In reading various recent regulatory reports, it is clear that almost none of the promises that were made to the public about what was going to happen under Dodd-Frank financial reform is actually happening. Welcome to another day at the casino where the model continues to be — heads they win, tails you lose.
Much has been made about the impressive gains in efficiency and productivity in the shale patch, as new drilling techniques squeeze ever more oil and gas out of new wells. But the limits to such an approach are becoming increasingly visible. The U.S. shale revolution is running out of steam.
Already, the big banks (the ones with the closest ties to the Federal Reserve) have begun turning away deposits OR charging them.
Tomorrow morning Mario Draghi is widely expected to if not announce an extension, or expansion, of the ECB's QE program, than to at least jawbone sufficiently, and push the EURUSD lower from its recently anchored level in the 1.10-1.20 range. But what are the specifics of Draghi's announcement: will he merely expand the monetization limit per security, as he did in early September, will he increase the universe of eligibile securities, or will he simply extend the maturity of the non-open ended QE from September 2016 to some indefinite date? The following list, courtesy of Bloomberg, summarizes what the sellside universe believes Draghi will unveil in just under 12 hours.
Much like the NBS will obscure any weakness below 7% in China’s GDP data, the PBoC will do “whatever it takes” (central bank pun fully intended) to make sure the market doesn’t get wind of the fact that there’s still a tremendous amount of pressure in terms of capital outflows. As Bloomberg reports, "The People’s Bank of China and local lenders increased their holdings in onshore forwards to $67.9 billion in August, positions that would boost China’s currency against the dollar. The amount is five times more than the average in the first seven months."
It's Back To The Future As Stocks, Futures Jump On The Latest Abysmal Economic News; China Tremors ReturnSubmitted by Tyler Durden on 10/21/2015 05:57 -0500
26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax. None of the happened. Instead the only "back to the future" moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news leading to surging stocks.
Whether one calls it the latest glitch in the matrix, or yet another "market peak" indicator, the outcome will be the same.
- Canada's Trudeau topples PM Harper in shock election win (Reuters)
- Where Canada’s Harper Hit Hurdles (WSJ)
- Pugnacious Trudeau Steps Out of Father's Shadow and Into Power (BBG)
- European Stocks Decline, Euro Rallies as ECB QE Optimism Fades (BBG)
- Valeant, Under Pressure About Price Increases, Plans Changes (WSJ)
- Syrian rebels say they receive more weapons for Aleppo battle (Reuters)
In the absence of any key economic developments in the Asian trading session, Asian stocks traded mostly under the influence of the late, pre-opex US ramp momentum courtesy of another day of ugly economic data in the US (bad econ news is good news for liquidity addicts), closing solidly in the green across the board, led by China (+1.6%) and Japan (+1.1%) thanks in no small part to the latest tumble in the Yen carry trade, which mirrored a bout of USD overnight weakness. And since a major part of the risk on move yesterday was due to Ewald Nowotny's comments welcoming more QE, news from Eurostat that Eurozone CPI in September dropped -0.1% confirming Europe's deflation continues, should only be greeted with even more buying as it suggests further easing by the ECB is inevitable.
One year ago we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development. It so unbelievable we promptly forgot this bizarre tangent into "use of loan funds"... Until today when we found that it was, indeed, all a lie and that the banks themselves had become complicit in perpetuating not only the worst possible capital misallocation, but being an accessory to the US stagnation, soon to be replaced with full-blown recession.
As we have warned numerous times - and any trader old enough to have actually lived through a credit cycle can attest to - there is only so much releveraging shareholder-friendly exuberance firms can do before the company's balance sheet becomes questionable. That inflection point has come for US equities. The deterioration of balance-sheet health is "increasingly alarming" and will only worsen if earnings growth continues to stall amid a global economic slowdown, according to Goldman Sachs and JPMorgan's Eric Beinstein warns "the benefit of lower yields for corporate issuers is fading." The weakness is widespread as BlackRock fears "you’ll continue to see some land mines out there."
Aside from Chinese monetary data, it was a relatively quiet session in which traders were focusing on every move in the suddenly tumbling USD, and parsing every phrase by central bankers around the globe, as well as the previously noted piece by Fed mouthpiece Jon Hilsenrath which effectively ended the debate whether there will be rate hikes in 2015. Adding to the overnight froth were ECB speakers first Ewald Nowotny and then Spain's Restoy, who said that euro-area core inflation "clearly" below goal, remarks which were immediately assumed to signal increasing pressure to boost stimulus, and which promptly translated into even more weakness in EUR and equity strength, pushing US futures up about 15 points from yesterday's close.
After losing 7% in September, and down 20% for 2015 as of Oct. 1, the question is will Andy Hall be the only hedge fund manager with the distinction to have blown up not once but twice in one year, on the very same bet?
Just before the first credit bubble burst, Fortress' Macro hedge fund, then known as Drawbridge as well as several other castle-related terms, peaked at just over $8 billion. Together with Phil Falcone's Harbinger, it was one of the most desired venue to work among the young hedge fund crowd. It has been downhill ever since, and unfortunately for the hedge fund run by Michael Novogratz, which reported $2.5 billion in AUM as of June 30, a number which plunged to just $1.6 billion two months later according to HSBC, as a result of a terrible year, down 13.4% YTD after losing 1.6% in 2014, and having suffered its biggest ever drawdown the macro hedge fund, which does not file an equity 13-F, is liquidating.
The cyclical fallout from the Great Financial Crisis and the secular deflationary “D’s” of excess Debt, tech Disruption, aging Demographics have been the major catalysts for deflation.