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2015: The Year Of Living Uncertainly

Tyler Durden's picture




 

Submitted by Jeffrey Snider via Alhambra Investment Partners,

The rash of “unexpected” declines in PMI’s this morning in the US, of all places, seems to have abraded at least somewhat the pervasive belief in the American “decoupling.” As I have said before, I afford little validity to PMI’s as anything other than potentially a relative measure of changes, not magnitudes, in shorter-term circumstances. That is why the most recent results in almost all of them, to which their numbers seem to have proliferated geometrically, are at least curious in how they match the past two years of mini-cycles.

If that is the case, then the current downswing in 2014’s mini-cycle, that began in April or so and peaked around June or July, is markedly worse than 2013’s. That isn’t surprising to anyone paying attention to US credit markets. While on the surface, there may be enough economic gloss to ensure that optimistic doubts continue to underpin glowing expectations, the “truth” as told by credit is a fundamental and massive erosion in expectations for what might happen in 2015.

As I wrote just before the end of the year:

That seems, to me, to be the message of crude prices, the yield curve and even “dollar” funding. The worries are that there is much more than a non-trivial chance that as the economy falls off again at the end of this year it may not get back up for next year.

To which most commentary has attributed that bearishness to the happenings far, far away. Global travails are certainly a factor in consideration, particularly of “dollar” markets that connect the global economy, but the heightened depression in this downswing of the mini-cycle is beginning to look far more serious than remote concerns of only slightly more than trivial potential.

ABOOK Jan 2015 Serious Credit Breaks Longer

Janet Yellen and the rest of the FOMC continues to publicly proclaim their total faith in “inflation” despite the massive drop in crude oil and other commodities. They keep saying that meeting their target with be but a “transitory” period away when they have been so far off on their expectations for “inflation” for several years now. That “transitory” period of missing the target has coincided with exactly this slowdown period and descendant mini-cycles in the economy – a pattern that is replicating almost exactly the period right before (and into) the Great Recession.

The months just prior to these changes in inflation regimes (2006 & 2013) were marked by monetary “tightening” due to the FOMC’s misplaced confidence in the validity of their economic views. In both cases, policymakers mistook artificial intrusions for true economic advance (a mistake also made in 1936) only to see the difference revealed in a downward economic spiral. However, that wasn’t a straight line in 2006-08 nor does it appear to be one in 2013-14. The months and years in between the 2006 slowdown and ultimate severe recession instead produced what looked like slow but stable growth, hiding the true negative forces that were only eroding economic progress at an unusually deliberate pace – the elongation of the economic cycle at the peak.

In one sense, the most important aspect of both “cycles” is how the FOMC was mistaken in its view of the economy at each stage, a fact that credit markets were conspicuously disputing then as now.

ABOOK Jan 2015 Serious Credit 5s10s Long ViewABOOK Jan 2015 Serious Credit 5s10s Long View Adj

Taking account of how monetarism under the interest rate targeting regime (which essentially boils down to an artificial steepening of the yield curve, thus a disabling of price discovery in pricing risk as well as a false sense of where the economy is actually providing opportunity) has shifted the yield curve, especially in the all-important 5-10 year segment, the treasury curve is expressing an almost extreme pessimism about not just the global economy but the American place within it.

ABOOK Jan 2015 Serious Credit Eurodollars

That view seems to apply to funding markets as well. The eurodollar curve is still only slightly “tighter” upfront despite the change to “patience” from “considerable time.” In other words, funding markets aren’t so sure that anything has changed from a fundamental perspective that would “allow” the FOMC to actually get to ending ZIRP. Swap spreads indicate as much if not even more uncertainty about that in December.

ABOOK Jan 2015 Serious Credit Swaps

In the past few weeks there has been a noticeable compression bias, though by no means conclusive in proportion. That may indicate corrosion in the desire to hedge against a Fed move, suggesting at the very least doubts about policy expectations being derived from actual, as opposed to imagined, conditions.

The FOMC sees 5% GDP and a serious workdown in the unemployment rate; credit markets are worried about how continued mistreatment of economic fundamentals may mean another disastrous trip like the one from the housing bust to the Great Recession. Worse than that, the treasury curve, in particular, may be going a step further by envisioning that we may already have replicated that period and are now very deep within it.

ABOOK Jan 2015 Serious Credit 5s10sABOOK Jan 2015 Serious Credit 5s30sABOOK Jan 2015 Serious Credit 30s

I suppose, to the orthodox economist, this is all just one huge coincidence (or several large “random” errors):

ABOOK Jan 2015 Serious Credit Too Close For Comfort

 

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Fri, 01/02/2015 - 16:57 | 5616138 alexmark2013
alexmark2013's picture

Economy setting up for a major slowdown in 2015. Leading indicators falling off a cliff

http://investmentwatchblog.com/economy-setting-up-for-a-major-slowdown-in-2015-leading-indicators-falling-off-a-cliff/

Fri, 01/02/2015 - 17:19 | 5616208 Headbanger
Headbanger's picture

Moar like

2015: The Year Of The Living Dead
Sat, 01/03/2015 - 00:35 | 5617593 BKbroiler
BKbroiler's picture

there's 1 year left.  Next winter is the cold one.

Sat, 01/03/2015 - 06:21 | 5617939 Thenardier
Thenardier's picture

Agree with one more year. The caboose rejoins the decoupled train in a year that's already careening off the tracks...with Yellen & Co inside the caboose..smart $$ got off the train by mid 2014.

Fri, 01/02/2015 - 17:42 | 5616289 Carpenter1
Carpenter1's picture

A longtime friend of mine is the director of western Canada for a large retail leasing company. They lease to retail chains of all kinds, Starbucks to Walmart and everything in between.

He said everything was fine, even through 2008-2009, and up until 2013, but then in 2014 suddenly the demand fell off a cliff. They measure their success by square feet leased per month, quarter, and year. 2014 they leased less than half their normal footage, he said suddenly everyone was extremely cautious, trying to get a steep discount, etc.

They've hung on thinking it will end, but he said if things don't show an improvement by early 2015, they're going to lay off 75% of their staff, about 400 people. That was before oil crashed, he runs western Canada, where oil is all that matters. I can say without a doubt that 400 people are about to lose their jobs.

Lots of companies like this, covering over losses, expecting it to be short lived. 2015 will be the year the dam bursts.

Fri, 01/02/2015 - 17:01 | 5616149 JoeySandwiches
JoeySandwiches's picture

I feel like commodities dropping the way they are, assuming the bubble is really bursting, is a major sign that we're nearing the end of this massive ponzi scheme.

http://www.zerohedge.com/news/2014-12-30/commodity-prices-are-cliff-divi...

I'm not one to say every year is gonna be the year it collapses, but 2015 could be the year where it all starts to happen.

Fri, 01/02/2015 - 17:10 | 5616177 SheepDog-One
SheepDog-One's picture

We never got out of the last 'collapsing' they just papered over it.

Fri, 01/02/2015 - 17:15 | 5616193 Dr. Engali
Dr. Engali's picture

The collapse started long before 2015. The system has been dead for a while and we're just waiting for the plug to be pulled, 2015 could be that year.

Fri, 01/02/2015 - 17:53 | 5616324 Drummond
Drummond's picture

Surely it has to be this year doesn't it? Can this blatent manipulation continue for another 12 months? Personally I can't stomach another whole year of waiting for the inevitable. I cant see how they can keep this going beyond the first quarter but i've been feeling that for a couple of years. Something has to give this year. It has to.

Sun, 01/04/2015 - 12:20 | 5620574 Arnold
Arnold's picture

Just because the dam has a few cracks ?

(Where's that pallet of Quickcrete I sent you out to get?

Don't give me that crap, the credit card was not declined.

Lemme make a call.)

Fri, 01/02/2015 - 17:04 | 5616152 SickDollar
SickDollar's picture

OFF Topic a little

something I wrote in 2005 

Did Russian president Putin, suspecting he might be blamed for Hurricane Katrina, jump the gun? Just prior to Katrina hitting the Gulf, Putin noted that two U.S. Senators were in Russia snooping around off-limits secret facilities. That is U.S. Senator Barack Obama (D., Ill.) originally from the former British colony of Kenya and a year previous, before Obama was elected, was publicly fingered by some insider as a British spy; and his accomplice in Russia, U.S. Senator Richard Lugar (R., Ind.).
 
Putin had both of their passports seized and the two Senators were kept for a while in custody of the FSB, the new Russian secret political police.(9-7-2005)
 
(An exclusive news bulletin was on www.cloakanddagger.de)

 

Fri, 01/02/2015 - 17:11 | 5616176 Agstacker
Agstacker's picture

Malware link.

Fri, 01/02/2015 - 17:31 | 5616249 McMolotov
McMolotov's picture

I came across this article:

http://www.americanthinker.com/articles/2011/10/who_is_barack_obama.html

It mentions that the site SickDollar linked to is now defunct, so I doubt he meant to link to a site with malware.

Anyway, this is the first I'd heard about the incident. Should raise some eyebrows.

Fri, 01/02/2015 - 18:27 | 5616468 roadhazard
roadhazard's picture

I didn't even have to click the link. It's a BS web site.

Fri, 01/02/2015 - 17:11 | 5616186 More_sellers_th...
More_sellers_than_buyers's picture

FuckYou SickDolar /// Tyler please bump this dick

Fri, 01/02/2015 - 17:25 | 5616220 SickDollar
SickDollar's picture

PLEASE DO NOT CLICK ON THE LINK

wow  sorry I have no idea the site does not exist anymore and is Malware on top

believe me i had no attention of doing crap like this

I truly apologize and will next time verify my postings!

 

 

 

Fri, 01/02/2015 - 17:09 | 5616170 SheepDog-One
SheepDog-One's picture

Looks fucked!

Fri, 01/02/2015 - 17:11 | 5616184 Goldbugger
Fri, 01/02/2015 - 18:14 | 5616402 MrButtoMcFarty
MrButtoMcFarty's picture

Nothing changes until K Street burns.

Fri, 01/02/2015 - 17:12 | 5616190 e_u_r_o
e_u_r_o's picture

I think absolutely nothing noteworthy will happen again in 2015

Fri, 01/02/2015 - 17:21 | 5616212 SickDollar
SickDollar's picture

wow  sorry O have no idea what happened to the link

 

Fri, 01/02/2015 - 17:25 | 5616234 Mike Honcho
Mike Honcho's picture

SickD this is the link you were shooting for

www.hillaryclintoninherknickers.com

 

Fri, 01/02/2015 - 17:39 | 5616272 noben
noben's picture

I didn't go to that site, but junked you just for creating that nauseating image in my mind with that site name.

Sorry, but it had to be done.

Fri, 01/02/2015 - 18:09 | 5616381 MrButtoMcFarty
MrButtoMcFarty's picture

XAG monkeyhammered into the close....

Some things have less uncertainty than other things.

Cheers and Happy New Year!!

Fri, 01/02/2015 - 22:56 | 5617346 MedicalQuack
MedicalQuack's picture

Well I made my postings for the year, and didn't take but a day.  I don't this group here will be offended with using the f bomb which I don't use too often but you know what, sometimes it's the only word that fits...

It is what it is...so 2 days and here it is....bad code.  We all know here what bad code does.

Five things to watch in 2015, Algos, Algos, Algos, Algos & More Algos:) Which ones will benefit you & who's Algos are they:)  Even the algos don't know for sure what's in store for us...Algos and Code...maybe this year we can get some folks besides crazy lawyers that think their legal verbiage has any impact on math models and code, been working to the benefit of the banks for years as we all know...it's not you, it's the code and the greedy folks who write it and use it, proprietary of course so we can never see or replicate for accuracy.  When the arrays of data to be rigged, manipulated or otherwise dealt with can't stand up to anymore structure query language of the quants, data scientists and otherwise, a big thud takes place and it's the fucking code:)

 

First tweet I retweeted…

MedicalQuack RT @MedicalQuack: In 2015 as our online experiences don't seem to work so well-remember one thing-it's not you "it's the fucking code":)
Fri, Jan 02 17:26:23 from TwInbox

So then today we have this today from Reuters…bad code:)

 

 

MedicalQuack That didn't take long, I said-New Years Eve-Problems w/ the web "it's the fucking code" Bad Code Yahoo-Bing crash reut.rs/1D12bs5
Fri, Jan 02 17:18:30 from TwInbox


Sat, 01/03/2015 - 02:08 | 5617756 theyjustcantstop
theyjustcantstop's picture

the one graph, asked what happened here.

well may 2 2013 the bernanke threatened to ease treasury buying, so a few 100 billion dollars of peoples money, who still thought there was a market, started buying, or going long treasuries.

then about Sept. 15 2013 "Belgium", started buying treasuries, slowly at first, not to scare anyone off, but just enough to keep it under the 3%.

so this gives the people, who are the market, long enough to get all the treasuries short, then, on nov. 20 2013 gives Belgium the go ahead, and within  one yr. some people got churned out of about 1/2 trillion dollars.

some of that was china, and some others were getting out at the top, but nowhere near $400b dollars.

while reading about Belgium buying American debt, when they bought this huge amount, late 2013 through 2014, their was not an official govt. in place. 

someone asked me about Belgium being a small country, why would they buy so much, knowing their dropping the value of their investment.

I said that was easy, Belgium-Brussels-BIS look them up.

some one had to of naked shorted this known move, but how? 

 

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