In just 44 somewhat anger-and-frustration-filled seconds, DoubleLine's bond guru Jeffrey Gundlach unleashes some very uncomfortable truths on Janet Yellen and the "idiots" at The Fed... "they have got to dial this [hawkish] rhetoric back or the markets are going to humiliate them."
When it comes to political entertainment, it doesn’t get much better than presidential election season in the United States. Edward Bernays, the father of modern public relations, examined it in 1928, in his book Propaganda. "Politics was the first big business in America,” he declared, and political campaigns are “all side shows, all honors, all bombast, glitter, and speeches.” The key to victory is the manipulation of public opinion, and that is achieved most effectively by appealing to the "mental clichés and emotional habits of the public."
When the RMB deval dust settled, some $1 trillion in capital fled China in 2015 as Chinese rushed to move money out of the country ahead of what many expect will be a much larger yuan depreciation. Estimating capital flight out of China isn't an exact science and different analysts look at different proxies to determine just how leaky the ship is, so to speak. For their part, Goldman has endeavored to break down the numbers on the way to shedding some light on where to look to assess the pace of the flows.
Contrary to those blaming the Fed for causing stocks to fall by “raising rates” (which Joe Salerno reflects on here) we want to stress the fact that, in raising rates, the most that the Fed could do is unravel previously made mistakes. In other words, there is nothing praiseworthy in the first place about artificially propped up stock market levels. We have no interest in lauding the longevity of the bubble, because the bubble is the enemy of the healthy economy. The collapsing equity markets reveal where bubbles were formed and that our alleged prosperity is an illusion. And this is precisely what former Dallas Fed Chairman Richard Fisher stated in a conversation on CNBC last week when he confessed: “We frontloaded a tremendous market rally to create a wealth effect.”
"Our take was that perhaps up to half of the earlier decline could be unwound. We believe, though, that one should not overstay one’s welcome in the bounce. The medium-term risk-reward for equities has worsened significantly, in our view, and the risk of a downside economic scenario is far from adequately priced in."
“What The Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect… and an uncomfortable digestive period is likely now.” – Former Dallas Federal Reserve Governor Richard Fisher – January 5, 2016.
Deeply concerning to us, and apparently now to Mr. Fisher, is the degree of excessive optimism embedded in current prices.
As the FED may find it impossible to finalise their plan for 4 rate hikes this year (25bps each in March, June, Sept and Dec, of which ~40% is priced in by markets currently), due to inflation expectations plummeting in addition to recession in US manufacturing, Oil, Commodities, China, EMs etc.. the 5y interest rate differential may have to capitulate and compress over the course of 2016.
Retail investors generally buy an off-the-shelf portfolio allocation model that is heavily weighted in equities under the illusion that over a long enough period of time they will somehow make money. Unfortunately, history has been a brutal teacher about the value of risk management.
For the 13th month in a row, The Dallas Fed Manufacturing Outlook was contractionary with a stunning -34.6 print following December's already disastrous collapse back to -20.1, post-crisis lows. With "hope" having plunged back into negative territory (-2.2) in December, January saw a complete collapse to -24.0 as one respondent exclaimed, "we expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction."
"There is some truth to the phrase that the stock market has predicted nine of the last five recessions... but that is a much better track record than the consensus of economists. Every time the financial markets get volatile and messy like this it deserves attention because the markets are trying to tell us that there is a severe issue out there."
“I was devastated when I found out. We had a pharmacy and a perfectly satisfactory grocery store. Maybe Wal-Mart sold apples for a nickel less. If you take into account what no longer having a grocery store does to property values here, it is a significant impact for us.”
Late last week the markets soared after the S&P hit 1812 - a 15% drop from its all time highs - with oil enjoying its biggest two-day surge in 7 years, on what most agree was a furious oversold bounce. But what was the catalyst? The start of the rebound has been widely attributed to Thursday comments by the ECB's Mario Draghi, however according to Citi's Brent Donnelly, this is incorrect and he notes that the wrong central bank is getting credit for the sharp risk-on move that started well before the ECB's statement and press conference: instead of the ECB it is the Bank of Canada that should be getting all the credit.
If the Wall Street Journal meant to reach for reassuring comfort, they fell far short. After spending late summer last year and into the fall proclaiming that manufacturing didn’t matter (12%), the newest round of talking points are “false positives.” In other words, manufacturing and industry does matter, after all, but just “not enough” to tip into full recession. Last year was supposed to be “the” year because of faith in only the BLS’ numbers. It was advertised as full deliverance of the promises of QE and ZIRP, but instead 2015 delivered only recessionary impressions.
Anyone who dares to question Obama's grand renaissance is supposedly peddling fiction. Meanwhile, in today's latest mass layoff event (which, oddly enough, has become a daily thing during the "recovery") some 2,500 Sprint workers - 8% of the company's 31,000 total employees - have already received, or are about to be "peddled" pink slips.