Category: zerohedge

John Fichthorn and his $500MM Dialectic Capital hedge fund may not be household names, but in a time when “fighting the Fed”, i.e. trading on fundamentals and not on the Fed’s balance sheet, is heresy, John may be the biggest bear around, maybe even bigger than Faber. He revealed as much in an interview earlier when he said that the current trading environment may be the shorting opportunity of a lifetime. To wit:  “we think the [shorting] opportunity with any kind of reasonable timeframe now is really the best we’ve seen since starting our firm ten years ago, and really since i’ve been doing this since 1995, and i was a short seller in the middle of the internet bubble, and in many ways, this is more compelling because it makes less sense.“

Fichthorn notes the obvious that “easy money drives bubbles, but here you have a bubble that is largely driven without fundamentals in certain areas, and so, you have this crazy bifurcated market where you have incredibly cheap stocks and incredibly expensive stocks, really inside the same sector. And when this easy-money period ends, and maybe even before, as we see the fundamentals starting soften, you’ll have the opportunity to make a lot of money on the short side…seeing the lack of momentum is a sign that, you know, the ship is starting to waiver.”

Some of Fichthorn’s favorite sectors to short: 3D printers and solars: “this is a bubble that’s happened three times in the past. This isn’t the first time you’ve seen a 3D printing bubble. The industry has been around for 20 years…. We think the chinese solar companies and even some of the other ones are bigger shorts, although first solar will have its day of reckoning, as well. But the Chinese solar stocks, and the whole group, is up 300% this year. You know, this is a bubble that also, like 3D printing, has burst in the past. it blew up in 2011. And today, capacity is in the 60 gigawatt range and demand is below 40 gigawatts. You can’t have a supply/demand imbalance like that and make any money and so, ultimately, the stocks will do exactly what they did in 2011, and they’re going to correct again.”

He is right, of course. The only problem is that many other shorts have been right positionally, but were off by a month, or a year, and ended up blowing up. And in the new normal, in which shorting a stock, an industry or a market is also betting against the insanity of a few delusional academics with a money printer, the odds have never been higher.

At the end of the day, however, only one thing matters for people like John and his peers: the P&L at the end of the day, the month and the year. We wish him the best of luck.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/knrtqSUJZE8/story01.htm Tyler Durden

While the Fed would dearly love the market to believe that "tapering is not tightening," the message of today's reaction to merely the sugestion that a taper is closer than 'some' believed says it all about how boxed in the Fed really is. US equities have retraced half the pre-Yellen ramp gains, US Treasury yields had their 2nd worst day in 5 months, gold (and silver) collapsed (limit down for a while); the USD jerked higher (+0.3% on the week). VIX and credit markets had been hinting that markets were restless and while today's drop was only 0.5%, the sad psychological truth is that given realized volatility, it is significant. The ubiquitous late-day ramp saved us from a "deer" day – but nether FX carry nor VIX supported that lift. This is the first 3-day losing streak for the S&P in 2 months.

 

It just feels like a "deer" day… but not quite… Oops…

 

Some context for today's move – from when the Yellen excitement began last week… Spot The Odd One Out…

 

This morning's ECB negative rates comment broke the FX carry game – but the FOMC Minutes recoupled tyhat reality…

 

Credit remains under-impressed and over-saturated – not exactly supportive of moar buybacks…

 

and VIX remains bid…

 

Off the debt-ceiling lows, things are rolling over… led by homebuilders (and it seems financials didn't get the mainstream edia memo that higher rates are good)

 

 

Charts: Bloomberg

Bonus Chart: The last time China-US bonds were this far apart, Treasury yields hammered higher…

(h/t Brad Wishak of NewEdge)

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Considering Jan Hatzius and NY Fed’s Bill Dudley are close Pound & Pence drinking buddies, when it comes to assessing what the Fed “meant” to say, one should just throw the embargo-minutes penned Hilstanalysis in the garbage and just focus on what the Goldman chief economist thinks. His summary assessment: the minutes were relatively neutral, March is the most likely first taper date although “December is still possible.”

From Goldman:

We see the October FOMC meeting minutes as relatively neutral. Members generally did not appear to believe that tapering would be warranted in the immediate term at the time of the meeting, although that was before some recent better-than-expected data. There was discussion of potential enhancements to the forward guidance, but no consensus. We continue to think that March is the most likely date for the first reduction in asset purchases, although December is still possible.

MAIN POINTS:

1. With respect to the forward looking outlook for asset purchases, the minutes stated “some [members] pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.” In contrast, participants?including non-voting regional Presidents?generally felt that trimming the rate of purchases would likely be appropriate “in coming months.” However, ever the more hawkish language describing participants’ views represents a change from the September minutes, in which “most” thought that it would be appropriate to begin reducing the pace of asset purchases by the end of the year. Also suggesting a lack of appetite for near-term tapering, “a number of participants noted that recent movements in interest rates … suggested that financial markets viewed … asset purchases and forward guidance … as closely linked.” However, December remains on the table as a possibility, in particular given stronger incoming data since the October meeting.

2. Participants seemed unenthusiastic about adopting a mechanical rule tying the pace of purchases to a single variable such as the unemployment rate. Some suggested announcing a total size of remaining purchases or a timetable for winding down the program as an alternative. Regarding the composition of tapering, “a number believed that making roughly equal adjustments to Treasury and MBS purchases would be appropriate,” suggesting a stronger preference for equal tapering of Treasuries and MBS than that expressed in prior minutes.

3. On potential future enhancements to the forward guidance, “a couple” participants noted the merits of simply reducing the current 6-1/2% unemployment rate threshold, although others noted concerns about such a change. Others brought up the possibility of an inflation floor, although the benefits of such a change were viewed as “uncertain and likely to be rather modest.” Several participants concluded that providing more qualitative information regarding the Committee’s intentions after the threshold was reached could be most helpful. Overall, we see this discussion as representing a lack of consensus at the time of the October meeting on how the forward guidance should be adjusted in the future.

4. The minutes also noted that “most participants” thought that a reduction in the interest rate paid on excess reserves was “worth considering at some point” although the benefits of such a step were “generally seen as likely to be small except possibly as a signal of policy intentions.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cm-ODfpJs6c/story01.htm Tyler Durden

Considering Jan Hatzius and NY Fed’s Bill Dudley are close Pound & Pence drinking buddies, when it comes to assessing what the Fed “meant” to say, one should just throw the embargo-minutes penned Hilstanalysis in the garbage and just focus on what the Goldman chief economist thinks. His summary assessment: the minutes were relatively neutral, March is the most likely first taper date although “December is still possible.”

From Goldman:

We see the October FOMC meeting minutes as relatively neutral. Members generally did not appear to believe that tapering would be warranted in the immediate term at the time of the meeting, although that was before some recent better-than-expected data. There was discussion of potential enhancements to the forward guidance, but no consensus. We continue to think that March is the most likely date for the first reduction in asset purchases, although December is still possible.

MAIN POINTS:

1. With respect to the forward looking outlook for asset purchases, the minutes stated “some [members] pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.” In contrast, participants?including non-voting regional Presidents?generally felt that trimming the rate of purchases would likely be appropriate “in coming months.” However, ever the more hawkish language describing participants’ views represents a change from the September minutes, in which “most” thought that it would be appropriate to begin reducing the pace of asset purchases by the end of the year. Also suggesting a lack of appetite for near-term tapering, “a number of participants noted that recent movements in interest rates … suggested that financial markets viewed … asset purchases and forward guidance … as closely linked.” However, December remains on the table as a possibility, in particular given stronger incoming data since the October meeting.

2. Participants seemed unenthusiastic about adopting a mechanical rule tying the pace of purchases to a single variable such as the unemployment rate. Some suggested announcing a total size of remaining purchases or a timetable for winding down the program as an alternative. Regarding the composition of tapering, “a number believed that making roughly equal adjustments to Treasury and MBS purchases would be appropriate,” suggesting a stronger preference for equal tapering of Treasuries and MBS than that expressed in prior minutes.

3. On potential future enhancements to the forward guidance, “a couple” participants noted the merits of simply reducing the current 6-1/2% unemployment rate threshold, although others noted concerns about such a change. Others brought up the possibility of an inflation floor, although the benefits of such a change were viewed as “uncertain and likely to be rather modest.” Several participants concluded that providing more qualitative information regarding the Committee’s intentions after the threshold was reached could be most helpful. Overall, we see this discussion as representing a lack of consensus at the time of the October meeting on how the forward guidance should be adjusted in the future.

4. The minutes also noted that “most participants” thought that a reduction in the interest rate paid on excess reserves was “worth considering at some point” although the benefits of such a step were “generally seen as likely to be small except possibly as a signal of policy intentions.”

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The "aggregate demand is God" Keynesian Cargo Cult fetish of focusing on holiday sales is worse than meaningless–it is profoundly misleading.

Counting on strong holiday retail sales to "boost the economy" is like eating triple-paddy cheeseburgers and fries to lose weight. The last thing a debt-dependent economy needs is more borrowing to buy excess consumption, and the last thing an economy that imports most of the junk being purchased needs is empty-headed economists declaring that the purchase of more low-quality, mostly needless junk is anything other than a waste of money and resources.

Since most of the junk (and it is junk–most Americans have either forgotten what actual quality is or they have never experienced it) is made overseas, the "boost" to the economy generated by rampant charge-card consumption flows to only one slice of the the U.S. economy: corporate profits.

U.S.-based global corporations skim most of the profits made when junk is made overseas; how much profit do you think the Chinese and Taiwanese suppliers of the iPad and iPhone components make? If you guessed 1%-2% of their part of the cost, you're right. So if a $300 device costs $100 to actually manufacture in China, the Chinese suppliers make a dollar or two. Apple skims about $100 and the distribution/retail channels skim the other $100.

I have covered this dynamic in depth over the years: for example:

Trade with China: Making Out Like a Bandit (March 30, 2006)
Much of China's manufacturing is owned and managed by foreign corporations. In effect, the companies aren't Chinese at all; only the workers are Chinese.

Trade and "Trade War" with China: Who Benefits? (October 5, 2010)

In effect, Black Friday is not about "deals," it's about padding already record-high corporate profits with excess consumption of 1) junk 2) needless stuff.

Please, Santa, Let This Be the Last Christmas in America (that's supposed to "save" the U.S. economy) (November 23, 2010):

 

The propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is "growing at a healthy clip."

The entire retail sector is 7.9% of the GDP compared to a 21.4% share for the FIRE tranch (finance, insurance and real estate) of the economy.

Santa, you have my deep gratitude if you could jam the propaganda machine so that this is the last Christmas in America where trivial retail sales are hyped as the bellwether for the $16 trillion U.S. economy.

The "aggregate demand is God" Keynesian Cargo Cult fetish of focusing on holiday sales is worse than meaningless–it is profoundly misleading. What the economy needs is not more mindless debt-based consumption (the "aggregate demand" that the cargo cult sees as a "folk cure" for everything that's wrong with the economy) but the exact opposite: paying down debt, reducing the share of the national income skimmed by a parastic banking sector, a boycott of low-quality junk (i.e. 90% of what's bought on Black Friday) and an evolution beyond a model of "growth" that's dependent on ever-rising debt and consumption of needless junk made overseas to benefit Corporate America's bulging bottom line.

If you missed my recent entry on the Degrowth movement in Europe, please check it out: Degrowth, Anti-Consumerism and Peak Consumption (May 9, 2013)

The anti-consumerism Degrowth movement is gaining visibility and adherents in Europe. Degrowth (French: décroissance, Spanish: decrecimiento, Italian: decrescita) recognizes that the mindless expansion of mindless consumption fueled by credit and financialization is qualitatively and quantitatively different from positive growth.

 

Degrowth is based on a number of principles:

1. Consumerism is psychological/spiritual junk food (French: malbouffe) that actively reduces well-being (bien-etre) rather than increases it.

2. Better rather than more: well-being is increased by everything that cannot be commoditized by a market economy or financialized by a cartel-state financial machine– friendship, family, community, self-cultivation–rather than by acquiring more. The goal of economic and social growth should be better, not more. On a national scale, the cancerous-growth measured by gross domestic product (GDP) should be replaced with gross domestic happiness/ gross nation happiness (GNH).

 

3. A recognition that resources are not infinite, despite claims to the contrary. Even if fossil fuels were infinite and low-cost (cheerleaders never mention the external costs), fisheries, soil and fresh water are not. For one example of many: China Is Plundering the Planet's Seas (The Atlantic). Indeed, all the evidence suggests that access to cheap energy only speeds up the depletion and despoliation of every other resource.

 

4. The unsustainability of consumerist consumption dependent on resource depletion and financialization (i.e. the endless expansion of credit and phantom collateral).

 

5. The diminishing returns on consumption. Investing in clean air and water, public transit, universally accessible knowledge/information–these forms of consumption yield high returns in public health, affordable mobility, etc. Buying clothing to wear once or twice and then throw away does not.

The investment in the rule of law, public infrastructure and universal access to clean air, water and education moves nations from developing to developed and greatly improves the material lives of the residents. Beyond this, consumption of resources offers diminishing returns up to a point of social/spiritual/ psychological derangement. Consumption beyond this point actively reduces well-being.

 

6. The failure of neoliberal capitalism and communism alike in their pursuit of growth at any cost.

 

Both the religion of growth and its Cargo Cult enablers are merely superficial facades masking the real force: the expansion of global finance via financialization. Expanding capital, profits and power is the key agenda, and the quasi-religion of growth is just the public-relations narrative that mesmerizes the debt-serfs, political toadies and media sycophants.

 

What does Degrowth mean in practical terms? Use the thing until it cannot be repaired. Don't ditch the mobile phone, auto, dress or digital device until it can no longer repaired. Buy local rather than than global-corporate whenever feasible. Crave less, need less, want less, resist the brainwashing of 24/7 marketing. Learn to become a person who does not need corporate-status signifiers for a sense of identity.

What if Progress requires less consumption, less debt, less shopping-gives-me-meaning?

A DeGrowth Christmas does not mean a "no gift" Christmas: it means either making gifts, regifting (making a gift of something that is perfectly usable or in many cases, still in the box), giving an experience (i.e. time with someone), or (at least in my opinion) giving a well-made tool or book that leverages new skills or new understanding.

Does excess consumption really add that much to our lives? Goodness gracious, people, look in the closets of America–they're stuffed to the gills with clothing, shoes, sporting goods, etc. etc. etc. Even "poor people" have endless gadgets, multiple TV sets, etc. etc. Look at the storage units crammed with excess everything.

There's a new documentary on DeGrowth: GrowthBusters: Hooked on Growth; free screenings are being held on Black Friday in select cities.

1:39 minute video on the documentary: Attack of the Zombie Shoppers.

 

Of related interest:

The Last Christmas in America (December 23, 2010)

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It’s time to turn bearish on US Treasuries, is the clarion call from BofAML’s Macneil Curry. The impulsive advance in US 10yr yields from 2.669%/2.630% and Tuesday Bearish Engulfing Candles in many of the futures contracts (WN, US & FV), Curry says, means the larger bear trend has resumed. In 10yr yields Curry targets 2.950%/2.992% (the high end of the 4m 2.47%/3.00% area range trade). Pullbacks should be seen as temporary, corrective and an opportunity to go short. This bearish view, he warns, is invalidated on a 10yr yield move below the 2.659% lows of Nov-18. From a trading perspective they express this view by selling USZ3. Downside targets are seen to 128-22/128-12, with a stop above 133-10.

 

In yields…

 

and Futures…

 

Source: BofAML

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KkntWUqy4NA/story01.htm Tyler Durden

It’s time to turn bearish on US Treasuries, is the clarion call from BofAML’s Macneil Curry. The impulsive advance in US 10yr yields from 2.669%/2.630% and Tuesday Bearish Engulfing Candles in many of the futures contracts (WN, US & FV), Curry says, means the larger bear trend has resumed. In 10yr yields Curry targets 2.950%/2.992% (the high end of the 4m 2.47%/3.00% area range trade). Pullbacks should be seen as temporary, corrective and an opportunity to go short. This bearish view, he warns, is invalidated on a 10yr yield move below the 2.659% lows of Nov-18. From a trading perspective they express this view by selling USZ3. Downside targets are seen to 128-22/128-12, with a stop above 133-10.

 

In yields…

 

and Futures…

 

Source: BofAML

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KkntWUqy4NA/story01.htm Tyler Durden

The initial knee-jerk taper-on move was met with reactive buying (as per trading guru Steve Liesman’s wisdom) but that hope bounce (really only seen in stocks) has faded now and assets are pressing their extremes. USD pushing higher, Treasury yields higher, stocks and gold lower… Of course, all it takes is for one algo to get the idea of pricing in the inevitable subsequent un-taper and to send the entire risk complex soaring. Silver is now below $20 and Gold is Limit Down

 

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For the second time today (and 4th in the last 3 months) – at least this time on some actual news – Nanex notes that gold futures have been halted for 20-seconds following the release of the FOMC minutes. 1,500 contracts took us down at 6:26ET this morning, this time it was even more…

9. December 2013 Gold (GC) Futures Trades.

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10. December 2013 Gold (GC) Futures Quote Spread.

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It took Hilsenrath just under a minute to pump out his 1057 word thesis on the FOMC minutes. As usual, this is indicative of a comfortable embargo cushion which one can be assured was unbreached, as anything else would be very illegal.

From the WSJ:

Fed Minutes Takeaways: On Track to End QE, but Stick to Low Rates

Federal Reserve officials had a wide-ranging discussion about the outlook for monetary policy at their Oct. 29-30 policy meeting. The bottom line was that they stuck to the view that they might begin winding down their $85 billion-per-month bond-buying program in the “coming months” but are looking for ways to reinforce their plans to keep short-term interest rates low for a long-time after the program ends.

They struggled to build a consensus on how they would respond to a variety of different scenarios. One example: What to do if the economy didn’t improve as expected and the costs of continuing bond-buying outweighed the benefits? Another example: How to convince the public that even after bond buying ends, short-term interest rates will remain low.

Here is a first look at key passages (in italics) and what they suggest about Fed policy:

ECONOMIC OUTLOOK: It looked a little softer in the near-term, but officials weren’t veering from their view on how the recovery would play out:

Although the incoming data suggested that growth in the second half of 2013 might prove somewhat weaker than many of them had previously anticipated, participants broadly continued to project the pace of economic activity to pick up. The acceleration over the medium term was expected to be bolstered by the gradual abatement of headwinds that have been slowing the pace of economic recovery—such as household-sector deleveraging, tight credit conditions for some households and businesses, and fiscal restraint—as well as improved prospects for global growth. While downside risks to the outlook for the economy and the labor market were generally viewed as having diminished, on balance, since last fall, several significant risks remained, including the uncertain effects of ongoing fiscal drag and of the continuing fiscal debate.

OUTLOOK FOR BOND BUYING: Given their expectations for the economy, they still expect to end the program in the months ahead:

Participants reviewed issues specific to the Committee’s asset purchase program. They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.

WHAT IF THE BOND-BUYING PROGRAM STOPS WORKING BEFORE THE LABOR MARKET IMPROVES: The Fed might end bond buying and find another way to stimulate the economy.

Some participants noted that, if the Committee were going to contemplate cutting purchases in the future based on criteria other than improvement in the labor market outlook, such as concerns about the efficacy or costs of further asset purchases, it would need to communicate effectively about those other criteria. In those circumstances, it might well be appropriate to offset the effects of reduced purchases by undertaking alternative actions to provide accommodation at the same time

KEEP IT SIMPLE, STUPID: Fed officials are trying harder to keep a consistent message after the confusion in markets earlier this year.

Participants broadly endorsed making the Committee’s communications as simple, clear, and consistent as possible, and discussed ways of doing so. With regard to the asset purchase program, one suggestion was to repeat a set of principles in public communications; for example, participants could emphasize that the program was data dependent, that any reduction in the pace of purchases would depend on both the cumulative progress in labor markets since the start of the program as well as the outlook for future gains, and that a continuing assessment of the efficacy and costs of asset purchases might lead the Committee to decide at some point to change the mix of its policy tools while maintaining a high degree of accommodation

MODEST SUPPORT FOR THRESHOLD CHANGE: The Fed has been saying it will keep short-term rates low until after the jobless rate falls below 6.5%. Some economists think the Fed should lower that threshold to provide more support to the job market. There wasn’t a great deal of support for such a move.

A couple of participants favored simply reducing the 6½ percent unemployment rate threshold, but others noted that such a change might raise concerns about the durability of the Committee’s commitment to the thresholds.

INFLATION BOUNDS: The Fed is also considering offering a lower bound on inflation. That got some support, though not rousing.

In general, the benefits of adding this kind of quantitative floor for inflation were viewed as uncertain and likely to be rather modest, and communicating it could present challenges, but a few participants remained favorably inclined toward it.

LOW RATES FOR LONG: Fed officials appear to be gravitating toward an “inertial” policy approach. In other words, toward assuring the public that the Fed won’t be in a hurry to raise short-term rates even after its 6.5% threshold is crossed.

Several participants concluded that providing additional qualitative information on the Committee’s intentions regarding the federal funds rate after the unemployment threshold was reached could be more helpful. Such guidance could indicate the range of information that the Committee would consider in evaluating when it would be appropriate to raise the federal funds rate. Alternatively, the policy statement could indicate that even after the first increase in the federal funds rate target, the Committee anticipated keeping the rate below its longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly. Other factors besides those headwinds were also mentioned as possibly providing a rationale for maintaining a low trajectory for the federal funds rate, including following through on a commitment to support the economy by maintaining more-accommodative policy for longer. These or other modifications to the forward guidance for the federal funds rate could be implemented in the future, either to improve clarity or to add to policy accommodation, perhaps in conjunction with a reduction in the pace of asset purchases as part of a rebalancing of the Committee’s tools

DON’T FORGET IOER: The Fed pays 0.25% to banks that keep reserves on deposit with the central bank. Some economists think it should reduce that rate to encourage lending. The idea hasn’t had much traction in the past, but it is back in play.

Most participants thought that a reduction by the Board of Governors in the interest rate p
aid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions.

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