Category Archives: Monetary Policy
Dollar up, oil up, treasury yields up, stocks slightly off, PM’s flat – sure, why try and make it consistent. It’s a non-linear world we live in folks. Get used to it.
Your market correlation models are getting blown to pieces this morning, as the movements reset. Really, yields can’t correlate with markets forever; sooner or later the transient correlations lead risk exposure by the halter to unsustainable levels. Blow ups follow.
I see no reason why markets can’t selloff even though yields are pushing up. With treasuries so inflated, they will be prone to massive directional moves that might belie the rules of thumb of “teeter-totter” purchasing patterns. I mistrust those who say otherwise.
Interference in markets from the huge players has primed the classical views of markets for disconnection. Especially at the turning ranges, things are prone to get very weird.
Personally, I’m not ready to completely abandon the market rally just yet. We haven’t confirmed the move in any direction. But I have raised a cash stake, which I will guard jealously. And when the rally is finished, I all but guarantee anyone trying to use a purely correlary approach to defining the turn will be left for dead.
I opened a position in EUO for $18.25. This is a starter position, which I will add to every few weeks/months.
Remember, every time thus far that European authorities have put claim on “the end of the crisis being just in sight”, it has come back to haunt them.
They are playing a confidence game. The realities of the situation are different. Just below the surface, trouble is brewing.
You think this makes sense do you? US markets are ramping to levels not seen since the last, great bull market. The debt of countries like Italy (where ex-president and child rapist Berlusconi is threatening to splinter the votes to ungovernable ends) and Spain (where a quarter of the youth are disaffected, unable to start their lives and about one tenth of the land mass is preparing for secession) are trading for yields that are really, reasonable. Oil is spiking towards the $100 mark – meanwhile Europe remains marred in recession and Germany just joined them. Oil stockpiles are increasing.
Precious metals are collapsing in price and the Fed is printing $80 billion a month.
In short, my dear reader, you are out of your minds.
But that is all right. You see, I foresaw your absurdity – your complete mental breakdown – months ago. I prepared for this. I realized, “this makes no sense”, and because it made no sense, I knew you would act this way. How else would the crazy behave in a crazy world?
So I did the opposite of what makes sense. And I did it first, before you.
Now, let’s chat about the euro. The $EURUSD is completely deranged. If it were a person, it would be a homeless man who found a tattered tuxedo, and is presently running around, hiding in steam vents in the middle of the street in Detroit. But, by some divine joke, this homeless man has been mistaken for a titan of industry, and is currently invited to all the high social class dinners.
“Aaaaahahghgh”, he gurgles in reply to requests for his opinion on gun control.
“EEEEAAAA”, he says when asked for advice on pre-tax 401K versus Roth.
And then he proceeds to eat his napkin with an olive fork.
Now let’s chat about oil. Oil is going way lower. The US economic numbers and forecasts are, again, way off, again. This is really not very funny anymore. How ten thousand economists can blow this year after year, never bothering to even pretend to learn from their mistakes the year prior…they should all be fired and stripped of their degrees. Pathetic…
Plus, Europe remains in a spiral. Germany, the heart of the EU, has finally entered recession this year. Question: knowing German culture, do you think that will make them more or less willing to work with their fellow member states?
Wait, don’t answer that. I’ll answer it for you. “It will make them less likely to work with their peers.”
Very good me, have a reward.
Why thank you.
German’s are going to increasingly view the rest of Europe as a useless bundle. If German wellbeing takes a hit, they’re culturally predisposed to blaming Italy or Spain or France for dragging them down with their wild schemes and self-centered demands. If Germany was reluctant to sit by and watch Draghi open the ECB doors to distressed banks before, wait until their worst prejudices are confirmed. Free money was supposed to help Europe, remember? Germany goes into recession and they’ll make sure the Bundesbank does everything within its power to hamper the rest of the EU at every turn.
Now let’s chat about housing. Housing prices are going higher, but that’s not going to help you sell that third, four bedroom house you’ve been desperately clinging to, praying for a buyer. Your retirement plans are shot, pal. Prices are going higher, but sales volumes are staying depressed. The housing recovery, like most luxuries, is reserved for the rich.
Now let’s chat about bonds. Safe haven bonds have got one major push left in them. I don’t expect the US 10 year to clear 2%. Meanwhile, bonds of Italy, Spain, Greece, etc are WAY too high. They are going to be taken out back to the woodshed before summer.
After that, I’m going to reinvestigate building a short position in American treasuries. We’re one major push in commodity prices from the Fed being strung up without any options for recourse. Because they’ve decided to load up on assets yielding 2%, they really don’t have much in the way of choices for controlling the money supply, unless they want to jack up the discount rate and watch the banks crash screaming back into bankruptcy. The economy is going to become increasingly wild, like a Stallion that got away from the Spanish.
For the moment, bet on the Fed and bet on higher prices. But always remember, in the back of your mind, that trouble cannot be vanished with the wave of a wand. Problems will always materialize in some way, and if not addressed, the consequences of those deviations can build to tremendous proportions.
We’re really off to the races now. There is absolutely nothing that will bring down this market.
You have to understand the driving power behind this rally. It isn’t hope or nonsense, or in some way, even free money (although the Fed’s $80 billion a month sure doesn’t hurt).
No this rally is actually also being data driven.
It only takes about 4 seconds reading the talking heads on blogs and Twitter to realize that these numbskulls actually think the pickup in activity this Christmas is “gaining steam”. How this is possible is very difficult to fathom, but I think it can be well surmised by saying that these guys just aren’t playing with as much RAM as the rest of us.
Having trouble accessing those memories all the way from last year, guys?
The uptick in data is spurred primarily by the holidays, and is standard noise/seasonal fluctuation. Throw in some promising pricing in housing and a nice recovery in the US auto market in the Midwest, and these guys are now betting big that this upswing will be “the big one.”
It’s unlikely. While there are some pretty decent improvements materializing, the main weight around the global economy’s neck has not been removed – or even addressed, for that matter. We seem to be ignoring the debt and the looming, crushing money flows under the current rules and contracts, which are still very much the largest threat.
Europe is still an enormous problem. Asia is still and enormous problem. Emerging markets are still an enormous problem. And America is about to be an enormous problem.
These aren’t just going to go away. They need to be fixed. The Central Banks seems to be the only ones trying to address them; although their prescription is as much of an ailment…
By Spring, the current rounds of hope making the airwaves will go the way of Green Shoots, Decoupling, Housing Recoveries 1 & 2, and EFSF/ESM Europe Is Fixed.
I have not banged on this pot in a while, yet its presence should have been taken as a foregone conclusion.
Still, for a moment, I’ll hang it on a shelf.
Earlier this year, I didn’t believe we’d go over the fiscal cliff, mostly because I thought “that would be stupid”.
And stupid it will be.
At the end of the day, I blame the Freshmen Tea Party Republicans for this, because they willingly surrendered a voting majority, tied their hands behind their backs, and jumped into the water – Javert style. What the hell is this, the finale of Les Miserables (that looks incredible, by the way)?
Now the ramifications of this will be dollar weakness. Also, we’re already getting calls for more Fed easing? I think that’s premature, just like the calls for QE3 were initially way premature.
But no matter what, I’m seeing a few months of intense dollar pressure, which will likely translate into EURUSD support near this 1.3 mark.
But make no mistake – over the next several years, the EURUSD will enter sudden periods of cascading, which together will lead the dollar and euro to parity. The resumption of this inevitability will probably recommence this spring.
This is a day for the history books. A major news network – not Fox News – has finally managed to piece together that Federal Reserve policies displace economic hardship from the wealthy to the poor.
And CNN too, of all the criters.
It only took them 3 years, 9 months, and about 28 days – but they got there.
NEW YORK (CNNMoney) — The Federal Reserve’s most recent stimulus is expected to boost home prices and the stock market, but what if you’re too poor to invest in either?
The Fed unveiled its third round of stimulus last week. The massive bond-buying initiative, called quantitative easing, aims to prop up the economy through a few key channels — namely the housing market and thestock market.
Both of those channels skew in favor of Americans who are already in solid financial standing, and it seems the wealthier you are, the more you have to gain.
“Quantitative easing is a blunt tool and cannot really target specific areas of the economy, aside from mortgage rates. Even then, it tends to help the wealthy spectrum of the income distribution,” said Sung Won Sohn, economics professor at Cal State Channel Islands.