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SocGen Looks At The Devastation Across Markets, Sarcastically Concludes It Is "Time For A US Rate Hike"

Tyler Durden's picture




 

We have closely followed the work of SocGen's under-appreciated Albert Edwards and Andrew Lapthorne for years for one simple reason: they have been right all along, however as a result of ever more aggressive and extensive central bank interventions, the mean reversion that should have happened years ago, keeps getting postponed, assuring that when it does finally happen the outcome will be epic. That time may be approaching.

As Lapthone observes in his latest note, "global equity markets suffered their steepest weekly decline since early September, with the
MSCI World falling 3.4%. This latest decline leaves global equities down 4.2% for the year , and therefore underperforming most major government 10 year bond markets, which continue to stick in positive territory year-to-date. In local currency the, Eurozone has suffered more than most during the recent sell-off with the likes of Germany’s DAX down almost 10% since the beginning of December and France’s CAC 40 off by over 8%."

And while the topic du jour is the high yield melt up it was only a week ago when everyone was talking about the ECB's policy mistake and communication failure, which wiped out months of gains across European markets, not to mention trillions in market cap, in the span of milliseconds. Not only that, but in a rerun of the pre-September rate hike, China triumphantly announced that should the Fed hike, the PBOC will slam the Yuan not only against the dollar, but against all the currencies that make up its latest valuation basket, assuring even more aggressive devaluation in the coming weeks:

Little wonder Eurozone investors are concerned. For not only did the ECB disappointment lead to a euro rebound, but last week, and most significantly, China fully embraced the global ‘currency war’. The renminbi has now fallen by 5% versus the euro since the beginning of the month, and to demonstrate they were not going to stand idly by whilst almost everyone else devalues, the Chinese authorities started publishing a trade weighted yuan index to emphasise how they are simply trying to keep pace with devaluations seen elsewhere.

But back to the topic we have been covering for years, namely the illiquidity of the credit market, which came to a head when not one, not two but three funds have announced they are liquidating and/or gating as a result of the collapse in the junk bonds market.

Corporate credit markets are now at the forefront of investors’ mind. We have long highlighted the remarkable amount of debt being built up on corporate balances sheets, and market participants have fretted for some time about secondary market liquidity in credit
markets. These issues were bought to a head last week with the halting of withdrawals at a major credit fund. Junk bond ETFs (HYG), which were already struggling, experienced huge volumes and their worst weekly decline (-3.8%) since August 2011.

As SocGen observes, there is a simple solution to the paralysis strangling bond funds: cheaper valuations, which means lower prices, which means wholesale selling, which means contagion across asset classes... which means failure for the Fed's primary and only mandate.

The solution to uncertainty is cheaper valuations. If problems are priced in, investors can afford to look through near terms concerns and focus on the longer term. Worryingly, we have exactly the opposite situation today. Average stock valuations are close to historical highs – so we have lots of risk and little in the way of valuation cushion.

 

Lapthorne's sarcastic conclusion is, not surprisingly, the same one we have presented repeatedly over the past several months:

"Time for a US rate rise then?"

Because soaking up anywhere between $800 billion and $2.4 trillion (assuming a 75 bps rate hike cycle) in liquidity is precisely what this "market" needs?

 

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Mon, 12/14/2015 - 09:57 | 6921071 Ivanovich
Ivanovich's picture

SO when IS it time for a rate hike?  You think it's gonna get better if they postpone again?  Every time they go to hike, this is going to happen.  Like a spoiled child throwing a temper tantrum, you either put your foot down and correct/address the behavior, or you have worthless child.

Mon, 12/14/2015 - 10:00 | 6921081 PutinLover
PutinLover's picture

Exactly. We just need to get on with it so the market can continue on its upward trajectory and gold can continue to fall into the toilet.

Mon, 12/14/2015 - 10:06 | 6921108 sam i am
sam i am's picture
Ukraine SITREP December 13th, 2015 by Scott

http://thesaker.is/ukraine-sitrep-december-13th-2015-by-scott/

Mon, 12/14/2015 - 10:16 | 6921137 crusty curmudgeon
crusty curmudgeon's picture

What if the Fed's goals aren't aligned with "what this market needs"?  Wouldn't that 'splain it?

Mon, 12/14/2015 - 10:04 | 6921094 NEOSERF
NEOSERF's picture

The right time was 2013...too far back into recession now...

Mon, 12/14/2015 - 10:04 | 6921097 Beowulf55
Beowulf55's picture

OK.........I'll go out on a limb here..................THEY WILL NEVER RAISE RATES.............

Mon, 12/14/2015 - 10:29 | 6921178 Winston Churchill
Winston Churchill's picture

Your turn to be wrong, as I was last time.

I was sure they would that time, but the pressure wasn't enough then.

With China dumping UST's now,they don't have any room for delaying it again.

This is a geopoliotical rate hike.

Mon, 12/14/2015 - 10:04 | 6921099 drivenZ
drivenZ's picture

exactly. HY funds be damned, I think they will hike and when the economy doesn't fall to pieces you're going to see a huge move up in markets.  

Mon, 12/14/2015 - 10:45 | 6921216 Angel_Eyes
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Mon, 12/14/2015 - 09:56 | 6921074 order66
order66's picture

Fed is data dependent, not market dependent, right?

Mon, 12/14/2015 - 10:04 | 6921093 yogibear
yogibear's picture

Fed gets scared when stocks decline because it's their belief that a high stock market means a healthy economy.

This Fed will do everything it can to keep assets elevated.

Obama's party has an election coming up. And the Fed is Obama oriented, not independent anymore.

Mon, 12/14/2015 - 10:18 | 6921143 tc06rtw
tc06rtw's picture

   
 …  The Fed NOW  is  Hillary oriented.

Mon, 12/14/2015 - 10:14 | 6921129 tarsubil
tarsubil's picture

The Fed is market data dependent, not data market dependent, independently thinking co-dependent.

Mon, 12/14/2015 - 09:57 | 6921075 PutinLover
PutinLover's picture

The economy's growing at a moderate pace and unemployment's low. Now's as good as any time for a rate hike.

Mon, 12/14/2015 - 10:48 | 6921233 Barrack Chavez
Barrack Chavez's picture

If you, as a FOMC member, believe zero rates will encourage people to "borrow" when they already have too much debt -- you already have a very tenuous connection to reality.

Alice in Wonderland --> Janet Yellen in Wonderland.

Debt is good, savings is bad. Up is down. Way too much debt is not enough. We can restore trust in G7 markets by rigging them to only benefit kleptocrats.

Mon, 12/14/2015 - 09:58 | 6921078 1stepcloser
1stepcloser's picture

That corner the fed is in, gets smaller everyday... Loving it!

Mon, 12/14/2015 - 10:03 | 6921089 venturen
venturen's picture

time to break up the vampire squids of the world! 

Mon, 12/14/2015 - 10:03 | 6921091 LawsofPhysics
LawsofPhysics's picture

The FFR rate is quickly becoming irrelevant...  Trade is the only thing that matters.  Tell me, aside from financial "products" of mass destruction and baby mommas, what exactly does the U.S.S.A. really produce again?

There most certainly will be a real consequence for selling out your manufacturers and your middle class...

Death to the money-changers!  We all know how such "let the majority eat cake" monetary experiments end, get on with it already!

Mon, 12/14/2015 - 10:09 | 6921111 -.-
-.-'s picture

Tabasco® + the might Estwing® Geo Pick

 

Mon, 12/14/2015 - 10:21 | 6921152 LawsofPhysics
LawsofPhysics's picture

Yes, all of which can be purchased with EBT...  ...adminstered by a large bank that was BAILED OUT...

see the real problem yet?

Wed, 12/16/2015 - 10:45 | 6930189 -.-
-.-'s picture

Well, yes, I can see a problem; I just state it differently to others, both in person and online. I described two products that are still made in the US. They were the noble Tabasco® sauce of Lousiana and the great Estwing® Geo-Pick.

 

Let us, then, compare their respective prices and utility since that is where your 'EBT' consumers marginalize their options for available products: 

1. Tabasco sauce, Avery Island's prettiest gal, can be found for $2.39 to $5.99 online or in stores; does the 'EBT' consumer, who is ostensibly propelled by the government hand-out's at the benefit of a bailed-out bank, select this over comparable items? Sure, why not? It is cheap and adds flavor to bland food stuffs. 

2. Estwing Geo Pick, Rockford, Illinois' pride and joy, cannot be found for less than $49.49 online and, perhaps, it is near impossible to find a deal for one of these picks in a store. Now, would the 'EBT' consumer, backed by banks and the government, go out and snatch this US-made product? Fuck no; why should he/she/it do so when there are several, cheaper substitutable products made in other countries that might even have a warranty too. 

 

So, you asked about products made in the US, without being specific, and I replied with two products. Afterwards, a response suggests that it was not necessarily the items that I had listed, but the fact that these things can be purchased with 'EBT'/government money; I agree that 'EBT' financing of a national population is not a credible, long-term solution, but I would also hasten your ability to not use broad programs, like welfare, to describe a problem that begins with the individual person's interrupted sense of accountability. 

 

I know that things are produced here and abroad; I know that this relationship has historically changed, usually under coercion from external forces that did not have humanness in aim; I am aware that this has caused collateral damage of various sorts (i.e., family, drugs, prison, and sense of self); however, I am also aware that it is my own obligation, whether or not I choose to acknowledge my own weight, to do what only I can do to explain to the 'EBT' community how it is that the community even exist in the first place. I trust them to take care of the rest; I have no choice as a candidate who was selected to inhabit a body machine in this living universe. 

 

I'll see you when you get there.

Mon, 12/14/2015 - 10:04 | 6921098 PutinLover
PutinLover's picture

I noticed over the weekend that Kohl's was passing out tenth ounce gold Eagles at its Chicago area stores as 'door busters'.

Can't wait until they're passing out one ounce Eagles. Imagine the suicide rate among Zero Hedgers when that happens...yikes!

Mon, 12/14/2015 - 10:07 | 6921109 LawsofPhysics
LawsofPhysics's picture

Yes, don't worry, just like what happened in the Soviet Union, soon enough the "official" price on many things will be "free"...

Mon, 12/14/2015 - 10:24 | 6921160 Cautiously Pess...
Cautiously Pessimistic's picture

Hey PL... your forgot your SARC tag.  I can lend you one of mine.  Here ya go ....   /SARC

 

Your welcome!

Mon, 12/14/2015 - 10:06 | 6921106 Rainman
Rainman's picture

" assuming a 75bps rate hike ' 

             ... Not in my lifetime ...sayeth the Bernank

          

Mon, 12/14/2015 - 10:22 | 6921156 Barrack Chavez
Barrack Chavez's picture

Wait until the masses figure out Bernanke's pension is protected, but the masses pensions are not...

Will Bernanke see 75bp? Or will he see a guillotine?

Mon, 12/14/2015 - 10:29 | 6921177 Barrack Chavez
Barrack Chavez's picture

SocGen recommends that people who are already buried in too much debt, go out and borrow more. Invest the money in zombie banks and perpetual wars! Bail out crony kleptocrats and billionaires!

Hasn't worked in Japan. Causing the EU to come apart at the seams. And clearly not solving anything in the US either (its not even helping the banks, never mind Main Street).

The Fed already followed SocGen's advice for years, which is why the Fed is now in a lose-lose situation.

SocGen might as well have titled their "research": Fed should shoot itself in the other foot to balance things out

Mon, 12/14/2015 - 10:32 | 6921183 ---------
---------'s picture

 

 

why everyone wants to see rat kikes? the opposite is the fact  

if you got rat kikes in your basement they will eat all the food you stored

Mon, 12/14/2015 - 10:48 | 6921235 buzzsaw99
buzzsaw99's picture

socgen wants the fed put to continue. they also want the eoq reverse repo window dressing to continue.

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