Central Bankers and the Next Recession

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“Central banks around the world are having more and more influence on the markets. Many people are trading off of anticipated policy moves and the crowded trades are even more profound. However, the sentiment of investors making bets on the “great divergence” has reached a fever pitch.  Fed funds futures are expecting at 78% of a 25bps rate hike, far too many people are on one side of the boat.  We believe credit risk will veto the Fed policy path next year.  We do not see rate hikes coming in 2016. We implore you to buy the gold miners GDX and long U.S. Treasury bonds.”

The Bear Traps Report, December 9, 2015

 

Chances of a July Rate Cut from the Bank of England

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June 24: 41%

June 1: 9%

Bloomberg

Bank of England Governor Mark Carney responded to Britain’s decision to quit the European Union with a 250 billion-pound ($343 billion) pledge of funds to support the banking system. He also said policy makers will “assess economic conditions and will consider any additional policy responses.” That means more action may be forthcoming if market turmoil spills over into the economy, with investors increasing bets on an interest-rate cut by next month. – BN

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Central Bank Bal Sheets

A year ago today, 88% of Wall St was calling for 5 Fed Rate Hikes (2015 into 16) before:

-A possible China currency devaluation

-Brexit vote

-US election

The Blind Squirrel

Wall St’s cluelessness over risk management and how it relates to Fed policy never ceases to amaze us.  They’re the gang that can’t shoot straight.

File_000 (18)Central Bankers have been bamboozling Wall St. for far too long.

A Meeting of the Gods

The world’s monetary Gods, our saviors, will meet at the Bank of International Settlements meeting in Basel over the weekend.  We have a list of 3 trades focused on their next move, just click on the green link below.

As you can see above, the explosion in their balance sheets have had the end result of bringing the global economy to the brink of recession.

We must have a plan for their next move, get on our Bear Traps Report:

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U.S. Dollar Surge, Gold Surge and 10 Brexit Side Effects

U.S. Dollar Surge, Gold Surge and 10 Brexit Side Effects

Join our Larry McDonald on CNBC’s Halftime Report Friday at 12:30pm

“Central banks around the world are having more and more influence on the markets. Many people are trading off of anticipated policy moves and the crowded trades are even more profound. However, the sentiment of investors making bets on the “great divergence” has reached a fever pitch.  Fed funds futures are expecting at 78% of a 25bps rate hike, far too many people are on one side of the boat.  We believe credit risk will veto the Fed policy path next year.  We do not see rate hikes coming in 2016. We implore you to buy the gold miners GDX and long U.S. Treasury bonds.”

The Bear Traps Report, December 9, 2015

Receive our top 3 Trade Ideas post Brexit, click here below:

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Brexit Side Effects

  1. Spanish Yields Surging on Brexit Credit Risk Contagion

Prime Minister Rajoy’s People’s Party on track for 116-120 seats in Sunday’s election, according to a Gesop survey published by El Periodic d’Andorra.

• PP rises from 114-118 seats in Friday’s poll, BUT down from 123 seats in Dec. 20 election
• Left wing Podemos set for 90 seats vs 71 in December
• Socialists on 83-87 seats vs 90
• Ciudadanos 38-42 seats vs 40
• Poll based on 900 interviews conducted June 22-24
• Majority in Spanish parliament is 176 seats

Spain

  • 10-year yields jump most in 2016 Friday as U.K. chooses Brexit
  • Sunday’s election may once again be inconclusive, polls signal

Spanish government bonds may see more volatility next week after voters go to the polls Sunday to try to break a six-month political deadlock over who will govern the euro region’s fourth-largest economy.

The nation’s securities plunged on Friday, with the 10-year yield jumping the most this year, after Britain voted to quit the European Union. Riskier assets suffered as the decision threw uncertainty onto the political future of Europe, bolstering speculation other nations will move to hold similar referendums. – BN

Brexit Side Effects

2. European banks are off 47% from their 2016 highs, off 18% yesterday.

EU Banks new

Central banks are intervening globally in currency action, the Bank of Japan, S Korea, India and Denmark are all believed to have intervened overnight Thursday into Friday’s market price action.

The Eurostoxx 50 is fell 9%, that’s nearly 2000 Dow points.

3. Gold is a safe heaven once again, the media lectured us late last year that the metal had lost its security touch, wrong.

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Gold

4. S&P 500 FUTURES TUMBLED 5.1%, then closed 3.6% lower Friday.

S&P 500 1999

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5. We are witnessing a blow off top in panic bond buying, 0.15% for 30 years in Japan.

Japan 30 Year

 

6. The Fed once again is wearing the dunce hat. US markets are currently pricing out any chance of a tightening (rate hike) this year.  U.S. 2 year Treasuries’ yield plunged to 0.53%.

2 Year

7. Emerging Markets and Oil’s enemy, the global wrecking ball that is the U.S. dollar is back on the march higher.  WTI plunged 9.1% from its June high.

Friday

iShares MSCI Emerging Markets -6.2%

Brazil -2.8%

Mexico -2.7%

 

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Dollar Surge

 

8. The Pound is in Lehman Land

The pound slumped to the lowest level in 30 years on Friday, tumbling as much as 13%, as investors took fright at Britain’s shock.

HSBC and Standard Chartered Bank plunged 11%

Pound 5

We now have a Pound in Lehman land at 11;07ET

9. A Classic Trading Lesson, too Much was Priced in.  Too Many investors were on one side of the boat (Bremain) Thursday.

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The 70 Handle Plunge

S&P Terror

Too much was priced into the Bremain trade.

Thursday, currency volatility plunged on the pound from 24 to 13, the biggest one day move in the post Lehman era.  The market was well priced in for a Bremain.

Next, Mr. Market did what he always does, “exerts the maximum amount of pain on all participants.”

Look at this incredible move:

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Pound Plunge

At one point this Thursday if you wanted to trade pound sterling the bid offer reached one big figure 1.49-1.50, she closed at 1.36 now!

Leading global currencies shouldn’t trade like biotech stocks, but in a Brexit world full of “over ego filled” central bankers, they do.

Brexit Side Effects and Trade Ideas, just click below:

 

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Puerto Rico: Bogus Claims of Default?

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Bogus Claims of Default?

“We’ve proven Puerto Rico is NOT Detroit nor Greece.”

Governor Alejandro Padilla, April 2014 (after selling $3.5B bonds to investors)

A funny thing happened along the way to default, Puerto Ricans started to actually pay their taxes.  By some estimates, up to 35% of the countries’ GDP is underground, not accessible to tax collection.  Recent data shows this may be starting to change.

Government of Puerto Rico revenue for 11 months of Fiscal Year 2016 totals $14.9 million more than estimated in the budget, according to figures released yesterday by Treasury Secretary Juan Zaragoza, calling into question claims that Puerto Rico cannot pay its debts.

U.S. Treasury Caught Speeding?

The U.S. Treasury has been painting a dire picture for Puerto Rico.  In an effort to cram down investors, achieve debt forgiveness from bond holders, most investors feel the Treasuries’ recent claims have been unfounded.

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Puerto Rico new

The territory has collected $8.2 billion, compared with $7.9 billion during the same period of Fiscal Year 2015.

Puerto Rico

Debt vs. Population

2016: $72B vs 3.5m people

2006: $38B vs. 4.6m people

Bloomberg data

The major change in revenue was in the Sales and Use Tax, which was increased from 7% to 11.5% during the year. After payments on bonds issued by the Sales Tax Financing Corporation (COFINA), the levy contributed $1,355.8 billion into the treasury compared with $510.9 million last fiscal year. The amount was $27.1 million more than expected.

Individual income taxes were down from $2,106.2 billion to $1,854.3 billion, $10.4 million less than expected. Corporate income taxes edged lower from $1,478.2 billion to $1,434 billion, but were $53.6 million more than budgeted.

The 4% tax on products received by companies in the States from their manufacturing subsidiaries in Puerto Rico generated $1,675.7 billion, a bit less than the $1.741.1 billion last year and $24.8 million less than expected.

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Bond Madness

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If it was a fight, they’d stop it.  Bonds are crushing stocks 2014-16.

We have a Swiss bond below, a move 100 to 230 at nosebleed levels.

SWISS 33

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Japanese, German and Swiss bond yields plunged to records, as government debt around the world extended its best gains in two decades, with the prospect of Britain leaving the European Union boosting demand for havens.

Brexit Risk is creating extreme panic buying in bonds.  They’re jumping over the seats, swinging on the chandeliers, trying to get out through the bath room window, all in an effort to buy bonds.

Everyday the Fed doesn’t hike rates, they’re shoving more capital in places it just shouldn’t be

Federal Reserve Chair Janet Yellen fueled the rally by saying Wednesday slow productivity growth and aging societies may keep interest rates at depressed levels. Fewer Fed officials expect the central bank to raise interest rates more than once this year than they did three months ago, based on projections the central bank issued. The Bank of Japan said inflation in the nation may be zero or negative, while holding monetary policy unchanged.

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EU Banks Through the February Lows

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EU Banks are now through the February “crisis” lows.  It’s just a matter of time before Mr. Market vetoes NIRP or Negative Interest Rate Policy.

Negative rates are crucifying European financial institutions as the easy money made on short term net interest margin has vanished.

EU Banks through the February Lows

EU Banks

Similar to the GOP establishment and Donald Trump, Central Bankers are confused, don’t understand the risks they’re creating and don’t know what to do next.

On May 31st, we recommended our subscribers get long volatility, join us here:

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One of our classic 21 Lehman Systemic Risk Indicators is found in Deutsche Bank 5 year sub CDS.   When people are paying up for default protection on a bank this large, beware.

Cost of Default Protection on Deutsche Bank

DB CDS

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Pure Evil

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Price to Earnings, Debt to EBITDA, Price to Book; these are the values that used to drive stock market prices.

Not today…

Per the New York Fed

“We document large average excess returns on U.S. equities in anticipation of monetary policy decisions made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. ”

Breaking: NY Fed Note

Get our latest report below on trading in and around central bank shenanigans:

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