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After Giving Rubio a Swirlie, Chris Christie Moseys Toward the Exit

One last chance to stare into the cameras and sound sincere.New Jersey Gov. Chris Christie, who will apparently be known not for lying about his own past in the debates or constantly invoking Sept. 11, but for rattling Sen. Marco Rubio’s campaign by pointing out the senator’s canned speeches (which is in turns both hypocritical and hilarious, but also true), is likely calling it quits today. Despite the media attention over the weekend, he failed to perform in the New Hampshire primary, getting just 7.4 percent of the vote and no delegates. He still performed worse than Rubio, who got 10.5 percent.

Last night, Christie said he was retreating to New Jersey to figure out what his campaign would do, which was initially perceived as an end to the campaign. That was a premature declaration, but it doesn’t appear to have been wrong. From CNN:

New Jersey Gov. Chris Christie is huddling with top campaign aides on Wednesday and all indications are they expect him to formally suspend his bid for the Republican nomination, according to two sources. Details are still being worked out.

One source noted that the New Jersey governor is a “political realist” and understood that not qualifying to appear in Saturday’s debate and the lack of money made it impossible to go forward.

There was little love from Christie for the Republican Party’s libertarian wing and the feeling was pretty much mutual. He (much like Rubio, actually) supported letting the National Security Agency (NSA) snoop on Americans without warrants in order to allegedly track down terrorists. Despite his attempts to seem like the more personable candidate by playing directly into the camera whenever possible at the debates, he was absolutely terrible when asked to demonstrate actual empathy toward people trying to get access to medical marijuana for children in New Jersey.

On the other hand, he was one of the only candidates to actually wade into a discussion of actual reform of entitlements with an eye on reducing debt. But that all took back seat to his attempts to shut down actual policy discussions at debates by dismissing the senators in the race as just talking about stuff and not doing anything.

We’ll see who Christie throws his support to, if anybody. I personally hope it’s Jeb Bush, because it will make me laugh and laugh and laugh.

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Don’t Put Right-to-Work in the Virginia Constitution: New at Reason

Republicans in the Virginia General Assembly are working to enshrine the state right-to-work law in the state constitution. A. Barton Hinkle explains why that’s a bad idea:

Not every good idea belongs in the Constitution. It’s a good idea to carry an umbrella if it looks like rain—but we don’t need a constitutional amendment for that, do we?

As Democrats in the state Senate quickly pointed out, Virginia’s right-to-work law has thrived, unmolested, for more than four decades now. It does not seem to be in even slight peril.

But it should not become part of the state Constitution even if it were in peril. After all, it is nothing but a response to federal legislation. Writing constitutional provisions to answer legislative mandates dilutes the purpose of having a constitution in the first place.

View this article.

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Traders Are Throwing Up All Over This Market: “It Feels Like The Algos Are Hooked Up To Tinder”

We can’t stop laughing after reading this note from Bloomberg’s Richard Breslow for one simple reason: in under 350 words it summarizes everything we have said since our initial “big” article from April 2009, “The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans” in which we predicted how the onslaught of HFT would make a farce of trading at the micro level, and all our posts since then condemning central bank intervention, making a mockery of fundamental analysis at the macro level.

Good job Richard, and we are certainly happy that slowly but surely, everyone is finally getting it.

From Richard Breslow

Liquid (Dis)Courage

 

Back in 2008, markets would take a theme and race with it for two to three days before a new piece of news made traders pivot en masse in the other direction. Everyone searching desperately for an answer to the existential question of economic survival. Investors found out that their well-diversified portfolios were merely different expressions of being long global growth. In that context, it made a lot of sense that everything moved together.

 

Today we have a different dynamic. No one is trading unless they have to or have microwave circuits for brains. Pension funds and endowments have tried to insulate their holdings from demanding tinkering. There aren’t stock-picking debates around the investment committee tables.

 

Banks are less active, and even fat fingers just can’t keep up. It’s left the field open to computers who have no investment horizon. If that were all there was, it might be sustainable for short periods.

 

But, wait, there’s more.

 

Policy makers are visibly flailing. Yet the system’s foundation rests on a presumption of their expertise. It’s what allows the leaps of faith necessary for financial transmission functions to work. Grand experiments, like the insanity of negative rates, are seen merely as the latest in making it up as you go along.

 

All this adds up to a genuine liquidity crisis. Churn and burn is being mis-portrayed as solid volume. In fact, as Goldman’s President Cohn said yesterday on Bloomberg TV, “small amount of buying and selling in any market today had a dramatic impact.”

 

There was logic in the “Harry Met Sally” delicatessen scene when the woman said “I want what she’s having.” That’s how we used to trade. In this environment, it feels like the algos are hooked up to Tinder, which is actually highly combustible material and we are all getting burned.

 

My blessing for Fed Chair Yellen today, is to say something that both she and the markets can hold to. If her imperative is full employment and wages, where do we stand? If it is still merely equity prices, be candid. The truth will set you free.

Sorry Richard, it’s too late to change anything now. Just sit back and relax: a change, if any, can only come after the next, and biggest ever, market crash.


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Market Angry About Yellen’s “Is NIRP Legal” Confusion

Just as we detailed last week, and it appears Rep. Hensarling has been reading, when pressed on The Fed’s legal authority to take interest rates negative, Janet Yellen gushed that “Fed authority for negative rates is still a question.” This appears to have been taken as bad news by the market (cutting off the potential easing paths of the future in a world of NIRP), and stocks, crude, USDJPY have all tumbled.

 

Furthermore, she sounded a little hawkish:

  • *YELLEN: I DON’T EXPECT THE FOMC WILL FACE RATE-CUT OPTION SOON
  • YELLEN: I DON’T THINK IT WILL BE NECESSARY TO CUT RATES

The reaction – more disappointment… as USDJPY crashes…


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Chris Christie To Suspend Presidential Campaign; Needs “Deep Breath”

And another one bites the dust.

On the heels of Tuesday night’s New Hampshire primaries that saw Donald Trump sweep to victory over a GOP field where no other candidate came close to challenging the brazen billionaire, New Jersey Governor Chris Christie is set to suspend his campaign. 

As CNN reports, Chrisitie’s sixth place finish in New Hampshire pretty much put the nail in the coffin for the governor. “Failure to qualify for next debate, lack of money make it impossible to continue,” Bloomberg writes. 

“We’ve decided that we’re going to go home to New Jersey tomorrow and we’re going to take a deep breath and see what the final results are tonight because that matters,” Christie said last night. “By tomorrow morning and tomorrow afternoon we should know.”

As Bloomberg goes on to note, “Christie’s pitch as a proven governor and federal prosecutor didn’t catch on” among voters who are apparently infatuated with so-called “protest candidates” who are seen as offering real change and an opportunity to alter business as usual inside the Beltway. “[His] departure would make him the latest in the list of hopefuls to exit the crowded field. Following disappointing showings in Iowa, Kentucky Senator Rand Paul, Senator Lindsey Graham of South Carolina and former Pennsylvania Senator Rick Santorum left the field.”

At least Christie can say he went out with a bang. His attacks on Marco Rubio during the final GOP debate before the primary are credited with derailing the senator after he became the establishment’s preferred pick for the nomination following a strong showing in Iowa. 

After a town hall meeting on Sunday, Christie said the following about his ill-fated bid for the White House: “It depends on how you define losing and I haven’t defined it yet.” 

Allow us to help out: we define “losing” as not getting as many votes as other candidates. 

*  *  *


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John Mack: Don’t Worry About Deutsche Bank, It Will Be Bailed Out By The Government

When it comes to government bail outs of insolvent banks few are as qualified to opine as John Mack who was CEO of Morgan Stanley when the bank, along with all other U.S. TBTF banks, was bailed out with a multi-trillion rescue package in the aftermath of the Lehman failure. Which is why it was illuminating, if not surprising, that during an interview with Bloomberg TV discussing the future of Deutsche Bank, John Mack said that “there’s no question in my mind, it is absolutely good for every penny.” In other words, “Deutsche Bank is fine.”

Why is he so confident? According to Mack, “this idea that I heard yesterday, the possibility of not making their interest payments, it’s just absurd. The government will not let that happen.”

Said otherwise, it will be bailed out. One wonders if Germany’s citizens were polled before John came up with this conclusion.

This is what else he said:

While German regulators at this point shouldn’t ban short-selling as U.S. authorities did in the 2008 financial crisis, the German central bank should make a statement in support of the lender, Mack said. Deutsche Bank shares jumped the most in almost seven years Wednesday, paring a decline that had exceeded 40 percent this year.

 

“People overreact,” Mack said. “The bank’s name is Deutsche Bank. It’s the German bank. Politically, they will stand up, if they need a safety net, and give it to them.”

Which was to be expected: after all DB had a gross notional derivative exposure of roughly $60 trillion as of 2014, several times greater than the GDP of Europe, and a net balance sheet which is a large portion of German GDP.

 

This is also why last thing Germany, Europe, or the world’s central bankers will allow, is DB to fail, and it has never been a question whether or not they will try to, but whether and how they can save it. And, if a political bailout is unfeasible in the current climate, whether instead of a bailout, would Deutsche Bank be the first major European bank to rely on Europe’s new “bail in” regime to stuff depositors for any capital shortfalls.

Still, without focusing on the specifics, a government (or ECB) backstop is precisely what the market is contemplating today as noted earlier, and as manifested in the stock which has soared the most in 5 years, just as Lehman did in its turbulent final days.

 

Mack’s full interview is below.


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Ferguson Resists Federal Demand They Raise Police Wages. Justice Dept. Threatens Legal Action.

Ferguson City HallThe leaders of Ferguson, Missouri, are very much on board with the vast majority of the Department of Justice’s demands of them in order to improve the way it treats its citizens, which until the outrage that followed Michael Brown’s shooting, was like they were human piggy banks to be shaken down for loose change by the police and courts.

Last night, Ferguson’s City Council voted to sign on to most of the 127-page list of demands and reforms that the Department of Justice has put before them designed to make the police and courts less prone to violating the civil rights of its citizens. But as I noted yesterday, there are some problems with the consent decree. There are components to it that appear to have nothing to do with civil rights and instead look like giveaways to city public safety employees that will drastically increase the amount of money the now-broke community will have to spend each year. The city is already spending at a deficit and analysts worried the agreement with the DOJ would add another $3 million or more to the city’s expenses.

So last night, when it came time to vote, City Council unanimously approved the consent, but with seven conditions or changes. The big one is that the city is resisting orders to increase wages for its police or other staff. As noted yesterday, the mayor said they would have to hike the wages of each police officers by more than $14,000 a year on average and possibly have to eliminate other city government positions to give more money to the very people the citizens have accused of abusing them.

Here’s the full list of the alterations they want to make to the agreement (Via ABC):

  • The agreement contains no mandate for additional salary to police department or other city employees.
  • The agreement contains no mandate for staffing in the Ferguson jail.
  • Deadlines in the original agreement are extended.
  • Terms of the agreement will not apply to other governmental entities or agencies who, in the future, take over services now provided by the city of Ferguson.
  • Include a provision for local preference in contracting with consultants, contractors and third parties providing services.
  • Include project goals for minorities and women participating in consulting, oversight and third-party services.
  • Changes monitoring fee caps to $1 million over the first five years of the agreement, with no more than $250,000 in any single year.

As we can see from some of these provisions, Ferguson leaders have clearly have an eye on trying to contract out services to save money. This is actually a wise idea if the city wants to remain intact. The town of 21,000 has a limited tax base and the predation of its citizenry was primarily due to the costs of providing its own services. If it stops actually seizing its citizens’ money, it needs to find new sources of revenue (it is attempting to convince residents to raise taxes) or it needs to significantly reduce spending. If the citizens don’t want to embrace more taxes, then Ferguson needs the flexibility to contract out for services or else it could very well cease to exist. That was what city leaders and some residents feared if they accepted the agreement as is.

The Justice Department responded by immediately threatening legal action:

“The Ferguson City Council has attempted to unilaterally amend the negotiated agreement,” Principal Deputy Assistant Attorney General Vanita Gupta, who heads the department’s Civil Rights Division, said in a statement in response to the vote. “Their vote to do so creates an unnecessary delay in the essential work to bring constitutional policing to the city, and marks an unfortunate outcome for concerned community members and Ferguson police officers.”

Gupta said the department “will take the necessary legal actions” to reform the city’s courts and policing practices.

As far as the DOJ is concerned, Ferguson either accepts an agreement it can’t afford (which has components that have absolutely nothing to do with ending abusive law enforcement and municipal court behavior) or it will face a lawsuit it probably also can’t afford.

Read more about last night’s vote here.

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Oil Pumps On Unexpected Crude Inventory Draw, Dumps On Building Storage Concerns

Following last night's across the board build in inventories from API, DOE reported a surprising 750k drawdown (much less than the 3.2mm build expected). However, across the rest of the complex – inventories rose: Cushing +523 build (13th week in a row), Gasoline +1.26mm build, and Distillates +1.28mm build (first in 4 weeks). Having tumbled early on from Yellen's undovishness, crude spiked on the headline draw (back above $29) but is struggling to hold gains.

 

From API:

  • Crude +2.4mm
  • Cushing +715k
  • Gasoline +3.1mm

From DoE:

  • Crude -754k
  • Cushing +523k
  • Gasoline +1.26mm
  • Distillates +1.28mm

The minor crude inventory draw is considerably outweighed by the build across products and storage concerns (echoing BP's earlier warnings)…

 

Following Yellen's disappointment this morning, Crude had dumped, then it pumped on th eheadline DOE data only to wake up to the builds in products and Cushing…

 

 

Charts: Bloomberg


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Deutsche Bank Spikes Most In 5 Years (Just Like Lehman Did)

Rumors of ECB monetization (which would be highly problematic in the new "bail-in" world) and old news of the emergency debt-buyback plan have sparked an epic ramp in Deutsche Bank's stock this morning (+11% – the most since Oct 2011). This extreme volatility is, however, eerily reminiscent of 2007/8 when headline hockey sparked pumps and dumps on a daily basis in Lehman stock… until it was all over.

"Deutsche Bank is fixed"?

 

Or is it?

 

Things are already fading…

 

We suspedct every bounce will be met by opportunistic selling as an inverted CDS curve has seldom if ever reverted back to life.


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