Martes 31/03/15 PMI de Chicago

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14:08 Caterpillar: el MACD se sitúa por encima de su línea de señal
CMC Markets
Punto de rotación se sitúa en 77.8.

Preferencia: rebote a corto plazo.

Escenario alternativo: por debajo de 77.8, el riesgo es una caída hasta 75 y 73.3.

Técnicamente, el índice de fuerza relativa (RSI) se encuentra por encima de su zona de neutralidad de 50. El indicador de convergencia/divergencia de medias móviles (MACD) se sitúa por encima de su línea de señal y es negativo.

14:32 Los inversores alternativos no está diversificando
Mientras que los inversores creen que están diversificando si compran fondos de inversión alternativa, muchos de ellos no lo están haciendo.

En una intervención en el seminario del Instituto de Jubilaciones Aseguradas, Nadia Papagiannis, la directora de estrategia de inversión alternativa para Goldman Sachs Asset Management, señaló que solo 20 de los más de 600 fondos de inversión alternativos tenían más de la mitad de los activos bajo gestión en ese espacio.

La concentración de los activos y el hecho de que son principalmente fondos de estrategia única muestra que los asesores no están diversificando sus asignaciones en activos alternativos.

"El inversor medio no tiene casi ninguna exposición a las alternativas", dijo David Saunders, director general de Franklin Templeton K2 Inversiones.

Los inversores institucionales ven los activos alternativos como un reductor de riesgo, mientras que los inversores minoristas los consideran como de alto riesgo, dijo.

14:58 Bono EEUU junio. El doji de la semana pasada es una señal de advertencia
La subida desde el mínimo de marzo de la semana pasada pareció haber alcanzado el equilibrio después de la pauta doji. Que la subida se haya detenido en el punto medio del cuerpo de principios de febrero, argumenta a favor de un fin del rebote.

En un gráfico horario se detecta una posible pauta de hombro-cabeza-hombro, por lo que la pérdida de los 128-05+ debería actuar como catalizar de una caída.

Resistencias 128-28+ 129-02 129-12 130-01+
Soportes 128-14 128-05 127-18 126-29


El efecto del tipo de cambio

Martes, 31 de Marzo del 2015 - 15:53:00

Ya lo saben: tanto para el ECB como para la Fed la evolución de la divisa es importante, pero no determinante de sus decisiones. ¿Y para las economías en desarrollo?

Sinceramente, no tengo una respuesta clara a esta cuestión. La suerte, al menos a corto plazo, es que la presión a la baja que han sufrido la mayoría de las monedas de países emergentes se ha matizado.

¿Depreciación o infravaloración? Ambos términos pueden ser equivalentes en muchas monedas, de hecho sin que la infravaloración tenga por qué corregirse de forma rápida. En los dos próximos gráficos vemos como las correlaciones entre el EURUSD y estas monedas ha aumentado en los últimos meses. Aunque, sólo es realmente significativa en el caso de las divisas europeas.

Al final, es el USD. Y me temo que la fortaleza del USD, quizás sobrevaloración desde una perspectiva fundamental, puede acentuarse a corto plazo. Pero, ¿hasta qué punto podemos valorar que se ha alcanzado el suelo de muchas de estas monedas? Aquí es cuando es más necesario tener las ideas claras sobre la infravaloración de las monedas…


En el primero de los dos gráficos anteriores vemos la evolución de las divisas más relevantes, en términos de tipo de cambio efectivo real, desde el inicio de la Crisis. Mientras, en el gráfico de la derecha lo valoramos en términos promedio de los últimos 20 años.

Sí, en términos generales podemos decir que la mayoría de las monedas de países en desarrollo están infravaloradas. Pero, esto es muy diferente a afirmar que no se pueden depreciar más en el tiempo…

¿No lo acaban de ver claro? Es fácil. Por ejemplo, considerando la infravaloración a la que me refería antes, ¿por qué los tipos de interés reales de estas monedas son tan elevados en términos de las monedas desarrolladas?. Piensen en este punto en las continuas advertencias desde instituciones supranaciones, como sería el caso del FMI, que consideran a los países emergentes como aquellos que pueden ser más afectados en caso de que la Fed proceda de forma poco cautelosa al elevar sus tipos de interés. Al normalizar la política monetaria, diría yo.


José Luis Martínez Campuzano
Estratega de Citi en España

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The Fed - Hawk, Dove, Or Chicken?
Tyler D.
03/23/2015
Submitted by Joseph Calhoun via Alhambra Investment Partners,

Janet Yellen threaded the needle last week with a masterfully worded statement following the FOMC meeting. The word “patient”, the removal of which had produced so much angst in markets recently, was excised to appease the hawks while the rest of the statement cooed dovishly to appease the stock market bulls. The Fed finally acknowledged reality and downgraded their economic outlook, now expecting growth to continue along the 2 to 2.5% path it has been on for several years now. They could have saved themselves some embarrassment by merely reading my weekly missives. I’ve been saying for almost two years now that the economy’s growth trajectory hasn’t changed much. We’ve had some better quarters and some weaker ones, but year over year growth has been stubbornly stuck with a two handle since 2011.

Considering the Fed’s over optimism of the last few years though, one can’t help but worry that their current forecast will end up being so again. They’ve forecast every year that growth would accelerate and spent the second half of the year backtracking as reality refused to conform to their hopes and dreams. This year they didn’t even wait until the second half and with their track record I am left wondering how they’ll be wrong this time. Will their estimate of growth be too high or too low? For investors the bigger fear should, of course, be the former as anything lower than here will probably be hard to distinguish from a recession. And a recession with valuations this high is not a pleasant prospect for anyone with exposure to the stock market.

Based on the incoming data so far this year, the Fed had little choice but to acknowledge the obvious which is that, like last year, the first half is not shaping up too well.

Last week the only report that was better than the consensus – which has been falling in any case – was jobless claims. The manufacturing surveys (Empire State and Philly Fed) were both less than expected and the Philly version was particularly worrisome. New orders were less than the headline activity number, unfilled orders collapsed to -13.8 from last month’s +7.3. Shipments were also below 0 (indicating contraction) at -7.8 and employment was also weaker than the headline at 3.5. Margins are also a concern with input prices falling to -3.0 and finished goods down more at -6.4. All in all, a weak report that is hard to blame on weather and the port strike on the West coast.



The industrial production numbers reflected the recent survey data, coming in at a less than expected 0.1% with last month getting a revision into negative territory. The manufacturing part of the report showed a decline of 0.2%. It is obvious – to even the Fed now – that the industrial/manufacturing side of the economy is slowing. Part of that is due to the rest of the world slowing down but with data in Europe and Asia starting to improve that excuse is getting a little dated. Part of it is also due to the energy sector which continues to struggle with low oil and natural gas prices amidst a glut of fuel. We’re starting to see some defaults in energy high yield now and the WSJ reported that several banks have had trouble finding buyers for energy loans they had intended to syndicate. Losses are modest so far but I suspect we’re only seeing the tip of the iceberg now.



Housing is still struggling – something else the Fed acknowledged – with the Housing Market Index, housing starts and mortgage applications all disappointing. The Leading Economic Indicators seemed to confirm the budding slowdown coming in at a less than expected 0.2. Last week’s data was not an aberration but rather the continuation of a trend that started a few months ago.

But back to Ms. Yellen and her word-smithing. The immediate effect of the statement was that everything, with the notable exception of the dollar, got bought. Stocks, bonds, gold, oil and everything else that wasn’t nailed down found an immediate bid. In other words, the market acted more as if the Fed had eased rather then opening the door to a rate hike later this year. And in a sense that is exactly what they did. They have spent months preparing the market for a rate hike based on an improving US economy and with their nod to economic reality made it a lot less likely. In fact, I’ve said before and still believe that we will not see a rate hike this year and maybe not even next. The Fed’s shift to forward guidance as their essential policy tool means that changes in expectations are the equivalent of actual changes in policy.

So it appears we will be getting more of the same from the monetary side of the economic growth equation, a mix of zero interest rates (negative real rates) and the hope that the wealth effect is greater than all the research says it is. Not that either policy has worked to date. The euthanasia of the rentier, that Keynesian disdain for those lay about savers, has failed so miserably that one wonders how long it will be before monetary policy takes a Logan’s Run turn and shifts to the real thing. Surely if we just kill all the seniors trying to live off their savings we can get down to the business of spending our way out of this lousy economy. The Fed’s policy of lowering interest rates at any sign of economic weakness over the last few decades has distorted capital allocation so badly that a new theory – secular stagnation – had to be invented to explain the poor performance of the economy.

Secular stagnation is not a discussion topic because we’ve run out of ideas – except maybe at the Fed – but because low interest rates in this cycle accomplished nothing more than allowing corporate insiders to borrow against company assets to line their own pockets and governments to continue avoiding structural reforms that are the real impediment to better growth. Yes, some of the easy money leaked into student and auto loans here in the US and certainly it boosted borrowing outside the US as the weak dollar enticed borrowers from Beijing to Rio, but that has only made the problem worse as the global debt pile has grown even larger in the years since the Great Recession. The now rising dollar has exacerbated the problem for all those non-US borrowers and the Fed can’t get off the zero bound for fear they will prick the debt bubble for which they provided the air.

QE and ZIRP were supposed to work through the two channels of the portfolio balance effect. The twin policies would force investors into riskier securities in a reach for yield, allowing lower rated borrowers to gain funding. In this cycle, that was primarily lending to shale oil and gas producers. The rise in the price of risky assets would also produce a wealth effect as those with the means to participate in financial markets go out and spend their new found, Fed induced wealth. Now the energy loans are coming a cropper and the Fed is left with the wealth effect as the sole remaining prop under a weakening economy.

We often hear various Fed officials described as hawks or doves but Janet Yellen’s Fed brings to mind another avian metaphor. They are afraid to raise rates for fear that doing so would upset the asset market inflation process and derail what is left of their theory. In her press conference last week Yellen said that stock market valuations were on the high side of historical norms, an appellation that only works if one includes the stock bubble of the late 90s. It seems that she and the other members of the FOMC have decided that another epic stock market bubble is better than admitting they were wrong. This FOMC doesn’t have any hawks or doves, only chickens.

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Fed Vice-Chair Stan Fischer Explains What Yellen Really Meant Last Week - Live Feed
Submitted by Tyler D.
03/23/2015

*FISCHER SAYS RATE LIFTOFF LIKELY WARRANTED BEFORE END-2015

With the world now convinmced that Janet Yellen is as dovish as she has ever been on rate hikes, today comes the first post-FOMC speech. None other than Vice-chair Stanley Fischer is due to address The Economic Club of New York on the topic of "Monetary-policy lessons and the way ahead." As Art Cashin warned this morning, Fischer "seems to feel that the Fed must raise rates this year. He is also the only Fed official to concede that any rate hike will be different than any seen before."



Tech Startup Bubble Has America's Retirement Funds Chasing Unicorns
Tyler D.
03/23/2015

Last week, we highlighted the not-so-surprising fact that many private tech company valuations are completely made up. To let the VCs who fund these companies tell it, the problem isn’t that Snapchat isn’t worth more than Clorox (as their valuations would suggest), but rather that us simple folk don’t really understand what the word “valuation” means. You see, things like cash flow and operating costs are “less important than you might think”, as long as you’ve got “hockey stick” growth in some metric that you arbitrarily decided matters most for your company. Furthermore, it’s important that you command the market in your industry. Of course in many cases, startups have created entirely new concepts and so there naturally are no competitors and if you can’t command a high market share in a market that you made up, well, you’ve got a real problem.

But this is all part and parcel of the startup mentality, wherein VCs and founders are more focused on whatever Mark Zuckerberg or Jack Dorsey or Marc Andreessen or [fill in famous tech guru] said recently about how to grow your startup from 10 users to 10 billion rather than on how to generate revenue and profits. The problem with this is that while the Cloroxs of the world generate hundreds of millions in profits every three months, the Snapchats of the world.. well… don’t, and in the final analysis, it doesn’t matter if you have 10 trillion users if you can’t make any money.

Here’s what we said:

Well, now that everyone is jumping on the “there’s no way that app is worth $50 billion” bandwagon, Bloomberg is out with a startling revelation: “Snapchat, the photo-messaging app raising cash at a $15 billion valuation, probably isn't actually worth more than Clorox.”

No, probably not, but it sure is more fun than doing laundry, which is why it absolutely makes sense that the number VCs are putting on the app makes absolutely no sense…

So while we thought “valuations” were numbers that indicate how much something is worth, what they actually are are complete shots in the dark which, if necessary, can be “adjusted” later to reflect economic realities.

Today, Bloomberg is out with another piece that bemoans what very well could turn out to be a giant bubble in late stage tech startup valuations. Here’s more:

Hedge funds and mutual funds that once shunned venture-style deals are flocking to the market’s hottest corner, paying 15 to 18 times projected sales for the year ahead in recent private-funding rounds, according to three people with knowledge of the matter. That compares with 10 to 12 times five years ago for the priciest companies, one said.

While some of the startups may become profitable, others are consuming cash and could fail. The torrid action is spurring talk that 15 years after the collapse of the Internet bubble, the market may be setting itself up for another bruising fall.

“Some of the valuations are mind-boggling,” said Sven Weber, investment manager of the Menlo Park, California-based SharesPost 100 Fund, which backs late-stage tech startups.

Companies now valued at 16 times future revenue could easily lose a third of their value in a market pullback that Weber and others say may occur in the next three years…

Private values also are soaring. Online scrapbooking startup Pinterest Inc. raised $367 million this month, valuing the company at $11 billion. Snapchat, the mobile application for sending disappearing photos, is valued at $15 billion, based on a planned investment by Alibaba, according to people with knowledge of the deal. Uber’s valuation climbed more than 10-fold since the middle of 2013, reaching $40 billion in December.

Mutual funds and hedge funds have elbowed into late rounds, both to boost returns and to ensure they can buy blocks of shares in IPOs as competition for tech offerings intensifies. Mutual-fund giants Fidelity Investments, T. Rowe Price Group Inc. and Wellington Management Co. and hedge funds Coatue Management and Tiger Global Management took part in at least 37 pre-IPO funding rounds totaling $5.55 billion from 2012 to 2014, according to Pacific Crest Securities, a Portland, Oregon-based technology investment bank and IPO underwriter.

It’s worth taking a moment here to revisit how these valuations are determined because it’s a highly scientific process that takes into account objective factors such as how much the founder thinks his/her dream is worth. Here’s our take accompanied by two quotes from a previous Bloomberg piece:

The reason this makes sense is because these companies often command huge market shares in markets they made up and also because their founders are arrogant. Here’s Bloomberg again:

"Some VCs defend the practice by saying valuations are just a placeholder number, part of an equation fueled by other, more important factors. Those can include market share, growth projections, and a founder's ego."

All of this makes complete sense of course, but it does lead us to wonder how valuations for the next Facebook are determined because ultimately, you’re still left with the annoying task of having to get a funding round done, and even if it’s just a “middling shot,” it’s still a shot you have to take. Fortunately, there’s one completely unbiased party who is always willing to step in and tell you how much the business is really worth:

“The number is typically set by the company…”

“A founder often starts off with a number in mind, based on the startup's last valuation, the valuations of competitors, and, for good measure, the valuation of the company's neighbor down the street.”

Of course none of this really matters because the idea is simply to make it to the liquidity event whether that’s a buyout or, better yet, an IPO. Ideally you want to take the company public because then you can count on the stupidity of retail investors to drive the valuation to ever more insane levels at which point you sell your shares and how the company will make money becomes someone else’s problem, namely the guy who bought his stock at the open on IPO day through his ETrade account on the advice of his broker whose firm underwrote the offering. In that context we guess valuations really don’t matter if you’re the VC or the founders.

There is however, always the chance that something goes wrong (like your IPO temporarily breaks the market for instance) in which case you may not get the bonanza you were looking for which is why it’s important to ensure that the fine print says you can’t lose. Here’s Bloomberg again:

Private valuations since then have gotten frothier, at times surpassing IPO values. In the past four months, cloud-storage service Box Inc. and Hortonworks Inc., a data-services provider backed by Yahoo! Inc., went public at valuations lower than their last private-funding rounds.

Some late-stage investors have struck deals guaranteeing them a return in an IPO, typically in the form of additional shares they’d get if the offering is priced below what they paid. Known as ratchets, these arrangements water down the gains of other investors who haven’t yet cashed out.

When Box’s IPO priced in January at $14 a share, or 30 percent less than Coatue and TPG had paid in July for 7.5 million shares, the firms salvaged a 10 percent unrealized gain owing to a ratchet, according to offering documents.

Better still, even if you aren’t the home gamer who bought on IPO day and didn’t realize he was paying an obscene multiple on revenue the company imagines it may one day make, you may end up owning the shares anyway in your retirement account. Via NY Times:

The retirement accounts of millions of Americans have long contained shares of stalwart companies like General Electric, Ford and Coca-Cola. Today, they are likely to include riskier private stocks from Silicon Valley start-ups like Uber, Airbnb and Pinterest.

Big money managers including Fidelity Investments, T. Rowe Price and BlackRock have all struck deals worth billions of dollars to acquire shares of these private companies that are then pooled into mutual funds that go into the 401(k)’s and individual retirement accounts of many Americans. With private tech companies growing faster than companies on the stock market, the money managers are aiming to get a piece of the action.

...and while there are bound to be some killjoys out there like Bentley University's Leonard Rosenthal who think forcing investors into grossly overvalued, profitless tech startups is not necessarily right…

“It’s great for the portfolio manager, but it’s not necessarily in the interest of the shareholders of the fund. If investors are looking for a portfolio of risky securities, there are plenty of stocks to trade in the public market.”

...the good folks at your favorite VC firm will explain to you that this is all about helping the little guy get access to something he wouldn’t be able to own if left to his own devices...

“There’s a huge amount of wealth creation happening, and a very narrow set of people are benefiting from it financially,” said Scott Kupor, who, as a managing partner and chief operating officer at the venture capital firm Andreessen Horowitz.

...which is good because if there’s anything you want your retirement money doing, it’s chasing “unicorns” in a “shadowy market”...

The dilemma for big fund managers is that fast-growing technology companies are so reluctant to sell private stock to the public that there is now a term — “unicorns,” reflecting just how wonderful and magical they are considered to be — for the dozens of private firms worth $1 billion or more…

Those lofty valuations, combined with the eagerness investors show in bidding them up, have created a shadowy market for private stock issued to tech companies’ early investors and employees.

Call us old fashioned, but we agree with Prem Watsa who has the following to say about this circus:

"We’re confident that most of this will end as other speculations have – very badly!"

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Is The Fed Still Fabricating Loan Creation Data? Bank Of America Would Like To Know
Tyler D.
03/23/2015

Just under a year ago, when looking at aggregate loan creation by America's banks, we stumbled upon something strange: there was a massive discrepancy between what the Fed, in its weekly call reports, said was weekly US loan issuance - which the then bulls gloatingly announced was rising and thus a confirmation of US growth - and what the actual banks reported.

This is what we reported:

One of the more bullish "fundamental" theses discussed in recent weeks, perhaps as an offset to the documented record collapse in mortgage origination - because without debt creation by commercial banks one can kiss this, or any recovery, goodbye - has been the so-called surge in loans and leases as reported weekly by the Fed in its H.8 statement. Some, such as the chief strategist of retail brokerage Charles Schwab, Liz Ann Sonders, went so far as to note that this is, to her, the "most important chart in the world."

[S]ince the Fed's data is sourced by the banks themselves, what the Fed is representing and what the banks report quarterly should be in rough alignment. Unfortunately it isn't.

As the chart [above] shows, in the first quarter, of the Big 4 banks, only Wells Fargo reported an increase - a tiny $4 billion to be exact - in its loans and leases portfolio. All the other banks... saw a decline in their loans and leases holdings.

Our question then: "is the Fed fabricating loan level data?"

Fast forward one year when none other than Bank of America, in not quite as explicit language, reveals a chart and a question mark, which is essentially a carbon copy of what Zero Hedge asked one year ago.

Because as the chart below shows, there very dramatic, and very glaring discrepancy between what BofA started experiencing one year ago (when we first noted it) when it comes to loan creation, and what the Fed represents every Friday in its weekly H.8 statement, has never been greater!

So back to the original question - just whose data is accurate: the bank making the loans or the bank's regulator whose only job is to promote confidence, even if it means openly fabricating data?


What The Sell-Side Thinks Will Happen To The Dollar Next
Tyler D.
03/23/2015

"The Fed is a reluctant Dollar bull," explains Goldman Sachs, noting that Yellen inadvertently revealed the FOMC's expectation that coming policy changes will boost the greenback. Broadly speaking the rest of the sell-side has herded along into the strong US Dollar camp with only Unicredit (rate shift may slow recent very strong USD momentum) and Morgan Stanley (suggesting USD corrective activity) backing away from full dollar bull though most suggest adding to dollar longs on any dip as the most crowded trade in the world gets crowded-er.

Goldman Sachs: The Fed Is A Dollar Bull

1. Price action around last week’s FOMC was jarring. The drop in the Dollar in the immediate aftermath of the meeting was greater than during the “no taper” surprise in September 2013 (Exhibit 1) and conviction that the USD can rally from here has taken a beating. We have a different take and continue to see large upside for the Dollar. Our reasoning is simple. On the surface, there is no denying that last week was a dovish shift, no doubt in response to the sharp rise in the Dollar in the run-up to the meeting. But what does that shift really signal? In our minds, it is an implicit admission that the normalization of monetary policy – a return to data dependence and lift-off – will boost the Dollar. Last week’s actions thus inadvertently revealed the Fed’s expectations for the greenback, which are that coming policy changes will likely boost the Dollar. In a sense, last week was reminiscent of the SNB’s decision to de-peg in January. That action implicitly signaled an expectation that the Euro could weaken a lot more, making the peg increasingly unsustainable. That “forecast revision,” made in the run-up to the ECB's QE, has of course been borne out. Like the rest of us, central banks have implicit currency views, though in the case of the Fed we have to infer those from actions rather than words. Last week’s switch from “patient” to “not impatient” signaled that normalization is coming, but a reluctance to do so in June, for fear that Dollar strength will get out of hand. The Fed is a reluctant Dollar bull.

2. Of course, it is quite possible that the pace of Dollar appreciation slows from that seen since Chair Yellen’s Humphrey-Hawkins testimony (Exhibit 2). But that is hardly a heroic statement. The Dollar has seen outsized gains versus the majors recently, which – as discussed in our last FX Views – reflect Dollar positioning that was too pessimistic (it felt to us like the market was expecting a repeat of the kind of weak data we saw a year ago) and rising focus on “patient” coming out of the FOMC statement. It is perfectly normal for the Dollar to consolidate after such a move. Indeed, following large moves, the USD has tended to trade sideways for several weeks at a time. This time is no different most likely, i.e. this is not the end of the bull-run for the Dollar.

3. There is no doubt that the hurdle has risen for labor market data, which Chair Yellen highlighted in giving the FOMC “reasonable confidence.” But it is also important to remember the bigger picture. The bulk of the Dollar rise has been the Euro and Yen weakness, a reflection of regime change at the BoJ and ECB that pushed the 2-year differential sharply in favor of the Dollar (Exhibit 3). This is why, in our minds at least, the Dollar has been resilient to relatively mixed data in recent months. As such, the hurdle for the Dollar is not really all that high after all. There is an additional facet to this. Last week, Chair Yellen talked back the removal of “patient,” downplaying a June lift-off by saying the Fed would “not be impatient.” Forward guidance, in other words, did not quite leave this time around. Its full removal is another Dollar positive catalyst, which we believe should see the 2-year differential converge further towards the forwards, boosting the Dollar (Exhibit 4).

4. We know we may sound like perma-Dollar bulls. We are not. There will be a turning point, but in our minds that will come once we have gone a lot further towards normalization. Markets will inevitably front-run monetary policy normalization, so the turn will likely come before the Fed funds target reverts to its historical average. But is that moment at hand, before the Fed has been able to fully let go of forward guidance, let alone lift-off? We think not.

And the rest of the sell-side seems to agree... though positioning varies... (via Bloomberg)

Barclays (strategists incl. Dennis Tan)

* Moved estimate for timing of Fed’s first rate hike to Sept. from June following changes to FOMC’s projections; expect target range for federal funds rate to reach 50-75bps in Dec., vs 75-100bps before
* Don’t expect medium-term downward trend in EUR/USD to change after dovish Fed surprise; use rebound as opportunity to establish short positions at a better entry level
* Local data likely to weigh on pair this wk on expectations of slightly firmer U.S. CPI (look for headline reading of +0.3% m/m, core CPI of +0.2% m/m ) and softer euro-area flash PMIs (expect flash composite PMI of 53.5)
* Forecast U.K. March CPI inflation to fall to 0.0% y/y, RPI inflation to drop to 0.8% y/y; may provide some upward pressure to EUR/GBP
* Yuan rebound may be short-lived, sell on rally

BNP Paribas (strategists incl. Vassili Serebriakov)

* The Fed eliminated “patient” but sounded dovish; case for USD appreciation remains intact
* BNP re-enters long USD/JPY at 120.50, targeting 125 with a 118.50 stop
* Recommends buying a 3-mo. EUR/GBP call, financed by a 1-mo. put with expiry before the May 7 U.K. elections, given likelihood of a hung parliament
* All eyes on U.S. and U.K. inflation data in wk ahead
* Goes long EUR/SEK at 9.20, targeting 9.60 with a 9.0550 stop
* SEK appreciation appears to be raising Riksbank concern; with further easing probable, risk-reward favors SEK shorts

BofAML (team incl. Athanasios Vamvakidis)

* Strong USD will lower real GDP growth and inflation, delaying first rate hike to Sept., or even later
* This could slow USD appreciation in short term, but expect mkt to continue taking advantage of any USD dips to buy more
* Increased concern about negative scenarios in Greece, which could trigger further EUR downside
* Recommends buying a 3m EUR/JPY put spread, as a continued fall in EUR/USD could weigh on risk sentiment given its positive correlation with equities
* Remain constructive on peripheral spreads with carry trades expected to get further boost from QE and TLTROs

Credit Suisse (team incl. Ray Farris)

* USD sensitive to weak data surprises in light of last wk’s Fed press conference as they could further support expectations that FOMC will wait for longer before hiking
* Remain fundamentally USD bullish; use consolidation to add longs at better levels, especially vs EUR
* EUR-specific drivers likely to be on the back burner for the time being; remain EUR bearish, think slow-and-steady increase in Greek bond yields could be a harbinger of increased volatility, potential credit risk down the line
* Turned bearish on GBP, on view low inflation and election risk will increasingly weigh on currency
* Expect Japan core CPI ex VAT hike to continue moderating, to 0.1% y/y; bias remains for USD/JPY topside towards CS’s 3-mo. forecast of 125
* Risk is still for a weaker CNY and CNH trajectory with outflows likely to remain high in the coming mos. and CNY trade-weighted index at a record high

Societe Generale (team incl. Olivier Korber)

* Dovish Fed switch could trigger USD profit-taking in coming wks; EUR/USD should ultimately reach parity even as road will be bumpier from here
* Relief rally in EM assets on back of Fed to be short-lived; ready to fade rally, remain tactically bearish on GEM
* In EM FX, still want to sell TRY, while call for steeper curves in a number of local rates markets, especially Poland and Korea
* Sudden end of former Swiss FX policy has severely challenged credibility of potential future SNB actions, including FX interventions; limits scope of CHF weakness
* CHF strength and deflation raise the possibility of a liquidity trap
* Initiate long NOK/SEK spot position; revived monetary-policydivergence should lift pair toward 1.10

Morgan Stanley (team incl. Hans Redeker)

* Removing the word “patient” from FOMC statement has increased Fed’s flexibility to tighten whenever it sees the need to act
* Yield and interest-rate differentials have become less dollar-supportive, suggesting USD corrective activity
* USD exposure reduced, tightened stops on remaining USD long positions
* Trades such as long JPY/KRW and long CLP/COP provide relative value
* Greece and local French elections next weekend are EUR-specific risk events, limiting euro rebounds
* CAD/JPY shorts offer value, with the steep fall of oil prices undermining the CAD outlook
* Further commodity-price weakness isn’t fully priced in

UniCredit (strategists incl. Vasileios Gkionakis)

* FOMC’s downward shift in interest-rate projections may halt recent very strong USD momentum
* Therefore, most important U.S. data – CPI and durable orders - unlikely to re-ignite strength across the board
* Euro-area data have potential to push EUR/USD even higher
* Preliminary March EMU PMI surveys should post fourth consecutive increase for both manufacturing and service
* Together with a stronger German Ifo Business Climate for March, likely to offer EUR/USD more fuel
* Any further deterioration in Japan Feb. inflation will keep the market warm to the possibility of additional stimulus
* High level of uncertainty around general election, dovish BOE likely to weigh on the GBP; CPI release might add some pressure

So, The Sell-Side would like you to buy Dollars (from them) on every dip...

And then Stan Fischer explained...

* *FISCHER SAYS DOLLAR WON'T KEEP RISING FOREVER.

Wait what?!

Reflecting on today's significant weakness in the Dollar, the Goldman traders noted...

USD weakness continues today but unlike last week the move today was on much lighter flows.

We were net better sellers of USD across the board but I think some of that is position reduction given the high level of realized vol we’ve seen. EURUSD has had at least a 125bp move day/day the last 4 sessions. Will be interesting to see if the USD rally can reignite once things calm down because recent FED speak continues to emphasize that a rate hike could come mid-year.

[Fenix]

There Goes The Shale M&A Bid - Whiting Petroleum Finds 'No Buyer', Forced To Issue Massive Secondary
Tyler D.
03/23/2015

TINA - There Is No Alternative... except when it comes to energy stocks with 1043x P/Es. Having been exuberantly chased brioefly after announcing it was looking for a buyer - fueling further excitement about a low-oil-price-driven Shale firm M&A boom - Whiting Petroleum appears to have found no buyer as it prepares for a massive 35 million share secondary dilution (and almost $2bn of new debt).

...because who doesn't wnat to buy a company whose valuation is a mere 1043x Fwd P/E...

Whiting Petroleum Announces Offering of 35,000,000 Shares of Common Stock

Whiting Petroleum Corporation (NYSE: WLL) announced today that it has commenced a registered public offering of 35,000,000 shares of its common stock. Whiting expects to grant the underwriter a 30-day option to purchase up to an additional 5,250,000 shares of its common stock.

Whiting also announced by separate press release that it has commenced private unregistered offerings to eligible purchasers of $1.0 billion aggregate principal amount of convertible senior notes due 2020 (or up to $1.15 billion aggregate principal amount if the initial purchasers in that offering exercise in full their option to purchase additional convertible senior notes) and $750 million aggregate principal amount of senior notes due 2023. Nothing contained herein shall constitute an offer to sell or the solicitation of an offer to buy the convertible senior notes or the senior notes.

Whiting expects to use the net proceeds from the offerings to repay all or a portion of the amount outstanding under its credit agreement and any remainder for general corporate purposes.

J.P. Morgan Securities LLC is acting as sole book-running manager for the common stock offering. The offering will be made only by means of a prospectus, forming a part of the Company's effective shelf registration statement, related prospectus supplement and other related documents.

As we asked recently... what happens if no one wants to buy them?

Two words... "massive repricing" of the entire sector.

And do not forget, all of these companies have massivley exaggerated oil reserve valuation levels on their balance sheets.

We wonder - have they tried Kickstarter?

[Fenix]

The Moment When The San Francisco Fed Finally Figures Out What "Debt" Is
Tyler D.
03/23/2015

The San Fran Fed, in addition to being the lair that hatched the current Fed chairmanwoman, is best know for spending millions in taxpayer funds to "contemplate" such profound topics as:

* "Is It Still Worth Going To College?"
* "How Important Are Hedge Funds In A Crisis"
* "Is Structural Unemployment Is On The Rise (Says It Isn't)"
* "Are Tumbling Existing Home Sales Due To "Rising Rates"
* "Is A Recessionary Relapse Is A Significant Possibility Sometime In The Next Two Years"
* "Easy Credit Leads To Increase In Household Borrowing"

And let's not forget "San Fran Fed Spends More Money To Justify Colossal Failure At Anticipating Consequences Of Its Actions."

So today, in the latest example of misappropriation of millions in taxpayer "R&D" funds by a Federal Reserve bank, has released a note titled, mysteriously enough, "Mortgaging the Future?" unleashes the following shocker: "Leverage is risky."

* * *

This coming from the institution that monetized $3 trillion in US debt, and whose balance sheet will never be unwound without a global market crash so profound it would likely lead to a global war?

Why yes. That's right.

* * *

So for all those curious to learn just how stupid the Fed is, and desperate for laughter in these centrally-planned times, here are several excerpts of deep intellectual work from what according to many is the most important regional Fed in the US (now that everyone is aware Goldman Sachs is in charge of the NY Fed and is scrambling to limit the vampire squid's domination over the world's most levered hedge fund in the world):

Leverage is risky. Purchasing assets with borrowed money can amplify small movements in prices into extraordinary gains or crippling losses, even default. From the mid-1980s to the Great Recession, an unusually rapid increase in the ratio of credit to GDP, or leverage, across the developed world was overshadowed by an equally unusual decline in inflation rates and output volatility. As such, this period is often called the Great Moderation. However, underneath the apparent calm, leverage continued to build. The pressure mounted up along financial fault lines, and in time struck violently in the form of the 2008 global financial crisis. The aftershocks are still being felt today, as policymakers continue to grapple with the resulting economic damage and discern how best to prevent future financial tremors.

Research by Schularick and Taylor (2012) showed that bank lending in advanced economies quadrupled in the second half of the 20th century, from about 30% of GDP in 1945 to about 120% of GDP right before the 2008 global financial crisis. In newer work, Jordà, Schularick, and Taylor (2014) show that this sharp increase has primarily resulted from the rapid growth of loans secured by real estate. The share of mortgage loans in banks’ total lending portfolios averaged across 17 advanced economies including the United States has roughly doubled over the past century—from about 30% in 1900 to about 60% in 2014. The evolution of this share since 1880 is shown in Figure 1. The most dramatic increase occurred since the mid-1980s.

This Economic Letter explores the channels through which advanced economies have increased their debt and the consequences that this leverage has had for the business cycle. The rapid increase in credit-to-GDP ratios since the mid-1980s was just the final phase of a long historical process. The run-up started at the end of World War II and was shaped by a long boom in mortgage lending. One of the startling revelations has been the outsize role that mortgage lending has played in shaping the pace of recoveries, whether in financial crises or not, a factor that has been underappreciated until now.

And there you have it: nearly a decade after the housing bubble popped, the San Fran Fed, whose president until a year ago was Janet Yellen, has finally figured out that housing bubbles not only are never fixed by defaulting on the bad debt, but simply masked by more, and more, and more housing debt, until the entire capitalist system demands a Fed bailout.

The profound insights continue:

The core business model of banks in advanced economies today resembles that of real estate funds: Banks borrow short-term funds from the public and capital markets to invest in long-term assets linked to real estate. The maturity mismatch between the asset and liability sides of banks’ balance sheets increases their fragility and has helped drive a wave of mortgage securitization in some countries over the past 30 years. However, as the data suggest, the bulk of these loans still remain on bank balance sheets. The standard textbook role of household savings as a main funding source for business investment thus constitutes a much smaller share of banking business today than it was in the 19th and early 20th centuries.

It gets better:

The rise of mortgage lending exceeds what would be expected considering the increase in real estate values over the same time. Rather, it appears to also reflect an increase in household leverage. Although we cannot measure historical loan-to-value ratios directly, household mortgage debt appears to have risen faster than total real estate asset values in many countries including the United States. The resulting record-high leverage ratios can damage household balance sheets and therefore endanger the overall financial system. Figure 2 displays the ratio of household mortgage lending to the value of the total U.S. housing stock over the past 100 years. As the figure shows, that ratio has nearly quadrupled from about 0.15 in 1910 to about 0.5 today.

And better:

Where did this rise in mortgage lending come from? In the United States, large-scale government interventions into housing markets developed after the Great Depression. Although much of this legislation was explicitly designed to control high-risk finance, such as the Glass-Steagall Act of 1933, other policies made basic forms of finance more accessible to the general public. In 1932, the Federal Home Loan Bank System was established to pass along favorable, government-backed interest rates to mortgage borrowers. The Federal Housing Authority (FHA) was created in 1934 to insure banks and other private mortgage lenders. President Roosevelt created The Federal National Mortgage Association, known as Fannie Mae, in 1938 to expand the secondary mortgage market by securitizing mortgages implicitly backed by the government and invest in FHA-insured loans.

Wow, you don't say!?

It is natural to wonder how the postwar democratization of leverage has affected the larger economy.

Yes, it is. It's very natural. Please inform us.

Many studies have pointed to debt overhang as a possible cause for slow recoveries from financial crises (for example, Cerra and Saxena 2008; Reinhart and Rogoff 2009; Bordo and Haubrich, 2010; Mian and Sufi 2010, 2014; and Jordà, Schularick, and Taylor 2011, 2013). New data uncovered in Jordà, Schularick, and Taylor (2014) open the door to a new intriguing question: Are all forms of bank lending—particularly mortgage lending—equally relevant in understanding these business cycle dynamics? We investigate this question using data on 17 advanced economies since 1870. The coverage across time and borders captures about 200 different recessions, one-quarter of which are linked to a financial crisis.

Wait, you mean record amounts of debt may be ungood... no ... don't say that.... Unpossible.

Figure 3 confirms several well-known results and provides some new ones. First, recessions associated with financial crises are deeper and last longer, no matter the era. Second, it was harder to recover from any type of recession in the pre-WWII era than it was later. The typical postwar recession lasted about a year. After two years, GDP per capita had grown back to its original level and continued to grow for the next three years. Financial crisis recessions lasted one year longer and only returned to the original level by year five.

And the moment where the lightbulb starts to go off:

More interesting in Figure 3 are the two alternative scenarios in which credit in the expansion grows above average. A credit boom, whether in mortgage or nonmortgage lending, makes the recession slightly worse in the prewar period, especially when associated with a financial crisis. But in the postwar period an above average mortgage-lending boom unequivocally makes both financial and normal recessions worse. By year five GDP per capita can fall considerably, as much as 3 percentage points lower than it would have otherwise been. In contrast, booms in nonmortgage credit have virtually no effect on the shape of the recession in the same postwar period.

Why the difference? At this point we can only speculate. A mortgage boom gone bust is typically followed by rapid household deleveraging, which tends to depress overall demand as borrowers shift away from consumption toward saving. This has been one of the most visible features of the slow U.S. recovery from the global financial crisis (Mian and Sufi 2014).

Yes, the Fed almost figured out why over the past 30 years, every housing collapse has been promptly met, and offset, with an even bigger bubble to cover it up, because - in what is a shocking revelation to the San Fran Fed, the US economy simply can't handle a drop in home prices.

Actually, in retrospect all of the above, which for the longest time we were debating whether it is nothing but some thinly veiled joke, is serious "research", makes sense, as does the "epiphany" - after all, the fact that this is all "startling" news to the Fed explains the clip below in which the then future Fed Chairman would say such idiotic things in July 2005 as:

"I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis."

And the glorious conclusion of this study which cost Americans somewhere in the neighborhood of $50-100K (in debt):

The vast expansion of bank lending after World War II is one of the most extraordinary developments in the history of modern finance and macroeconomics. Our research suggests that the explosion of credit has played a more important role in shaping the business cycle than has been appreciated up to now. A growing consensus along these lines has renewed interest in revisiting the assumptions about cyclical macroprudential policy (for example, Aikman, Haldane, and Nelson 2014). Much of the recent expansion in bank lending took place through real estate lending, and this particular component of the credit mix appears to have the most relevant macroeconomic effects. A natural inference is that economic policy needs to adapt to this new reality.

And there, ladies and gentlemen, it is - the moment of glorious epiphany when the San Fran Fed finally figures out what debt actually means.

We all eagerly look forward to part 2: the moment when the Fed figures out it monetized $4 trillion in US debt to delay the cataclysmic collapse of the western financial system.

[Fenix]

Tyler Durden's picture
You Too Can Be A Texas Wildcatter With Crowdfunding
Submitted by Tyler D.
03/23/2015

"Equity crowdfunding, or raising capital directly from a large group of investors, is widely used for projects from technology to fashion. Now, at least two small Texas firms are testing the concept in the oil and gas industry."



How Much Time Do Americans Spend Plugged Into The Matrix Every Day?
03/23/2015

Submitted by Michael Snyder

The average American spends more than 10 hours a day using an electronic device. And most of that activity is not even interactive. The vast majority of the time we are just passively absorbing content that someone else has created. This very much reminds me of the movie “the Matrix”, but with a twist. Instead of humans being forcefully connected to “the Matrix”, we are all willingly connecting ourselves to it. There is a giant system that defines our reality for us, and the length of time that the average American spends connected to it just continues to keep growing. In fact, there are millions upon millions of us that simply do not “feel right” unless there is at least something on in the background.

Just think about it. How much time do you spend each day with all electronic devices completely turned off? Thanks to technology, we live at a time when more news, information and entertainment is at our fingertips than ever before, and we are consuming more of it than ever before. But this also gives a tremendous amount of power to those that create all of this news, information and entertainment. As I have written about previously, more than 90 percent of the “programming” that we absorb is created by just 6 enormously powerful media corporations. Our conversations, attitudes, opinions and belief systems are constantly being shaped by those entities. Unfortunately, most of us are content to just sit back and let it happen.

The following numbers regarding the media consumption habits of average Americans come directly from Nielsen’s most recent “Total Audience Report“. The amount of time per day that Americans spend using these devices is absolutely staggering…

* Watching live television: 4 hours, 32 minutes
* Watching time-shifted television: 30 minutes
* Listening to the radio: 2 hours, 44 minutes
* Using a smartphone: 1 hour, 33 minutes
* Using Internet on a computer: 1 hour, 6 minutes

When you add it all up, the average American spends more than 10 hours a day plugged into the Matrix.

You have heard the old saying “you are what you eat”, right?

Well, the same applies to what we put into our brains.

When you put garbage in, you are going to get garbage out.

In my recent article entitled “It’s Official: Americans R Stupid“, I discussed how the U.S. population is being systematically “dumbed down” and how we are now one of the least intelligent industrialized nations on the entire planet.

A big contributor to our intellectual and social demise is the Matrix that has been constructed all around us.

Virtually every television show, movie, song, book, news broadcast and talk show is trying to shape how you view reality. Whether you realize it or not, you are constantly being bombarded with messages about what is true and what is not, about what is right and what is wrong, and about what really matters and what is unimportant. Even leaving something out or ignoring something completely can send an extremely powerful message.

In this day and age, it is absolutely imperative that we all learn to think for ourselves. But instead, most people seem more than content to let the Matrix do their thinking for them. If you listen carefully, you will notice that most of our conversations with one another are based on programming from the Matrix. We all love to talk about the movie that we just saw, or what happened on the latest reality show, or what some famous celebrity is doing, or what we saw on the news that morning. The things that matter to us in life are the things that the Matrix tells us should matter.

And if someone comes along with information that contradicts the Matrix, that can cause anger and confusion.

I can’t tell you how many times someone has said something like the following to me…

“If that was true I would have seen it on the news.”

To many people, the Matrix is the ultimate arbiter of truth in our society, and so anything that contradicts the Matrix cannot possibly be accurate.

Fortunately, more people than ever are waking up enough to realize that they have a choice.

It is kind of like that moment in the Matrix when Neo is being offered the red pill and the blue pill.

Admittedly, a lot of people that do begin to wake up choose to take the blue pill and go back to sleep.

But there are so many others that are grabbing the red pill. That is why we have seen such an explosion in the popularity of the alternative media in recent years. Millions of people all over the planet now understand that they are not getting the truth from the Matrix and they are hungry for real information.

Yes, the Internet is being used for unspeakable evil, but it can also be used for great good. The Internet has allowed ordinary people like you and I to communicate on a mass scale like never before in history. The Internet has allowed us to reclaim at least some of the power that we have lost to the Matrix. I don’t know how long this period of history will last, so we should make full use out of this great tool while we still have it.

On my own website, I have felt called to mainly focus on economics in recent years. And I will continue to chronicle economic conditions as we descend into the greatest economic crisis in U.S. history. What is coming is going to be worse than 2008, it is going to be worse than the Great Depression, and it is ultimately going to be worse than most Americans would ever dare to imagine.

But I also want to take my readers on a journey down the rabbit hole.

Our world is about to get really, really strange, and I would like to be a light in the chaos.

Yes, I believe that great darkness is coming. But I also believe that a great awakening is coming.

Personally, I believe that it is a great privilege to be alive at this time in human history.

It is a time of great evil, but it is also a time of great opportunity.

It is a time when everything that can be shaken will be shaken, but it will also be a time when those that stand for what is right will shine like the stars.

[Fenix]

Paul Krugman Is Wrong About The UK And Borrowing
03/23/2015

Submitted by Andrew Lilico
Paul Krugman once did something or other quite good on the economics of trade, winning him the Nobel Prize. He also wrote some rather good stuff in the 1990s about the euro and about how Japan might escape its then-malaise. Quite a lot of orthodox economists were (and remain) fans of his writings on these topics. But regarding his analysis of government deficit reduction programs and the options European governments in particular have had – and more specifically about how, regardless of how much they might have been borrowing they should always borrow more…not so much.

Krugman’s latest sally into European politico-economics is to bewail the state of “Britain’s Terrible, No-Good Economic Discourse” in the run-up to the General Election. He tells his unfortunate American readers that “economic discourse in Britain is dominated by a misleading fixation on budget deficits” and that “media organizations routinely present as fact propositions that are contentious if not just plain wrong”.

US readers should be aware that his “analysis” drifts between being contrary to the facts and being nonsense. Let’s start with the stuff he says that is contrary to the facts. Setting aside for now whether such a fixation would be “misleading”, economic discourse in Britain simply isn’t dominated by a fixation with government budget deficits. Most weeks the finance pages and economics articles in the politics pages of British newspapers are filled with the latest Greek crisis, falling oil prices, whether wages are rising faster or slower than the cost of living, how much further unemployment has fallen, what’s happening to inflation, when the Bank of England might put up interest rates, energy price freeze policies, and the latest round of banker-bashing. Sometimes we even read about spending cuts — e.g. the recent debate about cuts to defence spending. But the Budget deficit hasn’t really been an important issue since 2013, aside from brief passing flurries of interest at the Autumn Statement or Budget when the government announces its latest forecasts.

Next we don’t in Britain spend much time, any more, on the question of what caused the economic crisis of 2008. That may still fascinate Krugman, but folk in Britain have lives and everyday concerns. Almost no-one in Britain claims or believes that high spending by the last Labour government caused the economic crisis of 2008. They may well believe that Labour failed to regulate the banks properly. They may believe that, with the benefit of hindsight, Labour was running too high a deficit at the height of a boom in 2007. Some of us might even explicitly argue that it was a mistake for Labour to have promised, in the 2007 Comprehensive Spending Review, to have raised spending as much as it did and then to stick with those spending rise plans in 2008-2010 even when the recession started. And it is absolutely, demonstrably, as a matter of accounting not some clever economic theory, the case that the rise in the deficit from 2008 onwards was a rise in spending as tax receipts fell. But almost no-one in Britain thinks it was the rise in the Budget deficit from 2008-2010 that caused the recession of 2008-2009.

Next Krugman asks: “wasn’t Britain at risk of a Greek-style crisis, in which investors could lose confidence in its bonds and send interest rates soaring?” He says “There’s no reason to think so.” Well, I’d agree that Britain was not, in 2008, like Greece. What it was like, then, was Ireland and Spain – both AAA-rated countries in 2008 with modest government debts but large banking sectors and construction sectors that went bust. In April 2010, just before the UK 2010 General Election, government bond yields in Spain were below those in the UK. But subsequently both Ireland and Spain had serious second-phase economic collapses, with their governments being de facto bankrupted (in the case of Ireland) or near-bankrupted (in the case of Spain) by government bailout guarantees to their banking sectors. In 2010 it is absolutely the case that the UK faced a similar risk. Furthermore, if the UK had continued to run budget deficits at the 12% and more of GDP level it originally scheduled for 2010, it could very quickly have become like Italy – and eventually even Greece – as well. Krugman can assert that that was not a genuine danger until he’s blue in the face (in his mind it’s not possible for any country that prints its own currency to have a sovereign debt crisis – cos, like, the UK didn’t have a sovereign debt crisis in 1976 and, you know, everyone wants to lend money to Angola because it prints its own currency?). In Britain most folk simply don’t believe him. That is not because our economic debate is impoverished. It’s because he’s manifestly wrong. And he can claim that if we had run a 15% of GDP deficit, a 20% of GDP deficit – who knows? A 99% of GDP deficit – then he knows growth would have been faster in the UK. But the rest of who study these things know that there is not one single instance in pre-2008 history of a developed economy running a 12% of GDP deficit where analysis afterwards suggests that it would have grown faster if it had run a 15% of GDP deficit, but plenty of examples of countries running smaller deficits and avoiding disaster.

Next he claims that, during this Parliament, once growth did not match expectations, “Prime Minister David Cameron’s government backed off, putting plans for further austerity on hold (but without admitting that it was doing any such thing).” That’s just wrong. The Coalition government announced spending cuts and tax rises in the 2010 Emergency Budget. It announced additional spending cuts in 2011. It has not backed off or put on hold any of its aggregate spending cuts or tax rises. (Obviously it has modified tiny measures, such as the notorious “pasty tax” on which there was a U-turn in May 2012. But I don’t think even Krugman would claim reversing the application of sales taxes to hot takeaway food was central to Britain’s economic recovery.)

To be sure, although the government did announce some additional spending cuts and tax rises as the economy grew only poorly in 2011 and 2012, it did not announce so much additional spending cuts and tax rises that it returned to its original deficit reduction projections. But that was sticking to the original spending cuts / tax rises plan, not “putting austerity plans on hold”.

Indeed, that was a central purpose of the Coalition’s 2010 deficit reduction plan. Because it started early – without being forced to by bond market panic or by international agencies such as the IMF or the EU – the UK government has kept control of its own fiscal destiny. In many other parts of Europe, governments that did not have adequate plans in place in 2010 found that, when their economies grew poorly (or had double dip recessions — which happened in many other countries but not in the UK) they were forced to announce tighter deficit reduction plans. Precisely because the UK started early, when the economy grew poorly in 2011 and 2012 (which, incidentally, few people in Britain outside a few Krugman fan-club economists think was much to do with “austerity” — after all, we were running absolutely gargantuan deficits and structural deficits, creating huge stimulus, and printing money via QE big-time, which together led to 5% inflation in 2011, strongly suggesting even higher aggregate demand would have just meant even higher inflation) – when the economy grew poorly the UK government had the option of leaving its existing plans in place and not doing more. Krugman imagines that would have been an option if we had not started early. The experience of other countries strongly suggests that he’s wrong.

That leads me to a final point. Krugman wants his US readers to believe that all proper economists now agree that cutting deficits was a bad mistake, and it’s only self-interested finance types and ideologically-motivated politicians and think-tankers that take a different view. But that’s nonsense. Just think about it: “Everyone agrees that austerity was a mistake”… apart from every government in Europe except the Greeks, and the economists and many of the civil servants that advise them. Krugman and his fan-club do not constitute all serious opinion, much as they might like to regard themselves that way. It’s all very nice sitting in a US university office preaching to the Europeans (or, indeed, preaching in the New York Times). The Greek Finance Minister Yanis Varoufakis used to be such a US academic and part of that Krugman-ite anti-austerity set. But he’s very quickly found that in the real world things that were easy to preach about from afar prove rather harder to do when it comes to it.

In Britain, probably the most illustrious economist — and certainly the best-paid, which might tell you something about how effective he is – is Roger Bootle of Capital Economics. His latest Telegraph column is entitled “Osborne was right to take a tough stance on austerity”. That might give you some idea of what “serious economists” in the UK think. Perhaps an even more authoritative statement of European economic orthodoxy came from German Finance Minister Wolfgang Schaeuble who, in 2013, stated: “Nobody in Europe sees this contradiction between fiscal policy consolidation and growth”. I agree with Wolfgang.

[Fenix]

Japan's Pacific Rim Job: Build 250-Mile Anti-Tsunami Wall To Create Jobs
Submitted by Tyler D.
03/23/2015

It appears Japanese policy-makers are getting inspiration from Hollywood for their latest economic 'fixes'. Having begun the building of a giant 'Game of Thrones'-esque ice-wall to hold back the radiation leaking from Fukushima (only to fail miserably); AP reports the latest cunning plan from the Japanese is to build a Pacific-Rim-esque "massive, costly sea wall to fend off tsunamis." The $6.8 billion, 250-mile-long, 41-foot-high concrete barrier public works project is seen by some as a necessary evil, and by others as a jail... Perhaps The UN's head of Disaster Risk Reduction summed it up best - "There's a bit of an over-belief in technology as a solution."



Caught Between A Housing Bubble And Falling Crude Prices, Norway Will Invest Oil Riches In Foreign Real Estate
Tyler D.
03/23/2015

Norway is stuck between a rock and a hard place. Last week, the Norges Bank defied market expectations by leaving rates unchanged citing an overheating housing market. Here’s the statement:

"The key policy rate was reduced in December to counter the risk of a pronounced downturn in the Norwegian economy on account of lower oil prices. So far, the effects on the real economy have been relatively small, and house prices are still rising at a fast pace. The key policy rate has therefore been left unchanged", says Governor Øystein Olsen.

...and a bit more from the bank…

Banks have lowered their residential mortgage rates by a little more than ¼ percentage point. House prices are still rising at a fast pace and are somewhat higher than projected in December. The rate of household debt accumulation has been slightly lower than that projected, but debt continues to rise faster than household income.

As a reminder, here’s what the rise in property prices looks like:

Clearly, aggressively lowering rates in such an environment could be a decidedly risky proposition because, as the country’s Financial Supervisory Authority warned in January, “lower interest rates and strong competition in the mortgage lending market could contribute to continued rapid growth in debt and house prices [causing a] self-augmenting spiral.” As bad as self-augmenting spirals are, some commentators think the central bank may be endangering the economy by being too slow to pull the trigger on rate cuts. Here’s more from Bloomberg:

The difference between market expectations and what the bank did “is more a matter of timing and perhaps different weighting of different types of risks,” Olsen said.


The government is also working on plans to cool a run-away housing market. Norwegians owe their creditors about twice as much as they make in disposable incomes, more than at any time in the country’s history. House prices jumped about 9 percent in February from a year earlier to a record high…


Olsen’s decision to hold rates was “ill-advised,” said Kari Due-Andresen, senior economist at Svenska Handelsbanken AB. “The housing market is not what’s going to tip the economy.”


She sees Norges Bank being forced to act on its signal for another cut as early as May, followed by more easing in December. “It takes time for the shock to hit the whole economy, I think we will continue to fare worse and worse as we go forward -- then the housing market will cool.”

Meanwhile, the Supervisory Authority begs to differ and last week proposed a new set of requirements on residential mortgage lending citing the increasingly precarious situation:

There is a risk that the prospect of long-lasting low interest rates and easy access to credit will cause the strong growth in debt and house prices to persist. That would further increase households' debt burden and help to maintain demand for goods and services for a time, but such a development is not sustainable. The risk of a subsequent sharp setback and financial instability would thus increase.


Finanstilsynet concludes that it would be most appropriate to establish requirements for lending practices in the form of regulations. This course of action is necessary in order to remove or strongly curb banks' scope to deviate from the standards for residential mortgage lending practices.

All in all, the country is truly backed into a corner: ease too much and the housing bubble becomes even more unsustainable, don’t ease enough and the oil-dependent economy gets it.

Amidst the uncertainty, Norway’s nearly $900 billion sovereign wealth fund (the largest in the world) is keen on being a source of stability in an increasingly unstable world — which is why it’s planning on spending the country’s oil revenue on “a lot” of Asian skyscrapers and shopping malls. Here’s more from Bloomberg:

The Government Pension Fund Global, its official name, targets markets based on growth potential and supply constraints as it seeks to invest in 10 to 15 cities globally. It has already snapped up properties in New York, Paris, London and Berlin among other cities. The fund held about $18 billion, or 2.2 percent of its assets, in real estate last year, and is seeking to build that share to 5 percent.

The focus is on specific markets rather than sectors, Kallevig said.


“When we say Singapore and Tokyo, we mean the better parts” of those cities, he said. “My guess is office properties will be the main component, because that’s what’s for sale in those parts of town. There aren’t many shopping malls in the center of Tokyo or the center of Singapore.”


The Government Pension Fund Global, its official name, targets markets based on growth potential and supply constraints as it seeks to invest in 10 to 15 cities globally. It has already snapped up properties in New York, Paris, London and Berlin among other cities. The fund held about $18 billion, or 2.2 percent of its assets, in real estate last year, and is seeking to build that share to 5 percent.


The focus is on specific markets rather than sectors, Kallevig said.


“When we say Singapore and Tokyo, we mean the better parts” of those cities, he said. “My guess is office properties will be the main component, because that’s what’s for sale in those parts of town. There aren’t many shopping malls in the center of Tokyo or the center of Singapore.”

Fortunately, the fund has a sterling track record when it comes to managing risk. For instance, there was the extraordinarily prudent bet on Greek debt in 2010 on the basis that the fund’s investment horizon was “infinity” (via Bloomberg):

Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said in an Aug. 27 interview. “It is important when you look at the time scope of the fund and the investments that there should be a portion of active management.”

Fast forward to 2012 (Via FT):

Norway’s oil sovereign wealth fund has sold all its holdings of Irish and Portuguese government debt and reduced its ownership of Spanish and Italian bonds as part of a continuing protest over its forced participation in Greece’s debt restructuring.

So Norway, we wish you the best of luck as it certainly appears you’ll be needing it given that the Norges Bank is facing a lose-lose scenario where leaning one way inflates an epic housing bubble and leaning the other risks exacerbating the negative effects of falling crude prices and speaking of crude, your oil wealth is being invested in Asian properties by the same people who once thought it was a good idea to load up on Greek bonds.

[Fenix]

Fed Bubble Spotter Joins Whale Hunter At Hedge Fund
Tyler D.
03/24/2015

The man who once dared to suggest to his colleagues at the Fed that waiting until there’s “decisive proof” of a bubble might be a bad policy because by then it will be too late to fix things resulting in “an implicit policy of inaction,” and who subsequently resigned from his position amongst one group of PhDs to return to work with another, is taking his talents to BlueMountain Capital where he’ll advise Andrew Feldstein (the man who once harpooned a certain British whale) on how inept the government is when it comes to regulating the industry, among other fun topics.

Here’s more via WSJ:

Jeremy Stein signed up as a paid consultant to BlueMountain Capital Management, the more than $20 billion New York hedge-fund firm, the firm confirmed.



Mr. Stein, 54, made a quick impact in his two years as a Fed governor, warning of potential asset bubbles from the central banks’ sustained post-crisis stimulus programs. That set him apart from his colleagues who felt that financial stability concerns were far from the top priority in a sluggish economic environment. He resigned in May 2014.


More recently, he has said he is bullish on the U.S. economy, and relatively unsure on whether the Fed will raise rates in June.


At BlueMountain, Mr. Stein will advise on macro policies, financial regulation and risk management, among other issues.

And here’s the PR from BlueMountain:

BlueMountain Capital Management, LLC ("BlueMountain"), a private investment firm with over $20 billion in assets under management, is pleased to announce it has entered into a consulting agreement with Harvard economics professor Jeremy C. Stein, who was a member of the Board of Governors of the Federal Reserve System from May 2012 to May 2014.


Professor Stein will advise BlueMountain on a range of issues, including implications of monetary and macroprudential policies, financial regulation and market evolution, and risk and capital management.


"We're very lucky to have the opportunity to work with Jeremy," said Andrew Feldstein, CEO of BlueMountain. "He has been widely recognized by leaders in government, academia and the private sector for his talent and impact. His experience, research interests, and intellect will add real value to BlueMountain's investors.”…


"I'm excited to be working with the BlueMountain team," said Professor Stein. "They are at the cutting edge with respect to the development of both investment strategies and risk management tools, and I look forward to learning much more about the markets from my collaboration with them."

***

When Stein resigned his Fed post, he noted in his resignation letter to the President that “working alongside… selfless men and women” had been a rewarding experience. We imagine he’ll have a similar experience working with the many “selfless” individuals in the hedge fund industry.

The Biggest Threat To The S&P 500 In The Next Month: "Biggest Buyer Of Stocks In 2015" Enters Blackout Period
Tyler D.
03/24/2015

Back in January, we revealed that in lieu of QE, which is still on hiatus, the biggest buyer of stocks in 2015 will be corporations themselves, who at the start of the year Goldman estimated were poised to repurchase some $450 billion of their own shares (as "households" were on route to sell a near record $250 billion).

Subsequently, we reported that the reason for the relentless surge in the stock market in February following the ghastly January was none other than buybacks alone. In fact, run-rating the February buyback number which was just shy of $100 billion, one can easily state that the previous estimate of $450 billion in total 2015 buybacks will be woefully low. Sure enough, based on a revised estimate by Goldman, the vampire squid now expects companies to repuchase a record $604 billion in 2015, approaching the amount of total liquidity injection during the peak of the Fed's QE.

The reason we bring this up is while it is clear to everyone by now that only stock buybacks remain the last real bid for stocks (excluding the occasional BOJ ETF BWIC) and as we further reported, tech company insiders are now selling record amounts of their personal shares to their own companies, is that as Goldman revealed overnight, we are now entering a very dangerous period for stocks: the so-called buyback blackout period.

So, for those curious what the biggest threat to the S&P 500 making new and mandatory daily all time highs is (to keep investor confidence in rigged, manipulated markets high), here is the explanation:

The majority of companies just entered the buyback blackout period leading into the 1Q earnings season, and high valuations in the absence of corporate demand may weigh on stock prices.

Buybacks remain a major source of demand for equity. We expect S&P 500 firms will boost repurchases by 18% to $604 billion in 2015. While roughly 70% of share repurchases are implemented via 10b5-1 programs, firms refrain from discretionary buybacks during the blackout periods that extend from roughly five weeks prior to earnings reports through 24-48 hours post-announcement. As volumes decline, market performance appears more vulnerable to the seasonality of buyback activity.

The closing of the buyback window ahead of earnings season has recently coincided with weaker S&P 500 performance. In half of the last eight quarters, the S&P 500 declined during the four weeks prior to earnings season. The S&P 500 rose an average of 0.3% in the month leading up to earnings season versus +1.6% both during earnings season and in the month following earnings season.

How long is the weakness expected to persist? At least until the first week of May when the buybacks resume:

So be very careful with those S&P 500 sell stops: they just may get triggered in the next 6 weeks, after algos do a stop loss test and find there is nobody there to BTFD.

As for will Goldman be doing? Why selling of course. How do we know this? Because it is telling the muppets to buy (all that it has to sell):

Investors should view any market pressure as a buying opportunity. High valuations in the absence of corporate demand may weigh on stock prices. However, we expect the market will climb to 2150 around mid-year 2015 ahead of the anticipated September Fed tightening and as corporate buyback activity resumes once earnings season ends.

The closure of the buyback window may lead to a more attractive entry point for investors interested in this strategy. Both GSTHCASH and GSTHREPO are more likely to outperform the market in the month following earnings. Seasonally, the hit rate of outperformance is highest in February, May, and August. We believe stocks with high total cash returns will outperform as S&P 500 firms grow buybacks and dividends by 18% and 7%, respectively, in 2015.

In particular, we recommend investors buy our basket of US stocks focused on returning cash to shareholders via buybacks and dividends.

And don't worry: Goldman will have more than enough to sell to you, guaranteed.

[Fenix]

Short-Term Gains & Long-Term Disaster
Tyler D.
03/24/2015

Submitted by Raul Ilargi Meijer

About a month ago, Japan’s giant GPIF pension fund announced it had started doing in Q4 2014, what PM Abe had long asked it to: shift a large(r) portion of its investment portfolio from bonds to stocks. No more safe assets for the world’s largest pension fund, or a lot less at least, but risky ones. For Abe this promises the advantage of an economy that looks healthier than it actually is, while for the fund it means that the returns on its investments could be higher than if it stuck to safe assets. Not a word about the dangers, not a word about why pensions funds were, for about as long as they’ve been in existence, obliged by law to only hold AAA assets. This is from February 27:

Japan’s GPIF Buys More Stocks Than Expected In Q4; Slashes JGBs

Japan’s trillion-dollar public pension fund bought nearly $15 billion worth of domestic shares in the fourth quarter, more than expected, while slashing its Japanese government bond holdings as Prime Minister Shinzo Abe prods the nation to take more risks to spur economic growth. The bullishness toward Japanese equities by the Government Pension Investment Fund, the world’s biggest pension fund, boosted hopes in the Tokyo market that stocks have momentum to add to their 15-year highs.

GPIF said on Friday its holdings of domestic shares rose to 19.8% of its portfolio by the end of December from 17.79% at the end of September. Yen bonds fell to 43.13% from 48.39%. Adjusting for factors such as the Tokyo stock market’s rise of roughly 8% during the quarter, GPIF bought a net 1.7 trillion yen ($14 billion) of stocks in the period, reckons strategist Shingo Kumazawa at Daiwa Securities. GPIF’s investment changes are closely watched by markets, as a 1 percentage-point shift in the 137 trillion yen ($1.15 trillion) fund means a transfer of about $10 billion.

What economic growth can there be in shifting from safe assets to riskier ones? Isn’t economic growth in the end exclusively a measure of how productive an economy is? And isn’t simply shifting your money around between assets a clear and pure attempt to fake growth numbers? Moreover, doesn’t Abe himself indicate very clearly that there is risk involved here, that there is now a greater risk that pension money will have to take losses on its investments? Isn’t he simply stating out loud that he wants to turn the entire nation into a casino? And that without this additional risk there will and can be no economic growth?

It’s time for the Japanese to get seriously scared now. Like many other countries, Japan – and its political class – creates a false image of enduring prosperity by letting its central bank increasingly buy up ever more of its sovereign bonds. It’s a total sleight of hand, there is nothing left that’s real. There’s no there there. This is of course the same as what happens in Europe.

And it’s precisely because central banks buy up all these bonds, that their yields scrape the gutter. It’s a blueprint for killing off the last bit of actual functionality in an economy. All you have from there on in is fake, an artificial boosting of bond prices aimed at creating the appearance of a functioning economy, which can by definition only be a mirage. That it will temporarily boost stock prices in an equally artificial way only goes to confirm that.

But, evidently, artificially high stock prices carry a much greater risk than ones that are based on a free and functioning market and economy. So not only is there a shift from safe to risky assets, there’ s a double whammy in the fact that these large scale purchases boost stocks without having anything to do with the economic performance of the companies whose stocks are bought.

It may make Shinzo Abe look better for a fleeting moment, but for Japan’s pensioners it’s the worst option that is available.

And then last week, a group of smaller rising sun pension funds said they’d follow the example. The more the merrier….

Japan Public Pensions To Follow GPIF Into Stocks From JGBs

Three Japanese public pension funds with a combined $250 billion in assets will follow the mammoth Government Pension Investment Fund and shift more of their investments out of government bonds and into stocks. The three funds and the trillion-dollar Government Pension Investment Fund, the world’s biggest pension fund, will announce on Friday a common model portfolio in line with asset allocations recently decided by the GPIF, the people told Reuters. Assuming, as expected, the three smaller mutual-aid pensions adopt the portfolio, that would mean shifting some 3.58 trillion yen ($30 billion) into Japanese stocks, a Reuters calculation shows.


The GPIF in October slashed its targeted holdings of low-yielding government bonds and doubled its target for stocks, as part of Prime Minister Shinzo Abe’s plan to boost the economy and promote risk-taking. GPIF in October slashed its targeted holdings of low-yielding government bonds and doubled its target for stocks, as part of Prime Minister Shinzo Abe’s plan to jolt Japan out of two decades of deflation and fitful growth and promote risk-taking. The shift to riskier investments by the 137 trillion yen ($1.1 trillion) GPIF has helped drive Tokyo Stocks to 15-year highs this week because of the fund’s size and because it is seen as a bellwether for other big Japanese institutional investors. The new model portfolio, part of a government plan to consolidate Japan’s pension system in October, will match the new GPIF allocations of 35% in Japanese government bonds, 25% in domestic stocks, 15% in foreign bonds and 25% in foreign stocks, the sources said.

Half of Japan’s pension money will be in stocks, domestic and foreign. And what do you think that means if and when there’s a major stock market crash – which is historically inevitable?

Never give a government any say in either your central bank or your pension fund. That’s a very sound lesson that unfortunately everyone seems to have forgotten. At their own peril. Sure, they’re looking like geniuses right now: look, the Nikkei is at a 15-year high! But it’s what’s going to come after that counts. For who believes that this situation can last forever? Or who, for that matter, believes that this head fake will the driver for real economic growth?

Sure enough, now the rest of the region has to follow suit: every pension fund in the region becomes a daredevil. But we know, don’t we, what the rising greenback is about to do to emerging markets that have huge amounts of dollar-denominated debt in their vaults. One thing this won’t do is boost stock markets; it will instead put many companies into either very bad financial straits or outright bankruptcy. And then you will have their pension funds holding a lot of empty bags. From the point of view of major banks this is ideal: this is how they get there hands on everyone’s pension funds, which I once labeled the last remaining store of real wealth.

Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most

The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of government stimulus programs. The Social Security Office and Government Service Insurance System said they’re increasing holdings of shares, while the head of Indonesia’s BPJS Ketenagakerjaan said he sees the nation’s stock index rising 14% by year-end. Rupiah, baht and peso notes have lost money since the end of January, after handing investors respective returns of 13%, 9.9% and 6.6% last year, Bloomberg indexes show.


“There has been frustration among domestic institutional investors about the falling returns on bonds,” Win Phromphaet, Social Security Office’s head of investment in Bangkok, said in a March 19 interview. “Large investors including SSO must quickly expand our investments in other riskier assets.” Appetite for sovereign debt is cooling just as Southeast Asian governments speed up construction plans in response to slowing growth in China and stuttering recoveries in Europe and Japan.

If Thailand and the Philippines, and many other nations in the region, want to speed up their infrastructure projects, their central banks, too, will have to buy up the vast majority of their sovereign bonds. They too will have to fake it. It’s fatally contagious.

And then a few days ago this passed by on the radar. The world’s largest sovereign wealth fund (Norway’s) joins the club. This may seem completely normal to some, either because they don’t give it much thought or because they work in this sort of field (people adopt strange ways of thinking), but for me, it just raises bright red alerts.

Biggest Wealth Fund Targets Tokyo for Next Real Estate Purchase

Norway’s sovereign wealth fund is looking at Tokyo or Singapore for its first real estate investment in Asia as the investor expands globally. “That’s where we think we’ll start,” Karsten Kallevig, the chief investment officer of real estate at the Oslo-based fund, said in an interview after a speech in the Norwegian capital. “If we’re really successful there, then maybe we can add a third and a fourth and a fifth city at some point.” After in 2010 being allowed to expand into the property market, Norway’s $870 billion wealth fund has amassed about $18 billion in real estate holdings. It has snapped up properties in major cities such as New York, London and Paris, with a main focus on office properties. The fund is focusing on specific markets rather than sectors, Kallevig said.


“When we say Singapore and Tokyo, we mean the better parts” of those cities, he said. “My guess is office properties will be the main component, because that’s what’s for sale in those parts of town. There aren’t many shopping malls in the center of Tokyo or the center of Singapore.” Just as in earlier purchases in Europe and the U.S, the fund will also buy properties with partners, Kallevig said. The next trip in that area will probably be in the second quarter, he said. The property portfolio was 141 billion kroner ($17.5 billion), or 2.2% of the fund at the end of last year, compared to 1% at the end of 2013. Real estate returned 10.4% in 2014.


Kallevig has said he seeks to invest 1% of the fund in real estate each year until the 5% goal is met. The Government Pension Fund Global returned 7.6% in 2014, its smallest gain since 2011. The fund has warned it expects diminished returns amid record low, and even negative, yields in key government bond markets combined with slow growth in developed markets. Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67% stake in Statoil ASA. Norway is western Europe’s biggest oil and gas producer. The fund invests abroad to avoid stoking domestic inflation.

Hmm. “The fund invests abroad to avoid stoking domestic inflation.” Really? In today’s zero percent world? Sounds curious. It may have been a valid objective in the past, but not today. What this is really about is chasing yield, just as in the pension fund case. Still, that was not the first thought that came to mind when reading this. That was: If Tokyo real estate were such a great investment, wouldn’t you think that Japan’s own pension funds would be buying? They’re chasing yield like crazy, but they would miss out on their own real estate assets which Norway’s fund thinks are such a great asset?

All this is not just the financial world on steroids, which is bad enough when you talk about someone’s pension, it’s the wrong kind of steroids too. The lethal kind. But then, without steroids the entire economic facade would be exposed as the zombie it has become. It’s insane for pension funds to buy stocks on a wholesale scale, because that distorts an economy beyond the point of recognition, it screws with price discovery like just about nothing else can, and it puts the pensioners’ money in grave danger. It’s equally insane for Norway to buy up property halfway around the world which giant domestic investors leave by the wayside.

Investing your pension money, and your wealth fund, into your own economy is such a more solid and soundproof thing to do, it shouldn’t even be an item up for discussion. Taking that money out of the foundation of an economy, and shifting it either to assets abroad, or into the casino all stock markets must of necessity be in the end, means abandoning and undermining the future strength of your own economy for the sake of a bit more yield today. At home, you could create infrastructure and jobs and resilience with it. All that is gone when you move it either abroad or into a casino.

Still, nothing really functions anymore the way it should. And that’s how you wind up in situations such as these. Central banks monetize debt to such extents, you could swear there’s a race going on. They do this to hide from view the debts that are out there, and that if exposed would make everything look much bleaker than it looks with various QEs and other steroid-based stimuli. In doing this, central banks kill bond yields, which chases pension- and wealth funds out of safe assets. A surefire way to create short term gains and long term losses, if not disaster. For the masses, that is. No losses in store for the few. They get only gains.

[Fenix]

Orwell & Kafka Do America: How The Government Steals Your Money - "Legally," Of Course
Tyler D.
03/24/2015

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Due process and rule of law have been replaced with "legalized" looting by government in America.

Did you know that the government of Iran steals your cash if they find more than loose change in your car? They don't arrest you for any crime, for the simple reason you didn't commit any crime; but it isn't about crime and punishment--it's about"legalizing" theft by the state.

So the government toadies don't charge you with a crime or arrest you--they just steal your money.

Pity the poor Iranian people--clearly, there is no rule of law to protect them from their predatory, rapacious, fake-democracy, quasi-totalitarian government.

Did you also know that if you deposit too much money in modest sums, the government of Iran steals all your deposits? They will claim--oh, the twisted logic of Orwellian, repressive governments--that you are obviously a drug dealer who is avoiding laws that require banks to report large deposits to the government.

Once again, you won't be charged with a crime--in true Orwellian fashion the suspicion that you may have committed a crime is sufficient reason to steal your cash. Pity the poor Iranian people, living in such a banana-republic kleptocracy.

Did you also know that if you are caught with any drug paraphernalia in your vehicle, the government of Iran steals your vehicle? The crime isn't a drug crime--it's a property crime: what are you doing with the government of Iran's vehicle?

Pity the poor Iranian people, living in a Kafkaesque nightmare where suspicion alone justifies the government stealing from its citizens, and an unrelated crime (possessing drug paraphernalia) is used to justify state theft.

As in a Kafkaesque nightmare, the state is above the law when it needs an excuse to steal your car or cash. There is no crime, no arrest, no due process--just the state thugs threatening that you should shut up and be happy they don't take everything you own.

Your car and cash are guilty--and your house, too.

Alas, dear reader, I have misled you. It is not the Iranian government that uses these tricks to steal from its people--it is the the U.S. government that uses these above-the-law excuses to blatantly steal from its citizens. I presented these Orwellian, Kafkaesque travesties of the rule of law as being Iranian so you would see them for what they are--the actions of an above-the-law, predatory state which falsely claims to be a democracy with a functioning judiciary.

All these forms of civil forfeiture in America are well documented:

Taken: Under civil forfeiture, Americans who haven’t been charged with wrongdoing can be stripped of their cash, cars, and even homes. Is that all we’re losing?

Stop and Seize (six parts)

I strongly recommend reading every word of these articles before you start spouting nonsense about what a great and glorious government and legal system we have here in America.

After six years of gorging on the ill-gotten civil forfeiture gains of kleptocratic local government mafias, the Attorney General of the U.S., Eric Holder, recently announced that the federal government would no longer be taking its 20% share of the pounds of flesh stripped from the bones of U.S. citizens.

As my old African-American foreman F.B. would say: that's awful white of you, Eric, after feasting on the billions of dollars stolen from Americans for six long years. The same can be said of President Obama, who has ignored the officially sanctioned thievery by government thugs and toadies for six long years.

Why Eric Holder’s civil forfeiture decision won’t stop civil forfeiture abuse

This is how Orwell and Kafka do America: each absurd justification for stealing private property is more outrageous than the next.

But wait--there's More! That bastion of liberal politics, the state of California, a state completely dominated by Democrats claiming the cherished mantle of Progressive, is undoubtedly the most rapacious, thieving, Kafkaesque government in any nation claiming to be a democracy.

As I have documented in detail, the mere suspicion that you might owe the state of California some tax is enough for the state to steal all the money it finds in any of your bank accounts. And in a fashion that would have made the NKVD of the former Soviet Union proud, you also have to pay the bank a $100 (or more) fee for stealing your money for the state of California. (At least in some accounts, you had to pay for the bullet the NKVD would put in the back of your head.)

After they take all your money, you can call the state tax office and listen to a recording. If you have any money left, you can spend it trying to prove your own innocence, since the state of California already declared you guilty without any evidence or due process.

Welcome to the Predatory State of California--Even If You Don't Live There (March 20, 2012)

The Predatory State of California, Part 2 (March 21, 2012)

Welcome to the United States of Orwell, Part 2: Law-Abiding Taxpayers Are Treated as Criminals While the Real Criminals Go Free (March 27, 2012)

When the state steals our cash or car on mere suspicion, you have no recourse other than horrendously costly and time-consuming legal actions. So you no longer have enough money to prove your innocence now that we've declared your car and cash guilty?

Tough luck, bucko--be glad you live in a fake democracy with a fake rule of law, a fake judiciary, and a government of thugs with the officially sanctioned right to steal your money and possessions without any due process or court proceedings.

Be glad we don't have to torture a confession out of you, like the NKVD/KGB did in the former Soviet Union, because your cash and car are already guilty.

And that's how Orwell and Kafka work in America--a nation that once was a democracy and could once claim to live under rule of law. Wake up and smell the stench of a gilded gulag, America; we're living in one whether you care to admit it or not.

[Fenix]

New Home Sales Data Goes Full Retard With Report Frozen Northeast Saw 153% Surge
Submitted by Tyler D.
03/24/2015

This is how ridiculous goverment data has become: in the same month in which both Housing Starts and Existing Home sales significantly missed expectations, misses which were promptly blamed on the weather, the Census Bureau moments ago released a stunner of a New Home Sales number, which supposedly rose from an upward revised 500K to 539K, a 25% spike from a year ago and up 7.8% from January, which incidentally is also the highest number since February 2008, even as the median home price dropped to the lowest since September. All of this would be great... if it was remotely credible. It isn't.



This Is What The Global Economy Got For $11,000,000,000,000 In QE
Submitted by Tyler D.
03/24/2015

Export volume fall
Export price fall


Why Yellen & The Feds Are Bubble Blind - They Apparently Believe Wall Street's EPS Scam
Submitted by Tyler D.
03/24/2015

Janet Yellen noted that everything was awesome and that stocks were now slightly "on the high side" of their historical range. It appears no one showed her the Russell 2000 which has a valuation multiple of just about 90x LTM earnings (as reported by the 2000 companies which comprise the index, and which were certified as accurate by 4,000 CEOs and CFOs on penalty of jail time). The mystery of how the Fed remains so stubbornly bubble blind - just like it did during the dotcom and housing bubbles - is thus revealed. The self-evident reason is that the purported geniuses who comprise our monetary politburo drink the Wall Street Cool-Aid about forward ex-items EPS. The Fed is driving a two-ton bubble machine, but has no clue that it has become a financial death trap.



Corporate Profit Margins And Investor Consequences
Submitted by Tyler D.
03/24/2015

"...markets can turn from tranquil to turbulent in short order. It is worth noting that in 2006 volatility was low, and companies were generating record pro?t margins, until the business cycle came to an abrupt halt due to events that many people had not anticipated. Although investor appetite for equities may remain robust in the near term, because of positive equity fundamentals and low yields in other asset classes, history shows high valuations carry inherent risk... potential ?nancial stability risks arising from leverage, compressed pricing of risk, interconnectedness, and complexity deserve further attention and analysis."

[Fenix]

What A Permabull Thinks Is The Biggest Threat To The Stock Market
Submitted by Tyler D.
03/24/2015

Echoing the grave concerns of no lesser 'maestro' of manipulation than Alan Greenspan, Wells Capital Management's Jim Paulsen notes that while the U.S. stock market has risen by about 3 times from its crisis low in March 2009; much of this advance has been against a backdrop of disappointing productivity gains... should productivity growth remain subpar, stock market risk seems to be rising.


The Canadian Housing Bubble Has Begun To Burst
Submitted by Tyler D.
03/24/2015

Energy accounts for 10% of Canadian GDP and around 25% of exports and the swift fall in oil prices is having a profound effect in the nation’s oil producing regions where home sales are collapsing by as much as 65%.


Philip Haslam: When Money Destroys Nations
Submitted by Tyler D.
03/24/2015

Submitted by Adam Taggart

The global debt glut, plus the related money printing efforts by the world's central banks to try to stimulate further credit growth at all costs, leads us to conclude that a major currency crisis -- actually, multiple major currency crises -- are practically inevitable at this point.

To understand better the anatomy of a currency collapse, we talk this week with Philip Haslam, author of the book When Money Destroys Nations. Haslam is an authority on monetary history, and more recently, has spent much time in Zimbabwe collecting dozens of accounts of the experiences real people had as the currency there failed.

This week, he and Chris discuss the process by which a hyperinflationary currency collapse occurs:

In South Africa, there's a river called Suicide Gorge where you can jump off from the top of a series of waterfalls. You jump off each waterfall, and you can then go down to the next. But the problem is, once you jump off each waterfall, you can’t get back up again. So we used this analogy to describe the process of hyperinflation.


Typically, as a government prints money, you get levels of inflation. But that’s inflation based on historic money printing. Every year, when you get your salary increase, you base it on historic processes. You take the latest consumer price index and then build it into your wage increases. If you're a business, you'll build it into rent increases and price increases of your products. But it's all based on historic inflation.


But then the time comes when a cultural shift occurs and people begin to say "Hang on a second, my salary increase was based on historic inflation, but I'm beginning to lose purchasing power -- I'm getting poorer and poorer. Stop giving me increases based on last year, and give me increases based on next year." So the inflation becomes based on a future money printing, rather than historic money printing. That's what we call our first 'gorge moment'.


That leads very quickly then into our second gorge moment, which is where the rate of price increases actually outstrips the amount of money in the economy and you get money shortages. In 2003, the economy in Zimbabwe experiences fierce money shortages. You had massive queues at the banks, real shortages, everyone trying to take their money out of the banking system. It became a real problem as people began to distrust the banks more and more. They actually wanted to hold their money directly, concerned that the banks actually did not have it.


Gorge moment three is when that pressure begins to work its way into the real economy and margins begin to decrease to the point where stores begin to close. That is a real cultural shift. Before, stores were open; goods were expensive but you could still get food and you could still get goods and services. But at gorge moment three, the formal supply sector shuts down.


Gorge moment four is when the banking system begin to stop lending. If you are lending money to someone and, a day later, that money you lent has lost value, you no longer want to make loans. You're going to use that money to go speculating and buy things that will hold value. So gorge moment four is very close to gorge moment three. Stores close and credit dries up. People stop lending.


Following this stage is gorge moment five: a curious consumption hysteria develops that we call 'scorched money'. It's when people try to take their money and get rid of it as fast as they can because if you hold it instead, it's going to lose value by the next day and you can buy less and less with it as time goes on. People will do anything to get rid of their money and find anything that will hold some value of some sort. It’s a crazy, consumption hysteria where everyone’s buying everything. There is huge amount of demand, but in reality, production has stopped. So you have this entire consumption of the economy where all goods and services get consumed.


Finally comes the sixth gorge moment which is the death of the currency and the final collapse of the money-based system.

[Fenix]

Ron Paul: "A War Based On Lies Cannot Be Fixed With Another War"
Submitted by Tyler D.
03/24/2015

If the US intervention in Iraq created the “unintended consequences” of ISIS and al-Qaeda, how is it that more US intervention can solve the problem? A war based on lies cannot be fixed by launching another war. We must just march home. And stay home.


Did De-Dollarization Just Reach Escape Velocity? China's New Silk Road & Putin's Eurasian Trade Network
Submitted by Tyler D.
03/24/2015

The New Silk Road, actually roads - boosted by a special, multi-billion-dollar Silk Road Fund and the new Asian Infrastructure Investment Bank (AIIB), which, not by accident, has attracted the attention of European investors - symbolizes China’s pivot to an old heartland: Eurasia. Beijing has been quick to dismiss any notions of hegemony. It maintains this is no Marshall Plan. China, on the other hand, is focused on integrating “emerging economies” into a vast, pan-Eurasian trade/commerce network. And that, crucially, would have to include Russia, which is a vital part of the New Silk Road through an upcoming, Russia-China financed $280 billion high-speed rail upgrade of the Trans-Siberian railway. This is where the New Silk Road project and President Putin’s initial idea of a huge trade emporium from Lisbon to Vladivostok actually merge.


"Profound Shift In Liquidity Risk" May Imperil Market Function, New Report Says
Tyler D.
03/24/2015

Over the past several weeks we’ve said quite a bit about the lack of liquidity in both corporate and government bond markets. In a nutshell, QE is taking its toll on Treasury and JGB markets, with both traders and officials in Japan voicing concerns about liquidity while new regulations have made it more onerous for banks to hold inventories of corporate bonds, imperiling the secondary market at a time when new issuance is high thanks to record low borrowing costs. Here’s more:

* Illiquid Corporate Bond Market Will End In “Very Unpleasant Fashion”
* Drowning In Liquidity But None In The Bond Market
* More Flash Crashes To Come As Shadow Banking Liquidity Collapses
* BoJ Conducts Survey, Promptly Ignores Results

Now, Oliver Wyman and Morgan Stanley are out with a new report that takes an in depth look at the issue.

From the note, on market conditions in general...

There's a liquidity conundrum in fixed income markets facing policy makers and investors: how it’s resolved will have long term investment implications across banks, asset managers and infrastructure players.


At its heart is the huge shift in liquidity risks to the buyside and asset owners as the twin forces of financial regulation and QE have played out. New rules have driven a severe reduction in sell-side balance sheet and banks’ liquidity provision. Wholesale banking balance sheets supporting traded markets have decreased by 40% in risk weighted assets terms and 20% in total balance sheet since 2010. At the same time, credit markets have boomed as companies turn more to bond finance and investors are hungry for income. Credit market issuance is 2.4 times larger today than 2005. Within this, AuM in daily redeemable funds have grown 10% per annum and are now 76% above 2008 levels…


This comes at a time when we think the liquidity of secondary fixed income markets is likely to get materially worse. As regulatory costs continue to drag on returns, we expect another 10-15% shrinkage of fixed income balance sheet from the largest wholesale banks in the next 2 years. As much as 15-25% could be taken out of flow rates, we think, given the huge returns pressure on that business…


There is a growing urgency to tackle this debate by policy makers. The impact of less liquidity has been masked by a benign, ultra low interest-rate environment, but this is set to reverse in the US in the next 12 months, and could also reveal the side effects of QE pushing investors to less liquid securities.

...and on the impact of regulation…

We think the market underestimates how much more constrained market making will become in rates, credit markets and security financing. Wholesale banks’ risk weighted assets have already shrunk 40% since 2010 and balance sheet is down ~20%. Yet more is still to come – we expect a further 7-15% reduction in balance sheet over the next 3 years, focused in flow fixed income products…


Capital and funding requirements continue to ratchet up as banks deal with additional RWA and leverage pressures. We estimate that by 2017 capital consumption per unit of revenue generated in rates and credit intermediation will have increased 4-6x since pre-crisis levels.

...and here’s a heat map…

The report also contains quite a bit more in the way of policy reccommendations and implications for other market participants which we'll cover in a subsequent post.