Fed Does Not Taper, Keeps QE At $85 Billion

Just as everyone expected, the Fed (absent its Press Conference) statement confirms they are data-driven, data is not good ‘enough’, therefore, no-taper:

  • *FED SAYS IT WILL AWAIT `MORE EVIDENCE’ BEFORE QE TAPER
  • *FED SAYS ECONOMY `CONTINUED TO EXPAND AT A MODERATE PACE’
  • *FED SEES IMPROVEMENT IN ECONOMY EVEN WITH `FISCAL RETRENCHMENT

There were no clear comments that markets are growing a little too comfortable with the Fed’s free-money. Full Redline below…

Pre-FOMC: S&P Futs 1761, VIX 13.98%, 10Y 2.48%, Gold $1353, USD 79.46

Just before the statement hit, the market broke again! Gold started to rise, USD fell (led by EUR strength), VIX was smashed lower…

  • *NASDAQ HAS DECLARED SELF HELP AGAINST NASDAQ-BX

By way of interest, in the next 5 days, we will see an overload of Fed Speakers: Tracy, Bullard, Kocherlakota, Lacker, Powell, and Lacker again… It seems they have no need for a press conference.

 

Full Redline below:


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0P1nFA5u-ok/story01.htm Tyler Durden

It’s Official: The US Is The ‘Dirtiest’ Dirty Shirt In Global Macro

Despite what the talking heads continue to spew to justify all-time high stock market valuations, the 'fact' is that year-to-date, US Macro data has now performed the worst of all global macro indices. Furthermore, the pace of collapse in the last 4-weeks is the fastest in 8 months. What is perhaps most ironic is that US Macro peaked at the last FOMC meeting (when the Fed decided that data was not supportive enough to Taper) so any surprise today simply supports the fact that the Fed's decision is anything but fundamentally driven (and instead perhaps driven by the four 'bad' reasons for a tapering.)

 

US Macro has fallen to the worst performer year-to-date… (andnote when the un-Taper decision was made – at 'peak' macro)…

 

Collapsing at its fastest in 8 months (and note that each successive peak since the recession has seen lower highs – as the wealth effect or stimulus effects have become less and less)…

 

So any surprise decision or wording change today can only be driven by one (or more) of the following four ;bad' reasons:

1. Deficits are shrinking and the Fed has less and less room for its buying  

 

2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed's position (repo markets, bond specialness, and fail-to-delivers among them).  

 

3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly – and we suspect they fear we are close to that tipping point  

 

4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20

Simply put, they are cornered and need to Taper; no matter how bad the macro data and we are sure 'trends' and longer-term horizons will come to their rescue in defending the prime dealers' clear agreement that it is time… 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/L1ez3xsFj0g/story01.htm Tyler Durden

It's Official: The US Is The 'Dirtiest' Dirty Shirt In Global Macro

Despite what the talking heads continue to spew to justify all-time high stock market valuations, the 'fact' is that year-to-date, US Macro data has now performed the worst of all global macro indices. Furthermore, the pace of collapse in the last 4-weeks is the fastest in 8 months. What is perhaps most ironic is that US Macro peaked at the last FOMC meeting (when the Fed decided that data was not supportive enough to Taper) so any surprise today simply supports the fact that the Fed's decision is anything but fundamentally driven (and instead perhaps driven by the four 'bad' reasons for a tapering.)

 

US Macro has fallen to the worst performer year-to-date… (andnote when the un-Taper decision was made – at 'peak' macro)…

 

Collapsing at its fastest in 8 months (and note that each successive peak since the recession has seen lower highs – as the wealth effect or stimulus effects have become less and less)…

 

So any surprise decision or wording change today can only be driven by one (or more) of the following four ;bad' reasons:

1. Deficits are shrinking and the Fed has less and less room for its buying  

 

2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed's position (repo markets, bond specialness, and fail-to-delivers among them).  

 

3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly – and we suspect they fear we are close to that tipping point  

 

4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20

Simply put, they are cornered and need to Taper; no matter how bad the macro data and we are sure 'trends' and longer-term horizons will come to their rescue in defending the prime dealers' clear agreement that it is time… 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/L1ez3xsFj0g/story01.htm Tyler Durden

“NSA Tapped The Pope”, Spied On Vatican To Prevent “Threats To Financial System”

In the latest blow, and a new low, for the US spying agency, earlier today Italian magazine Panorama blasted a preview of an article due for publication tomorrow, with the simple premise: “NSA had tapped the pope.” According to a Reuters report, the “spy agency had eavesdropped on Vatican phone calls, possibly including when former Pope Benedict’s successor was under discussion, but the Holy See said it had no knowledge of any such activity. Panorama magazine said that among 46 million phone calls followed by the U.S. National Security Agency (NSA) in Italy from December 10, 2012, to January 8, 2013, were conversations in and out of the Vatican.” But while it is unclear just what divine information the NSA had hoped to uncover by spying on the Vatican, what is an absolute headbanger, is that according to Panorama one of the reasons for the illegal wiretaps was to be abreast of “threats to the financial system.” We can only assume this means keeping on top of Goldman’s activities around the globe: after all, when one intercepts god’s phone calls, one is mostly interested what the bank that does god’s will is doing.

From Reuters:

Asked to comment on the report, Vatican spokesman Father Federico Lombardi said: “We are not aware of anything on this issue and in any case we have no concerns about it.”

 

Media reports based on revelations from Edward Snowden, the fugitive former U.S. intelligence operative granted asylum in Russia, have said the NSA had spied on French citizens over the same period in December in January.

 

Panorama said the recorded Vatican phone calls were catalogued by the NSA in four categories – leadership intentions, threats to the financial system, foreign policy objectives and human rights.

 

Benedict resigned on February 28 this year and his successor, Pope Francis, was elected on March 13.

 

“It is feared” that calls were listened to up until the start of the conclave that elected Francis, the former Cardinal Jorge Mario Bergoglio of Argentina, Panorama said.

 

The magazine said there was also a suspicion that the Rome residence where some cardinals lived before the conclave, including the future pope, was monitored.

Cue another US ambassador being summoned by an “ally” country, more questions about just what US taxpayer funds are being spent on, more public indignation, and even more bad will (if that is even possible) toward the great, globalist US superstate that is no longer accountable to anyone but itself and a few select oligarchs.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/NjTZWFiHt4Q/story01.htm Tyler Durden

"NSA Tapped The Pope", Spied On Vatican To Prevent "Threats To Financial System"

In the latest blow, and a new low, for the US spying agency, earlier today Italian magazine Panorama blasted a preview of an article due for publication tomorrow, with the simple premise: “NSA had tapped the pope.” According to a Reuters report, the “spy agency had eavesdropped on Vatican phone calls, possibly including when former Pope Benedict’s successor was under discussion, but the Holy See said it had no knowledge of any such activity. Panorama magazine said that among 46 million phone calls followed by the U.S. National Security Agency (NSA) in Italy from December 10, 2012, to January 8, 2013, were conversations in and out of the Vatican.” But while it is unclear just what divine information the NSA had hoped to uncover by spying on the Vatican, what is an absolute headbanger, is that according to Panorama one of the reasons for the illegal wiretaps was to be abreast of “threats to the financial system.” We can only assume this means keeping on top of Goldman’s activities around the globe: after all, when one intercepts god’s phone calls, one is mostly interested what the bank that does god’s will is doing.

From Reuters:

Asked to comment on the report, Vatican spokesman Father Federico Lombardi said: “We are not aware of anything on this issue and in any case we have no concerns about it.”

 

Media reports based on revelations from Edward Snowden, the fugitive former U.S. intelligence operative granted asylum in Russia, have said the NSA had spied on French citizens over the same period in December in January.

 

Panorama said the recorded Vatican phone calls were catalogued by the NSA in four categories – leadership intentions, threats to the financial system, foreign policy objectives and human rights.

 

Benedict resigned on February 28 this year and his successor, Pope Francis, was elected on March 13.

 

“It is feared” that calls were listened to up until the start of the conclave that elected Francis, the former Cardinal Jorge Mario Bergoglio of Argentina, Panorama said.

 

The magazine said there was also a suspicion that the Rome residence where some cardinals lived before the conclave, including the future pope, was monitored.

Cue another US ambassador being summoned by an “ally” country, more questions about just what US taxpayer funds are being spent on, more public indignation, and even more bad will (if that is even possible) toward the great, globalist US superstate that is no longer accountable to anyone but itself and a few select oligarchs.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/NjTZWFiHt4Q/story01.htm Tyler Durden

Treasury Sells $29 Billion In 7 Year Paper With Record Direct Bid

In the last of this week’s auctions, the Treasury just sold another $29 billion in 7 Year paper, which priced through the When Issued 1.873%, at 1.870%, the lowest yield since May, and at a Bid to Cover of 2.66, substantially higher than the 2.46 in September, and above the trailing twelve month average yield of 2.61%, once again reversing the recent trend in declining BTCs seen recently in both the 2 and the 5 Year auctions. And while the auction was largely non-remarkable, where it stood apart was that the Direct take down of 23.93% was the highest in history, with Indirects taking down 42.30%, above the 12M average of 42.3%, and the remaining 33.77% – the lowest since December 2010 – left to the Dealers, which will promptly flip this particular CUSIP WC0 back to the Fed.

And now, all eyes on the Fed, who will promise to continue monetizing as much 7 Year paper as the Treasury has the good grace of issuing.


    



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

Pulling The Plug On QE – Will The Fed Ever Taper?

Saxo Capital Markets’ latest infographic explores the long-term value of quantitative easing (QE) and, surveying the effect on the US economy, asks whether the US Federal Reserve will ever taper QE.

 

Via Saxo Bank,

The Fed first launched quantitative easing in November 2008 after efforts to boost the economy by lowering interest rates failed. The first programme of QE saw $600 billion injected into the economy by the Fed via mortgage-backed securities and government-sponsored enterprises. This then increased to $1.25 trillion as part of an expansion due to low initial impact. Again, the Fed tried QE in November 2010 with another $600 million invested in longer term Treasury securities. When this still failed to make a great enough impact, Ben Bernanke, chairman of the Federal Reserve, introduced a continuous QE programme, dubbed ‘QE Infinity’, which commits the Fed to buying up bonds at an alarming rate of $85 billion a month.

Quantitative easing, experts once assured us, would inspire the US economic recovery, leading the flagging economy to full health. But will this fiscal stimulus experiment instead drive the US economy to inflation and financial disaster? The Federal Reserve’s decision not to begin a tapering of its asset purchase programme signals a deeper dependency on intangible money printing. Last September’s third round of QE bond purchases were enacted in order to drive down interest rates, allowing businesses to borrow more easily, consequently boosting stock valuations. The QE addiction risks long-term hyperinflation and massive currency devaluation, fuelling market distortions and long-term reliance. Yet tapering may spark a climb in interest rates, prompting further – widespread – financial problems.

Saxo Capital Markets’ infographic draws attention to a mending US economy, with unemployment rates falling to 7.3% – albeit propped up by part-time workers – and Q2 GDP rising by 2.5% in 2013. Can the Fed kick the habit? These indications of growth prompted Bernanke to hint at QE tapering in June of this year, even stating that asset purchases (how the Fed has achieved QE) could come to an end if the US unemployment rate “is in the vicinity of 7%”. You can find more detailed figures, and see graphs of the changes and predictions, by checking the infographic.

Although QE tapering has been suggested, Bernanke has yet to announce a specific date when the artificially-sustained US economy will begin to be weaned off QE. Now, in October, the Fed has said that it will reduce asset purchases in early 2014, but they have laid out no specific timeline for this tapering. The Fed is also reluctant to make changes to Federal rates, announcing that they will remain at their current low levels. It is not until 2015 that they plan to start raising them again. You can see the expected pace of policy firming based on FOMC forecasts by viewing the graph in the infographic – the ‘long term’ forecast is for interest rates to return to 4%, but after how long?

There’s no doubt that QE Infinity has had an effect on a number of financial areas, including market rates. Ten Year US Treasury Yields have almost doubled in the last four months – you can see the visualised growth of US bond yields in the infographic – and this increase in growth could deter the Fed from tapering QE. Saxo Bank’s Head of FX Strategy, John Hardy, believes this may be the case and thinks that QE tapering could be “derailed by a weak US economy that can’t withstand the rise in interest rates we have already seen”.

Equity markets have also rallied in response to QE because the asset purchase programmes have invested money into private companies and their stocks have increased as a result. Savers are also choosing to invest in stocks whilst interest rates are low. When the FOMC decided not to start tapering QE, it meant equity markets continued to increase. You can track the value of the Dow Jones, DAX and FTSE over the last year in the infographic. If QE is encouraging the equity markets increase, will the Fed ever risk tapering?

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mer8qgPgWng/story01.htm Tyler Durden

Citi Warns Of “Disconcerting Disconnects” In US Markets

While BTFATH has caught on as the new normal meme, Cti's Tobias Levkovich has another that is just as critical to comprehending the current euphoria: LMNOP = "Liquidity, Momentum, Not Operating Performance." In essence, Levkovich notes that the recent sharp move has come about as liquidity concerns have shifted to the sidelines; upward momentum for stock prices following the shutdown ending is just pulling in more short covering while long-only investors also have been buyers given the need to meet alpha generation or benchmark requirements; but operating performance by companies is simply not there in the manner that is perceived. As he concludes, "we have not seen this kind of deviation before and it is troublesome to us… we must admit to being a bit worried that investors might be facing some near term volatility."

 

Via Citi's Tobias Levkovich,

Companies are beating lowered estimates, but it does not seem to be all that clean.

 

While roughly 70% of companies have again beaten 3Q13 estimates thus far (with approximately 45% having posted results), one needs to recognize that the numbers came down from near 6% year-over-year expected EPS growth back in late June to less than 1% by the time earnings began to get reported. Moreover, a good number have made or topped forecasts on lower than expected tax rates or one-time items, suggesting that results were not necessarily comprised of high quality beats. Accordingly, it is challenging to argue that the reporting season has been all that good when some detailed insight is applied.

The margin story continues to be far less about efficiencies than smart tax and balance sheet planning.

 

While there is much discussion about companies being able to manage their businesses wonderfully and thus even small revenue gains can generate more impressive bottom-line increases, this mindset is illfounded, in our view. The broad data shows that overall S&P 500 operating margins have been flat to down for more than six quarters and the true story behind net margins has been lower effective tax rates and interest expense. As a result, the somewhat less than inspiring quality seen in earnings recently only supports this idea and it may not be well understood by just headline-seeking investors.

Earnings guidance has been less than stellar with a weakening trend being noted. It is always worthwhile to track the trend of guidance from companies that provide such outlooks and unfortunately, here again, the forecasts have been coming down. While estimate cuts have been anticipated, the trading direction disparity relative to forward guidance is surprising.

Indeed, certain sectors’ profit growth forecasts for 2014 still look aggressive to us, such as Materials where investors are buying the shares that have been outperforming of late but could be surprised negatively in the weeks or months ahead.

The Citi Economic Surprise Index (CESI) is sliding almost uniformly around the world.

 

Many investors monitor the CESI and there is coincident correlation with stock prices. Hence, it is a bit disturbing that the European, U.S., Japanese and G-10 indices have all dipped from recent highs with the inherent mean reversion characteristic of the models suggesting further weakening in many of the regions potentially acting as a drag on equity markets. While many within the investment community are hoping for a strong rally into year-end, there is the distinct possibility that it has happened already and some modest correction is more likely.

Momentum trading and excessive liquidity appears to be keeping stock prices aloft even as some other nearer-term fundamentals are slipping. With QE tapering pretty much off the table until 1Q14 at the earliest and there being no imminent government shutdowns in the next couple of months, there has been a sense that there is an open avenue for liquidity and momentum to drive share prices higher. Indeed, seasonality is cited regularly in client meetings as support for this concept.

But, as noted with respect to the CESI, quarterly results and earnings guidance, the near term may not be as rewarding, just as September seasonal weakness did not occur either.

 

We have not seen this kind of deviation before and it is troublesome to us, but it potentially reflects the aforementioned liquidity and momentum drivers versus less than impressive fundamentals. With our Panic/Euphoria Model approaching complacency, we must admit to being a bit worried that investors might be facing some near term volatility.


    



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

Citi Warns Of "Disconcerting Disconnects" In US Markets

While BTFATH has caught on as the new normal meme, Cti's Tobias Levkovich has another that is just as critical to comprehending the current euphoria: LMNOP = "Liquidity, Momentum, Not Operating Performance." In essence, Levkovich notes that the recent sharp move has come about as liquidity concerns have shifted to the sidelines; upward momentum for stock prices following the shutdown ending is just pulling in more short covering while long-only investors also have been buyers given the need to meet alpha generation or benchmark requirements; but operating performance by companies is simply not there in the manner that is perceived. As he concludes, "we have not seen this kind of deviation before and it is troublesome to us… we must admit to being a bit worried that investors might be facing some near term volatility."

 

Via Citi's Tobias Levkovich,

Companies are beating lowered estimates, but it does not seem to be all that clean.

 

While roughly 70% of companies have again beaten 3Q13 estimates thus far (with approximately 45% having posted results), one needs to recognize that the numbers came down from near 6% year-over-year expected EPS growth back in late June to less than 1% by the time earnings began to get reported. Moreover, a good number have made or topped forecasts on lower than expected tax rates or one-time items, suggesting that results were not necessarily comprised of high quality beats. Accordingly, it is challenging to argue that the reporting season has been all that good when some detailed insight is applied.

The margin story continues to be far less about efficiencies than smart tax and balance sheet planning.

 

While there is much discussion about companies being able to manage their businesses wonderfully and thus even small revenue gains can generate more impressive bottom-line increases, this mindset is illfounded, in our view. The broad data shows that overall S&P 500 operating margins have been flat to down for more than six quarters and the true story behind net margins has been lower effective tax rates and interest expense. As a result, the somewhat less than inspiring quality seen in earnings recently only supports this idea and it may not be well understood by just headline-seeking investors.

Earnings guidance has been less than stellar with a weakening trend being noted. It is always worthwhile to track the trend of guidance from companies that provide such outlooks and unfortunately, here again, the forecasts have been coming down. While estimate cuts have been anticipated, the trading direction disparity relative to forward guidance is surprising.

Indeed, certain sectors’ profit growth forecasts for 2014 still look aggressive to us, such as Materials where investors are buying the shares that have been outperforming of late but could be surprised negatively in the weeks or months ahead.

The Citi Economic Surprise Index (CESI) is sliding almost uniformly around the world.

 

Many investors monitor the CESI and there is coincident correlation with stock prices. Hence, it is a bit disturbing that the European, U.S., Japanese and G-10 indices have all dipped from recent highs with the inherent mean reversion characteristic of the models suggesting further weakening in many of the regions potentially acting as a drag on equity markets. While many within the investment community are hoping for a strong rally into year-end, there is the distinct possibility that it has happened already and some modest correction is more likely.

Momentum trading and excessive liquidity appears to be keeping stock prices aloft even as some other nearer-term fundamentals are slipping. With QE tapering pretty much off the table until 1Q14 at the earliest and there being no imminent government shutdowns in the next couple of months, there has been a sense that there is an open avenue for liquidity and momentum to drive share prices higher. Indeed, seasonality is cited regularly in client meetings as support for this concept.

But, as noted with respect to the CESI, quarterly results and earnings guidance, the near term may not be as rewarding, just as September seasonal weakness did not occur either.

 

We have not seen this kind of deviation before and it is troublesome to us, but it potentially reflects the aforementioned liquidity and momentum drivers versus less than impressive fundamentals. With our Panic/Euphoria Model approaching complacency, we must admit to being a bit worried that investors might be facing some near term volatility.


    



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