December 30, 2016

Dollar Flash Crashes On Last Trading Day Of 2016

It is oddly appropriate that in a year everyone finally admitted markets are manipulated by central banks and broken by HFT algos, that on the last trading day of 2016, the dollar flash crashed with for no reason whatsoever.

Shortly after 6:30pm Eastern, the dollar plunged by 150 pips against the Euro, once 1.05 stops were taken out, with algos sending the EURUSD as high as 1.07 in a matter of seconds...

.. while concurrently the Swiss Franc soared as much as 1.6% against the greenback, as the USDCHF tumbled from just over 1.025 to just above 1.0050 as the pair briefly flirted with parity.

What caused it? As there was no fundamental news, the answer is the same catalyst as the pound sterling flash crash: once EURUSD stops were taken out, algos all piled up on the same side of the trade and with virtually non existent market depth, it sent the world's most actively traded currency pair soaring. Indeed, as FX traders in Asia, cited by Bloomberg said, the EUR/USD jump was partly driven by a surge of algo-buy orders after pair rose above 1.0500 in early session.

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December 29, 2016

Contagion Concerns Slam Japanese Financials As Toshiba Crashes 50% In 3 Days

After two days of total carnage in Toshiba stocks, bonds, and credit risk, the bloodbath continues with the once-massive Japanese company is collapsing once again in early trading - now down 50% in 3 days. Following the semiconductor and nuclear business catastrophes, the company had nothing to add regarding today's crash but more worryingly the massive loss of market cap is spreading contagiously to Japanese financials with Sumi down 4%, and MUFG down almost 3%.

As we noted yesterday, Tsunukawa said that “I apologize to shareholders, business partners and all stakeholders for the trouble we have caused,” after Toshiba said cost overruns at U.S. nuclear reactors it is building were likely to force a write-down of as much as several billion dollars, clouding its turnaround plan after the 2015 accounting scandal. Specifically, the company said it may have to book several billion dollars in charges related to a U.S. nuclear power plant construction company acquisition, rekindling "concerns about its accounting acumen."

The problem is that the nuclear business, together with the semiconductors, has been positioned as one of key pillars underpinning Toshiba's growth which has been trying to shift away from its consumer electronics core. Alas, the latest gaffe now means that much of Toshiba's growth is gone, and the stock price reflect that overnight, when Toshiba's stock plunged by 20%, the most permitted, before it was halted for trading.

The derisking is weighing heavily on USDJPY..

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December 28, 2016

Global Stocks Rise, Dow Flirts With 20,000 As London Reopens; Oil In Longest Winning Streak In 7 Years

Global markets continued their levitation with the UK returning from vacation, pushing the MSCI Asia Pacific Index higher for the first time in seven days, while oil headed for the longest winning streak in almost seven years ahead of the promised OPEC production cut which is set to begin in just days. The USDJPY rose for a second day, pushing US equity futures higher and the DJIA is once again teasing with the 20,000 mark, although a race of sorts has emerged between the Dow and bitcoin, as to who can cross key psychological levels first: the Dow and 20,000 or Bitcoin and 1,000.

Despite the full reopening of global markets, trading remains thin across the globe during the last week of the year, with volume on the Topix about 45% below the 30-day average on Wednesday.  European equities fluctuated and Hong Kong stocks rose the most in a month after being closed Monday and Tuesday. More than twice as many shares on Japan’s Topix index rose than declined, even though the Nikkei225 ultimately closed fractionally lower at 19,402. Australian stocks rode a rise in commodities to gain 1 percent. Indonesian shares added 1.9 percent while Shanghai shed 0.3 percent.

Crude climbed for an eighth session before OPEC and other producing nations start reducing output. The yen fell the most among major currencies against the dollar.

"Until data starts to turn negative or the headlines suggest that (U.S. president-elect) Trump's stimulus programme could fall short of expectations, the dips in the dollar will be shallow with the currency aiming for new highs," wrote Kathy Lien, managing director of FX strategy for BK Asset Management. "But at the first sign of bad news there could be massive correction in what is quickly becoming a crowded long dollar trade," Lien added.

The dollar index was steady at 102.930, while the Bloomberg Dollar Spot Index was also little changed, trading near the highest level in more than a decade. The euro inched up 0.2 percent to $1.0474 and sterling dropped again, sliding to a 2 month low of 1.2224.

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December 27, 2016

As Mystery Of China's Multi-Billionaire Default Deepens, A New "Bond Scare" Emerges

Last week, in a largely "under the radar" event, one of China's wealthiest billionaires (if only on paper), Wu Ruilin, chairman of the Guangdong based telecom company Cosun Group, and whose personal fortune of 98.2 billion yuan ($14 billion) makes him wealthier than Baidu founder Robin Li who is ranked 8th on the Hurun Rich List 2016, shocked Chinese bond market watchers when he defaulted on a paltry 100 million yuan ($14 million) in bonds sold to retail investors through an Alibaba-backed online wealth management platform, citing "tight cash flow."
Needless to say, many were stunned that a billionaire for whom $14 million is pocket change, blamed "tight cash flow" for defaulting on mom and pop investors. In any case, as South China Morning Post reported, despite the founder's personal fortune, according to a notice put up by the Guangdong Equity Exchange on Tuesday, two subsidiaries of Cosun Group are each defaulting on seven batches of privately raised bonds they issued in 2014. According to the notice, “the issuer had sent over a notice on December 15, claiming not to be able to make the payments on the bonds on time, due to short-term capital crunch."
To be sure, yet another default in a Chinese landscape suddenly littered with bankrupting debt dominoes would have been the end of it, however this morning Reuters added to the mystery when it said that the fate of the defaulted $45 million Chinese corporate bond sold through an Alibaba-backed online wealth management platform was thrown into doubt on Monday, after a bank said letters of guarantee for the bonds were counterfeit.
Quoted by Reuters, China Guangfa Bank Co Ltd (CGB) said guarantee documents, official seals and personal seals presented by the insurer of the bonds "are all fake" and that it has reported the matter to the police.

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December 26, 2016

Bank Of Canada Lays Out In YouTube Clip How The Economy Could Tank

As MacLean's Jason Kirby points out, the Bank has taken to YouTube to warn Canadians about the dangers of too much debt and unrealistic house price expectations. He wonders, however, whether anyone will listen as one after another real estate bubble form in Canada, a nation whose household debt ratio has never been higher.

As BMO pointed out, when the latest household debt ratio data was released, the upward trend in household debt goes back for the 26 years for which it has records and is showing no signs of slowing down.

"While it looks as though the Vancouver housing market is cooling after the foreign buyers' tax was implemented, the Toronto market remains very strong, and others are showing signs of improving as well," said BMO senior economist Benjamin Reitzes.

Meanwhile, none other than Canada's central bank has ramped up its warnings about heavily indebted households and the unreasonable expectations driving the housing market, yet all indications are that Canadians have stuffed cotton in their ears.

In Toronto, for instance, house prices are up nearly 15 per cent since the summer when Bank of Canada governor Stephen Poloz warned that price gains in the city were “difficult to match up with any definition of fundamentals that you could point to.” In the more than 15 years that the Teranet-National Bank House Price Index has tracked property prices in the city, there’s never been a six-month period when prices rose that fast. Meanwhile, the latest figures released by Statistics Canada showed the household debt-to-income ratio broke yet another record in the third quarter.

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December 23, 2016

Federal Reserve Initiates End Game As Trump Heads To White House

For years, alternative economic analysts have been warning that the “miraculous” rise in U.S. stock markets has been the symptom of wider central bank intervention and that this will result in dire future consequences. We have heard endless lies and rationalizations as to why this could not be so, and why the U.S. “recovery” is real.  At the beginning of 2016, the former head of the Dallas branch of the Federal Reserve crushed all the skeptics and vindicated our position in an interview with CNBC where he stated:

“What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow. I’m not surprised that almost every index you can look at … was down significantly.” [Referring to the results in the stock market after the Fed raised rates in December.]

Fisher continued his warning (though his predictions in my view are wildly conservative or deliberately muted):

“…I was warning my colleagues, “Don’t go wobbly if we have a 10-20 percent correction at some point. … Everybody you talk to … has been warning that these markets are heavily priced.”

Here is the issue — stocks are a mostly meaningless factor when considering the economic health of a nation. Equities are a casino based on nothing but the luck of the draw when it comes to news headlines, central banker statements and algorithmic computers. Today, as Fischer openly admitted, stocks are a purely manipulated indicator representing nothing but the amount of stimulus central banks are willing to pour into them through various channels.

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December 22, 2016

Italy Announces Sketchy Plan to Bail Out Monte dei Paschi

To no one’s surprise, the private sector effort to rescue Italy’s third largest bank, Monte dei Paschi, officially failed yesterday. Recognizing an end game was nigh, the Italian government announced that it would raise its debt levels by up to €20 billion to shore up failing banks.1

It does not take much in the way of mathematical skills to see that €20 billion will not go very far in plugging a hole of €360 billion in bad loans, particularly given that the total equity of Italian banks is only €225 billion. In fairness, not all of the loans are total losers; many would be viable if restructured. However, €200 billion are non-performing. So it’s probably generous (to the Italian government) to assume that write downs would be at least half the total amount, or €180 billion.

So why were some sites, like Business Insider, saying that an Italian rescue might cost “as much as” €52 billion? That’s a lot lower than the hole in the banks’ balance sheets. That is because the bail in rules require 80% of the losses come out of the hides of equity holders and subordinated creditors; the state provides the rest. However, the bail-in rules also stipulate that a bank not be failing.2 Keep in mind that Monte dei Paschi (and no doubt some other Italian banks) are so far gone that they should be resolved, as in nationalized, as the 5 Star Movement is demanding. But the Italian government can’t begin to pretend it can borrow enough under Eurozone rules to provide that level of funding, and the Germans have been incredibly hard-nosed about cutting Italy any slack with respect to its banking mess.

As the very thin press details of the Monte dei Paschi bailout make clear, it’s going to be done at least to some degree in conformity with the new bank bailout rules, which are actually “bail-in” rules. Equity holders, and then creditors are to be wiped out.

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December 21, 2016

Uber's Massive Cash Burn Problem: 2016 Loss Set To Hit A Record $3 Billion

With a valuation of $68 billion as of December 2016 - more than GM and Twitter combined - Uber is, according to the WSJ's Unicorn Database, the most valuable private company in the world.

And yet, despite its eye-popping valuation courtesy of a growth curve which until recently was truly unprecedented (at least until the company's sudden withdrawals from China), Uber has a big problem: an unprecedented cash burn, which if not getting worse with every passing quarter, is certainly not getting better.

Back in August, Bloomberg reported that Uber's first half loss was roughly $1.4 billion ($580MM in Q1 and well over $800MM in Q2) on just over $2 billion in revenue ($960MM in Q1 and $1.1BN in Q2): it was burning approximately $1.6 dollars in costs and overhead (mostly in the form of an ongoing attempt to price the competition out of business by subsidizing drivers using VC cash).

This follows a loss of $2 billion in 2015, and had, as of Q2, lost at least $4 billion in the history of the company. Of this, however, Uber reportedly lost at least $2 billion in China as a result of a failed attempt to penetrate the local market which it abandoned later in the summer, which while sapping growth potential in China, also supposedly stem losses associated with the Chinese market.

Furthermore, the H1 loss came at a time when its fortunes in the US were said to be changing, and the company vowed it was turning a profit in Q1, only to revert back to its money losing ways in Q2 and onward.

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December 20, 2016

Tis The Season For Credit Card Debt: This Christmas Americans Will Spend An Average Of 422 Dollars Per Child

For many Americans, the quality of Christmas is determined by the quality of the presents.  This is especially true for our children, and some of them literally spend months anticipating their haul on Christmas morning.  I know that when I was growing up Christmas was all about the presents.  Yes, adults would give lip service to the other elements of Christmas, but all of the other holiday activities could have faded away and it still would have been Christmas as long as presents were under that tree on the morning of December 25th.  Perhaps things are different in your family, but it is undeniable that for our society as a whole gifts are the central feature of the holiday season.

And that is why so many parents feel such immense pressure to spend a tremendous amount of money on gifts for their children each year.  Of course this pressure that they feel is constantly being reinforced by television ads and big Hollywood movies that continuously hammer home what a “good Christmas” should look like.

Once again in 2016, parents will spend far more money than they should because they want to make their children happy.  According to a brand new survey from T. Rowe Price, parents in the United States will spend an average of 422 dollars per child this holiday season…

More than half of parents report they aim to get everything on their kids’ wish lists this year, spending an average of $422 per child, according to a new survey from T. Rowe Price.

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December 19, 2016

Chinese Interbank Lending Freezes, Forcing Massive Intervention By China's Central Bank

China is finding itself in an increasingly more untenable situation, trapped on one hand by its sliding currency (and declining reserves), which as noted earlier it has manipulated higher by forcing overnight unsecured rates to spike, in the process punishing  "speculators" and other shorts...

... and on the other, by a banking sector that finds itself desperately in need of liquidity, unable to endure the PBOC's monetary interventions, and on the verge of a liquidity crisis comparable to what Chinese banks suffered in the summer of 2013 when overnight rates briefly shot up above 20% as China pushed aggressively with a failed deleveraging campaign.

All this came to a head late last week when as Caixin reported late on Thursday, interbank lending froze on Thursday after many commercial banks suspended interbank operations amid tight liquidity conditions. Caixin adds that major institutions such as securities firms and fund managers, suddenly found themselves in a liquidity vacuum after banks, including the big four state-owned banks, became reluctant to make loans.

The magazine added that liquidity had become a major factor affecting the market after the central bank increased the cost of capital through open market operations in the past month, something we highlights three weeks ago in "The Market's Next Headache: China's (Not So) Stealth Tightening."

The latest liquidity freeze forced China's central bank to immediately extend hundreds of billions of yuan in emergency loans to financial firms on Friday and "ordered" some of the country’s biggest lenders to extend credit as well, as it moved to ease a liquidity crunch and continuing debt selloff. 

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December 16, 2016

China Dumps Treasuries: Foreign Central Banks Liquidate A Record $403 Billion In US Paper

One month ago, when we last looked at the Fed's update of Treasuries held in custody, we noted something troubling: the number had continued to drop sharply, declining by another $14 billion in one week, and pushing the total amount of custodial paper to $2.788 trillion, the lowest since 2012. One month later, we refresh this chart and find that in last week's update, there is finally some good news: foreign central banks finally bought some US paper held in the Fed's custody account, which following months of liquidation, rose over the past two weeks by $23 billion, the biggest two-week advance since November of 2016, pushing the total amount of custodial paper to $2.816 trillion, the highest since early October.

That was the good news, and we use the term loosely in as much as the custody account can be used as a proxy of foreign buying, which according to most rates watchers, it can.

The bad news came out with the release of latest monthly Treasury International Capital data for the month of October, which showed that the troubling trend presented one month ago, has accelerated to an unprecedented degree.

Recall that in mid-November, we reported that in the latest 12 months we observed a record $375 billion in Treasury selling by foreign central banks in the period August 2015-September 2016, something unprecedented in size.

Fast forward to today when in the latest monthly update for the month of October, we find that what until a month ago was "merely" a record $375 billion in offshore central bank sales in the LTM period ending  September 30 has, one month later, risen to a new all time high $403 billion in Treasuries sold in the past 12 months.

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December 15, 2016

After Raising Rates Once During The Obama Years, The Fed Promises Constant Rate Hikes During The Trump Era

Now that Donald Trump has won the election, the Federal Reserve has decided now would be a great time to start raising interest rates and slowing down the economy.  Over the past several decades, the U.S. economy has always slowed down whenever interest rates have been raised significantly, and on Wednesday the Federal Open Market Committee unanimously voted to raise rates by a quarter point.  Stocks immediately started falling, and by the end of the session it was their worst day since October 11th.

The funny thing is that the Federal Reserve could have been raising rates all throughout 2016, but they held off because they didn’t want to hurt Hillary Clinton’s chances of winning the election.

And during Barack Obama’s eight years, there has only been one rate increase the entire time up until this point.

But now that Donald Trump is headed for the White House, the Federal Reserve has decided that now would be a wonderful time to raise interest rates.  In addition to the rate hike on Wednesday, the Fed also announced that it is anticipating that rates will be raised three more times each year through the end of 2019

Fed policymakers are also forecasting three rate increases in 2017, up from two in September, and maintained their projection of three hikes each in 2018 and 2019, according to median estimates. They predict the fed funds rate will be 1.4% at the end of 2017, 2.1% at the end of 2018 and 2.9% at the end of 2019, up from forecasts of 1.1%, 1.9% and 2.6%, respectively, in September. Its long-run rate is expected to be 3%, up slightly from 2.9% previously. The Fed reiterated rate increases will be “gradual.”

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December 14, 2016

2017 Will Be The Year Of Inflation

With crude oil prices up over 50% YoY (the most in 6 years), and retail gas prices up over 10% YoY (the most in 5 years), Bloomberg's Garfield Reynolds suggests the Saudis have sealed it then, 2017 will be the year when inflation takes over from disinflation. That’s certainly the tale the market is telling us right now and any devils out there are tucked well away in the details.

The bottom looks to be in for oil. Thanks to OPEC’s capacity to agree among themselves and with “NOPEC,” it’s likely we’ve seen the last of Brent or WTI with a 4 handle at the start of the price for a while.

The new question will be how far up Saudi Arabia is willing to let crude go -- it won’t want to encourage shale oil producers to resume building capacity. Still, a new, higher equilibrium price would restore one of the foundations for inflation.

As UBS shows below, if oil tracks its forward curve then inflation will likely meet (or exceed) ECB and Fed mandates next year...

Those foundations were already looking more stable as indications of stronger U.S. economic outlook, especially labor markets, hint the Fed would finally get the classic, wage-driven PPI and CPI increases it wants.

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December 13, 2016

Italy's Largest Bank Laying Off 14,000, Raising €13 Billion In Business Overhaul

UniCredit announced on Tuesday a major restructuring plan to raise €13 billion in capital to return the Italian bank to profitability, hoping that a balance-sheet cleanup and cost cuts will persuade investors that Italy’s biggest bank can restore profitability even without much revenue growth. As part of the three-year strategy, the bank plans to shed an additional 6,500 jobs, bringing the total to 14,000, as it aims for 1.7 billion euros of annual cost savings. The bank is targeting 4.7 billion euros of net profit in 2019 with a return on tangible equity above 9%, Milan-based UniCredit laid out in a presentation this morning.

UniCredit's new CEO Jean Pierre Mustier, a 55-year-old Frenchman, in July took the helm of a lender burdened by a mounting pile of bad loans, record-low interest rates and Italy’s longest recession since World War II. According to Bloomberg, the bank had the slimmest capital buffer among those deemed important to the financial system in the latest European stress tests.

“We are taking decisive actions to deal with our non-performing-exposure legacy issues to improve and support recurring future profitability," Mustier said in a statement.

The capital increase will take place in the first quarter of next year, Mustier said on a conference call with journalists Bloomberg reported. The CEO said he’s confident Monte Paschi’s efforts to raise capital will be resolved this month and will have “no impact” on his own bank’s fundraising. The UniCredit CEO also insisted political turmoil in Italy will put obstacles in the way of the plans. “The referendum was a No but it doesn’t change our business model,” Mustier told the Financial Times.

While the bank expects annual costs to drop, it sees revenue rising by just 0.6 percent per year through 2019. UniCredit sees falling net interest income, with growth coming from fees and commissions, it said in a presentation in London. “With almost no revenue growth in the foreseeable future, the plan is focused on cutting costs and improving the asset quality and capital levels,” Luigi Tramontana, an analyst at Banca Akros, said in a note to clients. “The rights issue stands at the top of the expectations, given the stronger-than-expected effort” to boost loan-loss reserves.

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December 12, 2016

Speculation Grows Japan Will Tighten Next

First it was the Fed, then the ECB (which last week tapered when it reduced the monthly amount of bond purchases under its QE program). Now attention shifts to the Bank of Japan, because as the WSJ writes, one of central banking's most aggressive easers - Kuroda's Bank of Japan - may soon have to think about tightening for the first time since 2007.

While it has yet to permeate the markets (confirmation would send the Yen soaring), the latest buzz in Japanese monetary-policy circles is that the BOJ may have to lift the 10-year government-bond target from a recently set zero, in the process tightening financial conditions even more. Indeed, as the WSJ notes, such a changed view on BOJ policy is quite a turnaround.

Just a few months back investors and economists world-wide were discussing what would be the next easing steps in the bank's 15-year fight to boost the economy and produce inflation. More certainly seems needed: Japan's economy grew more slowly than expected in the latest quarter and prices are falling.

So why switch gears now? Blame Donald Trump, stupid, whose miraculously adverse impact on the Yen has been more profound than either of Japan's recent QEs.... and that is before Trump is even inaugurated, or reveals any of the details behind his fiscal stimulus plans.

The U.S. dollar and Treasury yields have been climbing since soon after Trump was elected president on Nov. 8, triggered by expectations that his policies would boost U.S. growth, inflation and interest rates. So far, that has been good for Japan, where the weaker yen is brightening exporters’ prospects, helping send Tokyo stocks to 11-month highs. A weaker yen bolsters their bottom lines by making their products cheaper overseas and inflating the value of repatriated income. As of Friday, one dollar buys ¥114.50, 9.6% more than the day before the U.S. election.

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December 9, 2016

Are We Being Set Up For A Crash? Stocks Hit A Level Only Seen During The Bubbles Of 1929, 2000 And 2007

Will the financial bubble that has been rapidly growing ever since Donald Trump won the election suddenly be popped once he takes office?  Could it be possible that we are being set up for a horrible financial crash that he will ultimately be blamed for?  Yesterday, I shared my thoughts on the incredible euphoria that we have seen since Donald Trump’s surprise victory on November 8th.  The U.S. dollar has been surging, companies are announcing that they are bringing jobs back to the U.S., and we are witnessing perhaps the greatest post-election stock market rally in Wall Street history.  In fact, the Dow, the Nasdaq and the S&P 500 all set new all-time record highs again on Thursday.  What we are seeing is absolutely unprecedented, and many believe that the good times will continue to roll as we head into 2017.

What has been most surprising to me is how well the stocks of the big Wall Street banks have been doing.  It is no secret that those banks poured a tremendous amount of money into Hillary Clinton’s campaign, and Donald Trump had some tough things to say about them leading up to election day.

So you wouldn’t think that it would be particularly good news for those banks that Trump won the election.  However, we seem to be living in “Bizarro World” at the moment, and in so many ways things are happening exactly the opposite of what we would expect.  Since Trump’s victory, all of the big banking stocks have been skyrocketing

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December 8, 2016

Here's What Happens When A Currency Completely Breaks Down

In Venezuela, hyperinflation has become so pitiful that shopkeepers are no longer bothering to actually count money.

Instead, they’re weighing it…

… as in literally pulling out a scale and weighing giant stacks of money. Do you want to buy a bottle of Coca Cola? That’ll be 1 kilo of currency please.

One shopkeeper interviewed by the Guardian newspaper said he’s piling up bricks of cash so quickly he feels like Pablo Escobar.

And yet Venezuela’s hyperinflation continues growing worse; those bricks of cash are buying less every week.

This is an important lesson.

Throughout history, human beings have used countless forms of money.

Many of the ancients used commodities like silver or salt. The feudal Japanese used rice. The island natives of Yap used enormous stone wheels.

Today we use physical pieces of paper and electronic digits in a bank account. Large financial institutions and governments use bonds.

Each of these is (or was) a form of money.

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December 7, 2016

Is Janet Yellen Sabotaging The Trump Administration?

Is Janet Yellen trying to screw Donald Trump?

No, I’m not asking for possible titles to a porn movie (“Trump Gets Janet Yellin’” or “Trump Puts Down Ol’ Yellen”). But it really does seem like the Federal Reserve Chair(wo)man is out to get the Donald.

Yellen recently told Congress’s Joint Economic Committee that an interest rate hike could be imminent if “incoming data provide some further evidence of continued progress toward the committee’s objectives.” Markets have already priced in a hike of a quarter to a half of a percentage point. For now, stocks continue to be reach historic highs and the dollar is strong, even as Yellen and her central banking cohorts begin to ease on the gas.

But will Yellen’s gambit plunge us into a recession is the question. Just because Wall Street is gorging on high returns doesn’t mean the economy is sound. For eight years and running, the Fed has kept interest rates near zero percent in an attempt to spark investment and borrowing. Unemployment has gradually shrunk during the Obama years, yet the workforce participation rate remains low by modern standards. Prior to Election Day, two-thirds of Americans were anxious about their economic future.

Stock traders are popping the bubbly while middle America drinks the warm beer of worry. If you’re still in the dark as to why Trump stole the Rust Belt from Hillary, you need not look further than that.

Fear aside, Trump’s election has been an Advil to the ongoing economic headache felt by most Americans. Eight years of Obama’s big spending combined with ultra low interest rates has done precious little to shore up their optimism. Retirees on fixed income can’t get a yield on their savings. Millennials earning a salary for the first time in their life have little incentive to put money away.

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December 6, 2016

Italy's Monte Paschi Told To "Prepare For State Bailout"

On Sunday night, when we commented on the results of the Italian referendum, we said that while the Italian political limbo may or may not be an issue in the near term, a bigger problem for Italy will be the fate of Monte Paschi, whose 3rd bailout was likely doomed to failure after the failed referendum, which could unleash contagion upon the Italian banking sector at a very precarious time for Italy and Europe.

Overnight, we got confirmation of that from not one but two sources, with Italian Il Sole 24 reporting that the Italian treasury is considering “precautionary” direct state intervention to rescue the bank, a plan that has already been sketched out by Rome and Brussels. The lender’s executives are meeting with European Central Bank officials today and may ask for a delay to a non-performing loan sale that’s part of the bank’s capital increase plan, the newspaper said.

In an interview with Bloomberg TV, Marcello Messori, economics professor at Luiss University said that “the probability of finding a natural market solution is very very low currently, due to the fact that instability implies that international investors have a lot of difficulties to decide in the short term for a very important recapitalization" and added that the ECB may give more time “if there is a solution on the horizon.”

There may not be a solution, as both the company's stock price, which fell for the fourth consecutive day, down 2.5% and plunging 85% YTD, and as the FT adds. According to the Nikkei's subsidiary, "bankers are running out of private-sector solutions for Monte dei Paschi di Siena and have told the Italian lender to prepare for a state bailout this weekend after prime minister Matteo Renzi was felled by a referendum defeat.

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December 5, 2016

Global Financial Markets Plunged Into Chaos As Italy Overwhelmingly Votes ‘No’

Italian voters have embraced the global trend of rejecting the established world order, but the “no” vote on Sunday has plunged global financial markets into a state of utter chaos.  The euro has already fallen to a 20 month low, Italian government bonds are poised for a tremendous crash, and futures markets are indicating that both U.S. and European stock markets will be way down when they open on Monday.  It is being projected that Italian Prime Minister Matteo Renzi’s referendum on constitutional reforms will be defeated by about 20 percentage points when all the votes have been counted, and Renzi has already announced that he plans to resign as a result.  When new elections are held it looks like comedian Beppe Grillo’s Five-Star movement will come to power, and the European establishment is extremely alarmed at that prospect because Grillo wants to take Italy out of the eurozone.  In the long run Italy would be much better off without the euro, but in the short-term the only thing propping up Italy’s failing banking system is support from Europe.  Without that support, the 8th largest economy on the entire planet would already be in the midst of an unprecedented financial crisis.

I know that I said a lot in that first paragraph, but it is imperative that people understand how serious this crisis could quickly become.

This “no” vote virtually guarantees a major banking crisis for Italy, and many analysts fear that it could trigger a broader financial crisis all across the rest of the continent as well.

Just look at what has already happened.  All of the votes haven’t even been counted yet, and the euro is absolutely plummeting

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December 2, 2016

Norway Buying $130 Billion In Global Equities As Sovereign Wealth Fund Continues To Bleed Cash

After being forced to withdraw at least $15 billion to fund 2017 budget deficits, the $860 billion Norwegian sovereign wealth fund has announced that it will change it's portfolio allocations to try to make up the difference.  The change will result in 75% of the fund's capital being allocated to global equities, up from the current 60%.  Sure, because funneling another $130 billion to the global equity bubble is just the prudent thing to do for an extra 40bps of "expected average annual real returns."

The central bank’s board, which oversees the fund, on Thursday recommended an increase in the equity share to 75 percent from 60 percent. That will raise the expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent, respectively, under the current setup.

The world’s largest sovereign wealth fund said that it expects an annual return of only 0.25 percent on bonds over the next decade and that the expected “equity risk premium,” or return on stocks over government bonds, will be just 3 percentage points in a cautious estimate.

“In our analyses, this is clearly evident in global data: internationally, growth in firms’ cash flows and equity returns are correlated with growth in the global economy,” Deputy Governor Egil Matsen said in a speech Thursday in Oslo. “Global economic growth in the coming years is expected to be below its historical level. This ‘pessimism’ is partly related to the driving forces behind the low level of the real interest rate.”

Of course, the decision comes after the fund has been forced to withdraw capital over the past two years to fund budget deficits that are expected to reach over 8% of GDP.

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December 1, 2016

Trump's Tax Cuts Imply Billions Worth Of Deferred Tax Asset Writedowns For Wall Street Banks

Corporate tax reform has been a key policy initiative of Trump's as he has called for slashing the corporate tax rate from 35% down to 15%.  While this is welcome news for most companies, it would result in some fairly staggering writedowns for Wall Street's largest banks that amassed substantial net operating losses in 2008 and 2009.

According to Bloomberg, Citibank would be hardest hit with writedowns that could hit earnings for up to $12 billion or more. 

Donald Trump’s planned U.S. corporate tax cuts could translate to a big one-time earnings hit for many of the biggest U.S. banks, thanks to tax benefits they generated during the 2008 financial crisis.

Citigroup Inc. would take the deepest earnings hit -- perhaps $12 billion or more, according to recent estimates by the bank’s chief financial officer and several banking analysts. Mark Costiglio, a Citigroup spokesman, declined to comment. Others, including Bank of America Corp. and Wells Fargo & Co. could face multibillion-dollar writedowns.

The banks might have to write down deferred tax assets, which often pile up when a company loses money and can’t immediately enjoy the tax benefits of those losses. Any writedowns won’t have much impact on capital levels for the banks for regulatory purposes, and lower taxes will allow for higher earnings in the long run. But a one-time hit to earnings can make for a bruising quarter -- and even year -- for a bank’s results.

“It’s a traumatic experience for companies with large” amounts of such assets, said Robert Willens, an independent tax and accounting expert in New York. “In one fell swoop, a significant part of their net worth goes up in smoke.”

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November 30, 2016

Trump Picks Former Goldman Banker Steven Mnuchin As Treasury Secretary

While it has yet to be officially confirmed by the Trump transition team, moments ago the NYT reported that - in what had previously been leaked on several occasions on various other outlets most notably the WSJ - former Goldman banker and Soros employee, Steven Mnuchin "a financier with deep roots on Wall Street and in Hollywood but no government experience" is expected to be named Donald J. Trump’s Treasury secretary as soon as Wednesday.

The WSJ has confirmed as much, reporting that "President-elect Donald Trump will name longtime banker and former Goldman Sachs executive Steven Mnuchin as Treasury secretary, turning to a campaign loyalist and fundraiser for the incoming administration’s top economic cabinet post, a transition official said Tuesday."

As the WSJ adds, "Mr. Mnuchin’s Wall Street pedigree presents a contrast with the populist themes Mr. Trump struck in his campaign, railing against big banks and vowing to close tax loopholes that benefit hedge funds. Mr. Trump also repeatedly attacked his rivals in the primary and general elections for their Wall Street ties, especially those connected to Goldman Sachs."

If confirmed by the Senate as Treasury secretary, Mr. Mnuchin will join a list of prominent bankers who made similar moves from Wall Street to Washington, including two of his former bosses at Goldman, Henry Paulson and Robert Rubin, who were both top Goldman executives before running Treasury.

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November 29, 2016

"Europe Will Devalue Or Dissolve..."

No rest for the wicked. With the shockwaves from Brexit and President Trump still reverberating around the world, the established order is bracing for more bad news. Next up is a December 4 Italian constitutional referendum that might end the reign of centrist prime minister Matteo Renzi and replace him with a bunch of anti-euro iconoclasts from the Brexit/Trump part of the spectrum. Here’s an excerpt from a much longer, deep-context Guardian UK article:

As the air of insurgency becomes unmistakable, the technical debate over reforming a 70-year-old constitution is in danger of becoming a sideshow. Perhaps the most disturbing poll for Renzi found last week that only 40% of Italians say they will vote on the reform package; 56% consider their vote to be more a verdict on the prime minister, his government and, by implication, the state of the nation.

If that bigger picture still dominates come polling day, it is hard to see anything but defeat for a man once billed as Italy’s Tony Blair. After 13 years of a flatlining economy, Italians are battered, bruised and looking for somebody to blame. Unemployment is running at 11%, but is close to 40% among the young, who made up the bulk of the 107,000 who left the country last year to seek work abroad. The aftermath of the financial crash is estimated to have wiped out about a quarter of Italian industry. The average family income is less now than it was in 2007.

Traditionally among the most enthusiastic proponents of European integration, ordinary Italians are furious at the EU’s failure to share the burden of the huge migration surge to their southern shores. Lectures from Brussels on the need to cut public spending and balance budgets, given the desperately straitened times, have added insult to injury. It is no coincidence that a current bookshop bestseller – 1960: The Best Year of Our Lives – is a nostalgic evocation of the Italian postwar economic miracle, when the country’s growth was judged to outstrip Germany’s.

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November 28, 2016

Black Friday Sales Slump As Retail Tracker Admits Holiday Season "Off To A Slow Start", Blames Warm Weather

Sales and traffic at U.S. brick-and-mortar stores on Thanksgiving Day and Black Friday declined from last year, as Reuters reports that stores offered discounts well beyond the weekend and more customers shopped online.

The National Retail Federation reports that spending per person over Thanksgiving Weekend this year was $289.19, down 3.4% from $299.60 in the same period last year.

Internet sales rose in the double digits on both days, surpassing $3 billion for the first time on Black Friday, according to data released on Saturday.

Data from analytics firm RetailNext showed net sales at brick-and-mortar stores fell 5.0% over the two days, while the number of transactions fell 7.9%.

Reuters report that ShopperTrak data highlights the waning importance of Black Friday, which until a few years ago kicked off the holiday shopping season, as more retailers start discounting earlier in the month and opened their doors on Thanksgiving Day.

Read the entire article

November 25, 2016

October Was The Worst Month For Hedge Funds Yet This Year

Another month, and the pain for the hedge fund industry just keeps getting more intense.

According to the latest Evestment report, investors redeemed an estimated net $14.2 billion from hedge funds in October. Year-to-date, there has been  a net $77.0 billion removed from the industry.  October’s outflow was the fourth month of redemptions in the last five and seventh in 2016. Due to the  breadth of products experiencing outflows, and the persistence of redemptions outweighing new allocations, it is clear the industry is experiencing a crisis -like wave of negative investor sentiment.

One almost wonders how much higher the market can keep rising with redemption requests flooding countless back offices. We hope to find out soon.

Here are the rest of the details on the latest, ongoing, troubles facing the hedge fund industry which, unless something drastically changes soon may end up being a "zero hedge" industry:

The breadth of redemption pressure in October was the industry’s largest in 2016 with 61% of reporting funds estimated to have net outflow during the month. The last five months have accounted for the majority of the industry’s redemptions in 2016, a time frame which aligns with investors’ processes for analyzing 2015 results, and taking actions on those decisions.

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November 24, 2016

Relentless Dollar Surge Continues: Asian Currencies Plunge To 7 Year Lows, Hitting Emerging Markets

While most global equity markets were subdued due to the US Thanksgiving holiday, the FX world was very busy overnight, marked by the relentless dollar surge on expectations of a rate hike not only in December but further in 2017, sending Asian currencies to the weakest level in 7 years: the Bloomberg-JPMorgan Asia Dollar Index reached 103.32, the lowest level since March 2009.

The regional FX plunge will likely deter regional central banks from easing monetary policies as the prospects of higher U.S. rates spurred capital outflows according to Toru Nishihama, an emerging-market economist at Dai-ichi Life Research Institute who added that depreciating currencies are making it very hard for central banks to ease on concerns about inflationary pressure and acceleration of fund outflows.

The dollar also pushed its way past more of last year's peaks against the euro to hit $1.0550 in early European action, with only the March 2015 high of $1.0457 standing in the way of a drive toward parity, likewise the yen skidded to an eight-month low and China's yuan to an 8-1/2 year low, while the highly sensitive Turkish lira and Indian rupee hit new historic troughs, although the USD has since given up some of the gains.

"There doesn't seem to be anything stopping U.S. yields going higher in the near-term so I think people are going to stay on the dollar trend," said Michael Metcalfe, head of global macro strategy at State Street Global Markets.

"The only risk to this are that the dislocations in markets outside of the U.S., particularly in emerging markets, get to a point where they start to feed back into concerns (for the Federal Reserve as it looks to raise interest rates)," he said.

Read the entire article

November 23, 2016

Forget Deutsche Bank, These 2 American Banks Are Now "The Most Systemically Dangerous In The World"

Back in the summer we wrote about an IMF report that flagged Deutsche Bank as the "most important net contributor to systemic risks" (see "'Deutsche Bank Poses The Greatest Risk To The Global Financial System': IMF").  Those who read our site frequently were likely not terribly surprised by the IMF's conclusion.

Among the G-SIBs, Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. In turn, Commerzbank, while an important player in Germany, does not appear to be a contributor to systemic risks globally. In general, Commerzbank tends to be the recipient of inward spillover from U.S. and European G-SIBs. The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.

That said, we suspect the latest ranking of global systemically important banks (G-SIBs) by the Financial Stability Board may be a bit more surprising to our readers, among others, as it features two of America's largest banks right at the very top. 

Read the entire article

November 22, 2016

S&P Set To Open At All Time High, Boosted By Rising Crude On More "OPEC Deal Optimism"

European and Asian stocks rose after the early scare from the latest Fukushima quake dissipated when all Tsunami warnings were cancelled. The global risk on mood was spurred by another jump in crude, which was up 1% in early trading, with the commodity complex now enjoying its biggest three-day rally since May, after Nigeria signaled optimism that OPEC will agree a supply-cut deal next week in Vienna. S&P futures are up 0.3%, with the cash index set to open at new record highs.

With OPEC jawboning having become a daily fixture ahead of the cartel's now almost monthly summits, today was no exception, and earlier in the session, a Nigerian OPEC delegate said he expects details of the Vienna accord to be finalized Tuesday (and if they are not, this will just serve as a basis for a similar headline tomorrow, and then day after, and so on).

“Everyone is on board,” delegate Ibrahim Waya said in Vienna, where OPEC members are meeting to discuss output quotas ahead of the November 30 summit. Brent and WTI both extended gains following the headlines, pushing index futures higher with them.

The commodity story - on hopes of a global fiscal stimulus push - dominated as miners led the MSCI All-Country World Index higher while S&P500 futures on the S&P 500 Index advanced 0.3 percent. On Monday, the American gauge reached a record for the first time since Aug. 15, just as the Dow Jones Industrial Average, Russell 2000 Index and Nasdaq Composite Index hit fresh all-time highs.

Oil reached the strongest level in more than three weeks. Copper headed for its highest close since July 2015. Euro-area bonds rose on optimism the region’s central bank will extend stimulus.

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November 21, 2016

We Are Being Set Up For Higher Interest Rates, A Major Recession And A Giant Stock Market Crash

Since Donald Trump’s victory on election night we have seen the worst bond crash in 15 years. Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead.  The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates.  Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown.  And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money.  The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.

For those that are not familiar with the bond market, when yields go up bond prices go down.  And when bond prices go down, that is bad news for economic growth.

So we generally don’t want yields to go up.

Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”…

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!

The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

Read the entire article

November 18, 2016

Ford CEO Folds? Trump Confirms Carmaker Won't Move Production To Mexico

Just hours after Ford CEO complained of the "huge impact" of Donald Trump's proposed trade plans, following the company's plan to move a substantial portion of its passenger-car production to Mexico from a factory in Michigan, Donald Trump tweeted “Just got a call from my friend Bill Ford, Chairman of Ford, who advised me that he will be keeping the Lincoln plant in Kentucky -- no Mexico," seemingly winning his first 'america-first' victory. 

As WSJ reported yesterday, Ford Motor Co. Chief Executive Mark Fields issued a warning about President-elect Donald Trump’s proposed trade policies, saying high tariffs on automobiles and other products coming into the U.S. would be a blow to the auto industry and broader U.S. economy.

Mr. Fields, speaking with reporters on the sidelines of the Los Angeles Auto Show on Tuesday, said Ford has talked to Mr. Trump’s transition team and believes the company can work with the new administration. During a separate interview, he said, “We all share the same objective; we want a vibrant and healthy U.S. economy.”

The two sides, however, appear to be at odds on how to achieve that goal.

Ford’s plan to move a substantial portion of its passenger-car production to Mexico from a factory in Michigan was heavily criticized by Mr. Trump on the campaign trail. Like many of its rivals, Ford is building more-profitable light trucks in the U.S. while investing in new capacity in Mexico to produce lower-margin small cars.

And then hours later, Donald Trump tweeted...

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November 17, 2016

War On Cash Intensifies: Citibank To Stop Accepting Cash At Some Branches

Less than a week after India’s surprise move to scrap its highest denomination cash notes, another front in the War on Cash has intensified down under in Australia.

Yesterday, banking giant UBS proposed that eliminating Australia’s $100 and $50 bills would be “good for the economy and good for the banks.”

(How convenient that a bank would propose something that’s good for banks!)

This isn’t the first time that the financial establishment has pushed for a cashless society in Australia (or anywhere else).

In September 2015, Australian bank Westpac published its “Cash Free Report”, suggesting that the country would become cashless by 2022.

In July 2016, Australian payments firm Tyro published an enormously self-serving blog post touting the benefits of a cashless society and saying, “it’s only a matter of time.”

Most notably, two days ago, Citibank (yes, THAT Citibank) announced that it was going cashless at some of its Australian branches.

Read the entire article

November 16, 2016

Global Bonds Plunge As "Trumpflation" Rally Returns, Dollar Jumps

After taking a one day breather, the "Trumpflation" Rally returned with a vengeance as global government bonds tumbled and the dollar rose on renewed speculation the economic outlook is strong enough to allow the Federal Reserve to hike in December (odds are now 94%). Asian shares rose, industrial metals and crude oil fell, European shares and US equity futures were pressured.

As reported last night, the latest bond selloff started in Japan where JGB futures slid after a BOJ buying operation was poorly received, and yields on both the 2Y and 5Y rose to or above the BOJ's -0.1% interest rate. 10 year Japanese yields have edged back above zero intra-day for the first time since September 21st and the market will at some stage focus on whether the BoJ will defend the zero level, especially if the global yield sell-off gathers pace over the coming weeks and months. It would be a strange decision to abandon the new policy so soon after announcing it so assuming global yields remain elevated they may be forced to buy more JGBs than they thought when the new scheme was announced.

As DB's Jim Reid observes, if the BoJ sticks to defending zero in a world where the US is likely to increase fiscal spending then you could make an argument that there is full blown helicopter money except that the BoJ is flying the copter over the US and may be about to become the new US government’s best friend. Without them, and without the ECB, it might be that Trump would be less able to spend freely on the fiscal side as yields would be less supported globally. Certainly one way to think of in our opinion.

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November 15, 2016

The Election Of Donald Trump Is Already Having An Enormous Impact On The Economy

The election of Donald Trump has sent shockwaves through the U.S. economy and the U.S. financial system.  Since November 8th, the Dow has hit a brand new all-time record high, the U.S. dollar has strengthened greatly, and bank stocks are way up.  But not all of the economic news is good news.  Unlike stocks, bonds have reacted very negatively to Trump’s election victory.  The past week has been an absolute bloodbath for bond traders, and as you will see below this is going to have dramatic implications for all U.S. consumers moving forward.

Over just a two day period, more than a trillion dollars was wiped out as bond yields spiked all over the globe.  As CNN has noted, this type of “violent reaction” in the bond market has only happened three other times within the past ten years…

The rate on 10-year Treasury notes has surged to 2.3%, from 1.77% before the election. Last week’s spike in Treasury rates was so big, that it had only happened three times before in the last decade.

BlackRock’s Russ Koesterich called it a “violent reaction.”

The move stands to have broad repercussions for all Americans. Not only will the U.S. government have to pay more to borrow money, but mortgage rates and car loan costs should also rise. That’s because Treasuries are used as the benchmark for many other forms of credit.

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November 14, 2016

What Happens When 2-Term Presidencies End?

Four words - nothing good for stocks.



With the election decided, the burning question now is, “What next?” And, as Axioma details in their latest report, as “unprecedented” as the 2016 US Presidential election may have been, there are at least some precedents to which we can point for insights into what may now lie ahead.

Granted, the economic impact of policies introduced by Donald Trump will not be seen for many months or years. Nevertheless, we can look to other market events to get an idea of what we might expect in equity and currency markets over the near term, while the markets are still absorbing the news.

Admittedly, two examples of vote-related surprises (2000 uncertainty post-election, and Brexit) and associated market movements and volatilities, along with the example of how the market may view one of Trump’s signature issues (NAFTA agreement in Jan 1994), are hardly comprehensive indicators of what we might see in markets over the next few months; and of course, the economic impact of trade and other policies may not be known for months or years. But we believe the uncertainty and associated market volatility we have seen in the past may well come to pass again, and market volatility may become the order of the day, as the US transitions to a substantially different style of administration from the past eight years and new policies are put into place.

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November 11, 2016

Making Yields Great Again: Trump Unleashes A "Bigly Rates Repricing"

The details which explain why DB, which until recently was very bullish on fixed income, is now bearish on fixed income and thinks that "Trump’s victory cements the shift in the policy mix", are as follows:

Trump’s victory is fundamentally bearish fixed income from a pure economics perspective. The key risk to the view comes from increased geopolitical uncertainty.

If Trump’s economic program is taken at face value, it would imply (1) increased fiscal spending, (2) reduced regulation, (3) a change of Fed leadership and (4) increased protectionism. Each one of these factors is bearish rates.

First, as we highlighted last week, Trump’s plan is consistent with more than 2.5% of GDP of annual fiscal stimulus over the next ten years (see table below). Of course, the extent to which the plan will be implemented is unclear. However, Trump is arguably in a strong position relative to the Republican Party and the latter controls both the House and the Senate. This should give Trump leverage to implement his fiscal plan, at least initially. Also, one of the clear statements made by Trump in his acceptance speech was that he intends to significantly increase infrastructure spending. It is worth noting that the Fed in principle welcomes more fiscal support as it sees the US economy as being constrained by a lack of demand. Given that the fiscal stimulus will occur as the US economy is close to full employment, it should have a faster spillover on monetary policy, notwithstanding the desire from the current Fed leadership to run the economy hot. Increased fiscal spending should be supportive of higher yields from a macro perspective (supports domestic demand and inflation) and from a flow perspective (reduces the supply/demand imbalance).

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November 10, 2016

Everything Is Soaring As Trump Makes Buying Stuff Great Again

Who would have thought - as recently as two days ago - that a Trump presidency is the best thing for global risk? Certainly not Wall Street experts, all of whom warned of drops as big as 5% should Trump be elected.

And yet, the global repricing of inflation expectations continues at a feverish pace in the aftermath of the Trump victory, leading to another surge in US equity futures, up 15 points or 0.7% to 2175 at last check, with Asian and European stock market all jumping (Nikkei was up a whopping 6.7% after losing 4.6% the day before) after the initial shock of Donald Trump’s election victory gave way to optimism that his plans for fiscal stimulus will provide a boost to the global economy.  Commodity metals soared with copper surging 4.5% to $5,658.50 a metric ton, the biggest gain since May 2013, while zinc advanced 2.1% and nickel added 2%. Gold climbed on speculation whether the Federal Reserve will raise interest rates in December.

The euphoria is largely due to the market's hopes of a burst in fiscal stimulus, aka much more debt, which while self-defeating in the long run, is providing a major boost to risk assets for the short-run, as it puts QE potentially back in the picture: after all someone will be needed to monetize the US budget deficit which is expected to once again soar under president Trump.

As Citi strategists note today, "The outcome of the U.S. election leaves the policy and macroeconomic outlook in the U.S. and globally with major uncertainties. Acknowledging these major uncertainties, we expect the new administration to pursue some deregulation, fiscal expansion, and reassess the costs and benefits of free trade. The combination of policies could be inflationary, quicken the path of Fed hikes and strengthen the dollar."

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