Dream On Herr Hatzius: You Dwell In A Giant Collapsing Bubble

How ever-loving stupid do they think we really are?

Goldman’s plenipotentiary at the New York Fed, William Dudley or B-Dud, has been running around pointedly emitting a new word signal called “patient” rather than “considerable time” to describe the Fed’s interest raising plan. Then right on cue, his alter ego back at Goldman central, Herr Hatzius, yesterday dug out and circulated to the clientele an identical 10-year ago audible from when the Fed last changed its password in 2004:

In the 2003-2004 playbook, “considerable period” gave way to “patient” as a signal that the hikes were drawing closer, and it is interesting that the words “patient” or “patience” have shown up quite frequently in recent Fed speeches.

Finally, like clockwork at 6:30 PM last night, the Fed’s official out-sourced spokesman, Jon Hilsenramp, delivered the definitive message to the casino players through Rupert Murdoch’s drop box.

Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week: dropping an assurance that short-term interest rates will stay near zero for a “considerable time”…….

Mr.. Dudley—a part of Ms. Yellen’s inner circle of advisers—has suggested recently that the Fed could replace the assurance of low rates for a considerable time by stating more vaguely that it expects to be patient before moving……. The Fed took this approach the last time it was trying to engineer a liftoff from low rates, in 2004….(when it)dropped an assurance rates would stay low for a “considerable period” and said it would be patient before raising rates.

Yes, as its struggles to screw up the courage to allow money market rates off the zero bound some time vaguely next year, the Fed will give fair warning by featuring the letter “P” in its December post-meeting statement. It’s double secret password, in fact, will now be “patient”, meaning that the rounding error cost of carry for speculators may rise microscopically— to say 25bps six months down the road. No sooner. Continue reading

And On The Seventh Day God Shorted His People

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

DPC North approach, Pedro Miguel Lock, Panama Canal 1915

And on the Seventh Day, God sold his shares? What do you think, is He short the market? Short oil? Oil does look up a tad, but then the dollar lost about a percent vs the euro, so that definitely feels like a headfake from where I’m sitting. The dollar lost more vs the euro than oil gained against the dollar. Gold and silver have somewhat more solid looking gains, but that’s against the same feverish buck, so what does it really mean? We’ll have to wait and see.

Now, be honest, who’s getting nervous yet? WTI oil yesterday fell 4.5% and tumbled through $63. $63, brother, you remember when it was $80 and you were thinking wow, that’s a long way down? That’s when you took that suit to the cleaners, and that feels like just yesterday, don’t it, and here we are, it’s down another 20%+. Anyone worried about their Christmas bonuses yet? New Year’s?

The central-bank-propped-up stock exchanges didn’t even like what they saw anymore either yesterday, let alone today. Greece down -13%, Shanghai -5.4%, Argentina -7.1%, Europe on average -2.5%. And that’s on a weak dollar day… Think we’ll have a lot of those days? Think God is short the greenback? Continue reading

No ‘Surprise’, PBOC Has Been Saying This All Along

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

For months now, really going back to the summer, the obvious decline in Chinese economic function has produced a resounding expectation that the PBOC would come to the rescue. It was taken axiomatically such was this Pavlovian reflex. Everything the PBOC did over the summer was characterized in that context: the introduction of the PSL and its implementation largely with China Development Bank were seen as monetary “stimulus.”

Of course, the bigger picture remains one where the PBOC is totally omniscient if not with full regard to the economy than certainly lording over all of the Chinese financial system. Conventional “wisdom” is monolithic especially among economists that a central bank will always and everywhere seek to maximize growth no matter what. The PSL was taken under that perception.

Economists and many “markets” are this morning in total disarray after the PBOC “shocked” by tightening (repo collateral in the extreme). It was only a few weeks agowhen the central bank was supposed to have confirmed all orthodox expectations of “looser” policy.

None of what has transpired this year should have been a surprise to anyone. The PBOC has been saying publicly for more than a year about what it was going to doing. The bank’s own governor warned as much back in February that reform was to come first before even economic conditions; and Zhou Xiaochuan wasn’t all that sure what that might mean.

ABOOK Dec 2014 TIC China PBOC Yuan Continue reading

The Next Phase of QE Will Shock You

Submitted by Bill Bonner – Chairman, Bonner & Partners

It’s cold here in Manhattan. We’ve never lived in New York. And every previous visit had left us unenthusiastic.

The city is not pretty… at least not compared to Paris. And Lower Manhattan always seemed gritty, dirty and unkempt. Like a homely man or a homeless woman.

But a lot has changed. New York is now full of foreigners. Enter our hotel lobby and you hear a din of strange and familiar accents: English, French, Russian… and many we’ve never heard before. (We make a small contribution to the cacophony by taking Portuguese lessons in the tearoom.)

Soho is full of young people – often dressed in country duds. Almost all the men below 40 have facial hair. One man at a fancy restaurant we were eating in wore a plaid shirt and had a full beard. He looked like a lumberjack.

“That’s the style,” said our 26-year-old son, Jules. Continue reading

Another View of QE’s Demolition

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

One last of piece of evidence tying QE to liquidity disruptions in 2014, and the big buying “crash” of October 15, is the “flow” of “dollars” presented by TIC. My contention from last week was that the decay in systemic liquidity (repo) began not in May 2013 with the introduction of the “taper” concept, but a few months earlier when dealers may have recognized functional irregularities as eventually reversing QE-driven imbalances (especially what was until then a one-way, crowded trade in swaps). Swap spreads started to decompress months before anything else began to move negatively, including open-mouthed assertions from the FOMC that they were considering anything like ending the QE flood.

ABOOK Dec 2014 Swap Spreads Up to 2013

If we take the broader view of “dollar” liquidity to the foreign conception of the system, that February/March inflection in swaps trading is every bit as visible and obvious in TIC. Continue reading

European Banks At Risk Of Bail Ins In 2015 – Moody’s and S&P Warn

Submitted by Mark O’Byrne  –  Founding Partner of  GoldCore

Europe’s banks are vulnerable in 2015 due to weak macroeconomic conditions, unfinished regulatory hurdles and the risk of bail-ins according to credit rating agencies.

The economic outlook for European banks in 2015 will be hampered by weak profits, risks of bail-ins and litigation charges, Moody’s Investors Service announced Monday.

“Weak macroeconomic conditions will continue to weigh on Europe’s banking sector in 2015 and banks’ low overall profitability implies that Europe’s banking sector remains structurally vulnerable,” Moody’s Europe, Middle East and Africa financial institutions group managing director said in a statement.

“The European banking industry remains structurally vulnerable,” said Carola Schuler, managing director at Moody’s, in a presentation on the sector’s outlook. Continue reading

This Time Is The Same: Like The Housing Bubble, The Fed Is Ignoring The Shale Bubble In Plain Sight

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch.

Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.”

To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.

Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s. Continue reading