lunes, 4 de enero de 2016


Empieza un nuevo año y las bolsas tiemblan y hay pánico y rechinar de dientes. Esta mañana el índice de la Bolsa de Shangai cerró 7% abajo (ver figura de arriba). Hay susto en las capitales; ¿será este el Gran Crash que todo buen apocalíptico está esperando?

Acá van dos notas relacionadas, de los chicos de Zero Hedge. La primera alude al sacudón de hoy en China y a sus réplicas globales. La segunda nota es más general, y nos dice que todo concluye al fin, que la historia es la de siempre, que todo lo que sube tiene que bajar. Los chabones arriesgan un número para la Gran Corrección que se espera: 40-55%. Veremos.

Título: Happy New Year: Global Stocks Crash After China Is Halted Limit Down In Worst Start To Year In History

Texto: It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party following a terrible manufacturing PMI report, which sent Chinese stocks sliding slowly at first, then very fast.

So fast, in fact that as we reported last night, on the very first day China's new circuit breaker mechanism became operational, it was promptly tested out and led to a marketwide trading halt at 1:34pm local after the Shanghai Composite crashed by the 7% limit. Earlier trading was halted for 15 minutes after the CSI Index - which comprises large capitalization companies listed in Shanghai and Shenzhen - dropped 5 percent.  This was the worst start of trading in Chinese stock market in history, and oddly enough, was something that not a single pundit predicted as part of their oh so very entertaining year-end forecasts.

And just in case crashing stock markets was not enough, the Chinese Yuan likewise crashed by over 0.6%, sliding north of 6.5325 at 4:50 local time after trading hours were extended and when the traditional PBOC intervention to calm the selloff did not appear in late day trading. The USDCNH was up to a whopping 6.6272 as China's devaluation accelerates with every passing day.

Slammed by the risk off sentiment, the main global carry trade currency, the Japanese yen, rose against all 31 of its major peers as investors sought the safest assets after China factory data highlighted weakness in the world's second-largest economy.

As a result of the Chinese collapse on day one, global equities dropped after the Chinese market fireworks, as well as geopolitical fears after Saudi Arabia severed ties with Iran, spurring a flight to haven assets. The MSCI Asia Pacific Index sank as much as 2.2 percent, the most since Sept.29. The Stoxx Europe 600 Index fell as much as 2.8 percent after gaining 7 percent in 2015. Last year the MSCI All Country World Index fell for the first year in four.

"It’s a nasty start for the year,” Peter Kinsella, a senior currency strategist at Commerzbank AG in London, tolf Bloomberg. “It might be the New Year, but old problems remain. Chinese growth concerns have not gone away.”

And then the Developing Nations were also routed: as Bloomberg points out, the slump in DMs harks back to financial turmoil in August that was fueled by China’s devaluation of the yuan. It shows the pace of growth in the world’s second-largest economy will remain key for markets in 2016 after a slowdown last year dragged emerging markets lower and sparked a slump in commodities prices.

So as we start the new year, Dow futures are down 300 points, the E-mini is down 34 points and just barely holding on to 2000, Asia is tumbling, Europe is crashing, and gold is up. At least  oil is so far green but just barely, up 1.5% at last check.

S&P 500 futures down 1.6% to 2007
Stoxx 600 down 2.4% to 357
FTSE 100 down 2.1% to 6109
DAX down 3.5% to 10362
German 10Yr yield down 5bps to 0.58%
Italian 10Yr yield down 5bps to 1.55%
Spanish 10Yr yield down 6bps to 1.72%
MSCI Asia Pacific down 2.1% to 129
Nikkei 225 down 3.1% to 18451
Hang Seng down 2.7% to 21327
Shanghai Composite down 6.9% to 3296
S&P/ASX 200 down 0.5% to 5270
US 10-yr yield down 5bps to 2.22%
Dollar Index down 0.55% to 98.14
WTI Crude futures up 1% to $37.40
Brent Futures up 1.6% to $37.88
Gold spot up 1.2% to $1,074
Silver spot up 1.3% to $13.99

In short, Happy New Year from the Federal Reserve, which is hiking because the "economy is strong"!

* * *

A more detailed look at regional markets, shows that the bloodbath started in Asia where equity markets begin the year negative following the losses on Wall St. in its last trading day of 2015, while further disappointing data from China added to the region's risk averse tone. Nikkei 225 (-3.1%) declined by over 3%, while Shanghai Comp (-6.85%) triggered the circuit breaker. Hang Seng (-2.8%) was also weighed on heavily in the wake of the poor China PMI data, where the official figure contracted for a 5th month. As a guide, a newly imposed Chinese circuit breaker means that if the CSI 300 falls 5% all Chinese equities will be halted for 15 minutes and then closed for the session if losses extend to 7%. Losses in the ASX 200 (-0.5%) have been capped by gains in the energy sector on increased tensions between Saudi and Iran. 10yr JGBs traded marginally higher as safe-havens were supported amid losses in riskier assets, although gains have been capped as participants are side-lined ahead of tomorrow's 10yr auction, while the BoJ were also relatively conservative in today's open market operation.

Top Asian News

China’s Two-Speed Economy Stays Intact as Manufacturing Weakens: Caixin China Dec. manufacturing PMI 48.2 vs est. 48.9

New World Said to Plan Buyout Bid for $7 Billion China Unit: Co. plans offer to take its $7b China unit private

Pimco Drawn to India as Asia’s Best Bonds Seen Rallying in 2016: Favorite destination for fixed-income investments, PineBridge says

Ant Financial Said to Seek At Least $1.5 Billion in New Funding: Seeking at least 10b yuan ($1.5b ) in a second round of fundraising ahead of a planned IPO, a person familiar said

In Europe, 2016 also has got off to a somewhat rocky start, with Euro Stoxx lower by around 2.8% as risk off sentiment is rife around financial markets. Much of the dampened sentiment this morning stems from China overnight, whereby newly imposed circuit breakers were triggered for Chinese equities in the wake of disappointing domestic manufacturing PMI data, while also of note the regional German CPIs have printed generally lower than previous. Given the focus on China, materials are the notable underperformer on a sector breakdown.

Top European News

U.K. Factories Disappoint With Slowest Growth in Three Months: U.K. manufacturing unexpectedly cooled in December

Ferrari Spinoff Puts Focus on Marchionne’s Fiat Revamp: Ferrari opened at EU43/shr in Milan following separation

Orange, Bouygues May Reach Takeover Deal in 1Q, JDD Reports: Cos. signed confidentiality agreement on Dec. 24 to start official negotiations

Continental May Lose Sales on VW Exhaust Scandal, CEO Tells BZ: Suppliers not involved in diesel exhaust probe, co. not under investigation anywhere by regulatory agencies

In terms of fixed income, Bunds have notably benefitted from the risk off sentiment, opening higher at the Eurex open and trading above the 158.50 level throughout the European morning. Bunds lead the way higher in terms of Europe, with the spread against most of their European counterparts wider this morning.

In FX, the JPY is the notable gainer in a flight to safety bid, while the USD has seen mixed flow to the benefit of the likes of EUR and GBP later in the session. The yen touched 118.70 per dollar, the strongest level since Oct. 15 and the Swiss franc was also among the biggest gainers among haven currencies. Australia’s dollar slid to 72.13 U.S. cents, down 1 percent from Dec. 31, while New Zealand’s currency was 0.9 percent weaker.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slipped 0.2 percent. The gauge climbed 9 percent in 2015, a third straight gain.  Elsewhere NOK is also a notable underperformer today, reaching 1 year lows against the EUR and 23 year lows against the SEK, however given that the energy complex is relatively unchanged, it appears to be more technically driven.

Elsewhere, tier 1 data was released out of Europe in the form of manufacturing PMI's, in which Eurozone (M/M 53.2 vs. Exp. 53.1 Prey. 53.1) and German (M/M 53.2 vs. Exp. 53.0 Prey. 53.0) printed a slight beat and a miss on expectations respectively. While UK manufacturing PMI (M/M 51.9 vs. Exp. 52.8 Prey. 52.7, Rev. 52.5) missed expectations and caused a small downtick in GBP/USD.

Commodities have too been in flux, with spot gold (USD +11.90) outperforming amid the risk off sentiment, while Brent and WTI futures trade in mild positive territory, however shrugging off the latest escalation in tensions between Saudi Arabia and Iran. Commentators have suggested that the impact may be somewhat limited, with both countries eager not to cut output. U.S. crude added 0.9 percent after Saudi Arabia’s embassy in Tehran was attacked to protest the Saudis’ execution of a prominent Shiite cleric.

Oil last week capped the biggest two-year loss on record amid speculation a global glut will be prolonged as U.S. crude stockpiles expanded at a record rate and the Organization of Petroleum Exporting Countries abandoned output limits.

Base metals fell, with nickel and zinc sliding more than 2.5 percent on the Chinese manufacturing data. Copper fell 2.1 percent.

Global Top News

China Halts Stock Trading After 7% Tumble in Worst Start to Year: Weak manufacturing data, end to share-sale ban spark rout

Saudis Sever Diplomatic Ties With Iran in Row Over Execution: Move follows Saudi execution of prominent Shiite cleric, attack on Saudi embassy in Tehran

Shire Said in Advanced Talks to Acquire Drugmaker Baxalta: Cash-and-stock offer of ~$32b before debt could be announced as soon as this week

Fidelity Drops Credit-Card Partners AmEx, BofA: Visa, U.S. Bancorp to take over as Fidelity card’s network, issuer

Euro-Area Factories End 2015 With Strongest Growth in 20 Months: Manufacturing accelerated in December as rising new orders propelled output

Automakers’ December Surge Seen Wrapping Record U.S. Sales Year: Carmakers drew customers with year-end and holiday promotions

Fed’s Fischer Supports Higher Rates If Markets Overheating: Raise would be appropriate if asset prices “excessively high”

Macau Casinos Gain on Better-Than-Expected December Revenue: Gross gaming revenue fell 21.2% in Dec.; result was better than most market expectations of a 20% to 28% decline, according to DS Kim, an analyst at JPMorgan

Tesla Hits Low End of Goal, Shipping 17,400 Autos in Quarter: Delivered 50,580 Model S sedans and Model X sport utility vehicles in 2015

Force Stays With ‘Star Wars’ as Disney Film Remains No. 1: “The Force Awakens” generated $88.3m in sales in U.S. and Canadian theaters, for a domestic total so far of $740.3m

Bulletin Headline Summary from RanSquawk and Bloomberg

2016 has got off to a somewhat rocky start, with Euro Stoxx lower by around 2.8% as risk off sentiment is rife around financial markets

FX markets have seen similar sentiment this morning, with JPY the notable gainer in a flight to safety bid

Looking ahead, the notable highlights out of the US today come in the form of manufacturing PMI, construction spending and ISM manufacturing

Treasuries rally led by 5Y to start the new year as global stocks plunge led by China after weaker than forecast manufacturing PMI; CSI Index halted after diving 7%.

China’s official PMI edged up to 49.7 in Dec. from three- year low of 49.6 in Nov., while Caixin China Manufacturing PMI index showed a drop to 48.2 from 48.6; both numbers less than forecast

Saudi Arabia severed ties with Iran in the biggest meltdown in relations between the two Middle Eastern power brokers in almost three decades, raising the specter of deepening conflicts across the volatile region. Saudi govt gave Iran’s ambassador 48 hours to leave after protesters set its embassy in Tehran on fire at the weekend following the execution of cleric Nimr al- Nimr, a critic of the kingdom’s treatment of its Shiite minority

For Europe, 2016 threatens to be a replay of 2015, with the migration crisis moving into a tense new phase, open internal borders under siege, Britain potentially heading for the EU exit and a hesitant Germany forced, once again, to act as the political and economic backstop

U.K. manufacturing unexpectedly cooled in Dec., with Markit’s factory index falling to three-month low of 51.9, less than expected, from a revised 52.5 in Nov.

Fed’s Stanley Fischer said it might be necessary for the central bank to hike rates if financial markets were overheating, though the first line of defense should be using regulatory tools to prevent bubbles from developing

ECB policy makers insist they’re standing by their mandate to keep the annual rate of price gains just under 2% over the medium term even as that becomes increasingly hard to achieve
$1.5t IG priced in 2015, $247b HY. BofAML Corporate Master Index OAS +1bp to +173, YTD range 180/129. High Yield Master II OAS holds at +695; YTD range 733/438

Sovereign bond yields lower. Asian and European stocks plunge, U.S. equity-index futures slide. Crude oil and gold higher, copper falls

US Economic Calendar

9:45am: Markit Manufacturing PMI, Dec., est. 51.1 (prior 51.3)

10:00am: ISM Manufacturing, Dec., est. 49.0 (prior 48.6); ISM Prices Paid, Dec., est. 36.0 (prior 35.5)

10:00am: Construction Spending, Nov., est. 0.7% (prior 1.0%)

DB's Jim Reid concludes the rest of the overnight recap in his first 2016 edition

It’s straight to the overnight session in Asia where bourses have started the New Year very much on the back foot as softer than expected manufacturing data in China and escalating geopolitical concerns in the Middle East has helped fuel steep declines across the board. In China the Shanghai Comp is currently down -3.94% as we type after the non-official Caixin manufacturing PMI printed at 48.2 last month, a decline of 0.4pts and well below expectations of 48.9. It also marked the 10th straight sub-50 reading.

Meanwhile overnight headlines are also being dominated by the news that Saudi Arabia has severed its diplomatic ties with Iran. This comes after Saudi Arabia’s embassy was attacked in Tehran following the protests over the execution of a Shia cleric by the Saudi’s. Along with the China data that’s sent bourses down with the Nikkei (-2.80%), Hang Seng (-2.31%), Kospi (-1.62%) and ASX (-0.55%) all lower while S&P 500 futures are currently down over half a percent. Asia and Australia credit indices are both a couple of basis points wider although those geopolitical concerns have helped fuel a bid for Oil where both WTI and Brent are up over 2%.

Recapping briefly how markets closed out the final trading day of 2015 on Thursday last week. Equity markets closed on a sour note with losses for bourses on both sides of the pond. Indeed the S&P 500 finished -0.94% which, excluding dividends, meant the index closed in negative territory for the year (-0.73%). The Dow (-1.02%) and Nasdaq (-1.15%) closed lower also while it was a similar story in Europe as we saw the Stoxx 600 finish the session down - 0.51%. These falls came despite a better finish for the Oil complex where both WTI (+1.20%) and Brent (+2.25%) nudged back above the $37 level, although the same couldn’t be said for metals where Aluminum (-1.37%) and Copper (-0.63%) in particular failed to make any ground.

The last batch of economic data for the year was generally disappointing. Of particular note, the December Chicago PMI plunged 5.8pts to a below market 42.9 (vs. 50.0 expected) which was the lowest reading since July 2009. The ISM Milwaukee also printed sub-50 as expected at 48.5, although this was up over 3pts from the November reading while on the employment front there was a bigger than expected rise in the latest initial jobless claims print to 287k, up 20k from the previous print. The data had minimal impact on the rates market with US 10y yields closing out the year at 2.270% (down 2.5bps on the day) and just 10bps above where they closed 2014.

Meanwhile, Spain has been in focus over the weekend with the news from the Catalonia region that Acting President Artur Mas has failed in his attempt to win sufficient support from the anti-capitalist CUP party. The latest twist raises some uncertainty for the region now with Bloomberg noting that Mas’s Junts pel Si has until January 9th to establish a new government or instead run the risk of facing fresh elections which would be called in March. This of course is in addition to the overall political uncertainty in Spain itself after the inconclusive recent general election on December 20th.


Título: This Time Isn't Different

Texto: Last year ended with a whimper on Wall Street. The S&P 500 was down 1% for the year, down 4% from its all-time high in May, and no higher than it was 13 months ago at the end of QE3. The Wall Street shysters and their mainstream media mouthpieces declare 2016 to be a rebound year, with stocks again delivering double digit returns. When haven’t they touted great future returns. They touted them in 2000 and 2007 too. No one earning their paycheck on Wall Street or on CNBC will point out the most obvious speculative bubble in history. John Hussman has been pointing it out for the last two years as the Fed created bubble has grown ever larger. Those still embracing the bubble will sit down to a banquet of consequences in 2016.

At the peak of every speculative bubble, there are always those who have persistently embraced the story that gave the bubble its impetus in the first place. As a result, the recent past always belongs to them, if only temporarily. Still, the future inevitably belongs to somebody else. By the completion of the market cycle, no less than half (and often all) of the preceding speculative advance is typically wiped out.

Hussman referenced the work of Reinhart & Rogoff when they produced their classic This Time is Different. Every boom and bust have the same qualities. The hubris and arrogance of financial “experts” and government apparatchiks makes them think they are smarter than those before them. They always declare this time to be different due to some new technology or reason why valuations don’t matter. The issuance of speculative debt and seeking of yield due to Federal Reserve suppression of interest rates always fuels the boom and acts as the fuse for the inevitable explosive bust.

In 2009, during the depths of the last crisis that followed such speculation, economists Carmen Reinhart and Kenneth Rogoff detailed the perennial claim that feeds these episodes in their book, This Time is Different:

“Our immersion in the details of crises that have arisen over the past eight centuries and in data on them has led us to conclude that the most commonly repeated and most expensive investment advice ever given in the boom just before a financial crisis stems from the perception that ‘this time is different.’ That advice, that the old rules of valuation no longer apply, is usually followed up with vigor. Financial professionals and, all too often, government leaders explain that we are doing things better than before, we are smarter, and we have learned from past mistakes. Each time, society convinces itself that the current boom, unlike the many booms that preceded catastrophic collapses in the past, is built on sound fundamentals, structural reforms, technological innovation, and good policy.”

“The essence of the this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are something that happen to other people in other countries at other times; crises do not happen, here and now to us… If there is one common theme to the vast range of crises we consider, it is that, excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.”

The third speculative boom in the last fifteen years fueled by Federal Reserve idiocy is about to become a the third bust in the last fifteen years. The unwashed masses who believe what they are told by CNBC are going to be pretty pissed off when they lose half their retirement savings again. None of their highly paid financial advisors are telling them to expect 0% returns over the next twelve years, but that is their fate. The numbers don’t lie over the long haul.

My view on “this time” is clear. I remain convinced that the U.S. financial markets, particularly equities and low-grade debt, are in a late-stage top formation of the third speculative bubble in 15 years. On the basis of the valuation measures most strongly correlated with actual subsequent market returns (and that have fully retained that correlation even across recent market cycles), current extremes imply 40-55% market losses over the completion of the current market cycle, with zero nominal and negative real total returns for the S&P 500 on a 10-12 year horizon. These are not worst-case scenarios, but run-of-the-mill expectations.

Hussman recently saw the brilliant take down of Wall Street – The Big Short – and thought it was a highly accurate portrayal of the rampant criminality of the Wall Street banks. They created fraudulent mortgage products, doled them out to suckers, and created complex toxic derivatives, selling them to clients while shorting them at the same time. Hussman’s only problem with the movie was that it left the true villain off the hook with nary a mention. Wall Street could not and would not have created the trillions of fraudulent products if the Federal Reserve had not kept interest rates at 1% and had performed their regulatory obligations of overseeing the banks.

The answer is straightforward: as the bubble expanded toward its inevitable collapse, the role of Wall Street was to create a massive supply of new “product” in the form of sketchy mortgage-backed securities, but the demand for that product was the result of the Federal Reserve’s insistence on holding interest rates down after the tech bubble crashed, starving investors of safe Treasury returns, and driving them to seek higher yields elsewhere.

See, the Fed reacted to the collapse of the tech bubble and the accompanying recession holding short-term rates to just 1%, provoking yield-seeking by income-starved investors. They found that extra yield in seemingly “safe” mortgage securities. But as the demand outstripped the available supply, Wall Street rushed to create more product, and generate associated fees, by lending to anyone with a pulse (hence “teaser” loans offering zero interest payments for the first 2 years, and ads on TV and radio hawking “No income documentation needed! We’ll get you approved fast!”; “No credit? No problem! You have a loan!”; “Own millions of dollars in real estate with no money down!”). The loans were then “financially engineered” to make the resulting mortgage bonds appear safer than the underlying credits were. The housing bubble was essentially a massive, poorly regulated speculative response to Federal Reserve actions.

And now the Fed has done it again. The stock market on most valuation measures is the most overvalued in world history. The rolling tsunami is about to wipe away the life savings of millions for the third time in fifteen years.

The current, obscenely overvalued QE-bubble is simply the next reckless response to Federal Reserve actions, which followed the global financial crisis, which resulted when the housing bubble collapsed, which was driven by excessively activist Federal Reserve policy, which followed the collapse of the tech bubble. As my wife Terri put it “It’s like a rolling tsunami.”

The pompous professionals inhabiting the gleaming skyscrapers in the NYC financial district are still arrogantly ignoring the imminent bust headed their way. The Fed juiced gains over the last six years will evaporate just as they did in 2007-2009. Cheerleading for and denying the existence of the bubble is a common them among those whose paycheck depends upon them doing so.

One had to suffer fools parroting things like “being early is the same thing as being wrong” until the collapse demonstrated that, actually no, it’s really not. The 2007-2009 collapse wiped out the entire total return of the S&P 500, in excess of risk-free Treasury bills, all the way back to June 1995.

Since two crashes weren’t enough to teach the lesson, here we are again, at what’s likely to be seen in hindsight as the last gasp of the extended top formation of the third speculative bubble in 15 years. The median stock actually peaked in late-2014.

And now for the bad news. At current market valuations, a run of the mill bust will result in a 50% decline. A bust that puts valuations back to 1982 bear market lows would result in a decline exceeding 75%. Whether it is a violent collapse or long slow decline, there is no doubt that returns over the next decade will be non-existent. This is not good news for Boomers or GenX entering or approaching retirement.

For the S&P 500 to lose half of its value over the completion of the current market cycle would merely be a run-of-the-mill outcome given current extremes. A truly worst-case scenario, at least by post-war standards, would be for the S&P 500 to first lose half of its value, and then to lose another 55% from there, for a 78% cumulative loss, which is what would have to occur in order to reach the 0.45 multiple we observed in 1982. We do not expect that sort of outcome. But to rule out a completely pedestrian 40-55% market loss over the completion of the current cycle is to entirely dismiss market history.At present, investors should expect a 12-year total return from the S&P 500 of essentially zero.

The reckless herd has been in control for the last few years, but their recklessness is going to get them slaughtered. Corporate profits are plunging. Labor participation continues to fall. A global recession is in progress. The strong U.S. dollar is crushing exports and profits of international corporations. Real household income remains stagnant, while healthcare, rent, home prices, education, and a myriad of other daily living expenses relentlessly rises. The world is a powder keg, with tensions rising ever higher in the Middle East, Ukraine, Europe, and China. The lessons of history scream for caution at this moment in time, not recklessness. 2016 will be a year of reckoning for the reckless herd.

There’s no question that at speculative extremes, recent history always temporarily belongs to the reckless herd that has ignored concerns about valuation and risk at every turn. Fortunately, the future has always belonged to those who take discipline, analysis, and the lessons of history seriously. Decide which investor you want to be.

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