One of our old rules of trading is that whenever a major asset class, index, or other benchmark has a sudden, rapid move in price, something blows up. Sky high. That’s because people get used to regimes. They get used to a certain state of affairs with a lack of volatility. They become complacent. Maybe they stop hedging. Maybe they allow themselves to have unbounded downside risk. Maybe they start gambling. So what's going to blow up?
"The stock market just keeps zooming up. A low equity allocation must be hurting you now... For all purposes, this is a hideously expensive market. I don’t care if it’s a bubble or not. It’s too expensive, and I don’t need to own it. That is the problem. This is the first central bank sponsored near-bubble. There is just nowhere to hide... but... to think that central banks will always be there to bail out equity investors is incredibly dangerous."
In reality, there is nothing surprising in Matt Taibbi's latest piece since returning to Rolling Stone from the Intercept, as it tells a story everyone is by now is all too familiar with: a former bank employee (in this case Alayne Fleischmann) who was a worker in a bank's (in this case JPM) mortgage operations group, where she observed and engaged in what she describes as "massive criminal securities fraud" and who was fired after trying to bring the attention of those above her to said "criminal" activity. The story doesn't stop there, and as Carmen Segarra already showed, when she revealed that Goldman runs the NY Fed, once Alayne was let go and tried to "whistleblow" on the house of Jimon from the outside, she found the that US Department of Justice headed by Eric Holder is just as, if not more, corrupt, and in his desperate attempt to prevent discovery and bring JPM et al to justice, he would stretch the statue of limitations on frauds committed during the crisis long enough to where nobody had any legal recourse any more, up to and including the US taxpayer.
Central Banks shorting Gold and Silver to preserve their status as Masters of the Universe.
A quick anecdote that should quickly confirm just how broken everything is: earlier today MarkIt reported European manufacturing data that was atrocious, with both German and European PMIs tumbling to levels not seen since mid-2013, and with Europe's growth dynamo now in a contraction phase clearly signalling what has been long overdue: a European triple dip recession. So what happens? Moments later Germany sells €4.1 billion in 10 Year paper at a record low yield below 1%.... even as the Bundesbank had to retain a whopping 17.84% of the auction, the highest since June, with only €4.663 Bn in bids for the €5 Bn target, the first miss since May 21. So hurray for the central banks, boo for the economy, and as for that mythical creature, once known as bond vigilantes, our condolences: good luck figuring out what the hell just happened, and good luck recalling what a free market is.
The fundamental mistake is to think in terms of a low yield telling you anything about the economy, as it is price that you should be focusing on.
Alarm bells in the European banking system have been ringing for quite a while but nobody seems to be listening. The roaring capital markets are just too loud. But we have been keeping track of a few things.
"What is the matter with us? Why can't we - especially our financial leaders - get it? Too much demos? Are we ruled by the Sun, the NY Post, and the Roman circus?Dropping back to earth from 10,000 meters - unfortunately, not high enough to be safe - the Japanese yen and the Dollar Index in general went wild this past week rising from comatose - straight lining almost - seemingly out of nowhere. It wasn't actually the Japanese industrial production coming in at minus 3.3% instead of the forecasted minus 1.2% that was such a surprise. We and many other analysts have been saying the Japanese economy was acting worse than it did in 1997 when they last hiked the sales tax, but the authorities everywhere said nothing, there seem to be no vigilantes of any sort. This is not the 1970's or the 1980's, we don't call an idiotic policy by its name (with money, that is). Zero Hedge can rant on but no one follows them or, more important, does a real analysis of the situation."
"In effect, by pursuing indexation we have introduced a socialist way of allocating capital in the heart of the capitalist system... As we all know, socialism is the ultimate form of freeloading. It has never worked, and it never will. This indexation is one of the most obvious forms of parasitism we have ever encountered."
Yellen has got to be the most dovish Fed chairperson going into the most important policy initiative withdrawal phase ever to be recorded since the inception of the Federal Reserve!
Back in Feb 2013 we introduced the "Brent Vigilantes" and reminded traders how stock markets (and macro economies) react to shifts in the oil price with the two trading together to a 'tipping point' at which point strocks belief in growth breaks. We further confirmed that this is even more worrisome in the case of an oil price shock which strongly suggests that VIX at 12 is not pricing in the volatility that we have seen in the past when the oil complex starts to shake.
When The Head Of The European Central Bank Lies To Zero Hedge On The Record: Presenting Europe's "Plan Z"Submitted by Tyler Durden on 05/15/2014 14:16 -0500
We are happy to report that Zero Hedge is the first media outlet that Mario Draghi has very publicly, officially, and on the record, lied to. Because as we learned overnight, Europe most certainly had a "plan in place so that the markets don't basically collapse." Only it wasn't as Margio Draghi called it, Plan B. It was a different letter of the alphabet. Thanks to the FT's Peter Spiegel we now know that just over a year ago, in order to preserve the myth that Europe's power echelons are so "confident" with the Eurozone staying together they did not even consider a break up as a potential outcome, Draghi explicitly and on the record lied.
Presenting Europe's Plan Z.
When it comes to expressing democratic opinion, one can wait for one's corrupt congressional critter to do something, which will never happen if that something is against the will of the largest lobbying client, or one can take matters into their own hands. The latter is what disgruntled Libyans did moments ago. From Reuters:
- GUNMEN STORM LIBYAN PARLIAMENT, START SHOOTING AND FORCE LAWMAKERS TO ABANDON VOTE ON NEXT PM -SPOKESMAN
- SEVERAL PEOPLE WOUNDED BY SHOOTING AT LIBYA'S PARLIAMENT, GUNMEN ARE ALLIED TO ONE OF THE DEFEATED PM CANDIDATES -SPOKESMAN
It may not be the most polite way to get one's views across but it gets the job done. But more importantly, when it comes to the epic chaos that is post-CIA intervention Libya, what difference does it make if parliament is stormed by enraged vigilantes?
Krugman frequently accuses his opponents of being stupid and/or evil, when they present a view that he himself advanced in other circumstances. His typical readers would have no idea that Krugman once worried about bond vigilantes, or that his books lay out the standard case for why generous government unemployment benefits might contribute to structural unemployment. No, Krugman has led such typical readers to believe that anyone espousing such views is either a complete idiot - immune to theory and evidence that we’ve had since the 1930s - or is a paid shill who hates poor people.
"Eventually (un-manipulated) asset prices always return to their fundamental value, which is why bubbles always pop. The FOMC has backed itself into a corner. Current changes in policy are being designed around efforts to manage the unwind process seamlessly. Central bank (and government official’s) micro-management appears based on a belief that they can exert an all-encompassing central control over markets and peoples’ lives. Those in power have come to believe that policies have a precise effect that can be defined and managed. This is highly unlikely."