Liquifying The S&P 500! Central Bank Money Printing Sends S&P 500 Skyrocketing

So much for market discipline.  In fact, central bank intervention kills-off market discipline, a vital component of free markets.

However central banks are not concerned with market discipline. They are concerned with perpetuating asset bubbles.

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“The Sag” In The US Sovereign And Dollar Swaps Curve Continues, But Germany, UK And Japan Curves Are Sagging Too!

It’s the same all over the world.

The US Treasury actives curve and dollar swaps curves are markedly sagged (or kinked).

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But other countries are experiencing curve sags as well, but just not as pronounced. Germany, Japan, UK and France are all sagging, but less notably.

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Numerous risks abound in the global economy such as Brexit, China trade disagreement, etc.

On the other hand, there is Venezuela which has entered a seemingly permanent sag.

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And the SAG award goes to … the USA for short-term SAG.

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The permanent SAG award goes to …. Nicolas Maduro and Venezuela.

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Broken Arrow! U.S. Treasury Yield Curve Inverts for First Time Since 2007

Since an inverted Treasury curve occurs before a recession, the Federal Reserve may have to expend all remaining policy tools.

The US Treasury 10-year yield declined 10 bps today which is a large pop.

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The Federal Reserve finally achieved an inverted Treasury yield curve for the first time since 2007.

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The Federal Reserve, in the past, has reacted aggressively when the yield curve slope breached 0 slope. Aka, Snake and Nape (Snake Eye Missiles and Napalm).

It’s been a lovely *%*$#$$  non-recovery from the last recession. Just asset bubbles.

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An Occurrence At The Federal Reserve: Increased SMART Money & Equity Volatility, Crushed Bond Volatility

Ambrose Bierce wrote a short story about a man being hanged during the American Civil War and what went through his mind in his final moments. It is called “An Occurrence At Owl Creek Bridge.” Hauntingly similar to today’s plight: overoptimistic expectations before being hung, then …. snap.

In summary., Ben Bernanke and The Federal Reserve entered the markets in 2008 in force. The Fed Funds Target rate was raised once during President Obama’s two terms as President, but eight times since President Trump’s election as President. Plus, The Fed’s Quantitative Tightening (in terms of its balance sheet) begin in earnest in 2019.

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Once The Fed hurled its monetary weight at the economy in 2008, the stock market had an amazing run. but since The Fed started to raise rates and began their balance sheet unwind, the S&P 500 index has increased in volatility as has the SMART Money Flow Index.

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The bond market volatility indices have gotten crushed by central banks.

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On the real estate front, equity REITs, like the small cap Russell equity indices, seemed to be benefit greatly from The Fed’s Zero Interest Rate Policy and QE. Mortgage REITs, on the other hand, kind of died with the financial crisis and never recovered. The RCA CPPI commercial real estate index too off like a missile.

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Like in the Ambrose Bierce short story “An Occurrence At Owl Creek Bridge,” The Fed and other central banks are quitting any attempts at rate normalization (for fear that they might hear that dreaded “snap” at the end of the monetary rope].

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Did The Federal Reserve Kill Off 10-Year Swaption Volatility? (Lowest Since 2005)

10-year Swaption volatility has sunk to the lowest level since 2005. Did The Federal Reserve provide too much liquidity for too long, effectively drowning bond volatility?

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The Fed’s lingering Target Rate near zero and its three rounds of asset purchases helped kill of bond volatiilty. And with rising Fed Target rate and balance sheet unwind (removing liquidity from markets) has pushed bond volatility to 2006-2007 levels.

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So, the answer is … YES!

(Vol has been) shot through the heart and The Fed’s to blame! The Fed gives central banks a.bad name.

MOVE 3-month Option Volatility Index Hits All-time Low (Bond Market Bernanke’d!)

The  Merrill Lynch Option Volatility Estimate 3-Month has just hit an all-time low.

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The MOVE index is a yield curve weighted index of the normalized implied  volatility on 3-month Treasury options. It is the weighted average of volatilities on the CT2, CT5,  CT10, and CT30.

Even since Fed Chair Ben Bernanke started ZIRP and QE in 2008, continued by Janet Yellen, interest rate volatility has subsided to an all-time low under current Chairman Powell.

Not a great time for volatility traders!

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US New Home Sales Decline 4.1% YoY In January As Median Price Continues To Decline

Has. the US housing market peaked?

In terms of new home sales, perhaps. January new home sales declined 4.1% YoY and the downward trend continues.

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The median prices of one family houses declined once again as one family houses for sales increased.

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The new home sales figures are disturbing given the decline in the 30-year mortgage rate since November 2018.

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US Residential Construction Spending Slumps For 6th Straight Month As US Banks Report $251 Billion of “Unrealized Losses” On Securities Investments in 2018

Today is a double whammy for bad news for the US economy.

First, The Census Bureau monthly construction spending report reveals that highway and street spending rose 11.7% in January. The biggest decline was communication spending.

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BUT, US residential construction spending slumped for the 6th straight month. It is beginning to resemble “The Matterhorn” plunge of the 2000s.

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The second whammy is the FDIC report  revealing that US banks reported $251 billion of “unrealized losses” on securities investments in 2018, the most since 2008.

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For a less grim chart from The Federal Reserve (and a different metric), here is US Commercial Bank Liabilities Net Unrealized Gains (Losses) Available for Sale.

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Double whammy!

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Undun! S&P 500 Index Comes Undone From 10Y Treasury Yield As Term Premium Hits Low

The Treasury market has come undone (or undun as The Guess Who sang).

The S&P 500 index has come undone from the 10-year Treasury Note yield.

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Meanwhile, the 10-year term premium is at a new low, likely due to persistently low inflation.

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No sugar tonight?  Don’t worry! The probability of a Fed rate cut in 2019  is minimal.

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