Equity markets live and die on several well-established conventions, according to ConvergEx's Nick Colas, noting that these are the rules that investors use as the bedrock of their fundamental analysis. The volatility of the last few weeks shows that some of these paradigms are now under attack. Chief among the question marks: “Do central banks always have the power to tip the balance between growth and recession?” Another rising concern: “Can stocks constantly shrug off recessionary signals from commodity and fixed income markets?” Lastly, “How many exogenous, if largely unpredictable, global events can equities ignore before their collective weight halts a bull market?” Bottom line: the debate on these topics isn’t over for October or the balance of the year.
We have been discussing the widespread belief in "the narrative of central bank omnipotence" for a number of months (here and here most recently) as we noted "there are no more skeptics. To update Milton Friedman’s famous quote, we are all Bernankians now." So when Saxobank's CIO and Chief Economist Steen Jakobsen warns that "the mood has changed," and feedback from conference calls and speaking engagements tells him, there is a growing belief that the 'narrative of the central banks' is failing, we sit up and listen.
- It wasn't Obama this time: Pakistani teen, Indian activist win Nobel Peace Prize (Reuters)
- Surging VIX Shakes Bulls as S&P 500 Charts Go Haywire (BBG)
- Global shares hit six-month low as growth worries mount (Reuters)
- Police, protesters clash in St. Louis ahead of weekend of rallies (Reuters)
- We're Sitting on 10 Billion Barrels of Oil! OK, Two (BBG)
- Spain seeks answers as seven more enter Ebola isolation (Reuters)
- Iran will sell its oil to Asia in November at the biggest discount (BBG)
- Redefining honeypot: U.S. DEA 'most interested' in U.S. investors in Canadian marijuana firms (Reuters)
- UKIP Wins First Commons District With Conservative Defector (BBG)
- Fake Ebola Patients Help Hospitals Prepare for Next Case (BBG)
First a secret "Doomsday book", and now this?
In recent months, this prognostication has been gaining traction that a second, more severe crash - one that reflected the level of debt - is inevitable. There are two primary camps amongst economists with regard to the economic direction that a crash will generate: inflationists and deflationists. The argument goes back and forth, yet there seems to be the misconception that one must be either an inflationist or deflationist. This is not at all the case.
- Ebola Patient Fights for Life as Contacts are Monitored (BBG)
- GPIF Unlikely To Announce New Portfolio Until November: Delay Could Rattle Investors Hoping Fund Will Invest More in Stocks (WSJ)
- High risk Ebola could reach France and UK by end-October, scientists calculate (Reuters)
- Neves to Face Rousseff in Brazil in Surprise Comeback (BBG)
- Hong Kong democracy protests fade, face test of stamina (Reuters); A Hong Kong Protest Run on Fumes and Instant Noodles (WSJ)
- Putin Clans Said Gridlocked Over Arrest as Sanctions Bite (BBG)
- Surging dollar may be triple whammy for U.S. earnings (Reuters)
- Lloyds Said to Cut Thousands of Jobs as CEO Cuts Costs (BBG)
Carmen Segarra said, “I come from the world of legal and compliance, we deal with hard evidence. It’s like, we don’t deal with, you know, perceptions.”
How ironic. Segarra worked at the Fed.
President Obama is saying the economy is better, Bernanke is warning that real people don't believe that; and while earning $250,000 per speaking engagement, Ye 'Olde' Fed head was unable to refinance his mortgage...
As we explained previously, the end-of-quarter catastrophe in reverse-repo window-dressing malarkey between The Fed and The Banks (that own it) shows the Fed simply has no idea (once again) how financial markets really work in the modern era. As Alhambra Partners Jeffrey Snider explains, “We don’t exactly know how it will work” should be stamped upon every message coming from the policymaking apparatus from this point forward, and then retroactively applied to every message in the age of risk and rate repression. Action in short-term money markets has heated up yet again, and that is not a positive statement toward vital function.
No, it's not a joke or sarcasm. The Fed-whispering Jon Hilsenrath has penned the first strawman sponsoring Ben Bernanke for the Nobel Prize...
Another Conspiracy Theory Becomes Fact: The Fed's "Stealth Bailout" Of Foreign Banks Goes MainstreamSubmitted by Tyler Durden on 09/30/2014 13:25 -0400
Back in June 2011, Zero Hedge first posted: "Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went" Of course, the conformist, counter-contrarian punditry promptly said this was a non-issue and was purely due to some completely irrelevant micro-arbing of a few basis points in FDIC penalty surcharges, which as we explained extensively over the past 3 years, has nothing at all to do with the actual motive of hoarding Fed reserves by offshore (or onshore) banks, and which has everything to do with accumulating billions in "dry powder" reserves to use for risk-purchasing purposes. Fast, or rather slow, forward to today when none other than the WSJ's Jon Hilsenrath debunks yet another "conspiracy theory" and reveals it as "unconspiracy fact" with "Fed Rate Policies Aid Foreign Banks: Lenders Pocket a Spread by Borrowing Cheaply, Parking Funds at Central Bank"
There is nothing like the release of secret tape recordings to clarify an inconclusive debate. Actually, what the tapes really show is that the Fed’s latest policy contraption - macro-prudential regulation through a financial stability committee - is just a useless exercise in CYA. Macro-pru is an impossible delusion that should not be taken seriously be sensible adults. It is not, as Janet Yellen insists, a supplementary tool to contain and remediate the unintended consequence - that is, excessive financial speculation - of the Fed’s primary drive to achieve full employment and fill the GDP bathtub to the very brim of its potential. Instead, rampant speculation, excessive leverage, phony liquidity and massive financial instability are the only real result of current Fed policy.
With the revelations of systemic, widespread corporate criminality of banking institutions in recent years, it is clear that global Bank CEOs are becoming the new Drug Lords.
The bull case is not the recovery or the economy as it exists, it is the promise of one and the plausibility for that promise. Under that paradigm, the market doesn’t care whether orthodox economists are 'right', only that there is always next year. Other places in the world, however, are running out of “next year.” The greatest risk in investing under these conditions is the Greater Fool problem. Anyone using mainstream economic projections and thus expecting a bull market will be that Fool. That was what transpired in 2008 as the entire industry moved toward overdrive to convince anyone even thinking about mitigation or risk adjustments that it was 'no big deal'. Remember: "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so." - Federal Reserve Chairman Ben Bernanke, June 9, 2008.