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JPMorgan: "Nothing Appears To Be Breaking" But "Something Happened"
If you thought you were merely on the fence about being confused on the topic of the global economy, and how the Fed may be on the verge of a rate hike when on both previous occasions when financial conditions were here the Fed was launching QE1 and QE2, here is JPM's chief economist Bruce Kasman to make sure of that.
Something happened
The August turbulence in global markets has produced significant shifts, including a 6.6% fall in equity prices. The currencies of emerging market countries have depreciated substantially against the G-4, while emerging market borrowing rates for sovereigns and corporates have moved higher. Global oil prices have been whipsawed as have G-4 bond yields.
The speed and magnitude of these movements is reminiscent of past episodes in which financial crises emerged or the global economy slipped into recession. However, nothing appears to be breaking. Global activity indicators have, on balance, disappointed but remain consistent with a modest pickup in the pace of growth. Additionally, despite the turbulence in financial markets, there is no sign of unusual stress in short-term funding markets or of a credit crisis in any large EM economy.
And just to ease the confusion somewhat, here is Kasman's attempt at explaining what many others had foreseen months, if not years, ago:
While the global economy is not breaking, the events of recent weeks have prompted a reassessment of the risks to global growth and financial market stability. Three related factors tied primarily to EM economies, lie behind this reassessment.
- US and China not giving expected boost to EM. We have noted the widespread expectations (including our own) that a demand boost from the US and China would help to fuel a growth bounce-back across the EM, similar to what happened last year. However, recent activity data from China have uniformly disappointed, reversing a modest firming that took place into mid-year. The US and other DM economies look to be generating solid growth, a point underscored by this week’s impressive revision to 2Q US GDP. However, the positive impulse this is providing to the EM is limited— partly because the composition of G-3 growth appears to be shifting toward services—and so far has been insufficient to offset the sharp deceleration in EM domestic demand.
- It’s not a war, but currency moves hurt. Against a backdrop of divergent business cycles, shifts in FX rates can be a constructive force that promotes rebalancing. To a large degree, the dollar’s rise against the euro and the yen over the past two years reflects this dynamic since this was accompanied by ECB and BOJ easing. However, the recent declines in EM currencies signal a sense of heightened risk and, in some cases, concerns about policy credibility— further constraining EM policymakers’ ability to ease even as local financial market conditions have tightened.
- The elephant in the room is the EM credit overhang. The risks associated with weaker growth and tighter financial conditions in the EM are magnified by the large overhang of EM private-sector credit. Our estimates suggest that overall EM private sector debt stands at about 130% of GDP, about 50%-pts above the 2007 level. This pace of increase is unsustainable and the risks of a disruptive deleveraging have increased.
While recent developments have raised the specter of past EM financial crises, EM governments have taken steps to limit these risks over the past 15 years. In most cases, EM public sector balances are in good shape and FX reserves have risen significantly. What’s more, the role of short-term interbank financing has been limited in this cycle. Thus, the risk of a crisis that begins with EM sovereigns or the banking sector appears limited.
That said, EM governments’ capacity to offset the effects of an adverse shock to the corporate credit supply is limited. And the risk of this deterioration is real given the interaction of weak growth, reduced pricing power for goods and commodity producers, and rising local market borrowing rates. The downtrend in many EM FX rates will add to the pressure on corporates that have significant FX liabilities. A tightening in EM credit already is under way. Data through
June show bank loan growth has slowed by one-third in recent years.
The immediate concern for the EM economies seems to be that the credit supply may tighten further, possibly sharply, adding to the downward pressure on growth and capping global growth at a pace much closer to the economy’s potential 2.6%, which is significantly below our current forecast.
And a pop quiz: at a time when a sharp contraction in the credit supply is the top global growtth fear by Wall Street's most "respected" bank, does the Fed: i) hike or ii) ease more. This is not a trick question.
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Mmmk.
Something broke.
let them eat zeroes and ones
http://www.philiacband.com/propaganda.html
They doing GODS work! ha.ha.
A guy I listen to on themarket, and called this crash before it happened, [very accurate ] says next week on the market could be BAD.
Have a look at his chart of VIX, major panic is about to set in to the market, with VIX showing a BULLISH FLAG, that is what bulls do not want to see. OUCH! Time to push the panic button???
See chart here ==> http://www.bit.ly/1fMcakI
Numbers is hard and real and they never have feelings.
But you push too hard, even numbers got limits.
Why did one straw break the camel's back?
Here's the secret:
The million other straws underneath it. It's all mathematics.
WTF?
Yeah, something happened... The markets are pricing risk in front of the Fed.
I am keeping my SPY puts, I don't care what they say :-P
Tylers are talking about VXX having a short position larger than the number of shares available. Illegal naked shorting notwithstanding, if there are any events coming soon, it could go Volkswagen squeeze high.
Every person knows: Illegal doesn’t matter… the important thing is MAKING MONEY !
The important thing is to keep your money. There's no way I'm putting a dollar into this fucking market.
Never walk into a casino with money you cannot afford to lose.
My wife and I know this intimately.
Once we have casino money, though, we're on the high stakes games.
That's worked out pretty well.
What about some ETF exposure? You can just load up on some caugh* caugh* XIV.
Hey, it's diversified risk exposure on your brokers( Schwab, Scotttrade, TD Ameri~something) dime?
</sarc>
Nothing appears to be breaking because nothing had appeared to be unbroken.
I was going to say you can't break what's already been broken, only cover it up and make it worse. Bunch of crazy fuck psychos all running around swinging their limp wrists in the air trying to hold this wet bag of shit together.
I dont believe that straw can break a camels back, but if you load it with all the printed federal reserve notes that I would believe
OTOH, maybe the problem is that we proles just don't feel that "wealth effect"yet...
… if I feel any more “wealth effect”
I’m gonna GO POSTAL !
“Our estimates suggest that overall EM private sector DEBT stands at about 130% of GDP, about 50%-pts above the 2007 level. This pace of increase is unsustainable and the risks of a disruptive deleveraging have increased.”
Ba ba dum ba ba ba da ba da ba badum ba ba ba ba ba
Again, the Fed (in all it's supposed glory and omnipotence) is not going to raise rates, it can't. They're trapped just like all socio-economic Keynesians get trapped.
Its really a great time to be alive! Historic even ;-)
The trick might just be "staying alive" after this complete cluster **** blows its load.
Indeed, for them and us ;-)
I think the BeeGees had a song about that, back in the day
words after using a condom with a hole...
Well, shit happens... It always has and always will, but nowadays people assume that things will always go according to plan. The plan's they talk about are those espoused by the 'geniuses' of market and finance and when shit happens they all become confused because it wasn't in the playbook. They are REALLY going love what's coming up next.....
They will reaise .25% in September just to prove how wonderful they are. that will be the extent of it for many years.
markets will knee jerk down and explode higher, because, drum roll: everything is so fucking awesome...
lol
or all this disco chit chat is to talk down the markets irrational exuberance, ha...
"Broke". Is that an accounting term?
broke back mtn? where good men go down, ha...
According to Peter Tchir of Brean Capital LLC:
Why a 1,000 Point Drop in Stocks Means the Fed Should Hike
While everyone is rushing to push back their estimates of when the Fed will hike, I will go out on a limb, and basically beg them to hike in September (and not just because my current view of short equities, short treasuries might benefit). I also toss out a few suggestions for additional Fed governor roles, because of their expertise.
The main reasons for the Fed to delay are:
• Stock market volatility
• China and concerns about the global economy
• The deflationary pressures of China and the global economy
Of all the reasons given, stock market volatility should actually be a reason to HIKE not to delay.
The Fed, by talking up the market when it is down and talking down the market when it is up has created a volatility selling, dip buying mentality. We finally saw what that behavior can do in a short period of time. There were seriously discussions of 1987 over the weekend and part of yesterday. Stocks couldn't open. S&P Futures crashed to 1,830 on nothing. There was no liquidity. This all started last Wednesday after the Fed minutes.
They have potentially created a monster by causing mis-allocation of capital and rewarding certain investment behaviors which many not be the most prudent.
Hiking rates is always going to be a concern for equity markets. So here, you can say you won't hike, let stocks rally and in all likelihood create an even bigger problem down the road.
Or you can look out the window, see that the sun did indeed rise today, that stocks were trying to bounce long before China announced anything officially, and decide, that hiking rates when the S&P 500 is at 1,885 is better than hiking when it is at 2,100. There is more value at 1,800.
Quite frankly, I don't care if someone wants to panic and sell stocks because the Fed hiked a measly 25 bps. I am quite convinced that this Fed will remain data dependent. If the economy deteriorates after the hike, they will cut. Or they will do QE4. I still bet that we see QE4 before 1.00% of Fed Funds, but I think the right move is to hike in September.
Not hiking sends too many wrong signals to markets. Hiking clears the path for the real take off.
How much more comfortable would I be buying a rallying S&P 500 knowing that the first hike is off the table and been absorbed? The answer is a lot more comfortable. Once we can get past the zero bound we can lose this erroneous fixation on when the first hike is and think properly about the path.
So the Fed can sit in a room and wring their hands worrying about the next move in the S&P 500 clinging to models that have failed to deliver the results they expected, or they can raise rates.
My argument is that they need to attempt to deflate the possibility of a truly bad bubble developing.
On inflation - low rates and cheap capital certainly helped drive energy prices lower over time. Maybe a rate cut initially spurs inflation, but there is some evidence that over time it can actually be deflationary (by real economists and not just me).
On China - who knows what the actual situation is there. They overtly try and pump up the market. They will do what is right for China.
Nothing is permanent - hike and if it doesn't work, then do something else. But give it time. There is one school of thought that the first hike will actually create some impetus to starting projects and pull demand forward.
My three choices to add to the Fed would be:
• Madonna - she knows about "the first time"
• Tom Brady - he is good at slowly deflating things and winning
• Popeye Doyle - he knows that the only way to end an addiction is to lock yourself in a jail cell and go cold turkey
Sadly, the Fed is unlikely to listen to me, and they will use the current issues to delay again, but I think that is a mistake.
The Fed can turn the knob all they want to but seems to the same exact thing. The knob goes from 0 directly to the .01 percent.
The real monster is aquifers, rain, and snow polluted with tritium and heavy metals.
Everybody gets it.
And it's a hard rain's gonna come.
Welcome to Fantasy Island
https://www.youtube.com/watch?v=rdKOKpXfcRw
OK you stupid fuckers. If EVERY DAMN THING IS BROKEN, then doesn't EVERY thing appear to be normal????!!!!!
plus one for the profanity and direct insult, felt like maybe i deserved it - lol
Its the new normal. It's all broke, but fixed in place. Trading on fundamentals doesn't work, trading on the rigging of makets does. New nomal. Join us for the cool-aid.
Fluctuations are part of real markets. When some asset or fundamental prices are fixed in place, other prices will fluctuate more and more in response.
These swings are going to get wild. https://youtu.be/nFzu6CNtqec
They can paper over EVERYTHING PAPER. The rubber meets the road with the actual goodies, like the price for fizzical PMs (in size), oil and commodities in general. Monetary inflation meets economic deflation - been like that for many years now. It's not sustainable so change is coming, but timing this is hard... likely only very few insiders know the "when"... All the chit-chat is about that something big is to happen in the Sept-Oct timeframe. Maybe it will, maybe they can paper it over a bit longer... we'll find out soon enough. good luck to ALL.
It doesn't appear broken because you broke the whole goddamn thing back in 2007/08 you useless fucks.
Its sounds like what they said on the Titanic after they heard that scraping sound.
the london whale can totally fix this /s
because the composition of G-3 growth appears to be shifting toward services
Why say such a stupid thing. Everyone knows you mean FRAUD when you say services Mr. Morgue. You need to be thrown into prison. Fuck you.
The only read I want from JP Morgan is the postiion list for the prop desk. This drivel is their version of doing God's work!
The choices are "ease" or "hike"?? Well...obviously they Fed will "eake"....you heard it here first. ;)
They are about to "eake" out.
Respected bank? By whom?
it was " "respected" ".
I just like the camel picture. Straw and broken and whatever. Clever. Maybe the next article will have a camel toe picture instead, with a market headline "Looks so right - but smells so wrong".
I'm shocked, shocked to learn that there is something broken going on here!
“However, nothing appears to be breaking.”
Well not yet anyway.
A little wander down memory lane to 2008 will remind us that people hide losses until they become so catastrophic that they are over-whelmed by them.
The output from Wall Street’s investment banks in 2008:
“We are fine”
“We are fine”
“We are fine”
“We are going under, now. HELP”
a black homo obuma supporter..goes and kills those slave owning whites, and the press comes up with..gun laws ,not enough gun laws.- something is breaking, we just can't put our finger on it.
my guess: the idea of america is breaking-what is a country made up of all races and all nationalities..well the word "country" might be a place to start.
"..well the word "country" might be a place to start."
If Hitlery get in, change that to Cuntry.
Fed's answer to the Pop Quiz
For you, I am going to do some thing.