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The Great Disconnect - Central-Bank-Driven "Markets" Have Nothing To Do With Economics
Submitted by David Stockman via Contra Corner blog,
The German bund yield soared like a rocket earlier today. After touching on the truly lunatic rate of 5 bps only a few weeks back, it has just crossed the 60 bps marker. Needless to say, when a blue chip 10-year bond widely held on @95% repo leverage moves that far that fast - there is some heavy duty furniture breakage happening in fast money land.
But don’t cry for the bond market gamblers. They already made a killing front-running the ECB. During the 16 months between January 2014 and the April peak, speculators in German 10-year bunds would have made a 350% profit using essentially zero cost repo funding. So in the last few days they have given a tad of that back while making a bee line for the exit.
Yet during the uninterrupted march of the bund into the monetary Valhalla depicted above, how many times did you hear that the market was merely “pricing in” a flight to quality among investors and the dreaded specter of “deflation”. That is, what amounted to sheer lunacy—– valuing any 10-year government bond at a deeply negative after-tax and after-inflation yield—-was attributed to rational economic factors.
No it wasn’t. The manic drive to 5 bps was pure speculative caprice, triggered by the ECB’s public pledge to corner the market in German government debt. What gambler in his right mind would not buy hand-over-fist any attempt to corner the market by a central bank with a printing press——especially one managed by a dim bulb apparatchik like Mario Draghi!
Never has an agency of a state anywhere on the planet pleasured speculators with such stupendous windfalls. Yet any day now we will hear from the talking heads on CNBC that, no, massive bond buying by central banks does not repress or distort interest rates because once Europe’s QE started, rates actually backed up. And, furthermore, this is entirely logical because QE will enable the economy to escape its deflationary trap, meaning that investors are discounting an imminent resurgence of growth!
Oh, com’on. When investors—-if there are any such naïve waifs left—–start down the rabbit hole believing that markets and economics are still connected in a historically orthodox manner, they will eventually run smack into something a lot more ferocious than a rabbit. Namely, the next bear market crash——the inexorable end game of a financial system in which price discovery has been totally extinguished.
Thus, in today’s central bank dominated casinos, bad news is not priced in slowly as its scope and timing become more defined; it’s priced-in suddenly and violently when even the fast money gamblers conclude that the pricing has reached irrationally exuberant extremes that even the central banks cannot sustain.
That’s what now happening to the bund, the Italian bond, the US treasury note and most all else in the $100 billion global bond market. The front-runners are cashing-out. The vast falsification of pricing fostered by the central banks is unraveling upon its own perilous extreme.
Like in the case of the Fed’s QE phases, it was mostly all over except the shouting when the ECB’s bond-buying campaign actually commenced in early March. By then the front-runners had done their work of accumulating vast inventories of bonds to sell back to the respective national central banks at far higher prices than they had paid.
So what’s left now is for the euro-market gamblers to unload their stashes to the sucker with the dumbest bid in the casino. Namely, the geniuses in Frankfurt who apparently believe that if you tax an economy to 50% of income and then bury its consumers, producers and taxpayers alike under endless heapings of debt, that you can make growth accelerate by injecting $1.3 trillion of fraudulent credit conjured from thin air into the casino.
In fact, today’s bund and treasury dumpers are piling into other short-run speculations like oil futures and busted shale names. And soon the rabbit hole dwellers will pronounce that the oil bottom is in and all is awesome in the forward outlook for growth and profits.
But here’s the problem—–that is, the very same and universal problem as that which afflicts the fixed income markets. To wit, any and all of the “incoming data” on the economy is badly distorted and deformed owing to the global falsification of financial prices by the central banks.
For example, this week they stuck the proverbial fork in the GDP “escape velocity” myth not only owing to the 0.2% posting for Q1 GDP, but more especially due to the thundering March collapse in the non-oil trade deficit. The latter “unexpected” data shock will clearly drive Q1 into negative GDP growth, even as Q2 struggles with the massive overhang of excess inventories that have been building for more than a year.
Yet the Wall Street economists and strategists did not see it coming because they view today’s tortured data through the false lens of 50 years worth of business cycle data patterns. In that vein, one prong of the recovery has been the strong growth of US exports during recent years. It now turns out, however, that the rising numbers were largely an artifact of the false global boom in industrial activity spurred by the central bank printing presses.
Now that boom is cooling rapidly, as every new release from China and other EM economies like Brazil make clear. Consequently, it seems that the US economy had not regained its mojo as an industrial materials supplier, after all. There was just a temporary shortage of petrochemical feedstock and scrap metal, for example, that has now disappeared.
As shown below, just in the last two quarters, US exports of industrial supplies and materials have dropped by nearly $100 billion or 20% at annualized rates.
US Exports of Industrial Supplies and Materials data by YCharts
And there is a lot more where that came from. The collapse of oil drilling rigs from 1600 as recently as October to hardly 700 in April is only a leading indicator of the impending collapse in CapEx, where the modest recovery since 2009 has been heavily dependent upon the energy sector.
In short, the bond market is now cracking as the mother of all bubbles reaches its apex. Likewise, the risk asset markets generally are likely not far behind.
None of this is “expected” by the Wall Street talking heads, of course. They are still in the rabbit hole combing through economic data archives that are utterly disconnected from the “markets” they claim to explain.
What matters now is what the central banks do next. Yet having painted themselves into an impossible corner of junk Keynesian economics, they are now clueless about how to get out.
So its time to recognize that there has been a monetary regime change. The Fed might well have been your friend since March 2009 or even for the last several decades. But stranded on the zero bound and smothered by a $22 trillion collective balance sheet, the central banks of the world are now fast becoming your fiend.
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Apple going to space with Musk tho.. has to mean economy is on fya!!
http://hedgeaccordingly.com/2015/05/elon-musk-wants-to-see-apple-enter-t...
THIS. IS. WHAT. THEY. CALL. THE. MUPPETT SHOOOOOOOOWWWWW
you have only the rights they choose to give you. They run it all. The First amendment says we have certain rights.
And so is your “right to petition the government for redress of grievances” the reality?
Sadly, as usual, no. The reality is far removed from the fantasy they teach the poor saps in their mandatory indoctrination centers.
http://www.thetruthaboutthelaw.com/the-supreme-court-stole-your-right-to...
Because the entire scam is rigged top to bottom.
Puleeze, not Keynesian, Milton Friedmanian and Greenspanian.
Respect the ghosts of those who walk the lonely corridors of Saint Peter's purgatory.
"In short, the bond market is now cracking as the mother of all bubbles reaches its apex. Likewise, the risk asset markets generally are likely not far behind."
Stockman in for a big surprise
Treasury yields have not hit their low
Recession/deflation at hand
+1,000
My guess is we will be at negative yields scratching our heads and wondering 'what next'? They can introduce captital controls to prevent you from withdrawing too much cash (if you are actually have any) and will just start taking it from you if you won't 'invest'.
'.
Who here thinks we will ever get back to 7*9% rates....never..the West will fall apart at those rates...so the only option now is to print and buy up everything to keep the rates down...once they own 80% of all bonds..then what....then they pretty much control the Governments and Markets fully....not a good place to be....
Not good for whom, exactly? I somehow think this has been the long-term strategy all along.
The banksters will foreclose on the entire world. And the world, instead of merely taking the banksters out back and shooting them all, will go along with it.
Because pieces of paper.
Sovereign bonds will continue to be gobbled up by Central Banks, then declared null & void.
Large Corporations & CBs (perhaps one & the same, no?) will continue to buy up stock. Equity will become the new "store of value" in a TTIP, TTP world.
Fiat "money"/currency, whatever will become 100% electronic so as to be completely controlled. A sort of village idiot (& straightjacket) for the plebes.
Yeah, I know, gruesome. Those whose thinking is in the past keep exclaiming " it violates this or that market tenet and will surely crumble". What they don't take into consideration is that the elite keep changing the ground rules so that their schemes have traction. And they have force on their side. A big stick works wonders when seeking compliance.
It's not difficult to see their game plan, it's right in front of your noses.
How will it all work out .... I don't believe anybody knows. Buckle up.
EXPECTATIONS for april same store sales cratered
but ACTUAL up to the task ... and cratered even more:
Last year’s spring surge in retail sales affected this year’s results with a thump, as many store chains were not able to match their year-ago numbers. The Thomson Reuters Same Store Sales Index actual result for April 2015 registered a -0.6% decline, missing its -0.4% final estimate. Excluding the drug store sector, the index fared even worse: a -1.5% result for April, missing its -1.1% final estimate.
It’s also the first negative result for 2015. The last time the index saw a decline was in August 2009 at -2.3%.
http://alphanow.thomsonreuters.com/2015/05/retail-sales-index-posts-weak...
Your Fiend! Typo? I don't think so.
With that literary flair & twisted sense of humor, Stockman would make a great Tyler.
Please, this is a 3 ring circus... The elephant just gets tossed to another central bank until things get too hot(liquidity drys up), then the whole charade moves to another market.
Ultimately all liquidity will dry up, as risk outweighs nominal gains, and hedging becomes ineffective. Projected returns on hedged collateral will be outstriped by the cost of protection.
Interest rates(interbank lending)costs explode as risk costs skyrocket, and the house of cards falls...
Tired of hearing this YC. Will believe it when I see it and not before. There is a lot more print to keep interest rates suppressed and the party in the stock market going. As you say, its a 3 ring circus and the elephant will just get tossed to another central bank and another and another and so on. Its almost time for us to shut up about it really, because, we are just getting laughed at.
Nice color selection
What did they use to paint themselves into the corner?
The blood of savers?
Yup and the blood of future tax payers who will have to contend with all the debt and interest on the debt.
I think that everyone should do away with common stocks altogether. Only preferred stocks should remain. In my opinion that would end most of the corruption. Plus investors should have more rights and responsibilties than they do right now. Imagine all these people who own stocks and are making an actual profit from it. Do you think that the investors would sit on their behinds as the company and its management commits all kinds of fraud? I mean their money and reputation would be on the line. I really am having a tough time understanding this whole thing about inside information. Just the fact that there is inside info suggests that there is fraud and that someone somewhere is hiding something.
I say end the secrecy by giving investors more rights and more profits than some shady common stock where managers abuse investors and the public in genral. This is not a free market and yes the Fed is totally rigging it and so are its sisters the central banks. In a free market there would be no barriers to enter it. We know that even in America and maybe more so its almost impossible to start a legitimate business simply because it competes with the Federal Reserves outsourcing companies.
The living dead:
"In the eyes of posterity it will inevitably seem that, in safeguarding our freedom, we destroyed it. The vast clandestine apparatus we built up to prove our enemies' resources and intentions only served in the end to confuse our own purposes; that practice of deceiving others for the good of the state led infallibly to our deceiving ourselves; and that vast army of clandestine personnel built up to execute these purposes were soon caught up in the web of their own sick fantasies, with disastrous consequences for them and us". -Malcom Muggeridge - May 1966
http://www.informationclearinghouse.info/
Economics is the life expression of human behaviours and it comes in cycles, waves and frequencies.
Economists are merely blind meal-ticket non-thinking lesser men who have banded together in an exclusive gang they call a profession where that they consensually fantasize, they impose on the unwashed as instructed by and to protect their masters of the banking system. Not much wrong with the banking system either apart from the ignorance and lack of ethics, moralities (humanity) of the bankers. They are not the Masters of the Universe; they are merely a collective of unproductive arrogant ignorati.
http://verbewarp.blogspot.nl/2015/03/fiat-currency-and-human-behaviour.h...
There is a war between the organized unproductive force that has all the guns against the un-organized productive force; it is always this way and as it should be.
It is time to learn your lessons.
Ho hum
And the "no shit sherlock" award for 2015 goes to.. . . .
Two comments on this rather good article - ie if one reads in depth the implications infered:
1. But don’t cry for the bond market gamblers. They already made a killing front-running the ECB.
Comment: Yes, in association and compassionate collaboration with the FedRes led coalition of Central Bankers, everything 'market' has become speculation-in-desperational frenzy and subjective manipulation; that is to say, enormous energy is being focused at the heart of humanity's values for Society which in its extreme intensity, will destroy the grassroots and its behavioural values.
2. "To wit, any and all of the “incoming data” on the economy is badly distorted and deformed owing to the global falsification of financial prices by the central banks."
Comment: Indeed, and this on top of falsified and manipulated asset prices held by the Central Bank Collective, particulalry in the Housing sectors where House Prices have been actually set by the Banking System, by the unaware non-thinking "economist warrior defenders, does not promise to fare well for the "unwashed".
How does and "economist" today establish the basis of a market decision?
Answer: He calls a colleague or two and then "assumes" that these emotionally biased "opinions" are fact.
Verified Data just gets in the way.
Ho hum
What's that? I am still trying to wrap my head around this "growth" thing. I thought that was over globally.
Hasn't the Fed already lost control? They are completely stymied and can't raise rates if they wanted to.
All it would take is for the stock market to go down 300 points for five days in a row for them to announce that they won't raise rates for at least another year. A few additional days like that and they would start talking about QE4.
Central banks made a deal with the devil and payback is a bitch.
In general, if you borrow money, and pay it back later, it's not a problem. The fact that governments can't do this is so erroneous it makes the sheeple look like brain surgeons.
http://www.cbc.ca/player/News/Business/ID/2666703865/
The Exchange with Amanda Lang | May 7, 2015 | 18:40
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