The Stock Market and the FOMC

An Astonishing Statistic
As the final FOMC announcement of the year approaches, we want to briefly return to the topic of how the meeting tends to affect the stock market from a statistical perspective. As long time readers may recall, the typical performance of the stock market in the trading days immediately ahead of FOMC announcements was quite remarkable in recent decades. We are referring to the Seaonax event study of the average (or seasonal) performance across a very large number of events, namely the past 160 monetary policy announcements and the 10 trading days surrounding them. It looks as follows:

This post was published at Acting-Man on December 12, 2017.

Five European Nations Issue Warning To America On Tax Reform

First it was the Chinese, now it’s the Europeans, as the rest of the world is suddenly very unhappy with the prospect of US tax reform (or maybe it is an unexpectedly strong US economy). As we discussed yesterday, with the historic Trump tax reforms on the verge of passage and the Fed’s dot plot signalling another 7-8 rate hikes (soon to be revised much lower), China is nervous that the capital outflows, which it thought it had bottled up, might be about to return. China is preparing a contingency plan which includes ‘higher interest rates, tighter capital controls and more-frequent currency intervention to keep money at home and support the yuan’.
Amusingly, the Wall Street Journal quoted a Chinese official who described Washington’s tax plan as a ‘gray rhino’. The latter is a combination of an ‘elephant in the room’ and a ‘black swan’, i.e. a high probability threat which people should see coming, but don’t. The focal point of China’s fears is the Yuan, which the authorities have spent so much time and effort stabilising during the last two years. Speaking to the WSJ, the Chinese official sounded a warning: ‘We’ll likely have some tough battles in the first quarter.’
Switching to Europe and five European finance ministers have sent a letter criticising the US for undermining the ‘rules of the game’ and international trade. Notwithstanding Brexit, the signatories included the UK Chancellor, Philip Hammond, as well as his counterparts in Germany, France, Italy and Spain. Essentially, the European nations are warning the US that it risks starting a trade dispute.

This post was published at Zero Hedge on Dec 12, 2017.

Strong 30-Year Auction Sets The Stage For Yellen’s Final Rate Hike

After yesterday’s stellar 3Y morning auction, and disappointing 10Y afternoon auction, today’s reopening of the 29-Year, 11-month RZ3 Cusip was right down the middle.
The bond stopped at a high yield of 2.804%, stopping through the When Issued 2.808% by 0.4bps, the third consecutive stop through in a row. The high yield was above November’s 2.801% but below October’s 2.870%.

This post was published at Zero Hedge on Dec 12, 2017.

RAND PAUL: ‘I CANNOT VOTE TO ADD MORE TO THE ALREADY MASSIVE $20 TRILLION DEBT’

Senator Rand Paul said Tuesday that he cannot vote to add more to the national debt. The lawmaker wrote in a post on Twitter that ‘I promised Kentucky to vote against reckless, deficit spending and I will do just that.’
Rand Paul may be one of the few fiscally conservative Republicans in politics today. Paul’s tweet didn’t suggest he would oppose the GOP tax bill due to deficit concerns.
I cannot in good conscience vote to add more to the already massive $20 trillion debt. I promised Kentucky to vote against reckless, deficit spending and I will do just that. pic.twitter.com/BUYqm91mli
– Senator Rand Paul (@RandPaul) December 12, 2017
The lawmaker clarified in a follow-up tweet that tax cuts ‘are never the problem.’

This post was published at The Daily Sheeple on DECEMBER 12, 2017.

Jim Grant: “Markets Trust Too Much In The Presence Of Central Banks”

James Grant, Wall Street expert and editor of the renowned investment newsletter Grant’s Interest Rate Observer, warns of the unseen consequences of super low interest rate and questions the extraordinary actions of the Swiss National Bank.
Nearly ten years after the financial crisis, extraordinary monetary policy has become the norm.
The financial markets seem to like it: Stocks are close to record levels and the global economy is finally picking up. Nonetheless, James Grant sees no reason to sound the all-clear signal. The sharp thinking and highly regarded editor of the iconic Wall Street newsletter Grant’s Interest Rate Observer argues that historically low interest rates are distorting the perception of investors.
Principally, Mr. Draghi has robbed the marketplace of essential information, he criticizes the head of the European Central Bank for example. Highly proficient in financial history, Mr. Grant also questions the strategy of the Swiss National Bank. He fears that the voluntary depreciation of the Franc undermines the status of Switzerland as a global financial center.

This post was published at Zero Hedge on Dec 12, 2017.

“They Called It ‘The Rape Room'” – 10 Women Share Chilling Details Of Ken Friedman’s Sexual Abuse

In a bombshell report that has rattled the food world, several former employees of restaurant impresario Ken Friedman shared chilling details of the sexual harassment and abuse they suffered at Friedman’s hands with the New York Times, describing the omerta that existed among staffers at his restaurant, who inevitably accepted the harassment as part of a job that offered many perks, including great pay and bonuses in the form of concert tickets and other in-demand items.
In addition to Friedman, the story also includes many lewd anecdotes of the egregiously inappropriate sexual misconduct perpetrated by renowned chef Mario Batali, who yesterday admitted that salacious depictions of his past behavior were accurate.
Together, the two men are possibly the most high-profile restaurateurs to be tarnished by the national reckoning with sexual harassment in the workplace that has effectively led many famous and powerful men in a range of industries to be expelled from polite society.

This post was published at Zero Hedge on Dec 12, 2017.

Attention Derivatives Traders: Here Are “The Top 17 Themes To Remember From 2017”

Last week, as part of its must read 2018 Outlook piece, Bank of America’s derivatives team pointed out two particularly notable things: the first was BofA’s version of the (central-bank mediated) “feedback loop” diagram that keeps volatility record low and grinding even lower, as selling of vol has become a self-reinforcing dynamic, in which lower VIX begets more vol-selling by “yield-starved investors”, leading to even lower VIX as the shock that can reset the feedback loop is no longer possible, and thus the strike price on the Fed’s put can not be put to a market test, which also results in even greater market fragility and assured central bank interventions…

… and a chart suggesting that the market generally broke some time in 2014, when the “behavior of volatility entirely changed, with volatility shocks retracing at record speed. Investors no longer fear shocks, but love them, as it is an opportunity to predictably generate alpha.”

This post was published at Zero Hedge on Dec 12, 2017.

Stocks Pop After Cornyn Suggests Tax Bill Deal “Possible” Today

Despite numerous headlines indicating a tax bill deal early next week, Republican Senator John Cornyn just told media that there “may be a tentative tax bill deal today.” Algos liked the news and immediately bid stocks higher (despite no knowledge of what is in the ‘deal’).
‘It’s possible,’ John Cornyn, the No. 2 Senate Republican, tells reporters of tax bill, according to Bloomberg.
The Senate has ‘ping-ponged’ offers back and forth with House and is making good progress, he says.
And stocks popped on it…

This post was published at Zero Hedge on Dec 12, 2017.

For Clues On The Economy, Follow The Money

‘There is nothing new on Wall Street or in stock speculation. What has happened in
the past will happen again, and again, and again. This is because human nature does
not change, and it is human emotion, solidly built into human nature, that always
gets in the way of human intelligence. Of this I am sure.’ – Jesse Livermore
The profitability of lending/investing money is a function of both the rate of return on the money loaned/invested and the return (payback) of the money. The historically low interest rates are squeezing lenders by driving the rate of return on the loan toward zero (note: ‘lenders’ can be banks or non-bank lenders, like pension funds investing in bonds).
As the margin on lending declines, lenders, begin to take higher risks. Eventually, the degree of risk accepted by lenders is not offset by the expected return on the loan – i.e. the probability of partial to total loss of capital is not offset by a corresponding rate of interest that compensates for the risk of loss. As default rates increase, the loss of capital causes the rate of return from lending to go negative. Lenders then stop lending and the system seizes up. This is what occurred, basically, in 2008.
This graphic shows illustrates this idea of lenders pulling away from lending:

This post was published at Investment Research Dynamics on December 12, 2017.

John Burbank Shuts Flagship Hedge Fund, Plans Launch Of Cryptocurrency Unit

The writing for John Burbank’s Passport Capital was on the wall back in August, when as we reported, in his latest letter to investors Burbank reported that at what was once a multi-billion fund, total firm assets at Passport had shrunk to just $900 million as of June 30 as a result of net outflows totaling a whopping $565 million, or a nearly 40% loss of AUM due to redemptions. The collapse in assets took place just a few months after Passport announced it was liquidating its long/short strategy in April.
And unfortunately for Burbank, just four month later, a chapter of Passport Capital’s history comes to a close, because as Bloomberg reported, the fund would shutter its flagship hedge fund after returns slumped and following unprecedented redemptions. Passport – which shot to fame for its lucrative bet against subprime housing ahead of the global financial crisis – peaked at around $5 billion but lately managed a fraction of that after a double digit loss last year and further losses in 2017.
The fund’s “returns over the past two years are unacceptable and cause me to rethink how to manage money in this environment,” Burbank wrote in a Dec. 11 letter to investors, the Wall Street Journal first reported overnight. Passport will continue to operate its roughly $300 million special opportunities fund, which holds some of the firm’s more successful bets on companies such as Alibaba Group Holding Ltd.

This post was published at Zero Hedge on Dec 12, 2017.

Public Enemy No. 1: Walls Closing In On Peter Strzok As Questions Arise Over His Involvement In FISA Application

Over the past 10 days we’ve learned a lot about FBI agent Peter Strzok, a man who very likely would have lived the remainder of his life in relative obscurity as an FBI counterintelligence agent but for his sudden dismissal from Special Counsel Mueller’s “Russian Collusion” investigation.
As we noted on December 2nd (see: Mueller’s Top FBI Agent Probing Clinton Emails, Russian-Collusion “Removed” After Anti-Trump Texts Found), Strzok’s life became far more complicated when it was revealed that his dismissal from Mueller’s team was linked to the discovery of multiple “anti-Trump text messages” shared with a colleague…a colleague with whom he happened to be having an extramarital affair.
Of course, like most twisted Washington D. C. scandals, his overt political bias and anti-Trump text messages were only the tip of the iceberg as it was subsequently discovered that Strzok not only held a leading role in the Hillary email investigation but potentially single-handedly saved her from prosecution by making the now-infamous change in Comey’s final statement to describe her email abuses as “extremely careless” rather than the original language of “grossly negligent.”

This post was published at Zero Hedge on Dec 12, 2017.

Stocks, Bonds, & Bullion Still Uncertain As Rand Paul Clarifies Statement On “No” To Higher Deficits

Update: Rand Paul attempted to clarify his comments by tweeting:
Tax cuts – people keeping more of their money – are never the problem. The problem is spending. We should obey our rules, stop the deficit spending, and shrink government.
But that seemed to have sparked more selling as it suggests that any bill that increases the deficit is “no” for Paul and thus with reconciliation likely to leave doubts over the debt outcome, Paul may have become a ‘no’ on the tax bill.

This post was published at Zero Hedge on Dec 12, 2017.

Huge Hub Explosion Sparks Surge In UK NatGas Prices

It has been a tough week already for those that heat their homes in Britain (and those that trade Natural Gas). Following extreme weather warnings and the forties pipeline crack shutdown, an explosion at one of the Europe’s biggest gas hubs further tightened supplies sending gas futures prices up by the most in 8 years.
As Bloomberg reports, gas futures rose the most in more than eight years in Britain, which already is struggling to absorb the impact of a crack that shut down a North Sea pipeline network. After snow fell for two days in London, cooler-than-normal temperatures spread from the Alps to Scandinavia, raising demand for heating fuels.


This post was published at Zero Hedge on Dec 12, 2017.

Tax-Reform Opponents Blast Treasury Report As “Nothing More Than One Page Of Fake Math”

Yesterday, we highlighted a one-page report prepared by the Treasury Department which claimed that – in what was perhaps one of the most unrealistically optimistic budget projections to ever be produced by the US government agency – the Senate’s version of the Republican tax plan would, somehow, bolster GDP to a 2.9% real growth rate over 10 years.
The report – a transparent attempt to distract from the plan’s elimination of more than $1.5 trillion in total receipts, while emphasizing its potential pro-growth aspects – relies on a scenario where the economy achieves a baseline of 2.9% GDP growth over the coming decade, compared with the Treasury’s previous projection of 2.2%.
This additional 0.7 percentage point of annual growth, the report claims, will lead to an increase in tax revenue of $1.8 trillion. Treasury “expects approximately half of this 0.7% increase in growth to come from changes to corporate taxation, while the other half is expected to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget.”

This post was published at Zero Hedge on Dec 12, 2017.

The Fed’s Magic Trick That’s Picking Your Pocket

Every year, the Federal Reserve robs you of a little bit of your wealth.
And it does so by design.
Writing for the Sovereign Man, Jeff Thomas called it a ‘magic trick.’ But it’s not magic in a mystical way. It’s magic in the show business sense of the word. It’s an illusion, facilitated by distraction that fools the audience. As a result, we all miss what’s actually happening.
How does the Fed rob you?
Inflation.
As Thomas put it, inflation is the ideal magic trick. The average person doesn’t see it as a tax. The magicians – the central bankers – present it to us as a normal and necessary part of the economy.
Rube Goldberg, was an American cartoonist, sculptor, author, engineer, and inventor. He was best known for building complex machines that only accomplished a very simple task, or in some cases didn’t do anything at all. When you look at the Federal Reserve justification for inflation, it brings to mind one of these Rube Goldberg machines.

This post was published at Schiffgold on DECEMBER 12, 2017.

Fed Gets More Ammo for Rate Hikes

Producer Price Index rises most in six years.
The Producer Price Index for final demand – which tracks prices received for goods, services, and construction from the perspective of the seller, as opposed to a measure like CPI which tracks prices paid from the perspective of the buyer – jumped 0.44% seasonally adjusted in November from October, after having risen 0.44% in October and also 0.44% in September, the Bureau of Labor Statistics reported today. After those three sharp monthly increases in a row, the index has now risen 3.1% year-over-year (not seasonally adjusted), the fastest increase since January 2012.

In the chart above, note the impact of the collapse of energy prices in 2015 and early 2016, which was just a temporary blip on the longer-term inflation scale.

This post was published at Wolf Street on Dec 12, 2017.

Sweden: More Signs The World’s Biggest Housing Bubble Is Cracking

We like to highlight that although Sweden’s property bubble is not the longest running (that accolade goes to Australia at 55 years), it is probably the world’s biggest, even though it gets relatively little coverage in the mainstream financial media.

A month ago, we noted that SEB’s housing price indicator suffered its second biggest ever drop, falling by 39 points, only lagging a steeper fall from ten years earlier. This month the indicator, which shows the balance between households forecasting rising or falling prices, fell into negative territory, dropping to -5 from +11 in November. Households expecting prices to rise has almost halved from 66% In October, to 43% in November and 36% this month. The percentage of households expecting prices to fall has risen from 16% in October, to 32% in November and 41% this month.

This post was published at Zero Hedge on Dec 12, 2017.

Mark Carney Forced To Explain Surge In UK Inflation To Highest In Almost 6 Years

The market expected Mark Carney to avoid it but it was just not meant to be.
The BoE Governor will suffer the ignominy of a bizarre tradition of having to write a letter to the Chancellor of the Exchequer explaining why UK inflation is more than 1.0% above the target of 2.0%. The market had expected the UK CPI to rise by a modest 0.2% month-on-month, taking the year-on-year rate up to 3.0%. Instead the month-on-month rate hit 0.3% pushing the annual rate to 3.1%, its highest rate since March 2012.
As Bloomberg writes, “U. K. inflation unexpectedly accelerated to the fastest in more than 5 1/2 years in November, forcing Bank of England Governor Mark Carney to explain why price growth is so far above target. Consumer prices rose 3.1 percent from a year earlier, driven by the cost of air fares and computer games, the Office for National Statistics said on Tuesday. That’s up from 3 percent in October and the highest since March 2012.”

This post was published at Zero Hedge on Dec 12, 2017.

Vice Index – Where the US Economy Stands Today Into 2018

US Consumer spending is accelerating again. Just in time for the Holiday Season. Consumer confidence is driving a boost in holiday spending.
November Sees Several Positive Spending Tailwinds
For starters, holiday shopping started early: rather than wait for Black Friday in late November, many retailers started offering sales in early November.
Other positive trends were:
Mild weather: mild weather brings out more shoppers. New iPhone will add to sales Solid macroeconomic conditions: The economy moved at a steady pace. One major headwind was the reversal of the hurricane recovery spending. From auto sales to furniture. Building materials and appliances. Hurricane recovery spending pushed up retail.
You may also like US Retail Companies Have a Massive Bill to Pay Come 2018
Now it’s reversing and that will be a drag.

This post was published at FinancialSense on 12/12/2017.