It will be a long night in Kiev, where as warned previously, once things start rolling downhill, they will deteriorate rapidly. Via Bloomberg:
RIOT POLICE ARMED WITH CHAINSAWS APPROACH KIEV BARRICADES
UKRAINIAN POLICE MASS NEAR BARRICADES AT KIEV SQUARE
POLICE STORM PROTEST CAMP IN CENTER OF KIEV, AP REPORTS
UKRAINIAN POLICE INSIDE KIEV PROTEST CAMP
Bipartisan Budget Deal Reached; No Extension Of Unemployment Benefits Means Unemployment Rate Set To... PlungeSubmitted by Tyler Durden on 12/10/2013 19:01 -0400
Moments ago, news hit that democrat negotiators Patty Murray, and republican Paul Ryan reached a bipartisan deal to ease the automatic budget cuts by $60b. The deal calls for auctioning of govt airwaves, increased premiums for pensions backed by PBGC, a congressional aide told Bloomberg’s Heidi Przybyla. A press conference will be held at 6pm to unveil the bipartisan budget agreement, according to e-mailed statement. As a result, a January 15 government shutdown will be avoided. The agreement would require federal workers to contribute more to their pensions, increase premiums on companies whose pension plans are insured by the federal government and increase security fees paid by airline travelers.
And as a result of the implicit $5 billion a month fiscal boost, a near-term modest taper is now even more likely.
Despite rumors of a 'deal', "The major issues that we think are necessary to jump-start the American economy continue to languish," reflects one lobbyist on what Bloomberg reports will be Congress's least productive year ever, with just 56 pieces of legislation signed into law so far. The former record low, reached in 1995, was 88 new laws. 2013 was supposed to be the year lawmakers, free of immediate election pressures, would revamp U.S. immigration policy, pass a debt-lowering budget and expedite a pair of trade deals. Instead, partisan rancor grew deeper; and to make matters worse, the politicians took plenty of time off - the House has been out 191 days, and the Senate 199 days.
There has been quite a bit of discussion lately over the rapid reduction in the government's budget deficit as it relates to economic growth going forward. There are 3 issues that will likely impede further progress on the deficit reduction in the months ahead; 1) lower rates of tax revenue, 2) weaker economic growth and 3) greater levels of spending. The good news for stock market bulls is that deepening budget deficits increase the amount of bonds that the Treasury will need to issue to cover the shortfall in spending. This will give the Federal Reserve more room to continue their current monetary interventions which have inflated asset prices sharply over the last year. Creating financial instability to gain economic stability has been an elusive dream of the Federal Reserve since the turn of the century; yet someday it is hoped that they may just be able to "catch their own tail."
Wall Streeter's Lament Volcker Rule: "Liquidity Is About To Be Sacrificed At The Altar Of Ignorance & Fear"Submitted by Tyler Durden on 12/10/2013 17:55 -0400
"... The entire socio-economic model is now built on this and, whether right or wrong, it demands a very different sort of banking that the "pay 3% on deposits and lend them at 5%" kind of industry of the 70s and 80s. Volcker risks over-egging the pudding and, to mix my metaphors, killing the goose that lays the golden "growth" egg. Liquidity, the holy grail of markets, is possibly about to be sacrificed on the altar of ignorance and fear."
"We think that something structurally has changed since the GFC, a change that seems destined to continue to hold back growth in the near-term and more worryingly has lowered the longer-term trend rate of growth. In the absence of structural reforms, a lack of appetite for debt restructuring and no ability to pursue more aggressive fiscal policy, the temptation will be strong globally to continue to throw liquidity at the problem which is likely to continue to have more impact on asset prices than the actual economy. Bubbles could easily form which could ultimately be the catalyst for the imbalances that will likely lead to the next recession or crisis... Our base case is that the world needs low yields and high liquidity given the huge amount of outstanding debt that we’re still left with post the leverage bubble and the GFC. There’s still too much leverage for us to believe that accidents won’t happen with the removal of too much stimulus. If we’re correct, we may see a reaction somewhere to tapering and this in turn may force the Fed into a much slower tapering path than it wants."
Following yesterday's epic, grotesquely illegal smashing the close in the VIX, we decided to have some fun 10 minutes before the close, and, in jest, summoned the VIX Smash Hulk. To our complete lack of surprise, he appeared.
At 4:15 pm Eastern, DoubleLine's Jeff Gundlach will be discussing the economy, the markets and his outlook for the future. Readers can register for the webcast at the following link, while for those stuck with phones can dial-in at (877) 407-6050 or (201) 689-8022 international.
Between new lows, new highs, advancers, decliners, lagging volumes, and stalling momentum, technicals have signaled another Hindenburg Omen (following Friday's) as the cluster builds once again. While it may not have lived up to its ominous name in the last year of liquidity, it highlights market anxiety and internals are growing more concerned... still believe the taper is priced in? Strength in Treasuries and gold (and silver) suggest safe-havens are being sought after. VIX is on the rise once again (and its most inverted in over 2 months); and even JPY carry traders (which dragged stock lower tick fgor tick with EURJPY once again) reduced exposure.
Much has been said about Bitcoin: an alternative currency; a "honeypot" scheme by the central banks and Feds to capture excess cash, punish the rebellious and track abusers of money laundering laws; a revolution against fiat. Perhaps one other word may be used as well: "distraction"?
If you can't beat 'em, join 'em, copy 'em, and then beat 'em. While everyone's attention has been glued to Bitcoin (and its various smaller and less viable for now alternative digital currencies), JPMorgan has submitted a patent which appears to set the scene for a competing centralized network to Bitcoin. As LetsTalkBitcoin noted first, the "Method and system for processing internet payments using the electronic funds transfer network," states that Chase's technology is a "new paradigm." Moreover that it permits the creation of "virtual cash" (also referred to as "web cash") with a "real-time digital exchange of value." Without naming the virtual currency or any competing payments system by name, the bank takes a swipe at the crytocurrency model, adding that sees “a new marketplace” emerging for “low dollar, high volume, real-time payments with payment surety for both consumers and producers.”
Of course, we are sure this will be dismissed by any and all stock pushers as perfectly normal and possible... but an hour of trading in SBUX in a 1c range seems a little too much for even the biggest efficient market believer...
All five regulatory agencies put to a vote and approved the Volcker rule on Tuesday, supposedly, as The WSJ reports, ushering in a new era of tough oversight that drills to the core of Wall Street's profitable markets and trading businesses. As President Obama just ordered via Bloomberg:
- *OBAMA SAYS VOLCKER RULE WILL MAKE FINANCIAL SYSTEM SAFER
Of course, now the various regulators line up at the trough demanding more funding to cover all the details of all the pages of all the new laws that all of the banks will now have to address on all of their trades...
The bombs are going to drop – increased forward guidance on rates and decreased direct bond purchases – but these policies in and of themselves are just tactical. What’s really at stake is the strategic meaning of these policies, the belief system that takes hold (or doesn’t) around the power of the Fed to create market outcomes. Over the next three or four months we’re going to see quite a battle for the hearts and minds of investors, with both “sides” employing the Narrative of Don’t Fight the Fed. On the one hand you will have the Fed, with their Jericho Trumpet of Hilsenrath et al shrieking at you a new interpretation of the Narrative: ZIRP is the source of the Fed’s power, not QE, so tapering is no big deal. On the other hand you also have the Fed, but the Fed of the past several years and the way it has trained the market to believe that the portfolio rebalancing effect … i.e., the behavioral impact of QE that Bernanke has directly credited with driving up the stock market … is what really matters. And if that’s your reality, then tapering is a big deal, indeed. I’ll be monitoring all this closely at Epsilon Theory in the weeks ahead.
The % of NYSE stocks above their 200-day moving averages has a strong bearish divergence similar to previous plunge-preceding divergences. As BofAML notes, this points to diminishing momentum for market breadth and preceded pullbacks in the range of 15%-20% in 2010 and 2011; increasing the risk for a US equity market pullback in 2014.