Friday, August 1, 2014

REALITY CHECK FOR YOU PANTY-PIDDLERS: here's what you need to know

Lots of charts in here for those Wall Street types who don't understand words and reasoning.

Bespoke - closer commentary. Dammit I'm so tempted to re-subscribe to Bespoke. Take a gander at this free sample of their daily commentary, for last night:
It’s rare that you see a day where the following financial assets trade lower simultaneously: large cap stocks, small cap stocks, Treasuries, oil, credit (CDS indices), gold, silver, platinum, palladium, and copper. Virtually the only asset class that didn’t have ferocious volatility selling today was the USD, which was essentially flat versus EUR, JPY, CAD, and CHF. The action today simply didn’t make sense from a technical or fundamental perspective, and the explanations we saw trotted out made even less sense.

One culprit that has been discussed: inflation has edged up as of yesterday’s GDP report to 2.0% annualized, as measured by core PCE. But this pace of price growth, while to the upside of leading indicators received during the quarter, is still an incredibly benign level, and is totally unthreatening in terms of both harm to the economy (runaway inflation) or in terms of kickstarting a Fed tightening. The Fed has stressed repeatedly that not only is its inflation target symmetric around 2.0%, but further it will not be fooled by an economy that has printed higher inflation in recent memory (Q1 2012 had a 2.1 core PCE print). While higher inflation could be coming, it needs to be sustained before it will impact the thinking in FOMC meetings.
Now that is the kind of market commentary you want to follow, not the panty-piddling from Josh Brown and Barry Ritholtz. Seriously, I am really tempted to sub back to Bespoke just for their commentary. I'd really appreciate getting a free subscription in return for plugging them, by the way....

FT Alphaville - wage growth improved in Q2 but remains low. Cardiff Garcia also provides a reality-check for the panty-pissers out there with this:
We journalists love the “X grew at the fastest pace since Y” construction, but although it’s true that the ECI had best quarterly climb since 2008, such a pace was no big deal in the pre-crisis years:

And the year-on-year figure is even less impressive:

Nominal wage growth has increased, a welcome development, but this isn’t yet the kind of sustained acceleration to get worked up over.
Wow, boy, that's sure a wage growth acceleration to be scared of, eh? Puh-lease.

Liz Ann Sonders - July 30 commentary. Wherein she addresses the proximity of the taper, and gives you a basic fact to stick in your damn pipe and smoke:
It is common to experience some volatility and initial pullbacks when moving toward the initial rate hike. In looking at the past five rate hike cycles, the average pullback—nearly always having concluded before the actual first hike—was less than 6%, therefore not even qualifying as a "correction," which is -10%. The magnitude of the pullback was directly tied to the magnitude of the back-up in two-year Treasury yields. So keep an eye on those as we approach the initial rate hike.

Overall, the stock market fares pretty well in the six months before and after the initial hike, especially relative to what the S&P 500 has done in other same-length spans, as you can see below.

Market Performance Around Initial Rate Hike
Again, rate hikes are good for the economy if they lead to a normalization of the environment. Zirp is bad, and normal rates are good. So quit piddling your little pink flannel jumper, Barry, and buy the damn SPY.

Data Dive - a bright spot in the unemployment rate. A lot of the new employment is going to the long-term unemployed now:

Again, that's a good thing, right? I mean, you Wall Street whiners were complaining about long-term unemployed for the past 5 years, right? So now the problem is getting fixed, right?

Reformed Borker (Bork Bork Bork!) - DJI erases all of 2014's gains. Oh quit your whining.

FT Alphaville - EM funds de-indexing Russia. Well, considering Russia is becoming a non-investable market, with a quite obvious threat of total capital confiscation for Westerners, it's only fiduciary duty to de-index and GTFO, isn't it? - Mongolian foreign investment craters. Again, that's what happens to your country when you threaten to confiscate foreign capital.

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