Does it really take purportedly intelligent people six years to see that the macros are not responding? Better still, isn’t it time for the Fed to explain the exact channel by which its interest rate pegging and forward guidance is supposed to be transmitted to the main street economy? After all, if these channels are blocked or ineffective - then its flood of liquidity never leaves the canyons of Wall Street. In that event, the central bank actually functions as a financial doomsday machine, inflating the next financial bubble until it bursts. Then, apparently, its job is to rinse and repeat.
Janet Yellen noted that everything was awesome and that stocks were now slightly "on the high side" of their historical range. It appears no one showed her the Russell 2000 which has a valuation multiple of just about 90x LTM earnings (as reported by the 2000 companies which comprise the index, and which were certified as accurate by 4,000 CEOs and CFOs on penalty of jail time). The mystery of how the Fed remains so stubbornly bubble blind - just like it did during the dotcom and housing bubbles - is thus revealed. The self-evident reason is that the purported geniuses who comprise our monetary politburo drink the Wall Street Cool-Aid about forward ex-items EPS. The Fed is driving a two-ton bubble machine, but has no clue that it has become a financial death trap.
The one thing to note about today's "decisive" jobs number, is that most are scrambling to warn that they really have no idea what it will be due to yet another unprecedented instance of cold weather and snow in the winter (see "Goldman Warns Snow May Leads To Lower Jobs Number, But Snowstorms Will Result In Higher Wages"). The reality is that, based on recent ADP trends and the shale patch reality and recent ISM/PMI surveys, today's NFP should print well below 200,000 (unless some 100,000 bartenders were hired in the deep of winter), not where Wall Street consensus expects it, at 235,000 (on a range of 150K to 370K.
Euro-denominated emerging market sovereign issuance will soar to its highest levels in 10 years on the back of the European Central Bank's quantitative easing programme, as issuers outside the eurozone seek to take advantage of falling euro yields, according to bank analysts.
and more news moving the markets
Maybe one day investors, or at least the 1%-ers, will finally grasp that in a centrally-planned world in which the central banks themselves assure that there is "no risk", there is also no point in paying billionaire hedge fund managers 2 and 20 to "hedge" away risk, since there simply is none left. However, since most people are too lazy to do any work (this includes hedge funds themselves), and would rather piggy back on other people's work (such as the rating agencies back in 2005-2007) that day is still far away. So for the time being, to satisfy everyone's natural curiosity why hedge funds continue to suck so bad, here are their biggest long, and far more importantly short, positions.
"Go long Russell 2000 vs. short S&P 500 via futures or total return swap – Russell 2000 futures have traded persistently cheap to fair value due to the high borrow rate on small-cap stocks, while S&P 500 futures have traded rich over the last 2 years as equity financing rates were driven higher by regulatory and industry changes. A long/short trade via futures allows the investor to collect this financing spread, and thus would be expected to yield a positive carry in addition to any outperformance (this carry was ~90bps annualized over the last year based on average futures roll costs). A swap-based implementation of this trade would similarly provide a positive carry, while eliminating dividend and futures roll risk."
Introduce a regulation over here, an unintended consequence pops up over there. Then there are more regulations to deal with the unintended consequences. Regulations have added 100 times the volatility to one of the most liquid and ordinary derivatives in the world - the plain-vanilla EFP. Less liquidity, more volatility - welcome to 2015.
Who could have seen that coming? After showing weakness all night (on still-fading oil prices despite Libyan issues and GREXIT concerns), the moment the US equity cash market opened for business, USDJPY was smacked higher and thus stocks went vertical with the S&P 500 pushing back near record highs. The Russell 2000 was the leader as "most shorted" stocks were monkey-hammered yet again...
On July 15th 2014, The Federal Reserve uttered the following warning to exuberant equity investors, "Valuation metrics in some sectors do appear substantially stretched -- particularly those for smaller firms in the social-media and biotechnology industries." 5 months later, Yellen Capital LP is half right...
Trading volumes today are running at the lowest pace since 2006, crude oil prices ae testing back towards fresh 5 year lows, and Treasury yields are all lower... so it should come as absolutely no surprise that the S&P 500, Dow Industrials, and Russell 2000 have all hit fresh intraday record highs today.