Tag: finance

The global Central Banks are relying increasing on verbal intervention.

 

The reasoning here is very simple: actual monetary policy is proving to have marginal effects. In the US, every new wave of QE has had less and less impact on the stocks.

 

I mention stocks specifically because it is now obvious even to the most ignorant commentator that QE was designed to aid Wall Street and few others (see recent admissions by both former and current Fed officials that QE was a “backdoor Wall Street bailout” and “gift intended to boost wealth.”

 

These admissions are creating a secondary issue, namely that QE is proving to become increasingly toxic from a political perspective. Indeed, even the mainstream media has picked up this theme.

 

This is not to say that QE will suddenly be dropped entirely (note that the Fed is tapering its programs gradually, the act of tapering simply reducing the pace of asset purchases rather than ceasing them altogether).

 

However, the point remains, that if promises of QE can produce the desired effects (higher asset prices) without eliciting the same level of political consequences, why bother even launching it?

 

The EU seems to have learned this lesson better than the US. European Central Bank (ECB) President Mario Draghi managed to pull its entire financial system from the brink of collapse in 2012 simply by promising to do “whatever it takes.”

 

The European markets erupted higher and haven’t looked back. The fact that the ECB would face a tangled web of politics and legal issues to actually back this claim up was irrelevant, investors knew the ECB wanted to act and so poured into the markets.

 

Two years later, Europe’s economy remains excruciatingly weak. Bank lending is virtually non-existent and the human cost is becoming outright horrific (over 25% of Europeans are now living in poverty).

 

What does the ECB do? It cannot force EU banks to lend. And it cannot force EU consumers to take out loans (or trust bankers for that matter). So the ECB leaks that it has “modeled” a €1 trillion QE campaign.

 

After all, verbal intervention worked well before. Why wouldn’t it now? If the goal is to lower yields further and boost asset prices, it’s a lot easier (and less legally problematic) to simply hint at something than to actually do it.

 

You can see the Yellen Fed playing off of this as well. Yellen’s first FOMC meeting saw her not only proving more hawkish than Wall Street expected… she actually went so far as to even hint at raising interest rates in the future.

 

The markets balked and Yellen did an about face, stating within a few weeks that the economy would need “extraordinary commitment… for some time” and that she believes that “view is widely shared” by her fellow policy makers.

 

Again, if the promise of help and liquidity can have the intended impact, why bother even announcing a new program?

 

Look for this theme to increase going forward both in Europe and elsewhere. Central Bankers are aware that their monetary efforts are failing to produce the allegedly intended results. Moreover, they know that these efforts are becoming increasingly unpopular with citizens.

 

So Central Bankers will be increasingly relying on verbal intervention. At least until the next asset price collapse occurs.

 

This concludes this article, swing by http://ift.tt/RQfggo for a number of FREE investment reports including Protect Your Portfolio, How to Buy Gold at $273 per Ounce, and What Europe’s Crisis Means For You and Your Savings.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

 

 

 

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UPDATE: Nasdaq negative year-to-date; Biotechs 3-month lows. AMZN, FB, TWTR, NFLX, P all in Bear market territory

Shortly after 946amET, the stock of The Nasdaq OMX Group suddenly dropped in a mini-flash-crash from from 35.98 to 35.00 in just over 2 seconds on approximately 100,000 shares. As Nanex notes, this is what high-frequency-trading liquidity looks like. But now, an hour or so later, the Nasdaq index and most especialy its Biotech and high-growth names are being crushed. Biotechs are near 3-month lows, Momos are down 16 to 18% since FOMC, and Nasdaq is about to go negative for the year.

As Nanex explains, on April 4, 2014, starting at 9:46:20, the stock of The Nasdaq OMX Group, Inc (Symbol: NDAQ, Market Cap $6.1 Billion) suddenly dropped from 35.98 to 35.00 in just over 2 seconds on approximately 100,000 shares. 500 Trades and 2,600 top of book quotes from 10 exchanges and an unknown number of dark pools participated in the 2.7% price drop. The stock price recovered to $35.77 in just over 1 second on approximately 44,000 shares (200 trades, 1,233 quotes) on 9 exchanges and an unknown number of dark pools.

We call this,  HFT (High Frequency Trading) liquidity.

1. NDAQ Trades color coded by reporting exchange over 27 seconds of time.

And now the index itself is collapsing…

But year to date, things are getting ugly for NASDAQ…

 

As high growth momos are slammed post Yellen…

Leaving them all in bear market territory

AMZN peaked a little earlier…

 

And Biotechs near 3mo lows…

 

Russell 2000 and Nasdaq are now notably in the red for April…

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

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Is there any hope that we might actually elect a president with the mandate and courage to take down Wall Street instead of kissing its rear end in humiliating obeisance?

The 2016 presidential election may be far away to those obsessed with the news cycle, but it's not too early to express one single hope: that we finally elect a president who doesn't kiss Wall Street's rear end every single day for four/eight years running. It's not difficult, folks; it's either/or. Either the President is willing to take down Wall Street or he/she is kissing Wall Street's rear end. There is no middle ground.

Either the next president issues an executive order (or whatever it takes) to enact these four administrative rules, or he/she is kissing Wall Street's rear end every single day of his/her administration.

1. Every position in any tradable security or financial instrument must be held for a minimum of one minute.

2. A transaction fee payable to the U.S. Treasury will be levied on every order when placed, regardless of whether it executes or not or if it is cancelled, of all tradable securities and financial instruments, including those privately exchanged: $1 for every transaction of less than $100,000 in value, $10 for every trade over $100,000 but less than $1 million, $100 for every trade over $1 million but less than $10 million, and $1,000 for every trade over $10 million.

3. All tradable securities and financial instruments must be marked to market at the close of every trading day. This includes derivatives, credit default swaps, mortgage-backed securities, etc.

4. All transactions must be transacted on public exchanges with a transparent bid/ask.

Order the F.B.I., SEC and other law enforcement agencies of the Federal government to prioritize enforcement of all existing securities and banking regulations.

Just four easy-to-understand simple rules. Without these rules, Wall Street remains the Monster Id of American ambition, a vast legal looting machine parasitically sucking the U.S. economy dry and distorting not just financial markets but the political process and the incentives and values that motivate every participant.

Here's a brief history of the past two presidencies. The chickens finally came home to roost for Wall Street and the banks in 2008, and President Bush had a golden, once-in-a-lifetime opportunity to expose Wall Street and the banks to real capitalism, i.e. you're insolvent, you go bust, your assets are auctioned off.

Instead, he obediently bent down and kissed Wall Street's rear end, approving trillions of dollars of taxpayer-funded bailouts. Oh dearie-dear, the ATMs might not work? Really? Then why does the FDIC have the power to take over busted banks and keep them operating while their assets are liquidated in an orderly fashion?

It was never about debt-serfs not being able to get cash from ATMs. It was always about saving the gargantuan fortunes of financier skimmers, scammers, parasites and predators.

President Obama entered office with a mandate to take down Wall Street and the Too Big to Fail banks. He also refused to expose Wall Street and the banks to real capitalism. He too has bent down and kissed Wall Street's rear end every day of his presidency.

It's not complicated, people. Either enact these four simple rules or remain on your knees kissing Wall Street's rear end. Either the parasites and predators have a free hand, and the incentives for corruption and legal looting remain firmly in place, or Wall Street is taken down by enforcing four simple rules–rules that have no impact on legitimate, productive companies and investors in those companies. These four rules would only impact financier skimmers, scammers, parasites and predators.

Is there any hope that we might actually elect a president with the mandate and courage to take down Wall Street instead of kissing its rear end in humiliating obeisance? The only way such a miracle could occur is if the voters demand it. Sadly, most voters are as morally blind as the people they elect; either they're complicit in the rigged casino (i.e. they're hoping to share in the spoils via their pension, IRA, 401K, etc.) or the corruption and rot has seeped so deep that the nation's moral compass is spinning aimlessly.

via Zero Hedge http://ift.tt/1mPJvn2 Tyler Durden

When in desperate need to crush your currency (being bought hand over fist by the Chinese), so urgently need to boost German exports, since you are unable to actually do QE as per your charter, what do you do if you are Mario Draghi? Well, you leak, leak, leak that you are contemplating QE, and then you leak some more. Such as today.

• ECB HAS MODELED BOND PURCHASES UP TO 1 TLN EUROS, FAZ SAYS
• ECB OFFICIALS LEANING MORE TOWARD CREDIT EASING POLICIES: FAZ
• ECB TESTS SHOW INFLATION COULD BE BOOSTED 0.2% TO 0.8%: FAZ
• ECB WANTS TO WORK THIS MONTH WITH BOE ON ABS PROPOSAL: FAZ

Like US inflation soared on the $1 trillion QEternity? Can’t wait. In other news, expect zero reaction from gold on this latest news that another $1.4 trillion in fiat is about to flood the market. If only inbetween Mario Draghi’s jaw bones.

Finally, where did the ECB “get” all of these bright and original ideas? Why Goldman Sachs of course, which released the following overnight:

Overview

 

The ECB left all policy rates unchanged at the end of its policy meeting yesterday. At the press conference, however, President Draghi left the door open to additional conventional and unconventional measures, should the medium-term outlook for inflation deteriorate further. Specifically, Mr. Draghi placed the emphasis on this passage of the prepared statement: “the Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation”. (See European Views: ECB opens the door to QE, April 3).

 

As we had argued, risky assets and in particular credit products responded well to the announcement, resulting in a further easing of Euro area financial conditions. We continue to like spread products and recommend a long German DAX position. However, we now also recommend selling duration by being short June Bund futures (RXM4) for a target of 137.50 (roughly 2% on the generic yield). We initiated the recommendation at 142.91, with a stop on a close above 145.50 (See Global Market Views: Hedging Long EUR Credit with Short Bunds, April 3).

 

Today the focus shifts to the US Employment Report for March, which will be important in assessing the underlying strength of the jobs market as we come out of the exceptionally cold winter months. Our US Economics team forecast a 200K print in nonfarm payrolls, and a decline in the unemployment rate to 6.6%. These estimates are broadly in line with consensus expectations (See US Daily: March Payrolls Preview, April 3). A stronger set of data, in our view, would be the catalyst for a further sell-off of the US Treasury market. As we wrote in the March Fixed Income Monthly, we think that maturities spanning 2016-18 look particularly vulnerable.

 

As discussions on whether or not the ECB could potentially implement QE will take centre-stage in coming weeks, in today’s Daily we summarize our previous research on the institutional characteristics of the Euro area ABS market.

 

The European Securitization Market: Facts and Figures

 

The total size of the European securitization market was EUR1.5trn at the end of 2013, about one-quarter of the size of its US counterpart. Securitizations were expanding at a rapid pace before the global financial crisis, with yearly issuance peaking at EUR711bn in 2008. Since then, securitization issuance in Europe has fallen sharply, to EUR180bn in 2013. For reference, total securitization issuance has also declined significantly in the US but since 2009 it has stabilized at a yearly average of EUR1.3trn.

 

There are significant differences in the size of the securitization market in European countries, and in the type of collateral backing securitization transactions. The UK remains the largest market in Europe, with a total stock outstanding of EUR444bn at the end of Q3 2013, followed by the Netherlands (EUR281bn), Italy (EUR185bn) and Spain (EUR178bn). In 2008, the UK was also the most active market, accounting for about 38% of total European issuance, but since then it has declined materially. In 2013, issuance was highest in the Netherlands (39% of total issuance), followed by Italy (19%), the UK and Germany (14%).

 

In terms of assets securitized, in 2008 RMBS were by far the largest asset, underlying about 80% of total securitization transactions. RMBS transactions accounted for about 44% of issuance in the first three quarters of 2013, while ABS origination was EUR34bn in Q1-Q3 2013 (about 28% of total origination). The majority of issuance continues to be retained by originators, even though a lower fraction was retained in 2013 than in 2012. Owing to more conservative practices, the European securitization market has performed relatively well; since mid-2007 default rates of European structured finance securities has been 1.1% compared with 15% for US ones (see Helmut Kraemer-Eis, George Passaris, and Alessandro Tappi, SME Loan Securitisation 2.0, Market Assessment and Policy Options, EIF working paper 2013/19).

 

Securitization of SME Loans in a Nutshell

 

The securitization of SME loans in Europe began to develop at the beginning of 2000, and its share of the total securitization market increased from about 2% to roughly 8%, reaching an outstanding amount of EUR130bn. About two-thirds of the amount of SME securitizations is concentrated in Italy, Spain, Belgium and the Netherlands. Issuance peaked in 2011 at EUR60bn and declined to about EUR19bn in 2013.

 

In terms of performance, default rates on SME securitizations have remained low for vintages originated in 2000-2004, when originators were conservative in structuring transactions, and securitized diversified and transparent portfolios of SME loans. This approach was relaxed before the GFC and default rates for later vintages have increased. But, on average, in the stock of outstanding securitized SME loans, the default rate is about 5.5% and it peaks after 50 months.

 

At the current juncture, credit to non-financial corporations (NFCs) remains constrained. Loans to NFCs were down 3%yoy in February in the Euro area. From the peak reached in January 2009, loans to NFCs are down 10% (or EUR530bn). The decline marks sharp cross-country differences, with lending to NFCs down 1% in Germany relative to a year ago, but down 14% in Spain over the same time horizon.

 

Large discrepancies exist also in the interest rate charged by Euro area banks to non-financial corporations in the various member states. For example, in Germany, the average interest rate charged on new loans with maturity between 1 and 5 years is 2.7%, while in Italy and in Spain the interest rate for a loan with similar characteristics is 4.84% and 4.22%, respectively. The spread on loans to corporates in Germany and in the periphery is still about twice as large as the current spread between German and Italian or Spanish government bonds. Hence, the supply of credit to corporates remains constrained, particularly in the periphery, both in terms of volumes and in terms of prices.

 

Helping the Securitization Market Revive Would Mitigate the ‘Credit Crunch’

 

Helping the securitization market revive could help mitigate the ‘credit crunch’ (see: The Case for ECB Credit Easing, February 2014). Securitizations would have the advantage of (i) providing banks with the means to raise cash directly from investors to fund lending; (ii) freeing up banks’ capital, thus increasing their balance-sheet capacity and supporting further lending; (iii) offering investors well diversified portfolios of credit exposure, and scaling the provision of funds to small companies; and (iv) helping develop a more market-based financial system.

 

Banks do not find it profitable, both due to the credit risk embedded in lending to SMEs and to the capital charges imposed by regulation, to extend credit and securitize loans. Hence, some form of public intervention seems necessary. The ECB could announce a QE program directed at buying senior tranches of ABS or it could guarantee mezzanine tranches, for example.

 

Even though this program would be much more limited in size than a QE program of government bond purchases because of the limited size of the ABS market (according to ECB data, there is EUR716bn of eligible ECB collateral in the form of ABS, of which about EUR300bn has already been posted), it would still have the merit of making SME loans more attractive from the perspective of private investors and of sending a strong signal that the ECB is ready to prevent deflation by stimulating credit and the economy.

via Zero Hedge http://ift.tt/1mIr40X Tyler Durden

The current rally off the 2009 lows is echoing rather strongly the surge off the 1982 lows and lining up uncomfortably close to the Black Monday Crash that took the S&P 500 down over 20% in 1987. Of course, it’s always different this time; but the market’s confidence that the Fed has your back and that computers are there to help not hinder leaves us with an uncomfortable feeling of deja vu all over again.

 

Away from the pure chart analog of human emotion, as the fed notes,

The macroeconomic outlook during the months leading up to the crash had become somewhat less certain.

 

Interest rates were rising globally.

 

A growing U.S. trade de?cit and decline in the value of the dollar were leading to concerns about in?ation and..

 

the need for higher interest rates in the U.S. as well.

 

Alan Greenspan assumed the role of Federal Reserve Chairman in August 1987, just a few months before the crash. (new Fed heads are always tested early)

Check, check, check (today), check, and check.

As Time summed up so well the ‘coincidences’…

…all panics are essentially made of the same stuff. No matter how much the Street changes, there will always be a tug of war between overconfident traders armed with new hedging mechanisms and the regulators tasked with keeping them in check. Increasingly, humans will struggle with how to deploy computers to make markets more efficient without having those computers hijack the process. And central banks will walk a tightrope between protecting the public from economic calamity and distorting natural market mechanisms.

 

Sure, nobody will ever accuse Wall Street of being overly poetic, but even this industry full of hard-nosed capitalist does, on occasion, rhyme.

via Zero Hedge http://ift.tt/1k7yzkO Tyler Durden

Another day, another pre-market pump and post-open dump… it seems a missed jobs number and a determined Fed is not a recipe to maintaining all-time record highs and hyper-growth expectations…

 

 

Seems like the USDJPY carry traders were on to something…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1k7yugO Tyler Durden

And all it took for the FBI, the SEC and now the DOJ to figure out the casino was rigged all along, was for a Michael Lewis book to do their job for them.

• DOJ PROBING HIGH SPEED TRADING FOR INSIDER TRADING: REUTERS

U.S. Attorney General Eric Holder confirms Justice Department investigation into high-frequency trading. http://t.co/ERuwcHcGLt

— WSJ Breaking News (@WSJbreakingnews) April 4, 2014

As WSJ reports,

The Justice Department is investigating high-speed trading practices to determine whether they violate insider-trading laws, Attorney General Eric Holder is expected to tell lawmakers Friday.

 

Mr. Holder, in prepared remarks, said the practice has “rightly received scrutiny from regulators.”

 

“The department is committed to ensuring the integrity of our financial markets,” Mr. Holder said in testimony about the Justice Department’s budget before the House Appropriations Committee. “We are determined to follow this investigation wherever the facts and the law may lead.”

 

The Federal Bureau of Investigation said earlier this week that it is probing high-frequency trading. New York Attorney General Eric Schneiderman, the Commodity Futures Trading Commission and the Securities and Exchange Commission are also looking into the practice.

via Zero Hedge http://ift.tt/1q6dtCp Tyler Durden

Presented with little comment aside to ask, WTF?

 

 

 

It seems there is a lesson here for all… push your unemployment rate to record highs, loan delinquencies to record highs, and depress your people to record high suicide rates… and voila… low cost of funding is guaranteed (surely there is a recipe here for Ukraine or Turkey or…)

Oh, and you absolutely must have a central banker with a ‘promise pony’.

As we anxiously await the outcome of AQR (Europe’s Stress Test) we can only imagine the bloated balance sheets of European banks stuffed with the domestic bonds that the crisis has now created and made the entire banking-system-sovereign-stress relationship inseparable.

via Zero Hedge http://ift.tt/1q6dpTh Tyler Durden

Curious why March hourly wages fell, and why the weekly number continues to show sub-inflation growth? Here’s why: in March the best paying industry groups – information, financial activities and manufacturing (which actually saw a drop of 1,000 jobs in the past month) – added a cumulative total of… 2,000 jobs among them. Where was the bulk of the job gains? At the worst paying sectors of course.

• Education and Health: +34K
• Leisure and Hospitality: +29K
• Temp Help: +29K
• Retail Trade: +21K

And that’s why there is no inflation (at least according to whatever the Fed’s preferred inflationary indicator du jour is): because the jobs that are “added” to the economy, have virtually no wage and/or purchasing power growth. But at least the “recovery” continues.

via Zero Hedge http://ift.tt/PrnJrT Tyler Durden

Bad news is the best news this morning. A higher unemployment rate and worse than expected job creation is the new mother’s milk for stocks which kneejerked instantly to new record highs. Bond yields are tumbling and gold is surging (back over $1300) as ‘investors’ believe this will signal an un-taper (because QE did so much good for so long) or lower-for-longer chatter (so more buybacks?). The USD is fading fast also.

 

 

The USD is fading fast also…

 

AUDJPY in charge of stocks for now but notably USDJPY is not happy at all…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1q5zGjW Tyler Durden