Martes 08/9/15 indice del optimismo de los negocios pequeños

[Fenix]

Why SocGen Is Very Nervous About The Recent Loss Of $9 Trillion In Global Market Cap
Submitted by Tyler D.
09/08/2015 - 14:20

The good news: the collapse in global market cap since May of 2015 is not the worst ever.

The bad news: the $9 trillion drop in combined market cap between the MSCI All World index and Chinese stocks, is the second highest ever, surpassed only by the $13 plunge in global market capitalization in late 2008.



YHOO Flash-Crashes After IRS Fails To Rule On BABA Spin-Off
Submitted by Tyler D.
09/08/2015 - 17:07

Well this might explain the weakness in BABA over the last couple of days as it appears 'news' of the IRS lack of decision on the tax-free-ness of YHOO's BABA spin-off leaked out. It is decidely unclear how the IRS's decision not to issue a ruling will impact the spin-off but for now YHOO shares have flash-crashed after hours and are now hovering 5-6% lower...

[Fenix]

Goldman Warns, VIX "Is Pricing In A Lot Of Economic Damage"
Submitted by Tyler D.
09/08/2015 15:05 -0400

If the market is right, Goldman warns that current cross-asset-class volatility appears to be pricing in a lot of economic damage. As they note, VIX doesn’t just trade the economy; it also has a strong and often humbling element of risk sentiment baked in.



Goldman Sachs explains...

Mapping VIX levels back versus the economy … weaker data = higher VIX

Understanding the interplay between volatility and the economic cycle has been a core theme underlying our volatility framework. Although the VIX is often considered a “sentiment indicator”, a regression of average calendar month VIX levels on U.S. consumer spending, manufacturing and employment data explains 59% of the variability in VIX levels back to 2000. Updating our model to include last week’s ISM and employment data suggests that if the VIX were trading off the recent economic data then average VIX levels should be tracking at 18. The average VIX level in August was 19.4 and the average since mid-August has been 25.9, with a closing high of 40.7 on August 24.

Baseline VIX: ISM in low 50’s suggests equilibrium VIX level of 18, even after controlling for the drop in unemployment rate

We estimate that baseline VIX levels tend to increase about one-half of a vol point for every one-point decline in ISM new orders. ISM new orders levels averaged about 10 points higher over the back half of last year relative to where they are now (2H 2014 avg: 61.4 vs current: 51.7), so baseline VIX levels should be about 5 vol points higher. The average VIX level over 2H 2014 was 14.6. An estimate for the average VIX level given just the shift in new orders is approximately 19.7 (14.6 + 0.52*(61.4-51.7) ). Controlling for the drop in the unemployment rate to 5.1% puts our model at 18. A similar analysis on one-month S&P 500 realized volatility suggests current levels of 14.6.

The median daily VIX level over the last three recessions has been 26

The VIX closed at 27.8 last Friday. VIX levels go back to January 1990. Since that time there have been three recessions. Average VIX levels in the first two recessions (1990-1991, 2001) were 25 and 26 respectively. The worst of the worst was, of course, the Great Financial Crisis; average VIX levels in this 2008-2009 recession were 34. The median daily VIX level across all three recessions was 26, with an average of 30, skewed to the upside due to vol spikes. Our point is simply that the VIX at 27.8 is in that range and appears to be pricing in a lot of economic damage.

But VIX fits with the rest of the market's perception...cross asset metrics point to a VIX level of 25-27; VIX is in line with EM FX, HY, oil, rates



Updating the analysis from last week in Exhibit 9 suggests a predicted VIX level of 27.2 versus an actual closing VIX level of 27.8 on September 4. The regression in Exhibit 10 replaces EM FX with EM FX 1m implieds, WTI with WTI 1m implieds and 2y UST yields with 1m2y swaption vol and suggests a VIX level of 24.8. Relative to last week the cross asset risk metrics pushed higher to suggest a higher closing VIX level. Much of that came from a rise in US HY spreads and EM FX.

Ahead of The FOMC Meeting, Cross asset volatility levels are higher across the board consistent with higher VIX levels

What made 2014 stand out from prior low vol environments is that volatility and spread levels were low across various asset classes at the same time. By mid-year 2014, credit spreads had dropped and implied volatility levels across equities, commodities, rates and FX had all fallen to near decade lows. The VIX dropped to 10.3 in July 2014. Fast forward to 2015, and cross asset volatility levels have pushed higher across the board. Exhibit 11 looks at the percentile rank of the current level of implied volatility across global equity indices, EM and DM FX, commodities and US interest rates and compares versus July 3, 2014 (VIX cycle low). US interest rate implied volatility (1m10y), US HY CDX spreads and copper implieds are the only risk metrics on that dashboard trading below median levels back to 2004.

Exhibit 12 shows a metric of aggregate cross asset volatility, comprised of average 3m implied volatility levels across 21 global equity indices, fourteen EM FX currency pairs versus the USD, nine DM FX currency pairs versus USD, CDX IG 5y, CDX HY 5y, Copper, WTI and 3m10y and 3m2y US rate implied volatility. If we take that exhibit as a proxy for the global aggregate level of cross asset risk, then risk is now back on par with late-2014, early-2015 levels.

The VIX doesn’t just trade the economy; it also has a strong and often humbling element of risk sentiment baked in. The market in 2015 is worried about a potential FED rate hike during deteriorating financial conditions and a mixed U.S. and global economic picture. China’s currency devaluation and the residual impact across the EM and DM landscape are also front and center. Once the VIX is elevated, the healing process can take a long time.

[Fenix]

Fed Hike Will Unleash "Panic And Turmoil" And A New Emerging Market Crisis, Warns World Bank Chief Economist
Submitted by Tyler D.
09/08/2015 - 17:25

Earlier today we got the most glaring confirmation there had been absolutely zero coordination at the highest levels of authority and "responsibility", when the World Bank's current chief economist, Kaushik Basu warned that the Fed risks, and we quote, triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned. And just in case casually tossing the words "panic in turmoil" was not enough, Basu decided to add a few more choice nouns, adding a rate hike "could yield a “shock” and a new crisis in emerging markets"




It Really Is As Simple As That
Submitted by Tyler D.
09/08/2015 17:50 -0400

Six years after we first explained the only thing that matters for this "market", JPMorgan finally figured it out, and in doing so proudly joined the ranks of the "tinfoil hat, conspiracy theorists" unable to grasp the finer nuances of the Magic Money Tree theory.

Now, who else can't wait for the Fed's first rate hike in nearly a decade?

[Fenix]

"Liar Loans" Are Back! 2008 Here We Come
Submitted by Tyler D.
09/08/2015 17:45 -0400

Earlier this year, as the US auto sales miracle unfolded on the back of record loan terms and record high average monthly payments, we continually argued that underwriting standards were likely to deteriorate going forward as competition for the finite pool of creditworthy borrowers heats up.

Helping to drive (no pun intended) the shift towards looser lending standards is the proliferation of the originate-to-sell model - the same originate-to-sell model that helped steer the US housing market right off a cliff in 2007/2008. The concept is simple: if you’re making loans with the intention of carrying them on your books, you’re likely to care far more about the creditworthiness of the borrower than you are if you’re simply going to ship the loans off to Wall Street to be run through the securitization machine and then sold off to investors via MBS. That same dynamic is now at play in the market for car loans. Auto-backed ABS issuance should come in at around $125 billion this year - that’s up 25% from 2014 and accounts for more than half of total consumer loan-backed supply.

As was the case during the lead up to the housing market collapse, this dynamic embeds an enormous amount of hidden risk in the paper backed by the shoddy loans. This paper is very often highly rated because despite what happened in 2008, the idea still exists that although one risky loan may be properly viewed as a speculative investment, a whole bunch of pooled risky loans are somehow safe as can be.

But even as alarm bells are going off in the subprime auto market and also in the market for student loan-backed paper, there hasn’t been as much concern for the MBS market where apparently, everyone seems to think that market participants (lenders, borrowers, and Wall Street gamblers) have learned their lesson. Of course no one ever, ever learns which is why we weren’t at all surprised to hear that “liar loans” - a relic of the good old days - are back and, in keeping with everything said above, are creeping into mortgage-backed paper. Here’s Bloomberg with the story of Velocity Mortgage Capital LLC:

The pitch arrived with an iconic image of the American Dream: a neat house with a white picket fence.


But behind that picture of a $2.95 million home in Manhattan Beach, California, were hints of something darker: liar loans, those toxic mortgages of the subprime era.


Years after the great American housing bust, mortgages akin to the so-called liar loans -- which were made without verifying people’s finances -- are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street.


The Manhattan Beach story -- how the mortgage on that house was made and subsequently packaged into securities with top-flight credit ratings -- recalls a time when borrowers, lenders and investors all misjudged the potential danger.


The story begins earlier this year, when a TV producer bought the cream-colored home. His lender, Velocity Mortgage Capital LLC, says it writes mortgages for people buying homes only for business purposes, such as renting them out, and requires all customers to sign documents stating their intentions.


Soon Velocity was bundling the $1.92 million mortgage and hundreds of other loans into securities through Wall Street’s securitization machine. Kroll Bond Rating Agency featured a picture of the house in a report on the $313 million deal, most of which was rated AAA. Marketing documents for the offering, which was managed by Citigroup Inc. and Nomura Holdings Inc., characterized the buyer as an “investor.”


But when a reporter recently knocked on the door in Manhattan Beach, the buyer answered and said he never planned to rent out the place. Nor, he said, had he signed documents stating he would. He was living in the house with his family.

So he lied. Got it. Bloomberg goes on to explain that Velocity essentially takes advantage of the fact that mortgages made for "business purposes" are exempt from federal regulations designed to ensure that lenders are verifying borrowers' finances.

But don't worry, because there are safeguards in place. Velocity, for instance, ensures that borrowers are telling the truth by ... taking their word for it. Here's Bloomberg again:

Chris Farrar, Velocity’s chief executive officer, says his company takes steps to ensure customers really are buying homes for business purposes. These include having every borrower hand write and sign letters testifying to their plans.

And then there's Kroll which, you're reminded, also plays a rather large role in rating subprime auto deals, who doesn't seem to be all that interested in knowing whether or not Velocity has done enough due dillegence:

In assigning AAA grades, Kroll partly relied on Velocity’s promise to buy back any loans that fell short of the standards, said Nitin Bhasin, a Kroll managing director.


“That’s a question for Velocity, I think: How do they make sure when they’re making a loan that it’s not owner-occupied,” Bhasin said.

Bhasin is correct. It is a question for Velocity. And one you'd think Kroll would want a very concrete answer to before assigning an AAA rating especially given what we learned in the lead up to the crisis about investors' strange propensity to, you know, rely on ratings agencies to do their jobs before giving a deal the triple-A stamp of approval.

And because we wouldn't want anyone to think that the problem is confined to a handful of "liars" taking out mortgages for "business purposes," we'll leave you with the following from FT who reports that the ZIRP-induced hunt for yield has opened the door for the triumphant return of subprime non-Agency RMBS:

For “subprime”, read “non-prime”.


Yield-hungry investors are ready to endorse a revival of bonds backed by riskier US residential mortgages, as lenders warm to housebuyers who do not meet strict borrowing guidelines introduced after the financial crisis.


But the now toxic label of subprime mortgages has been dropped. Instead, Angel Oak Capital is in the process of pricing a deal for a bond offering of so-called “non-prime mortgages” — a term funds are using to describe mortgages that do not meet government standards. Lone Star Funds completed a deal worth $72m in August.

[Fenix]

"The World Is Running Low On Interventionist Ammo" SocGen Warns "China Is The Dominant Black Swan"
Submitted by Tyler D.
09/08/2015 18:10 -0400

When it comes to crisis, SocGen notes that there is an abundance of case studies; and against the backdrop of the uncertainty shock delivered by China and the subsequent market tumult, market participants have been looking to the history books for clues as to what could happen next. While individual crises create their own risks, SocGen warns, the overriding risk is that markets are taking less comfort today from the idea that central banks may step in with further QE-style liquidity injections to save the world.

Running low on monetary policy ammunition

Before considering the individual risk scenarios, an overriding risk is that markets are taking less comfort today from the idea that central banks may step in with further QE-style liquidity injections. We see this as a reflection of two factors.

First, the tremendous amounts of liquidity injected to date have produced less-than-spectacular economic results. This also fits the findings of academic literature suggesting diminishing returns from subsequent rounds of QE.


Second, central banks have clearly become more concerned about the potential risks to financial stability from indefinitely inflating asset prices, suggesting that they may be slower to step in.

This raises the important question of how policymakers would respond to new downside shocks. Fiscal expansion in the advanced economies, and not least infrastructure investment, would be our advice, but in a downside risk scenario, we fear that this tool is likely to be deployed all too slowly and central banks be further overburdened.

China is the dominant black swan

On the major risks that we see over the coming year, one positive is that we have taken Grexit off the chart. Medium-term, we still consider a Grexit a high risk scenario, but for now euro area policymakers seem content to have given the can a good kick further down the road.

China hard landing (30% probability): The recent market tumult offered a flavour of the type of market response a China hard landing might trigger. In such a scenario we would expect to see a further, and this time, sharp decline of the RMB. We defined a hard landing as a 2pp negative real growth shock to our baseline real GDP outlook. In 2015, that sets hard landing at 5%, in 2016 at 4%.


China’s financial integration into the global economy is low, making a replay of the 2008 crisis – that was transmitted primarily via financial channels – less likely. To our minds, such a scenario would bear a greater similarity to a “classic” EM crisis, such as the 1997 Asia crisis. However, today emerging economies account for around 40% of global GDP. This is twice the level that prevailed in 1997. The pullback in demand in emerging economies would make such a scenario the third deflationary shock of the past decade, following the 2007/08 subprime crisis and the 2011/12 euro area debt crisis.

New global recession (10% probability): A China hard landing or a much-deeper-thanexpected downturn in emerging economies in general, both have the possibility to trigger a global recession. How business, consumers and policymakers respond to such a shock would determine whether recession in the advance economies would follow or not. We see a 1-in-3 chance that a China hard landing would trigger global recession. Another critical assumption is that oil prices remain at the current very low level. If there were a positive oil price shock, this could also trigger a recession.



Advanced consumers save the energy windfall gain (25% probability): For the OECD economies, we estimate that the oil burden (price times demand divided by GDP) will decline by around 1.5pp compared to previous year averages. For energy consumers, this marks a windfall gain. Our baseline assumption is that the bulk of it will be spent. Should consumers prove more cautious, this would lower our growth outlook considerably, knocking 0.5-1.0pp off our baseline and pushing the major advanced economies back to “stall speed” levels.

Fed behind the dots (10% probability): When questioned about Fed policy in relation to the economic conditions in the rest of the world, Vice Chair Fischer noted that ensuring a stable US economy would be the Fed’s greatest contribution – we agree! Should the Fed keep rates too low for too long, the danger is that, once wages and inflation pick up, markets will do the job with a disorderly bear steepening of the yield curve delivering negative ramifications for financial markets globally and not least for emerging economies.


Brexit (45% probability): A date has yet to be set for the referendum and it is still unclear what concessions Prime Minister Cameron will obtain from his European Union partners. Striking is how little attention markets are paying to this topic. We see three possible explanations for this. First, markets believe Brexit would do no real harm. Second, markets see only a very low probability of such a scenario materialising. Third, it’s still too far away in terms of timing (the deadline is end-2017 but the UK government is hinting that it might be held next year) and too vaguely defined to focus on. In our opinion, the third explanation is the most likely. At some point, this will hit the radars and we see substantial volatility given our view that Brexit could take as much as 1pp off growth over the next decade and that the vote (as polls suggest) will be fairly close.

But on the bright side, US domestic demand dominates the white swans

Our previous white swan of higher-than-expected price multipliers described a scenario under which the multiplier effects that translate factors, such as lower oil prices, low interest rates and FX depreciation (where present) to the real economy turn out to be higher than we discount in our baseline scenario. In a nutshell, consumers and corporates decide not only to spend all the windfall gains of lower oil prices but take the opportunity of low interest rates to increase leverage to consume and invest. In our new GEO, we have split this risk of this positive outcome into several parts:

US invest more ... and win productivity (20% probability): Investment, be it capex or residential, has generally disappointed forecasts including our own. Looking ahead, we expect a sharp pick-up in residential investment. Our forecast on capex, albeit positive, holds room for upside surprise. This would also underpin productivity gains and thus ultimately real wage growth.

Higher-than-expected price multipliers in Europe and Japan (15% probability): On the external front, euro and yen have failed to deliver any significant boost to export volumes. Accommodative credit conditions have yet to deliver a major boost to domestic demand. Finally, while lower oil prices have been a positive, the multiplier effect on consumption and investment remains lower than many had hoped. Should multipliers prove stronger then expected this could deliver upside surprise, notably to our still-below-consensus euro area growth forecast but also offers some potential upside to our above-consensus outlook for Japan.


Fast track reform (10% probability): At the risk of sounding like a broken record, we once again highlight the need for structural reform. We are in the good company of central bankers in making this call. Nonetheless, the probability of it actually materialising remains disappointingly low, all the more so given a busy electoral agenda ahead.

[Fenix]

Hedge Funds Get Long Volatility
Submitted by CrownThomas on 09/08/2015 09:37 -0400

Hedge Funds are apparently dusting off their notes on how to hedge, and getting long volatility...

As the Fed stays out of the market (perhaps not for much longer), and people wake up to the fact that the economy (both US and China) isn't fundamentally strong, we're now finally seeing some volatility in the market (gasp). As Bloomberg points out below, VIX futures are now a popular buy.




Social Security Disability Fund Will Be Broke Next Year
09/08/2015 19:45 -0400
Submitted by Veronique de Rugy

The 2015 annual report from the Social Security Board of Trustees shows that the program’s disability component is in immediate trouble. Data from the latest report show that the disability fund will be depleted as soon as next year and unable to pay full benefits to beneficiaries.

This week’s first chart uses that data to show total income, expenditures, and assets in the Social Security Disability Insurance (DI) trust fund going back to 1980. The chart shows that the trust fund has been operating under deficits since 2009, as shown by the decline in the trust fund (green bars) and ever-growing gap between the payments (red line) and receipts (blue line).



Those deficits have been financed by redeeming nonmarketable government securities that were accumulated over the years when the program was bringing in more revenue than was being paid out. The government spent the surpluses on other government programs and credited the fund with the securities. But because the securities are nonmarketable, the government had to use general federal revenues to “redeem” them once the DI fund started to run deficits in order to cover the difference. With the illusion of the DI trust fund about to disappear, policymakers have no choice but to finally confront the financial imbalance that actually began years ago.

That means confronting the growth in disability benefits, which have exploded over the past decade. The second chart shows the dramatic inflation-adjusted rise in benefits since the program’s inception, which have doubled in real terms (from $70 billion to about $142 billion) between 1998 and 2014.



It will be tempting for policymakers to avoid the politically difficult decision to rein in benefits by a temporary fix, like raising payroll taxes or shifting “assets” from the regular Social Security trust fund to the DI component. These short-term fixes would worsen the Social Security system’s long-term structural imbalance, while inflicting damage on the US economy.

[Fenix]

2008 Was a Crisis… It Was Not THE Crisis
Submitted by Phoenix Capital Research on 09/08/2015 10:48 -0400


The 2008 crash was a warm up.

Many investors think that we could never have a financial crash again. The 2008 melt-down was a one in 100 years episode, they think.

They are wrong.

The 2008 Crisis was a stock and investment bank crisis. But it was not THE Crisis.

THE Crisis concerns the biggest bubble in financial history: the epic Bond bubble… which as it stands is north of $100 trillion… although if you include the derivatives that trade based on bonds it’s more like $500 TRILLION.

The Fed likes to act as though it’s concerned about stocks… but the real story is in bonds. Indeed, when you look at the Fed’s actions from the perspective of the bond market, everything suddenly becomes clear.

Bonds are debt. A bond is created when a borrower borrows money from a lender. And at the top of the financial food chain are sovereign bonds like US Treasuries.

These bonds are created when someone lends the US money. Why would they do this? Because the US SPENDS more money than it TAKES IN via taxes. So it issues debt to cover its extra expenses.

This cycle continued for over 30 years until today, when the US has over $16 TRILLION in size. Because we never actually pay our debt off (or rarely do), what we do is ROLL OVER debt when it comes due, so that investors continue to receive interest payments but never actually get the money back… because the US Government doesn’t have it… because it’s still spending more money than it takes in via taxes.

This is why the Fed cut interest rates to zero and will likely do everything in its power to keep them low: even a small raise in interest rates makes all of this debt MORE expensive to pay off.

This is also why the Fed had the regulators drop accounting standards for derivatives… because if banks and financial firms had to accurately value their hundreds of trillions of derivatives trades based on bonds, investors would be terrified at the amount of leverage and the margin calls would begin.

The bond bubble is also why the Fed started its QE programs. Because by buying bonds, the Fed put a floor under Treasuries… which made investors less likely to dump bonds despite bonds offering such low rates of return.

This is also why the Fed is terrified of deflation. Deflation makes future debt payments more expensive. So the Fed prefers inflation because it means the dollars used to pay off debt down the road will be cheaper than Dollars today.

Again, when look at the Fed’s actions through the perspective of the bond market… everything becomes clear.

The only problem is that by doing all of this, the Fed has only made the bond market even BIGGER. In 2008, the bond market was $82 trillion. Today it’s over $100 trillion. And the derivatives market, of which 80%+ of all trades are based on interest rates (Treasury yields), is at $700 TRILLION.

The REAL Crisis will be when the bond bubble bursts. When this happens, it will be clear that real standards of living have been falling since the ‘70s and that sovereign nations have been papering over this through social spending and entitlements (a whopping 47% of US households receive Government benefits in some form).

Imagine what will happen to the markets when the Western welfare states finally go broke? It will make 2008 look like a picnic.

Smart investors are preparing now.

If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

We made 1,000 copies available for FREE the general public.

As we write this, there are less than 10 left.

To pick up yours…

[Fenix]

The Fed Is About To Unleash Deflation: Deutsche Bank Shows How
Submitted by Tyler D.
09/08/2015 20:05 -0400


When it comes to the Fed's upcoming rate hike, only one simple shorthand matters: higher rates means less liquidity, and vice versa.

What does that mean for inflation/deflation and bond yields? According to the following simple and understandable analysis by Deutsche Bank, nothing good.

Here is the TL/DR version: "5y5y is well correlated with changes in global liquidity and based on recent trends should be closer to 2 percent."

Here is the extended explanation:

Breaking down the breakeven and real yield components verifies that central bank liquidity has been more associated with real yields then breakevens, however the relationship is perverse! Real yields have tended to fall when balance sheet expansion is slowing while breakevens have generally been more sticky. This suggests that risk assets drive (real) yields and that breakevens anticipate a (delayed) liquidity injection.





This is corroborated by also considering the curve. Like real yields 5s10s is well correlated (positively) with real yields. Note that prior to the crisis the relationship looked more “normal” in that expanding liquidity drive yields lower and vice versa. So something has changed since the crisis—this we think is very important and again, will revisit below.





The relationship between 5s10s and 10s in real terms screams 5y5y! And indeed we overlay 5y5y to liquidity there is a very tight, almost scary, relationship. The relationship even predates the crisis. Tighter liquidity essentially forces the 5y5y nominal rate lower reflecting some combination of a flatter curve and higher yields with a steeper curve and lower yields. Fundamentally we think this ultimately speaks to a lower terminal policy rate so that it doesn’t really matter whether the term structure is trying to shift higher or lower but the curve will more than compensate so that if the trend is towards less central bank liquidity, the terminal rate is falling.



Right now the decline is central bank liquidity suggest 5y5y should be closer to 2 percent or below not 3 percent to above. And this is before the Fed has tightened and China has potentially “finished” its adjustment.





And of course the breakdown in 5y5y between real and inflation reinforces the story that it is the real rate not inflation expectations that drive this result. And this is again consistent with the risk asset concern that it is the lack of liquidity that undermines risk assets that in turn drives real yields lower, despite keeping breakevens relatively inflated. One conclusion is that if investors believe that liquidity is likely to continue to fall one should not sell real yields but buy them and be more worried about risk assets than anything else. This flies in the face of recent concerns that China’s potential liquidation of Treasuries for FX intervention is a Treasury negative and should drive real yields higher. It is possible that if risk assets do very well then maybe the correlation with interest rates is broken. But like all these relationships for us, it is easier to work with the correlations that currently persist rather than to predict random breaks. And the potential breaks should be more cheaply hedged rather than making for a core portfolio allocation. I.e. cheap SPX calls based on rates lower. More generally the simple point is that falling reserves should be the least of worries for rates – as they have so far proven to be since late 2014 and instead, rates need to focus more on risk assets.



Deutsche Bank's summary (which we expanded upon over the weekend):

This reinforces our view that the Fed is in danger of committing policy error. Not because one and done is a non issue but because the market will initially struggle to price “done” after “one”. And the Fed’s communication skills hardly lend themselves to over achievement. More likely in our view, is that one in September will lead to a December pricing and additional hikes in 2016, suggesting 2s could easily trade to 1 ¼ percent. This may well be an overshoot but it could imply another leg lower for risk assets and a sharp reflattening of the yield curve.

To be sure, the Fed may be clueless when it comes to forecasting, but it certainly understands (or should) the relationship between liquidity and 5 Year, 5 Year forward inflation expectation rates. As a result, Yellen and company surely realize that a rate hike - a contraction in liquidity - will result in a further steep decline in forward inflation expectations, and the associated negative implications for risk assets, coupled with lower real and nominal yields, leading to further deflation and an even greater need for "unorthodox" policy measures, i.e., QE4.

Which is why, just like when we first presented this peculiar Fed conundrum over the weekend, the only question is whether the Fed is working to unleash deflation on purpose, or by accident?

[Fenix]

Sep 9 - World Bank Warns Fed to Delay Rate Rise
Submitted by Pivotfarm on 09/08/2015 17:34 -0400

Follow The Market Madness with Voice and Text on FinancialJuice


EMOTION MOVING MARKETS NOW: 13/100 EXTREME FEAR

PREVIOUS CLOSE: 10/100 EXTREME FEAR

ONE WEEK AGO: 9/100 EXTREME FEAR

ONE MONTH AGO: 10/100 EXTREME FEAR

ONE YEAR AGO: 47/100 NEUTRAL

Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 22.74% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

Market Volatility: NEUTRAL The CBOE Volatility Index (VIX) is at 24.88. This is a neutral reading and indicates that market risks appear low.

Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme fear.

PIVOT POINTS

EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY


S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

CRUDE OIL (CL) | GOLD (GC)



MEME OF THE DAY – DUBAI GOLD DEALER OLYMPICS



UNUSUAL ACTIVITY

RHT @$.75 .. SEP 72.5 CALL Activity 3300+ Contracts

IP SEP WEEKLY2 42.5 CALLS @$.62 on offer 1300+ Contracts

KHC SEP 70 PUT ACTIVITY 2K+ @$.50 on offer

KRO Director Purchase 967 @$6.905 Purchase 1,033 @$6.909

TTS SC 13G/A .. Tremblant Capital Group .. 11.69%

More Unusual Activity…



HEADLINES



US LMCI Change (Aug): 2.1 (est 1.5, rev prev 1.

US NFIB Small business Optimism (Aug): 95.9 (est 96.0, prev 95.4)

US Consumer Credit (Jul): $19.1bn (est $18.6bn, prev rev 27.02bn)

World Bank warns Fed to delay rate rise

Democrats have enough Senate votes to stifle Iran opposition

OECD: Stable growth momentum in OECD area

UK FinMin Osborne: UK debt To GDP uncomfortably high

France to nominate former BNP banker as BOF governor

EZ GDP SA (QoQ) (Q2 P): 0.4% (Est 0.30%, Prev 0.30%)

GE Current A/c Balance (Jul): EUR 23.4 Bln (exp 21.5 Bln, prev 24.4 Bln)

GE Exports SA (MoM) Jul: 2.4% (exp 1.0%, prev rev -1.1%)

GE Imports SA (MoM) Jul: 2.2% (exp 0.7%, prev rev -0.8%)

Indonesia gets green light to rejoin OPEC

Global M&A hit the $3 trillion mark



GOVERNMENTS/CENTRAL BANKS

World Bank warns Fed to delay rate rise --FT

OECD: Stable Growth Momentum Confirmed In OECD Area

UK FinMin Osborne: UK Debt To GDP Ratio Uncomfortably High --MNI

France to nominate Francois Villeroy de Galhau as BOF governor --MNI

Riksbank's Jochnick: Sees Rapid SEK Strengthening As A Risk To Inflation

Fitch: Euro Zone Ratings May Not Return To Pre-Crisis Levels --Rtrs

Greek cbank: Banks' AQR to finish this month --Rtrs

GEOPOLITICS

Democrats have enough Senate votes to stifle Iran opposition

FIXED INCOME

US sells 3-year notes at 1.056% vs 1.055% WI --ForexLive

ECB Calls for Common EU Approach on Debt Write-Offs --NYT

ECB: German Law Disqualifies Bank Bonds as Collateral --BBG

Italian Bonds Rise as Traders Increase Odds for More QE From ECB --BBG

Credit ratings bolster risky bank bonds --FT

FX

USD: Dollar mixed as reviving risk appetite drags on yen, euro --Rtrs

EM currency defences hold against sell-off--FT

ENERGY/COMMODITIES

WTI futures settle 0.25% lower at $45.94 per barrel

Brent futures settle 4% higher at $49.52 per barrel

CRUDE: Indonesia gets green light to rejoin OPEC --FT

CRUDE: WTI, Brent diverge --WSJ

CRUDE: WTI Falls Again Due to Oversupply Concerns --MW

CRUDE: Brent rises on data, but oversupply concerns weigh --ET

METALS: Copper Prices Jump Higher on Supply Cuts, China Data --WSJ

METALS: Gold bounces after 4-day losing streak --FXstreet

EQUITIES

S&P 500 unofficially closes +2.5%

DJIA unofficially closes +2.4%

Nasdaq unofficially closes +2.7%

M&A: global M&A hit the $3 trillion mark --WSJ

M&A: Media General to buy media company Meredith for $2.34bn

M&A: Potash might be prepared to make hostile K+S bid --Handelsblatt

M&A: Mylan Says It Will Launch $27.14B Bid for Perrigo --ABC

M&A: GE wins EU approval to buy Alstom's power unit --Rtrs

M&A: Microsoft finalizes Adallom deal --Forbes

M&A: Blackstone Agrees to Buy Strategic Hotels for About $4bn --WSJ

BANKS: European Banks May Face EUR26Bln Capital Shortfall On New Rules - JPMorgan

BANKS: Buffett banks BoA's Moynihan --MW

TECH: Berkshire's Buffett says bought some IBM shares in Q3 --ET

TECH: Verizon to test 5G in 2016 --FW

EMERGING MARKETS

PBOC: Forex Reserve Drop Partly Due to Intervention --WSJ



China Plans to Reform SOEs Through Mergers, Share Sales-Document