It is no secret to anyone that as we said some 3 years ago, the world is now engaged in all out currency warfare whose sole goal is destroying one's own currency faster and more brutally than "the other guy" can. Because while devaluing one's currency is imperative in order to return to a viable debt load, about $40 trillion less than where it is now (as per BCG) by pushing monetary inflation upon one's people and inflating said debt away, just as important is to stimulate one's economy and exports which, all else equal, can only be done by making them cheaper to one's trading partners. It is, after all, a zero sum world. This is precisely the tug of war that the developed world is caught in currently, where every attempt is made to talk down one's currency, and when that fails, to dilute it by printing more of it (the Fed), to backstop it with collateral of every lower quality (the ECB, although in Europe's case it is more of an involuntary phenomenon), or just to talk, and talk, ant talk (Japan). Yet while every country with a self-respecting central bank (i.e., currency printer) hopes that they will be the ultimate winner of the currency debasement export race, what has become obvious over the past 30 years, is that when it comes to specializing in exports, there is just one true winner: a winner which is self-evident from the chart below.
After witnessing the fighting of undeclared never ending wars, passage of freedom destroying legislation like the Patriot Act & NDAA, approval of pork barrel spending to the tune of hundreds of billions, rule by Executive Order, using ZIRP to extract hundreds of billions from senior citizen savers and give it to criminal Wall Street banks, forcing the American people at gunpoint to replenish the Wall Street banks with $700 billion after they had committed the greatest financial fraud in history, and a continuing trampling of the U.S. Constitution, the American people continue to remain willfully ignorant of the truth. The American Dream is dead. We’ve allowed a rich, privileged, elite few to achieve hegemony over our economic and political system with their control of the media and manipulation of our financial markets. They will collapse the country because they will never be satisfied with the amount of wealth and power they’ve accumulated. Their voracious greed will be their downfall.
Sometimes it is useful to reflect back more than a nanosecond to check one's anchoring bias. With US equities back at 2007 levels, we thought it may be instructive to look at what the Fed was thinking - and what the FOMC was looking at - to be better able to judge their 'forecasts' now. To wit Q4 2007, FOMC... "Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance." The reflexivity of the use of market-based measures to preempt their actions is very clear from the presentation materials, as, just like now, there was falling current year EPS expectations but a phoenix-like resurrection due in 2008 based on analyst's expectations. Furthermore, the expectations for rate changes from Q4 2007 to Q4 2008 was remarkably modest (even as they had all the data on subprime delinquencies soaring and monolines collapsing) - and of course, turned out to be absolutely and utterly incorrect. And yet, we listen intently to every forecast word they utter?
The so-called recovery is built on sand, and as stock markets climb and climb, and more traders and investors turn bullish, we come ever-closer to a new 2008-style collapse. Soaring markets, and soaring speculation. Big finance using loopholes to speculate bigger and harder. Mainstream financial journalists becoming more and more complacent about the “recovery”. We’ve been here before. Isn’t repeating the same behaviour and hoping for different results the very definition of insanity?
The market ramped, modestly, on the earlier news that the House would push the debt ceiling by three months with an implied budget/spending cut provision. That the market actually moved on this headline shows front and center just how clueless the algos doing all the trading truly are, because one doesn't need Politico to tell them that this proposal is absolutely DOA and is nothing but more theater. However, those who do need Politico to tell them that, here it is: "House Republicans will vote next week on a bill that would raise the nation’s debt ceiling for three months and attach a provision that would stop pay for members of Congress if the Senate doesn’t pass a budget, GOP officials said Friday. It’s an attempt to force the Senate to lay out a spending plan, but is sure to go nowhere in the Democratic controlled upper chamber."
And the game continues as Speaker Boehner appears to be kicking the can across the corridor to the Senate (and implicitly the Democrats) as he quite specifically advises them that with no budget, there is no talk of debt-ceiling extensions. The principle is simple, he notes, "no budget, no pay." As Dow Jones reports, the 'compromise' deal is that the House will propose a three-month extension of the debt-ceiling in exchange for a budget (i.e. spending cuts from the Senate) - which of course is all but impossible given the years of inability to pass a budget anyway. Check to Obama (though we know the response)...
- *U.S. HOUSE WILL PASS 3-MONTH DEBT LIMIT INCREASE NEXT WEEK
- DJN - DJ U.S. HOUSE TO SEEK THREE-MONTH EXTENSION OF DEBT CEILING
- DJN - DJ U.S. REP CANTOR: IF HOUSE AND SENATE DON'T PASS BUDGET IN 3 MONTHS LAWMAKERS WON'T GET PAID
It was the best of times, it was the worst of times. That just about sums up the divergence of opinion among credit (bad) and equity (good) traders had as the week ended on a very sour note for bonds. Financials, which have seen nothing but compression and exuberance, have swung notably wider in the last 36 hours or so - as the spectre of the repayment of LTRO begins to show forth. Meanwhile, stocks are flatly ignoring that reality and close (broadly) at the highs of the week. Sovereigns in general trod water (+/-5bps) except for Spain which rallied 21bps (of course it did, the awesome bad loans data must have been the bad-is-good driver?). EURUSD also started to sag today back to its lows of the week - even as Swiss 2Y rates broke back above 0% for the first time in 9 months and Europe's VIX is stable at around 16%.
UPDATE: VIX and SPX have recoupled
Given the compression in realized volatility and surge in stocks, it is not totally surprising that spot VIX would see some catch down compression. Sure enough, spot VIX just plunged to 13.00 (for the first time in almost 6 years). Stocks are falling as VIX is falling though - in a convergence from yesterday's gap-open. Longer-date VIX futures are also falling but not as much - implying further debt-ceiling deadline steepeners being laid out.
"April 10 was the first trading day in London after the “London Whale” articles were published. When the U.S. markets opened (i.e., towards the middle of the London trading day), one of the traders informed another that he was estimating a loss of approximately $700 million for the day. The latter reported this information to a more senior team member, who became angry and accused the third trader of undermining his credibility at JPMorgan. At 7:02 p.m. GMT on April 10, the trader with responsibility for the P&L Predict circulated a P&L Predict indicating a $5 million loss for the day; according to one of the traders, the trader who circulated this P&L Predict did so at the direction of another trader. After a confrontation between the other two traders, the same trader sent an updated P&L Predict at 8:30 p.m. GMT the same day, this time showing an estimated loss of approximately $400 million. He explained to one of the other traders that the market had improved and that the $400 million figure was an accurate reflection of mark-to-market losses for the day."
According to Bloomberg's rankings (based on wealth disparity, average unemployment benefits, and overall unemployment pool), and somewhat confirming the food-divide discussion we had last night, the following states are the worst to live in if you are unemployed. Connecticut tops the list with its massive wealth disparity - more than one $200,000 household for every household earning less than $10,000. New York, California, and D.C. are close behind with Oregon and Alabama in 19th and 20th 'worst' place to be unemployed. Welcome to the bifurcated un-recovery.
All commentary at this point on the infinite monetary sinkhole of Southern Bavaria, f/k/a Greece (whose lack of privatization efforts have angered Mother Merkel, who is now demanding more Greek assets be sold to "willing buyers") is now worthless:
- IMF SEES GREECE NEEDING EXTRA EU5.5-9.5 BILLION IN 2015-16
- GREEK GDP TO SHRINK 4.2% THIS YEAR, GROW 0.6% IN 2014, IMF SAYS
- IMF RECOMMENDS HAIRCUTS ON BILATERAL GREEK LOANS FROM EUROPE
- IMF RECOMMENDS RATES `CLOSE TO ZERO' ON BILATERAL GREEK LOANS
Has the IMF hired Armstrong yet?
Back in late August, we presented a chart whose foresight and accuracy turned out to be so spot on, it scared even us. We asked: "With Apple overtaking Microsoft's 'peak-market-cap' and becoming the most 'valuable' company ever traded, we thought a reflection on what humans (as opposed to machines programmed by humans) did the last time a world-changing technology company went ubiquitous. Comparing AAPL's last few years to the run-up in MSFT's peak in 1999..." Or, in other words, "is it different this time?" Turns out, the answer is, No. It was not different this time. It never is.