"... the next 12-18 months will be divided into three periods corresponding to the three distinct regimes of market dynamics. They can be summarized by the following modes of the curve: short-term tactical bear flatteners on the back of a Fed liftoff story, followed by volatile bear steepeners of the “taper-tantrum” type around mid-year, and a bull-flattening finale as structural factors deem rate hikes to be a policy mistake."
The Fed, in its reflexive attempt to boost confidence in the economy, is not only engaging in massive policy error, but is about to unleash a recession which will promptly force it to cut rates again (to negative) and start another episode of QE.
El-Erian Says "The Market Believes Central Banks Are Our Best Friends Forever", Just Don't Show It "Figure 4"Submitted by Tyler Durden on 11/21/2015 17:38 -0400
Liquidity in the junk (and all other markets) is evaporating, and according to Citi the spread between an illiquid and liquid junk bond portfolio just hit 100 bps, the most in the history of the series. Meanwhile according to Mohamed El-Erian "The market is comfortable that whenever we hit a hiccup, the Fed is going to come back in," he said. "It's very deeply embedded that central banks are our best friends forever."
Global Stocks Tread Water After Two Consecutive Terrorist Scares; Oil Rises, Industrial Metals TumbleSubmitted by Tyler Durden on 11/18/2015 08:03 -0400
If this weekend's gruesome terrorist attack on Paris ended up being hugely bullish for stocks, then two subsequent events, a stadium-evacuation scare in Hannover (where Angela Merkel was supposed to be present) and a raid in north Paris which left several dead in the ongoing manhunt against the alleged ISIS mastermind, appear to have but some question into if not stocks then algos whether a rising wave of terrorist hatred across Europe is truly what central bankers need to unleash more QE. That said, we expect the current weakness to last only until the traditional USDJPY carry ramp pushes stocks traditionally higher.
Once you examine the finer details, it quickly becomes clear that there are five key reasons that the Fed is unlikely to raise rates anytime soon.
The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era. The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators like jobs and GDP components, while ignoring the explosive leading indicators starring them in the face on CNBC. The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street.
Today’s dilemma – for financial markets and central bankers – is that pushing back against nascent “risk off” unleashes another forceful bout of “risk on.” At this point, it’s either Bubble on or off – destabilizing either way. The global Bubble has grown too distended and the market backdrop too dysfunctional. Central bankers over the past 25 years have created excessive “money,” while incentivizing too much finance into financial speculation. There is now way too much “money” crowded into the securities and derivative markets, and the upshot is an increasingly hostile backdrop for leverage and speculation.
Listening to the mainstream media would imply that the Fed has made the decision already; but Fed Funds Futures are priced (as-of 11/10/2015) for only a 66% chance of the Fed raising to 0.25%-0.50% in December. It isn't the foregone conclusion you would think after watching CNBC. We do not think the Fed will have enough time of relative solace to raise even once before a global slowdown/recession is obvious in the U.S.
While the market may still rally to new highs, the late August free fall in stock prices and spike in volatility served as a wake-up call for investors. In the past ten weeks, major equity indices have recovered virtually all those losses, giving investors an unusual second opportunity to position their portfolio for an important inflection point in monetary policy as the Fed likely starts raising interest rates. Simply put, investors who were not properly positioned and frustrated by their performance in the late August swoon are being given a do-over.
Keynesian-Constructed 'Markets' Will "Drift Ever Further From Reality... Impoverishing All Layers Of Society"Submitted by Tyler Durden on 11/09/2015 16:20 -0400
Today’s system is essentially a system that can drift ever further away from reality through temporal discoordination, resource misallocation and eventually capital consumption. The final coordinating mechanism is nothing less than economic recession. Without them society would regress, impoverishing first the poor, then the middle class and in the end all socioeconomic layers of society.
"Sluggish activity will spur firms to repurchase shares in an effort to boost EPS growth" - Goldman Sachs
- Bank of America 150K
- BNP Paribas 150K
- Morgan Stanley 165K
- Deutsche Bank 175K
- JPMorgan 175K
- HSBC 175K
- UBS 180K
- Goldman Sachs 190K