Martes 10/03/15 inventario de mayoristas

[Fenix]

Japan Now Spends 43% Of Tax Revenue To Fund Interest On Debt
03/05/2015



Once upon a time businesses borrowed long term money - if they borrowed at all - in order to fund plant, equipment and other long-lived productive assets. Today American businesses are borrowing like never before - to fund financial engineering maneuvers such as stock buybacks, M&A and LBOs, not the acquisition of productive assets that can actually fuel future output and productivity.

Let’s see. The Eccles Building has grown its balance sheet by 9X since the turn of the century, but real net investment in the business sector has plunged by 33%!



Earlier today a lightbulb went over the head of Goldman Sachs which just had the following epiphany: "if we have blamed the snow for everything so far, shouldn't we also blame it for the most important data point to come - tomorrow's nonfarm payrolls?" And so it did...

3 Things - New Highs, Dollar Rally, Margin Debt
Tyler Durden.
03/05/201

These New Highs Look Like The Old Highs
There has been much commentary over the past week as the S&P 500 reached new highs. The issue, for me, is that these "new" highs look much like the old highs that we have seen since October of last year.

SP500-NewHighs-030415

Each successive new high has been driven by a rather spectacular advance, historically unprecedented, subsequently followed by a sharp decline that leave investors a bit paralyzed.

As I discussed yesterday, momentum has been a key driver in the market as of late as the “fear” of missing further gains has overridden the logic of deteriorating fundamentals. As shown in the chart above, each decline has stopped at bullish trend line. The exception was the October decline which held longer term support but rallied back on the announcement of a massive QE push by Japan. Currently, the “bulls” remain in charge of the market for now.

The current advance to “new highs” in the market looks much like the “old highs.” The issue will be whether the ensuing correction, which may be underway now, will continue to hold the “bullish trend” while working off the overbought condition of the market on a short-term basis.

It is worth noting that at some point the trend will fail. It will be then that the mentality of the “herd” reverses and the chase of “returns” becomes a chase for “safety.”

Is The US Dollar Rally Complete

One the impacts to corporate earnings, due to the impact on exports which makes of roughly 40% of corporate profits, has been the recent surge in the U.S. Dollar. The dollar became the “safe haven” of choice as the Federal Reserve wound down the latest version of QE, and the deflationary pressures in Europe gained traction pushing the majority of those economies towards recession. Furthermore, the fear of a “Greek Exit” from the Eurozone made holding Euro’s less favorable in the event of financial disruption.

As shown in the chart below this pushed the dollar from near historically low levels to an extremely overbought condition in a relatively short period. However, the current dollar rally is not unprecedented. As shown below, the dollar had similar rallies in 2008 and 2010. The difference this time is that the dollar rally hasn't resulted in falling asset prices. Yet.

USD-SPY-030415

With the dollar now 3-standard deviations overbought, and pushing a 50% Fibonacci Retracement, the US Dollar trade has become extremely crowded.

The risk to the dollar trade currently is a shift in money flows from the U.S. Dollar back into the Eurozone. IF, and this is a rather big “if”, the ECB is successful in generating a positive feedback loop into the Eurozone via their bond buying scheme, there could be a rather substantial reversal of those long dollar flows.

This is a bet that is currently being made by most asset managers as they “front ran” the ECB and piled into European stocks.

Euro-Equity-Exposure-021915

The interesting point here is that someone is going to be VERY wrong. However, the last time that there was this much bullishness on Eurozone equities was in 2006 just before the dollar started to fall.

Margin Debt Sends A Warning Signal

I discussed earlier this week a variety of warning signs that are popping up across the financial markets and the economy. The latest indicator to send off a warning was margin debt.

As I have discussed previously:

"What is important to remember is that margin debt 'fuels' major market reversions as 'margin calls' lead to increased selling pressure to meet required settlements. Unfortunately, since margin debt is a function of portfolio collateral, when the collateral is reduced it requires more forced selling to meet margin requirements. If the market declines further, the problem becomes quickly exacerbated. This is one of the main reasons why the market reversions in 2001 and 2008 were so steep. The danger of high levels of margin debt, as we have currently, is that the right catalyst could ignite a selling panic.



The issue is not whether margin debt will matter, just 'when.' Unfortunately, for many unwitting investors, when that time comes margin debt will matter 'a lot.'"

Importantly, it is not the "rise" in margin debt that is worrisome. As long as margin debt is rising it is providing support to rising asset prices. However, as Norman Fosback, former President of the Institute for Econometric Research, pointed out in his book "Stock Market Logic", it is the fall.

"If the current level of margin debt is above the 12-month average, the series is deemed to be in an uptrend, margin traders are buying, and stock prices should continue upwards. By the same line of reasoning, sell signals are rendered when the current monthly reading is below the 12-month average. This is evidence of stock liquidation by margin traders, a phenomenon that usually spurs prices downward."

As shown in the chart below, only for the 4th time since 1995 have margin debt levels fallen below their 12-month moving average. (There was a small tick below the 12-month average in 1998 during the Asian-Contagion/LTCM crisis)

Margin-Debt-12MthAvg-030515

Each decline below the 12-month average in the past has coincided with fairly large market corrections. While the current decline in margin debt does NOT mean that we are about to enter into the next major market reversion, it does suggest that the current bull market trend could be at substantial risk.

Lastly, we can take a look at the Relative Strength of margin debt as compared to the S&P 500 going back to 1959. While declining levels of relative strength are not ALWAYS indicative of a decline in asset prices, there is a fairly high correlation when the RSI begins to fall from 80 or above to 60 or below. Currently, RSI for margin debt is at 58.06.

Margin-Debt-RSI-030515

As I summed up previously:

"What the data doesn't tell us is whether it [the next correction] will be a 'buy the dip' opportunity or something much more significant. Given the length of current economic expansion and cyclical bull market, the fact that the Fed is extracting liquidity from the markets, and the current extension of the markets above their long-term moving averages, there is cause for real concern."

And then there's this...

Chart: US margin debt ringing the bell? pic.twitter.com/JnekjE9vo4

— Callum Thomas (@Callum_Thomas) March 5, 2015

[Fenix]

Overnight Wrap: Euro Plummets As Q€ "Priced In", Futures "Coiled" Ahead Of Payrolls
Tyler D.
03/06/2015

If yesterday morning, the key macro data was the current , and projected, weakness in China (whose record jump in FX deposits indicates fears about capital outflows are alive and well, and that the highest currency depreciation risk in 2015 is for none other than the Chinese currency), then overnight we got more economic data out of Europe that, at least for now, suggest that the collapse in the Euro is boosting European factory order, with German Industrial Production not only beating expectations, but the prior month being revised from 0.1% to 1.0% - the fifth consecutive increase in production. Spain promptly met that "beat and raise", when it also reported a better than expected 0.4% (est -0.3%) with December revised higher to 0.0%. All of which was to be expected - as we noted yesterday, the main reason for transitory European strength in a zero-sum world, is the soaring USD and the collapsing, recession-level US factory orders.

The question stands: how much longer will the Fed allow the ECB to export its recession to the US on the back of the soaring dollar, and how much longer will the market be deluded that "decoupling" is still possible despite a dramatic bout of weakness in recent US data. Look for the answer in today's BLS report, which - if the Fed is getting secound thoughts about its rate hike strategy in just 3 months - has to print well below 200,000 to send a very important message to the market about just how much weaker the US economy is than generally perceived.

For now, however, the ECB is getting its way, and the question of just how much European QE is priced in, remains open, with peripheral bond yields dropping to new all time lows for yet another day, while the EURUSD has plunged to fresh 11 year lows, sliding below 1.094, and making every US corporation with European operations scream in terror.

Looking at markets, US equities are just barely in the red, coiled to move either way when the seasonally-adjusted jobs data hits. it has been very quiet ahead of non-farm payrolls in core fixed income and equity markets, however peripheral curves have been bull flattening throughout the European session, with record low yields for Spanish, Portuguese, Italian and Irish 10y, while the German 10/30s curve resides at its flattest level since June 2012. Meanwhile, the EUR 5Y/5Y forward breakeven rate rose to a year high this morning, at 1.798%.

Elsewhere equity markets have traded sideways (EUROSTOXX 50: -0.03%), with many market participants looking ahead to the key event of the day, US non-farm payrolls scheduled at 1330GMT/0730CST (Exp. 235k). According to the latest Fed stress tests, all 31 US banks passed after exceeding minimum requirements, for the first time since the tests began in 2009. However, Goldman Sachs (GS), Morgan Stanley (MS) and JP Morgan (JPM) were among the five banks with the lowest readings for a capital ratio of at least 5%.

FX markets are still seeing repercussions from yesterday’s ECB press conference with EUR/USD breaking back below the 1.1000 handle and yesterday’s low of 1.0988 to reside around its lowest level since 2003, with a large option at 1.1000 (USD 2bln) set to roll off at the 10am NY cut. Elsewhere, there are large options in USD/JPY at 120.00 (USD 2.2bln) and 120.50 (USD 1.1bln) also set to expire at the 10am NY cut. GBP/USD fell to a four week low this morning in sympathy with the EUR as well as on the back of the BoE surveyed inflation forecast for the next 12 months (1.9%, Prev. 2.5%), the lowest since 2001.

The EUR weakness sees the USD-index continue to print fresh 11 and a half year highs and is set for its best weekly performance in over a month. While during Asian hours, AUD/USD broke above the 0.7800 handle after erasing almost all of yesterday’s losses, as AUD/NZD extended yesterday’s 1% gain.

As well as the non-farm payroll report, which may be slightly delayed today due to poor weather conditions in Washington DC, today also sees comments out of Fed’s Fisher (Non-Voter, Hawk) at 1830GMT/1230CST, with Fed's Williams (Voter, Dove) stating overnight that by mid-year, the Fed should seriously discuss hiking rates and that it is safer to increase rates early and gradually than waiting and having to hike rates sharply.

The greenback’s 11 and a half year highs have weighed on the precious metals market, with gold and silver both in negative territory during the European session, while in base metals iron ore fell below USD 60/tonne during Asia hours to a 6yr low. In the energy complex, WTI crude futures trade relatively flat heading into the NYMEX open amid no major fundamental news and are on course for their first weekly gain in 3-weeks.

Today’s focus will of course be on the payroll report for February. The market is looking for a +235k print which is down from +257k in January. Indicatively everyone's favorite weatherman, DB's Joe LaVorgna, expected +250k forecast. According to Joe although inclement weather over the past month, which has coincided with unseasonably cold temperatures, may have been a factor weighing on economic activity the last few weeks, February nonfarm payrolls may have dodged most of the worst of the recent weather disruptions given that jobless claims plunged during the February employment survey week. Jobless claims for the period at 282k were 27k lower than the January payrolls survey period. As a reminder Goldman also warned that due to snow, the NFP number is likely to be weaker although "snowstorms" may push wage data higher.

In summary: European shares remain mixed, though off intraday lows, with the insurance and travel & leisure sectors outperforming and telcos, real estate underperforming. German Jan. industry output above estimates. Euro drops to lowest since 2003 against dollar. The Swiss and Italian markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Portuguese 10yr bond yields fall; Irish yields decline. Commodities gain, with silver, copper underperforming and Brent crude outperforming. U.S. trade balance, consumer credit, nonfarm payrolls, unemployment, average earnings, labor force participation, due later.


DB's Jim Reid as is customary completes the balance of overnight events

A confident, yield curve flattening, high beta enhancing Draghi. More European risk out-performance but offset by a weaker FX. A payrolls preview with lots at stake. A big optical change in Euro credit spreads given index changes at the end of last month, a preview of our latest HY monthly and thoughts on the UK where yesterday the BoE saw its 6th year anniversary of cutting rates to a now 321-year low. All this and a landmark day yesterday in my year. After 5 weeks and 5 days my knee brace was allowed off. My MCL is well on the road to being healed. Now starts 3 and a half weeks of physio before I can have surgery reconstructing my ACL and then back to another 6 month rehab-ing. My wife said to me that my best feature used to be my thighs, especially given all the cycling. After 5 and a half weeks of wastage she now thinks they're my worst. They now wobble, look feeble, are weak and go alongside a right knee can only bend very slightly after all that time in a brace. So the hard work starts today.

From listening to Mr Draghi yesterday it seems he feels the hard work is over before they've even started QE. We learnt that they will start the program on Monday and that the ECB president was in confident mood at the meeting yesterday both on growth prospects and the likely success and functionality of the QE program. Surprisingly there was a bit of market nervousness going into the meeting concerning how committed they are to QE but the council appeared fully behind the plans they announced in late January.

In terms of the technicalities, the headline that caught the eye was that ‘purchases of nominal marketable debt instruments at a negative yield to maturity are permissible as long as the yield is above the deposit facility rate’, which is currently -0.20%. This should promote flatteners as the ECB bias purchases further out the curve. It also appears that there may be some flexibility for NCB’s should purchases of govvies and agencies in their respective jurisdiction prove insufficient by making ‘substitute purchases’ instead. Our European Economics team noted that substitutes could include international/supranational institutions in the euro area or, in exceptional circumstances, the market debt instruments of ‘public non-financial corporations’ within the jurisdiction in question. The 25% issue limit meanwhile will apply for the first six months, after which it will be subsequently reviewed by the Council.

With respect to Greece, the waiver on Greek collateral was not-reintroduced with the ECB continuing to play hardball. Our colleagues noted that with respect to the current funding situation, after yesterday it appears that financing T-Bills under ELA is not an option for Greece. Instead the focus will now be on the Eurogroup meeting where by an early disbursement of funds from the EU/IMF programme may be the main hope for Greece, however this will clearly depend on Greece’s incentive to agree to the correct conditions for any disbursement.

ECB President Draghi also presented the staff forecast for HICP inflation of 1.8% in 2017 which is slightly higher than DB's forecasts. To be fair this was never going to be sub 1.5% or much more than 2% as it would indicate that their policies now aren't appropriate. So it’s a bit of a meaningless forecast at this stage but an interesting one to track. On growth, the staff forecast are for real GDP to expand by 1.5%, 1.9% and 2.1% in 2015, 2016 and 2017 respectively. The upgraded forecasts are cumulatively 1.2pp more than the Bloomberg consensus number.

Sentiment was clearly better following the headlines. Equities in Europe closed firmer with the Stoxx 600 +0.81% higher and now just a shade off the all-time highs of 15 years ago. The DAX (+1.00%) and CAC (+0.94%) also closed higher, the former in particular extending all time highs. The better sentiment didn’t appear to help markets in the US however where bourses closed relatively subdued. The S&P 500 (+0.12%) closed a touch higher with the market appearing to be in hold mode ahead of payrolls today. However, with a 0.43% depreciation for the Euro versus the Dollar to $1.103 yesterday, this explains some of the differential. In fact, over the last two days, in USD terms the Stoxx 600 has returned -0.10% and the S&P 500 is -0.32%.

The better tone in Europe wasn’t just constrained to equity markets yesterday. Credit too had a firmer day as Crossover tightened 11bps. Meanwhile, supported by the news of the ECB buying bonds down to -0.2% yields, there was a strong bid for government bonds. The Bund curve flattened in particular as 2y and 5y notes tightened 0.1bps and 2.7bps respectively whilst 10y and 30y yields dropped 3.5bps and 8.8bps. 2y Bunds were in fact one of the underperformers on the day across Europe which was unsurprising given they already trade below the -0.2% cut off for the ECB (at -0.209%). Peripherals also benefited with 10y yields in Spain (-7.9bps), Portugal (-9.2bps) and Italy (-8.6bps) all tightening – the latter two in particular closing at fresh all-time lows in yield.

Also late yesterday we had the results of the Fed stress tests which showed the 31 largest banks meeting the necessary capital requirements under various hypothetical scenarios. It was in fact the first time since tests started in 2009 that all participating banks passed. The banks will now face a second round on Wednesday which will test the strength of a bank in returning money to shareholders. The WSJ reported that two banks in particular, Goldman Sachs and Zions Bancorp, had ratios close to the Fed’s minimum level which could well limit shareholder payouts.

Staying in the US, today’s focus will of course be on the payroll report for February. The market is looking for a +235k print which is down from +257k in January. Our US colleagues have a slightly more bullish +250k forecast. They argue that although inclement weather over the past month, which has coincided with unseasonably cold temperatures, may have been a factor weighing on economic activity the last few weeks, February nonfarm payrolls may have dodged most of the worst of the recent weather disruptions given that jobless claims plunged during the February employment survey week. Jobless claims for the period at 282k were 27k lower than the January payrolls survey period. They note that the four-week moving average for the February survey week was lower as well (283k vs. 307k in January) and in fact the third lowest for a payroll survey week since going back to April 2000.

Yesterday’s more subdued performance in the US appeared to be as a result of slightly softer macro data and also a decline in oil stocks. On the latter, the energy component (-0.62%) was the notable underperformer following a decline for WTI (-1.49%) and Brent (-0.12%). In terms of data, it was the jobless claims print which caught the eye with the 320k print well ahead of the 295k expected. The reading was in the fact the highest in nine months although it’s likely that the recent bad weather played its part. Elsewhere, factory orders (-0.2% mom vs. +0.2% expected) for January were softer than expected although both unit labour costs (+4.1% vs. +3.3% expected) and nonfarm productivity (-2.2% vs. -2.3% expected) surprised modestly to the upside.

Away from yesterday’s price action and looking more closely at credit markets we quickly wanted to highlight the impact on the EUR cash indices of the recent rating downgrades for both Gazprom and Petrobras, which have seen their bonds exit the iBoxx IG indices and join the HY indices. In total €6.75bn (notional outstanding) of Gazprom bonds and €6.9bn (notional outstanding) of Petrobras bonds have transitioned. Having been in the top 30 of issuers in the IG index they are now the 3rd and 4th biggest issuer in the HY index. But perhaps of more interest is what this has meant for index spread levels. First of all the impact on IG. The overall corporate index is now 6bps tighter as a result while the non-financial index has tightened by 9bps. However the most notable move comes in BBB non-financials where spreads are now nearly 20bps tighter. The addition of these names to the HY index has obviously seen indices widen, particularly the BB non-financial index, which is more than 30bps wider post the addition, while overall non-financial are around 20bps wider. Clearly all this is only optical but it’s a nightmare for us strategists as when we use spread charts we're now clearly not looking at a consistent series. Woe is us.

Staying with credit, yesterday we published our latest HY monthly where we revisit our EUR vs. USD HY cross currency analysis. At a broad index level USD BBs appear to offer more yield and spread than EUR BBs while for single-Bs yields are at broadly similar levels while EUR single-B spreads still offer reasonable upside. These trends are also broadly present when we look at the analysis at a more micro bond level. So higher rated bonds spreads look more attractive in USD than EUR but as we move down the credit spectrum the EUR bonds offer the wider spreads. Therefore it’s difficult to come up with a definitive conclusion and any investment decision may actually be driven by factors other than simply relative valuations with implications of divergent monetary policy and the energy sector likely to play an important role.

Back to monetary policy, outside of the ECB, the BoE kept rates unchanged yesterday as was of course expected on what was the 6th anniversary of them cutting rates to 0.5%. In today's EMR we repeat a well used graph of ours showing the UK base rate back to 1694 - the longest series for any global base rate. Prior to this current period, the lowest rates were hit was 2%. So it’s easy to forget in these days of negative yields just how unusual the whole interest rate situation is. There is no historical context for what has been seen in recent years. Interestingly in a conversation with George Buckley yesterday, he reminded me that at the start of this 6 year period the BoE suggested that rates couldn't go lower than 0.5%. With the release of the last minutes they seemed to have changed their mind and left the door open for lower rates if the need arises. Just by doing nothing the BoE has gone from a low yielding early mover 6 years ago to now being a higher yielder in Europe. Interesting times.

Quickly refreshing our screens this morning, Asian bourses are generally firmer ahead of today’s data. The Nikkei (+1.03%), Shanghai Comp (+0.09%), Hang Sang (+0.06%) and Kospi (+0.68%) are all higher.

In terms of the day ahead, focus will of course be on payrolls this afternoon however before that we get more details on the Q4 GDP print for the Euro-area (market expecting +0.9% yoy) as well as industrial production out of Germany and trade data for France. Along with payrolls in the US, we get the usual associated employment indicators including unemployment, hourly earnings and the labour force participation rate. Consumer credit rounds off the calendar.

[Fenix]

Shale Company Defaults On $175 MM In Bonds Without Making A Single Interest Payment
Submitted by Tyler D.
03/05/2015

Update: And just to prove that people are indeed, idiots, moments ago this hits:

ENERGY XXI GULF COAST, INC. PRICES UPSIZED PRIVATE OFFERING OF $1.45 BILLION OF 11.000% SENIOR SECURED SECOND LIEN NOTES DUE 2020

Back in August 2014, yield-starved bondholders were delighted to give American Eagle Energy $175 million in cash, and why not: the company promised them an 11% annual cash coupon. Seven months later the company is in default, and the same bondholders are looking at an 80% loss, without receiving even one coupon payment. Movie Gallery anyone?



0% Down, 100% Chance of Trouble
Tyler D.
03/05/2015

We've seen this movie before, and if I recall correctly, it didn't end terribly well.

In fact, we're still living through the seemingly-endless backlog of delinquent loans and distressed properties that the massive housing boom and bust cycle left us with back in 2008. A cycle that was fueled by free-flowing capital, and built bad loan by bad loan by bad loan.

Imagine my surprise to read today about a new loan product that requires 0% down; has no private mortgage insurance requirement; provides cash from the lender for up to $4,500 of the closing costs, and allows gifts or seller funding for the rest of the closing costs; is aimed at borrowers making less than 80% of the median income in the market where they're buying a home; and available only for properties located in a low-to-moderate income census track.

Details from HousingWire here: http://www.housingwire.com/articles/331 ... zero-per...

So, zero down payment loans to low-income borrowers with basically no cash reserves, on properties least likely to increase appreciably in value, and probably most likely in need of repairs.

What could possibly go wrong with this set-up?

I like the idea of helping people buy more homes, more easily, and more affordably. And I'd like to think that this lender is trying to do just that with its new program.

But having lived through the last cycle of zero-down loans to marginally-qualified borrowers, I know that what really happened was that people who just weren't financially ready for home ownership were put into homes they really couldn't afford, with predictably unpleasant results. In many cases, the resultant foreclosure - along with the financial meltdown that many of these borrowers experienced - has made their opportunity for home ownership - even in the future - extraordinarily unlikely.

We shouldn't be putting borrowers in a position of being one water heater leak away from a foreclosure. Not again.

Let's hope that history doesn't repeat itself here. This is one sequel I'd really rather not see.

[Fenix]

Alan Greenspan Warns Stocks Are "Without Doubt Extremely Overvalued"
Tyler D.
03/06/2015

While America 'believes' it is highly productive, former Fed Chair Alan Greenspan instantly dispels that myth in another ominous appearance on CNBC this morning, "American productivity has gone nowhere in the last few years," and that is what is holding back wage growth. Furthermore, reiterating his concerns about the inverse relationship between surging entitlements and weak savings rates, Greenspan noted, "the annual rate of increase in entitlements of 9% per year...and the people that receive it believe they are getting their money back and have a right to it." There simply is no long-term investment as businesses favor short-term actions as the Maestro explains Fed QE lowering the real rate of interest "has been responsible for the rise in P/E multiples... and when rates normalize, that will reverse," adding that "we can't argue that we are extremely overvalued in the marketplace."

Greenspan explains... Productivity... Savings... Entitlements... Euro Failure... QE...Fed bubble-blowing... stock overvaluation and 1929 looms...


Markets Are Now Beyond The Control Of The Fed
Tyler D.
03/06/2015

The Fed has purposefully tried to engineer a later lift-off beyond what it normally should have been -- due to the extent of the crisis. However, they risk losing credibility as the market is questioning just how behind the curve they are. A growing group of investors is worried that the Fed is blind to the aggregating risks to financial instability.

The interesting contradiction is that the market believes the Fed should have tightened already, yet interest rate futures have priced “lift-off” probabilities beyond September. This incongruity in interest rate futures stems from the market’s perception that the majority of FOMC members are Doves who rely too much on models and will thus stay accommodative. The ZLB simply does not afford the Fed the option of rising too soon or they believe they will undo much of the progress that they made (and would have no bullets to fix that mistake).

Unfortunately, Fed models are incapable of measuring extent and costs of financial instability – something Mester admitted and emphasized last week.

The FOMC likely recognizes that there will be a ‘market reaction’ when rate “lift-off” finally arrives, but there are many (including myself) who believe the Fed is under-estimating the degree of that ‘market reaction’. Fed worries are suppressed, because they believe they have “macro-prudential” tools: a talking point that few in the market have understanding what it really means. Regardless, those tools do not prevent market disruptions, but merely help to pick up the pieces once the market’s reaction gets bad enough.

The front end of the bond curve needs to price in a Fed that likely to hike in June. This is occurring (after today’ employment report) and thus shrinking the divergence between the Fed warning about June “lift-off” and the markets skepticism.

The curve is steepening today as long maturities are battling between two cross winds (explained in a moment). Yet, the upward pressure on long yields could be short lived to this week and early next (supply), while the downward pressure on yields may be a slower moving and on-going theme.

Yields are being pressured higher by a historically large corporate issuance calendar (above $60 billion this week alone) and the perception that the Fed is behind the curve -- particularly after the ECB’s action and numerous other global central bank easing moves in 2015.

On the other hand, yields are being kept lower than they would otherwise be, due to low global bond yields and an appreciating US dollar trend which makes Treasuries very attractive to foreigners on a relative basis. In addition, yields are low due to hoarding of long-date securities by central banks which is creating a shortage of high-quality highly-rated sovereign bonds. Regulatory rules have also required banks to hold more of them. Therefore, it is difficult to price the value of long-dated Treasuries when they have qualities of a commodity whose demand is arguably greater than the supply.

I still like the flattener and believe the market is providing an opportunity to get into the trade at better levels (than recent levels). I like the flattener in Europe (even more than in US). I believe several 2’s 10’s curves in the EU are likely to go to ZERO. The CB’s implementing ECB QE will want to buy positive yielding securities. Even though the cap is -0.20%, they are unlikely to buy negative securities. As the shortage of willing sellers gets scarcer, I believe rates will attempt to grind toward 0%. German 2’s yield -0.21% (below the cap), while 10’s yield 0.0.34%. I can envision this curve at zero even as economic data in Europe is better than expectations. A flattening curve in Europe would place flattening pressure on the US curve as well.

* * *

On a separate note there is another factor that may arise going forward. During the last several years of uber-accommodation by the Fed, both stock and bond prices rose. It would not be surprising if both fell in price as the Fed proceeds with a June “lift-off”. However, stocks might be the worse of the two performers. I expect rising market turbulent and expect a terminal fed funds rate of only 0.75%-1.00% into mid-2016. The Feds balance sheet has $400 billion of maturities to deal with in early 2016 which the market place is not paying enough attention to. I believe the Fed will want to allow as much of this as possible to roll off (i.e. the balance sheet will shrink). The decline in the Feds balance sheet is a defacto tightening. The Fed may be reluctant to do both, i.e. hike, while also allowing the balance sheet to shrink too quickly. They could hike and do some re-investment, but it may be strange re-invest a large portion at the same time that they are hiking. I believe market turmoil and balance sheet maturities will cause a period of (hike) pauses in 2016. If this is true, Treasury market yields may not rise as high as some pundits are warning.

In a sense, markets are now beyond the control of the Fed. They were able to change investor behavior for a few years, but the herd mentality is now becoming dislodged: “lift-off” could possibly cause a steep reversal. I expect SPX to dip below 2000 by the time of the March 18th Fed Meeting. A ‘market reaction’ to pivoting policy is likely expected by the Fed, but SPX at 2000 would not enough to change its actions. How investors and asset allocators behave is the question.

Moreover, for stocks, rising bond yields will end the conversation about multiple expansion in US equities. Higher yields will also slow share buybacks, as corporate issuance to fund buybacks will dissipate. The shift in rate hike expectations is also accelerating the bid in the USD which will hit corporate earnings. Therefore, while equity prices and short maturity bonds prices could both fall, if the decline in equities falls too far too fast, then there would likely be flows into Treasuries until equities stabilize.

I expect the Fed to tighten in June and the Treasury curve to flatten. Carry and rolldown, relative yield attractiveness, the effects of ECB QE and the various other factors outline above and in prior notes will provide underlying support for Treasury prices. Should equities tumble too far too fast, all Treasuries yields across the curve would fall (and maybe materially) from today’s current prices.

[Fenix]

5 Things To Ponder: Spring Break Reading List
Tyler D.
03/06/2015

This weekend I leave for the snowy mountains of Utah to go skiing. It is our annual family reunion, and there has not been a year yet where someone hasn't ended up in the medical clinic. From just bumps and bruises to broken collarbones and torn ACL's, the injuries have been mild to severe. However, this is the risk that is taken when you decide to plungehead first down an ice covered mountain on a piece of fiberglass strapped to your feet. Eventually, despite the greatest of skill, something is going to go wrong.

What is interesting is that on a daily basis individuals jump into the financial markets with their "savings" in the hope of a thrilling ride. However, very much like skiing, inevitably you are going to take a tumble. Importantly, that "tumble" generally occurs when one becomes overly confident in their abilities and pushes the "risk" just beyond their inherent capabilities to react quickly enough. The result has tended to not be a pretty one.

As I discussed earlier this week, there are many signs that suggest the current market environment has begun to push the outer boundaries of the "risk" curve. While this doesn't mean that the markets are about to "crash," it does suggest that individuals with a lesser skill set may want to be a bit more cautious.

The following is a list of reading I will be doing while, hopefully, sipping coffee between monumental runs rather than in the medical facility nursing an injury. I know my limits, and the "fear" of falling keeps me from going over my skis.

1) Business Deaths Are Killing Job Growth by Jon Clifton via Gallup

"One of the main reasons that the jobs situation has yet to recover is that, according to the U.S. Census, the number of business deaths now exceeds the number of business births among employer firms for the first time since 1977, when this measurement began."

Gallup-Business-Deaths-030515

"Creating good jobs and subsequently rebuilding America's middle class hinges on the success and failure of small businesses and startups. Existing small businesses are experiencing headwinds caused primarily by challenging business realities, the overall economy and a concern about government regulations."

In The "I Told You So" Column: Challenger Job Cuts Surge As Lower Oil Fails To Result In Spending via ZeroHedge

Also Read: Census Bureau Was Fudging Jobs Data by John Crudele via NY Post

Another Take: Jennifer Aniston's Love Life Explains Unemployment Calc by John Tamny via RCM



2) On My Radar Equity Valuations, Recessions & Market Declines by Steve Blumenthal via Advisor Perspectives

"Global QE is running out of runway. Debt has increased, not decreased. Twenty countries have cut interest rates in 2015. It is an all-out global race to debase. Today let’s take a look at the hard evidence signaling slowdown. My personal view is that slowdown would not be as much of a problem if valuation measures were low. They’re not: by just about every measure the market is overpriced, overbought and over believed.



Last week I had a fascinating conversation with Neile Wolfe of Wells Fargo Advisors, LLC. Based on the underlying data in the chart above, Neile made some cogent observations about the historical relationships between equity valuations, recessions and market prices:

* High valuations lead to large stock market declines during recessions.
* During secular bull markets, modest overvaluation does not produce large stock market declines.
* During secular bear markets, modest overvaluation still produces large stock market declines.

Here is a table that highlights some of the key points. The rows are sorted by the valuation column."

Valuations-Recessions-Declines-030515

Read Also: Corporate Buybacks At Record Levels by Matthew Kerkhoff via Financial Sense

And More: Bull Market In Stock Buybacks by Ed Yardeni

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But Also: US Equity Valuations To Be Dismissed? by BCA Research



3) Investors May Have Jumped On The Wrong Boat by GaveKal Research

I noted in yesterday's "3 Things" that the net percentage of investment managers long Eurozone related stocks was at an all time high. GaveKal has a great piece explaining why this may just turn out to be a very bad idea.

"All of this would seem to lend support to the relationship we showed between ECB asset purchases and stock performance a while back-- namely that MSCI Europe looks vulnerable to a 35% decline from current levels."

ECB-BalanceSheet-MSCI-030615

Opposing View: The Compelling Case For European Stocks by John Kimelman via Barron's

Read Also: Why Weak Data And Earnings Don't Matter...Yet by Charlie Bilello via Pension Partners



4) Why This Tech Mania Is Worse Than 2000 by Mark Cuban via Business Insider

"For those who can't figure out how to be Angels. You can sign up to be part of the new excitement called . Equity Crowd Funding allows you to join the masses to chase investments with as little as 5k dollars. Oh the possibilities!



I have absolutely no doubt in my mind that most of these individual Angels and crowdfunders are underwater in their investments. Absolutely none. I say most. The percentage could be higher.



Why? Because there is ZERO liquidity for any of those investments. None. Zero. Zip."

But Also Read: Cuban Is Wrong by Cullen Roche via Market Watch



5) Ready To Retire? Probably Not by Kelly Hollan via CNBC

"A stabilizing retirement age is a problem because workers today have, on average, saved far too little to insure a comfortable retirement. Average 401(k) balances at Fidelity were $91,300 in 2014, but the firm also estimated that a 65-year-old couple retiring that year would spend an average of $220,000 during retirement on out-of-pocket health care costs alone."

Read Also: Invest Or Save More? by Noah Smith

Read Also: Lightening Generally Strikes Just Once by Ben Carlson via Wealth Of Common Sense

Chart Of The Day: Screw It I'm All In by Barry Ritholtz via The Big Picture

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"The trick is to stop thinking of it as YOUR money." - IRS Auditor

Have A Great Spring Break.

[admin]

Se esperan los resultados del seundo stress test. El primero fur aprobado por todos, ahora se decidira si pueden pagar dividendos. Los resultados despues de las 4:30 p.m.

[admin]

Euro down 1.0581

[admin]

Yen down 121.3

[admin]

+17

[admin]

+35.86

[admin]

LAST CHG %CHG
Nikkei 225
18723.52 +58.41 0.31%
Bovespa
48463.37 +169.97 0.35%
Hang Seng
23717.97 -179.01 0.75%
DJIA
17693.95 +31.01 0.18%

[admin]

Especulan que el Fed retirara la palabra "paciencia" de su discurso.

[admin]

+36

[admin]

Tailandia corta intereses.