Tag: finance

We have all seen it countless times before: visual confirmation that without the Fed’s (and all other central banks’) liquidity pump, the S&P would be about 70% lower than were it is now.

Most recently, this was shown last Friday in “Another Reminder How Addicted Markets Still Are To Liquidity” in which Deutsche bank’s Jim Reid said:

The recovery from the lows after Bullard spoke yesterday is another reminder how addicted markets still are to liquidity. Indeed in today’s pdf we reprint and  update a table from our 2014 Outlook showing the various phases of the Fed’s balance sheet expansion and pausing over the last 5-6 years and its impact on equities and credit. We have found that the relationship broadly works best with markets pricing in the Fed balance sheet move just under 3 months in advance. We’ve also included our oft-used chart of the Fed balance sheet vs the S&P 500 to help demonstrate this. So end July / early August 2014 was always the time that this relationship suggested markets should enter a new more difficult phase. So we still think central bankers hold the key to markets going forward and there seems to be a hint of change in the Fed.

 

Another view was shown over the weekend, in “The Chart That Explains Why Fed’s Bullard Wants To Restart The QE Flow” which shows that when the Fed’s excess reserve firehose is turned on Max, stocks surge; when it isn’t – as has been the case recently – they tumble.

So now that “best Keynesian practices” are out of the window, and everyone has once again turned Austrian, and only the “flow of money” (either inside or outside) matters, the question is how much do central banks need to inject to keep the stock market from crashing, let alone continuing to levitate. Luckily, Citi’s Matt King has just done the math, and the answer is…

Here is his answer:

We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices. Figure 5 shows the rolling 3m combined liquidity injection by the Fed, the ECB, the BoE and the BoJ, plotted against the rolling 3m change in spreads. While the relationship is not perfect – liquidity flows across asset classes and across borders, and there are announcement and confidence effects in addition to the straightforward impact on net supply – it is this, not fundamentals, which we would argue has been the major driver of markets for the past few years (Figure 6 shows the same series plotted against global equities).

 

In case anyone missed it, and in case there is still any debate about this issue which we first explicitly stated nearly 6 years ago and were widely mocked by the all too serious intelligentsia, here is the key sentence again:

“it’s the liquidity injections, not fundamentals, which we would argue has been the major driver of markets for the past few years.“

And with that piece of New Normal trivia behind us, we continue:

For over a year now, central banks have quietly being reducing their support. As Figure 7 shows, much of this is down to the Fed, but the contraction in the ECB’s balance sheet has also been significant. Seen from this perspective, a negative reaction in markets was long overdue: very roughly, the charts suggest that zero stimulus would be consistent with 50bp widening in investment grade, or a little over a ten percent quarterly drop in equities. Put differently, it takes around $200bn per quarter just to keep markets from selling off.

 

If anyone ever needed any confirmation of what we said in June 2012, that “The Stock Is Dead, Long-Live The Flow: Perpetual QE Has Arrived“, now you have it, and only qualified but quantified. Because to translate what Matt King – Citi’s most respected strategist and the only person on Wall Street to warn about the Lehman collapse and its consequences before it happened, just said – if and when the global central bank liquidity tracker ever drops to $200 billion per quarter or less, the market will crash.

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You know there’s a problem with the media when Al-Jazeera is trusted more than NBC, CNN, and MSNBC. As Pew research’s Journalism Project shows in the following table, the study attempted to measure not just whether people had heard of a variety of news sources, but which ones they really trusted when it came time to get straight info about politics and governments.

From “most distrusted” to least…

As Pew Research’s Journalism Project reports,

There is not a single news source distrusted by at least half of all panelists or those with mixed or mostly conservative views. Six sources are distrusted 50% or more of consistent conservatives distrust and four are distrusted by most consistent liberals.

 It’s worth keeping in mind when reading the table that the ‘distrust’ numbers may be low for some less well known outlets mainly because most respondents have never heard of them, rather than because most respondents do trust them.

*  *  *

An alternative way to look at the data…

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While President Obama has declared his experts say banning travel from the Ebola-stricken West African nations is not the optimal route to stopping the deadly virus’ spread in the US, Homeland Security has a different plan as Rep. John Conyers comments:

• *U.S. SAID TO RESTRICT TRAVELERS FROM EBOLA REGION TO 5 AIRPORTS
• *U.S. TRAVEL RULE WOULD AFFECT LIBERIA, SIERRA LEONE, GUINEA

Good thing Ron Klain is involved in the decision-making process… oh wait…

• *TWO PEOPLE BRIEFED ON DHS PLANS COMMENT ON PENDING ANNOUNCEMENT

As Bloomberg reports,

Homeland Security Dept will require airline passengers originating from Liberia, Sierra Leone and Guinea to enter U.S. through airports with Ebola-screening measures, according to statement from Rep. John Conyers.

 

U.S. enhanced-screening airports: New York’s John F. Kennedy International, Newark Liberty, Washington Dulles, Chicago O’Hare, Atlanta Hartsfield; about 94% of fliers from affected areas fly through those airports

 

Conyers is ranking Democrat on House Judiciary Cmte

*  *  *

But in irony of ironies, Rwanda has started screening US and Spanish arrivals fo Ebola too… (as WaPo reports)

According to the U.S. Embassy in Rwanda, the tiny land-locked East African nation has begun screening passengers from the United States and Spain for the deadly virus.

From a note on the embassy’s Web site:

Visitors who have been in the United States or Spain during the last 22 days are now required to report their medical condition — regardless of whether they are experiencing symptoms of Ebola — by telephone by dialing 114 between 7:00 a.m. and 8:00 p.m. for the duration of their visit to Rwanda (if less than 21 days), or for the first 21 days of their visit to Rwanda. Rwandan authorities continue to deny entry to visitors who traveled to Guinea, Liberia, Senegal, or Sierra Leone within the past 22 days.

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The hunt for missing October continues.

Recall that over the weekend, one of the less reported stories was that Sweden had deployed its various army, navy and air force units to hunt down what was reportedly a damaged Russian sub that had sunk in the Stockholm archipelago, something which Russia vehemently denied.

Since then, things have escalated and as both the FT and RIA reported, Swedish authorities declared a safety distance of 10,000 meters (5.4 nautical miles) from all military vessels taking part in the search for the alleged foreign sub. 

According to the Swedish Expressen newspaper, air traffic over the search area has been suspended. Such a large area of Swedish airspace has not been cordoned off since the ’80s, the newspaper added. The fly ban will not affect passenger flights.

Swedish Navy vessels have reportedly sealed off a channel between Nynashamn and the island of Nattaro south of Stockholm. A large number of military vessels and helicopters are reported to be moving southward.

 

The Swedish Armed Forces first launched a major operation off the coast of Stockholm on Friday after receiving information, reportedly from a civilian, about the presence of an unknown underwater object in the region.

 

According to the Swedish Armed Forces, there have been three “very credible sightings” of an unknown object off the Swedish coast, suspected to be “foreign underwater activity.” Swedish Prime Minister Stefan Lofven stressed Monday that the ongoing operation is “not a submarine hunt,” but an “underwater investigation.”

But the key question remains, just whose sub is it that is missing? Earlier on Monday, a Russian Defense Ministry source told RIA Novosti that the unidentified object in Sweden could be a submarine belonging to the Dutch Navy. 

A spokesperson for the Royal Netherlands Navy told RIA Novosti that a Dutch submarine had recently visited Stockholm, but stated that it was no longer in Swedish waters when the “suspicious object” was first observed in the Stockholm archipelago.

Additionally, Bloomberg reported that a distress call caught in Swedish territorial waters on Oct. 17 has been incorrectly linked to presence of Dutch submarine, citing His Majesty’s Bruinvis, Karen Loos-Gelijns, spokeswoman for Defense Ministry says in e-mailed statement. She said the submarine went to Tallinn on Friday morning, stayed there over the weekend. She added that Dutch navy ships Tromp, Amsterdam, Evertsen, Zealand, submarine Bruinvis participated this month in international exercise Northern Archer in the Baltic Sea.

In other words, the Netherlands is refusing to take blame for the sub. As it Russia – recall that previously a spokesperson for the Russian Defense Ministry denied that the damaged sub belongs to Russia, stating that “there have been no extraordinary, let alone emergency situations involving Russian military vessels.”

But while the originating nation of the offending sub, if there is indeed one, refuses to step up, Sweden is starting to lose patience. According to an update by TheLocal.se, battleships, minesweepers, helicopters and more than 200 troops continue to scour the area where they believe the sub is located.

Sweden’s military has now been out on the hunt for five days, with the operation moving “across the archipelago” on Tuesday.

More:

Jesper Tengroth, press officer for the Swedish military, told The Local that the focus had switched from just the southern islands on Monday.

 

Swedish military vessels are now also patrolling open seas in the Danziger Gatt strait, news agency TT said.  But Tengroth would not give any further details about where Swedish ships and military units were stationed for “operational reasons”.

 

After three civilian sightings of suspicious activity in the Stockholm archipelago, Sweden’s Armed Forces have launched a full-scale investigation. 

In fact it has gotten to the point where Sweden may simply blow up the offending military equipment just to make the point that “The most important value of the operation – regardless of whether we find something — is to send a very clear signal that Sweden and its armed forces are acting and are ready to act when we think this kind of activity is violating our borders,” Supreme Commander General Sverker Göranson said.

As a result, Sweden’s military has announced that if it finds a suspect foreign vessel in the Stockholm archipelago, it is prepared to force it to the surface “with weapons if necessary”.

 “Our aim now is to force whatever it is up to the surface… with armed force, if necessary,” he added.

He added that submarines are “extremely difficult” to find, and that Sweden has never succeeded in the past when it came to tracking them down.

“And no one else has either,” he added.

If the sub is indeed Russian, it would be quite a hit for Sweden, which in more than a decade of hunting Russian U-boats in the 1980s and early nineties, never succeeded in capturing one, except in 1981 when the U137 ran aground several miles from one of Sweden’s largest naval bases, triggering an embarrassing diplomatic stand-off for Russia.

Early Tuesday afternoon, at least five naval ships were stationed for more than two hours in an area east of Ingarö, the closest reported point to the Swedish mainland since the operation began. DN reported that one of the ships had “made contact” with something, but General Göranson denied the claim.

 

Göranson’s comments to the Swedish media came after a nearly two-hour long meeting with Sweden’s defence committee behind closed doors.

 

They also followed reports in the Dagens Nyheter newspaper that there had been more than 100 reported sightings of a suspect vessel from members of the public in the past day  or so. “We’re still getting more reports, and I want to underline the fact that we’re happy about this,” Göranson added. 

Here is a cross-section of what has been alleged to be a Russian X-Ray/AC-12 class submarine, the Losharik.

In any event with every passing day, the surfacing of the damaged sub gets closer, assuming of course one exists. And if, as the local Swedish media reports allege, the sub does belong to Russia and the result if a major political humiliation for the Kremlin, will Putin just sit idly by, especially since what is going on close to Stockholm has become a regional spectacle. As the FT reported, “the Swedish military operation is being followed around the region. Edgars Rinkevics, Latvia’s foreign minister, wrote on Twitter at the weekend: “Closely following events in the Swedish territorial waters, may become a game changer of the security in the whole Baltic sea region.“

It may indeed, and the answer will be forthcoming. After all there is only so much air a sub can store.

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Presented with no comment…

Source: Investors

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It is now beyond ridiculous.

Recall yesterday we reported that according to Japan’s Economy Minister, Akira Amari, who over the weekend went full economic retard – rather than face reality that Abenomics currency devaluation printfest has crushed the consumer beyond all expectations, he blamed the weather for economic weakness: “including the effects of large typhoons and heavy rains in July and August, Japan’s 3Q economic situation is probably not a strong recovery.”

Of course, it is not his fault: he is merely piggybacking on what the US did in early 2014 when it blamed the collapse in China’s credit expansion which reverberated across the globe, crushing US GDP on “snow in the winter.”

And since everyone had been wrong about Q1 GDP (not to mention Treasury yields) and was thus willing to look the other way and “accept” a grossly ridiculous explanation (because only idiots would believe that $100 billion in potential GDP was wiped out as a result of several winter storms) over fears that they too be exposed as grossly incompetent pattern-chasing penguins, blaming the weather stuck as the excuse for everything that happened since January which was somewhat unexpected, and for which the true explanation, namely that there is no global recovery, was just too unpalatable.

So fast forward to last night, when instead of the much hoped for Chinese GDP drop – because it would certainly unleash the greatly delayed Chinese liquidity firehose so hoped for by all the BTFDers who need at least once central bailout per day to keep up the charade – China reported GDP which beat expectations, leading to many sad faces on Wall Street, and forcing Reuters to leak the infamous ECB buying corporate bonds article, since refuted, which served as the overnight ramping catalyst.

So what is the “explanation” for this unpleasant, for once, economic beat? Why, the weather of course! From Goldman”

3Q GDP data was better than our and market expectations. The seasonally adjusted, non-annualized qoq growth calculated by the NBS showed a modest slowdown from 2.0% to 1.9% while our estimate of qoq annualized growth accelerated from 6.9% to 8.5%.

 

September IP growth surprised the market on the upside and was mostly in line with our forecast. Among IP components, electricity production increased to 4.1% yoy, from -2.2% yoy in August. Cement production fell to -2.2% yoy, from 3.0% yoy in August. 

 

We believe the rebound was mainly because of the disappearance of the temperature distortion which could have lowered August IP by 1 ppt or more , see EM Macro Daily – China: Cool weather likely contributed to weak August activity growth, Oct 9, 2014.

Ah, the new normal, where every time central planning fails one can, and always does, just blame the weather. Because it is not reality.xls that is wrong. It is reality itself that is at fault.

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Existing Home Sales bounced back from the worst miss in 2014 in August to print 5.17mm SAAR – the highest since September 2013. Of course the surge is driven by Condos/Co-Ops (up 5.2%) rather than single-family homes (up 2.0%) and median home prices are the highest ever for a September at $209,700. It was not all ponies and unicorns though as Midwest saw sales plunge 5.6%. NAR’s Larry Yun has some crucial insight for why home sales are rising…”Economic instability overseas is leading to volatility in the stock market and is causing investors to seek safer bets [in housing],” so we assume he is disappointe dby the 1000s of Dow points we have surged off last week’s lows?

Lawrence Yun , NAR chief economist, says the improved demand for buying seen since the spring has carried into the fall. “Low interest rates and price gains holding steady led to September’s healthy increase, even with investor activity remaining on par with last month’s marked decline,” he said.

“Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline in choices due to the fact that inventory generally falls heading into the winter.”

*  *  *

Regional Breakdown

In the Midwest, existing-home sales declined 5.6 percent to an annual level of 1.17 million in September, and remain 4.9 percent below September 2013. The median price in the Midwest was $165,100, up 4.9 percent from a year ago.

 

In the Southsales increased 5.0 percent to an annual rate of 2.12 million in September, and are now 1.4 percent above September 2013. The median price in the South was $180,900, up 5.1 percent from a year ago.

 

In the West existing home sales jumped 7.1 percent to an annual rate of 1.20 million in September, but remain 4.0 percent below a year ago. The median price in the West was $294,200, which is 4.0 percent above September 2013.

Inventories, Supply, Demand

Properties typically stayed on the market in September longer (56 days) than last month (53 days) and a year ago (50 days). Short sales were on the market for a median of 116 days in September, while foreclosures sold in 59 days and non-distressed homes typically took 55 days. Thirty-five percent of homes sold in September were on the market for less than a month.

And there is no return of the ‘normal’ homebuyer yet…

The percent share of first-time buyers continues to underperform
historically, remaining at 29 percent for the third consecutive month.
First-time buyers have represented less than 30 percent of all buyers in
17 of the past 18 months. 

All-cash sales were 24 percent of transactions in September, up slightly from August (23 percent) but down from 33 percent in September of last year. Individual investors, who account for many cash sales, purchased 14 percent of homes in September, up from 12 percent last month but below September 2013 (19 percent). Sixty-three percent of investors paid cash in September.

And finally, some more from Yun:

“Economic instability overseas is leading to volatility in the stock market and is causing investors to seek safer bets, which will likely keep interest rates in upcoming weeks hovering near or below where they are now,” said Yun. “This is welcoming news for consumers looking to buy, although they could temporarily become more cautious by less certain economic conditions.” 

So let’s hope stocks crash?

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Well it wouldn’t be the US equity market if something didn’t break…

• *NYSE MKT CASH EQUITIES MARKET IS EXPERIENCING AN ISSUE
• *NYSE: ISSUE IN PROCESSING MARKET QUOTES IN NASDAQ UTP SYMBOLS

Another day another ramp that disable retail from selling…

Coincidence?

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Clearly, Leung Chung-Ying, Hong Kong’s embattled leader, did not get the Jean-Claude Juncker memo that “when things are bad, you have to lie.” As The NY Times reports, Leung – rather stunningly – said overnight that it was unacceptable to allow his successors to be chosen in open elections, in part because doing so would risk giving poorer residents a dominant voice in politics. Instead, rather unsurprisingly, he backed Beijing’s position that all candidates to succeed him as chief executive, the top post in the city, must be screened by a “broadly representative” nominating committee appointed by Beijing, and offered several thinly veiled warnings on Monday that it was risky for the protesters to try the patience of the national authorities.

As The NY Times reports,

…

 

Mr. Leung’s blunt remarks reflect a widely held view among the Hong Kong elite that the general public cannot be trusted to govern the city well. His statements appeared likely to draw fresh criticism from the democratic opposition, and to inflame the street struggle over Hong Kong’s political future.

 

Representatives of his government are scheduled to hold televised talks with student leaders of the protests, who have said that Mr. Leung was defending a political system stacked against ordinary citizens.

 

Mr. Leung said that if “you look at the meaning of the words ‘broadly representative,’ it’s not numeric representation.”

 

“You have to take care of all the sectors in Hong Kong as much as you can,” he said, “and if it’s entirely a numbers game and numeric representation, then obviously you would be talking to half of the people in Hong Kong who earn less than $1,800 a month.”

 

“Then you would end up with that kind of politics and policies,” he continued.

*  *  *
Finally, we also note, Leung comments on the drivers of the pro-democracy movement…

He also raised again the suspicions of his government and of Beijing that “foreign forces” had played a role in the street protests, although he declined repeatedly to identify those forces or provide any examples.

 

“I didn’t overhear it in a teahouse, and it’s something that concerns us,” he said. “It’s something that we need to deal with.”

*  *  *
Mr. Leung offered several thinly veiled warnings on Monday that it was risky for the protesters to try the patience of the national authorities.

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