a herd mentality.
The catch-22 for ownership is once they are in this position is that they cannot fire the players, so the coach must always be the one to get fired.
If Valeant had hoped today's previously announced 8:00 am conference call, which is supposed to explain its relationship with Philidor and its network of pharmacies in general or, as the company put it, "to lay out the facts including allegations made against our company regarding our relationship with Philidor and R&O, our accounting practices, and channel stuffing that contain numerous errors, unsupported speculation and incorrect interpretations of facts and circumstances", would come and go and the price of VRX stock would promptly surge right back to $200, it was due for a very rude awakening when not one but two pieces came out once again slamming the company's business practices, and leading to even more questions about potential fraud at the increasingly more Tyco-esque roll-up.
In considering NIRP, Central bankers are failing to address an even greater potential problem, which could easily become cataclysmic. By forcing people into paying to maintain cash and bank deposits, central bankers are playing fast-and-loose with the public’s patient acceptance that state-issued money actually has any value at all. There is a tension between this cavalier macroeconomic attitude and what amounts to a prospective tax on personal liquidity. Furthermore, NIRP makes the hidden tax of monetary inflation, of which the public is generally unaware, suddenly very visible. We should be in no doubt that increasing public awareness of the true cost to ordinary people of monetary policies, by way of the debate that would be created by the introduction of NIRP, could have very dangerous consequences for the currency.
Will she raise or will she not? As financial markets focus on whether we will see a Fed rate hike this week, investors may be in for a rude awakening.
So now comes the era of gluts, shrinking profits and a drastic deflation of the giant financial bubble that the world’s central banks have so foolishly generated. And this time they will be powerless to stop the carnage. Yet the beleaguered central bankers will launch desperate verbal and market manipulation ploys to brake the current sell-off and thereby preserve the bloodied remnants of their handiwork. When in response the gamblers make their eighth run at buying a dip that is now rapidly turning into a crater, it will be an excellent time to sell anything in the casino that isn’t nailed down.
Momentum traders - relying on the 'trend is your friend' theme - may have a rude awakening soon as momentum stocks trade at a stunning 50% premium to the market (vs an average 20%). As BofAML notes, high growth, high multiple names that have been leading the market over the past year are showing some signs suggest we are close to a tipping point. The growth-to-value spread is at its highest since the peak of the dotcom bubble in 2000 and, as Subramanian ominously notes, when momentum ends, it ends badly - with an average loss of 25% over the next 12 months.
Earlier this week, the largest for-profit college in the country disclosed that the FTC is investigating whether the school adopted "deceptive or unfair practices" in the course of recruiting students. Now that the closure of Corinthian Colleges has set a $3.6 billion precedent, will the government investigation of Apollo Education put taxpayers on the hook again?
Speaking to a gathering of some 200 Syriza lawmakers on Wednesday, Greek PM Alexis Tsipras drew a line in the sand, insisting that the divisions within the party cannot persist. In a dramatic move, Tsipras called for a party referendum on Sunday to decide once and for all whether Syriza lawmakers will support the bailout or push for its cancellation.
There has been a lot of chatter in recent days about the plunge in commodity prices - capped off by this week’s slide of the Bloomberg commodity index to levels not seen since 2002. That epochal development is captured in the chart below, but most of the media gumming about the rapidly accelerating “commodity crunch” misses the essential point. To wit, the central banks of the world have shot their wad. The Bloomberg Commodity index is a slow motion screen shot depicting the massive intrusion of worldwide central bankers into the global economic and financial system. Their unprecedented spree of money printing took the aggregate global central bank balance sheet from $3 trillion to $22 trillion over the last 15 years. The consequence was a deep and systematic falsification of financial prices on a planet-wide scale.