"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Sunday, November 23, 2014

Frogs In Boiling Water - FED Turns Up Heat, Global Central Banks Step To The Line For A Junk Shot

Let's be honest about the current state of affairs in finance.  In the days following the end of the FED insatiable monthly bond buying we have seen three, three Central Banks, come out with drastically shocking statements about their course of action.  The moment the US stopped engaging in hand over fist bond and equity futures purchases:
  • the Russian CB jacked its one-week repo-rate (9 percent to 10.5 percent), its key rate (from 8 percent to 9.5 percent), and its deposit rate (from 7 percent to 8.5 percent).  
  • the BOJ decided to triple purchases of stocks and property funds (ETFs and REITs), extend bond maturities from 4-7 years to 7-10 years, and raised the bond purchases ceiling from Y30 Trillion to Y80 Trillion, 
  • the PBOC said cut its main rate for the first time since 2012.  
The US FED carried three separate central banks (for nearly 6 years) and without the US FED, these three musketeers must figure out a way to manipulate indexes to represent real economic growth.  To make it more difficult, Draghi and ECB are out running about "doing whatever it takes" but as for any real action, that's yet to manifest.  The money-system fumblers will never pull it off and they seem to know it.  Notice the desperate lengths banks went to to manipulate LIBOR just as a means to turn profit. 

To make matters worse, BOAML said it would drop its 2015 SP500 EPS forecast by a buck on the heels of lower oil but lets be real, who cares about earnings when relative valuation it makes it so much easier to collect your 75-200 bps for managing grandma's retirement.
Regardless of earnings, all we need is a non-voting member to run his mouth and the computers go and buy.

The wizards that run the money system have begun their "junk shot" to stop the leak of trust that bleeds out each day.  Morgan Stanley even notes that now the FED will need MORE DIALS on it's dashboard to manage inflation since the Fed ran off the deep-end and decided to start toying with inflation expectations.

Vincent Reinhart and Ellen Zentner aren't to optimistic of the FED and foresee disconnects in rates:
"Simply put, if the Fed does not sell assets to shed reserves permanently or drain them temporarily in large volume, then account balances will be flooded and the private market in reserves will be rendered irrelevant.  The effective funds rate will be disconnected from other overnight rates."
It seems as we hear more and more CBs talk they always seem to want to "send signals to the market" as opposed to anything else.  Things aren't well now in the world.  Things won't get better if people continue to mess around with the mechanism that exists to offer a free market of pricing and resource utilization.  If we get involved and begin to alter rates, manage money supplies, create indexes to gauge inflation and then remove the most price inflated products, this jacks up the system when venture forth to manage and interact with it.

The US Fed was recently highlighting the long-term damage to economies that can come from sharp declines in economic activity.

Why do we get bubbles?  Mostly because of the after-effects of low rates, easy credit standards, and non-judicious management of capital deployment.  Businesses are not stupid, they can see right-through this bullshit of "sending signals" and whatnot.

Consider Japanese businesses, to-wit from Benzinga:
"This means that even as the Japanese Central bank tries to stimulate the economy, local businesses have realized the pent up demand as not being organic. This renders the fiscal stimulus and monetary easing measures useless for stimulating the underlying Japanese economy."
I'm not sure how much longer this game will continue but now that we have sovereign central banks outright buying equities and managing economies, we're in for an epic crash when this goes tits up and no "last-resort" exists because it spent the past decade printing cash and buying toxic assets and trying to stimulate growth through cheap money and on and on.