The 1. And with wages growing at a far slower pace, the real average weekly earnings collapsed at a 3. And no, Putin didn't do this. So, how will the Fed react once this inevitable reality has set in? Well, Bank of America noted last month, war is inherently stagflationary.
And as the reaction in equity markets has already suggested, investors are already looking through the Fed's series of 50 bp rate hikes, all the way to QE5 just as we noted last month. The yen's recent nosedive has heightened fears of a vicious cycle as Japan's worsening current-account balance threatens to spur more selling while the BOJ's dovish scramble to prevent rates from blowing out means that even modest countertrend buying will promptly reverse.
While a soft yen has long been seen as a boon to Japan's economy, not to mention the stock market, and was one of the key drivers behind the launch of Abenomics whose anchor pillar was printing ginormous amounts of yen and monetizing just as massive amounts of JGBs to monetize Japan's prodigious deficit , now that benefits have tilted toward certain exporters and the wealthy while individuals and small businesses feel the pain of higher commodity prices, Japan may need to rethink a fundamental assumption of its economic approach.
After touching According to Nikkei Asia, an estimate of the yen's theoretical value may have fallen beyond to the greenback, pointing to deeper problems than short-term speculation. The immediate cause of the yen's weakness has been a split in monetary policy between Japan and the U.
If rise above, the central bank's credibility in the bond market would be crushed. As a result, the Bank of Japan on Monday and Tuesday offered to buy unlimited amounts of Japanese government bonds to tamp down interest rates at a time when U.
Treasury yields have soared as the Federal Reserve tightens policy to rein in inflation, encouraging traders to sell yen for dollars. Then on Wednesday, it unexpectedly offered to buy bonds in an unscheduled market operation. But the softening trend in yen began before that, rooted in the more fundamental issue of Japan's changing trade position. Imports in value terms have been ballooning amid coronavirus-related supply constraints and a commodities rally fueled by the war in Ukraine. Japan's terms of trade, or the ratio between its export and import prices, have deteriorated, and more of the country's income has flowed overseas as import costs have swelled.
Adjusting for shifts in Japan's current-account balance and terms of trade since then puts the equilibrium rate at Market exchange rates often differ from the theoretical figure, reflecting short-term speculative trading and day-to-day conditions. Based on the average deviation between past equilibrium and market rates, the yen still has room to soften to about against the dollar.
What is more, there remains a risk that Japan's worsening current-account balance and terms of trade could bring on more yen selling in a vicious cycle. Importers selling yen for dollar funds is "a root cause of the yen's accelerating depreciation," a bank executive tole Nikkei. A weaker currency in turn drives up the cost of imports in yen terms, which can further widen the current-account deficit.
Worse terms of trade also make Japanese companies less competitive and add to the downward pressure on the yen. BOJ governor Kuroda has stressed that the central bank has not changed its basic position that a weak yen is favorable for Japan's economy and prices. But - as we have said since when the BOJ launched its latest and greatest monetary debasement experiment - the benefits tend to go mainly to a few exporters and affluent individuals with overseas assets.
The vast majority of people and smaller businesses are likely to feel the pinch, and a yen-depreciation spiral would aggravate the pain. Recent Japanese economic policy - particularly the catastrophic Abenomics policy of the now former prime minister - has centered on boosting corporate profits via a weak yen and waiting for the benefits to trickle down to households. But this approach has been a disaster in bringing meaningful wage growth, just as we said it would be.
Prime Minister Fumio Kishida seeks to tackle rising prices with measures including extending fuel subsidies, an approach criticized by some analysts. In a recent note published by SocGen's resident skeptic Albert Edwards and titled "Something huge is happening in FX world, and it's not the dollar" available to pro subs in the usual place , the strategist writes that "despite core CPI inflation surging in the US and the eurozone, Japan remains locked in deflation with core CPI there excluding fresh food and energy falling 1.
Albert then goes on to note that by capping the 10y JGB at 0. What does this mean in pratical terms? Well, since Japan is the one country where rates are never allowed to normalize - since the country has so much accumulated sovereign debt even a modest rise in rates would lead to an instant debt crisis - at a time when other central banks are tightening more aggressively in a tacit acknowledgement that rising bond yields reflect valid inflation concerns, "the BoJ may perversely be forced to accelerate QE as JGB yields attempt to rise above 0.
And this is where the second massive implication of the BoJ relative easing of policy comes in. The appetite for such trades increases markedly when — as last week — the yen breaks below key support levels and begins to decline sharply: in short, the fundamentals combine with the technical, leading to an explosive expansion of the carry trade. We have seen this before, most notably in the years before the Global Financial Crisis.
Typically, the cheap yen funds are invested into similar instruments like higher yielding US Treasuries but as risk appetites mount, this extends into whatever momentum trade is dominant at the time. That may be commodities or it may be equities. Of course, ultimately it ends in tears as it did in when it unwound , but as this new carry trade re-emerges, it means that the yen could fall an awfully long way from here — the ramifications of this might surprise investors.
So are we about to see another roll of the dice in Japan embracing by default another period of super-loose yen policy, Edwards asks. Or as the SocGen strategist rhetorically puts it:. We, for one, doubt it. Japan, as the premier exhibit of the insanity that is MMT, is coming to its inevitably monetary collapse. Which also means that the yen will drop much, much lower. Edwards agrees, and writes that "despite the yen being undervalued and over-sold, it is entirely plausible that it could fall a long way from here as traders get the bit between their teeth.
It is, because when the yen breaks, it moves sharply eg in from 80 to , and again in from to But while Japan may be a lost cause, a bigger question emerges: how will Japan's latest devaluation impact its fellow exporting powerhouse competitors, i. Maybe just like they did in August when the PBoC devalued? Back then persistent yen weakness had dragged down other competing regional currencies and left the renminbi overvalued.
Wait, yen weakness leading to China devaluation? According to Edwards, that indeed was the sequnece: as he shows in the chart below, the super weak yen of , by driving down other competing Asian currencies, ultimately led us to the August renminbi devaluation. Fast forward to today when the aggressive relative easing of the BoJ comes at a time when the PBoC also sticks out as a central bank unwilling to join the global tightening posture and instead is shifting towards an easier stance after all, China has an imploding property sector it must stabilize at any cost.
Something crazy happened in the repo market today: according to Curvature repo guru Scott Skyrm, the 10Y traded as low as Incidentally, Skyrm was far more dramatic about this historic move:. It's all over for the 10 Year Note! Clearly a significant amount of shorts rolled forward and now short-demand has overwhelmed the available supply.
The issue traded as low as Both of those rates are lower than Fail Charge, which is the equivalent of What is remarkable is that the 10Y was barely "special" last Thursday when yields exploded higher amid the liquidation panic. Actually scratch that: last week there were barely any shorts in the 10Y - that's why the massive stop loss liquidation after last Thursday's 7Y auction was just longs puking. It was only after that the flood of shorts arrived and hammered the 10Y to "fails" levels in repo.
Even so, never before have we encountered a 10Y trading so special it was below the fails charge. Why would anyone buy below the Fail Charge? As Skyrm explains, in the Treasury market, if you fail to deliver to a counterparty, there's a fail charge equal to basis points below the lower bound of the fed funds target range.
The equivalent of a Skyrm concludes by saying what what we noted above, namely that "what's important is that trading below the Fail Charge implies a real deep short-base. So what does this mean in the bit scheme of things? Recall what we showed yesterday using the latest data from Goldman - there is zero, nada, zilch liquidity in Treasurys.
Indeed the last time the top-of-book depth was this low was during the peak of the Covid crisis last March. At the same time, the latest repo data merely confirms that all the price action is entirely on the short side and explains much of today's action.
In fact, never before has there been such a massive pile up of shorts in the 10Y. This is important because it means that the imbalance in the bond market is no longer just a fundamental bet by traders expecting inflation: there is also something profoundly wrong with the actual market structure itself so much so that if left unchecked it could lead to catastrophic consequences for the world's once upon a time most liquidity market. Meanwhile, none other than the Fed vice chair Lael Brainard, who was until very recently expected to become the next Treasury secretary and is widely considered to be Powell's replacement as Fed Chair, said on Tuesday that the Fed is now "paying attention":.
I am paying close attention to market developments — some of those moves last week and the speed of those moves caught my eye. I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress toward our goal. Maybe on Tuesday the Fed did not see "disorderly conditions" but in light of the historic move in repo on Wednesday, the Fed no longer has the luxury of waiting.
Perhaps the Fed will go so far as suggesting a new Operation Twist will be activated in the coming months ahead of the Fed's taper announcement. Incidentally, our base case is that Powell will make it clear the current SLR term, will be extended as the Fed will want to hold on to YCC until just before it announces tapering in H2. And speaking of Pozsar, this is what he said in his latest Global Money Dispatch note which we touched on earlier:.
For every macro narrative that explains why U. So yes, Powell and the Fed could ignore the rise in yields as long as the turmoil did not spread to the repo market - such a move could be explained by the reflationary macro narrative - but now that the 10Y is trading below the fails charge in repo the repo market is officially cracking and as Sept taught us, there is nothing that the Fed is more worried about than the sanctity of the repo market.
Finally, what happens if we are right and Powell does assure the market that SLR will be extended? In fact, judging by the freefall in futures, we wouldn't be surprise if the Fed announces that the SLR exemption will be granted at the usual pre-market time of am. In any case, stay tuned because there will be fireworks - most likely to the upside - but if for some reason Powell refuses to unclog the repo market, there will be blood.
Authored by Sven Henrich via NorthmanTrader. Velocity being the operative word as the 10 year flew toward 1. Hence my comments in Yield Shield. The Fed from Powell on down put on a brave face claiming the rise in yields is just a sign of confidence in the recovery. They're all reacting either with action or jawboning.
Indeed the ECB has kept the virtue signaling up all week, ready to do more, all options on the table:. Fib saved into the weekly close. Last week Fed: Rising yields are a sign of confidence. Hence speculation is running rampant, or at least wide spread begging for the Fed to step up and intervene:. The moves could happen as soon as the upcoming March Federal Open Market Committee meeting, according to investors and economists who are watching recent action closely and expect the central bank to address some distortions that have occurred.
One possible move would the third iteration of Operation Twist, a move the Fed last made nearly a decade ago during market tumult around the time of the European debt crisis. Another could see an increase in the rate paid on reserves to address issues in the money markets, while the Fed also might adjust the rate on overnight repo operations in the bond market. Before you know it all that confidence in the form of rising prices will eat into margins of companies priced to perfection thanks to constant interventions already in place.
Hence all eyes will be on Jay Powell on Thursday to see if he follows the steps of Bernanke and hints at something like Twist. After all it was big market hit 10 years ago also following a market correction:. Always more, never less, always intervene at the slightest sign of the consequences of intervention filtering through markets.
And this is how you end up with massive asset bubbles which require ever more maintenance and intervention to maintain. Powell will again be on the spot. The market is in laying in wait with the same demand it has made for the last 12 years: Gimme more stimmi. Keep the easy money flowing. The market wants more intervention, this time in the form of yield control. The Fed has claimed it has the tools to control inflation.
So fast forward to Monday morning when after the latest round of fireworks, the Aussie 10Y had blown out to 1. This was the first time since officials introduced the debt purchase program Nov. In kneejerk response, 10Y Aussie yields - which we already down for the day - tumbled much as 32bps. At the same time, amid expectations of even more coordinated central bank intervention, treasury futures were rising, with the 10Y yield down to 1.
And with BofA expecting the Fed to address markets "as soon as this week", there is no telling how high stocks can soar in the coming days as central bank panic goes to Australia was just the start: shortly after Asia reopened following today's blowout, Japan followed suit and saw its 10Y surge above 0. Well, with today's blowout past the highest level reached during the YCC period, one can conclude that YCC is starting to fail across the globe, first in Australia and now in Japan.
But while yields were surging across the globe in sympathy with the epic rout that took place in US bonds earlier in the day, when a catastrophic 7Y auction sent the 10Y soaring by 10bps in seconds, rising as high as 1.
Today was the first day in the recent sell-off that felt distinctly defensive in nature. While one would think that the answer is "a lot", JPM then notes that its "Equity Derivatives team saw buyers of interest rate products, betting that yields have moved too far. There's more: as JPM strategist Jay Barry adds in a valientattempt to find dip buyers, Treasury yields are somewhat "mispriced" at current levels with the first hike baked in for March , which is out of line with fundamentals according to the JPM trader.
And while Barry expects to ultimately see higher yields and steeper curves from current levels, in the latest moves fundamentals have been taking a back seat to technicals and are now well below fair value.
This, to JPM, presents the short-term opportunity to add duration. Given there are over 50bp of hikes priced by early , there is value in intermediate Treasuries, and JPM recommend tactical long positions in 5- year notes at 0. He added that "Treasury yields are overshooting as Fed officials have been refraining from commenting directly about them" and noted that "the pick up in momentum reflects strong economic signals from U.
Well, following today's bond rout, funds may instead reverse and opt to buy bonds in the next three days ahead of month end to take advantage of the sharply lower prices which have not been matched by a similar decline in stocks. In short, we wouldn't be surprised to see a vicious snapback rally in the coming days, especially if some CTAs close out their shorts, which are currently the highest in 2 years In fact, one look at the aggressive buying of Treasurys in the overnight session, it appears that this may have already started.
The long era of monetary-policy dominance is over, leading to a heightening of inflation risks not seen since the s. Investors are deeply underweight and will need real assets such as commodities as a hedge against inflation. It is rare in macro-forecasting when the stars align so perfectly. The convergence of fiscal and monetary policy represents a profound change to the investment landscape.
But policymakers should be careful what they wish for. Large government deficits financed by pliant central banks have preceded every high and hyper-inflationary episode of the 20th century, from Weimar Germany in the s, to Hungary in the s, to Argentina in the early s. QE has lulled people into a false sense security as it was not inflationary. But a private sector still licking its wounds from the financial crisis did not want to borrow, and banks did not want to lend, which meant borrowing and therefore inflation did not sustainably pick up.
The pandemic accelerated a trend that was already in place: the increasing impotency of QE. Now we need QE combined with large government deficits, which is a very different beast to QE on its own as it creates supply of money and a simultaneous demand for that money. History shows this has much greater inflationary potential. In the Lake Regime of the last years, cyclical moves in inflation were contained and containable as monetary policy on its own still had teeth. But in the Ocean Regime, where we are today, the underlying risks to inflation have shifted, and garden-variety moves in inflation have a greater likelihood of becoming unanchored and disorderly.
This does not mean inflation is imminent, but it does mean any short-term rise in inflation could turn into something longer-lasting and persistent. However, the nature of inflation is that it does so abruptly and with little warning. This is why action must be taken today to make portfolios more inflation-resilient. Looking to the high-inflation s, commodities were the only major asset class to deliver a positive real ie inflation adjusted return.
When we combine this structurally positive backdrop for commodities with a capital-cycle analysis the case for commodities becomes more compelling. In short, sectors suffering from capital scarcity tend to outperform as lack of competition causes returns to fall below the cost of capital. Based on our analysis, several sectors in the commodity space, such as gold and silver mining, integrated oil and gas, and copper are among the most capital-scarce sectors globally.
Underinvestment in supply means these sectors will not be able to respond to the strong recovery in demand we should see this year as the world emerges from the pandemic. When demand meets excess supply of dollars meets an investment community severely underinvested in real assets such as commodities, the only thing that can respond is price. The shorter-term gains may be behind us, but the potent structural backdrop for commodities and real assets we have outlined support a much longer lasting commodities supercycle that is beginning.
As we detailed earlier, futures were down quite sharply to start the overnight session only to stage a significant recovery to current highs perhaps on the back of a lack of glaring clearing issues Both of which fit with our warning from Friday that there has been a 'phase reversal' in the options market. From total and utter panic-buying of calls relative to puts Gamma phase reversal.
Put buying soaring as calls fade. Next week will be chaotic pic. Critically, the 'gamma-squeeze' may have been wrung out as Nomura's Charlie McElligott notes that there is now absolutely no "crash up" being priced whatsoever on a US Equities Index level. Or more ominously, the vol market is saying we are at risk of outright "crash down. The zero gamma critical support level down shifts to , should that level break then becomes the target.
Yesterday, when TD Ameritrade became the first exchange to impose "unprecedented" restrictions on GME trading, we predicted what would happen next: "expect many more exchanges to follow suit, because hedge funds clearly need to be protected when faced with the retail daytrading mob. The irony of RobinhoodApp being named Robinhood when very clearly their entire agenda is to steal from poor and give more to the rich is not lost on me.
This crackdown on retail trading sparked a firestorm, with retail investors rightfully demanding to know why these stocks and associated options were put on some ad hoc restricted list with no warning and threatening to take their money and go to more hospitable brokers, politicians threatening that hearings are coming, regulators threatening that lawsuits are coming, and everyone generally shocked at just how openly broken the market is. Dave Portnoy, a recent participant in the Reddit-fueled rally, was among those who slammed Robinhood for its decision.
Ocasio-Cortez tweeted that she would welcome a hearing in the House Financial Services Committee, to discuss why hedge funds can freely trade the stocks and retail users are blocked. Even Elon Musk approved of the tweet. But what was the reason for this unprecedented crackdown? After all, during countless episodes of market turmoil before, brokers had never taken it upon themselves to become the market's supervisor and suspend trading in one or more shares.
It appears that there are several reasons, the first of which may have to do with some backroom deals. First, consider that Citadel, which as regular readers know is the biggest source of revenue for Robinhood In other words, while nobody has called it that yet, we just lived through a mini LTCM.
Said otherwise, if the squeeze had continued Citadel and Point72 would have had to bail out Melvin Capital again which is odd since it was CNBC that also reported yesterday that the hedge fund had closed its shorts On the other hand, if they did not throw more good money after bad, not only would their initial investment be wiped out, but once Mevlin was forced to start selling its longs to fund its margin calls - which also happen to be the names contained in the Goldman Sachs Hedge Fund VIP basket biggest longs for Citadel and Point72 - that's when the real carnage would take place as everyone would scramble to frontrun the upcoming liquidation.
The result would have been billions in losses for Citadel and Point Surely the best outcome - for Melvin's forced owners - would be to simply stop the firehose of liquidity whichever way possible, and after a few back door phone calls, which we hope to learn all about during the upcoming Congressional hearings, that's precisely what happened. As Faber also said earlier, "any number of large of large hedge funds have suffered significantly. How much? Add puts and other underwater derivatives, and the real loss will be even greater.
And just as striking: Ortex data showed that as of Wednesday, there were loss-making short positions on more than 5, U. This means that virtually every hedge fund that had short positions on was getting hammered. So when dozens of these giant asset managers sat down and decided to polite call one broker after another what do you think happened. In fact, brokers would be delighted to dump all but their biggest whales clients. So who pays the fees? Well, just take a look at Robinhood's form Citadel, Virtu, G1X, Wolverine, and countless hedge funds which, like Citadel, are tightly interwoven in the fabric of the market.
It's they that made a few phone call and just put dozens of stocks on a market-wide restricted list. There's more. While unconfirmed, there is speculation that that "Citadel reloaded their shorts before they told Robinhood to stop trading GME. What will be the catalyst? Will it be when hedge funds have finally covered their shorts, at which point there will be no further need for a squeeze. If that's indeed the case, it'll tell us all we need to know about who truly runs the erroneously called "free markets.
Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. How did Mike Swell, the co-head of global fixed income portfolio management at Goldman Sachs Asset Management, respond to an environment where record-low yields caused bonds to lose much of their appeal? In an era of negative yields in much of the world, U. When we talked about the possibility of the U. Treasury Department should issue 1,year bonds.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story: Barry Ritholtz at britholtz3 bloomberg. To contact the editor responsible for this story: Robert Burgess at bburgess bloomberg. The question now is whether such aims bear out -- and in time to catch up with all the money flowing in. The overlap between the two sectors is clear. Both involve substances that are federally illegal in the U. Yet there are also huge differences.
Still, the regulatory landscape is shifting fast, giving investors with a higher tolerance for risk a new potential growth area. Psychedelics have just recently been decriminalized in a handful of U. Denver and Oakland both decriminalized psilocybin in , and Washington, D. Oregon took it a step further, voting in November to legalize psilocybin -- but only in a therapeutic setting.
Exact rules on what that entails have yet to be worked out. Muslimov is building a portfolio of around 15 companies, investing only in seed and Series A rounds with a split on psychedelic and cannabis firms. Investors noticed. Another similarity: Dozens of psychedelics companies have gone public just like early cannabis companies did -- in Canada using reverse takeovers, mostly of mining companies.
Around 25 companies on the Canadian Stock Exchange are in the psychedelics business, according to the exchange. While cannabis is chasing widespread recreational use -- a path that hinges more on changes to the federal laws -- the narrower medical path that most psychedelics companies are taking makes investing in them more like investing in biotech, said Simeon Schnapper.
The long history of indigenous and black market use make it easier to predict success compared to novel drugs, he said. We know these molecules can work. We just need to get them through FDA trials. The long history of psychedelics also means intellectual property needs to be scrutinized.
Meanwhile, hopes for medical breakthroughs are high. Whereas cannabis aims to treat things like depression, addiction, anxiety and PTSD, psychedelics investors say many substances show the promise of actually curing them by resetting the brain -- with some claiming it takes a single use. An investment in one company gave him around 1, times his money in less than a year, he said. Of course, it was easier said than done. That would be the perfect fairy-tale ending, but Economics and the Law of Unintended Consequences beg to differ.
Musa caused a severe hyperinflation in these parts. So business owners had no choice but to increase prices to support wages. Over a year of two, high prices drained people off their Gold and they became poorer than before. He tried to remedy the situation, but it was too late. Regions of Cairo, Medina and Mecca would continue to be devastated for years to come. The Zimbabwean government printed gobs of money starting in This caused, you guessed it, a hyperinflation.
As so-called investors do away with any form of protection, seemingly reliant on a central bank or governmental response to every dip As Nomura's Charlie McElligott warns that equities' "weaponized short gamma" remains supportive But, as McEllligott warns, the overshoot in sentiment is starting to get scary, especially ahead of quad witch next Friday. Despite the unprecedented polarization in Congress, fiscal stimulus is slowly progressing with Politico reporting this morning that it is quite likely that a Covid relief bill will come together.
Latest headlines confirmed as much, when Nancy Pelosi said she and Senate Republican leader Mitch McConnell hope to combine a coronavirus relief measure with an omnibus spending package. While more information on the fiscal stimulus is expected to emerge heading into this weekend, where policymakers on both sides will hold stimulus discussions, it is now almost certain that a hypothetical package will be tagged alongside the omnibus spending bill that will set to be voted on December The big political surprise coming is Biden works with the political center to achieve substantial centrist legislation in a variety of ways — to the frustration of the far left.
There will be no Green new deal, confiscatory tax law changes, defunded police, mass forgiveness of student loans or single payor health. There will be an infrastructure bill with Green energy emphasized , changes to taxes on foreign corporate earnings, police reform and other attempts to reduce institutional racism, forbearance on hardship student debt, fixes to Obamacare.
People who think McConnell can bring the Senate to a halt and reject every proposal are nuts. There are several Republicans like Romney, Murkowski, Collins, Ernst, Purdue, and Tillis that can realize they have a ton of power to support a centrist agenda.
Citigroup Inc. The New York-based bank, which has about , employees worldwide, wants to see how productivity changes over longer stretches of time and whether creativity suffers before deciding how much working from home to allow, Corbat said.
Citigroup and many of its competitors have kept the vast majority of staff home for much of the year to help stem the spread of Covid Now, as governments around the world rush to procure vaccines and promising new therapies for the virus, many companies are developing plans for eventually bringing workers back.
In the meantime, as parts of the U. Citigroup and Wachovia had signed an agreement on Sept. The lender has been seeking to selectively expand its branch footprint in states and cities where it already has a preponderance of card customers. The third-largest U. Still, the firm wants to appeal to customers who like to go in person for certain transactions.
As the end of the year approaches and Citigroup weighs bonus pools for traders and other employees, Corbat said the firm has had to balance its desire to retain and reward employees with the broader economic environment and its desire to improve shareholder returns.
A "Titanic Taper Tantrum"? Two weeks we showed a concerning chart from Bank of America according to which after monetizing virtually all net Treasury issuance in , the Fed's monetization of debt in would shrink drastically, and as a result, "Treasury supply will significantly outstrip Fed purchases", and this is even without factoring in the possibility of another major fiscal stimulus.
This prompted us to ask whether another "crisis" would spontaneously emerge in the coming months to greenlight another massive expansion in the Fed's QE; and why not - after all we are now well past the point where there is even a trace of monetary prudence with global central banks set to double their balance sheets in just two years :.
What does that mean for supply and demand for both Treasurys and the broader bond universe, and by extension, equilibrium bond prices? To answer that question, JPMorgan quant Nick Panigirtzoglou looked at bond supply and demand in and projected that while there will be a substantial decline in global bond supply next year, he anticipates an even more dramatic drop in bond demand, largely driven by a reduction in G4 central bank purchases.
By contrast, government supply looks set to decline only marginally, as a decline in government bond issuance outside the US is largely offset by an increase in US Treasury issuance. Meanwhile, on the demand side, "the biggest shift this year has been the central bank QE response. And while the largest US bank expects the Fed to provide some further stimulus at the December meeting, it expects this to come in the form of an extension of the average maturity of its Treasury purchases rather than an increase in the pace.
Foreign official demand i. In principle, the strong gains in equities in 2H20 could arguably have seen an increase in the pace of bond purchases. However, while the recovery of equities has helped reduce funding deficits of US defined benefit pension funds to a level where they are little changed YTD. Obviously this begs the question of how much of the above is already priced in; alternatively one can also ask a market which has habituated to Fed intervention how much excess QE or maturity extension, or yield curve control is priced into today's 10Y yield of 0.
Because that's precisely what happened in May when Bernanke unleashed the infamous taper tantrum. That's when yields soared by bps, sparking a cascade of VaR shocks as the market freaked out. Well, back then it was just QE3 that was being tapered: considering that the size and scope of the current QE is far, far greater, we can only imagine just how dire the "titanic taper tantrum of " will be.
Silicon Valley veteran Michael Moe is in talks to raise capital through a blank-check firm to pursue a deal in education technology, an industry buoyed by the Covid pandemic, according to people with knowledge of the matter. Moe is set to be chief executive of a new entity, tentatively dubbed Class Acquisition Corp. Both men also are alumni of GE Capital. Moe, who rose to prominence as an equity research analyst, was chairman and chief executive officer of boutique investment bank ThinkEquity before founding Global Silicon Valley, which invests in the education-technology sector through its GSV Ventures arm.
He has backed online course providers Coursera and Course Hero, app-maker Class Dojo and digital-credential service Parchment, as well as larger players like Chegg Inc. There is another way of putting it: extreme euphoria, the likes of which surpass even the dot com bubble. Naturally, stocks have taken the recent newsflow very well, with prices hitting record highs despite elevated valuations.
As shown below, the most shorted stocks were up However, as we also showed two weeks ago, shorts are now almost extinct, and as KLC notes, the tank appears to be running low. However, it's not just forced short covering that is driving the meltup: activity in the options market is just "downright euphoric" in and according to KLC, a huge source of potential dislocation.
This is the highest reading in history. To be sure, the euphoria is not just in calls, it's everywhere with At the same time, the Sentiment Trader percent of indicators showing excessive optimism minus the indicators showing excessive pessimism is at record levels of net optimism This is also a function of the surge in money growth.
But, as KLC points out, across a variety of indicators this market euphoria is increasingly disconnected from economic variables, like consumer confidence which has recently rolled over. The University of Michigan consumer sentiment has plunged to levels associated with much lower valuations. Financial divergences are becoming more widespread too, with the SMART Money Flow index tumbling as stocks rise, indicating a continued distribution from whales to retail investors.
It is also disconnected from the potential escalation of the COVID pandemic, which will likely see even more cases in the coming weeks. Consider that Canada celebrated its Thanksgiving on Monday October 11, At the same time, as discussed last week, the economy faces a double whammy from the expiration of extraordinary unemployment benefits at the end of the year.
Meanwhile, inflationary pressures - no matter how hard the Fed tries to ignore them - are building: the PMI Composite Output Price index just posted its highest reading ever. With the disconnected between markets and the economy stretched like a rubberband, what are investors to do: go all in stocks hoping the biggest bubble in history keeps growing, or pull back? According to KLC, "the consolidation in these names portends further drops":. And while the DXY Index has broken down to new lows for the year, gold has also retreated.
This means that gold has a catch-up period relative to the USD. The authors' conclusion: "Going into the end of the year, we think the risks in the equity market are high while gold and gold miners look relatively attractive.
The U. Many are again questioning whether equities have become disconnected to reality as the Covid pandemic rages anew. Even the Federal Reserve is starting to realize just how beneficial this pot of money will be to the economy going forward. At the November Federal Open Market Committee meeting, Fed staff no longer assumed that another round of fiscal stimulus is coming. The lack of such support was offset in their forecast by household saving.
From the minutes of the meeting:. Although this lack of additional fiscal support was expected to cause significant hardships for a number of households, the staff now assessed that the savings cushion accumulated by other households would be enough to allow total consumption to be largely maintained through year-end. Savings did not cushion the economy after the first fiscal cliff this past July; wages and salaries were the cushion.
Lost in the concern about fading fiscal support has been the V-shaped recovery in wages and salaries, which are nearing their pre-pandemic levels and are even positive on a year-over-year basis. The notion that fading fiscal support would crash household spending hinged on the assumption that there were no jobs available to compensate for the income lost from declining federal support.
That was wrong, and will likely continue to be wrong in aggregate. The underappreciated Job Openings and Labor Turnover data indicate that job openings, while down from the peak, did not suffer a decline like in the last recession and now hover at levels.
Rising wages and salaries means that households can support spending without touching accumulated savings. In aggregate, savings rates have remained persistently high even after the economy moved through the first fiscal cliff at the end of July. Although the saving rate, at With Covid vaccinations about to commence, the economy will likely rebound quickly without the need for households to tap accumulated savings.
The median estimate of economists surveyed by Bloomberg is for the economy to expand 3. The primary factory restraining the economy is the services sector, as spending on goods is above the pre-pandemic trend. A vaccine will allow the services sector to come online fairly quickly and close the output gap, or the distance between where the economy is and where it would have been in the absence of the pandemic.
This is where we need to start thinking about the possibility that households tap their accumulated savings, pushing the savings rate below zero after the economy has largely normalize. In addition, households save simply because their ability to consume services is constrained. Policy makers and market participants have yet to fully appreciate the magnitude of accumulated savings because the numbers are so large and out of historical context that they are difficult to comprehend.
Also, there seems to be a false impression that savings are already being drawn down. The thing to know is that these accumulated savings represent a massive amount of stimulus that is more than the current output gap and could spark an economy already set to normalize. I expect households will start spending their accumulated savings next year as confidence rebounds and very likely after the economy is already on its way to full recovery.
To contact the author of this story: Tim Duy at duy uoregon. As such, we continued reducing our equity exposure, adjusting our bond holdings, and raising our cash levels. As shown below, with fund managers carrying some of the lowest cash balances on record, we could see selling pressure to make distributions.
The basis of the rally was a trade deal which never occurred, tax cuts and massive levels of share buybacks. Investors justified paying Instead, the economy got hit by a pandemic, a recession, and surging levels of unemployment. That sentiment has pushed market speculation to more extreme levels, which have historically coincided with short- to intermediate-term corrections.
As shown below, over the longer-term, such deviations from long-term means have rarely ended well for investors. Last time was at the September highs. Such is historically associated with market peaks. Last time at this level was January , and at On a monthly basis, the deviation is at While we have seen higher levels historically, the market is now in the territory of more meaningful market corrections.
While the markets can certainly go higher from here, the point is that they are unlikely to do so without a correction or consolidation, first. From a contrarian position, the higher the allocation to equities, to more likely the market is closer to a correction than not. The gauge uses weekly closing data. Again, not surprisingly, the deviations from long-term means are also at more historical levels. None of this means a correction MUST occur. Market participants have discounted the need the additional stimulus to sustain economic growth and recovery.
The Fed is on the sidelines for now. Without additional Treasury issuance, the Fed has less ability to provide additional liquidity to the market. While the economy is indeed recovering, along with employment, it will still likely fall well short of pre-pandemic levels stifling future earnings growth and revenues. Investors pay exceedingly high valuations based on a full earnings recovery, which is unlikely to be the case. These are just some broad thoughts.
However, when everyone is long equities and leveraged, it is an unexpected, exogenous event, which begins the rush for the exit. What exactly will that catalyst be? As we head into year-end, we will be navigating the risk of overly extended and bullish markets against the seasonally strong end of year period. We will act accordingly and increase equity risk in portfolios as needed.
Such is just how we manage money. We believe that over the long-term, capital preservation and risk management leads to better outcomes. While stocks slumped Monday, the selling did little to damage a November that will go down in the history books. Small caps rose the most on record, Bitcoin reclaimed an all-time high, gold slumped the most in four years and energy stocks headed for their best month ever.
Chalk it up to a near unprecedented confluence of good news. For four straight Mondays, a different drugmaker reported advances on vaccine trials, sparking a furious rotation into stocks that benefit most from economic growth. Exchange-traded funds tracking stocks in the U. Small caps are finally winning over fans amid expectations of a strong economic rebound.
Grabbing headlines away from big tech, cyclical areas continue to surge as the equity rally broadens. Energy shares in the benchmark gauge are headed for the best month on record, while industrial and financial companies have risen the most since Vaccine optimism ignited a rotation from high-flying growth stocks into beaten-down value shares. At the same time, ETFs tracking value have added the most cash since at least Facebook Inc.
The looming specter of further Federal Reserve action amid spiking virus cases sparked a quiet rally in long-dated Treasuries even as risk assets surged. Benchmark year yields dropped roughly 2. Crypto fans cited a warmer institutional embrace as the catalyst for the renewed rally, while also seizing on the central-bank-money-printing narrative to promote the notion that Bitcoin is a store of wealth. A brightening outlook for global economic growth has weighed on haven assets, dragging the Bloomberg Dollar Spot Index to its lowest level since The gauge has dropped 2.
That slump has fueled its global peers higher, with the greenback on track to fall against every other Group-of currency this month. The export-focused nation is also benefiting from investors hunting for returns in emerging markets amid a weak dollar. The Kospi rose 0. The favorable view of Korean stocks marks a big change for a market dominated by conglomerates with complex corporate structures that had lost favor even before the pandemic. The Kospi began underperforming Asian benchmarks in when the U.
By last year, the cyclical-dominated market had earned a reputation as a value trap with its price-to-earnings multiple underperforming Asian peers. More than half of the top 20 stocks bought by foreigners this month on a net basis in Korea are cyclical stocks, which are sensitive to economic cycles. They include Samsung Electronics Co. Recoveries in global economies are expected to continue driving gains in Korean share prices and earnings, market observers say. Gross domestic product increased 1.
The economy has been helped by a surge in exports amid strong demand for memory chips and electronics. Conservatives will probe her views on stimulus spending, as well her less confrontational position toward China, a nation many Republicans view as an economic adversary. A front-row witness to the increasingly partisan battles over government spending in Washington over the past quarter-century, Yellen now stands to become a combatant for the first time in her career.
The Fed is a consensus-based institution, where colleagues typically use polite, diplomatic language when they disagree. In her new job, Yellen can expect GOP lawmakers to pull no punches in assailing the large-scale coronavirus relief package Biden promises, while any concessions to the opposition are sure to draw broadsides from the liberal wing of her own party.
Her first step is expected to be seeking unity between the Fed and Treasury, the two institutions at the front lines of any economic crisis. The Fed said it opposed ending the programs but agreed to return hundreds of billions of dollars in backstop money to Treasury, where Mnuchin wants Congress to put it to what he considers better uses.
The leaders of the two institutions have years of shared working history between them, which could smooth their efforts to support the fragile recovery from the pandemic. Before she can turn to mending relations with the Fed and negotiating stimulus, though, Yellen can expect Republican criticism for her past comments on Chinese trade policy. Biden returns to the federal government with a Congress far more antagonistic to China than four years ago and united in its desire to punish Beijing for unfair trade practices.
Economic negotiations with one of the U. Treasury chief. But Yellen has extensive experience dealing with Chinese economic officials from her time as Fed chair, when she attended Group of 20 meetings. Writing as an academic with her husband, Nobel-prize winning economist George Akerlof, Yellen has authored papers on such topics as job satisfaction and fair wages in the labor market.
Yellen and Biden may seek to avoid a repeat of what many economists considered a policy mistake following the financial crisis, when a premature return to fiscal austerity by Congress held back the recovery even as the Fed sought to spur growth through controversial quantitative easing programs. The Bloomberg Trade Tracker is in its healthiest shape since it was started more than two years ago, amid U. Most recently, South Korea and Taiwan are credited with keeping up the winning streak.
The first 20 days of November saw the best reading for Korean exports since February. For now, inbound containers at the Port of Los Angeles are the most impressive on the Trade Tracker, soaring in October to almost two deviations above their longer-run average as the U.
Healthy imports are continuing to move through L. The Trade Tracker has shone brightly since early September, though there are reasons to be cautious about the risks ahead: Most notably, the resurgence of the virus across Europe and in the U.
Shipping carriers seeking to capitalize on the most lucrative trade routes are returning empty cargo containers to Asia, contributing to freight rates that have soared to record highs. See other ocean freight rates on the Bloomberg Terminal by clicking here. Still short China is projected to once again to become the top U. Medical relief The European Union said it would join forces with countries including Canada and Japan to push fellow World Trade Organization members to ease tariffs on medical equipment needed to fight Covid, the latest effort to bolster supply chains amid the pandemic.
Move soon The U. High-speed chase Japan and China are racing to build a new type of ultra-fast, levitating train, seeking to demonstrate their mastery over a technology with big export potential. Good to go Global airline lobby IATA is working on a mobile app that will help travelers demonstrate their coronavirus-free status, joining a push to introduce so-called Covid passports as vaccines for the disease near approval.
Meanwhile, Qantas plans to require future international passengers to have a vaccination before they fly. Clean sweep Clorox is shipping out its disinfecting wipes as fast as the company can make them. At steak Beef prices could rise over the next three to five years, driven by firm global demand and potential supply disruptions linked to La Nina, Bloomberg Intelligence says. Colleagues and friends can sign up here. We also publish Balance of Power, a daily briefing on the latest in global politics.
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Create a new lightbox Save. Create a lightbox Your Lightboxes will appear here when you have created some. Save to lightbox. Rato Machindranath is also said as the 'god of rain' and both Hindus and Buddhists worship the Machindranath in hope of good rain to prevent drought during the rice plantation season. Devotees carry the idol of Rato Machhindranath chariot while being taken for the procession of festival on the seventeenth day of the nationwide lockdown imposed by government amid concerns about the spread of corona virus COVID outbreak in Lalitpur, Nepal on Thursday, April 09, Rato Macchendranath is also said as the 'god of rain' and both Hindus and Buddhists worship the Macchendranath in hope of good rain to prevent drought during the rice plantation.
Priest taking out idol Rato Machindranath from the chariot towards the Bungamati after the celebration of Bhoto Jatra festival at Jawalakhel, Patan. People participate in the chariot procession of Rato Machhendranath, God of rain on the first day of the month-long festival from Pulchowk towards Gabhal. Rato Machhendranath is known as the god of rain and both Hindus and Buddhists worship for good rain to prevent drought during the rice harvest season.
Living Goddess Kumari observes the chariot procession of Rato Machhendranath, God of rain on the first day of the month-long festival from Pulchowk towards Gabhal. Members of Guthi Sansthan displaying the bejeweled vest known as Bhoto to the public from the chariot on celebration of Bhoto Jatra festival at Jawalakhel, Patan. A Nepalese devotees lit traditional torch during the last day of the Rato Machindranath chariot festival after celebration of 2nd time Bhoto bejeweled vest showing Jatra festival at Jawalakhe.
Both Hindu and Buddhist people of Newar community celebrate the Machhindranath Chariot pulling fair, which is known as the longest fair in Kathmandu valley. A Priest offers worship to an icon of Rato Red Machindranath during the procession of Rato Machhindranath festival on the seventeenth day of the nationwide lockdown imposed by government amid concerns about the spread of corona virus COVID outbreak in Lalitpur, Nepal on Thursday, April 09, Nepalese people observing the festival of displaying the bejeweled vest known as Bhoto to the public from the chariot on celebration of Bhoto Jatra festival at Jawalakhel, Patan.
Devotees playing and dancing in a tunes of traditional instruments during Chariot pulling festival of Rato Machindranath 'God of Rain' on first day at Pulchowk, Lalitpur. The government had announced public holiday on October 12, for the Machchhindranath Bhoto Jatra this year. Nepalese devotees holds a traditional torch during the festival of displaying the bejeweled vest known as Bhoto to the public from the chariot on celebration of Bhoto Jatra festival at Jawalakhel, Patan.
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With the new Fama 3D simulator, you can create your simulations of sofas including also chairs, tables, rugs… you can also rotate and see the simulations from all views. It is slightly more complicated than the other simulator but it offers many more possibilities.
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Previous Next. Famaliving opens in Bilbao Famaliving opens in Bilbao Famaliving Bilbao is an addition to the long list of stores where you can purchase your Fama products in the capital of Bizkaia. Now, you have the opportunity to visit its great display of m2 which is filled with Fama sofas and armchairs.
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