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"The Gig Is Up"

Tyler Durden's picture




 

Via Scotiabank's Guy Haselmann,

In a switch from what are typically only one-sidedly dovish comments, NY Fed President Dudley was balanced this week, even citing reasons for why the Fed would want to hike rates.

Dudley stated that “being at the zero-lower-bound is not a very comfortable place to be”, because it “limits” flexibility and has “consequences for the economy”. He said it “hurts savers”, and while acknowledging “what is happening” to financial markets, he avoided directly citing risks to financial stability.  Anxiety-riddled conversations about financial instability are probably implicitly restricted to a ‘behind-closed-doors-only’ rule.

FOMC members are slowly and carefully trying to change the conversation.  Yellen completely diluted away any meaning behind “considerable period” to make it all but meaningless.  Bullard said to that he still “sees the first tightening at the end of the first quarter”.

A March 18th hike seems reasonable to me, since US economic improvement appears to remain on track (at least for the moment) and since the FOMC seems more anxious to begin the normalization process.  Actually though, by waiting even until March, it is possible that the FOMC risks missing its window of opportunity in terms of using US economic momentum as its cover (what irony).

Financial markets are becoming agitated and disturbed by shifting government and central bank policies, mounting geo-political tensions, and rising nationalist fervor.  QE has not yet ended and the Fed is likely still months away from hiking for the first time, but markets are using these factors to adjust portfolio exposures.  These are hints that a larger market reaction is likely to unfold as the Fed’s policy transition approaches. 

Macro signs are currently evident with steep commodity price declines, rising FX volatility, rallying global bond markets (long end), and sagging prices for low quality credits.  Some investors are clearly getting out of the Fed-generated “herd” trades of recent years and saying that they are doing so because "the Fed’s balance sheet is set to stop expanding next month".

The strengthening dollar is one consequence and it has already had an impact on commodities and Emerging Markets.  In turn, weakening currencies in EM countries are starting to trigger capital outflows. It may lead toward domestic central bank hikes (again) which weaken those economies and cause second-order effects.

The prolonged period of zero rates has enabled many EM-based corporations to issue debt in USD, so a weakening currency raises their liabilities and lowers the value of their assets.  Such a dynamic was a source of past crises.

Any anti-globalization actions, such as protectionism, will further act as global economic headwinds. Nationalistic momentum could become disruptive via social unrest or via surprises in the voting booth.  Extreme nationalist parties continue to gain in popularity in numerous European countries. Religious, ethnic and tribal conflicts are spilling across borders.  Putin’s annexation of Crimea was a bold nationalistic action that hid behind a veil of protecting Russian speakers.  China, Japan and India all have new nationalistic leaders who use patriotic jargon to spur structural and economic reform.

For investors, Fed stimulus has trumped all other factors.  It has lowered risk premia and inflated asset prices.  The gig is soon up, but investors have yet to adequately adjust. Unfortunately, they will attempt to do so with significantly compromised market liquidity.  The path to normalization is made even more challenging, because Japan and Europe are in recession, and China is slowing.

Note: Pentagon comments this week about foiling an “imminent attack” was negative for risk assets as were Treasury Department efforts to clampdown on “inversion”.

I maintain that one of the best places to hide remains in 30-year Treasury bonds.

“No one told you when to run, you missed the starting gun.”  - Pink Floyd

 

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Thu, 09/25/2014 - 18:05 | 5257593 SheepDog-One
SheepDog-One's picture

Somebody get those Jews back in there and SELL! SELL!! No wait, I mean BUY! BUY!!

Thu, 09/25/2014 - 18:07 | 5257609 RafterManFMJ
RafterManFMJ's picture

...and when I come home, cold and tired, it's good to toss some bonds on the fire...

Thu, 09/25/2014 - 18:20 | 5257641 DeadFred
DeadFred's picture

30 year treasuries LOL

Thu, 09/25/2014 - 18:23 | 5257659 knukles
knukles's picture

Up 12% this year.

Thu, 09/25/2014 - 18:33 | 5257688 AssFire
AssFire's picture

When I was a boy, my momma would send me down to a corner store with $1 and I’d come back with 5 potatoes, 2 loaves of bread, 3 bottles of milk, a hunk of cheese, a box of tea and 6 eggs. You can’t do that now… Too many fuckin’ security cameras.

Thu, 09/25/2014 - 20:00 | 5257993 espirit
espirit's picture

When there is blood in the streets...

Let it flow.

 

Retail ain't never comin' back.

Fri, 09/26/2014 - 03:23 | 5258880 CHX
CHX's picture

Yes, retail is dead.

Thu, 09/25/2014 - 18:47 | 5257739 DeadFred
DeadFred's picture

Buying them in January was therefore a good deal. How much more 'up' do they have left? In my opinion we need to worry about bigger fish now. I've been wrong many times before but I think we're going to remember this October for the rest of lives. The bond market is the most vulnerable. The dollar is soaring but that's because the attack hasn't happened yet. Is it coming? I think the tea leaves and reading between the lines says there's a good chance. I'm not worried about up 20% down 20% like most investors are because I have very little skin in this game. I am worried about liquidity drying up and what assets I have becoming unavailable. The dollar is the target and I don't want to be tied into an illiquid market when the balloon goes up. My bones say it's coming but never trade real money on my hunches.

Thu, 09/25/2014 - 18:22 | 5257657 knukles
knukles's picture

Ya'know.... For the life of me, I'll bet that IF the Fed tightens, it won't be long before some BAD numbers come out and they're FORCED to EASE once again.
The only positive about raising short rates is that the pool of cash and short term investments Ma & Pa Kettle from Dubuque own is Humongoloid upon which they're currently receiving naught.  Any serious (Meaningful and that's not what's being discussed as the economy is not on fire) rise in rates actually puts additional spendable funds into the public's hands which is a good thing.
And would temper inflaiton expectations.....that they want to raise so is in their mond, counterproductive.

Listen....  Best bet.  Don't listen to this miasma.  The Fed themselves don't know what's good or bad, the true health of the economy and financial markets or what to do.
If it was that clear, we'd not be having this discussion.
Market participants would not be engaged in the Great Debate

They're somewhere between worried and scared shitless....
And would dearly love system wide inflation to make the debt more affordable.
That don't sound like tightening monetary policy to me....
Just sayin', but WTF do I know?

Go figure

Thu, 09/25/2014 - 18:37 | 5257707 Escrava Isaura
Escrava Isaura's picture

The Fed will NOT tight.... Ever!

 

Wondering why?

 

How will the US wealth survive? How will the roads, cities, employment, pension plans, government, military, and so on be maintained?

 

Thu, 09/25/2014 - 23:54 | 5258615 bid the soldier...
bid the soldiers shoot's picture

Oh, things will be fine in the Green Zone.

Thu, 09/25/2014 - 19:13 | 5257827 thamnosma
thamnosma's picture

Putting more money into savers hands, in any meaningful way, would require raising rates to what....4 or 5%, for an extended time since we've been decimated for so long.  That's to get back to a typical ROR on a 4 year CD.  That just doesn't seem like the mindset.  Figure they raise rates by 0.5% maybe, or less, per meeting.

 

Imagine what 5% rates would do to housing, autos, student loans, government debt interest....so one has to consider whether the negative effects would outweigh any positive effects for "savers".

 

Just seems like a giant ball of confusion.

Thu, 09/25/2014 - 20:01 | 5258000 espirit
espirit's picture

Maybe, but inflation will be 10%.

Oh, wait...

Thu, 09/25/2014 - 23:51 | 5258611 bid the soldier...
bid the soldiers shoot's picture

In other words

 

'Tis better to have tightened and re-eased,

Than never to have tightened at all.

 

 

Makes sense to me.

Fri, 09/26/2014 - 03:21 | 5258879 CHX
CHX's picture

It's better to have printed, than never to have lived in the first place.

Thu, 09/25/2014 - 19:42 | 5257939 gmak
gmak's picture

... some FIAT on the fire....

Thu, 09/25/2014 - 18:25 | 5257667 junction
junction's picture

On this major Jewish holiday, just remember: Jesus saves, Moses invests.

Thu, 09/25/2014 - 19:32 | 5257890 armageddon addahere
armageddon addahere's picture

C. B. DeMille collects the royalties

Thu, 09/25/2014 - 18:28 | 5257672 Thirtyseven
Thirtyseven's picture

Careful, or the lurking Hasbara might reply to you with a nasty post.

Fri, 09/26/2014 - 00:34 | 5258696 Implied Violins
Implied Violins's picture

I've found that if you put an extra J in JJewish or an extra I in IIsrael you can have uninterrupted discussions on any board, anywhere.

Thu, 09/25/2014 - 18:06 | 5257598 Chuck Knoblauch
Chuck Knoblauch's picture

The PP's at Treasury must be Jewish.

Thu, 09/25/2014 - 18:07 | 5257600 jubber
jubber's picture

Dow back to 17000 already LOL

Thu, 09/25/2014 - 18:09 | 5257610 ebworthen
ebworthen's picture

Cramer is on right now saying never sell, only one time in his career was selling the right thing to do.

Now is the time to not panic and to BUY.

Whipped cream Jim, whipped cream.

Thu, 09/25/2014 - 18:21 | 5257649 DeadFred
DeadFred's picture

Now that Stolper is gone Jim has no competitors was who's the best contra-indicator

Thu, 09/25/2014 - 22:43 | 5258430 Keyser
Keyser's picture

There is Gartman...

Thu, 09/25/2014 - 18:31 | 5257681 Thirtyseven
Thirtyseven's picture

James Shalom Kramer (or was it James Chaim Kramer?) is nothing but zydokommuna trash.  Fuck him, I hope he burns with his ill-gotten fortune built, not on work or effort or even intellights, but built upon lie and deceit.

Thu, 09/25/2014 - 18:08 | 5257614 Dungholio
Dungholio's picture

But but but.... Cramer is saying buybuybuy!!!

Thu, 09/25/2014 - 18:11 | 5257618 Againstthelie
Againstthelie's picture

QE had been stopped and always had to be restarted again.

Nothing new.

Thu, 09/25/2014 - 18:45 | 5257727 kowalli
kowalli's picture

qe not been stopped, i bet they print ever more now

Thu, 09/25/2014 - 19:07 | 5257806 thamnosma
thamnosma's picture

Unless the Central Banks now want the asset crash as their buddies all have plenty of dollars....

Thu, 09/25/2014 - 18:12 | 5257622 AdvancingTime
AdvancingTime's picture

 Both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were made on the assumption that the advantages we enjoyed would continue.

Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about evermore growth. Now reality has begun to come into focus and it is becoming apparent that this is unsustainable. The entitlements and promises that have piled up have become overwhelming. More on why this system will fail in the article below.

http://brucewilds.blogspot.com/2014/08/modern-monetary-theory-is-wrong-d...

Thu, 09/25/2014 - 18:14 | 5257627 buzzsaw99
buzzsaw99's picture

gig, jig, whatever

Thu, 09/25/2014 - 18:35 | 5257692 Thirtyseven
Thirtyseven's picture

Probably an intentional play on words.  Get with the pogrom dude.

Thu, 09/25/2014 - 19:40 | 5257927 himaroid
himaroid's picture

They thought they would gig some tbond holders but they missed again.

Fri, 09/26/2014 - 03:25 | 5258881 Boxed Merlot
Boxed Merlot's picture

gig some tbond holders...

 

 

Gigging is what one does to frogs.  Unless of course one would prefer the Fed's version and boil them in QE liquidity instead.

If anyone thinks inflation is not happening, I would direct them to Costco's meat department. Ground beef has gone from 2.99 to 3.29 to 3.89 since January 2014.  30% in 9 months.  Live cattle futures have been bouncing between 135 to 155-160 in the same time.

 

But hey, broaster chickens remain 4.99.

Thu, 09/25/2014 - 18:19 | 5257642 Keltner Channel Surf
Keltner Channel Surf's picture

Arguments are self-supporting, but . . . he had his choice of ANYONE to quote -- Dylan, Leonard Cohen, Stuart Murdoch, David Gedge, Mark E. Smith, Van Morrison, Neil Young, Nick Drake or, hell, even The National -- and he chose Roger (Fucking) Waters ?? !

Thu, 09/25/2014 - 18:23 | 5257655 Still Life Living
Still Life Living's picture

My re brokerage company has asked us to send information to our clients that interest rates will increase next year.  Coordination or collusion, the Fed's policy is done.

Thu, 09/25/2014 - 18:23 | 5257661 kchrisc
kchrisc's picture

Guillotine the Fed!

An American, not US subject.

Thu, 09/25/2014 - 19:06 | 5257799 thamnosma
thamnosma's picture

Calling ISIS

Thu, 09/25/2014 - 18:32 | 5257687 Ban KKiller
Ban KKiller's picture

Rules? FASB? Why bother? The owners of the FED only have one goal, to steal your money and wealth anyway they can. Inflation has worked well for them...

Thu, 09/25/2014 - 18:38 | 5257703 Thirtyseven
Thirtyseven's picture

Kill them!!! (wives and children fair game too, they enjoyed the lifestyles and did nothing to stop the perps!)

Thu, 09/25/2014 - 18:45 | 5257715 I Write Code
I Write Code's picture

by B.B. King

The gig is up
The gig has gone away
The gig is up baby
The gig has gone away
You know you done me wrong baby
And you'll be sorry someday

You know I'm free, free now baby
I'm free from your spell
Oh I'm free, free, free now
I'm free from your spell
And now that it's all over
All I can do is wish you well

Thu, 09/25/2014 - 18:43 | 5257722 q99x2
q99x2's picture

30 year treasuries. I'll be sure to do that once crypto-currencies no longer exist.

Thu, 09/25/2014 - 18:44 | 5257725 thamnosma
thamnosma's picture

"since US economic improvements appears on track"....what is this guy smoking?  Oh yeah, the recovery.....

Thu, 09/25/2014 - 18:48 | 5257740 starman
starman's picture

correction; the US is in a recession as well its just didnt admit it yet.

Thu, 09/25/2014 - 19:00 | 5257781 thamnosma
thamnosma's picture

I wonder what things look like if you take out the shale production boom and the banks.....

Thu, 09/25/2014 - 19:01 | 5257754 NDXTrader
NDXTrader's picture

Haven't I read this before? Every year since 2009? While there are any bullets left (literally and figuratively) the won't and, more precisely, can't let this bubble pop. It would lead to revolution in China, a toppling of the Japanese government which would take a much darker turn of nationalism, civil unrest in the US and the break up of the EU. They will print until it collapses and then blame it on someone else

Thu, 09/25/2014 - 19:04 | 5257792 thamnosma
thamnosma's picture

Not if they believe their own bullshit.  Things are "on track", the recovery is for real, raise those interest rates (of course that won't affect car and home purchases), we're good to go.    One also has to consider whether it is now the strong dollar rather than rising stock prices the banks want.  Raise interest rates, tank the market (hedge funds, pension funds, mutual funds, etc.), strengthen the dollar (banks sitting on huge amounts of cash)....

Thu, 09/25/2014 - 23:27 | 5258545 bid the soldier...
bid the soldiers shoot's picture

Or go directlty to "Mad Max".  Do not pass GO.  Do not collect $200.

Thu, 09/25/2014 - 18:58 | 5257773 Consuelo
Consuelo's picture

Jeezus...  I have never seen a more full-on press to push a meme than 'Look out, here comes Fed tightening'...   Who in the Hell are these guys trying to convince?   It's every freakin' day some big bank Schmendrik or insitution comes out with their 'better get prepared' nonsense about something that isn't set to take place for (6) months...!   I tell you what, let's see how far the market drops (assuming Citadel can't feed coal to the boiler fast enough...), before the Fed steps in to put a tourniquet on the $bleeding.

Thu, 09/25/2014 - 23:22 | 5258533 bid the soldier...
bid the soldiers shoot's picture

It's every freakin' day some big bank Schmendrik or insitution comes out with their 'better get prepared' nonsense 

Some of the Fail-Safe banks are already unwinding their positions.  They own so much stock it'll take them 6 months to sell out.

Thu, 09/25/2014 - 23:34 | 5258564 Wild Theories
Wild Theories's picture

yes, big ships are slow to steer, us poor folk may only need a few days heads up to clear out, big banks needs months

Fri, 09/26/2014 - 00:04 | 5258648 bid the soldier...
bid the soldiers shoot's picture

big banks needs months

Especially when they've been buying and holding for 6 years.

Thu, 09/25/2014 - 19:03 | 5257789 spinone
spinone's picture

Jawboneing is all the Fed has left.  They can never ever ever unwind QE or raise rates.

Thu, 09/25/2014 - 19:06 | 5257796 thamnosma
thamnosma's picture

QE, at least as we know it, is about to disappear, man.   I believe next FOMC meeting will end it.  Rates won't rise then but the QE will be gone unless you can flesh out the "QE by another name" they might be doing.

Thu, 09/25/2014 - 19:14 | 5257836 NDXTrader
NDXTrader's picture

What exactly stops them from doing QE4 (or 4.5)? People have said the same thing after each one

Thu, 09/25/2014 - 20:06 | 5258012 espirit
espirit's picture

One Dollar = One Yen.

Thu, 09/25/2014 - 23:16 | 5258523 bid the soldier...
bid the soldiers shoot's picture

Two Dollars = One Pengo

Thu, 09/25/2014 - 19:23 | 5257866 Infinite QE
Infinite QE's picture

They are already doing it via Belgium.

Thu, 09/25/2014 - 19:35 | 5257880 NDXTrader
NDXTrader's picture

My guess is that is the EU with spillover because they have already bought damn near every sovereign bond in Europe. But you're right it could be quid pro quo for the Fed bailing them out with repos.

I've never quite understood why ZH is convinced that the "Belgium" buys are the Fed. Makes much more sense that its the ECB . I mean Belgium is so random, except its home to the "capital" of the Euro zone

Thu, 09/25/2014 - 19:31 | 5257893 armageddon addahere
armageddon addahere's picture

By the way, the phrase is "the jig is up".

Thu, 09/25/2014 - 19:38 | 5257918 himaroid
himaroid's picture

Resigned today!

Thu, 09/25/2014 - 20:24 | 5258064 cartonero
cartonero's picture

I, for one, have always used "gig"

Fri, 09/26/2014 - 00:36 | 5258700 tarabel
tarabel's picture

 

 

Definitely. 1930s Hollywood gangster movie slang. But probably sanitized now to avoid offending anybody.

Fri, 09/26/2014 - 03:19 | 5258877 CHX
CHX's picture

The gig is still on, but the jig is almost up. Fat lady coming up soon in the program.

Thu, 09/25/2014 - 19:35 | 5257911 ramacers
ramacers's picture

so, the streets should be strewn with bankster heads. what happened?

Thu, 09/25/2014 - 19:37 | 5257920 Carpenter1
Carpenter1's picture

Everyone assumes the FED and gubbmint can't tighten or stop QE because their priority is to stimulate the economy and keep the system in place.

THEY'VE SAID THEY WANT A RESET FFS!!!

Thu, 09/25/2014 - 19:41 | 5257933 NDXTrader
NDXTrader's picture

Assuming they actually do, why now? They've literally created $4 trillion out of thin air and given it to themselves and no one has said a peep. 90% of the people have no idea what QE is and most of the rest are cheering them on. They can do this until people riot over inflation, collapse it, and then blame the people who rioted. I see absolutely no reason for them to do that now

Thu, 09/25/2014 - 20:10 | 5258023 espirit
espirit's picture

Aim small, miss small.

Thu, 09/25/2014 - 20:45 | 5258118 Loucleve
Loucleve's picture

God, we even have to hear geopolitical propaganda from Securities Analysts?

Putin’s annexation of Crimea was a bold nationalistic action that hid behind a veil of protecting Russian speakers.............

BS.  It was a well founded reaction to our meddling in his backyard, and I'd have done the exact same thing.

Thu, 09/25/2014 - 22:31 | 5258405 OhNo
OhNo's picture

I'm starting to think Zeroshit is part of the Problem-Reaction-Solution with a whole lot of Intellectual bullshit.Its easy-all Lizards and there Allies need to be exterminated of the face of this planet once and for all,Or humanity will never have peace.

Thu, 09/25/2014 - 23:54 | 5258614 Wild Theories
Wild Theories's picture

kinda ironic he's recommending long t-bonds to hide in, given bonds are also going to turn into a speculators market(if it haven't already) when everyone with a case of jitters starts piling in

maybe Bill Gross will be there to frontrun some bond dumps on them :)

Fri, 09/26/2014 - 03:16 | 5258872 CHX
CHX's picture

The 30-yr TB? With a bankrupt government, an economy that is in a depression, and issuer of a dying-by-1000-cuts reserve fiat currency? ARE U KIDDING ME?

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