Zzzzzzz

Well, it all played out pretty much as expected.  The best you can say for yesterday's Fedapalooza is that Janet Yellen has clearly had some coaching on her presentation; while it's far too late to do anything about that screeching Estelle Costanza accent, she was clearly more deft at answering questions without really answering them.  If you looked closely, moreover, you could see the infamous dot distributions for 2015, 2016, and the long run clearly printed on her jacket.  A gift from Professor Woodford, perhaps?


 In terms of the substance of the announcement, we duly got a downtick in growth and unemployment forecasts, the faintest increase in the inflation forecast, and an upward shift in the 2015-16 dot medians.   That the long-run median declined slightly was not altogether a surprise given the way the wind was blowing, either.   This was generally the expectation sketched out in this space yesterday, and markets duly took the lack of surprise in stride, increasing the price of seemingly every financial asset but puts.

Macro Man half suspects that Ms. Yellen harbors a secret admiration reggae artist Shaggy; given her disavowal that the Fed is responsible for any misallocation of capital or repression of volatility, he can only assume that "It Wasn't Me" features prominently on her iTunes Favourties playlist.  One wonder if she'll still be listening when it all goes a little Boombastic.

And make no mistake, things eventually will go boom.  It might be a few years away, but given the contortions (mental, of course) that Ms. Yellen appears willing to undergo to rubbish any notion that data is less supportive of Zirp, it's close to impossible to see this ending well.  Of course, there will be mini-episodes in the interim as markets try to come to grips with an eventual normalization.   Sadly, though, it looks like for the next few weeks/months those thoughts might need to stay on the backburner.  Or, as a commenter yesterday put it somewhat less charitably, best to act like "28-year old brainless muppets, permanently fixated on the 'buy all' button."

With the World Cup on, there are worse times to not have to think too hard...well, unless you're Spanish.   Even there, though, the news isn't all bad.  Decades of footballing under-performance finally ended in 2008, just as the economy imploded.   The three tournaments of dominance coincided with fairly execrable economic conditions.   This year's return to footballing disappointment clearly marks the country's official exodus from crisis.  Mucho gracias, Roja!
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Anonymous
admin
June 19, 2014 at 8:14 AM ×

Why does it all end before all the debt is monetized ?

As far as equities are concerned , whilst all the indicators and metrics are likely as egregious as 2007, I don't think everyone has yet been sucked in entirely , or maybe its just me ?

It was homeowner defaults that led to leveraged losses that caused the last crash. The financial plumbing, so to speak, was busted.
The dumb money needs to take a beating in one asset class to get all the dominoes tumbling again. I just can't for the life of me work out what it will be this time.

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Nico G
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June 19, 2014 at 8:23 AM ×

anyone mentioned monster buy backs in the US - deplete the stock pond and keep them EPS happy steady

that you would choose to use your cash to buy your stocks at current ahem 'fairly valuation' instead of say, maybe pimping your R&D is the saddest of all the sad traits market displays today

cf. Apple with Jobs driven on innovation vs. current management driving on the stock price, mostly

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Anonymous
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June 19, 2014 at 8:39 AM ×

and with such a dovish Fed do you think Carney will actually do anything with the result of shooting GBP up in the sky?

I doubt that.

Great article.

ciao bello e Forza Italiaaaaaa

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Anonymous
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June 19, 2014 at 12:19 PM ×

leveraged loans will trigger the dominoes

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abee crombie
admin
June 19, 2014 at 1:46 PM ×

Yellen: "Eat Sleep Rave Repeat"
Equity Markets: Keep on dancing

https://www.youtube.com/watch?v=NIcW36J-h7Q

Leveraged loans, HY is a good area for the first signs of stress, particularly the thin broker b/s for that paper. All the ETFs and leveraged funds who are in that space with have a fun time selling at the same time, which will cause the rout, IMO, not so much the underlying.

In HY credit, from my view, you have two type of assets. The crappy operators with legacy debt whose businesses havent adjusted to the post 2008 reality (traditional retail, some tech, JCP. Sears etc) and then you have the legacy over leveraged stories from PE land which for the most part have sustainable businesses but just too much debt (Claires, Gymboree).

New $USD issuance out of (LatAM, Russia )EM land was also crazy the past few years so that is a potential problem if EM FX goes bonkers again. And then there is always the China RE debt

But for now I'll keep raving with the youngsters making sure I know where the exits are

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buco nero
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June 19, 2014 at 2:42 PM ×

Must buy all time record high.... beep....

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Leftback
admin
June 19, 2014 at 3:32 PM ×

zzzzzzzzzz indeed

keep half an eye open for signs of illiquidity

zzzzzzzzzz

back to happy-clappy media talk on "the new England" who "lose with style" while "playing good football" and "show great promise". Personally I'd be happier if they also closed down some crosses from opposition wing-backs and won 1-0.

Yes, yes, the media hates James Milner. But the UK media know d*ck about football, and Milner is an incredibly effective footballer, who does his job so the Jessicas can get more of the ball up front. In Italy he would be appreciated. As Uruguay's gifted players are all forwards, why not take one or two of them away with some hard work? I know, I know, cue tirades of abuse from blokes who live in Sevenoaks and never played in their entire life....

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Anonymous
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June 19, 2014 at 7:43 PM ×

@Anon 8:39am

Agree.

I am willing to bet that Carney is going to eat his words next Thursday.

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Anonymous
admin
June 19, 2014 at 8:06 PM ×


Is this the end game? We will just cancel some of our national debt...

"In an interview with The Independent Lord Turner of Ecchinswell, a former chairman of the Financial Services Authority (FSA), has suggested the Treasury and the Bank of England should announce that around £50bn of the £375bn of government bonds that the central bank has acquired as part of its monetary stimulus programme will never be sold back to the financial markets."

http://tinyurl.com/mftfu2y

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