It seems that absolutely nobody was surprised to see the BEA mysteriously keep virtually every other GDP component unchanged but boost Personal Consumption Expenditures from 0.96% of GDP to 1.36%. The end result is that the GDP reported in the first revision number has been boosted once again to a simply ludicrous 4.1%, smashing expectations of a 3.6% print. Putting this "revision" in perspective, the final GDP is now 45% higher than the first GDP estimate of 2.84%, and there is a whopping 1.5% delta between the first and final revision, which in our record books is the biggest revision on record.
As reported yesterday, following a surge in various short-term and money market rates in the aftermath of the Fed's taper announcement, the PBOC admitted after the close that it used Short-term Liquidity Obligations (SLO) to add funding to the market, and in doing so, bailing out money markets - the same product that nearly collapsed the financial system in the aftermath of Lehman. The bank didn't specify when it added the funds but, in another direct echo of the June panic, the PBOC said it is prepared to add more. However, it seems the market was less the convinced, and despite an early plunge in the seven day repo rate by over 2%, it suddenly and rapidly reversed direction and instead blew out hitting a whopping 9%, the highest since the June near-crash of the Chinese banking sector. The outcome: China said it injected another $50 billion to bailout and stabilize its money markets in what is increasingly looking like a replay of this summer's liquidity lock up. Perhaps the PBOC hinting at tapering at a time when the Fed is actually doing so is not the smart choice...
HSBC is back in the news. This time it relates to their transferring funds on the behalf of financiers for the militant group Hezbollah. If transactions such as these had even the slightest link to Bitcoin, there would be endless uproar, calls for countless Congressional hearings and demands to stop the currency at all costs. But when HSBC is caught doing it, what happens? A $32,400 settlement.
- China cash injection fails to calm lenders (AFP)
- European Union Stripped of AAA Credit Rating at S&P (BBG)
- Last-Minute Health-Site Enrollment Proves a Hard Sell (WSJ)
- Bernanke’s Recession-Fighting Weapon Developed by 1900s Banker (BBG)
- Asia Stocks Are Little Changed Amid China Funding Concern (BBG)
- Regulators' Guidance on Volcker Rule Gives Banks Little Relief on Debt Sales (WSJ)
- On one hand: Man Who Said No to Soros Builds BlueCrest Into Empire (BBG); on the other: Michael Platt's BlueCrest Capital Poised for Rough Close to 2013 (WSJ)
- BOJ Keeps Record Easing as Fed Taper Helps Weaken Yen (BBG)
- Bank of England becomes more cautious on economic predictions (FT)
- Gold Climbs From Lowest Close Since 2010 as Goldman Sees Losses (BBG)
Overnight one of the main stories is that the European Union has been downgraded to AA+ from AAA by S&P. While the market digests the impact of the downgrade, all eyes remain on the US treasury market. As Deutsche Bank notes, treasuries are increasingly being viewed as a potential sign of the success or not of the Fed taper in early 2014. From the lows in the immediate aftermath of Wednesday’s FOMC, 10yr UST yields have added more than 10bp. Yields continue to leak this morning (-2bp to 2.95%) though we’re still hovering at levels last seen in early September just before the Fed surprised markets with its non-taper. Despite this, US equities and credit were both reasonably well supported yesterday. However the combination of higher UST yields and a stronger dollar resulted in a fairly difficult day for EM. In EMFX, the Brazilian Real fell 1.1% against the USD, underperforming most other EM currencies. The move was exacerbated by the announcement from the BCB that it would wind back its intervention in the currency market, following the initial positive reaction to tapering on Wednesday. Other EM currencies also struggled including the TRY (-0.7%), MXN (-0.7%) and IDR (-0.3%). A number of EM equity markets struggled including in Poland (-0.7%) and Turkey (-3.5%).
While we joked on Monday this week with regard the Harvard evacuations, we were still a little shocked that, as the NY Post reports, a Harvard University student was due in court Wednesday after prosecutors said he made bomb threats to try to get out of a final exam. Eldo Kim, 20, acting alone, sent the bomb hoax messages to five or six Harvard email addresses he picked at random (via the Dark Web browser Tor), about half an hour before he was scheduled to take a final in Emerson Hall, one of the buildings threatened. The maximum penalties for a bomb hoax are five years in prison and a $250,000 fine - plenty of time to study there...
• the risk of runs and asset fire sales in repurchase (repo) markets;
• excessive credit risk-taking and weaker underwriting standards;
• exposure to duration risk in the event of a sudden, unanticipated rise in interest rates;
• exposure to shocks from greater risk-taking when volatility is low;
• the risk of impaired trading liquidity;
• spillovers to and from emerging markets;
• operational risk from automated trading systems, including high-frequency trading; and
• unresolved risks associated with uncertainty about the U.S. fiscal outlook.
In order to achieve the greatest risk/reward asymmetry from the 2014 single-family housing stimulus “hangover”, or “reset”, happening right now you must change the way you think about this asset class. When doing so, clarity emerges (at least to us)... This housing market is “resetting” right now; for the third time in six years. It might look and feel a little different, but as we detail below, it’s not really different this time around.
With gold plunging to multi-year lows, is JPM just taking advantage of the "blood on the streets" and becoming the helpful bidder of last (or first) resort and replenishing its record low depleted inventory by taking advantage of below production cost fire sales, or... is something else going on here? Inquiring minds want to know.
Neoliberal economics has been a wonderful driving force for progress and material prosperity - but it cannot be the single ruling principle of our lives, of our government, or of our society. If we allow the profit motive to be the only motive, then we and our society are doomed. We are already seeing the shape of that doom, in our health care, our government, and our industry.
"Step right up and try your luck...spin the wheel and watch where she lands...everybody's a winner" - sometimes if you listen hard enough you can almost hear the Carney coaxing unwary investors to step up and try their luck in a game that has been rigged against them. During the last two decades, we have been amazed to watch as individuals strolled through the doors of the Wall Street casino to try their luck by betting "against the house" for a dream of riches. Just as with anyone who has ever gone to Vegas - you will win sometimes but the "house" wins most of the time. However, there are always the "professional gamblers" that can do better than the average most of the time. Why? Because they understand "risk" in its various forms...
Although the probability of any one of the predictions coming true is low, they are deduced strategically by Saxo Bank analysts based on a feasible - if unlikely - series of market and political events. As Saxo's chief economist notes, "This isn't meant to be a pessimistic outlook. This is about critical events that could lead to change - hopefully for the better. After all, looking back through history, all changes, good or bad, are made after moments of crisis after a comprehensive failure of the old way of doing things. As things are now, global wealth and income distribution remain hugely lopsided which also has to mean that significant change is more likely than ever due to unsustainable imbalances. 2014 could and should be the year in which a mandate for change not only becomes necessary, but is also implemented."
Do we need a banking sector dominated by politically untouchable "Too Big to Fail" (TBTF) banks? Thanks to fast-advancing technology, the answer is a resounding no. Not only do we not need a banking sector, we would be immensely better off were the banking sector to wither and vanish from the face of the Earth, along with its parasitic class of political enablers, toadies and Federal Reserve apparatchiks.... An automated banking utility has no need for parasitic bankers or politicos or indeed, a central bank. The only legitimate regulatory function of the state is to enforce transparency; beyond that, its actions are all subsidies of one sort or another of politically powerful constituencies at the expense of the real economy's productive people, communities and enterprises.
Dear Federal Reserve: happy 100th birthday! What better way to celebrate it than with a balance sheet that just crossed above $4 trillion, or $4.01 trillion to be precise, which represents 24% of the recently upward revised US GDP, for the first (but certainly not last) time in history. Fingers crossed that promptly after next year's Untaper, the Fed can boast a $5 trillion balance sheet this time next year, and so on, and so forth.
While stocks were the headline-makers yesterday, they mostly range-traded today taking a breather to think (even with a double-POMO) as the rest of the world's asset classes did their thing. The Dow closed at a new recxord highs but the Russell 2000, however, lost over half its gains from yesterday! Markets everywhere saw major moves... in no particular order, JPY carry trades disconnected from stocks (EURJPY fading) - until the last few minutes of failed ramp-levitation; 5Y Treasuries underperformed back to 3-month highs (up 11bps - the most in over 5 months) and the Treasury complex saw its biggest bear-flattening (5s30s) in over 2 years; WTI crude rose notably on the day , back above $99; and gold (and silver) was monkey-hammered to 40-month lows - with the biggest 2-day drop in 6 months. Following yesterday's smackdown, VIX initially followed through but as the day wore on, demand for protection grew and VIX closed higher... oh, and it's not all glee in stocks as internals today triggered another Hindenburg Omen.