There is no exit strategy…there is only a continuation strategy... and The Fed’s cronies have always known this. Yellen is simply paralyzed with fear that the markets will violently react to a tightening of policy. The Fed is being held hostage to the financial markets but, ironically, is in no mood to escape its captors despite so many clear opportunities. The lack of action, by Yellen, can only be described as cowardly.
When investor preferences are risk-seeking, overly loose monetary policy can have a disastrous effect by promoting reckless speculation and enhancing the ability of low-quality borrowers to issue debt to yield-starved investors. This encourages malinvestment and financial distortions that then collapse, as we saw following the tech and housing bubbles. Those seeds have now been sown for the third time in 15 years. In fact, the present moment likely represents the best opportunity to reduce exposure to stock market risk that investors are likely to encounter in the coming 8 years.
The poet W.B. Yeats was right in 1919 when he said the center cannot hold, as if, following the first great industrial slaughter of modern times, he discovered the lethal vacuum at the center of modernity itself. Although, perhaps most remarkable in our time is not merely the presence of evil, but the eerie dearth of heroes.
One of Chancellor George Osborne’s senior advisers on economic policy has been captured on video smoking crack cocaine in a drugs den. Prof Douglas McWilliams, who last year estimated we would all be £165 a year better off by the election, is seen inhaling it through a glass tube at a flat in North London. Red-faced and slurring his speech, he later told the dealer he had “too much” and that he had spent the day on a binge. Two rocks of the deadly drug can clearly been seen on a table beside the dazed professor. The grainy footage, seen by the Sunday Mirror, will heap embarrassment on the Chancellor and raise serious questions about his choice of adviser.
Greek short-term default risk jumped over 300bps today putting the odds of a restructuring at 50-50 within the next year as the warnings we issued last week with regard Greece's imminent default on its IMF loan loom. Seeking to reassure its lenders (and avoid yet more capital flight), Reuters reports the Greek government said it was "exploring solutions," including delaying payments to suppliers or try to raise up to 3 billion euros by borrowing from state entities such as pension funds. We are sure the Greek people will be enthused when they find out what the 'radical left' has in store for their funds...
NYC Residents Pay $2-3,000 A Month For “Micro-Apartments” As Luxury Car Sales Outpace Regular Car SalesSubmitted by Tyler Durden on 03/02/2015 15:29 -0400
It’s an oligarch’s world, you’re just living in it. One of the main reasons that hyper-luxury cars are outselling regular cars, is because all of the wealth gains from the oligarch recovery are going to, well, oligarchs ... Global policies implemented since the oligarch created financial melt-down, have been used to cover up its criminality, and further advance the status quo’s consolidation of wealth and power. A continuation of this trend presents the greatest threat to liberty, free markets and an evolution of human consciousness on the planet today.
After trading at its steepest (short-term volatility lowest vs medium-term volatility) in 5 months last Monday, VIX rallied notably (and the curve flattened) on the week to 2015 lows. At the same time, in the 'traded' VIX product world, 2 rather notable things happened: first, VIX futures, which were at a record net long positioning at the end of January, have plunged to a net negative (short VIX) positioning once again; and second, and more stunningly, VXX (the VIX ETF) saw the biggest surge in units created since record began. Between these violent swings and the push-pull weights of oil's high vol and AAPL dominance of any dispersion, we suspect VVIX (vol of vol) will pick up notably from its 3-month lows. However, it is the fragility that this kind of move exposes that worries us the most.
When everyone, truly everyone, decides to frontrun the ECB's monetization of European assets (first bonds, and soon everything else too), this is what the outcome looks like.
Even a brief glance at the facts suffices. Portugal is no less bankrupt than Greece. The country’s government debt, at 124% of GDP, might be lower than in Greece. However, government debt is just one – even though important – part of the full debt picture. On an aggregate level, Portugal’s overall debt level - at 381% of GDP when also including private households and non-financial corporations - is well above Greece’s total debt level (286% of GDP). So while Greece’s problems mainly manifest themselves via government debt, Portugal suffers from too much debt in all three sectors of the economy.
"The diversified hedge fund index was up 0.4% for the month of February, while the S&P 500 was up 6.0% on a price returns basis. CTAs unperformed the most in the month, down 1.9%, while Event Driven were up 2.4%."
- Bank of America
As Russia announces the expansion of its Navy by 50 vessels this year, including two new nuclear-powered submarines and an aircraft carrier, it appears NATO's sabre-rattling has drawn a response/threat/warning. Following British plans to send military 'advisers' into Ukraine (which NATO has stated are not confirmed), TASS reports, Russia's NATO envoy, Alexander Grushko, warns Russia will take all measures against possible NATO threat in Ukraine, adding that Russia’s response may include military measures. Of course all this military machismo comes as Russia and Ukraine hold emergency talks in Brussels over gas supply amid imminent cutoff threats for non-payment.
No matter how much oil the United States produces over the next few years, it will never become the next Saudi Arabia in the global oil market, according to Fatih Birol, the new executive director of the International Energy Agency (IEA). What's especially interesting about this forecast is that it directly contradicts what Birol said only three months ago, and he gave no explanation for his change of mind. “The United States will never be a major oil exporter. Their import needs are getting less but the US is not becoming Saudi Arabia,” Birol told the conference. “Their production growth is good to diversify the market but it will not solve the world’s oil problems.”
"None dare call it a “currency war” because that would be counter to G-10/G-20 policy statements that stress cooperation as opposed to “every country for itself”, but an undeclared currency war is what the world is experiencing. Close to the same thing happened in the 1930’s, a period remarkably similar to what many countries’ policies resemble today.... Negative/zero bound interest rates may exacerbate, instead of stimulate low growth rates in all of these instances, by raising savings and deferring consumption... Asset prices for stocks, high yield bonds and other supposed 5-10% returning investments, become stretched and bubble sensitive; Debt accumulates instead of being paid off because rates are too low to pass up – corporate bond sales leading to stock buybacks being the best example. The financial system has become increasingly vulnerable only six years after its last collapse in 2009.... Central banks have gone and continue to go too far in their misguided efforts to support future economic growth."
In November we exposed the market's ability to levitate magically when exchanges - most notably CBOE - break. Today we get another glimpse of the new paranormal. While the official CBOE site is not exposing it, numerous traders noted that CBOE options data was not being disseminated from around the open to shortly after 1030ET this morning. That 'coincidentally' occurred as NASDAQ ramped almopst unabated to 5000 (as VIX was clubbed from 13.9 to 13.1)...