en Fed Cat Bounce: Stocks Soar Most In 3 Years As Crude Crash Continues <p>This is indeed &quot;madness&quot;...</p> <p><iframe frameborder="0" height="360" src="//" width="480"></iframe></p> <p>&nbsp;</p> <p>Just 1 word... &quot;Patient&quot; and this idiotic market soars 700 Dow points! (and S&amp;P 90 Up ) - <strong>Quad Witching Machines in full retard mode.</strong>.. <u><strong>This is the biggest 2-day swing since Dec 2011.</strong></u></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 249px;" /></a></p> <p>&nbsp;</p> <p>Up 4-5% in 48 hours...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 621px;" /></a></p> <p>&nbsp;</p> <p><u><strong>&quot;Most Shorted&quot; stocks are up 4.75% from yesterday&#39;s lows - the biggest squeeze since October 2011.</strong></u></p> <p><a href=""><img height="304" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Since The FOMC...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 567px;" /></a></p> <p>&nbsp;</p> <p>Dismal Data... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 318px;" /></a></p> <p>&nbsp;</p> <p>HY Credit dumping... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 358px;" /></a></p> <p>&nbsp;</p> <p>VIX protection bid... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 478px;" /></a></p> <p>&nbsp;</p> <p>Crude Carnage... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 319px;" /></a></p> <p>&nbsp;</p> <p>JPY Carry unwinds... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 357px;" /></a></p> <p>&nbsp;</p> <p>Inflation expectations collapsing... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p><u><strong>You&#39;re getting the picture.</strong></u></p> <p>The USDollar rallied...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields rose quite notably...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 318px;" /></a></p> <p>&nbsp;</p> <p>And commodities generally flatlined as oil roundtripped...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>Finally, Russia &quot;stabilized&quot; overnight following Putin&#39;s annual Q&amp;A...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 324px;" /></a></p> <p>&nbsp;</p> <p>Charts: Bloomberg</p> Crude Thu, 18 Dec 2014 21:09:13 +0000 Tyler Durden 499318 at Will Yellen Learn from Greenspan? <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">By&nbsp;<a href="">EconMatters</a></p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">EconMatters has been&nbsp;<a href="">critical of Fed's new found dovishness</a>. &nbsp; &nbsp;Judging from the FOMC statement released on Wednesday Dec. 17, Fed made a concerted effort (to<a href="">&nbsp;keep Wall Street happy</a>) keeping a spot for that infamous "considerable time" language. &nbsp;However, technically speaking, the phrase is actually a reference of timing, not exactly part of FOMC current policy statement. &nbsp;Below is the exact language: &nbsp;&nbsp;</p> <blockquote class="tr_bq" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"><p>Based on its current assessment, the Committee judges that it can be&nbsp;<strong>patient</strong>&nbsp;in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a&nbsp;<strong>considerable time</strong>&nbsp;following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.</p> </blockquote> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">In the Q&amp;A session of the press conference, Chairwoman Yellen said "The committee considers it unlikely to begin the normalization process for at least the next couple of meetings.” &nbsp;So the general consensus interpretation is that Fed is in no hurry to raise rates till at least April of 2015 unless the economic condition takes a drastic turn (better or worse).</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Nevertheless, Fed is running out of excuse to keep rates at near zero beyond 8 years. &nbsp;Employment is up, inflation is moderate (enhanced by<a href="">&nbsp;the recent lower oil/fuel prices</a>), and&nbsp;corporate profits are up.</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="" style="margin-left: 1em; margin-right: 1em;"><img src=";container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="228" border="0" style="cursor: move;" /></a></p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Council on Foreign Relations (CFR)&nbsp;<a href="">published an interesting graph</a>&nbsp;(see below) just before this Dec. FOMC meeting comparing various inflation and unemployment measures in 2004 (Greenspan era) and 2014. &nbsp;CFR at the time predicted that Yellen would drop the "considerable time" language from the policy statement, just like Greenspan did in Jan. 2004, and it looks like CFR was right. &nbsp;&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <table class="tr-caption-container" style="padding: 6px; margin-bottom: 0.5em; font-family: 'Times New Roman'; margin-left: auto; margin-right: auto; text-align: center;" cellspacing="0" cellpadding="0" align="center"> <tbody> <tr> <td> <p style="margin: 0px;"><a href="" style="margin-left: auto; margin-right: auto;"><img src=";container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="479" border="0" style="cursor: move;" /></a></p> </td> </tr> <tr> <td class="tr-caption" style="font-size: 13px; padding-top: 4px;"> <p style="margin: 0px;"><em>Source: Council on Foreign Relations, Dec. 16, 2014</em></p> </td> </tr> </tbody> </table> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Now the more intriguing question for markets is when the Yellen Fed will start raising rates? The Greenspan Fed started gradually raising rate in June 2004, roughly 5 months after dropping the "considerable time" language in Jan. 2004. &nbsp;So if we continue the train of thought by CFR, we probably could expect a rate raise somewhere in Q2 of 2015. &nbsp; &nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Greenspan was criticized by some for keeping the loose monetary policy far too long leading to the housing bubble, which was a main contributing factor to the 2008 financial crisis. &nbsp;When it comes to the Federal Reserves, past performance could have more relevance to future results.&nbsp;Ms. Yellen would be prudent to learn from history and not to repeat the similar missteps. &nbsp; &nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">©&nbsp;<a href="">EconMatters</a>&nbsp;All Rights Reserved |&nbsp;<a href="">Facebook</a>&nbsp;|&nbsp;<a href="!/EconMatters">Twitter</a>&nbsp;|&nbsp;<a href="">Email Subscribe</a>&nbsp;|&nbsp;<a href=";node=80">Kindle</a></p> Housing Bubble Monetary Policy Twitter Twitter Unemployment Thu, 18 Dec 2014 21:05:31 +0000 EconMatters 499317 at 3 Things Worth Thinking About <p><a href=""><em>Submitted by Lance Roberts of STA Wealth Management</em></a>,</p> <h2><u><strong>The Fed&#39;s &quot;You Say Potato; I Say Potatoe&quot; Statement</strong></u></h2> <p>Yesterday, the Federal Reserve released their financial FOMC meeting statement for 2014. The primary focal point by the financial markets has been answering the question of WHEN the Federal Reserve will begin tightening monetary policy by hiking interest rates. Yesterday, did not answer that question as <a href="">Tim Duy</a> summed up well:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>Policymakers were apparently concerned that removal of &#39;considerable time&#39; by itself would prove to be disruptive.</strong> Instead, they opted to both remove it and retain it:</p> <p>&nbsp;</p> <p>&#39;Based on its current assessment, the Committee judges that <strong>it can be patient</strong> in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range <strong>for the federal funds rate for a considerable time</strong> following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee&#39;s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.&#39;</p> <p>&nbsp;</p> <p><strong>If you thought they would drop &quot;considerable time,&quot; they did.</strong> <strong>If you thought they would retain &quot;considerable time,&quot; they did. Everyone&#39;s a winner with this statement.</strong>&quot;</p> </blockquote> <p>As I have written in the past, the Fed has lost its focus of managing for price stability and <em>&quot;real&quot;</em> full-employment by trying to appease WallStreet and keeping its member banks <em>&quot;fat and happy.&quot; &nbsp;</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>(I say &quot;real&quot; full-employment because it is hard to suggest that the U.S. is anywhere near full-employment levels when only 46.5% of working-age individuals, those between the ages of 16-54, are employed full or part-time. <a href="">Read here</a>)</p> </blockquote> <p>There are two important points to be made about yesterday&#39;s FOMC statement.&nbsp;</p> <p>First, when the Federal Reserve has begun hiking interest rates in the past, GDP was averaging between 4% and 5% annual growth rates. The Fed historically has raised interest rates <em>&quot;slow&quot;</em> a rapidly growing economy and abate rising inflationary pressures. Now, however, the Fed is discussing raising interest rates in an economy that is barely growing above 2% with deflationary pressures and falling interest rates.&nbsp; As shown in the table below of the FOMC projections, estimates for future GDP growth remains at very sluggish levels.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="FOMC-Projections-GDP-121814"><img alt="FOMC-Projections-GDP-121814" class="i_want_img5" src="" style="height: 549px; width: 600px;" /></a></p> <p>My guess is that the Fed realizes that the economy, now over six years into the current expansion, is closer to the next recession than not. Therefore, the Fed likely feels compelled to raise interest rates regardless of near term market or economic consequences in order to have some capability of lowering rates to offset the next recessionary drag. Ironically, it will likely be the Fed&#39;s actions that trigger the next economic slowdown.</p> <p>Secondly, it is important to remember that the Federal Reserve CAN NOT tell the truth. In a liquidity driven world where the financial markets parse and hang on every word uttered by the heads of Central Banks worldwide, can you imagine what would happen to the financial markets if Janet Yellen stated:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;Despite many years of supporting the financial markets in hopes of a resurgence of economic growth, it is committee&#39;s assessment that Keynesian economic theory is flawed. While our monetary interventions have inflated asset prices as desired, it has only served to widen the <em>&quot;wealth gap&quot;</em> while having little effect on the real economy. It is the conclusion of the committee that our policies have failed to achieve realistic economic objectives and has potentially imperiled the financial markets with a third &#39;asset bubble&#39; in the last 15 years.&quot;</p> </blockquote> <p>The ensuing collapse in the financial markets would immediately create a recessionary environment. Financial markets would crumble as credit markets froze as economic activity plunged. This is why there is such great emphasis focused on the Federal Reserve statement and the guidance they provide. It is also why the FOMC has repeatedly stated that following the end of the current large scale asset purchase programs (LSAP or QE) that they would continue to focus on the use of <em>&quot;forward guidance&quot;</em> as a policy tool.</p> <p>The ability to <em>&quot;move&quot;</em> markets with words, rather than actions, has become the trademark of the European Central Bank (ECB) over the last couple of years. It is ultimately the hope that the Federal Reserve can pull off the same trick as they begin to extract liquidity and accommodation from the financial markets as the economic recovery takes hold.&nbsp; The problem for the Federal Reserve is that they are still looking for that elusive economic recovery to take hold after more than six years. Unfortunately for the Fed, economic recovery cycles do not last forever, and the clock is ticking.</p> <p>&nbsp;</p> <h2><u><strong>Retail Sales Not What They Seem</strong></u></h2> <p>I have been extremely vocal about the fact that shifting consumption from gasoline sales to retail sales does not create economic growth. It is just a <em>&quot;shift&quot;</em> in where the same dollars are spent.</p> <p>However, there has been much <em>&quot;hoopla&quot;</em> over the recent retail sales report for November that saw retail sales jump for the month by 0.7%. While on the surface this appears to be a strong retail sales report, a quick look below the surface quickly destroys that claim.&nbsp;</p> <p>First, as shown below, the <em>&quot;seasonal adjustment&quot;</em> to the retail sales report was the fourth largest in the history of the report. Of particular note, in the last two years, the seasonal adjustment were negative. The three previous record level adjustments were made immediately following the last two recessions.&nbsp;</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Retail-Sales-November-Adj-121814"><img alt="Retail-Sales-November-Adj-121814" class="i_want_img5" src="" style="height: 349px; width: 599px;" /></a></p> <p>Secondly, let&#39;s take a look at the NON-seasonally adjusted data for some guidance using a simple 12-month moving average to smooth the data rather than a potentially corrupted, by the financial crisis, seasonal adjustment methodology.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Retail-Sales-NSA-12moAvg-121814"><img alt="Retail-Sales-NSA-12moAvg-121814" class="i_want_img5" src="" style="height: 387px; width: 601px;" /></a></p> <p>As suspected, there is little evidence to support that retail sales actually surged in November. While the seasonally adjusted data, which is rather volatile, the smoothed NSA data suggests a weaker retail, consumer, spending environment. This corresponds closely with the premise that <a href="">I discussed recently</a> in the weekly newsletter <a href=""><em>(subscribe for free E-delivery)</em></a> that falling gasoline prices really have little impact on overall retail sales. To wit:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;While the argument that declines in energy and gasoline prices should lead to stronger consumption sounds logical, the data suggests that this is not the case.</p> <p>&nbsp;</p> <p>Simply put, lower oil and gasoline prices may have a bigger detraction on the economy that the <i>&ldquo;savings&rdquo;</i> provided to the consumer</p> <p>&nbsp;</p> <p>In any economy, nothing works in isolation. <strong>For every dollar increase that occurs in one part of the economy, there is a dollars&rsquo; worth of reduction somewhere else.</strong></p> </blockquote> <p>The data over the next couple of months will be interesting to watch.</p> <p>&nbsp;</p> <h2><u><strong>Chart Of The Day</strong></u></h2> <p><a href="">I have addressed previously</a> the divergence the economic indicators such as the ISM surveys and actual industrial production. Today&#39;s release of the Markit Service Sector activity shows a continued drop in services activity that belies recently released ISM Services surveys and retail sales data. Importantly, both cannot be right.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="PMI-Sector-Services-121814"><img alt="PMI-Sector-Services-121814" class="i_want_img5" src="" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="587" height="379" alt="" src="" /> </div> </div> </div> Central Banks European Central Bank Federal Reserve Janet Yellen Markit Monetary Policy Recession recovery Thu, 18 Dec 2014 20:49:02 +0000 Tyler Durden 499316 at Sorry Folks, The North Koreans Hacked The "Global Recovery" <p>We are far too speechless to even comment on the latest Goldman "leading indicator" swirlogram, which we can only assume was made public after another unprecedented "<em>North Korean hack"</em> at US "recovery" propaganda central, so here is Goldman's own take:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The December Advanced GLI locates the global industrial cycle in the ‘Slowdown’ phase</strong>, which is characterised by positive but decreasing momentum. This follows last month’s Final GLI, which also placed us in ‘Slowdown’. Ongoing oil-related pressure on commodity prices, the AUD and CAD and a retreat of the Philly Fed index from November’s two-decade high contributed to this decline. </p> <p>&nbsp;</p> <p>Five of the seven Advanced GLI components have worsened in December so far. Notably, the Philadelphia Fed headline print (the Advanced proxy for the Global PMI) declined from last month’s two-decade high. The Philly Fed New Orders less Inventories component was also weak following a strong print last month, and the volatile Baltic Dry Index declined. The S&amp;P GSCI Industrial Metals Index® and AUD and CAD TWI aggregate components, two market-based gauges, also deteriorated. The University of Michigan survey (an early proxy for our Consumer Confidence aggregate) came in stronger for a fourth month, and the US Initial&nbsp;&nbsp; Jobless Claims contributed positively this month, after coming in weaker last month.</p> </blockquote> <p>And the punchline, well, <strong>this:</strong></p> <p><a href=""><img src="" width="600" height="514" /></a></p> <p>Looks like the world skipped recovery and proceeded straight into global recession (we say this as the Dow Jones is up 320 points and the S&amp;P is up 90 in 2 days)</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="785" height="673" alt="" src="" /> </div> </div> </div> Baltic Dry Consumer Confidence Initial Jobless Claims Michigan Philly Fed Recession recovery University Of Michigan Thu, 18 Dec 2014 20:21:22 +0000 Tyler Durden 499315 at World Awaits Russian Response As Obama Makes "Lethal Aid" To Ukraine Legal <p><a href="">As we explained previously, quietly hidden within the<strong> humanitarian-sounding &quot;The Ukraine Freedom Support Act of 2014&quot;</strong>,</a> under the premise of enabling further sanctions on Russia, is the <strong>provision of &quot;lethal aid&quot; to Ukraine</strong>. Today, President Obama signed it into law...</p> <ul> <li><strong>*OBAMA SIGNED RUSSIAN SANCTIONS BILL TODAY, but</strong></li> <li><strong>*OBAMA SAYS HE DOESN&#39;T PLAN TO IMPOSE SANCTIONS UNDER NEW LAW</strong></li> </ul> <p>Because he knows full well that is not the important part. <strong>The &quot;lethal-aid&quot; aspect is a direct provocation to Russia.. and he knows exactly how Putin will respond.</strong></p> <p>&nbsp;</p> <p><a href=""><img alt="" src="" style="width: 494px; height: 278px;" /></a></p> <p>*&nbsp; *&nbsp; *</p> <p><a href=""><em>As we detailed previously,</em></a></p> <p>As we <a href="">reported over the weekend</a>, in the tumult surrounding Citigroup&#39;s annexation of Congress with the passage of the theatrically dramatic <em>$303 trillion derivative quid-pro-$1.1 trillion spending quo, </em>what most missed is that Congress also unanimously passed the <em><a href="">The Ukraine Freedom Support Act of 2014</a>, </em>which not only expands Russian sanctions (read <a href="">the details here</a>) but far more impotantly, provides &quot;<strong>lethal assistance to Ukraine&rsquo;s military</strong>.&quot; And as we explained, passage of this law is just the pretext some Russian legislators needed to push for a full-blown, preemptive military incursion in east-Ukraine.</p> <p><a href="">Recall</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;The decision of the US Senate is extremely dangerous. If it is supported by the House of Representatives and signed by their president, Russia must reply with adequate measures,&rdquo; Mikhail Yemelyanov of the Fair Russia party told reporters on Friday.</p> <p>&nbsp;</p> <p>&quot;<span style="text-decoration: underline;"><strong>It is quite possible that we should return to the decision by our Upper House and give the Russian president an opportunity to use military force on Ukrainian territory preemptively</strong></span>. <strong>We should not wait until Ukraine is armed and becomes really dangerous</strong>,&rdquo; the lawmaker stated.</p> <p>&nbsp;</p> <p>Yemelyanov also noted that in his opinion the US Senate&rsquo;s decision to arm Ukraine had revealed that Washington wasn&rsquo;t interested in the de-escalation of the Ukrainian conflict. He then said that US actions gave him the impression they was seeking to turn Ukraine into some sort of an &ldquo;international militant targeting the Russian Federation.&rdquo;</p> <p>&nbsp;</p> <p><strong>&ldquo;In a few years Ukraine will turn into a poor and hungry country with an anti-Russian government that will teach its population to hate Russia. They will be armed to the teeth and Ukraine and US reluctance to recognize the Russian Federation within its current borders would always provoke conflicts,&rdquo;</strong> the MP said.</p> </blockquote> <p>Furthermore, we asked if &quot;this means that what was a lingering proxy cold civil war in east Ukraine between NATO-armed Ukraine troops and Russia-armed Separatists and local militias is about to escalate into a shooting precursor to something greater? There is still hope an all out escalation can be avoided&quot; and we cited White House press secretary Joshn Earnest who last week said that &quot;the administration hadn&rsquo;t finished reviewing the language and isn&rsquo;t ready to take a position on the legislation. He said the administration wants to ensure that the U.S. and its European allies are working together, that any sanctions are effective and that they minimize harm to U.S. and European companies. <strong>&ldquo;This is delicate work,&rdquo; Earnest said</strong>.&quot;</p> <p>Apparently, not delicate enough, and moments ago we got confirmation that the epic collapse in the USDRUB is just a jovial preview of the main event. To wit:</p> <ul> <li><strong>OBAMA DOES INTEND TO SIGN RUSSIAN SANCTIONS LEGISLATION:EARNEST</strong></li> <li><strong>OBAMA LIKELY TO SIGN SANCTIONS BILL BEFORE END OF WEEK: EARNEST</strong></li> </ul> <p><strong><u>And with that, US &quot;lethal aid&quot; will shortly begin arriving in Kiev, which in turn will be just the pretext needed by Sergey Lavrov and the Kremlin to escalate the recent events in Russia as a direct attack by the West, and to demand retaliation against a US president who &quot;does not reason&quot; as the Russian media will appeal to the population in an attempt to &quot;<a href="">rally round the flag</a>&quot;, and as a result Russian tanks may have no choice but to enter the separatist territories in East Ukraine.</u></strong></p> <p>What the western, and certainly NATO, response at that point will be, is far beyond our meager prediction skills.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="494" height="278" alt="" src="" /> </div> </div> </div> Citigroup President Obama Ukraine White House Thu, 18 Dec 2014 20:03:07 +0000 Tyler Durden 499314 at Is The Oil Implosion Supply Or Demand Driven? Here Is The Very Simple Answer, Thanks To Saudi Arabia <p>There has been much debate whether the crude price implosion has been due to excess supply or not enough demand. Here, courtesy of the oil minister at the world's largest crude supplier, is the answer:</p> <ul> <li><strong>NAIMI SAYS DEMAND FOR OIL SLOWED MORE THAN EXPECTED: SPA</strong><strong>&nbsp;</strong></li> <li><strong>NAIMI SAYS GLOBAL ECONOMY SLOWDOWN LARGELY BEHIND MKT PROBLEM</strong></li> </ul> <p>Which, of course, to anyone with even the most rudiemntary logic and charting skills, should not come as any surprise.</p> <p><a href=""><img src="" width="600" height="316" /></a></p> Crude Global Economy Saudi Arabia Thu, 18 Dec 2014 19:41:45 +0000 Tyler Durden 499313 at Deciphering Yellen's Rub-Goldbergian Message <p><em>Via Scotiabank's Guy Haselmann,</em></p> <p>Through the overly-complex verbiage riddled with a copious number of contingencies, a simple message was actually able to surface.&nbsp; <strong><span style="text-decoration: underline;">The net result is modestly hawkish and one consistent with<a href=""> our "Sooner but Slower" rate cycle perspective</a>.</span></strong></p> <p><strong>Use of the word “patient” is analogous to “slower”; while Yellen’s comment about how it is “unlikely to begin normalization process for at least the next couple of meetings”, corresponds to a “sooner” lift-off.</strong>&nbsp; The marketplace had expected the first hike to occur in the June-September corridor, but Yellen moved it slightly forward to the April-June range. </p> <p><strong>The word “patient” will likely be used throughout 2015, for fear of unsettling the apple cart of bubble-like financial markets generated after six years of uber-accommodative policies.&nbsp;</strong> In other words, to prevent roiling Treasuries or risk assets too much -- after interfering for several years with the market’s normal price discovery functions – the Fed will have to tread carefully and slowly.</p> <p><strong>A modestly “sooner” hike is one reason why the front end of the Treasury curve is under pressure.&nbsp;</strong>&nbsp;&nbsp; However, a hike in ‘mid-2015’ is still quite far off and not a certainty given the worryingly and quickly changing geo-political landscapes. Therefore, due to carry and ‘roll –down’ benefits, Treasuries will not be able to price too many hikes in too soon.</p> <p><strong>The real hawkish part of the press conference was when Yellen defined the decline in oil as a “tax cut” to the consumer.</strong>&nbsp; The downward pressure it will have on headline CPI over the next few months, she explained as a “transitory” condition.</p> <p><strong>It is counter-factual to know whether economic progress has been the result of a normal business cycle or the result of Fed policy.</strong>&nbsp; After all, is ZIRP (or QE) creating jobs or impacting inflation?&nbsp; The plunge in the velocity of money is a sign that the Fed’s printing was not used as intended.&nbsp; It is a sign of extreme indebtedness.&nbsp; In this sense, Fed policies have borrowed from the future, while encouraging wild market speculation. </p> <p><strong>If economic progress has been more about the business cycle and it begins to turn by ‘mid-2015’ (or should a geo-political event damage rosy economic forecasts), then the Fed could lose its window of opportunity for ‘lift-off’.</strong>&nbsp; Is it possible that the Fed hikes even in the face of worse economic and financial market conditions?&nbsp;&nbsp; If conditions got really bad, it is possible that the Fed may not be able to hike at all in 2015. </p> <ul> <li><strong>This is certainly the risk of not hiking even “sooner” under the nearly ideal current conditions.</strong></li> </ul> <p><span style="text-decoration: underline;"><strong>Such a ‘lower for longer’ potential scenario would then be bad, not good, for risk assets. </strong></span></p> <p>Under such a scenario, <strong>risk asset valuations would look even further deviated from their economic fundamentals</strong>.&nbsp;&nbsp; The fallout in financial markets would likely be severe.&nbsp; The Fed would have to take the blame for focusing too much on its inflation mandate (of which it has little control) and not enough on the current risks to financial stability. </p> <p><strong>Too often times in history, the Fed has been the source of ‘boom to bust’ cycles.&nbsp; It is easy to envision that another one currently unfolding at this very moment.&nbsp; </strong></p> <p><span style="text-decoration: underline;"><strong>Markets are being driven more by fear of missing the upside, and fear of under-performing peers and benchmarks, than by any other factor.&nbsp; This Pavlovian response has worked well in recent years and encouraged by the Fed.&nbsp; However, this pattern is in the 9th inning.</strong></span>&nbsp; Moreover, such herd-like behavior will run into great difficult due to dreadful market liquidity that is the result of regulatory over-reach; indications that were evident in markets over the past few weeks.</p> <p><strong>I asked a trader today what he gleaned from the Fed meeting yesterday.&nbsp; He said, “Nothing.&nbsp; Fed policy was completely unchanged”.&nbsp; If this is true, then the market over-responded.&nbsp;</strong>&nbsp; While I believe the FOMC was slightly hawkish as noted above, the global situation is too fluid to price a Fed that when they finally move will only move gradually.&nbsp; In the meantime, markets need to contend with problems being created by falling oil, Greece, China, Russia and other areas.&nbsp; Could the Ruble go to 100?&nbsp; Putin said he will not bother with it, so why not?&nbsp; How will a devalued Yen and Ruble begin to impact China?</p> <p><strong>It is all about positions into year end.</strong> Rising uncertainties and changing risk/reward distributions for portfolios will keep volatility high.&nbsp; Treasuries 10 years and longer will stay low for a while longer.&nbsp; The post FOMC re-pricings are opportunities to buy the dip in long-dated Treasuries, and pare exposures to risk assets.&nbsp; <strong>Fade the over-reactive moves.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>“I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant” – Alan Greenspan</em></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="424" height="263" alt="" src="" /> </div> </div> </div> Alan Greenspan Apple China CPI Greece Market Conditions Volatility Yen Thu, 18 Dec 2014 19:31:08 +0000 Tyler Durden 499312 at "Not" Stabilized - Crude Crashes 7% Intraday: WTI $54 Handle, Brent Below $60 <p>Crude is over 7% off its intraday highs.. But "Ignore it" - Yellen said it's great news (and transitory)... <strong>The last time Crude was here, the S&amp;P 500 was 65 points lower... </strong><em>[WTI closed at its lows $54.05 in Jan '15 futures]</em><strong><br /></strong></p> <p>&nbsp;</p> <p>January 2015 WTI Futures $54.35...</p> <p><a href=""><img src="" width="600" height="497" /></a></p> <p>&nbsp;</p> <p>entirely decoupled from stocks...</p> <p><a href=""><img src="" width="600" height="318" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1153" height="955" alt="" src="" /> </div> </div> </div> Crude Thu, 18 Dec 2014 19:07:42 +0000 Tyler Durden 499311 at How The Fed Masterfully Punk'd Algos Into A Stock Buying Frenzy <p>Something unexpected took took place yesterday: as we showed just after the FOMC statement hit, while the "hawks" had been pre-advised by the unofficial Fed mouthpieces to watch for instances of the word "patient" as a signal of shift in monetary policy by Yellen, <strong>the "doves" were looking for just one thing: any instance of the phrase "considerable time."&nbsp; </strong>Or rather the Doves' algos, because if the Fed had maintained its "considerable" language it meant the coast was clear to bid up risk to the moon. </p> <p>So what happened: in a completely unexpected twist, <em>the Fed used not only the much anticipated "patient" phrase, but - in what many speculated was a hint to the word-scanning algos that the coast was all clear to buy - it also added the "considerable time" phrase within the same paragraph. <a href=""></a></em><a href="">To wit</a>:<em><br /></em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be <span style="text-decoration: underline;"><strong>patient</strong></span> in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a <span style="text-decoration: underline;"><strong>considerable time</strong></span> following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.&nbsp;</p> </blockquote> <p>Some promptly saw right through this cheap attempt at linguistic manipulation of the only kneejerk "<em>market-makers</em>" left that matter: the HFT algos that decide whether to buy or sell based on a nanosecond parsing of the Fed statement in search of specific keywords (such as "<em>considerable time</em>"), and then immediately going all in on the bid or ask side. </p> <blockquote class="twitter-tweet" lang="en"><p>It algos were scanning for "patient" they found it.<br /> If also were scanning for "considerable time" they found it too.<br /> Everyone's a winner</p> <p>— zerohedge (@zerohedge) <a href="">December 17, 2014</a></p></blockquote> <script src="//"></script><p>And since the Fed was allegedly shifting to a hawkish posture, yet had managed to invoke the much desired "considerable time" kneejerk response which suggested an indefinite dovish posture, the market exploded higher both in the millisecond following the announcement and in the final print, and the DJIA is now up some 600 points in the past two days on the back of the Fed statement and its successful punking of a <em>few not so bright algos.</em></p> <p>Impossible, you say. The Fed would never stoop so low as the actually collaborate with algo "nuance" analyzers in order to goose the best possible, and thus most bullish response possible. </p> <p>Really? <a href="">Here's Bloomberg</a>, 24 hours after our tweet:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The financial press, universally considered to be among the smartest not to mention best-looking humans on the planet, faced a conundrum yesterday when the Federal Reserve’s policy statement came out. </p> <p>&nbsp;</p> <p>Much of the investment universe was fixated on whether the two words “considerable time” would remain in the central bank’s statement in reference to how long policy makers intend to keep their benchmark interest rate near zero. A quick search of the document found the phrase, and so some of the fastest typists dutifully reported its presence.&nbsp; Yet taking the time to actually read the paragraph showed that the Fed was moving away from those two words. The Fed was saying it would be “patient” when it comes to normalizing monetary policy, guidance it then said was consistent with the previous “considerable time” language. As the headline on the Barron’s web site put it seven minutes later: “Fed Keeps ‘Considerable Time’ Phrase – Sort Of.”</p> <p>&nbsp;</p> <p>As humans struggled to understand what nuance, if any, existed between the two catch phrases, <strong>the automated computer programs that do so much of the trading these days immediately reacted and so stocks and Treasuries shot higher in tandem. Did the machines start a buying binge after a simple, successful search for “considerable time?” It’s possible, according to Paul Tetlock, an associate professor at Columbia Business School, who has researched how stocks react to news stories. </strong></p> <p>&nbsp;</p> <p>“But it’s hard to predict how automated news reading programs would react,” he said in an e-mail. “<em>High-frequency trading firms regularly redesign their algorithms to take subtle wording nuances into account and to respond appropriately to other firms’ trading strategies</em>.”</p> </blockquote> <p>Actually, judging by the market reaction - which was a masterfully choreographed universal jerk higher - it was not hard to predict at all: "<strong>the Standard &amp; Poor’s 500 Index (SPX) leapt from the 1,995 level at 1:59 p.m. New York time to 2012.47 at 2:03 p.m., a rise of almost 0.9 percent." <br /></strong></p> <p>Of course, the Fed, like everyone else, merely caters to its audience:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The central bank, of course, must now realize that its audiences stretches well beyond the legions of “Fed watchers” in banks, brokerages and media to the all-important silicon constituency nestled together in exchange data centers.</p> </blockquote> <p>So for all those who predicted that the Fed will indeed stoop so low as to merely engender yet another contrived, and much needed Santa Rally, by punking algos with its announcement, congratulations. </p> <p>For everyone else, Bloomberg has a pun to cheer you up: "The initial rise in Treasuries sent 10-year yields from 2.105 percent at 1:59 p.m. to 2.066 percent by 2:02. The rate climbed back to 2.137 percent five minutes later.&nbsp; In today’s frenetic electronic trading environment, that is -- to borrow a phrase -- a "considerable time."</p> <p>Ha-ha. Now back to BTFATH.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="313" height="317" alt="" src="" /> </div> </div> </div> BTFATH HFT Market Conditions Monetary Policy Trading Strategies Thu, 18 Dec 2014 18:59:40 +0000 Tyler Durden 499310 at Is Russia Being Driven Into the Arms of China? <p><a href=""><strong>Is Russia Being Driven Into the Arms of China?</strong></a></p> <p>The “isolation of Russia” idea is one which has been receiving a lot of traction of late. Russia’s recent economic woes have sometimes been covered with barely contained glee despite the hardships that average Russians may have to endure if the rouble continues to collapse … not to mention the inevitable geopolitical backlash.</p> <p><a href=""><img src="" width="486" height="302" /><br /></a><em>Reuters image of the over 50% drop in the Rouble against the U.S. dollar</em></p> <p>Russia has become isolated from its western neighbours on account of the putsch in Ukraine which led to the predominantly ethnically Russian Crimea seceding from Kiev through a democratic process.</p> <p>European governments slavishly adhere to U.S. imposed sanctions. So from a western elite point of view, Russia is indeed isolated.</p> <p>Whether antagonising Russia is damaging to Russia is a moot point. Certainly in Russia’s current straits the bankrupt west is in no position to help. European farmers are suffering from a loss of export markets while Europe is still dependent on Russian natural gas.</p> <p>So how “isolated” is Russia in reality?</p> <p>Firstly, it is worth pointing out the obvious fact that countries do not have “friends”, just “interests”. Representatives of countries may have good relationships but these are built on expediency – not friendship.</p> <p>So while there may be a great deal of distrust between the major powers of Asia, these issues are being overlooked for now because it is expedient. Standards of living across the board have been rising in Asia for twenty years. It is in no country's interest to enter into conflict.</p> <p>By contrast, the west – led by the U.S. – has seen a remarkable fall in living standards over the same period. The bubble, prior to the 2008 crash, was not a golden-age for families as increasingly both parents were forced to work to just afford a roof over their heads.</p> <div><img src="" width="486" height="302" /> <p><em>Premier Li Keqiang at Moscow’s Tomb of the Unknown Soldier during his Russian trip in October</em></p> </div> <p>The relationship between Russia and China has morphed with these changes. Russia supplies China with hi-tech military hardware. Russia has negotiated two major natural gas deals with China in the last year. China expects to double it’s gas usage by 2030. So from a Chinese point of view it is certainly expedient to keep Russia on its side.</p> <p>China may soon come to Russia’s aid and provide liquidity according to the South China Morning Post:<br />“Russia could fall back on its 150 billion yuan (HK$189.8 billion) currency swap agreement with China if the rouble continues to plunge”.</p> <p><em>If the swap deal is activated for this purpose, it would mark the first time China is called upon to use its currency to bail out another currency in crisis. The deal was signed by the two central banks in October, when Premier Li Keqiang visited Russia.</em></p> <p>“Russia badly needs liquidity support and the swap line could be an ideal tool,” said Bank of Communications chief economist, Lian Ping.</p> <p>The swap allows the central banks to directly buy yuan and rouble in the two currencies, rather than via the U.S .dollar.</p> <p>This highlights the long-term error of the west – pushing Russia into China’s sphere of influence.</p> <p>For the first time in fifty years a country may be bailed out using a currency other than the dollar.</p> <p>This, possibly, paves the way for the Chinese yuan to assume the role of a global reserve currency.</p> <p>Also, it is worth noting that a weak Russia is not in China’s military interest at this time of simmering geopolitical tensions.</p> <p>In the event of problems in the international monetary system, sellers of tangible wealth will want payment in a currency with some intrinsic value.</p> <p><strong>GoldCore Insight:&nbsp;<a href="">Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold</a></strong></p> <p>&nbsp;</p> <p><strong>MARKET UPDATE</strong><br />Today’s AM fix was USD 1,210.75, EUR 982.03 and GBP 773.64 per ounce.<br />Yesterday’s AM fix was USD 1,199.00, EUR 962.36 and GBP 763.16 per ounce.</p> <p>Spot gold fell $7.40 or 0.62% to $1,188.90 per ounce yesterday and silver rose $0.03 or 0.19% to $15.77 per ounce.</p> <p>Spot gold in London rose over 2% after the Federal Reserve stated yesterday that it would take a patient approach towards increasing interest rates. This led to rising stock and commodities markets and hurt the U.S. dollar.</p> <p><a href="">Gold in Singapore</a>&nbsp;rose nearly 1% to $1,202.08 an ounce, and traded at $1,201.11 at 2:49 p.m. in Singapore, noted Bloomberg.</p> <p>U.S. Fed chief, Janet Yellen, said the Fed was not likely to raise rates for “at least a couple of meetings”, this has market participants focused on April 2015.<br />In London, spot gold climbed 1.8% to $1,209.46 an ounce after 1040 GMT.</p> <p>Comex U.S. February gold was up 1.3% at $1,209.90 an ounce. Spot silver gained 3.2% to $16.19 an ounce.</p> <p>Spot platinum was up 2.2% at $1,212.60 an ounce, while spot palladium rose 1.8% to $789.63 an ounce.</p> <p><strong>Get Breaking News and Updates On Gold&nbsp;<a href="">Here</a></strong></p> <p><a href=""></a></p> Central Banks China Federal Reserve Janet Yellen Natural Gas Reality Reserve Currency Reuters Ukraine Yuan Thu, 18 Dec 2014 18:54:10 +0000 GoldCore 499309 at