Tag: news

Back on December 31, the day which was the first quarter and year-end after the Fed’s first rate hike cycle in nearly a decade, we pointed out something unexpected – the Fed’s rate hike corridor had just been broken when the Fed Funds rate traded as low as 0.12%, far below the mandated minimum of 0.25%.

 

SMRA confirmed as much, and added that “the fed funds rate has dropped to 0.12% this morning, down from 0.47% yesterday. The fed funds rate has dropped at month-end for all of 2015, with some of the larger of these moves occurring at quarter end, like today.  It appears that these drops will still occur even after the fed rate hike, and possibly that the will be even more extreme, since today’s drop was about 23 basis points, as opposed to previous declines this year, which were usually between 5 and 10 basis points.”

It was unclear what had caused this dramatic breach of the Fed’s corridor, but we had some ideas:

the fact that there is this kind of major discontinuity in the Fed’s rate hike process, throws a huge wrench in the credibilty of the Fed tightening effort.

 

After all, if banks can steamroll with impunity the Reverse Repo 0.25% floor to park hundreds of billions, or trillions, in liquidity, then the Fed’s entire [liquidity soaking] experiment will be worth nothing. Keep in mind, the rate hike process only works if banks don’t get a chance to revert to an old standby liquidity regime on the last day of any quarter, in the process getting all the benefits of ZIRP even as the Fed parades just how tight financial conditions are getting.

 

Just imagine what would happen on December 31, 2016 if the Fed Funds rate plunged from 1.25% to 0.12% overnight? That would suggest that while the Fed may have drained liquidity for 99% of the quarter, on the one day it matters – the day when the bank’s balance sheet snapshot is formalized for 10-Q and 10-K purposes, ZIRP regime has returned.

Which is why today, March 31, another quarter and (and the Japanese fiscal year end) we were paying particular close attention to the funding markets, both on the fed funds and the general collateral repo side.

On the fed funds, and reverse repo, side, things we relatively normal: the Fed’s reverse repo spiked from $127.1 billion (from 59 counterparties) to $303.8 billion (from 99) overnight. A lot, but we’ve seen more (and certainly below the expanded ceiling of $2 trillion) and largely to be expected as banks rush to make their balance sheets appear pretty for the regulators, with lots and lots of securities rented from the Fed for 1 day. Fed Funds dipped to 0.25% and briefly slid below it but nothing worth writing home about.

But while FF was “fine”, something did break in the general collateral repo market.

Here is Wedbush’ Scott Skyrm with a rather scary chart and an attempt at an explanation:

Highest Repo Rate Since The Financial Crisis

An afternoon sell-off in GC pushed overnight rates (on quarter-end) as high as 1.75% and the market ended closed at 1.75%. Drumroll please! The 1.75% rate was the highest GC Repo trade since September, 2008. Naturally, there’s was a tightening December which moved rates higher overall. But today, are higher rates a function of the Repo market returing to normal? Or is it a sign of declining liquidity on quarter-end?

And the chart:

What is causing this liquidity scramble we don’t know, but such a historic move is most certainly worrying, especially for a Fed that wants to telegraph that all is well with its rate hiking process, and there are no structural liquidity issues with the banks.

Alas, as the chart above clearly shows, not only are there issues, but something clearly has broken in the US market’s repo funding plumbing.

via Zero Hedge http://ift.tt/25z023F Tyler Durden

Thursday was a rough day for GOP frontrunner Donald Trump.

At a pre-recorded town hall meeting hosted by MSNBC and Chris Matthews, Trump got tripped up over a question about illegal abortion.

“Should [illegal] abortion be punished?,” Matthews quizzed. “This is not something you can dodge,” he added.

“There has to be some form of punishment,” Trump responded, when pressed.

“For the woman?” Matthews asked, just so there would be no ambiguity.

“Yeah,” Trump responded.

Wrong. Answer.

Anyone watching the clip can clearly see that Matthews was playing “gotcha” (once he established that he was referring to illegal abortions he knew he could pin Trump between having to either say women should be punished or that women could break the law with impunity), but it didn’t matter.

Everyone piled on. Republicans, Democrats, pro-lifers, the pro-choice crowd – everyone.

The kerfuffle came just days after several polls suggested Trump’s favorability among female voters is languishing somewhere in the neighborhood of 25%.

If accurate – and we’re not necessarily saying that it is – Trump may have what we called “a women problem.”

On Thursday, Trump got a little help from the Great America PAC which has released a new 30 second pro-Trump ad in an apparent effort to appeal to suburban female voters. Here’s the clip:

“Sure, I get some grief when I say I’m voting for Donald Trump. But you know what? I want to protect my family,” a terrible actress tells the camera. “We need to control our borders and stop letting in dangerous people. Trump will do that. And Ted Cruz? He wanted to let in more Syrian refuges and give amnesty to illegal immigrants. That won’t protect my family. Donald Trump will.”

There you go. A dangerous man for a “dangerous” world. 

In any event, it’s somewhat ironic that the ad comes from a PAC which is part of the very same corrupt campaign finance system that Trump has repeatedly called disgusting. Great America is spending “seven-figures” ahead of the Wisconsin primary in an effort to push Trump over the top. 

“We have seen such a huge groundswell of Americans that want to help grow the movement around the Trump campaign that we felt compelled to lay the groundwork for the outside effort Republicans will need to win the White House and lengthen Mr. Trump’s coattails to protect our majorities in Congress,” Jesse Benton, a spokesman for the group said in a statement.

And while Trump may say he has no interest in support from super PACs, something tells us he’s ok with anything that makes his “coattails” longer.

via Zero Hedge http://ift.tt/1Y2tYiY Tyler Durden

Submitted by Judith Bergman via The Gatestone Institute,

"We can open the doors to Greece and Bulgaria anytime and we can put the refugees on buses … So how will you deal with refugees if you don't get a deal? Kill the refugees?" This was the question Turkish President Recep Tayyip Erdogan, in true mafia style, asked European Council President Donald Tusk and European Commission President Jean-Claude Juncker on November 16, 2015 in a closed meeting in Antalya, Turkey, where the three met after the G20 summit.

While Tusk and Juncker have both declined to comment on whether the meeting took place, Erdogan has since then boasted that he is proud of the leaked minutes of the meeting, where he boldly blackmails EU leaders into paying him protection money.

Erdogan's threats were almost criminally sinister: "… the EU will be confronted with more than a dead boy on the shores of Turkey. There will be 10,000 or 15,000. How will you deal with that?"

Turkish President Recep Tayyip Erdogan (left) has boasted that he is proud of blackmailing EU leaders, including European Commission President Jean-Claude Juncker (right), into paying him protection money.

Finally, feeding into the denial/ignorance of the European elites, who were at that time reeling from the Paris terror attacks that had occurred just three days earlier, Erdogan — who himself has hosted and supported terrorist groups from Hamas to Hezbollah to ISIS — told his European colleagues, "The attacks in Paris is [sic] all about poverty and exclusion. These people… will continue to be terrorists in Europe".

The leaked minutes furthermore showed Tusk and Juncker pleading with Erdogan, almost begging him to see reason, pathetically telling him that the EU has been treating him "as a prince in Brussels."

"Like a prince?" Erdogan retorted, "Of course. I'm not representing a third world country." He also told Juncker, who is the former prime minister of Luxembourg, not to compare Luxembourg to Turkey: "Luxembourg is just like a town in Turkey."

In a speech in Ankara on February 7, 2016, referring to the meeting with Juncker and Tusk, Erdogan boasted: "I am proud of what I said. We have defended the rights of Turkey and the refugees. And we told them: 'Sorry, we will open the doors and say goodbye to the migrants.'" He then proceeded to repeat that very threat:

"In the past we have stopped people at the gates to Europe, in Edirne we stopped their buses. This happens once or twice, and then we'll open the gates and wish them a safe journey, that's what I said. … We do not have the word 'idiot' written on our foreheads. Don't think that the planes and the buses are there for nothing. We will show patience up to a point and then we'll do what's necessary."

A little over a month after Erdogan's latest threats, in February 2016, it all paid off. Erdogan received the European Union's assurance that his wishes had been granted in the form of the March 18 "EU-Turkey Statement." According to this agreement, the EU will pay Ankara €6bn over the next two years to be spent on Syrian refugees already in Turkey. Furthermore, by June 2016, at the latest, 80 million Turkish citizens will have visa-free access to the European Union, tempered by the EU requirement that Turkey has met "all benchmarks" by then. The promise to lift the visa requirements for Turkish citizens should be seen as real, however, and unlikely to be turned down because of "benchmarks" not being met — especially as another part of the agreement clearly constitutes lip service, namely the commitment to "re-energize" Turkey's accession process to the European Union.

What has Turkey promised to do in return for these very tangible benefits? It has agreed that all new "irregular migrants" crossing from Turkey into Greek islands as of 20 March 2016 will be returned to Turkey. The agreement stipulates that this will take place

"in full accordance with EU and international law, thus excluding any kind of collective expulsion. Migrants arriving in the Greek islands will be duly registered and any application for asylum will be processed individually by the Greek authorities in accordance with the Asylum Procedures Directive, in cooperation with UNHCR [United Nations High Commissioner for Refugees]. Migrants not applying for asylum or whose application has been found unfounded or inadmissible in accordance with the said directive will be returned to Turkey."

For every Syrian being returned to Turkey from Greek islands, another Syrian will be resettled from Turkey to the EU – up to 72,000 Syrians. Priority will be given to migrants who have not previously entered the EU and to those who have not tried to enter the EU illegally. Furthermore, Turkey will take any necessary measures to prevent the opening of new sea or land routes for illegal migration from Turkey to the EU.

By succumbing to what amounts to Turkey's blackmail, the EU hopes to stop the people-smugglers who operate out of Turkey, and end the stream of migration between Turkey and the EU — or as the agreement says, "substantially and sustainably reduce it." They are also hoping that the agreement in itself will stem the flow by discouraging migrants from attempting the dangerous route, when they know that chances are that they will be returned to Turkey.

Seen from Europe's own, hallowed, self-declared humanitarian principles, the deal represents not only a cop-out to Erdogan's thuggish blackmail, but a complete sell-out: not even European leaders can pretend that Erdogan's Turkey represents a "safe third country." What will happen with the migrants, once they are returned to Turkey, no one knows. That much is clear from the EU's own answer to the question of how it can be sure that returned refugees or migrants will be given protection in Turkey. The EU's circular non-answer went: "Only asylum seekers that will be protected in accordance with the relevant international standards and in respect of the principle of non-refoulement will be returned to Turkey." As if Turkey under Erdogan has become world famous for respecting "international standards."

As late as March 18, on the day that the EU-Turkey Statement became official, Erdogan stated, "Democracy, freedom and the rule of law… For us, these words have absolutely no value any longer." The words "any longer" were only put there for show — as any observer of Erdogan's Turkey will tell you, democracy, freedom and the rule of law, have never held any value for Erdogan.

Contrary to the views of the EU and the Obama Administration, Erdogan is not a democrat, and never has been. He has dedicated his career to transforming secular, ‎European-oriented Turkey into an Islamist state, and has repeatedly rejected Western attempts to portray his rule as an example of "moderate Islam." He ‎says that such a concept is "ugly and offensive; there is no moderate Islam. Islam is Islam."

As a young man, Erdogan embarked upon a career in Islamist movements and parties, in direct opposition ‎to the secular Kemalists, whose goal it was to keep Turkey a secular democracy with religion a wholly ‎private matter. One of the parties in which Erdogan was active, the Refah Party, was described by the Turkish historian Soner Cagaptay as "an explicitly Islamist party, which featured strong anti-‎Western, anti-Semitic, anti-democratic and anti-secular elements." ‎Erdogan was arrested and convicted for religious incitement in 1998 after Refah was banned by Turkey's constitutional court.‎

When Erdogan returned to the scene in 2002 with the so-called Justice and Development Party (AKP), his Islamist credentials could hardly be swept ‎under the carpet in a Turkey that was still committed to a secular state.

So what do you do if you want to ‎appear palatable to the secularists and the West? You introduce Islamic sharia law slowly ‎and cautiously, in a piecemeal fashion. That is what Erdogan has done: gradually bringing all the former secular ‎bulwarks against Islamists under his own Islamist sphere of influence — the educational system, the courts ‎and even the military.

The agreement with Turkey should not be cause for celebration in Europe. Erdogan's threats shaped the deal in a way that casts doubt on any hope of him actually abiding by the vain European dream of ending the flow of migrants from Turkey and Europe. The question, though, is not just a matter of his willingness, which is open to dispute. It is as much a question of whether Turkey is even capable of stopping the people-smugglers. The latter would appear open to doubt. "Ankara is likely to have made promises in Brussels that it can't and won't deliver,' said Aykan Erdemir, a former opposition politician, now a senior fellow at the Foundation for Defense of Democracies in Washington. "Human smugglers will outsmart the Turkish authorities just as they have outsmarted EU authorities."

Even if one assumes that Turkey is both willing and able to close down the migration routes between Turkey and Greece, it is inconceivable that the Turkish people-smugglers will simply give up their blockbuster business. It is far more likely that they will open up even longer and more dangerous routes from Turkey to Italy. And if this contravenes the agreement with the EU, there is no mechanism to stop Turkey from turning a blind eye to them.

"Everybody knows that nobody can stop a smuggler — they'll always find a way," Ahmad, a Syrian who was smuggled into the UK, told the Spectator; "It will simply become more expensive."

That is of course the nightmare scenario for a desperate EU: No matter how hard it tries, or how much it bows to extortionist demands from Turkey, the migrant crisis will continue to grow. Even if Turkey closes down all routes from Turkey into Europe, refugees could take new routes through North Africa or the Caucasus. The deal with Turkey, in other words, is a far cry from being a cure.

A German think tank has simulated expected migrant flows through Europe this year, and has come up with an estimated range of 1.8 to 6.4 million people — the latter being a worst-case scenario that would include large numbers from North Africa. According to French Defense Minister Jean-Yves le Drian, quoted on March 24, 800,000 migrants are currently in Libyan territory waiting to cross the Mediterranean.

This is what Angela Merkel arguably started with her promise to receive every refugee in Germany, and this is what her EU colleagues are now desperately trying to stop. Perhaps they are not trying hard enough. In the leaked minutes from the meeting with Erdogan, Tusk told Erdogan, "…the EU can make itself less attractive to refugees, but that is not the solution we want." Many Europeans might not agree with him.

via Zero Hedge http://ift.tt/1ooX3sD Tyler Durden

Back in November, when it was laying out its (five out of six wrong) Top Trades and predictions for 2016, Goldman strategists forecast that because the “US will be the first to grow GDP demand above potential” the stock market party would be over and that the “Bernanke Put” would be replaced with the “Yellen Call.”

Specifically, this is what Goldman predicted:

We see a risk that the ‘Bernanke put’ will gradually be replaced by the ‘Yellen call’. The ‘Bernanke put’ captured the intuition that when the risks to growth, inflation and market sentiment are skewed to the downside and the Fed has an easing bias, monetary policy reacts aggressively to bad news. Now that these risks have receded, we expect the Fed will shift to an easing bias, implying that monetary policy will likely begin to react more aggressively to good news. The inflection point for this shift to an easing bias will arguably arrive in 2016, beyond which rallies in risk sentiment may be met by less accommodative monetary policy – the ‘Yellen call’.

We did not see things this way and said the following:

“while we agree with Goldman that multiple contraction is long overdue, we fail to see where earnings growth will come from, especially if, as Goldman also said recently, companies are now punished for buying back their own stock which in turn is the main driver pushing EPS to record highs in recent years. In fact, just like global GDP growth, we expect EPS to continue declining in the next year now that margins have peaked, if companies indeed are raising wages. Because with revenues set to drop for 4 consecutive quarters, there is simply not enough growth, either in the global economy or on corporate income statements, to justify being bullish about either.”

We were right not only about earnings crashing (Q1 EPS is now expected to plunge -8.7% compared to a consensus increase in December), but also about global growth slowing down (Altana Fed’s latest Q1 GDP forecast is 0.6%, nuf saif); Goldman was wrong.

We also said the probability of “bad news being bad news” again is slim to none. And, as Yellen just confirmed following the Shanghai Accord that shall not be named, bad news is once again good news, much to the delight of 18 year old hedge fund managers.

So, nearly give months later, here is Goldman again admitting its call for a “Yellen Call” was wrong, although the central bank-incubating hedge fund does not give up, and instead merely pushes back its forecast to the second half. From Charles Himmelburg:

Global Markets Daily: The ‘Yellen call’

 

In our “Top 10 market themes for 2016”, we argued that the ‘Bernanke put’ might gradually be replaced by the ‘Yellen call’. Recall, the ‘Bernanke put’ was the idea that meaningful declines in market sentiment would be met with aggressive monetary action, thus providing a buffer to downside risk. Our notion of the ‘Yellen call’ was the converse of this – that with labor markets approaching full employment and core PCE inflation rising towards target, meaningful rallies in market sentiment would likely be met with a more robust withdrawal of policy accommodation. And this, logically, would tend to buffer or ‘cap’ the upside potential for risky assets.

 

It hasn’t happened. Market conditions have been considerably more volatile and uncertain than we expected over the first quarter. While we correctly anticipated the downside risk to oil prices and cautioned that this would likely weigh on credit spreads (#4 of our top 10 risks), we nonetheless failed to appreciate how widely this shock would reverberate throughout the global economy – and, with it, drag down risk appetite among all risky assets.

Actually what Goldman failed to anticipate is the very same thing that Yellen has failed to anticipate: in a world as centrally planned as this one, where markets are only up due to constant central bank intervention (and now we know for a fact that the PBOC is also directly manipulating stocks) is just how reflexive the central bank – market relationship has become. And, furthermore, any time “good news is good news”, at least on paper, and stocks tumble, the market finds a very quick way of tumbling even more to stun central bankers out of their inactivity and prompt them right back in. With all central banks currently all in on market manipulation, and thus economic micromanagement, there is simply no way out. The Fed is starting to grasp this; Goldman will too soon enough.

Conitnuing with Goldman’s note:

The oil price sensitivity of global risk sentiment (and hence global growth risk) is now clear to see. Over the course of Q1, oil prices first fell by over 25%, then staged a straight-line back to new highs on the year that briefly exceeded $41/bbl (WTI fell from $36.76/bbl on Jan. 4 to a low of $26.21/bbl on Feb. 11; it closed yesterday at $38.32). Risky assets – notably credit, equity and equity vol – traded this move with an unusually high beta. Spreads on the BAML HY credit index widened by nearly 180bp, an unusually sharp sell-off that we judged to be considerably in excess of the changes in fundamentals implied by lower oil prices. Equity prices also fell harder than warranted by fundamentals, although from higher valuations, and hence to less obviously ‘undervalued’ price levels. 

Well of course they did: market participants understand and know that fair values without central bank support are materially lower and nobody wants to be the last one holding the bag to find out just how much lower. Yes: the more central bank intervention, the bigger the crash in the end, because with every trillion in central bank liquidity injected, the more disconnected from fair values risk assets become. And the market knows this!

So having been so grotesquely wrong, what does Goldman think will happen?

Where to from here? Were it not for this rocky path of risk sentiment since Jan. 1, we think it is likely that the ‘Yellen call’, having already been exercised in December, would now be posing a material headwind for risky assets (especially in equities, given their higher sensitivity to discount rates and current fullness of their valuations).

Oh, so if the market had not crashed when the Fed said it would hike rates, everything would be ok. Well… brilliant!

But what a difference a quarter makes. Downside risks to global growth visible in Q1 economic data (and still priced, despite the recent rally in risky assets, in global interest rates) have clearly risen to the forefront of Chair Yellen’s concerns. In a surprisingly dovish speech presented to the Economic Club of New York on Tuesday, Chair Yellen emphasized downside risks to the US economic outlook stemming from slower global growth. She cited this weakness, coupled with the FOMC’s “asymmetric” capacity to respond to economic shocks, as the key reason for the Committee’s lower path for the funds rate in March (“Yellen Comments Emphasize Downside Risks”, US Economics, March 29, 201).

 

Chair Yellen’s dovish tack was unmistakable. While she acknowledged that core inflation had risen “somewhat more” than she expected in December, this was heavily qualified with her view that it is “too early to tell if this recent faster pace will prove durable”, and that, given the risks to the outlook, it would be appropriate to “proceed cautiously in adjusting policy”.

 

This adjustment says to us that the risk to risky assets stemming from the ‘Yellen call’, in other words, is temporarily postponed. In particular, we do not expect the ‘Yellen call’ to be reactivated until the second half of the year, by which time our economics team expects that US growth will have pushed unemployment rates lower and core inflation rates higher. This will likely justify a resumption of rate  hikes in the second half of the year, and likely at a pace faster than is currently envisioned in the ‘dots’ offered by FOMC members. But, between now and June, risky asset markets have been given a reprieve.

Then again, it is possible that Goldman is just wrong. Again.

Perhaps sensing the muppets’ rage if they are all piledriven once more, Goldman provides a useful test to determine if at least this time it will right: that test will be the market’s reaction to tomorrow’s payrolls. Goldman says that as of this moment “good news should be good news for risky assets” – well, tomorrow’s NFP will demonstrate that: if payrolls come in above the 210K consensus, then stocks should surge… assuming Goldman is right.

Put differently, with monetary concerns temporarily sidelined, good news should be good news for risky assets. Tomorrow’s economic calendar will provide an interesting test. We expect US data to be moderately stronger than expected. Consensus forecasts expect nonfarm payrolls to rise 210k vs. 220k for GS (from 242k last month) and ISM manufacturing to rise to 50.5 vs 51.0 for GS (from 49.5 last month).

Alternatively, if payrolls miss big, then the market should tumble. We’ll know if Goldman, which two months ago said to short gold, will finally have at least one correct call.

via Zero Hedge http://ift.tt/1M3MHde Tyler Durden

From the Slope of Hope: When I saw this article yesterday, I could hardly believe what I was reading. I have never in my life read such naked hubris from a central banker. You just know this remark will be quoted in history books decades from now.

 

To that I only have one response:

via Zero Hedge http://ift.tt/1MWH8bj Tim Knight from Slope of Hope

Gold's 16.1% surge in Q1 2016 ias the best start to a year since 1974. Overall, this is the best quarter since Q3 1986 and is the best performing major commodity of the year.

Gold rallied this year as it cemented its status as a store of value amid financial market turbulence and concern about the global economy, which led to speculation that the Federal Reserve would pause on tightening monetary policy in the U.S. Having seen BlackRock's gold ETF halted due to inability to meet physical demand, it appears pet rocks and barbarous relics are 'worth' something after all.

 

As Bloomberg reports,

Gold rallied this year as it cemented its status as a store of value amid financial market turbulence and concern about the global economy, which led to speculation that the Federal Reserve would pause on tightening monetary policy in the U.S.

 

A gauge of the U.S. currency headed for the biggest quarterly loss since 2010 after Fed Chair Janet Yellen said Tuesday the central bank will act “cautiously” as it looks to withdraw stimulus. Investor holdings in exchange-traded products have expanded by about 300 metric tons this quarter, the most since March 2009.

 

“The dovish remarks by Yellen earlier this week which reinforced the Fed’s stance to proceed gradually and cautiously with rate hikes this year have weighed on the U.S. dollar index, which is a positive for gold,” Vyanne Lai, an economist at National Australia Bank Ltd., said by e-mail. “Investment demand for gold appears to be holding up.”

The precious metal was the best performing asset in Q1…

 

Having gone through a "golden cross"…

 

Gold now has to breakout from its longer-term channel…

Finally for the skeptics that cannot comprehend why anyone would buy gold (instead of AAPL or AMZN or TWTR), consider this (from Kyle Bass):

"buying gold is just buying a put against the idiocy of the political cycle. It's that simple."

And from what we have seen the world's political and economic leaders are about as "idiotic" as it gets.

via Zero Hedge http://ift.tt/1MWH7Eu Tyler Durden