Tag: news

Ahead of the FOMC Minutes, many seem to have taken a cue from DB’s bond trading recos, and taken a flier on today’s just concluded reopening of $21 billion in 10 Year paper (technically 9 year 10 month), which probably explains why the 10 year paper just priced at 2.597%, a rather gappy 1.1bps tail to the 2.586% When Issued. Still, pricing at just under 2.60%, this was the lowest 10 Year high yield in over a year, since the 2.21% in June 2013. Considering the recent surge in negative repo rates, expect any freely floating paper to be promptly mopped up despite the apparently weak auction.

The internals were nothing to write home about: the Bid to Cover was 2.57, the lowest since February, and below the 2.68 TTM average. Just like yesterday’s 3 Year, Directs were scarce and took down just 13.9%, the lowest since January, and well below the 21.6% takedown hit in May (highest of 2014). Indirects were flat at 39.6%, up from 36.1% a month earlier, if also below the 43.9 average. This means the Dealers were left holding 46.5% of the auction, far above the 37.4 average and the highest since May of 2013 when Dealers were left holding 49.2%.

Of course, with the auction coming just an hour ahead of FOMC Minutes which many suspect may come in more hawkish than any in recent years, it is no surprise that both the auction and the bond market reaction were less than enthused. Our advice: wait until the Minutes smoke clears before deciding what the real demand for high quality collateral truly is.

via Zero Hedge http://ift.tt/1sxNSU1 Tyler Durden

The Federal Reserve has effectively killed the capital markets.

This statement may seem rather extreme. But to understand our meaning, you first have to assess the purpose of the capital markets.

The purpose of the capital markets is to connect capital with business to create value.  Investors want returns, businesses want growth. The capital markets are meant to be the mechanism through which these two groups interact. And the markets, representing the collective wisdom of investors, dictate the risk of each transaction.

So what has the Fed done?

Long before the 2008 Crisis hit, the Fed was already actively screwing up the markets and capitalism by stepping in to hold the markets up anytime a crisis developed. Long-Term Capital Management, Chrysler, the Asian Crisis, etc.… the list goes on and on.

We are not suggesting that intervention on some level is not warranted. However, as anyone with even a remote understanding of human nature knows, if you continually enable certain behaviors, they will only increase in intensity and frequency.

Indeed, the unintended consequence of the Fed’s actions was that an entire generation of investors came to believe that anytime something terrible emerged in the Financial System, the Fed would step in. Faith in capitalism and the markets was replaced by faith in the Fed.

The 2008 crisis can be directly linked to this thinking. Investment banks made trillions of dollars in bad bets leading up to the Crash. They would not have done this if they had not been

A)   allowed to increase leverage levels (a failure on the part of regulators of which the Fed is one)

B)   under the impression that the Fed would help them should the proverbial stuff ever hit the fan.

Then 2008 happens and the Fed becomes involved in ways never before dreamt of. Since 2008, the Fed has actively pumped money into the financial system over 90% of the time.

Reconsider that last sentence. Going back to 2008, if you go on a month-by-month basis, the Fed has been putting money into the system over 90% of the time… for FIVE YEARS. This adds up to nearly $4 trillion.

From a secondary perspective, the Fed has become so involved in the markets that the single biggest focus for investor research today is what the Fed intends to do or what it means.

Earnings, balance sheets, value… all of that stuff is secondary to the utterances of a group of academics most of whom have never run a business. That’s how screwed up the system has become, courtesy of the Fed’s incessant intervening in the markets.

Does the Fed actually have a clue what it’s doing? Its forecasting and modeling track record doesn’t suggest it. You have to truly dig deep to find anything in the post-Volcker Fed era in which the Feds accurately predicted anything of significance.

After all, if the Fed is wrong about something, what is the consequence? No one at the Fed gets fired. No one gets demoted. The Fed simply intervenes again and the world moves on.

If you’ve spent any time in the corporate world, you’ll recognize that a business’s culture can ultimately be traced back to leadership and old habits.

The Fed is, for all intensive purposes, the leading monetary authority for the capital markets. And the Fed is anything but a capitalist institution. It doesn’t operate according to the basic tenants of capitalism.

Just look at Ben Bernanke. He was wrong about everything leading up to the 2008 collapse. On top of this, his policies in the post-2008 era:

1)   Punished millions of Americans who rely on savings and interest rates for income.

2)   Sparked widespread inflation particularly in food prices, which fomented civil unrest (the Arab Spring), and even starvation.

3)   Provided insider information behind closed doors to select groups of hedge funds and institutions well before the making public statements about policy.

Was he fired? Nope. He earned roughly $200K per year as Fed Chairman. Since retiring he now makes $250,000 per speaking engagement. His failure as Fed Chairman (easily the reason why he chose to stay only two terms) actually benefitted him tremendously.

The Fed and its policies have warped the culture of capitalism to the point that we now exist in a Centrally-Planned nightmare in which a handful of academics influence the economy and world reserve currency with every speech and verbal statement.

Worst of all, if they’re wrong, none of them have anything to lose. The losers are the 7+ billion people in the world who end up losing money, starving, or working twice as hard to make ends meet as a result of the Fed’s policies.

The Fed has killed the capital markets.

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

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

Best Regards

Phoenix Capital Research

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

In just over an hour, the Fed will release the minutes form from its latest, June, meeting. Summarizing the sentiment across several sellside desks there seems to be a fair amount of anxiousness ahead of today’s FOMC minutes as some expect the minutes to reveal a more hawkish side to the FOMC than has been presented from Yellen’s recent public commentary. As Deutsche notes, judging by the trading patterns on previous FOMC minutes days, the minutes have been a bridge between the Fed leadership and perhaps a less dovish overall Committee. On the surface, this may appear bearish. But since discounting the future is something the centrally-planned market forgot how to do long ago, below we present some technical patterns of how previous Minutes releases have impacted assorted asset classes. Because with a market controlled by what little is left of HFT algos, charts and patterns is, sadly, all that matters.

So, without further ado, here courtesy of Deutsche Bank’s Alan Ruskin, here are Trading patterns surrounding the FOMC Minutes

• The FOMC minutes have proved important in bridging the gap between what the dovish Fed leadership are thinking, and the evolving view among other FOMC members.
• 10y yields have gone up on ten consecutive FOMC minutes release days. This strong pattern for higher bond yields on FOMC minutes release days, occurs after FOMC’s Economic projections and press conferences, or absent these events
• The USD Trade-weighted index versus major currencies, has been up on 11 of the last 13 FOMC minutes release days, suggesting the bearish bias in US longer-dated yields has largely translated to a stronger USD.

A clear evolution to the hawkish side among FOMC ‘rank and file’ is more likely to be evident in the July FOMC meeting minutes, assuming another strong payrolls report next month. As important as these minutes are they are about to get a good deal more interesting in the wake of the next one or two meetings.

After the introduction of the post-FOMC press conference, the FOMC minutes were expected to become a dated relic, generating limited market reactions, but this has been far from the new reality. Instead, the FOMC minutes have proved important in bridging the gap between what the dovish Fed leadership are thinking, and the evolving view among other FOMC members. As one example, it was the FOMC minutes, particularly comments in the Summary of Economic Projections (SEP), that provided the earliest warnings that a large number of FOMC members were clamoring for an early taper, well ahead of the signal provided by Bernanke last June.

In the same vein, the evolution of moderate FOMC participants turning more hawkish is expected to show up in the minutes partly through the classic FOMC parlance, as more hawkish comments evolve from being attributed to a ‘few’ participants to ‘several’ to ‘most’. The anonymous nature of the comments in the minutes has very likely contributed to the minutes having a greater impact than if the comments had clear attributions.

Table 1 above shows some strong trends on the days when FOMC minutes are released, including:

1. 10y yields have gone up for 10 consecutive FOMC minutes release days. For longer than a year, the back-end seems to always be able to find something in the minutes that it does not like. (See Table 2)

2. Another pattern is a tendency for some partial bond market retracement to the bearish FOMC response in the 5 days after the initial reaction. 10yr yields have gone back down in the 5 trading days after the first day of release, after 7 of the last 8 FOMC minutes. Note that the median change in the 2yr has been zero on FOMC minutes release days and in the 5 days after, a sign that in the past FOMC did not significantly shift very short-term rate expectations. Of course the closer we get to a rate hike, the more sensitive the front-end will become, and the 2yr would be expected to be at least as sensitive as the 10yr into 2015.

3. There is a view that most the bond negative information has been concentrated in the Summary of Economic Projections (SEP). Table 4 focuses solely on the quarterly meetings when the SEPs are released with the minutes and shows that: (i) 10yr yields have gone up on the day of FOMC minutes with SEPs since August 2012, but the median for the yield increase, whether it is the minutes with or without SEPs, does not change. The reason is probably because the FOMC minutes without the SEP are also for FOMC meetings without a press conference, so there is still fresh information in the minutes.

4. In the past, the S&P/US risk appetite response has been quite mixed on the day. In much the same way as good data can be viewed as good for equities (strong economy/profits) or negative (higher rates), equities can take positive FOMC comments on the economy as mixed. What we have seen consistently is that the FOMC minutes has not upset the equities trend, with the S&P up 10 days after the FOMC minutes release in 8 of the last 8 meetings.

5. Lastly, the VIX has tended to ease modestly on the day of FOMC releases, presumably because removal of the FOMC minutes event risk is negative for vol

6. On the currency side, the Fed’s USD Trade-weighted index versus major currencies, has been up on 11 of the last 13 FOMC minutes release days, suggesting the bearish bias in US longer-dated yields has largely been translated in orthodox fashion to a stronger USD.

7. Interestingly, 10 days after the last 5 FOMC minutes release days the USD has been higher suggesting there is some sustenance to any hawkish FOMC minutes in the FX world, even if the bond market follow-through is limited.

8. While we would have expected the yen to most consistently reflect the strong USD TWI reaction on FOMC days given its greater sensitivity to backend US yields, we find that the reaction has tended to be more evenly spread. On the day of the last 8 FOMC minutes releases, the EUR has been weaker 6 times, the JPY 5 times and the AUD also 5 times.

As usual with any statistical; analysis of this sort, we have to ask the question: is this time different? While it would not be any surprise that the FOMC minutes are a significant hawkish event in the next few meetings, the last meeting took place before the latest strong labor market data. It will probably only take one or two additional months of strong employment reports for this to show up in more (hawkish) urgency. The question is can this wait until the September 17th press conference that is a much better forum for action than Jackson Hole, or could a change in tone start dribbling out in the minutes that follow the July 29-30th meeting or even before this at the July 15th congressional testimony? As interesting as these minutes are they are about to get a good deal more interesting following the next meeting.

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

Stocks at record highs… Unemployment rates at multi-year lows… magical job creation 'impressive'… President Obama has a lot to proclaim "mission accomplished" over – except its all fallacious (as Wal-Mart's CEO recently explained). Of course, this will all be solved if everyone was paid 'fairly' at least $15/hour despite the greatest irony of Obama's inequality fight is that "his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality. This simple truth cannot be repeated often enough."

Live Feed (due to appear at 1220ET)

The jobs recovery…

As a gentle reminder of the greatest irony of Obama's inequality fight…

via Zero Hedge http://ift.tt/1qk16SE Tyler Durden

Just out from Dow Jones:

• Former New Orleans Mayor Nagin Sentenced to 10 Years in Federal Prison for Corruption
• New Orleans Mayor During Hurricane Katrina Headed to Federal Prison for 10 Years After Conviction for Trading City Business for Cash, Trips, Other Favors

And from the WSJ:

Former New Orleans Mayor Ray Nagin was sentenced to 10 years in prison for bribery, money laundering and other corruption that spanned his two terms as mayor–including the chaotic years after Hurricane Katrina hit in 2005.

 

Mr. Nagin was convicted Feb. 12 of accepting hundreds of thousands of dollars from businessmen who wanted work from the city or Mr. Nagin’s support for various projects. The bribes came in the form of money, free vacations and truckloads of free granite for his family business. The 58-year-old Democrat had defiantly denied any wrongdoing after his 2013 indictment and during his February trial.

Finally from the NYT:

C. Ray Nagin, the former mayor of New Orleans who was convicted in February on corruption charges, was sentenced to 10 years in prison on Wednesday in federal court in New Orleans. Mr. Nagin was found guilty in February on 20 counts, most relating to kickbacks from contractors looking for city work. The sentence was imposed by Judge Ginger Berrigan of United States District Court for the Eastern District of Louisiana.

 

Mr. Nagin, a Democrat, was arrested in January 2013, nearly three years after he left office. He was charged with taking kickbacks in the form of cash, cross-country trips or help with the family-run granite countertop company; the bribes were handed out by men looking for city business ranging from software supplies to sidewalk repair. Many of the schemes, though not all, took place after Hurricane Katrina, when contractors crowded into the city for rebuilding work.

 

Many of those involved eventually pleaded guilty and testified at length against Mr. Nagin at his trial.

 

The corruption had been so thoroughly covered in the local news media that few people were surprised by the verdicts. Mr. Nagin had come into office in 2002 as a reformer from the business world and a foe of cronyism. But the city grew frustrated with his stewardship, particularly in his second term when the rebuilding after Hurricane Katrina stalled and Mr. Nagin seemed unengaged. By the time he left office in 2010, many in New Orleans had moved past frustration and were simply ready to see him go.

 

Throughout the trial the courtroom was half-empty, except for a riveting two days when Mr. Nagin took the stand and denied everything, at times with a glib dismissal. At one point he even refused to recognize his own signature on receipts that federal prosecutors displayed on a large screen.

 

In a court filing urging a stiff sentence, federal prosecutors described Mr. Nagin’s testimony as “a performance that can only be summed up by his astounding unwillingness to accept any responsibility,” and listed in detail 22 instances in which they said he had lied on the witness stand. As they had at trial, prosecutors also contrasted Mr. Nagin’s attention to detail in some of the kickback schemes with what many came to see as his lackadaisical stewardship in office.

 

“These repeated violations, at the expense of the citizens of New Orleans in a time when honest leadership was needed most, do not deserve leniency,” wrote Matthew M. Coman, an assistant United States attorney.

And so, following Rod Blagojevich, another prominent Democrat ends up in prison for corruption, a sentence one assumes will be shortened to a few years for good behavior. Which does beg the question: just when will Jon Corzine be released from prison?

via Zero Hedge http://ift.tt/1zpD0Mv Tyler Durden

Submitted by Omid Malekan,

Imagine for a moment that you are the owner of a popular restaurant located on a street with many restaurants. You do your best to provide the best experience to your customers while staying ahead of the competition by keeping your prices down. You try to avoid spending too much on labor, and do as much of the work yourself as you can, often putting in long hours. Although there is a good wholesale market nearby, you drive an extra hour to another market just to get your ingredients a little cheaper.

One day a wealthy patron who is a big fan of your cooking announces a new idea. Because he wants as many people as possible to enjoy your food, he is going to pick up the tab for most of your customers. You can just go on doing what you always do, but when the check arrives for many tables, this wealthy patron will pay the tab. The next day, your waitress complains that there are too many tables and you should hire more help. What would you do?

Normally, you would try to find a way to avoid hiring another person as it would eat into what little profits you make. But now you realize there is another solution. You can just raise prices. Since most of your patrons are not paying for their meals, your place will still stay popular and you won’t have to worry about losing business to your competition. So why not hire another waitress? While you are at it, why not hire a manger so you don’t have to be there all time, and stop driving to the further market?. Whatever increase in costs you suffer you can make up for by raising prices more and more.

Now imagine all your competitors also have wealthy benefactors picking up the check for many of their customers. You can all raise prices constantly without losing any sleep – or business.

This scenario is effectively what America’s higher education financing system has turned into. There are many reasons why college tuition is rising faster than virtually anything else, from more applicants than ever to state budget cuts for public universities, but all of those factors are allowed to persist because often times the person getting the degree is not the person paying the tab – not for today anyway.

Presently over 60% of all undergraduate students receive some sort of Federal aid for their education, and the amount of money the government has shelled out for student loans is now over a trillion dollars, double what it was just 7 years ago. Like the hypothetical wealthy patron in the example above, the government doesn’t ask for much when it gives out the money – neither from the student nor the University.  If our wealthy patron had said “I will pick up the tab so long as you keep your low prices” then we would have a reason to keep prices down. But by fully removing the value of what customers get from the equation, all incentives point towards inflation.

One of the toughest questions to answer in the rising cost of education debate is exactly why Colleges and Universities are raising prices so fast. Yes, demand has gone up, but that doesn’t lead to price spikes unless supply is kept low. After all, as our society has grown richer, demand for all sorts of things from cars to eating out have also gone up, but their prices haven’t spiked because supply has grown as well. So why hasn’t supply of higher education kept up – as evidenced by collapsing acceptance rates?

Its not an issue of their product, because knowledge is infinitely scalable. Think of your typical undergrad 101 Rhetoric or Chemistry class. Its not hard to keep hiring more instructors and offering more sections. It would be one thing if it was hard to find more instructors, but thanks to our current PhD. glut, the opposite is true, and the market is oversupplied with people who would make qualified teachers. Putting all of this together, we observe that at a time when demand for higher education is higher than ever, and the supply of would-be educators is higher than ever,  Colleges are choosing to keep the number of spots available to students relatively low, and raising tuition prices instead. But why?

One good way of answering questions of rising prices is to ask “how can they get away with it?” Going back to our hypothetical restaurant, we can get away with keeping supply fixed and constantly raising prices because our customers are not paying for their meal, a third party is. If not for our benefactor, even in the midst of success we might choose not to increase prices. We might instead decide to open another location to offer more of the same food at the same price, or try to prepare the food faster so we serve more steaks per day. But as long as the person getting the product doesn’t care about the price because someone else is paying, why bother? That’s just more work and more stress for us. We are better off keeping supply fixed, raising prices and then spending that money on things that make our life easier, like more waitresses. While we are at it, why not also use some of the money from our inflated prices to pay ourselves a higher salary. After all, its not like our customers will feel the difference.

This is exactly what’s happening at America’s major colleges and universities. As shown by the chart below, which was put together by the American Association of University Professors, since the 1970s positions for non-faculty professionals have seen the highest growth for jobs at American Universities.

Meanwhile, University Presidents and other executives have been giving themselves big raises while leaving the professors and their assistants in the dust.

The peculiar places tuition money has been flowing to is further discussed in this fascinating paper by the Delta Cost Project.

We could debate all we want about how much a University should spend on professors, secretaries, sports facilities or free unlimited Nutella, but that would be a waste of our time, just as it would be for the patrons of a restaurant to debate how many waitresses there should be.

Imagine if suddenly our wealthy restaurant benefactor declares he’s going to stop paying for peoples meals. Given our now sky-high prices, our tables would be empty and given all these new expenses, like more waitresses and shopping at the closer market, we’d go out of business. To survive, we’d have no choice but to get leaner and enter the murky waters of business uncertainty, where every decision is complicated and viewed through the lens of “what can I get away with?”

As long as the majority of the cost of college education is not born directly by students but rather by Government loans and grants, our institutions of higher learning will not be forced to adapt and find innovative ways of delivering quality education to more students at a decent price. They will go on keeping supply low, tuition higher and expenses growing. If we care about our children and want them to stop taking on more and more debt to get a degree for a tougher and tougher job market we need to break the current cycle.

The kindest thing our government might do for our kids is to stop throwing money at inefficient Universities in their name, or at least demanding more from those institution in return for that money.  Imagine for a second if college loans were given to the school and not the student, and tied to metrics of success, like whether the student graduates and how good a job they land afterwords. Much like our restaurant, in such a world the school’s focus would then shift to keeping prices down while offering good value.

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