If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: "The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn't intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea." Priceless.
What is going on here, for those understandably confused, is North Korea's gregarious and gorgeous leader, Kim Jong-un, sitting in the Korean equivalent of Houston, watching the recent Korean rocket launch... and smoking a cigarette. Take it away.
Good thing there is no inflation, you know, except in every single thing every single American needs to buy to survive that is! The hits just keep coming for California, America’s very own Greece. Remember the article I posted a couple of days ago titled: Payday Loans in California: School Districts Owe $1 Billion on $100 Million Borrowed. Now we find out from the LA Times: "Health insurer Blue Shield of California wants to raise rates as much as 20% for some individual policyholders, prompting calls for the nonprofit to use some of its record-high reserve of $3.9 billion to hold down premiums. In filings with state regulators, Blue Shield is seeking an average rate increase of 12% for more than 300,000 customers, effective in March, with a maximum increase of 20%." That should be a real boon for California’s economy. Meanwhile…
Remember when Americans used to mock Russia (f/k/a the USSR) for being one big Gulag prison colony? Those were the good days. One thing is sure: they no longer "hate us for our freedom." On the other hand, if instead of prison, one were to write in "minimum security, free room and board, out early for good behavior" (especially if the world's most famous hedge fund will fund all your cash needs for the rest of your life on the 'other side' just as we predicted three weeks ago), then they would certainly hate us for our benefits.
After the success of the 'scariest charts for equity bulls', the following 12 charts are the most important, in CitiFX's view, to establish a 'starting point' for views on markets as we head into 2013. From employment trends echoing the 1970s, one-last-low in Treasury yields and '90s analogs, to EURUSD and its mid-'80s mirror, and the ongoing trend higher in gold; there is something here to scare equity and bond bulls and bears alike.
A well-timed leak of an Obama-Boehner meeting this evening provided enough exuberance to allow algos to lift the markets (futures and ETFs first) from 'about to break the lows' to VWAP (to the tick!). S&P 500 futures picked off VWAP perfectly and slid back. The Dow and the S&P spent the afternoon stuck at unchanged on the week before the rally-monkey saved the day (as did Financials). Treasury yields continue to bleed higher (now up around 10bps on the week). Silver dislocated (worse) from its commodity peers who have recoupled +/-0.3% on the week (even as the USD is -0.6% on the week). Gold and silver (as we noted earlier) really fell out of love from the start of the day-session but silver was starting to recover into the close. AAPL was very close to its lowest close in 10 months (but again was rescued by some rampant white house leak about a totally fruitless rumor) though ended at a critical VWAP support level. By way of record-breakers - today marked the first time that we have seen stocks negative from the day before a QE announcement to the day after (no matter what Bob Pisani tells you). Equities tumbled into the close (after ringing the bell at VWAP) ending near the lows after-hours leaving financials and energy practically unchanged on the week. VIX jumped 0.5 vols to 16.4% and HYG had a very weak day on significant volume. But apart from that...
For the third year in a row, hedge funds will underperform the market, this time by nearly 50%, having returned 5.15% through the end of November (with just equity funds +5.20% YTD), less than half what the MSCI World has returned. And while one can make the argument (not correctly) that a manager has to beat only a given benchmark, and not the overall market, the reality is that for virtually all LPs, seeing their money return well below the S&P not for one, not two, but for three years running, is about the last thing they need before they make a decision to fax in that redemption form.
It may seem like a rhetorical question but Citi's credit stretgy team fears that the Fed may be pushing a bit too aggressively at this stage. The chart below shows monetary policy (defined as the funds rate and the Fed's balance sheet) vs. a "market health" index comprised of economic factors, systemic risk metrics, and valuation metrics. Historically the two have tracked well, but not recently. The health index is firming, but policy is getting easier, not tighter. Is the Fed out of its depth here, or do they know something we don't?
The following chart is perhaps the best glimpse of the excessively optimistic 'hope' relative to the rest of the world that US equity markets (and their extrapolators analysts) currently possess. Since the start of 2012, analysts, guided by both macro uncertainty and company expectations, have crushed 2013 EPS expectations across all global markets - well nearly all...
2012 has been a stellar year for oil and gas. From East Africa to North America, new technology, major new discoveries, an unparalleled appetite for exploration and a metamorphosing perception of risk have changed the playing field. We’re looking at potential rather than existing production, and here are our Top 5 picks for this year.
In a little under three minutes, CNBC's Rick Santelli clarifies (in a much-needed manner) that we do not live in a monarchy or dictatorship (hoping for benevolence) - no matter how many Democratic senators and congressmen believe the President was given a mandate leaving him "holding all the cards" - we live in a republic (where the sovereignty rests with all individuals) and removing 'debt ceiling' checks and balances (for example) is a ride down a slippery slope. The chagrined Chicagoan then goes on to discuss the fact that the Fed, having unloaded another package of potentially infinite unsterilized money-printing, was actively discussing its exit strategy. Put simply, Santelli notes, "mark my words" the market will decide that exit - and the Fed had better be ready when it comes.
From the open of the US equity market day-session, gold and silver have diverged aggressively. Gold is notably outperforming silver - in fact today is the biggest jump in the Gold/Silver ratio of the year. The Gold/Silver ratio has also retraced upwards to its 50DMA. It seems there is overall pressure on precious metals post-Bernanke but the relative preference is for Gold so far.
How much phantom housing collateral is still on the books? Nobody knows, and that in itself renders the housing/mortgage sector fragile.
From macro positives to macro negatives, from Democrats to Repblicans, and from idiosyncratic issues at AAPL to systemic global debt issues in the UK, today has been quite a ride already... -1.5% from post-FOMC highs, will we see QE5 next week?
The drainage of AAA quality collateral contonues as S&P cuts it outlook on the United Kingdom to negative...
- *BANK OF ENGLAND OUTLOOK TO NEGATIVE FROM STABLE: S&P
- *UNITED KINGDOM OUTLOOK TO NEGATIVE FROM STABLE BY S&P
more as we get it...