As I have said for at least a year now, until and unless we see a weekly close (ideally consecutive weekly closes) in the VIX index below 10, then I judge risk-on has more to go. We got close in June/early July, but we did not get there. I would expect that, if I am right about the next quarter or two, then VIX should hit this target during this timeframe. At that point, positioning for the big turn and reversal of large chunks of the nominal wealth/asset price gains since early 2009 would take over as my key investment strategy.
The memory hole is working overtime in the USA zeitgeist these days. Shit happens and a week or so later, it unhappens. So it goes, as the late, great Vonnegut always said. All of these stories have something in common: tons of unanswered questions, which the news media shows no interest whatsoever in following up on. And no consequences. People die, nations rise and fall, money disappears, and everybody forgets. The memory hole is the truest signifier of the times we live in: the Age of Anything Goes and Nothing Matters... but that may be changing.
The proverbial "all you need to know"
While not exactly a "bear", Deutsche Bank's David Bianco - until this weekend - had the lowest S&P 500 target for 2014 year-end at 1,850. That's all changed now...
As 'rumors' of European sanctions against Russia's major oil energy firms are leaked strawman-like to the market and expected to be enacted as soon as tomorrow, it appears there is a 'glitch' in the union. The FT's Peter Spiegel reports that one country is holding out on EU sanctions and that is the reason for an emergency unscheduled meeting of EU diplomats this evening. While it is unclear which country it is, something tells us its name begins with an 'A' and ends in 'ustria'... or starts with 'S' and ends in 'lovakia'...
When one thinks "recovery", some of the images envisioned include a healthy labor market (not one saturated by part-time, low wage jobs), rising earnings (not wages that have stagnated for years and in real terms are at Lehman levels) and a vibrant housing market in which new home buyers enter with confidence, and where mortgage loans are abundant and available to qualified creditors. One certainly does not imagine a housing "market" dominated by Chinese, Russian and Arab monely-laundering oligarchs, where half of all transactions are "all cash", and where, as Fannie Mae just reported, the number of Americans who said "now is a good time to buy a home" plunging to 64% - the lowest print in survey history!
CNBC’s long-running “jobs Friday” fetish is getting downright appalling. Each month the BLS puts out a treasure trove of data on the rich and complex mosaic of the US labor market - a download that embodies a truly frightening trend of economic failure. Yet the clowns who assemble in its screen boxes to opine on Hampton Pearson’s 30-second summary of the BLS release never have a clue. Namely, that outside of health and education there has not been one net new job created in the American economy since July 2000! Yes, not a single new jo - as in none, nein, nichts, nada, zip! The point here, however, is about economics, not social worth. And in the realm of economics, the notion implicit in “jobs Friday” - that all jobs are created equal - is simply a fatuous shibboleth.
For those just catching up on the main news event of the weekend, namely the sudden surge in Scotland "Yes" vote polling surpassing 50% for the first time, here is a complete round up of the background, updates and expert reactions from RanSquawk, Bloomberg and AFP.
"The ECB's quantitative expansion is hitting the financial system at a time when broad liquidity is also very high. The rise in excess liquidity, i.e. the residual in the model of Figure 3, is supportive of all assets outside cash, i.e. bonds, equities and real estate. The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude and the ECB actions have the potential to make it even more extreme, in our view.... These liquidity boosts are not without risks. We note that they risk creating asset bubbles which when they burst can destroy wealth leading to adverse economic outcomes. Asset yields are mean reverting over long periods of time and thus historically low levels of yields in bonds, equities and real estate are unlikely to be sustained forever."- JPMorgan
First it was UN and US military hardware and artillery, second it was hijacked Syrian fighter jets, and now ISIS has 'commandeered' a Navy. As Reuters reports, Islamic State fighters attacked a riverside town north of Baghdad on Monday with gunboats and a car bomb, killing 17 people and wounding 54, a security source said. We anxiously await President Obama's Wednesday unveiling of the strategy to 'defeat' The Islamic State on land, and air, and now water...
One of the more amusing comments overnight came from Bank of America, which now predicts that China's export growth will be boosted by iPhone 6 by 1% per month through year-end. Whether or not this is accurate is irrelevant, but we are happy that unlike before, BofA has finally figured out that iPhone sales are positive for Chinese GDP, not US, which was the case with the release of the iPhone 4 and 5, when clueless strategists all came out boosting their US (!) GDP forecasts on the iPhone release. We note this because the long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. According to a BofA poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s.
- Scotland split jitters send sterling to 10-month low (Reuters)
- S&P 500 Beating World Most Since 1969 Doesn’t Spark Flows (BBG)
- Happy ending guaranteed: Vietnam building deterrent against China in disputed seas with submarines (Reuters)
- China Posts Record Surplus as Exports-Imports Diverge (Bloomberg)
- Russia, U.S. to hold talks on 1987 arms accord (Reuters)
- Halcon’s Wilson Drills More Debt Than Oil in Shale Bet (BBG)
- Deadly Disappointment Awaits at Ebola Clinics Due to Lack of Space (WSJ)
- Latinos furious at Obama on immigration delay, vow more pressure (Reuters)
- Japan GDP Shrinks at Fastest Pace in More Than Five Years (WSJ)
After being solidly ignored for weeks, suddenly the Scottish independence referendum is all anyone can talk about, manifesting itself in a plunge in the GBPUSD which ha slide over 100 pips in the past 24 hours, adding to the slide over the past week, and is now just above 1.61, the lowest since November 2013. In fact, the collapse of the unionist momentum has managed to push back overnight news from Ukraine, major Russian sanction escalations, Japan GDP as well as global trade data on the back burner. Speaking of global trade, with both China and Germany reporting a record trade surplus overnight, with the US trade deficit declining recently, and with not a single country in the past several month reporting of an increase in imports, one wonders just which planet in the solar system (or beyond) the world, which once again finds itself in a magical global trade surplus position, is exporting to?
The FT reports from a leaked copy, Europe's latest sanctions round will boldly go where Europe has never dared to go before, and impose sanctions on the big three: Rosneft, Gazprom Neft and Transneft.