Ben Bernanke

Even if the monetary fuel for this whirl of self-reinforcement is not lacking, the market still needs a narrative around which it can cluster psychologically. It needs a canon of shared myth about which the bard can weave a reassuringly familiar refrain so as to reinforce the sense of community when the members of the clan gather to listen to his warblings amid the flickering fires and guttering torchlight of the Great Hall at night. Despite the bubbles everywhere, hastily shrugged off by the Chairman-in-chief we must add, we are still all suckers for a good saga. As far as we can see, the current narrative contains several key themes... What could possibly go wrong?

Just as Ben Bernanke's monetary easing program changes with the times (back then he believed it was the Stock that mattered, now it is Flow, but one thing is constant: always moar), so does his computer desktop. And while we know, tentatively, what his preferred computer space looked like three years ago, the times have changed. Behold Ben Bernanke's new and improved PC desktop...

In the past, food and alcoholic beverage makers got in trouble for attempting to cover the impact of inflation (such as the 12% Y/Y increase in Fed employee salaries) by diluting the content, or simply serving less, of their products while keeping the price constant: the same thing as rising prices, but optically more palatable to less than sophisticated consumers. That was the past. A new breed of industrious, high profit margin-seeking alcohol vendors have decided to skip this protocol entirely and instead of serving booze, have opted to replace the product outright. As AP reports, at numerous New Jersey bars, including 13 TGI Fridays restaurants, owners were accused of substituting cheap booze while charging premium prices. The profitability at all costs situation was so bad that at one bar, a mixture that included rubbing alcohol and caramel coloring was sold as scotch. In another, premium liquor bottles were refilled with water — and apparently not even clean water at that.

In a world in which the bipolar, schizophrenic markets are dominated by Mrs. Watanabe's daily gyrations of the USDJPY (in response to Kuroda's daily jawboning) which in turn has become the primary signal feeding ES algos now that fundamentals are no longer relevant and that the EURUSD-ES correlation is dead and burried, there continues to be one, almost assured way to generate alpha for those so inclined to gamble with the fastest of the vacuum tubes out there: going long the most shorted stocks, which have become the most convex way of betting that Ben Bernanke will continue to dominate the hedge fund league tables as the world's most accomplished portfolio and risk manager. Indeed, using our previous representations (Q3 2012, Q4 2012) of the most shorted stocks to generate a "long basket" and sitting it out, has generated some 40%+ annualized returns without fail. Which is why it is now time to look at the most recent roster of stocks most hated by the hedge fund community, which slowly but surely is converting into the much maligned "long onlies" as abandoning hedges is the only way to at least catch up with the market, if not overtake it.

...understand the national threat that is our fragmented and perverted equity market microstructure that is driven by such esoteric order-types such a Post No Preference Blind Limit Order created through the buddy system of exchange/order volume producer.

What may come as a surprise to most, is that as of this week's H.4.1 update, the amount of ten-year equivalents held by the Fed increased to $1.583 trillion from $1.576 trillion in the prior week, which reduces the amount available to the private sector to $3.637 trillion from $3.668 trillion in the prior week. And also, thanks to maturities, and purchase by the Fed from the secondary market, there were $5.219 trillion ten-year equivalents outstanding, down from $5.244 trillion in the prior week. What this means simply is that as of this moment, the Fed has, in its possession, a record 30.32% of all outstanding ten year equivalents, or said in plain English: duration-adjusted government bonds. It also means that the amount of bonds left in the hands of the private sector has dropped to a record low 69.68% from 69.95% in the prior week. Finally, the above means that with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and ifthe US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper.

The Nikkei dropped by 7.3% at the end of the day and Hong Kong’s Hang Seng dipped by 2.5%. Shanghai maintained a moderate fall at just 1.2% (if you believe that data now!). The Asian markets are down.

Once again: The FOMC minutes had nothing to do with overnight's events, especially since both Ben Bernanke and Bill Dudley made it very clear previously that for any tapering to occur (and which is supposedly bullish according to David Tepper, who may finally be done selling to momentum chasers) if ever, the economy would have to be be stronger (which is of course a paradox because it is the Fed's QE that is making the economy weaker). If anything, the minutes reminded us that there is a mutiny in the FOMC with finally someone having the guts to say on the record that Bernanke is blowing a bubble - something never seen before on the official FOMC record. And after all, the Nikkei opened way up, not down. It was only after the realization of what soaring bond yields mean for, wait for it, stocks (despite central planner promises that it is soaring bond yields that are a good thing - turns out, they aren't) that the sell-off really started. That, and of course copper, and the end of the Chinese Copper Financing Deals arrangement that has been China's illicit cross-asset rehypothecation scheme for years (more shortly). So in a nutshell, here is what has transpired so far, courtesy of Bloomberg.

Our country has entered a period of Crisis. We may or may not successfully navigate our way through the visible icebergs and more dangerous icebergs just below the surface. The similarities between the course of our country and the maiden voyage of the Titanic are eerily allegorical...

What is 410 words and is released precisely 180 seconds after the FOMC's minutes? Why Jon Hilsenrath's FOMC minute-parsing piece of course. Which we can only assume means Jon was on the "preapproved" list for early distribution and pre-analysis, because not even we can analyze and type that fast. We are confident he did not breach the embargo. Because that would not look good for the Fed already being investigated by the Inspector General for last month's humilating breach.

With part two of today's Fed-a-palooza due out shortly in the form of the May 1 FOMC meeting minutes, here is an informative recap of the current roster of assorted birds at the FOMC via Bank of America. Of course, since every decision always begins and ends with Ben, and soon his replacement Janet, all of below is largely meaningless.

News That Matters - Today's news in brief

For all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, "trading" with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.

• Apple Bonds Stick Buyers With $280.6 Million Loss as Rates Climb (BBG)
• Iceland Freezes EU Plans as New Government Shuns Euro Crisis (BBG)
• "Transparent Fed" - Ben Bernanke meets privately with Darrell Issa (Politico)
• Bank of Japan vows market steps to curb bond turbulence (Reuters) holds policy (FT)
• Stockholm riots spread in third night of unrest (FT)
• Dudley Says Decision on Taper Will Require 3-4 Months (BBG)
• Senate panel passes immigration bill; Obama praises move (Reuters)
• Italy to outline youth jobs plan as government struggles (Reuters)
• Apple CEO Tim Cook, Lawmakers Square Off Over Taxes (WSJ)
• Google Joins Apple Avoiding Taxes With Stateless Income (BBG)
• Sony Board Discussing Loeb’s Entertainment IPO Proposal (BBG)
• Vote Strengthens Dimon's Grip (WSJ), Dimon performance well choreographed (FT)

Today is one on those rare days in which everyone stops pretending fundamentals matter, and admits every market uptick is purely a function of what side of the bed Bernanke wakes up on, how loudly Kuroda sneezes, or how much coffee Mark Carney has had before lunch, but more importantly: that all "risk" is in the hands of a few good central-planners. Following last night's uneventful Bank of Japan meeting, in which Kuroda announced no changes to the "full speed ahead" policy of inflation or bust(ed bank sector following soaring JGB yields) and which pushed the Nikkei225 to surge above the DJIA closing at 15,627, today it is Bernanke's turn not once but twice, when he first takes the chair in the Joint Economic Committee's "Economic Outlook" hearing at 10 am, followed by the May 1 minutes release at 2pm (which may or may not have been previously leaked like last month). As a reminder, Politico reported last night that Ben Bernanke had previously met in secret with Darrell Issa and other lawmakers "to discuss the central bank’s efforts to stimulate the economy and how it could exit this strategy in the future, according to people who attended the meeting."  And since we know how important transparency is to Bernanke and the Congress, "Participants in the meeting declined to disclose specifically what Bernanke told lawmakers beyond saying there was discussion about the Fed’s bond buying programs and other issues." But as long as Mr. Issa, the wealthiest man in the House, has his advance marching orders, all is well.