Tag: finance

Submitted by Lance Roberts of STA Wealth Management,

This past week the Federal Reserve began tapering their current large scale asset purchase (LSAP) program, more commonly referred to as Quantitative Easing (QE), by trimming $10 billion in bond purchases from the previous monthly totals.  This week's "Things To Ponder" is a diverse set of views on the potential effect of the taper on the financial markets and the impact to investors.  Regardless of your personal expectations as to the impact of the reduction of liquidity in the months ahead, it is always a good mental exercise to consider opposing viewpoints to balance your own views by eliminating confirmation bias.  Here are 5 disparate views on the effect, and potential outcome, of the Federal Reserve's latest move.

1) The Fed Is Just Winging It Now by Jeffrey Snider, Alhambra Partners

I have discussed in the past that the Fed's primary concern are the deflationary pressures that continue to plague the economy.  (See here and here)  Jeffrey did a terrific job discussing this point, and the entire post is well worth your time reading.

"In the wake of finally (FINALLY) reaching the primary taper point, it is worth remembering exactly what QE was supposed to do. QE is the 'extraordinary' policy tool that accompanies ZIRP. That mystical lower bound of 0% rates is believed penetrable by jiggering with inflation expectations. Thus, QE is meant as a means to increase inflation expectations, leading to negative real interest rates – and economic panacea/utopia from there.

 

Instead of that, we still have ZIRP now almost for five full years and inflation behaving very much contrary to modeled and publicized expectations. That is true not only in the CPI, but in nearly every official measure of inflation. That would make this a curious development in the light, again, of what QE was supposed to accomplish."

2) Fed Taper Begins, What Happen's Next by Mohammed El-Erian

Mohammed points to four reasons why the Fed's actions make sense:

1) Fed is right to be more confident of the economy.

2) Fed's confidence is not overwhelming, just better.

3) Mixed outlook calls for delicate policy balance.

4) Fed still has room to lower the overnight lending rates.

"Investors are right to take all this to mean that the Fed remains highly committed to supporting an improving economy — and, since it seemingly can only do so through 'the asset channel,' the institution thus remains committed to supporting markets.

This is particularly good news for equity markets in the short-term, building on what already has been a great performance year. It also contains the disruptions to bonds."

3) Post-FOMC Strategy by Doug Kass

Doug does a good analysis of the Federal Reserve's QE program.

"1) QE has provided a stock market put and has also prevented the natural discovery of prices in both the stock and bond markets.

 

2) The general belief is that the U.S. stock market will be able to overcome the reduction in bond buying.

 

3) The critical questions are whether the economy can handle higher interest rates and whether stocks can rally in the face of a less liquidity.

 

4) The addiction to low interest rates runs deep with consumers, corporations in the private sector and our government in terms of financing the U.S. deficit, which will weigh on optimistic growth expectations and the consensus view that stocks will rise further.

 

5) The domestic economy is heavily doped up by abnormally low interest rates and monetary accommodation.

 

6) Monetary policy (the Fed) has been needed to support growth in our domestic economy. With that monetary support moderating coupled with the lack of fiscal responsibility and the inability of Democrats and Republicans to come together, more uncertainty than less certainty of policy lies ahead.

This should be valuation-deflating.

 

To a person, the talking heads in the media who provided instant analysis of the Fed's tapering decision were bullish late yesterday afternoon. Not surprisingly, many of the same commentators who were bullish after a 300-point rise in the DJIA had previously cautioned about the market's likely adverse response to a tapering.

 

It is for the reasons listed above (and others) that I shorted yesterday's market rip and moved from a market-neutral stance to a net 10% short position. (I have since shifted back to neutral.)

 

What keeps me from moving more aggressively short is that I have learned to be respectful of the market's unbelievable price momentum, and frankly, I don't know the timing of a downturn/correction with any degree of certainty or precision.

 

That I am certain of is, as The Oracle wrote, it might shortly 'be time to be fearful when others are greedy.'"

4)  5 Reasons Stocks Didn't Suffer A Taper Tantrum by Adam Shell, USA Today 

"The past two times the Fed warned of tapering, the Dow fell — 4.9% back in May and June, and 5.6% in August. The declines were dubbed 'Taper Tantrum 1' and 'Taper Tantrum 2.'

 

So why did stocks go up when most pundits figured they would go down?

 

Here are five theories why the first taper didn't tank the stock market:

 

1. It signals the Fed's faith in the recovery.

2. It reduces uncertainty.

3. It amounts to 'Taper Lite.'

4. It caught Wall Street off guard.

5. It doesn't change the Fed's dovish stance.

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The takeaway: The Fed will remain highly accommodative for years."

5) The Taper Morning After: A Full Summary Of What "They" Are Saying via Zero Hedge

"Strategists were largely wrong about the yes taper in September, and then they were just as largely wrong about the no taper in December, and yet their opinion is just as largely gospel and people continue to listen to them (what else is there to be distracted by in a still very much centrally-planned market and economy). Which is why the below summary by Bloomberg of what global financial strategists and investors, also known as "they", are saying about how to trade assets in the post-taper world, should probably be taken, largely, with a grain of salt."

Views from PIMCO, BlackRock, HSBC, UBS, Morgan Stanley, SocGen and others.  It's a good read particularly if you have a currency bias in your portfolio.

Chart Of The Week – What Difference Does $10 Billion A Month Make

The chart below shows the Federal Reserve's balance sheet as compared to the S&P 500 with both being projected through the end of 2016.  The dashed lines denote the projected expansion of the balance sheet, and the correlated rise in asset prices, both before and after the Federal Reserve's most recent "taper."

Wishing you a very happy holiday season and a merry Christmas.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-HpbMrXK4XE/story01.htm Tyler Durden

Treasury curve flattening continues to gather pace as 30Y bonds rallied their most in 8 months today (even as the shorter-end sold off modestly) but on the week the flattening is dramatic to say the least. Of course, all eyes were on stocks as the Dow and S&P leaked (post European close) to new highs (and the Russell gained back yesterday's losses and some to close the week's winner +3.5%). Gold (and silver) rallied on the day back over $1200 (but closes -3% on the week). VIX followed a similar pattern to yesterday with an early drop followed by a drift higher as it's clear managers are protecting into year-end. Quad witching and rebalancing provided some fireworks into the close as volume rose and stocks slid (as Nanex noted – something broke – lots of micro-crashes/rallies) as CBOE quotes stopped with 10 minutes to go.

 

The late-day chaos perhaps summed up best by Nanex…

Whoa something broke or screwed up – lots of micro crash/rally events

— Eric Scott Hunsader (@nanexllc) December 20, 2013

 

The long bond surged lower in yields today…

 

and on the week the flattening is very clear…

 

Gold rallied on the day but closed -3% on the week…

 

Stocks were well coupled with JPY crosses until the European close and then decoupled… with the closing dump seemingly attempting to recouple…

 

After yesterday's disappointing performance, the Russell 2000 surged back to take the victory on the week… (even as the Dow and S&P rolled over)…

 

But VIX tracked a similar trajectory today with protection bid all afternoon…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Zpn7tZZx7mk/story01.htm Tyler Durden

Treasury curve flattening continues to gather pace as 30Y bonds rallied their most in 8 months today (even as the shorter-end sold off modestly) but on the week the flattening is dramatic to say the least. Of course, all eyes were on stocks as the Dow and S&P leaked (post European close) to new highs (and the Russell gained back yesterday's losses and some to close the week's winner +3.5%). Gold (and silver) rallied on the day back over $1200 (but closes -3% on the week). VIX followed a similar pattern to yesterday with an early drop followed by a drift higher as it's clear managers are protecting into year-end. Quad witching and rebalancing provided some fireworks into the close as volume rose and stocks slid (as Nanex noted – something broke – lots of micro-crashes/rallies) as CBOE quotes stopped with 10 minutes to go.

 

The late-day chaos perhaps summed up best by Nanex…

Whoa something broke or screwed up – lots of micro crash/rally events

— Eric Scott Hunsader (@nanexllc) December 20, 2013

 

The long bond surged lower in yields today…

 

and on the week the flattening is very clear…

 

Gold rallied on the day but closed -3% on the week…

 

Stocks were well coupled with JPY crosses until the European close and then decoupled… with the closing dump seemingly attempting to recouple…

 

After yesterday's disappointing performance, the Russell 2000 surged back to take the victory on the week… (even as the Dow and S&P rolled over)…

 

But VIX tracked a similar trajectory today with protection bid all afternoon…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Zpn7tZZx7mk/story01.htm Tyler Durden

It will likely come as no surprise that, despite a ‘surging’ economy (based on today’s inventory-stacked GDP), that CEOs are less than upbeat about the future when one scratches below the surface of 5-second soundbites. As Bloomberg’s Rich Yamarone notes, from the most recent quarter’s earnings calls, two critical themes emerge as top of mind for CEOs – consumer-related companies remain skittish about the ability of households to spend without a heavily promotional environment and companies cited upcoming healthcare legislation as a hurdle to performance and profitability.

 

Coldwater Creek [CWTR] Earnings Call 12/11/13: “While the third quarter was a challenging period for us, we were able to react quickly to the trends in the business by improving our assortments and refining our marketing plans. We have seen an improvement in our sales trends and conversion rates. However, we are seeing an increasingly competitive and highly promotional environment, traffic remains challenging and the majority of the holiday season lies ahead of us.”

Bebe Stores [BEBE] Earnings Call 11/7/13: “While we are pleased with the progress that we have made in first quarter of 2014, we are facing a few headwinds as we enter second quarter. As it has been widely reported, the macroeconomic environment has been increasingly difficult starting the last week of September and continued into October, which has resulted in some decline in traffic trends as well as creating a highly promotional environment.”

Cosi Inc [COSI] Earnings Call 11/14/13: “The increase in labor and related benefits as a percentage of restaurant net sales was due in large part to the deployment of additional hourly labor in an effort to improve speed of service and guest satisfaction, combined with the deleveraging impact of the comparable store sales decline on the fixed portion of our labor costs. We were also adversely impacted in the quarter by higher employee health insurance costs.”

Flowers Foods [FLO ] Earnings Call 11/7/13: “You look at employ-related costs, we’re seeing increase there. You have healthcare increases. It’s kind of some of the typical things you would expect from an employee perspective.”

Wal-Mart [WMT] Earnings Call 11/14/13: “The retail environment, both in stores and online, remains competitive. At the same time, some customers feel uncertainty about the economy, government, jobs stability and their need to take care of their families through the holidays. Walmart has aggressive plans to help our customers enjoy the holiday season…”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/M37CU71ZlJ0/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

In investing, it’s often said that nothing goes up or down in a straight line.

Stocks, bonds, commodities… they all go through periods of growth, correction, collapse, mania, etc.

We’re seeing this right now with respect to a substantial decline in the nominal gold price after more than 12 straight years of gains.

But I’ve just recently come across an investment trend that has posted the same results for more than 20-years straight. And it’s actually quite alarming.

Every human being on the planet requires sustenance… typically measured in Calories per day.

What’s interesting is that the global average of per-capita Calorie consumption has increased a whopping 24.6% since 1964.

So over the last fifty years, the data clearly show that human beings are eating more… now to an average of roughly 2,940 Calories per person per day.

As you can probably guess, most of the rise has taken place in East Asia just over the last two decades, owing to the increased wealth in that part of the world.

Roughly a billion people have been lifted out of poverty in Asia alone. And as people begin to generate income and accumulate savings, their dietary habits have invariably changed. They eat more, i.e. demand more Calories.

As we eat more, we require more resources from the world. And in the case of food, this means more arable land to grow crops.

But there’s another twist to this trend. As people become wealthier, they not only eat more, but they also begin to consume more resource consumptive foods– especially meat.

It takes a lot more land to grow a kilogram of beef than it does to grow a kilogram of tomatoes. The difference can often be an order of magnitude greater.

So when you look at the demand side of this equation, per capita food consumption is increasing… and we are also consuming a vastly greater amount of land-intensive foods.

In short, the global trend is that we are demanding a much greater amount of arable land per person.

Yet the data on the supply side show the precise opposite.

According to World Bank data, the global average of arable land per person has been on a one-way decline since 1992.

In fact, since 1964, there has only been one year that the global average of arable land per person has increased. In every other instance over the last five decades, arable land per person has declined.

This is an astounding trend.

Our modern ‘science’ is stepping in to address this trend. It’s why much of what we eat is now concocted in a laboratory rather than grown on a farm. It’s why McDonalds puts pink slime in its hamburgers instead of… you know… beef.

But even still, science only goes so far.

Yields for many staple crops (like wheat) essentially hit a wall about ten years ago. After decades of miraculous gains in the amount of tons, bushels, and kilograms per acre we have been able to extract from the Earth, productive capacity has largely plateaued.

In other words, we have maxed out what we can pull out of the soil for now. And the amount of soil per person that’s in production is in serious decline.

To me, this spells out an obvious case for investing in agriculture… and even more specifically, to own farmland.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ejO4TjqBvMA/story01.htm Tyler Durden

     

 

 

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The Emperor At Christmas…

 

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/AtT0Y7ZYoMA/story01.htm williambanzai7

All 3 branches of the U.S. government have concluded that the NSA has gone way too far … and that mass surveillance is unnecessary.

The U.N. General Assembly agrees.

But one government leader backs the NSA’s Orwellian spying … former KGB officer Vladamir Putin.

It is obvious that the former Soviet uber-spy’s endorsement is ironic.  But there is a second potential explanation.

Putin also has a current net worth alleged to be between $40 billion and $70 billion, and a palace to rival the old monarchs of France.

The real purpose of mass surveillance is economic advantage, diplomatic manipulation, and social control.

The multi-billionaire – whether commie or capitalist – may just want to maintian control and increase his wealth.

Postscript: Given that the American economy has gone from capitalism to socialism for the rich, and that the U.S. used communist torture techniques specifically aimed at extracting false confessions, it has become admittedly difficult to identify the players from the baseball roster these days.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/PlVw9kPWqRM/story01.htm George Washington

We suspect the word “but” will figure heavily in President Obama’s news conference today (his last before hitting the Hawaiian tees) as he addresses all the wonderful things that are occurring in the US – and yet moar needs to be done… oh and have you signed up for Obamacare yet?

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Ce8mtS-t6M0/story01.htm Tyler Durden

Submitted by Ron Paul via The Free Foundation blog,

This week the Federal Reserve System will celebrate the 100th anniversary of its founding. Resulting from secret negotiations between bankers and politicians at Jekyll Island, the Fed’s creation established a banking cartel and a board of government overseers that has grown ever stronger through the years. One would think this anniversary would elicit some sort of public recognition of the Fed’s growth from a quasi-agent of the Treasury Department intended to provide an elastic currency, to a de facto independent institution that has taken complete control of the economy through its central monetary planning. But just like the Fed’s creation, its 100th anniversary may come and go with only a few passing mentions.

Like many other horrible and unconstitutional pieces of legislation, the bill which created the Fed, the Federal Reserve Act, was passed under great pressure on December 23, 1913, in the waning moments before Congress recessed for Christmas with many Members already absent from those final votes. This underhanded method of pressuring Congress with such a deadline to pass the Federal Reserve Act would provide a foreshadowing of the Fed’s insidious effects on the US economy—with actions performed without transparency.

Ostensibly formed with the goal of preventing financial crises such as the Panic of 1907, the Fed has become increasingly powerful over the years. Rather than preventing financial crises, however, the Fed has constantly caused new ones. Barely a few years after its inception, the Fed’s inflationary monetary policy to help fund World War I led to the Depression of 1920. After the economy bounced back from that episode, a further injection of easy money and credit by the Fed led to the Roaring Twenties and to the Great Depression, the worst economic crisis in American history.

But even though the Fed continued to make the same mistakes over and over again, no one in Washington ever questioned the wisdom of having a central bank. Instead, after each episode the Fed was given more and more power over the economy. Even though the Fed had brought about the stagflation of the 1970s, Congress decided to formally task the Federal Reserve in 1978 with maintaining full employment and stable prices, combined with constantly adding horrendously harmful regulations. Talk about putting the inmates in charge of the asylum!

Now we are reaping the noxious effects of a century of loose monetary policy, as our economy remains mired in mediocrity and utterly dependent on a stream of easy money from the central bank. A century ago, politicians failed to understand that the financial panics of the 19th century were caused by collusion between government and the banking sector. The government’s growing monopoly on money creation, high barriers to entry into banking to protect politically favored incumbents, and favored treatment for government debt combined to create a rickety, panic-prone banking system. Had legislators known then what we know now, we could hope that they never would have established the Federal Reserve System.

Today, however, we do know better. We know that the Federal Reserve continues to strengthen the collusion between banks and politicians. We know that the Fed’s inflationary monetary policy continues to reap profits for Wall Street while impoverishing Main Street. And we know that the current monetary regime is teetering on a precipice. One hundred years is long enough. End the Fed.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UpLgxW97V5o/story01.htm Tyler Durden