"There is a big flight to quality," warns one trader as the spread between interest rate swaps (implicitly bank risk) and government bonds soared to a record high. This "crisis gauge" flashing red is also followed by 3 month SHIBOR (short-dated interbank lending rates) surging to an 8-month high. China's CDS have jumped 30bps since the Fed taper and as Bloomberg reports that billionaire investors like George Soros and Bill Gross have drawn uncomfortable parallels between the situation in China now and the US before 2008 (when this crisis gauge was key in spotting the carnage to come). Simply put, the banks don't trust each other...
Bill Gross, by his own admission, is a demanding boss; but as the WSJ reports, one day last June (amid the bond sell-off), things went a little turbo (leading to Mohamed El-Erian's recent resignation):
Gross: "I have a 41-year track record of investing excellence... What do you have?"
El-Erian: "I'm tired of cleaning up your shit."
While careful to deny that El-Erian's departure had anything to do with 'friction' although even Mr.Gross admits he can be difficult to work with,"sometimes people will say 'Gross is too challenging,' and maybe so. I would say if you think I'm challenging now, you should have seen me 20 years ago."
Unfortunately many investors, with central banks having slashed deposit rates to de minimis levels, have gone ‘all-in’ with regard to risk assets in the desperate pursuit of yield. Be careful what you wish for. It is quite clear that central banks will do literally anything within their power to attempt to avert deflation – to ensure that “it cannot happen here”. That does not mean they will succeed – but they may end up destroying fiat currencies in the process (one of the reasons we have consistently held gold). It is “quite obvious” what the Fed will ultimately do... Six years into this crisis, and in the words of Lily Tomlin, things are going to get a lot worse before they get worse.
An "Austrian" Bill Gross Warns: "The Days Of Getting Rich Quickly Are Over... Getting Rich Slowly May Be As Well"Submitted by Tyler Durden on 02/05/2014 14:03 -0400
If readers ignore the rest from the latest monthly insight from Bill Gross of PIMCO, they should at least read the following insight which we agree with wholeheartedly: "our PIMCO word of the month is to be “careful.” Bull markets are either caused by or accompanied by credit expansion. With credit growth slowing due in part to lower government deficits, and QE now tapering which will slow velocity, the U.S. and other similarly credit-based economies may find that future growth is not as robust as the IMF and other model-driven forecasters might assume. Perhaps the whisper word of “deflation” at Davos these past few weeks was a reflection of that.... don’t be a pig in today’s or any day’s future asset markets. The days of getting rich quickly are over, and the days of getting rich slowly may be as well. Most medieval, perhaps." Where have we read this recently? Why in An “Austrian View” Approach To Equity Prices in particular and the bulk of Austrian economics in general. Which means that following the TBAC, i.e. the committee that really runs the US, none other than the manager of the world's largest bond fund has now moved over to the Austrian side. Welcome.
It's snowing in New York so the market must be down. Just kidding - everyone know the only thing that matters for the state of global risk is the level of USDJPY and it is this that nearly caused a bump in the night after pushing the Nikkei as low as 13,995, before the Japanese PPT intervened and rammed the carry trade higher, and thus the Japanese index higher by 1.23% before the close of Japan trading. However, since then the USDJPY has failed to levitate as it usually does overnight and at last check was fluctuating within dangerous territory of 101.000, below which there be tigers. The earlier report of European retail sales tumbling by 1.6% on expectations of a modest 0.6% drop from a downward revised 0.9% only confirmed that the last traces of last year's illusionary European recovery have long gone. Then again, it's all the cold weather's fault. In Europe, not in the US that is.
"Financial systems are unstable with excessive risk-taking," warns PIMCO's now solo guru Bill Gross, telling Bloomberg TV's Stephanie Ruhle that in a "Soros reflexivity... Once you get the levered system going, it hardly knows when and where to stop." Credit, as we have noted, has been relatively more stable (though less positive on the the way up) Gross notes and "the way to get rich in the past was to borrow money and to lever [up]," but Gross explains that now, "assets are artificially priced... from this point forward, double-digit returns, getting rich on leverage, no. You better look elsewhere for – for your profits," and not Asia. China is "the mystery meat" of emerging market countries, Gross cautions, "nobody knows what’s there and there’s a little bit of baloney."
- Only time will define Bernanke's crisis-era legacy at Fed (Reuters)
- Record Cash Leaves Emerging Market ETFs (BBG)
- Investors Look Toward Safer Options as Ground Shifts (WSJ)
- Fed Policy Makers Rally Behind Tapering QE as Yellen Era Begins (BBG)
- Rating agencies criticise China’s bailout of failed $500m trust (FT)
- Russia to await new Ukraine government before fully implementing rescue (Reuters)
- U.S. readies financial sanctions against Ukraine: congressional aides (Reuters)
- Companies resist president’s call for minimum wage rise (FT)
- Secret Swiss Funds at Risk as Italy’s Saccomanni Visits Bern (BBG)
- Top Democrat puts Obama trade deals in doubt (FT)
- Erdogan to Give Rate Increase Time Before Trying Other Plans (BBG)
Said Dr. El-Erian: “I have been extremely honored and fortunate to work alongside Bill Gross, who is one of the very best investors in the world. His talents are truly exceptional, as is his dedication. I have also been amazingly privileged to work with the most talented group of professionals in the investment management industry. Their commitment and tireless work on behalf of our clients have been a consistent inspiration for me since I first joined PIMCO back in 1999. I wish them continued great success.”
Gross: “Give me a double shot,” global mkts said to its Fed & BOJ bartenders. Can we sober up on a single jigger of saké? I doubt it.
— PIMCO (@PIMCO) January 21, 2014
"Bond King" Bill Gross may not have had a good year following over $40 billion in redemptions from his $250 billion Total Return Fund, but another aspirational Bond King, DoubleLine's Jeff Gundlach, had an even worse year on an relative basis, when his Total Return Bond Fund saw $6 billion in redemptions ending the year at $30.9 billion in AUM following seven consecutive months of withdrawals. So in his attempt to start the new year on better footing, here is his first webcast (as usual open to the public), titled "Let the Race Begin! 2014 Markets: Year of the Horse", in which as usual Jeff will discuss the economy, the markets and his outlook for the best investment strategiest of 2014. Let's hope that for bond fund manager, that 2014 is not just another "year of the donkey", as was the case in the past year which everyone managing duration would rather forget.
As stocks have vascillated in a worryingly not-straight-up manner for the last few days with today's weakness taking the Dow and S&P 500 pre-holiday lows (with th ebiggest drop in a month), it would appear more than a few 'investors' are greatly unrotating into the very shortest-term Treasuries as a safe-haven from the turbulence. The last few days have seen Treasury-Bill yields swing negative in the less-than-1-month maturity indicating anythng but risk appetite as a scramble for safety is strong enough to warrant paying (albeit marginally) for it. As we noted previously, the driver of Bill Gross' 'bet' on the short-end will not be based on always wrong expectations of what Fed monetary policy does to prices, but the exodus of speculative money from equities into safe havens, call it the Great Unrotation.
Gross: The age of getting rich quickly is over as is (most likely) the age of getting rich slowly.
— PIMCO (@PIMCO) January 12, 2014
- From the guy who said the market is not overvalued: Q&A with Fed’s Williams on Upbeat 2014 Outlook and What Keeps Him up at Night (Hilsenrath)
- Obama Readies Revamp of NSA (WSJ)
- Indian envoy leaves U.S. in deal to calm diplomatic row (Reuters)
- China overtakes US as largest goods trader (FT)
- Wall Street Predicts $50 Billion Bill to Settle U.S. Mortgage Suits (NYT)
- Low-End Retailers Had a Rough Holiday: Family Dollar, Sears Struggle as Lower-Income Customers Remain Under Pressure (WSJ)
- ECB charts familiar course as Japan, US and UK begin to diverge (FT)
- Housing experts warn of hiccups as new U.S. mortgage rules go live (Reuters)
- It's a HFT eat HFT world: Infinium ex-employees sue over $4.1m loss (FT)
- Slowing China crude imports to challenge exporters (FT)
Head Of Recently Bankrupt FX Concepts Wants You To Know He Is Back, With A Newsletter And A Bloomberg TerminalSubmitted by Tyler Durden on 01/09/2014 15:50 -0400
2013 may have been a bad year for Bill Gross, but nobody had it worse than John Taylor. The former head of FX concepts saw his hedge fund - once an FX trading behemoth and the largest in the world with $14 billion in AUM in 2007 - crash, burn, and file for bankruptcy as we reported previously. But the cherry on top was the revelation that a year before its filing, Taylor personally guaranteed some $5 million of the FX Concepts' debt owed to Asset Management Finance, a unit of Credit Suisse. Surely, such a sequence of events would be enough to turn even the staunchest financial addict away from the markets for ever. But not John Taylor - the former FX guru has a message for all of you: he is not only back, but is launching a newsletter.... oh and he has a Bloomberg terminal too.
If yesterday's 10 Year auction was a little on the weak side, stopping through the When Issued by 0.2 bps, there were no such problems for today's last of the week 29-year 10-month reopening auction, which just priced $13 billion of the previously issued CUSIP RD2, at a high yield of 3.899%, through the 3.906% WI. The strength was not only in the pricing, but the Bid to Cover as well, which came at 2.57, above last month's 2.35, and also above the 12 month trailing average of 2.45. Finally, the internals were strong as well, with Dealers taking down 38.1%, the lowest since October's 35.5%, leaving 44.4% for Indirects, above the 38.6% average, if a tad below last month's 46.0%, and Directs holding 17.5% of the final allotment, up from 12.5%, and above the 15.9% TTM average. As a result of the strong auction, the kneejerk reaction in the Ultra was a 10 tick higher move from 137.07 to 137.17, and also helped push the entire jittery complex higher.