by Market Shadows - October 31st, 2014 3:30 pm
Predictions that the US equity market would collapse at the end of QE have so far been wrong (and in a very painful way if you shorted the market based on the Fed's actions alone). The end-of-the-world-QE bears failed to factor in another surprise move by the Bank of Japan. The BOJ announced its own QE program today — it is donating $124Bn ($80 trillion yen) to the market-propping cause. It plans to triple the amount of Japanese ETFs and REITs it buys on the open market.
As Sam Ro at Business Insider wrote on Oct. 26, If You Missed The Rally, Then You Just Made The Most Classic Mistake In Investing. Since then, the market continues higher…
Courtesy of Joshua M Brown
“When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.”
– Alexander Graham Bell
The prevailing wisdom on QE in Policy Bear circles has been that the Fed was” trapped” and could never exit QE without sending the US economy into a tailspin.
This week the Fed ended QE and the stock market has exploded to the upside. The one thing the policy bears may not have counted on was that someone else would cover the Fed’s back as it walked away. That someone else is the Bank of Japan, which shocked the markets this morning with an $80 trillion yen QE program that aims to triple the amount of Japanese equity ETFs and REITs it is buying on the open market. In addition, there is continued talk that the ECB will follow the Fed and the BoJ’s lead with a QE program of its own before too long.
I can’t tell you what these programs will do for the economies of these countries or for the wages and spending of their constituent workers. But it’s pretty clear what happens to their stock markets…
Via the Wall Street Journal:…
by ilene - October 31st, 2014 2:32 pm
Courtesy of Andrew Topf of OilPrice.com
Running a multi-billion dollar energy company isn’t easy. Just ask the executives in the corner suites of some of the energy companies that have gone bust over the years. Some, like Enron, were brought down because of insider malfeasance. A few, like ATP, blamed damaging government policies, while others went off the rails due to market forces that left the company and its shareholders flat-footed, deep in debt, and eventually broke. Here are the bankruptcies that will be etched into the tombstones of failed energy fortunes for time immemorial.
1. Enron. Bankrupt December 2, 2001. Assets $65.5 billion
Enron grew from a simple pipeline company into the world’s largest energy trader by using the Internet to buy and sell natural gas and electric power to help utilities and industrial power users hedge against price fluctuations. By 2000, Enron was worth an astonishing $68 billion, but when the U.S. Securities and Exchange Commission started investigating, it was revealed that much of the money was based on shady accounting practices and un-recorded losses. In one year, Enron’s stock price plummeted from more than $90 to less than $1, resulting in $11 billion in shareholder losses. The subsequent bankruptcy remains the largest in U.S. history. CEO Kenneth Lay and fellow Enron executive Jeffrey Skilling were convicted in 2006 of fraud and conspiracy. Lay died from a heart attack while awaiting sentencing. Skilling is still in prison.
2. Energy Future Holdings. Bankrupt April 29, 2014. Assets $36.4 billion
Energy Future Holdings became the largest power producer in Texas in 2007 after a $45 billion buyout of TXU Corp. But the company struggled under the weight of $40 billion in debt after revenues plunged due to lower prices for natural gas and electricity. Energy Future Holdings was broken up in April under the terms of a restructuring deal.
3. Pacific Gas & Electric Company. Bankrupt April 6, 2001. Assets $36.1 billion
California’s largest publicly-owned utility went bust after deregulation led the company to incur billions in debt. After selling its gas power plants, the company had to buy power from other energy companies. Buying at fluctuating prices and selling at fixed prices led to losses and eventual…
by ilene - October 31st, 2014 2:08 pm
Recent trade deals and high-level cooperation between Russia and China have set off alarm bells in the West as policymakers and oil and gas executives watch the balance of power in global energy markets shift to the East.
The reasons for the cozier relationship between the two giant powers are, of course, rooted in the Ukraine crisis and subsequent Western sanctions against Russia, combined with China's need to secure long-term energy supplies. However, a consequence of closer economic ties between Russia and China could also mean the beginning of the end of dominance for the U.S. dollar, and that could have a profound impact on energy markets.
Reign of the USD
Before the 20th century, the value of money was tied to gold. Banks that lent money were constrained by the amount of their gold reserves. The Bretton Woods Agreement of 1944 established a system of exchange rates that allowed governments to sell their gold to the U.S. Treasury. But in 1971, U.S. President Richard Nixon took the country off the gold standard, which formally ended the linkage between the world's major currencies and gold.
The U.S. dollar then went through a massive devaluation, and oil played a crucial role in propping it back up. Nixon negotiated a deal with Saudi Arabia whereby in exchange for arms and protection, the Saudis would denominate all future sales of oil in U.S. dollars. Other OPEC members agreed to similar deals, ensuring perpetual global demand for greenbacks. The dominance of the U.S. "petrodollar" continues to this day.
Russia and China Cozy Up
Recent news coming out of Russia, however, suggests that the era of U.S. dollar dominance could be coming to an end, due to increasing competition from the world's second largest economy and primary consumer of commodities, China.
China and Russia have been furiously signing energy deals that indicate their mutual energy interests. The most obvious is the $456 billion gas deal that Russian state-owned Gazprom signed with China in May, but that was just the biggest in a string of energy agreements going back to 2009. That year, Russian oil giant Rosneft secured a $25 billion oil swap agreement
by ilene - October 31st, 2014 1:27 pm
By Jared Dillian
I had an instant-messenger conversation with one of my clients the other day. It was pretty annoying—he wrote things like “BULL MARKET, DUDE,” and harangued me about my net-short positioning.
Then he started telling me that the market was going to rip if the Republicans took both houses of Congress in the midterm elections. At that point, I felt like I needed to intervene.
First of all, just about every single piece of academic research on the subject shows that the stock market (and GDP, and many other metrics) outperforms under Democratic presidents.
You don’t need to look very far for a contemporary example, considering that the stock market has done a three-bagger under our current leader, and the economy has recovered.
Wait, that doesn’t make any sense. The current administration is the least friendly to business and private enterprise in recent history—so why have stocks been in a prolonged bull market?
There are a million reasons why, but let’s focus on the biggest and most obvious one: the Federal Reserve.
Shaping the Fed Board of Governors
Lots of people have opinions on the Fed without really knowing the Fed as an institution or how it works.
There are seven members of the Federal Reserve’s Board of Governors who live and work in Washington, DC. They are presidential appointees, and their term of service is 14 years.
There are 12 regional bank presidents, who are nominated by their respective boards of directors. They are not, theoretically speaking, political appointees. Four of them at a time serve on the FOMC, on a rotational basis. The president of the New York Fed is a permanent member of the FOMC. Their term of service is five years.
In the old days, a Fed governor would serve all 14 years, but now they have to go make money on the speaker circuit, so they serve only three to five years if they are lucky. This means that a two-term president has the opportunity to “pack the court” with Fed governors of similar political affiliation over an eight-year period.
by phil - October 31st, 2014 7:49 am
She knows how hard her heart grows under the nuclear shadows
She can't just escape the feeling repeating in her head
When after all the urges some kind of truth emerges
We felt the deadly surges discovering Japan – Graham Parker
The shorts are certainly getting a scare this morning as the BOJ hands out another $124Bn (yes, we did the relative math in this morning's Alert to our Members) and that was more than enough to pop the Nikkei 5% in 90 minutes, with the /NKD Futures now testing 16,850 – almost catching up to the Dow for the 3rd time in 2 years.
Unfortunately, each time the Nikkei has matched up with the Dow's gains, it's marked and overbought top and led to a sell-off so we were forced to officially reverse our long call on Russell Futures (/TF) from yesterday morning's post and flip short at 1,169 (with tight stops over 1,170). That's OK though because a move from 1,132.50 to 1,169 on /TF is a profit of $3,650 per contract – not bad for a day's work, right?
See, I told you we could pay for your trip to our Las Vegas Live Seminar next week with a Futures trade!
Not that we advocate holding Futures positions overnight – it could just have easily gone the other way. That's what Wednesday's TNA spread was for – the longer-term long position on the Russell, which will pop TNA well over our $80 goal this morning – that trade has a 316% profit potential in less than a month!
by Promotions - October 30th, 2014 4:56 pm
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