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Market Figures Out Fed No Longer Has Its Back
Submitted by John Rubino via DollarCollapse.com,
US stocks soared while the Fed was meeting to raise interest rates this week - though it’s not clear why that should be so since monetary tightening isn’t generally a good thing for stock prices.
In any event, it didn’t last. Over the past 48 hours the Dow is down more than 3%, with many, many individual stocks down far more.
Why the quick reversal? For one thing, that’s pretty much how it always goes. The Fed tends to aim its statements directly at traders, who are so desperate for adult supervision that they can’t help responding positively. But when the Fed goes quiet, reality once again bites, and the general trend turns negative.
That it’s happening so quickly is a sign of how different things are this time around.
The Fed is now - for the first time in adult memory for half the world’s traders and money managers - tightening rather than loosening monetary conditions. A quick look at financial history is all it takes to lead anyone with leveraged money at risk to lighten up.
Equally important — and vastly more strange when you think about it — this tightening comes at a time when major parts of the global economy are either grinding to a halt or imploding. See Torrent Of Bad News Greets Fed As It Prepares to Raise Rates for some of the disturbing events reported while the Fed was meeting.
And since then (that is, in just two days), a whole new series of similarly-scary stories have surfaced, including:
China Beige Book Shows ‘Disturbing’ Economic Deterioration
(Bloomberg) – China’s economic conditions deteriorated across the board in the fourth quarter, according to a private survey from a New York-based research group that contrasted with recent official indicators that signaled some stabilization in the country’s slowdown.
National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International. The indicator is modeled on the survey compiled by the Federal Reserve on the U.S. economy, and was first published in 2012.
The world’s second-largest economy lacks the kind of comprehensive data available on developed nations, making it harder for investors to get a clear read — particularly as China transitions from reliance on manufacturing and investment toward services and consumption. Official data on industrial production, retail sales and fixed-asset investment all exceeded forecasts for November, while consumer inflation perked up and a slide in imports moderated.
Earnings Deterioration
The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.
The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.”
Japan’s November Exports Fell 3.3%
(Khaleej Times) – Japan’s exports in November fell at the fastest pace in almost three years as shipments to Asia declined in a worrying sign that weakness in overseas demand could curb economic growth.
Japan’s gross domestic product is likely to avoid a contraction for the time being as domestic demand has performed better than expected, but declining exports highlight the risks that China’s slowdown and turmoil in emerging markets pose to the outlook.
Ministry of Finance data showed on Thursday that exports fell 3.3 percent in November from a year earlier, more than the median estimate for a 1.5 percent annual decline in a Reuters poll. That was the biggest decline since a 5.8 percent year-on-year fall in December 2012.
Hedge Funds Just Had Their Worst Quarter Since the Crisis
(Bloomberg) – Hedge fund closures surged in the three months to the end of September as money managers reeled from declines in commodity and equity markets, while high-yield credit spreads widened.
The number of funds liquidated climbed to 257, up from 200 in the previous three months, according to a report from Hedge Fund Research Inc. on Friday, and taking total closures in the first nine months to 674, compared with 661 during the same period last year. Cargill Inc.’s Black River Asset Management shut four units, while Armajaro Asset Management LLP also closed one of its funds.
Liquidations rose “as investor risk tolerance fell sharply, and energy commodities and equities posted sharp declines, resulting in net capital outflows, wider performance dispersion and meaningful differentiation between hedge funds,” Kenneth Heinz, president of HFR, said in a statement.
Bond funds see record outflows after junk jitters
(CNBC) – Investor fears about liquidity in junk bonds have leaked into the investment grade sector of the market, with redemptions from corporate bond funds hitting record highs in the week running up to the Federal Reserve meeting.
Global bond funds saw their largest outflows since June 2013 in the week to Wednesday 16th December, with some $13 billion being pulled from the sector, including, high-yield and investment-grade strategies.
BofAML said the “carnage in fixed income” was still focused on junk bond funds, which saw $5.3 billion of the outflows. Meanwhile, corporate investment-grade debt funds saw around $4.8 billion in net redemptions, according to separate data from Thomson Reuters Lipper which also showed that the net outflows from bond funds over the period were the largest weekly outflows since Lipper started tracking fund flow data in 1992.
There’s more, but you get the point. These are the kinds of things that happen in the early stages of recession, not the middle of an expansion. As such, they’re usually signals to a central bank to ease conditions.
But the Fed has locked itself into tightening for a while, and will need a serious crisis to make a change of course possible. That’s what the markets are figuring out, that they can’t count on free money falling from the sky in the next couple of months, no matter what happens.
So, for the first time in a long time, they’re responding to fundamentals rather than artificial easy money. And the fundamentals, by any historical or common sense standard, are terrible.
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I'll believe it when I see it.
All it will take, is Congress being sufficiently fearful of the consequences of the Fed's actions. They'll turn the welfare tap back on, regardless of what the proles say.
+400 on Monday
If by "market" Rubino means the connected types, they were already positioned before the official muppet broadcast, and yes, the Fed still has their back. (Inasmuch as they're separate from the Fed, anyway.)
If by "market" Rubino means hedgies, mutuals, pensions, etc., guess what, 'folks', the Fed never did have your back. (Except for that big target they painted on it, anyway.)
As shown here, the market can’t survive without the fed, and the repercussions of this rate hike will be felt soon enough. The Thursday Friday dip, is just a blip.
Maybe Fed knows something we don't know?
At least 200.
Agree. Too much at stake here for certain parties.
If we could only get the parasites off of America's back like this brave chamois
https://www.facebook.com/theamazingwildnature/videos/780111475450058/
How easy is it to forget after 8 years...they make it going up or down...now there's more to make on the downside...for them it's not about losing, they never lose...it's about maximizing the win for them and the lose for you!
So the outcome of the little science experiment that the neo-Monetarists have been subjecting the economy to, is that after eight years of ZIRP and QEs, a 25 basis point rise in interest rates is so humongous that it's going to crash the levered-up equity markets and corporations, but so tiny that it's not going to save the dollar.
A crashing stock market and free-falling dollar? At the same time? Good job Greenspan, Bernanke and Yellen. What an accomplishment! That took some rare talent, plenty for a double kudo. Good job!
Now if you wouldn't mind, please put your hands behind your backs while we escort you to those three lampposts yonder...
Keep in mind that what this article fogot to highight is the fact that it ISN'T just a 25 basis point move.... It's the future forward EXPECTED yield curve of 4 more Rate Hikes for 2016.
That is an entire percent, and the short term according to the Fed will be at 1.25% by the end of 2016.... Imo, it is impossible as we are in the middle of a recession by many standards (just not technically).
Traders are always late to exit the casino as they were in late 2008, the recession had already started in early 2008.
Dippy just got off the Tilt-a-Whirl and he's looking a little urpy.
Stockman's Friday rant, in which he deconstructs Ms. Yellen's inflation target, is well worth a Sunday read: Sell the Bonds, Sell the Stocks, Sell the House -- Dread the Fed.
That 0.25% doesn't seem like much, but it will triple the interest expense of the gamblers. Bankers who were previously paying $100B per year are now paying $300B. That expense will be passed on to the borrowers and will be reflected on their income statement and cash flows. After 3 more rate hikes, the interest expense is now 10 times more than last Wednesday. That $100B interest expense is now $1 TRILLION that will hit the borrowers. Earnings will go down by $900B unless the corporations start cutting back even more on capex and employees.
I can't wait to see how an indoctrinated generation of BTFD'ers deals with higher rates.
The markets are just beginning to think about normalizing 25 basis points, and the fed. can only pull $108b out of the system?
Where's Carl Icahn? He's putting together a team that knows how to short the markets, and reap the spoils of central bank interventions.
TRUE Story: My Neighbor was getting out of his car yesterday, with a bankster friend from Switzerland.
He was bragging about Swiss bankers, and I said, " how's those negative rates treating you"?
My neighbor shit his Underoos, and his bankster friend turned ghost white...
Welcome to main street boys and girls.
agree with Croesus and hitlary..its too soon to make any comments on what is going to happen...they will break more laws and steal more money to keep things going..as mentioned before, a couple months ago, the market went down 1000 in two days and it came back up...
Central banks control everything...a bit off topic but not really, but I came across a few posters on a different website about Russia having a rothchild central bank..So I looked into it more and this article I link to below is quite interesting...We all have wondered if putin was part of the nwo in a stealth way,
Basically, the Russia elite are separating. One side for Putin and getting rid of rothchild banks and away from the west, and the other side wanting to keep status quo. So Putin is building forces to get his way....read the article, and see what ya think.
http://new.euro-med.dk/20141215-putins-confident-putin-to-nationalize-ro...
At some point they will pass a law forcing people to invest in the ponzi and the fed will own the rest of the ponzi
Thanks coast for the enlightening link,
disclaimer .... this is my first encounter with that site so I can't, at this time, implicitly accept their veracity.
Many folk on ZH and the web shoot their mouth off about Putin & Russia, only ask them questions about the Russian Central Bank and you draw a blank stare.
It takes money to roll Has it occurred to anyone that Russia is racking up some huge bills by their Syrian support? Where's that money coming from?
As we all should know by now, it probably comes from Central Banks (and if it didn't that would be major news).
What's the story on Russia's CB?
A while back, I spent an hour researching on the Internet on that very dry subject and had nothing to show for it. It's a difficult subject for a non-Russian speaking westerner to crack.
Again, thanks for the link, its a start.
"The Fed tends to aim its statements directly at traders, who are so desperate for adult supervision that they can’t help responding positively."
Traders are the last group that the Fed attempts to influence. That is because they don't give a damn which way the market moves - up or down. They will trade it either way. It is as simple as that. In fact, trading it down always means higher returns over shorter time periods - the market goes up the staris and down the elevator!
Even ZH gets that by now - don't you???
The more imporatant aspect of the "raising" is what effect it will have by January 2017. My opinion is that the Fed has been working hand and glove with the libturds. By intentionally keeping rates at record lows, they have all but ensured an upward trending market. That they have chosen now to start the move to higher rates in a steady march from .25 to 1.25 Fed Funds rate means that 10yr will be over 3.50 and 30yr over 5 possibly 6 by January 2017. Should the president be a Republican he or she is walking into a headwind that will only get worse as the Fed continues to, presumably, ratchet up rates post January 2017. That will make any legislation at balancing the budget, cutting back on runaway entitlements, repealing ovomitcare, staunching the flow of illegal aliens and immigrants via H1-B even more difficult given that most Republicans are RINOs and the democraps are socialists or communists. And, they want none of the above.
It's not so much democrats vs republicans, but totalitarianism vs libertarianism. Both parties now are controlled by globalist totalitarians. The sheeple don't like the truth, especially when it's ugly. They will run towards the promised safety of totalitarianism.
there is no market
Theoretically if the fed is truly on the sideline anyone can now begin shorting the market. Remember, the retail retirement fund can not do anything on margin while the hedge fund and bankster funds can and will make a fortune shorting this shit economic mess to smithereens. That is if the fed is on the sideline and unwilling to come back in with a short covering rip your face off rally.
Screw the tax break scam, designed to keep the sheeple's "savings" piled into long-only funds. Anybody who hasn't been dollar cost averaging physical PMs through these lows, knowing what we know on ZH, ought to have their head examined.
USDJPY is the only thing that matters.
That and good Yakima hops, you mooks.
The usd/jpy correlation is breaking down. It's more about CL, for the risk trade.
I noticed that recently too. I understand why going long Yen is attractive for the interest. Who in the world anyone want to be long oil just for the sake of it.
Is that good or bad for PM prices, in the short term?