Monsters In The Gelatin! Fed’s QE Unwind Reaches $364 Billion As Fed Funds Rate Continues To Climb (Volatility Express!)

Since the beginning of the QE unwind — or “balance sheet normalization,” as the Fed calls it — in October 2017, the Fed has now shed $364 billion.

somall.png

Of course, The Fed still have a long way to go to unwind its $4 trillion balance sheet. But The Fed is, at the same time, raising its target rate (although through confusing messaging).

farbastfedfunds.png

The S&P 500 index and the NAREIT All Equity (Real Estate Investment Trust) indices are soaring along nicely with The Fed’s balance sheet expansion (aka, low interest rates), but are experiencing rather dramatic volatiity in the face of a shrinking balance sheet and rising Fed target rate.

fedspxnareit.png

And yes, volatility is increasing with Fed unwind and target rate increases.

vixfedyikes.png

SMART Money Flow Index? The decline coincides with The Fed’s unwinding on its Treasury positions.

smartfedugh

Bubble you ask? Instead of “bubble” or “collapse,” the Fed uses “valuation pressures” and “broad adjustment in prices.”

To quote the late, great Isaac Hayes from Reindeer Games, “There are monsters in the gelatin!!”

monstersinthegelatin

Fed Gov Brainard Sees Gradual Fed Hikes Still Appropriate in ‘Near Term’

Despite gloom on the housing front, declining core inflation and a volatile (and declining) stock market, Fed Gov Lael Brainless still wants to keep raising interest rates.

(Bloomberg) — Federal Reserve Governor Lael Brainard said U.S. economic momentum is strong and a gradual approach to interest-rate increases remains appropriate for now.

“The gradual path of increases in the federal funds rate has served us well by giving us time to assess the effects of policy as we have proceeded,’’ Brainard said Friday at a conference at the Peterson Institute for International Economics in Washington. “That approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves.”

Party on, Lael. Party on Jerome.

 

 

 

Crypto Market Crash Is Causing Startups to Shutter Operations (As Paris Burns)

As Paris continues to burn after French Prime Minister Macrony tried to raise fuel taxes in an attempt to curb greenhouse gas emissions,

Paris-nintchdbpic

the cryptocurrency market continues to see its bubble continue to burst.

(Bloomberg) — The plunge in the cryptocurrency market is weighing on the software-development community that spawned over 1,000 digital coins amid dreams of independence from traditional financial systems and instant wealth.

ETCDEV, the startup that led development on Ethereum Classic, which is among the top 20 coins with a market capitalization of about $400 million, announced this week that it’s shuttering operations due to a funding crunch. ConsenSys, one of the largest crypto-related software startups based in New York, said it’s planning a reorganization.

Many of the companies are suffering because they kept a portion of their funds in digital assets, whether in tokens they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.

cryptocrash

So, are Paris and cryptocurrencies burning? Yes!

Parisburning

 

Sea of Red: Global Sell-off Continues As Dow Sheds 600 Points (Bond Yields Down, Commodities Down, Gold UP)

As of 11am EST, global equity markets are a sea of red.

globalree

The Dow is down 600 points (2.4%) while the EU is down around 3%.

dowblues

After the big sell-off on Tuesday, we often see a rally the next day. But not today. It is a continuation of the trade tensions between the US, China and other trading partners.

And nervous investors are pulling out of equites and jumping into the safe zone (sovereign debt) pushing prices up and yields down.

wbmdec.png

Even commodities are taking a beating as well … except gold.

commoddec.png

Calling The Fed, ECB, BOJ, PBOC!

seaoflove

Trouble In River Cities! Eurozone GDP, China Manufacturing PMI Diving

While the US economy is humming along nicely, there is trouble brewing in River Cities (that is, the Yangtze River in China and The Rhine River in Europe).

Both the Eurozone GDP forecast and China Manufacturing PMI are falling like a paralyzed falcon.

trublchina.png

Yes, we got trouble in River Cities … overseas.

musicman_trouble_FC_470x264_062420160243

NY Fed’s Williams Says Strong Economy Warrants Further Rate Hikes (As Dow Crashes 800 Points And 10Y-2Y Slope Flattens To 10 BPS)

The Dow crashed 800 points today, most after noon.

Which is it? The fear that the Trump-Xie tariff truce is a big nothing burger? Or that NY Fed President came out after noon saying that inflation and jobs look good and isn’t worried that markets have dialed back ’19 hikes? Or both?

My bet is on Williams’ announcement of economic optimism and the likelihood of further rate hikes.

dow800.png

And the Treasury 10Y-2Y curve flattened further to 10 BPS.

102williams

And the 90-day Treasury bill yield keeps on smokin!

80dtbill

Is Jerry Gergich running The Federal Reserve? 

cropped-jerrysface.jpg

Ted Day! Ted Rises, 10Y-2Y Slope Flattens As US-China Trade Optimism Wanes (Curve Inversion Accelerates)

Ted Day! The Ted spread (3m Treasury yield- 3m LIBOR) is rising … again.

tedday

Why?

The optimism that drove gains for riskier assets appears to be quickly dissipating as investors scramble to figure out exactly what, if anything, was agreed between the U.S. and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified.

In the Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign. The more closely watched part of the curve — the gap between two-year and 10-year yields — remains upwardly sloped.

Yes, but flattening like a pancake.

102trade

Or getting dunked in cold water like Ted.

tedday2

Brexit And The Euro: Net Short Speculative Positions Largest Since March 2017

True, Brexit sounds like a Kellogg’s or Post cereral product, but it is the attempt by Great Britain to escape the clutches of the European Union insidious trade deals, among other things. But Britain’s “Great Escape” appears to be on the verge of collapse.

Hedge funds are turning ever more bearish on the euro as a combination of weakening economic data and ongoing political tensions with Italy damp sentiment. Net short speculative positions reached the largest since March 2017, according to the latest data from the Commodity Futures Trading Commission. Figures Friday showed the region’s composite PMI indicator fell to the lowest in four years, while Italy’s populist government continues to debatea deficit target which would be acceptable to the European Commission.

bearishbetbtec

To be sure, some sort of Brexit deal will be hammered out, but probably similar to the 1626 purchase of Manhattan Island for the equivalent of $24 worth of beads and trinkets. That is, Great Britain will sell out for virtually nothing.

Below is a picture of UK Prime Minister Theresa May in a decorative hat on the left striking a “deal” with the armed EU delegation from Brussels.

minuit.jpg

Fed Versus ECB (Godzilla Versus Mothra)! 18 European Nations Now Have Negative 2 Year Sovereign Yields As Fed Raises Rates (NASDAQ Tanks 13% Since Peak)

The large Central Bank monsters are fighting. Instead of Godzilla versus Mothra, it is it The Fed versus European Central Bank (ECB).

As the US Federal Reserve continues to “nornalization” interest rates with increasing Fed Fund rate and balance sheet tightening (QT), Europe (or EMEA to be precise) is going in the opposite direction. There were 16 nations with negative 2 year soverign yields a short while ago, but now the number has grown to 18 (including France and Germany).

eu2

While on this side of the pond,  tech-heavy NASDAQ has dumped 13% since its recent peak.

trchdrop

With a growing economy in the USA, and worries in Europe over Brexit and Italy’s budget fight with the EU (Greece’s GDP growth YoY is higher than France, Germany, UK and Italy).

eucrisis

the ECB is going in the opposite direction of the US Fed.

fedversusecb

Here is a photo of Fed Chair Jerome Powell announcing a Fed rate hike in December.

godzillaorar