Sometimes you just have to sit back, look at some charts, and say WTF...
Having thrown in his bearish towel in December, the self-proclaimed "last bear standing" has had a tough January. His plan, to "just be long pretty much anything" appears to have back-fired (for now) as Eclectica reports a 3.6% loss in January - the worst month since the Fund's inception. His largest loss was on a long Japan theme (leveraged) and that was somewhat offset by gains in his short emerging markets and short China themes. It appears nothing hs changed from Hendry's December perspective of the inexorable melt-up in developed markets thanks to central bank largesse (247% of NAV exposed to stocks) though he does note "renewed turmoil" which, we suppose, merely supports his thesis longer term.
"The Pig In The Python Is About To Be Expelled": A Walk Thru Of China's Hard Landing, And The Upcoming Global Harder ResetSubmitted by Tyler Durden on 02/21/2014 09:37 -0500
The die has been cast, and it appears that the world is finally on the path to the great "carry-trade unwind" endgame. If so, this is what it will look like...
This was one of the all too real Bloomberg headlines posted overnight: "Asian Shares Rally as U.S. Manufacturing Data Beats Estimates." Odd: are they refering to the crashing Philly Fed, or the just as crashing Empire Fed data? Wait, it was the C-grade MarkIt PMI that nobody ever looks at, except to confirm that where everyone else sees snow, the PMI saw sunshine and growth. Remember: if the data is weak, it's the snow; if it's strong, it's the recovery. Odder still: one would think Asian shares care about manufacturing data of, say, China. Which happens to be in Asia, and which two nights ago crashed to the lowest in months. Or maybe that only impact the SHCOMP which dropped 1.2% while all other regional markets simply do what the US and Japan do - follow the USDJPY, which at one point overnight rose as high as 102.600, and brought futures to within inches of their all time closing high. Sadly, it is this that passes for "fundamental" analysis in this broken market new normal...
Once we get rid of these obsolete middleman parasites - Wall Street, the banking sector and the Federal Reserve - we have a delightful question to answer: what else can we do with the $1.25 trillion we'll save every year by eliminating these obsolete financial middleman parasites? A lot.
Presenting a few of tonight's headlines...
- *OBAMA: 'THERE WILL BE CONSEQUENCES IF PEOPLE STEP OVER THE LINE' (like last time with Syria?)
- *FACEBOOK TO BUY WHATSAPP FOR ABOUT $16B CASH AND STOCK ($50 per user!)
- *U.S. COULDN'T REACH UKRAINIAN OFFICIALS IN FEW DAYS: OFFICIALS (can you hear me now?)
- JAPAN JAN. IMPORTS RISE 25.0% Y/Y (Abenomics is nailing it)
- *CNN LIES ABOUT VENEZUELA EVERY DAY: MADURO (no comment)
- Vietnam Bans Import of Used Electronic Devices
- *WILLIAMS: FED HAS REACHED `END OF THE LINE' ON JOBS THRESHOLD (that didn't last long)
- *SUGA: EXPECTS IMPROVEMENT IN TRADE BALANCE IN FUTURE (any day now)
- *MADURO SAYS `IT'S YOUR LAST CHANCE OR YOU'RE TOAST' (but you wanted peace?)
- *OBAMA SAYS WILL SEEK COOPERATION WITH PUTIN ON UKRAINE (worked last time?)
- And lots more...
Has the world gone mad?
You know what’s it like, the driver stands there in front of the car that has just hit you up the back while looking at something happening down the street rather than checking on you hitting your breaks…and yet, he says “sorry, but you stopped too quickly, it wasn’t my bad driving”.
The Gold Sector is Not the Only Sector That looks to be Turning
In the last year, China has increased the military activity and actions in the South China Sea around the so-called Nine Dash Line — China’s expansive claim into the region which is in conflict with several other international claims. As USNI reports, Capt. James Fannell, deputy chief of staff intelligence and information operations for PACFLEET, notes that while China has long trained for an amphibious invasion of Taiwan during military exercises but has expanded its training to include a similar attack on Japanese holdings in the East China Sea. He concludes, "the PLA has been given the new task to be able to conduct a short sharp war to destroy Japanese forces in the East China Sea following with what can only be expected a seizure of the Senkakus or even a southern Ryukyu [islands]."
Despite our insistence that their was nothing new in the BoJ's loan ceiling hike and lack of QE extension (and Goldman's 'this is already priced in' perspective), it still took the machines that are running USDJPY almost 36 hours to figure it out. USDJPY has retraced the entire 100 pip swing and has broken back below the crucial 102.00 level this morning. Time for some more jawboning about the potential for more QE - even as Kuroda insisted last night to the Diet that the government's tax hikes occur (if for no other reason to ensure this does not escalate into the 'monetization miasma' that they fear the market would believe). Of course, as we approach the US open, we would expect the usual ramp-job to lift stocks.
The world has grown tired of the inexorable rise in radiation levels and propaganda-talk sourrounding nuclear issues in Japan from the government in the last few years since Fukushima changed the nation's future. However, there is another source of nuclear materials that is increasingly angering the Chinese. The tensions and rhetoric, from WWI analogs to Nazi comparisons, have risen recently; but this time, the Chinese are asking a legitimate question... "If a country claims that it sticks by the three non-nuclear principles but at same time hoards far more nuclear materials than it needs, including a massive amount of weapon-grade plutonium, the world has good reason to ask why.... After all, Abe and his cabinet have already caused too much trouble to regional peace and stability." Of course, this places "ally" President Obama in an awkward position given his anti-proliferation stance... though we suspect he will have an angle: "if you like your plutonium stockpile, you can keep it."
China Sold Second-Largest Amount Ever Of US Treasurys In December: And Guess Who Comes To The RescueSubmitted by Tyler Durden on 02/18/2014 20:15 -0500
While we will have more to say about the disastrous December TIC data shortly, which was released early today, and which showed a dramatic plunge in foreign purchases of US securities in December - the month when the S&P soared to all time highs and when everyone was panicking about the 3% barrier in the 10 Year being breached and resulting in a selloff in Tsy paper - one thing stands out. The chart below shows holdings of Chinese Treasurys (pending revision of course, as the Treasury department is quite fond of ajdusting this data series with annual regularity): in a nutshell, Chinese Treasury holdings plunged by the most in years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013! This was the second largest dump by China in history with the sole exception of December 2011.
Valuations are stretched. Profit margins are stretched. And given that these two have been reliable mean-reverting indicators, they are what drive our sobriety. We’re not saying the party’s over. For all we know, 2014 could post another positive year for the risk markets. There’s enough good news out there in terms of cash on the sidelines, declining unemployment numbers, U.S. as a safe haven in the event of an emerging meltdown ... yada, yada, yada. All we’re saying is that, as value investors, we’re nervous about the longer-term prospects for equities, especially in the U.S. Markets in the U.S. are not a little bit overvalued—they are overvalued by a hefty margin, especially small-cap stocks. And it is this concern, above all else, that will be driving our asset allocation decisions.
Now that Ben Bernanke has handed over the keys of the Federal Reserve, there are all sorts of theoretical arguments, pro and con, concerning his bold quantitative easing (QE) programs, in which the Fed massively expanded its balance sheet. Many critics have worried that this will disrupt the proper functioning of credit markets, and threatens to severely debase the US dollar. The defenders of Bernanke have argued that he spared the US (and indeed the world) from a second Great Depression. One of the odd (more farcical) points that people raise in Bernanke’s defense is the case of Japan... We do have historical examples of central banks ruining their economies/currencies through massive expansions of their balance sheets (Weimar Germany, Zimbabwe, etc.). To our knowledge, this has never actually worked anywhere in history...
The Gold market appears to be bottoming as does the Uranium market.