Financial markets are upside down. Financial repression and belief in the “Fed put” pushed investors further and further out the risk curve over the past six years. Too many asset managers have remained fearful of underperforming peers and benchmarks; a powerful incentive to stay ‘risked-up’. The psychology of bullish, and faith in Fed abilities, have been too firmly embedded in the investor class. Given that markets don’t seem to want to believe that a June hike looks probable, we expect an outsized market reaction to a hike, lower long yields to accompany it, a flatter curve, wider credit spreads, higher market volatility, and materially lower equity markets.
and more news moving the markets
"For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is hap-pening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions. ... we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This down cycle is likely to be remembered in a hundred years . Sadly this down cycle will cause a great deal of damage, precisely because it will happen despite the efforts of the central banks to thwart it."
Alan Greenspan Warns: There Will Be a “Significant Market Event... Something Big Is Going To Happen”Submitted by Tyler Durden on 02/23/2015 05:15 -0500
"We really cannot exit this [era of QE and ZIRP] without some significant market event... The end has to come at some point... Gold will go measurably higher... In any market that is so one sided, that is accelerating so rapidly, that trend will end… it will most likely end in a fairly violent fashion."
With the S&P 500 now in positive territory for the year and the mainstream media back in normal cheerleading mode, it is worth noting that 1) "Most shorted" stocks have outperformed the broad market this year, 2) the last 3 weeks have seen the biggest short squeeze in almost 4 years, and 3) Hedge funds are now at a record high 57% net long. We suspect, given the looming Humphrey-Hawkins and March FOMC and the short-term 'gap' between the market and fun-durr-mentals, volatility will be on the rise again.
Having put Russia on review in mid-January, Moody's has decided (somewhat unsurprisingly) to downgrade Russia's sovereign debt rating to Ba1 (from Baa3) with continuing negative outlook. The reasons:
*MOODY'S SAYS RUSSIA EXPECTED TO HAVE DEEP RECESSION IN '15, CONTINUED CONTRACTION IN '16
*MOODY'S SEE RUSSIA DEBT METRICS LIKELY DETERIORATING COMING YRS
We assume the low external debt, considerable reserves, lack of exposure to US Treasuries, and major gold backing were not considered useful? Moody's concludes the full statement (below) by noting that they are unlikely to raise Russian sovereign debt rating in the near-term.
Past: Scarily Prescient Analysis of @Grexit meets Present: Analysis of the Goldman Hedge meets Future: Goldman DisintermediationSubmitted by Reggie Middleton on 02/20/2015 15:12 -0500
A literal Tour de Force, likely the most indepth, practical analysis of the Grexit situation as you will ever read. This is why I like blogging... You can never find stuff like this in the mainstream media.
Everything has to come to an end, sometime...
Very few, it seems...
Here's a plan where the drachma will be more desirable than the euro after Greece defaults on anything euro denominated and backs its redeemable drachma with fractional gold. Upon default euros drop, drachma pops!
"The staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets, despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector, as indicated by rising prices and the easing in lending standards on CRE loans. Finally, the increased role of bond and loan mutual funds, in conjunction with other factors, may have increased the risk that liquidity pressures could emerge in related markets if investor appetite for such assets wanes. The effects on the largest banking firms of the sharp decline in oil prices and developments in foreign exchange markets appeared limited, although other institutions with more concentrated exposures could face strains if oil prices remain at current levels for a prolonged period."
There was much confusion yesterday when algos went into a buying frenzy on news that Greece would submit a request for a 6 month loan extension, believing this means Greece has caved and will agree to a bailout programme extension as well. Nothing could have been further from the truth as we explained first moments after the headline struck, and also as Reuters validated moments ago when it said that "Greece will submit a request to the euro zone on Wednesday to extend a "loan agreement" for up to six months but EU paymaster Germany says no such deal is on offer and Athens must stick to the terms of its existing international bailout." But since the political nuances of diplomacy are lost on the math Ph.Ds who program the market-moving algos, the S&P did manage to roar above 2100 on what was another headfake and then forgot to sell off on the reality.
Like spirits, debt and risk make for a great party but a terrible hangover...
US equity market Sharpe- and Sortino-ratios shows results that are nothing short of staggering. What they really say = Plenty of Gain with Very Little Pain... and it really is unsustainable if only because it has become much too easy to generate positive returns with very little effort, pain or savvy. To be sure these distorting effects may be entirely assigned to The Fed... They’ve literally trounced and expectorated on the concept of "moral hazard" and, it seems, purposely reconfigured and redefined its meaning into: "We have no economic morals... the spoils go to the ignorant only... The Fed's true heroes."