Amid souring bets on Brazil and the general malaise across EM, PIMCO has been dethroned as the king of emerging market bonds. A fund run by Ireland-incorporated Stone Harbor has overtaken PIMCO's EM Local Bond Fund as the world's largest emerging market fixed income fund by AUM as rollercoaster bets on Brazil and the departure of both El-Erian and Gross weighs on investor sentiment.
The cries for going totally crazy are growing louder... the lunatics are running the asylum. One shouldn’t underestimate what they are capable of. The only consolation is that the day will come when the monetary cranks will be discredited again (for the umpteenth time). Thereafter it will presumably take a few decades before these ideas will rear their head again (like an especially sturdy weed, the idea that inflationism can promote prosperity seems nigh ineradicable in the long term – it always rises from the ashes again). The bad news is that many of us will probably still be around when the bill for these idiocies will be presented.
As DB so well-puts it, "Welcome to random number generator day also known as US payrolls." Consensus expects 185k jobs to have been added in October but it’s fair to say that the whisper number has edged up this week with slightly firmer US data. It is also fair to say that even if one knew the number beforehand, it would be impossible to know how the market will react.
"zero interest rate policy actually reduces demand in the economy, prompting the Federal Reserve to prescribe even further doses of a medicine that, for a long time, has been impeding rather than promoting economic recovery."
- JPM's David Kelly
Bring On 'Operation Switch' - Bill Gross Calls For A Reverse 'Operation Twist' To "Benefit Savers And The Economy"Submitted by Tyler Durden on 11/03/2015 08:49 -0500
"But they won’t, you know. Yellen and Draghi believe in the Taylor model and the Phillips curve. Gresham’s law will be found in the history books, but his corollary has little chance of making it into future economic textbooks. The result will likely be a continued imbalance between savings and investment, a yield curve too flat to support historic business models, and an anemic 1-2% rate of real economic growth in even the most robust developed countries."
- S&P 500 Futures Slip as Aussie Gains on Rate Outlook; Oil Rises (BBG)
- Xi Says China Needs at Least 6.5% Growth in Next Five Years (BBG)
- Ben Carson Vaults to Lead in Latest Journal/NBC Poll (WSJ)
- World's Biggest Banks Still Not `Truly Resolvable,' FSB Says (BBG)
- Keystone XL's builder faced darkening prospects (Reuters)
- Merkel Says Germany Must Step Up World Role in Refugee Crisis (BBG)
Janus Capital shares have tumbled back from earlier gains after WSJ reports that a firm run by George Soros has pulled a $500M investment with Bill Gross. The firm reportedly invested the money a year ago after Gross started at Janus Capital.
- China's central bank cuts rates for sixth time since November (Reuters)
- Global stocks hit two-month high on dovish Draghi message (Reuters)
- $6.5 Billion in Energy Writedowns and We're Just Getting Started (BBG)
- Alphabet, formerly Google, sets share buyback, shares jump (Reuters)
- Hurricane Patricia, Stronger Than Katrina, Nears Mexico (BBG)
- TVA Cleared to Start First New U.S. Nuclear Power Plant in Nearly 20 Years (WSJ)
We think the market may have gotten ahead of itself, accepting the narrative that the Fed will raise rates as many other countries ease. We believe the market is gradually realizing that the Fed is far less flexible than it hoped it would be, thus causing a re-pricing of expectations. We don't think this will necessarily change the Fed's "desire" to pursue an exit. This re-pricing of expectations may have profound implications for the U.S. dollar, and with it, the price of gold.
In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards. In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to “First, do no harm”, in modern fund management, iatrogenic illnesses hold sway. An iatrogenic illness is one that is caused by the physician himself. Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It’s called parasite. There is a solution to all this insanity.
- Global stocks eye biggest rally in four years on Fed relief (Reuters)
- FOMC Minutes Sap Confidence in Fed's 2015 Rate Hike Resolve (BBG)
- Glencore to cut annual zinc production by a third (FT)
- Tea Party wave that lifted Republicans threatens to engulf them (Reuters)
- Why Kevin McCarthy Came to Quit Speaker Race (WSJ)
- A U.S. Recession Just Got a Little More Likely (BBG)
News That Matters
Bill Gross Sues PIMCO "Cabal" Over Ouster, Seeks "Hundreds Of Millions", Blames El-Erian - Full ComplaintSubmitted by Tyler Durden on 10/08/2015 10:14 -0500
“Driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of Pimco managing directors plotted to drive founder Bill Gross out of Pimco in order to take, without compensation, Gross’s percentage ownership in the profitability of Pimco."
The current surge in dis-inflationary pressures is not just due to the recent fall in oil prices, but rather a global epidemic of slowing economic growth. While Janet Yellen addressed this "disinflationary" wave during her post-meeting press conference, the Fed still maintains the illusion of confidence that economic growth will return shortly. Unfortunately, this has been the Fed's "Unicorn" since 2011 as annual hopes of economic recovery have failed to materialize. However, it is these ongoing views of optimism that have collided with economic realities.
"Mainstream America with their 401Ks are in a similar pickle. Expecting 8-10% to pay for education, healthcare, retirement or simply taking an accustomed vacation, they won’t be doing much of it as long as short term yields are at zero. They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation."