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Economic Death Spiral? Potential :roost:ing ahead


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I am in the chickens are not coming home to roost. Maybe a nap, but I'm not even sure of that.

The roosting is already occuring just about everywhere except the US equity market. In the US broad market indexes it has only been a paper cut so far.

Maybe US stocks are a special little snowflake that will mostly be spared, but I don't know if betting that way is wise.

Well, I believe, for a number of reasons that the US economy is in fact a special little snowflake.

I'm also not saying there wont be additional corrections or that a recession isn't possible, I'm saying we won't repeat the Great Recession of 2007-2009 when chickens came home to roost.

Well, I wouldn't say it is going out on a limb to say this may not be as bad as things got in 2008/09.

I don't really expect it to be either. But that was also the worst period for the financial markets and world economy in 80 years. Plenty of roosting can happen without it being quite that bad.

well I guess it would be useful to define Economic Death Spiral.

A self reinforcing feedback loop that results in widespread financial and economic carnage.

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I am in the chickens are not coming home to roost. Maybe a nap, but I'm not even sure of that.

The roosting is already occuring just about everywhere except the US equity market. In the US broad market indexes it has only been a paper cut so far.

Maybe US stocks are a special little snowflake that will mostly be spared, but I don't know if betting that way is wise.

Well, I believe, for a number of reasons that the US economy is in fact a special little snowflake.

I'm also not saying there wont be additional corrections or that a recession isn't possible, I'm saying we won't repeat the Great Recession of 2007-2009 when chickens came home to roost.

Well, I wouldn't say it is going out on a limb to say this may not be as bad as things got in 2008/09.

I don't really expect it to be either. But that was also the worst period for the financial markets and world economy in 80 years. Plenty of roosting can happen without it being quite that bad.

well I guess it would be useful to define Economic Death Spiral.

Dodd Frank and the G20 enacted the new "Bail-In" Insolvency Process for banks. There will be no more tax payer bailouts. What it means for depositors is their bank accounts are treated like uncollaterized loans, and the troubling part is they will not be the first creditors in line to get paid if the bank goes belly up (see figure 1 http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2015/q302.pdf). Today, the top 4 US banks, Wells Fargo, JPMogan Chase, Bank of America and Citi Bank, each have $1 Trillion or more in deposits.
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High end real estate in Miami has gone through the roof. Hedge fund mogul Ken Griffin bought the 2 units in the top 2 floors in a new condo in Miami Beach for $60,000,000 last October and now wants to flip them for $73,000,000. Last June, Phil Collins got a "good deal" ($33,000,000) on a waterfront home in Miami Beach. There are many other examples. High-end real estate has exceeded its high from 2005-2007.

Multi-family units in prime areas are being bought and up-scaled resulting in a 25-30% increase in rents. One such investor said he wanted people who drive Porsches to rent his renovated units, then changed it to BMW drivers, after criticism from current tenants who work as bartenders, waiters and drag queens in South Beach. Many of them are also doubling up to pay rent, which is already very high for the average wage earner in Miami, so this may not be sustainable. Miami has a lot of flight capital from Latin America and people from expensive cities such as NYC who see "bargains" in Miami. My old house near Miami Beach was bought by a rabbi from NYC - all cash, probably after selling his NYC home for much more. Are other cities seeing such increases in real estate?

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High end real estate in Miami has gone through the roof. Hedge fund mogul Ken Griffin bought the 2 units in the top 2 floors in a new condo in Miami Beach for $60,000,000 last October and now wants to flip them for $73,000,000. Last June, Phil Collins got a "good deal" ($33,000,000) on a waterfront home in Miami Beach. There are many other examples. High-end real estate has exceeded its high from 2005-2007.

Multi-family units in prime areas are being bought and up-scaled resulting in a 25-30% increase in rents. One such investor said he wanted people who drive Porsches to rent his renovated units, then changed it to BMW drivers, after criticism from current tenants who work as bartenders, waiters and drag queens in South Beach. Many of them are also doubling up to pay rent, which is already very high for the average wage earner in Miami, so this may not be sustainable. Miami has a lot of flight capital from Latin America and people from expensive cities such as NYC who see "bargains" in Miami. My old house near Miami Beach was bought by a rabbi from NYC - all cash, probably after selling his NYC home for much more. Are other cities seeing such increases in real estate?

The capital flight theme in Miami is key. And it isn't just Latin America, Russian oligarchs and others have gotten in on it as well.

My home town of Bellevue, WA and the adjacent suburban villages of Medina and Clyde Hill have seen the same kind of thing, though in this case it is generally all cash buyers from mainland China. The same thing has been happening in Vancouver, BC and other West Coast cities. Wealthy Chinese have been trying to get money out of China and its currencies and get it invested in some kind of hard asset in a safe place, so they are just buying residential real estate in desirable areas of the West Coast. Some move in, many don't (at least not full time).

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Are other cities seeing such increases in real estate?

Brooklyn (Brooklyn Heights, Williamsburg, Cobble Hill, Boerum Hill, Carroll Gardens, Park Slope, etc.)... Some of these neighborhoods are seeing increases that have them priced well ahead of Manhattan.

I live a few blocks from 36 Strong Place, just sold for about $3k a foot, new Brooklyn record. TBH, it doesn't feel sustainable. I was shocked when I read the sale price.

The amount of buildings they're putting up near my house is pure insanity.

This building really stands out to me.

First off, the location is less than stellar as it sits directly across the street from Brooklyn's main detention center. It also sits on a main avenue, not ideal. So location not being top notch for the neighborhood I guess is sort of factored in. It is priced around 12-$1500 a foot, some higher units more. Here is the kicker, a 2 BR is going for $1.6M, okay high but not crazy for NYC, factor in the taxes and maintenance and you have a 2BR with a mortgage of $8,500 a month with a 4% APR.

If you make $500k a year, almost 40% of your take home goes directly to your mortgage/taxes, yet these buildings are all selling like the world is ending.

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I am in the chickens are not coming home to roost. Maybe a nap, but I'm not even sure of that.

The roosting is already occuring just about everywhere except the US equity market. In the US broad market indexes it has only been a paper cut so far.

Maybe US stocks are a special little snowflake that will mostly be spared, but I don't know if betting that way is wise.

Well, I believe, for a number of reasons that the US economy is in fact a special little snowflake.

I'm also not saying there wont be additional corrections or that a recession isn't possible, I'm saying we won't repeat the Great Recession of 2007-2009 when chickens came home to roost.

Well, I wouldn't say it is going out on a limb to say this may not be as bad as things got in 2008/09.

I don't really expect it to be either. But that was also the worst period for the financial markets and world economy in 80 years. Plenty of roosting can happen without it being quite that bad.

well I guess it would be useful to define Economic Death Spiral.

A self reinforcing feedback loop that results in widespread financial and economic carnage.

do all recessions meet that chicken roosting bar?

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I am in the chickens are not coming home to roost. Maybe a nap, but I'm not even sure of that.

The roosting is already occuring just about everywhere except the US equity market. In the US broad market indexes it has only been a paper cut so far.

Maybe US stocks are a special little snowflake that will mostly be spared, but I don't know if betting that way is wise.

Well, I believe, for a number of reasons that the US economy is in fact a special little snowflake.

I'm also not saying there wont be additional corrections or that a recession isn't possible, I'm saying we won't repeat the Great Recession of 2007-2009 when chickens came home to roost.

Well, I wouldn't say it is going out on a limb to say this may not be as bad as things got in 2008/09.

I don't really expect it to be either. But that was also the worst period for the financial markets and world economy in 80 years. Plenty of roosting can happen without it being quite that bad.

well I guess it would be useful to define Economic Death Spiral.

A self reinforcing feedback loop that results in widespread financial and economic carnage.

do all recessions meet that chicken roosting bar?

Nope.

This isn't about a US recession, necessarily. I mean, if things go badly, a US recession will almost surely happen. But it will be a symptom (and a footnote, really) rather than the cause of anything.

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Nope.

This isn't about a US recession, necessarily. I mean, if things go badly, a US recession will almost surely happen. But it will be a symptom (and a footnote, really) rather than the cause of anything.

Thanks for helping me understand where you think we are(might be?) heading.

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Nope.

This isn't about a US recession, necessarily. I mean, if things go badly, a US recession will almost surely happen. But it will be a symptom (and a footnote, really) rather than the cause of anything.

Thanks for helping me understand where you think we are(might be?) heading.

No prob.

Back in 2007 I found that basically blogging about it on the FFA helped keep my thinking on some things clear, because I had to be able to discuss it in plain English with non-financial people. I also got a lot out of the contributions of some others to that thread.

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With today's jobs numbers, US economy is nearing full employment.

:lmao:

Government reported unemployment rate is 4.9%. Full employment is generally considered an unemployment rate between 4-5%.

Yep. And that stack is a joke that only journalists, politicians and the severely deluded would believe.

I'm not exactly a fan of the current administration and don't believe the numbers they publish. Thus my original post. You provided some references to some key troubling statistics. Now that Denver has won the Super Bowl, it appears the DJIA may not have a good year.

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The U-6 rate (The BLS defines U-6 as "total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force," plus all marginally attached workers) is ~10%.

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Nope.

This isn't about a US recession, necessarily. I mean, if things go badly, a US recession will almost surely happen. But it will be a symptom (and a footnote, really) rather than the cause of anything.

Thanks for helping me understand where you think we are(might be?) heading.

No prob.

Back in 2007 I found that basically blogging about it on the FFA helped keep my thinking on some things clear, because I had to be able to discuss it in plain English with non-financial people. I also got a lot out of the contributions of some others to that thread.

Did you say in here where you have your money right now? I mean you didn't sell off all/most of your holdings and pay taxes on them did you?

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Nope.

This isn't about a US recession, necessarily. I mean, if things go badly, a US recession will almost surely happen. But it will be a symptom (and a footnote, really) rather than the cause of anything.

Thanks for helping me understand where you think we are(might be?) heading.

No prob.

Back in 2007 I found that basically blogging about it on the FFA helped keep my thinking on some things clear, because I had to be able to discuss it in plain English with non-financial people. I also got a lot out of the contributions of some others to that thread.

Did you say in here where you have your money right now? I mean you didn't sell off all/most of your holdings and pay taxes on them did you?

I don't really actively manage my 401k because I am young enough to not worry about allocations too much and because it is inconveniently located in several different accounts (and I am a bit lazy about tracking down account passwords, etc.). With that said, I am actually considering making a change.

My liquid assets tend to be in cash more than in the market, since my livelihood is already pretty levered to market fluctuations.

Our recommendations to our clients have been to be less invested, and tilted bearishly or defensively where they have exposure to stocks.

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

I mentioned the top 4 US banks have over $4 Trillions of deposits. That is peanuts compares to the $250 Trillions in derivatives that they hold.

http://www.ibanknet.com/scripts/callreports/filist.aspx?type=derivatives

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

Did the FDIC disappear at some point for you guys?

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

Did the FDIC disappear at some point for you guys?

Oh sure, I already make sure all my bank accounts are under the $250K limit. The FDIC has a 2% reserve to deposit ratio. I very much expect them to cover every penny in my accounts if my banks fail.

https://www.fdic.gov/deposit/insurance/fund.html

My guess is the FDIC has collected between $25-50 billion of reserves from the banks, but it can borrow up to $500 billion from the Treasury if needed. Most of the time, the FDIC just moves the accounts from the failed bank to another bank. This is fine as long as people do not panic and withdraw their money all at once.

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

I mentioned the top 4 US banks have over $4 Trillions of deposits. That is peanuts compares to the $250 Trillions in derivatives that they hold.

http://www.ibanknet.com/scripts/callreports/filist.aspx?type=derivatives

I get that interest rate derivatives are a hedging tool by companies but the amount of interest rate derivatives are many times larger than the entire world economy.

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I am in the chickens are not coming home to roost. Maybe a nap, but I'm not even sure of that.

The roosting is already occuring just about everywhere except the US equity market. In the US broad market indexes it has only been a paper cut so far.

Maybe US stocks are a special little snowflake that will mostly be spared, but I don't know if betting that way is wise.

Well, I believe, for a number of reasons that the US economy is in fact a special little snowflake.

I'm also not saying there wont be additional corrections or that a recession isn't possible, I'm saying we won't repeat the Great Recession of 2007-2009 when chickens came home to roost.

Well, I wouldn't say it is going out on a limb to say this may not be as bad as things got in 2008/09.

I don't really expect it to be either. But that was also the worst period for the financial markets and world economy in 80 years. Plenty of roosting can happen without it being quite that bad.

well I guess it would be useful to define Economic Death Spiral.

A self reinforcing feedback loop that results in widespread financial and economic carnage.

That sounds bad.

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

Did the FDIC disappear at some point for you guys?

Oh sure, I already make sure all my bank accounts are under the $250K limit. The FDIC has a 2% reserve to deposit ratio. I very much expect them to cover every penny in my accounts if my banks fail.

https://www.fdic.gov/deposit/insurance/fund.html

My guess is the FDIC has collected between $25-50 billion of reserves from the banks, but it can borrow up to $500 billion from the Treasury if needed. Most of the time, the FDIC just moves the accounts from the failed bank to another bank. This is fine as long as people do not panic and withdraw their money all at once.

It is a taxpayer guarantee at the end. Reserves on hand vs the Treasury printing money is just really an accounting construct within the government. The FDIC spent more than their reserves in 2008/2009.

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Deutsche Bank having to reassure employees that everything is ok is really not good. Speculation they may not be able to make their tier 1 capital bond payment.

Could be the canary in the coal mine for big banks with European exposure.

Posted a $7b loss in q4. This is not good.

Right now banks with exposure to Europe and energy are like drywall where there has been water damage. Looks fine but poke it with your finger and it is really really soft.

http://www.bloomberg.com/news/articles/2016-02-09/deutsche-bank-is-absolutely-rock-solid-cryan-tells-employees

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

Did the FDIC disappear at some point for you guys?

Oh sure, I already make sure all my bank accounts are under the $250K limit. The FDIC has a 2% reserve to deposit ratio. I very much expect them to cover every penny in my accounts if my banks fail.https://www.fdic.gov/deposit/insurance/fund.html

My guess is the FDIC has collected between $25-50 billion of reserves from the banks, but it can borrow up to $500 billion from the Treasury if needed. Most of the time, the FDIC just moves the accounts from the failed bank to another bank. This is fine as long as people do not panic and withdraw their money all at once.

It is a taxpayer guarantee at the end. Reserves on hand vs the Treasury printing money is just really an accounting construct within the government. The FDIC spent more than their reserves in 2008/2009.

Thanks, I knew there has to be a catch... Us insuring our own money. Yay?!
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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

Did the FDIC disappear at some point for you guys?

Oh sure, I already make sure all my bank accounts are under the $250K limit. The FDIC has a 2% reserve to deposit ratio. I very much expect them to cover every penny in my accounts if my banks fail.https://www.fdic.gov/deposit/insurance/fund.html

My guess is the FDIC has collected between $25-50 billion of reserves from the banks, but it can borrow up to $500 billion from the Treasury if needed. Most of the time, the FDIC just moves the accounts from the failed bank to another bank. This is fine as long as people do not panic and withdraw their money all at once.

It is a taxpayer guarantee at the end. Reserves on hand vs the Treasury printing money is just really an accounting construct within the government. The FDIC spent more than their reserves in 2008/2009.

Thanks, I knew there has to be a catch... Us insuring our own money. Yay?!

GB having an independent currency. It conveys a lot of benefits

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Deutsche Bank having to reassure employees that everything is ok is really not good. Speculation they may not be able to make their tier 1 capital bond payment.

Could be the canary in the coal mine for big banks with European exposure.

Posted a $7b loss in q4. This is not good.

Right now banks with exposure to Europe and energy are like drywall where there has been water damage. Looks fine but poke it with your finger and it is really really soft.

http://www.bloomberg.com/news/articles/2016-02-09/deutsche-bank-is-absolutely-rock-solid-cryan-tells-employees

Q4 was a bad quarter for many of the big banks.
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Deutsche Bank having to reassure employees that everything is ok is really not good. Speculation they may not be able to make their tier 1 capital bond payment.

Could be the canary in the coal mine for big banks with European exposure.

Posted a $7b loss in q4. This is not good.

Right now banks with exposure to Europe and energy are like drywall where there has been water damage. Looks fine but poke it with your finger and it is really really soft.

http://www.bloomberg.com/news/articles/2016-02-09/deutsche-bank-is-absolutely-rock-solid-cryan-tells-employees

Q4 was a bad quarter for many of the big banks.
exactly.

Big banks who have European exposure and energy exposure where regional banks have neither.

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So go bonds or money market fund?

probably not enough of a return in either as a better alternative than cash.

also I would really look into how much you our bank has in exposure to energy loans.

And don't be near Citibank.

Did the FDIC disappear at some point for you guys?

Oh sure, I already make sure all my bank accounts are under the $250K limit. The FDIC has a 2% reserve to deposit ratio. I very much expect them to cover every penny in my accounts if my banks fail.https://www.fdic.gov/deposit/insurance/fund.html

My guess is the FDIC has collected between $25-50 billion of reserves from the banks, but it can borrow up to $500 billion from the Treasury if needed. Most of the time, the FDIC just moves the accounts from the failed bank to another bank. This is fine as long as people do not panic and withdraw their money all at once.

It is a taxpayer guarantee at the end. Reserves on hand vs the Treasury printing money is just really an accounting construct within the government. The FDIC spent more than their reserves in 2008/2009.

Thanks, I knew there has to be a catch... Us insuring our own money. Yay?!

That's how all insurance works

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I was a finance and Econ major but I'm rusty. What does he mean by 'run on central bank liquidity' and that we should increase liquidity? Is all this simply because the Fed raised rates .25?

So people want more dollars, some countries don't actually have physical dollars, so we need to accelerate the dollar printing?

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No surprises from Yellen:
  • As expected no real surprises in prepared remarks from Fed Chair Yellen (maybe not quite as dovish as some had hoped). Reiterated that monetary policy not on a preset course and remains data dependent. Added that if economy were to disappoint, lower path of federal funds rate would be appropriate. Noted financial conditions in US have become less supportive of growth and highlighted risks to economic outlook from foreign developments. Specifically referenced uncertainty about China’s exchange rate and growth prospects and extent to which it has increased volatility in global markets. Also pointed to supply-side pressures on commodities and spillover effects for already sluggish emerging market economies.
Bank executives try to downplay concerns:
  • Some discussion in press about how bank executives have tried to play down concerns about potential signals from recent weakness in share prices. At the Credit Suisse Financial Services Forum, GS-US CEO noted he is not worried about trading with other big banks. WFC-US CFO said ban not see anything close to dire economic scenario prices seem to be discounting. Added that even when assuming a bad earnings stretch, share price weakness could be an overreaction. BBT-US CEO King noted no basis for “sky is falling” thesis and pointed out from a fundamental perspective, US economy is solid. USB-US CFO pointed out that it has not seen any significant change in appetite for loan volumes since start of the year. CS-US CEO told FT that selloff in bank shares “no justified”
Deutsche Bank buyback speculation helps drive European bank rally:
  • European banks rallying today. Some focus on oversold conditions. DB-US getting a lot of credit despite initial lack of traction behind management efforts on Tuesday to try and restore confidence. Bigger tailwind seems to be coming from FT report that hit on Tuesday afternoon trading in the US. Article cited sources who said bank considering buying back €50B of senior bonds. However, noted it is unlikely to repurchase contingent convertible bonds, or CoCos, which have been under significant scrutiny as of last. Pointed out that bank has significant scope for a bond buyback with ~€220B of liquidity reserves, while repurchases of bonds below par value could bolster firm’s capital ratio. Separately, Bloomberg no decision has been made and buyback may yet be deemed unattractive.
Fed unlikely to adopt negative rate policy:
  • Central banks’ embrace of negative rate policies has generated a lot of recent backlash given concerns about spillover effects and broader skepticism about their efficacy. While there has been some speculation Fed may ultimately have to follow ECB and BoJ, Reuters highlighted some doubts. Noted concerns it would produce more of what has been see in recent years – inflated asset prices, depressed bond yields, little incentive for banks to lend and a continuation of sluggish economic growth. Also flagged the importance of the $2.5T money market fund industry, which would be thrown into havoc if rates went below zero. In addition, pointed out that negative rates have not provided an economic tailwind in Europe, while such a move by Fed could unleash a currency war.
Supply not the only problem for oil:
  • Adverse supply dynamics the widely cited driver of the oil rout. However, demand concerns also starting to get more attention. WSJ discussed this dynamic. Pointed out that emerging markets, many of which are key commodity producers, have accounted for majority of global oil consumption since 2014. Noted this marks a reversal after decades when US and other industrialized nations in the OECD dominated demand. Added that with producing nations now responsible for a bigger part of overall consumption, lower prices could trigger a vicious cycle in which demand declines along with prices as the value of their exports falls and depressed economic growth. Also discussed how demand in some countries has taken a hit as weak commodity prices have forced subsidy reductions.
China closed, but yuan concerns not going away:
  • While China closed for Lunar New Year holidays all week, yuan still in the crosshairs. FT discussed the pervasive hedge fund bearishness surrounding the Chinese currency at the recent Goldman Sachs Macro conference. Also noted that many PE executives are for the first time hedging yuan revenues of their Chinese corporate holdings, despite the high cost. Separately, IIF estimated that Chinese companies and residents sent $113B out of the country in January, more than any month except two last year. Pointed out that this marked the 22nd month in a row of net outflows. Also estimated that Beijing spent nearly $90B intervening to support the yuan last month, more than a quarter of the $342B it spent in all of 2015 in response to outflows.

US Market is rallying today and Europe will close strong, but Japan got crushed again (-2.31%).

Today is the first day I am officially scared.

We have grown our client base massively in the past 2+ years and our track record has been very strong, but if things get really nasty we'll lose a ton of clients (and maybe our business) because they get fired or go out of business.

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This is from ZeroHedge, so consider the source and all that, but it mostly contains real quotes from credible sources.

Oil:

On Wednesday, BP CEO Robert Dudley - who earlier this month reported the worst annual loss in company history - is out warning that storage tanks will be completely full by the end of H1. "We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.”

Maybe. Or maybe excess supply will simply be dumped on the market once all the "swimming pools" are full.

If that happens, don't be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market.

Earlier this week, the IEA called any respite for crude prices "a false dawn." Here's why (via The Guardian):

  • a deal between Opec and other oil producing countries to cut production is unlikely
  • with Iran increasing production in preparation for the lifting of sanctions, Opec’s production could rise as strongly this year as in 2015
  • there is little prospect falling prices encouraging a pick-up in the rate of demand for oil
  • the US dollar is likely to remain strong, limiting the scope for falls in the cost of imported oil
  • the predicted large fall in US shale production is taking a long time to materialise

So buckle up, because the collapse in the world's most financialized of commodities has further to go, and once the entire US shale space goes bankrupt, it will emerge debtless only to start drilling and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless deflationary merry-go-round. We close with a quote from the IEA:

"We suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s oil market report. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short-term risk to the downside has increased.”

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I was a finance and Econ major but I'm rusty. What does he mean by 'run on central bank liquidity' and that we should increase liquidity? Is all this simply because the Fed raised rates .25?

So people want more dollars, some countries don't actually have physical dollars, so we need to accelerate the dollar printing?

It isn't about physical dollars, it is about Eurodollars: http://ftalphaville.ft.com/2016/01/25/2151037/petrodollars-are-eurodollars-and-eurodollar-base-money-is-shrinking/

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So buckle up, because the collapse in the world's most financialized of commodities has further to go, and once the entire US shale space goes bankrupt, it will emerge debtless only to start drilling and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless deflationary merry-go-round.

I would imagine deflation on oil would impact everything. All the crap made in china, which all of our retail depends on. That is going to trickle down to store closings & job loss.

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USD trading weaker vs. Yen, Swiss Franc and Euro, but US equity market still very ugly.

A true systemic crisis (the death spiral thesis) is still uncertain, but it sure seems like we are heading into the next bear market for US stocks.

US equities lower: Dow (2.16%), S&P (1.79%), Nasdaq (1.36%), Russell (1.64%)
  • US equities weaker in Thursday trading, near worst levels. Treasuries rallying across the curve. Dollar weaker, but off worst levels on yen cross (some loose intervention speculation). Gold up 4.5%. Oil lower, with Brent (2.7%) and WTI (4.0%).
  • No break from the pervasive risk-off trade. Lot of intertwined concerns in focus. Monetary policy uncertainty and fatigue among widely cited overhangs. Growth slowdown, weak earnings, spillover from commodity weakness and China deflation fears also big headwinds.
  • More central bank backlash as Riksbank pushed rates further into negative territory. Disappointing results from GLE-FR exacerbating recent European bank concerns. CSCO-US results/guidance better than feared, but warned about recent pause in enterprise spending.
Fed uncertainty:
  • As usual, no shortage of analysis surrounding yesterday’s semiannual monetary policy report to Congress. Some thoughts testimony provided fodder for both hawkish and dovish camps. In terms of the former, Yellen reiterated expectations for gradual tightening cycle, talked up labor market momentum and downplayed recession risks. For the doves, she acknowledged tighter financial conditions and the potential spillover effects for the US economy. In an attempt to backfit the testimony to the pervasive negative sentiment in the markets, the balanced approach may have actually been the problem. This plays into both concerns about the gap between the Fed and market over the policy normalization path, as well as the broader volatility surrounding the policy support and fatigue themes.
Riksbank pushes rates further into negative territory:
  • Riksbank cut rates by 15 bp to -0.50% and said will continue to purchase government bonds for the first six months of the year in order to safeguard its inflation target. Added it will also reinvest maturities and coupons from government bond portfolio in line with practice at other central banks. Reiterated that it is highly prepared to provide even more expansionary policy if needed. Noted that there is potential to cut rates further and reiterated need to intervene in FX market. Also lowered its repo rate path, with average rate now at -0.52% in Q2 2016 vs prior -0.41%, Q1 2017 at -0.53 vs -0.33% and Q1 2018 at 0.00% vs -0.26%. Swedish krona weakened and bond yields fell after the decision.
Bearish Bass call on China gets more attention:
  • Hayman Capital’s Kyle Bass recently said in letter to clients we are witnessing the resetting of largest macro imbalance world has ever seen. Argued that China has reached its near-term limit, while its banking system will experience a loss cycle that will have meaningful spillover effects for the rest of the world. Pointed out that due to such concerns, his fund has sold most of its risk assets. Also told Bloomberg he has ~85% of portfolio in China-related trades. Report said that banking system losses, which could exceed 400% of the US banking losses incurred during subprime crisis, are starting to accelerate. Added that PBoC would need to $10T worth of yuan to recapitalize its banking system. Expects by time cycle has peaked, yuan will have depreciated in excess of 30% vs US dollar.
Amazon announces $5B buyback, other companies getting more aggressive:
  • AMZN-US announced a new $5B share buyback program after close on Wednesday to replace a $2B program approved back in 2010. Fits with recent trend of companies getting more aggressive with both their buyback announcements and repurchase activity. Goldman Sachs had a note out earlier this week highlighting strongest start ever for repurchase authorizations with YTD buyback announcements at a record $90B. Firm added its buyback desk also seeing uptick in activity as windows reopen and companies engage in discretionary purchases. Bloomberg article pointed out buybacks not helping stocks this year, while strategists have also flagged recent underperformance of buyback strategies. Seems to fit with ramp in shareholder preference for capex and balance sheet protection.
Difficult for subprime auto to be next “Big Short”:
  • With the widespread selloff in risk assets this year, lots of discussion about where next catastrophe may be. Subprime auto has been a source of concern for a while now. Bloomberg noted that according to S&P, losses on securitized loans rose to 7.5% in November, highest since 2010. Also highlighted concerns about longer loan repayment terms, ballooning loan balances and greater willingness to finance used cars. However, while hedge funds increasingly interested in betting against the space, banks largely unwilling to make market given reputational and regulatory risk. In addition, no derivatives exist to bet against subprime because few managers interested in using such securities to wager underlying securities will perform as originally expected.
Abenomics under more scrutiny:
  • Amid the recent ramp in policy scrutiny, Abenomics has not gone unscathed. WSJ discussed this dynamic, but article really did not break much new ground. Noted failure of BoJ to generate a sustained upswing, even after taking radical step of embracing negative rates, suggests Abenomics has reached an impasse. Argued that big lesson in all of this for other major economies that have followed similar strategies is that changing psychology is much more difficult than just changing interest rates. While paper was not as critical as others about lack of any meaningful traction behind key third arrow of Abenomics, structural reform, it did point out that some of the measures were never designed to provide short-term support.
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It certainly does not hurt to have a leprechaun living in the basement. On August 6, 2015, Goldman Sachs, which has issued very bearish forecasts on long-term gold prices, took delivery of a 3.2-ton purchase of physical gold. On the same day, HSBC which also claims to be bearish, took delivery of a 3.9-ton purchase of physical gold.

Meanwhile, Oh Canada!

http://globalnews.ca/news/2508940/canada-sells-nearly-half-of-all-its-gold-reserves/?sf20706041=1

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  • 1 month later...

As always,  stay the course, people.

Markets will go up and down. If you're decades away from retirement, you really shouldn't be concerned if the market dumps a large chunk. Just keep plowing money into it (even more when it's down) and stay the course.

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  • 2 weeks later...

The Fed is in a "tightening cycle" :lmao: They're raising rates 25 basis points per year.

Not to hate America, but I hope there is a stock market crash on Yellen's watch, she deserves it. The market controls the Fed and the Fed has one mandate, making sure the S&P & DJIA don't fall. 

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49 minutes ago, fantasycurse42 said:

The Fed is in a "tightening cycle" :lmao: They're raising rates 25 basis points per year.

Not to hate America, but I hope there is a stock market crash on Yellen's watch, she deserves it. The market controls the Fed and the Fed has one mandate, making sure the S&P & DJIA don't fall. 

:lmao:

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