Martes 01.09.15 PMI, ISM manufactureros, gasto contruccion

[Fenix]

The "Great Accumulation" Is Over: The Biggest Risk Facing The World's Central Banks Has Arrived
Submitted by Tyler D.
09/01/2015 19:10 -0400


To be sure, there’s been no shortage of media coverage regarding the collapse in crude prices that’s unfolded over the course of the past year. Similarly, it’s no secret that commodity prices in general are sitting near their lowest levels of the 21st century.

When Saudi Arabia, in an effort to bankrupt the US shale space and tighten the screws on a recalcitrant Moscow, endeavored late last year to keep oil prices suppressed, the kingdom killed the petrodollar, a move we argued would put pressure on USD assets and suck hundreds of billions in liquidity from global markets.

Thanks to the fanfare surrounding China’s stepped up UST liquidation in support of the yuan, the world is beginning to understand what we meant. The accumulation of USD assets held as FX reserves across the emerging world served as a source of liquidity and kept a bid under things like US Treasurys. Now that commodity prices have fallen off a cliff thanks to lackluster global demand and trade, the accumulation of those assets slowed, and as a looming Fed hike along with fears about the stability of commodity currencies conspired to put pressure on EM FX, the great EM reserve accumulation reversed itself. This is the environment into which China is now dumping its own reserves and indeed, the PBoC’s rapid liquidation of USTs over the past two weeks has added fuel to the fire and effectively boxed the Fed in.

On Tuesday, Deutsche Bank is out extending their "quantitative tightening" (QT) analysis with a look at what’s ahead now that the so-called "Great Accumulation" is over.

"Following two decades of unremitting growth, we expect global central bank reserves to at best stabilize but more likely to continue to decline in coming years," DB begins, before noting what we outlined above, namely that the "three cyclical drivers point[ing] to further reserve draw-downs in the short term [are] China’s economic slowdown, impending US monetary tightening, and the collapse in the oil price."

In an attempt to quantify the effect of China’s reserve liquidation, we’ve quoted Citi, who, after reviewing the extant literature noted that for every $500 billion in EM FX reserve draw downs, the effect is to put around 108 bps of upward pressure on 10Y UST yields. Applying that to the possibility that China will have to sell up to $1.1 trillion in assets to offset the unwind of the great RMB carry and you end up, theoretically, with over 200 bps of upward pressure on yields, which would of course pressure the US economy and force the Fed, to whatever degree they might have tightened by the time China’s 365-day liquidation sale ends, to reverse course quickly.

Deutsche Bank comes to similar conclusions. To wit:

The implications of our conclusions are profound. Central banks have accumulated 10 trillion USD of assets since the start of the century, heavily concentrated in global fixed income. Less reserve accumulation should put secular upward pressure on both global fixed income yields and the USD. Many studies have found that reserve buying has reduced both bund and US treasury yields by more than 100bps. For every $100bn (exogenous) reduction in global reserves, we estimate EUR/USD will weaken by ~3 big figures.



[...]



Declining FX reserves should place upward pressure on developed market yields given that the bulk of reserves are allocated to fixed income. A recent working paper by ECB staff shows that the increase in foreign holdings of euro area bonds from 2000 to mid-2006... is associated with a reduction of euro area long-term interest rates by about 1.55 percentage points, in line with the estimated impact on US Treasury yields by other studies. On the short-term impact, one recent paper estimates that “if foreign official inflows into U.S. Treasuries were to decrease in a given month by $100 billion, 5- year Treasury rates would rise by about 40–60 basis points in the short run”, consistent with our estimates above. China and oil exporting countries played an important role in these flows.




Which of course means the Fed is stuck:

The current secular shift in reserve manager behavior represents the equivalent to Quantitative Tightening, or QT. This force is likely to be a persistent headwind towards developed market central banks’ exit from unconventional policy in coming years, representing an additional source of uncertainty in the global economy. The path to “normalization” will likely remain slow and fraught with difficulty.

Put simply, raising rates now would be to tighten into a tightening.

That is, the liquidation of EM FX reserves is QE in reverse. The end of the great EM FX reserve accumulation means QT is set to proliferate in the face of stubbornly low commodity prices and decelerating Chinese growth. And indeed, if the slowdown in global demand and trade turns out to be structural and endemic rather than cyclical, the pressure on EM could continue unabated for years to come. The bottom line is this: if the Fed hikes into QT, it will exacerbate capital outflows from EM, which will intensify reserve draw downs, necessitating a quick (and likely embarrassing) reversal of Fed policy and perhaps even QE4.

[Fenix]

Guest Post: 10 Things I Hate About (You) Twitter Finance
09/01/2015 19:30 -0400

Via 330Ramp.com,

"You" is used below to indicate "you people" on Twitter Finance. "You people" know who "you" are.

1. When it comes time for a market correction you make sure to let everyone know that if they would have followed your advice, $29.99 newsletter, or real time alert they would have been fine and avoided disaster.
2. You are an "expert" in every facet of the economy (Greece, oil, China, Central Banking) yet you graduated with an Art History degree from some community college and live in your parent's basement using Time Warner Cable's 5MB/s internet speed.
3. You put #timestamps where #timestamps are not needed and then delete tweets when it turns out you were wrong.
4. You tweet too much and don't click the buy button enough.
5. After something bad happens, you tweet archaic quotes from 3rd century B.C. Roman poets that no one cares about. (e.g. "Fortune favors the brave." -Aenied)
6. You consistently quote tweet or RT followers who give you praise for nailing the bottom. (e.g. Thanks! RT @XYZ Great call on $AAPL! Now I'm rich! You nailed it!)
7. You say "I nailed it" way too much.
8. You only post about the trades you made money on. You never post about the trades you lost money on. This is the oldest trick in the book to make people think you are actually good at what you do and that they should follow you. They shouldn't.
9. You incorrectly say $STUDY and annoyingly use it too much.
10. You post charts that look like this:




If you find that you are pointing to yourself on 5 or more of the bullet items above please delete your Twitter account immediately.
Thanks,

#Rampstamp




Macroeconomics Is The Root Of All Error
09/01/2015 20:40 -0400

Submitted by Bill Frezza
Will Fed chief Janet Yellen pull the trigger to raise interest rates in September or not? Only the soothsayers at Jackson Hole know for sure. But while the world awaits the decision, ponder this. What do the following have in common?

* Asset bubbles fueled by monetary policy.
* Unsustainable sovereign debts threatening government bankruptcies.
* Government economic “cures” worse than the diseases they are supposed to treat.
* Questionable GDP statistics.
* Recurring bank bailouts.

Figured it out yet? They are all driven by an overweening state religion called macroeconomics.

Friedrich Hayek said it best. “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

A pity this simple, yet profound insight remains at the fringes of a field that continues to wreak havoc in the hands of those who imagine they can design economic outcomes.

Think about it. We are currently watching global stock markets gyrate toward breakdown trying to anticipate the whims of a cloistered professor who never launched a business, never met a payroll, never shipped a product, and never won an election, yet has been empowered to determine the price of money. What’s even stranger is that people consider this normal. Ask yourself: Why do we wait on pins and needles for Janet Yellen to set interest rates yet laugh at the idea that kings once set the “just price” for a loaf of bread?

That’s where Hayek’s curious task comes in.

The human inclination to seek order in a seemingly chaotic world has long been exploited by generations of pundits, professors, and politicians eager to convince us they can impart certainty to the unknowable.

Note that I say the unknowable, not the unknown. Science has proven quite adept at exploring the unknown. That’s because as science progresses, falsifiable hypotheses that fail to make accurate predictions get discarded in favor of alternatives that do. No so in macroeconomics, whose prognostications bear an uncanny resemblance to predicting the nature of the afterlife. Rather than make continuous progress, the same discredited macroeconomic theories tend to cycle in and out of fashion depending on which court economists have the upper hand at any given time.

One cannot perform controlled macroeconomic experiments because “the economy” is not a measurable thing, like the weight of a stone or the strength of an electric field. It is merely the name we give to billions of transactions that take place across the planet, each driven by decisions made by independent actors optimizing their own well being according to their own criteria. These criteria cannot even be articulated by many of the players themselves, much less known to a third party pretending omniscience. Undeterred, practitioners of the black arts conjure up aggregates like “GDP” or “CPI,” but any honest examination of these metrics quickly leads to the conclusion that they are nothing more than political fictions that can be manipulated to suit the policy proclivities of the moment.

Macroeconomists use GDP to characterize billions of economic transactions, supposedly like a physicist uses temperature to characterize the average kinetic energy of gas molecules as they bump into each other in the atmosphere. They come up with equations linking the velocity and quantity of money to the inflation rate, or the inflation rate to the unemployment rate, designed to look like the ideal gas law PV = nRT. This fools many people into believing these soothsayers are doing science.

But gas molecules are not willful. They don’t have hopes and fears, friends and enemies, retirement savings and mortgage payments. Gas molecules don’t change their behavior when you tell them what their temperature is. The idea that you can write equations to accurately capture complex human behaviors, and then develop policies based on these equations aimed at controlling those behaviors, is what Hayek called the Fatal Conceit.

Macroeconomics reigns in the realm of the unknowable promising that which cannot be delivered to the eager to be deceived, benefitting an entrenched priesthood and the potentates they serve. Its cloaking in mathematics, rather than music and incense, gives it the requisite air of mystery to discourage questioning the guidance of its anointed sages and prophets. Unless and until we acknowledge that what these people are practicing is a religion and not a science, we will remain in its obscurantist thrall.

When scientific laws consistently fail to make accurate predictions, we throw the laws away. What happens when predictions about the impact of macroeconomic interventions fail, such as the inability of quantitative easing to deliver anything like the results promised? There is always a macroeconomist standing by to claim “we didn’t do enough.” And so the answer to every policy failure is: “Give Us Moar!”

Thus, the goal of reformists cannot be to simply replace one set of grandees with another, but to throw the Church of Macroeconomics out of the Overton Window, so it can pass into history alongside phrenology, phlogiston, and luminiferous aether.

[Fenix]

The Market's "Other" Panic Indicator Just Went Off The Charts
Submitted by Tyler D.
09/01/2015 16:31 -0400


With indicators from macro-fundamentals (e.g. retail sales, core capex, inventory-to-sales) to market-oriented measures (VIX levels and backwardation, HY credit spreads, commodity prices) all flashing various colors of dead canary in the coal-mine red, we thought today's colossal spike in the Arms (TRIN) Index was a notable addition.

An Arms Index value above one is bearish, a value below one is bullish and a value of one indicates a balanced market. Traders look not only at the value of the index, but also at how it changes throughout the day. Traders look for extremes in the index value for signs that the market may soon change directions. The Arm's Index was invented by Richard W. Arms, Jr. in 1967. In essence, a sudden surge in the TRIN indicates a jump in trader lack of confidence, as everyone scrambles to either go long the 2-3 rising stocks, or to sell or short the biggest decliners, ignoring the bulk of the market..

Today's move was far greater than "Black Monday's market-halting crash:

In longer context:

As we noted previously, the Arms index is an indicator of market breadth essentially tracks lemming like momentum-chasing behavior with respect to volume... meaning today saw panic-buying volumes which given that it was dip-buyers at the close, we suspect won't end well...



Trade accordingly....