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Just when we thought that the Fed is pulling an Obama and has “no strategy” to deal with what not some fringe blog but Deutsche Bank itself proclaimed was the bubble to end, or rather extend, all bubbles, when it said that “the bubble probably needs to continue in order to sustain the current global financial system” they surprise us once again when they report that, drumroll, the Fed has formed a committee led by the former head of the Bank of Israel – best known for using de novo created fiat money to buy AAPL stock as part of “prudent monetary policy” – Vice Chairman Stanley Fischer, to monitor financial stability, which according to Bloomberg is “reinforcing the Fed’s efforts to avoid the emergence of asset-price bubbles.”

Because contrary to what even five-year-olds know by now, the Fed is supposedly not promoting the emergence of bubbles but is actually “avoiding” them. No, really.

From Bloomberg on the Fed’s committee for the prevention of asset bubbles:

Joining Fischer on the Committee on Financial Stability are Governors Daniel Tarullo and Lael Brainard, according to the central bank’s latest Board Committee list.

 

Fed officials want to ensure that six years of near-zero interest rates don’t lead to a repeat of the excessive risk-taking that fanned the U.S. housing boom and subsequent financial crisis.

 

“They’re putting the varsity team on it, but whether or not they’re going to be able to call bubbles better than anyone else is really is an open question,” Drew Matus, deputy U.S. chief economist at UBS Securities LLC in New York, said in an interview yesterday.

 

Sharpening the issue, measures of volatility across stocks, bonds and currencies worldwide have declined to record or multi-year lows this year, in a potential sign of investor complacency.

 

Fischer’s committee joins the Fed’s Office of Financial Stability Policy and Research, led by Nellie Liang, a senior Board economist, on the lookout for signs of market excess.

 

The creation of the new committee was reported earlier by the Wall Street Journal.

 

One purpose of the committee is to help ensure that staff working on financial stability issues can easily flag their findings at the Fed’s highest level.

Well, that explains it: all Bernanke needed when he infamously said in March 2007 that “subprime was contained”, days after New Century imploded, was a “committee” – clearly then the biggest financial crash in history would have been avoided, and the Fed would have been on top of things.

Which it is now.

On top of things, that is.

Thanks to a committee.

via Zero Hedge http://ift.tt/1D4TMT9 Tyler Durden

Just when we thought that the Fed is pulling an Obama and has “no strategy” to deal with what not some fringe blog but Deutsche Bank itself proclaimed was the bubble to end, or rather extend, all bubbles, when it said that “the bubble probably needs to continue in order to sustain the current global financial system” they surprise us once again when they report that, drumroll, the Fed has formed a committee led by the former head of the Bank of Israel – best known for using de novo created fiat money to buy AAPL stock as part of “prudent monetary policy” – Vice Chairman Stanley Fischer, to monitor financial stability, which according to Bloomberg is “reinforcing the Fed’s efforts to avoid the emergence of asset-price bubbles.”

Because contrary to what even five-year-olds know by now, the Fed is supposedly not promoting the emergence of bubbles but is actually “avoiding” them. No, really.

From Bloomberg on the Fed’s committee for the prevention of asset bubbles:

Joining Fischer on the Committee on Financial Stability are Governors Daniel Tarullo and Lael Brainard, according to the central bank’s latest Board Committee list.

 

Fed officials want to ensure that six years of near-zero interest rates don’t lead to a repeat of the excessive risk-taking that fanned the U.S. housing boom and subsequent financial crisis.

 

“They’re putting the varsity team on it, but whether or not they’re going to be able to call bubbles better than anyone else is really is an open question,” Drew Matus, deputy U.S. chief economist at UBS Securities LLC in New York, said in an interview yesterday.

 

Sharpening the issue, measures of volatility across stocks, bonds and currencies worldwide have declined to record or multi-year lows this year, in a potential sign of investor complacency.

 

Fischer’s committee joins the Fed’s Office of Financial Stability Policy and Research, led by Nellie Liang, a senior Board economist, on the lookout for signs of market excess.

 

The creation of the new committee was reported earlier by the Wall Street Journal.

 

One purpose of the committee is to help ensure that staff working on financial stability issues can easily flag their findings at the Fed’s highest level.

Well, that explains it: all Bernanke needed when he infamously said in March 2007 that “subprime was contained”, days after New Century imploded, was a “committee” – clearly then the biggest financial crash in history would have been avoided, and the Fed would have been on top of things.

Which it is now.

On top of things, that is.

Thanks to a committee.

via Zero Hedge http://ift.tt/1D4TMT9 Tyler Durden

Courtesy of the SlealthFlation Blog:

Any discerning student of current world affairs can no longer deny the overwhelming and inordinate influence the upper echelons of the global financial hierarchy now has on all aspects of universal political and economic life.  The financial engineers and monetary authorities that construct, orchestrate and determine both the value and the procedures governing a common means of exchange between private citizens, which were meant to facilitate the trustworthy and equitable trade of goods and services between them, has been notably hijacked by an exclusive group of men whom are much more interested in their own personal appropriation and expanded dominion over what should always be a trustworthy and equitable common means of exchange.

The ascendancy of the international financiers and their domineering financial regime is so formidable and their influence so pervasive, that their ultimate authority has even transcended the sovereignty of the nation states themselves which are meant to represent the will and concerns of their own people.  Whether it be in the realm of politics, economics, military considerations, energy-resource planning, news dissemination, educational concerns, healthcare programs, housing development; the preeminent financial sector has managed to infiltrate and assert its dominion over nearly all these societal structures, even down to matters of local civic governance.

Determined dominion of an established authority over the every day man’s rights and economic life is as old as civilization itself.  Whether it be the pharaohs of Egypt past, the emperors of Rome, the Kings of France, the English imperialists, the Fascist fanatics, or the Soviet superstate;  all, without exception, imposed their will and self-serving governance and infrastructure on those beneath them.  Their motivations were always the same, appropriation and hegemony.

The current group which is large and in charge is no different on that score.   In fact, they are perhaps more ominous and even more nocuous, as they are not as easily recognized and have allegiance to nothing.  At least the unelected despots previously mentioned were dignified enough to state their aims front and center for all to see.   Our financial globalist oppressors hide behind the walls of international high finance, economic academia and central banking omnipotence.   They are answerable to no one and yet responsible for all.   Make no mistake my friends, while we are comfortably asleep, they are imposing their self-seeking monetary hegemony on us all.  Their backroom silence like a cancer grows…………….

via Zero Hedge http://ift.tt/YGAKD3 Bruno de Landevoisin

In 1980, at the depth of the last bear market in bonds, the 10-year was yielding around 16%. This meant that in general, if you borrowed money at that time, you would be paying more than 18% per annum on the loan (anyone who lent you money instead of the lending to the US Government by buying a Treasury, would be expecting a much higher rate of return for the greater risk).

 

So, if you’d borrowed $100,000 in 1980, you’d need to pay at least $18K to finance the loan per year (for simplicity’s sake, I’m not bothering to include principal repayments).

 

Obviously, with interest rates at this level, you’d think twice before taking out that loan.

 

The great bull market in bonds started in 1983. Since that time the yield on the 10-year has fallen almost continuously.

 

 

When looking at this chart it is important to assess two things:

 

1)   The psychological resistance to borrowing money/ investment risk shrank year after year.

2)   The overall timeline and its impact on different generations.

 

For 40 years, with few exceptions, it became increasingly cheaper to borrow money. The flip side of this is that the overall “risk” of the investment world (remember that all investments move in relation to “risk free” 10-year Treasuries) shrank on an almost yearly basis for 40 years.

 

This was a truly tectonic shift in the investment landscape occurring over four decades. During that period we had the Long-Term Capital Crisis, the Asia Crisis, the Ruble Crisis, the Peso Crisis, the Tech Crash AND the 2008 Meltdown.

 

Throughout this period, despite these numerous crises, risk became increasingly cheaper. This is truly astounding and can be largely traced to the Federal Reserve (more on this later).

 

The second item is important because this time period (40 years) encompasses at least 2 if not 3 generations. A 30 year old who shied away from borrowing money at 18% in 1980 was 50 with children in their teens by the year 2000. That individual’s children would grow up in an era in which interest rates were below 10% for their entire lives and below 7% for as long as they could remember.

 

From an investor perspective, this means that any professional investor who was working in the late ‘70s/ early ‘80s would now be retired (e.g. a bond fund manager who was 25 in 1980 would now be 65).  Put another way, there is an entire generation of professional investors aged 22-60 who have never invested during a bear market in bonds (a period in which risk was generally increasing).

 

In the near past, the last time the Fed raised rates was in 2004. And that was the first rate raise in four years. Put another way, the Fed has only raised interest rates once in the last 14 years.

 

So not only are we dealing with an investment landscape in which virtually no working fund manager has experienced a bear market in bonds… we’ve actually got an entire generation of investment professionals who have experienced only one increase in interest rates in 14 years.

 

Moreover, we must recall that throughout 2011-2012, the Fed continually pledged to hold rates at zero until as late as 2016. These repeated statements, made by numerous Fed officials, further inculcated investors with the belief that rates will not be rising anytime soon.

 

The bottomline: higher rates are coming… and an entire generation of investment professionals are unprepared for it.

 

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

via Zero Hedge http://ift.tt/1sKQLCP Phoenix Capital Research

While China may have mastered the art of goalseeking GDP, always coming within 0.1% of the consensus estimate, usually to the upside, even if the bogey has seen dramatic declines in the past few years, dropping from double digit annualized growth to just 7.5% currently and the projections hockey stick long gone…

… it may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly – such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash. What’s worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace  in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here.

As JPM summarized earlier today, pretty much every economic data release was a disaster, missing consensus significantly, and suggesting GDP is now trending at an unprecedented sub-7%.

“Today China released major indicators of economic activity for August. Industrial production growth slowed to 6.9%oya (consensus: 8.8%), slowest pace since the global financial crisis period of late 2008/early 2009, suggesting that the economy has lost  momentum again following the 2Q recovery. On the domestic front, both fixed investment and retail sales came in weaker than expected. Fixed investment growth decelerated notably to 16.5%oya ytd in August (J.P. Morgan: 16.8%, consensus: 16.9%), the slowest pace of growth since 2001, while retail sales increased 11.9%oya (J.P. Morgan: 12.4%; consensus: 12.1%). Recall that August merchandise exports (released on Monday) still showed solid growth pace at 9.4%oya, while imports disappointed, falling 2.4% y/y”.

It wasn’t just the economic indicators: there was pronounced weakness in the biggest Chinese asset, far more important to the local economy than stocks: the housing market:  Home sale area fell 13.4% Y/Y in August, compared to the fall at 17.9% Y/Y in July. In value term, home sale fell 13.7% Y/Y in August, compared to the fall at 17.9% Y/Y in July. In other words, those predicting the bursting of the Chinese housing bubble better be paying attention as it is currently taking place.

Which also means that with organic cash flow plunging, real estate developers had to resort to the capital markets increasingly more, and raised 7.9 trillion yuan year-to-date by August (up 2.7% ytd), compared to 6.9 trillion yuan year-to-date by July (up 3.2% ytd). Basically, this means that in order to delay the hard landing, China is now pushing its banks into the all-in moment as everyone is mobilized to stop the one event that could result in a global depression: recall – Chinese banks have over $25 trillion in assets, the bulk of which is backed by housing.

Finally, and perhaps most disturbing, was that alongside a slowdown in cement and steel production, Chinese electrical output saw its first Y/Y decline since Lehman, dropping by a “shocking bad” 2.2% (in Bloomberg’s words) by far the best economic indicator of what is going on in the middle kingdom.

 

Putting it all together, here is JPM: “Overall, the August activity points at some downside risks going ahead. Note that trade surplus is strong in recent months, but this is mainly because weaker-than-expected import growth, which is related to the story of weak domestic demand. The weakness in domestic demand is not only reflected in real estate activity, but also in manufacturing and other sectors. To some degree this is good news, as slowdown in manufacturing and real estate investment is a critical part of economic re-balancing. Nonetheless, it remains unclear what other sectors could arise and provide alternative source of growth in the near term.“

Or, as Bloomberg’s Peter Orlik shows, based on these real-time economic indicators, China’s GDP has tumbled to a shocking 6.3% from 7.4%, and far below the 7.5% GDP target set by the premier.

 

And since it is unclear what can drive growth, JPM is happy to provide one solution: more easing of course. Then again, even JPM confirms that this will be an hard uphill climb: “Despite the weak data in August, there is no sign that the Chinese government will ease macro policies in the near term. In a speech earlier this week, Premier Li reiterated that China’s growth is within a reasonable range, and the government will rely more on structural reform, rather than stimulus, to support economic growth.”

But recall that China has used big words before, such as last summer when it swore it would engage in a 1 trillion deleveraging, only to quickly forget all about it when its banking system nearly collapsed after overnight repo rates soared to 25%.

So what are the options? Here, again, is JPM:

What measures could be introduced to stabilize the growth momentum?

 

First, the central bank has adopted unconventional measures to ease the monetary policy since 2Q. These include a target for relatively low market interest rates (e.g. repo rates and SHIBOR); targeted credit easing, such as the PSL, re-lending, targeted RRR and target rate cut; tighter rules on shadow banking activity and improve the credit support to the real sector (via compositional shift from shadow banking to bank loans in total social financing). It is likely that the PBOC will expand the PSL operation in the coming months to support targeted sectors (e.g. environment, water conservation, small business).

 

Second, given the limitations in fiscal policy to support investment in 2H14, the government may introduce measures to encourage the participation of private investment. Such measures include removing government control, opening market access, or the public-private-partnership (PPP) model.

 

In addition, we expect housing policies will be further eased to slow down the adjustment process in the housing market. Many local governments have removed or eased the home restriction policies in recent months, and since July mortgage support for first-home buyers has improved (e.g. lower mortgage rates and improved mortgage availability). In recent weeks some real estate developers were allowed to raise funds from the bond and equity market. A next possible policy option could be the easing in loan-to-value restrictions for second-home buyers, which now is subject to a maximum LTV of 40%.

 

More importantly, this administration has announced some supply-side policy measures. It remains to be seen whether these measures will be implemented in practice. The areas that are worthy of special attention include: (1) administrative reform, i.e. removal of government control and private access to sectors used to be controlled by the state sector; (2) reduction of the tax and fee burden for the corporate sector; (3)
reduction of funding cost for business borrowers especially for small business.

In other words, we are now in a world in which the biggest economy, Europe, is about to enter a triple-dip recession, and the third largest standalone economy, China, is undergoing an economic standstill, and all hopes and prayers are that China will join the ECB in activating monetary easing once again. But yes, the Fed will not only conclude QE but will supposedly begin rising rates in just over two quarters.

Good luck with that.

via Zero Hedge http://ift.tt/1xYKcks Tyler Durden

Next week may very well be one of the most important weeks of the year.  There are a number of events that individually and collectively have the potential to spur significant moves across the capital markets.  These events include the Scottish referendum, FOMC meeting, and the launch of the ECB’s TLTRO facility.

 

In addition, the Swiss National Bank meets, and it has indicated that negative rates have not been ruled out to help defend the currency cap. Catalonia’s parliament will decide whether to push forward with a non-binding survey/referendum that has been rejected by the national government.  Some observers have attributed the under-performance of Spanish assets (after a period of out performance) to the idea that the strong showing of the Scottish nationalists has some bearing on Catalonia’s independence.

 

Given the potential for these events to drive the capital markets, and that the volatility of volatility, if you will, has risen, an overview of the technical condition of the capital markets may be particularly helpful now.  At the risk of oversimplifying, the US dollar is in a strong uptrend against the major currencies and most of the emerging market currencies.  Speculative positioning in the future market has been concentrated in amassing significant short euro and yen positions.   The market was net long Australian and Canadian dollars, but the recent price action suggests a substantial position adjustment took place, and more than what is captured in the position report for the week ending September 9.

 

There has also been a sharp reversal in US yields.  The 10-year Treasury yield was near the lows for the year in late August below 2.35%.  It briefly traded poked through 2.60% before the weekend. It has now satisfied a Fibonocci retracement (38.2%) of the yield decline from January through August. The next retracement target is near 2.68%.  Barring a shock, the yield can climb into the 2.75%-2.80% in the coming weeks.

 

Yields around the world have risen with US Treasuries (which is why political scientists rather than investment advisers formalized the hypothesis of a G-zero world). European bond yields have risen less, and several emerging markets and Australia experienced larger increases in yields.   Generally speaking, in rising interest rate environment, one would expect the credit spreads to widen, with lower credit yields rising more.

 

The S&P 500 set record highs on September 4, but the technical tone has deteriorated in recent session.  The development is somewhat reminiscent of the topping pattern carved out in the second half of July, when the S&P 500 also registered record highs.  It is as if investors are happy to take profits on rallies.  Perhaps this reflects a mistrust for the equity gains or belief that the environment that facilitated them will change soon  We note that the five and twenty day moving average are set to cross, and this cross-over has done a good job in recent months of signaling the trends. The poor close before the weekend warns of follow through losses next week.  Initial targets are in 1970 and then 1958,  It takes a break of the 1940 area to signal a test on the August low in front of 1900.

 

Most equity markets also fell last week, but lets looks at the exceptions first.  The weakening of yen may have helped encourage the 1.8% rally in the Nikkei.  Soft Chinese CPI underscores the scope for potential easing of policy, and this may have helped the national markets rise 1-2%.  The MSCI emerging market equity index recorded its 3-year high on September 4, while the S&P was making its record high.  It fell each session last week, and the five and twenty day moving averages have crossed.   All of the Fibonocci retracement objectives have been surpassed, highlighting the risk that the index 1045-50 area (~1.5%-2.0% decline).  

 

Commodity prices have fallen sharply.  The CRB Index is off more than 10% since late June, and 4% this month alone.  The momentum is too much and some signs of consolidation were seen toward the end of the week in which twice the index gapped lower.  Of note, for American drivers gasoline prices at the pump are at six-month lows (average price in US, according to AAA). Oil prices themselves staged a potentially important technical reversal last week.  The move through $96 would indicate a low of some significance was likely in place.   The price of gold is at an eight-month low. Raising interest rates increase the opportunity cost of holding gold, and the rally in the dollar may deter other buyers.  

 

Taking a closer look at the foreign exchange market, we share four points.  First, the euro’s record long losing streak of eight weeks ended with a firm close before the weekend.   The $1.3000 level has psychological significance, while the retracement of the ECB-induced slide is $1.3010.  It may take a move through the $1.3045 area to encourage short covering.  

 

Second, the dollar has made new highs against the yen for eleven consecutive sessions.  The rise in US yields, and the official jawboning, took place after the move was well under way.    The advance in the dollar has met no resistance.  The diversification of Japan’s public funds, the increased portfolio outflow, and speculators are among the featured yen sellers.  With ECB officials talking the euro lower, Japanese officials may sense a greater sense of flux, and have welcomed the yen’s decline, and recognizing the fundamental economic considerations behind it. The dollar finished last week near its highs, and further near-term gains are likely.  The JPY108 level beckons but real target seems to be closer to JPY110.  

 

Third, the gap that was created a the start of last week’s trading, in response to the YouGov poll that showed the Scottish independents with a lead, has not been fully filled.   A small gap still exists between $1.6277-$1.6283.  We think that nearly every one really expects the “no” vote to carry the day and the speculative positioning in the futures market bears this out.    There is a sense that sterling has been oversold, but the risks are great, and the cost of hedging (implied volatility) is high.   It takes a break of $1.60 to signal something important.  It is likely to remain intact until the referendum.  A “yes” victory would wreak havoc.  Sterling would sell-off sharply, and likely drag down short-term rates.  The market would price in a political and economic crisis.  At the same time, a “no” victory would allow the market to focus on favorable UK fundamentals and a pound that has lost 12 cents over he past two months.  On a as-expected “no” vote, our target for sterling is $1.65-$1.66.  

 

Fourth, a negative attitude to the European currencies and yen are not new.  The new thing that has taken place is that the dollar-bloc currencies have also now fallen out of favor.  The Australian and New Zealand dollars were the weakest of the majors last week.  The yen barely eclipsed the Canadian dollar to take third place.   The technical indicators warn of further losses ahead.  In addition, the take-away from the recent price action in the other major currencies, is that this is does not the kind of dollar market that one has been rewarded for fading breakouts.  Both the Australian and Canadian dollar have broken out of their previous ranges.  Technically, there may be scope for another 2% decline in the coming weeks.  

 

Observations based on speculative positioning in the futures market:  

 

1.  There were two significant (10k+ contract change in gross positions) position adjustment in the CFTC reporting period ending September 9.  First, short-covering reduced the gross short yen position by 14.8k contracts to 118.0k.  The yen has continued to sell-off and new shorts were likely established since the reporting period ended.  Second, the bulls went shopping in sterling.  They extended the gross long position by 13.8k contracts to 81.3k.  It was the most buying in five months. It is also larger than the euro, yen and Swiss franc gross positions combined.   

 

2.   The other twelve gross currency positions we track were adjusted by less than 5k contracts.  Generally speaking, this reflected the position squaring in the sense that most of the currency futures (but the Swiss franc and the Australian dollar) saw a small reduction in gross short positions.  Outside of sterling that we discussed above, there was virtually now buying of the currency futures during the reporting period.  Combined the euro, yen, and Swiss franc saw an increase of 2.5k gross long contracts.  Gross longs were reduced in Canadian and Australian dollars and the Mexican peso.   The out-sized losses in these currencies in recent says suggests were longs have been liquidated.  

 

3.  Speculators in the US 10-year Treasury futures bought into the decline through September 9. During the week they added almost 58k long contracts for a gross position of 440.2k contracts.  The gross shorts edged a little higher.  The 8.4k contract increase brings the gross short position to 473.5k contracts.  The net short position fell to 33.3k contracts from 82.7k.   An important question is when will the longs capitulate?   We think that the yields are a little more than  half way to what may be a new equilibrium (~2.75%).

via Zero Hedge http://ift.tt/Xd6yOp Marc To Market