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Market Calls Fed's Bluff - Desperation Becomes Palpable
Submitted by Jeffrey Snider via Alhambra Investment Partners,
Funding Markets just called The FOMC's bluff.
Janet Yellen and her colleagues would like to welcome you, not unlike Tim Geithner’s 2010 expedition in this area, to the recovery. They have removed pretty much all language that would make you think there was anything like lingering destructiveness or erosion. In doing so, they make it very plain that they want you to believe that they will be ending ZIRP, just as they have done to QE.
There is the “solid pace” of economic expansion which has meant “strong job gains”, though, curiously, there won’t be any of the mainstream “inflation” that usually accompanies this outlook. The world may be concerned about oil and all that, but the FOMC wants you to know that you should focus on them instead of such distractions.
Yet for all the supposed expertise and the “best and brightest” that sit upon the monetary throne in the US, funding markets just rejected everything the FOMC proclaimed. Knee-jerks are usually conforming, at least in some manner, but the eurodollar market, in particular, traded in the “opposite” direction of what you might expect had the FOMC left any impression.
The eurodollar curve has been more than suspicious about the Fed’s preferred narrative for some time, going back to June, but you would at least think that this latest statement might carry enough weight as to cause the “right” direction if only in short-term trading. These markets are conditioned toward policy proclamations almost at face value (again, in the short run).
The path of “projected” rate changes has noticeably declined, which amounts to either a lower probability of actually getting to policy rate increases or a much diminished period of receiving them (the Fed does raise rates, but the economy isn’t what they say and the asset bubbles cannot withstand the paradigm shift so that it all ends very badly once more). The inward, flattening of the eurodollar curve, which is supposed to be the closest “market” to funding rates, is a direct contradiction to the “booming” economy as spun by the economists and their models.
I have rescaled the curve to zoom closer to the action so you can plainly see the intraday eurodollar curve moving in the opposite direction of any intended rate increases. And the majority of those movements are right in that central area of focus, the policy window from 2015-17.
These may not seem like large moves, but given the volume of contracts and the amount of “money” in the notional values there is a bit of exaggeration here. A 10 bps swing in a matter of a couple hours is significant, but very much so given that the “money section” of the funding curve not only dismisses the monetary policy statement in full, but actively trades against it. Eurodollars are essentially calling the FOMC’s bluff.
I have said this pretty much since the beginning of the taper drama, that policymakers are acting out rational expectations theory or at least how they see it. In other words, their job is not to analyze actual economic conditions, but to condition economic thought toward the end goal. If they convince you that they believe the economy is on track they further believe you will act accordingly (“you” being both investor and economic agent). The more the economy diverges from the “preferred” projection, the more emphatic the cries of “recovery” become. At some point, desperation becomes palpable.
There are other factors to consider here, of course, but it is at least interesting as that seems to be theme guiding funding market trading here. The more the FOMC says the economy is great, the less credit markets seem to believe it – desperation rather than reality, now even to the shortest of timescale.
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NOTE: Things got even worse on Friday as the market really accelerated its bluff calling for The Fed...
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No such thing as "market" controlling the central command.
Central command controls the market, not vice versa.
The market operates within the limits set by central command
Here is what Greek must do to be free.
1. Sell/transfer all Euro/USD reserve to China, in exchange for future consideration. The reason for China is because the EU/US can't sanction China for this move.
2. Nationalize all banks, convert all euro in the Greek systems to drachma. This is a simple software/data change in the computer at no cost.
3. Sign swap agreement with Russia and China. Convert #1 to Ruble and Yuan.
4. EU is finished.
5. Print the Drachma to fund economic activity. Take the Drachma back from the oligarchs.
So how is this different to the current fiat bullshit, especially with regards to your point 5? Also so much activity in Argentina and Venezuela...
Because at some point it is backed by Chinese and Russian Gold.
I'll tell you a quick fix to all of this, De-Couple the value of the Legal Tender from the Bankster generated Credit, which is an obligation to pay in Legal Tender. All that Credit generated by Central Banks, that's on them because it's their Private Credit, their obligation to cover and pay, not ours, it's not part of any country's Legal Tender Money Supply. Our deal with them is for the Legal Tender, not their Credit/Debt.
When we stop counting Bankster generated Debt Obligations (CREDIT) as being a part of the actual Legal Tender Money Supply, maybe you'll realize just how much those fuckers have stolen from us using their Debt Obligations as currency.
"Here is what Greek must do to be free"
To a man... slit their own throats ~ There ~ fixed it!
It's the only viable SAMSON OPTION versus a tribe committed to utilizing the same 'end result tactic' against you & your brothers.
Exchange rate -
1 Ruble = 100,000,000 Drachma
Wheelbarrow sales to the moon!
this recovery is SO FUCKING GREAT i just can't believe it. i really can't..
Yes... just BTFD. It's not Ponzi scheme, it's a BTD scheme. And tell all your friends.
Then you too can make $8732/week, like those guys posting here.
;-)
The fed is pulling a draghi in reverse, they will NOT raise rates in June. They're all talk and no action, if anything they will start QE4.
https://www.youtube.com/watch?v=yloaBw80fV4
Everyone is about to discover the FED's true mandate, which has nothing to do with giving BTFD'ers an easy trade forever.
This generation will go down as the most gullible and naive of all, they will laugh at our belief that QE would never end.
Wrong.
Perception is reality.
Perception is that the stock and housing markets are the economy.
The Fed must maintain the perception that the economy is improving.
Therefore, the Fed must continue to support asset values.
For the Fed to allow asset values to crash, is to admit failure.
The Fed will never admit failure.
Therefore, the Fed must support asset bubbles.
Therefore, the Fed must continue with QE forever.
We are ALL Japan now...
No idea why the Japanese aren't rebelling and calling for Abe's head. Maybe for the same reason they're not having sex...
The Fed, always wrong, but never in doubt.
The FED is admitting failure through recent CB statements and they are unable to maintain the facade of a bustling economy when every major city in the Western World is displaying 'SPACE FOR LEASE' signs in virtually every single business sector in the Western World. What is not managed appropriately, and what has never been managed appropriately, are the expectations of market participants. Expectations nuked Bear Stearn in less than one hour, and expectations are driving the entire World markets into the abyss of Wall Street Hell that was manufactured by JP Morgan in 1994 at a Hotel in Miami Florida. Previous to 1994 expectations were managed somewhat, but once Securitization took hold all expectations were surviving on housing prices going to infinity. When 2007 arrived, that's when the real trouble
with so-called 'perception' arrived. In point of fact, the CB can no longer manage under the weight of their own hubris and expectations are such that everyone is fully assured that the entire Economic system, and Banking system, will be destroyed from within
the subculture that actually runs the system, or purports to run the system. Either way, that system has been run into the ground and is not going to magically reappear as it was pre-2007.
Only _expectations_ matter. The system is crashing, will continue to crash, and will absolutely fail outright rendering all Economists in the Western World gobsmacked and out-of-work.
Fuck perceptions, that's for marketing students.
Hey, the Fed tanked the economy for Bush, why wouldn't they do it for Obama?
Always sending out those negative waves. Just look around you...it's all good!
Oddball?
It's especially all good when one is wealthy enough to never have to work yet still eats well, has a nice home to live in, has health care paid for, and has free cell phone service. It **is** all good as an Obama voter welfare recipient.
They are realizing the trap they have placed themselves in. A deflationary spiral, starting to accelerate and they can neither raise rates or stop monetizing.....
How can they possibly raise rates when all around the world rates are dropping, and the dollar is already too strong vs other currencies
There is no way out. Whatever they do, they're fucked, but they probably still believe in their own omniscience and omnipotence. One set of choices will bring them closer to a credit crunch, and another will bring them closer to hyperinflation. At this point, except for a debt jubilee, they don't have any choices that don't push them closer to one outcome or the other. A debt jubilee is something that won't be considered, so it is in effect, not an option. From here on out, expect them to continuously react to the consequences, real or perceived, of their previous actions.
If you want an analogy, pretend you are on the 50th floor of a skyscraper, and the entire 40th-49th floors below you are on fire and you cannot get to the roof. Do you wait where you are to die of smoke inhalation/burning to death, do you bust out a window and jump to your death, or do you try to rush down the stairs through the flames, only to get killed that way? Every single choice would seem irrational when viewed from the context of preserving your own life, but then again, you would not be in what most would consider a rational situation. Especially considering that, in this case, the Fed piled up the tender that started the building on fire.
I call this the Happiness gap, reality versus perception it will close with a vengeance.
Who the fuck cares other than realizing we're in a Liquidity Trap and rates will be going lower, into negative territory (in the US as already are, elsewhere)
Quit Over-thinking!
Think contrarian. They are going nuclear.
They've lied to us all along.
They want negative rates as opposed to inflation!
People have all of a sudden again come to want return of their money as opposed to return on their money. That's the only justification/symptom of a Liquidity Trap.
I had dinner the other night with some heavy hitters on the Street. None had considered nor prepared (no Thought Experiments, even) what the world looks like in an environment of negative interest rates.
to wit: Knukles borrows a piss load of money, securing it with his house at a negative interest rate. I'm the one gets paid for my mortgage. Which by definition the is AAA quality as it's self liquidating. (Especially if funded via GMNA, etc.) The more I borrow, the more my disposable income. Knuks quits working. Everybody else catches on. Everybody else borrows infinite amounts. Everybody else quits working, too. No more goods or services are produced. What happens?
I'd very seriously suggest that you all start thinking some of this shit out, my friends.
If all rates go negative, the man who owns long term high quality debt becomes King.
What happens to equity holders?
The government? Oh, they fund to infinity! Claim their credit is pristine! To wit, they're being paid to borrow so full bore Communism is perfection!
What happens to savers who then pay?
Oppppps!
Cash is awesome!
Can't have that Liquidity Trap experience, can we?
Digitize all finances.....
Shit runs pretty deep in Bizarro Land!
Deep stuff.
Pondering...
So how does the free market compete with negative interest rates? I don't believe that it can.
Precisely.
Free or rigged markets, it really doesn't matter, for what happens is that all standard paradigms and relationships are broken. Traditional cause and effects may not work, other than instinctual needs for food, shelter, etc. Standard monetary and economic rules become tenuous. The very fabric of societal relationships is further strained, and substantially.
Bread and Circuses?
The EBT source becomes the Borrower's Dream.
Shit gets fuzzy
That's using the old bean, Knukles, you are pretty fucking bright for such a wise cracker IMO.
Negative nominal rates and negative real rates are not the same thing.
Good. Keep going.
Consider the 4 decision making quadrants. High and low nominal and high and low real rates.
The implications within each
In deflaztionary circumstances, where money is appreciating at say 2% per year, having a mortgage paying negative 1% per year ,the lender/bank gets a return of 1% as does the borrower. .
Crazy.
In deflaztionary circumstances, where money is appreciating at say -2% per year...
No, the man/woman is correct. In an inflationary environment your money depreciates. In a deflationary environment, your money appreciates.. its positive, not negative, that's how the situation can exist.
But wages will go down as well. You can't win.
Holy Shit man !!! Where do I sign up !!!
Deflation should hit the US by summer. No way they will raise rates.
Unless(Gasp!), the Fed isn't our friend and is actually(Double Gasp!)orchestrating the collapse...
Who could ever imagine the FED, an arm of globalists and banksters, orchestrating a crash which will allow them to consolidate wealth and power like never before.. NAH!
Fucking sheep, even here the stupidity is off the chart.
If your summation infers the number of bullets on BPO, body armour, select-fire weapons for otherwise non-threatening agencies like the Department of Agriculture, etc., then yes, I see your point...
The FED should take a *hike* hehehe. You see what I did there.
no doubt, time to taper and grow out
of it by pulling on someone's boot straps,
or their leg, or chain or something ...?
Jawboning.....easiest way to herd the sheeple.
Record Harvest, Comrade !!!!!!!!!
"They pretend to pay us, and we pretend to work."
Yeah, I think the oil drop and flattening-out of corporate profits has revised expectations of how soon Fed will raise rates, and how fast they'll need to do it when they do.
I'd also point out that ED essentially refrences a (highly fictionalized) bank funding rate, and as such has a corporate credit component. In the last period of Fed rate hikes (so many years ago now, damn), spreads tightened even faster, so it wouldn't be surprising when the time comes to see Fed Funds and LIBOR move in opposite directions.
Silver. The simplest solution is silver. The winners....drumroll...: Mexico, Turkey, Peru, Bolivia, Poland, Australia.
http://www.mining-technology.com/features/feature-the-10-biggest-silver-...
Not a bad group, sort of regional powers, which would stabilize whole geographies. Much better than the current "oil" standard which gives too much power to the lunatic fringe in the ME.
There is not enough gold to go around, the ensuing deflation if it were remonetized, would make the history & politics of the period from 1873 - 1945 look tame. A bi-metal system was what our yeoman farmers preferred. They got most everything else right, mostly by trial and error.
In the meantime, when push comes to shove, gold will be nationalized, again, so borrowing against your "stash" will be risky.
When true Negative Rates take hold - meaning the lender is paying you to borrow money - it mean "lending money" has less value then cash on hand. It means the money changers are petrified about their collateral seriously devaluing and are willing to use new loans as a loss leader to prop up values of their existing collateral on other loans and assets they currently own free and clear....
It also means the "fractional banking system has over produced the entire system."
Fianlly - it means the end of the Fractional Banking as we know it - unless another asset takes the lead and replaces it as the main cureency of exchange.
Which makes GOLD as the FINAL SOLUTION -
The Time Frame is to be determined
If you think about it, that is a rational way to deflate the balloon.
2 steps.
First deflation with negative rates resulting
Then as all borrow as a source of income, production ceases and hyper-inflation proves.
It's interesting you mention this. As of yesterday Citibank has an offer on one of my credit cards... You can cashout (direct deposit to your checking) at the balance transfer rate of 0% for 6 months or 0.99% for 1 year. So my 12.5% rate becomes less than 1% for simply transfering cash to my bank account.... hmmm....
Timing is a fool's game, but Exter's Pyramid perfectly describes the process we are in. ( http://en.wikipedia.org/wiki/John_Exter#mediaviewer/File:Exter.png ) Non-monetary commodities and real estate are finished as a refuge for our earnings. Right now, we seem to be at the point where stocks are still roaring ahead, though more and more investors are moving further down the pyramid to gov't bonds. Once we get to negative interest rates, cash will make sense, since greenbacks under your mattress at least don't charge you interest. Then, when public confidence in paper vanishes, the gold rush will be on.
Any dedicated Z/H'er knows the Fed. has been priming the pump for another round of easing. I can't wait to see how they print $10.00 a loaf bread prices away.
Oil has been in a 9 month decline and the $usd is at Pre~ Rebalancing highs from the mid 2000's, and none of those cost savings have been passed on to the consumer?
Airlines spend easily 60% of their revenue on fuel costs... Has the cost of flying dropped?
Correct, Cross-san. I keep waiting for Rotella T-6 to go on sale at Wally ($17.98), but there it is, stuck at $22/gal. - all throughout the oil patch debacle for the past 6 months. Go figure...
Hey, what did I miss yesterday, guys...?
holy cow, it seems all hell hath broken loose.
CB's getting called out, markets turmoiling, capitulation running rampant... better late than never, I guess.
I look forward to the Fed's capitulation. the closest thing you'll ever get to an apology from those parasitic money whores.
the funny thing is credit markets
don't really have anything to offer
anyone barring moar'e of the same,
^tm on the "moar'e".
no?
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