Strange Things Indeed

Over at a financial forum...

Dollar is up, commodities getting hammered except NG, slight short term on the run bond selloff (that's a rare event), hmmm, more pump? And something smells in Denmark... and China.

Speaking of strange things... here is some more on FAKE CHINA GDP... in APRIL  Cornerstone Macro had Q1 at +1.6%;  and as of late August, Evercore has it at -1.1%. 

A cursory review, not analysis, of the PBOC monetary flow numbers over the last 24 months shows that under the most generous and best of circumstances, REAL Chinese GDP is around +2% and in SEVERE contraction similar to the US, South America, Eastern Bloc, Asia, EM and Europe.

"That would remove a central talking point for austerity hawks who seek deep cuts in federal spending." Cuts to the bone... spook the herd and make the yet to be cleansed masses suffer.

Re: Deutsche Bank: "We are experiencing a profit recession without an economic recession.... with the China shock fading and the dollar and energy prices stabilizing it is becoming clearer that we are not about to enter an economic recession because the service sector – which makes up 85% of the US economy – is doing just fine, see the second chart below. Or put differently, to generate an economic recession we need a much more broad-based slowdown across companies and that is not what we are seeing and hearing in the anecdotes during this earnings season, "

The analyst that wrote the above, got one thing right, 85% of our economy is service based. This validates my position that we are EMASCULATED and have NOTHING to fall back on, not a good position to be in.  Other than that, he needs to put down the punch bowl.  The anecdotes "they" are hearing, is exactly what they want to hear, and they may hear more this week.  My emperor that is a fine new suit...  Here's the reality, Wal Mart, McDonalds, Netflix and Yum Brands got punished. The excuse du jour, strong dollar this year? It's exactly where it was on Jan 23rd, so mainstreet has an earnings problem.

With the fallout from the oil patch just getting rolling in the form of layoffs and foreclosures, did I mention earlier that a record number of home repos occurred LAST MONTH?  Repos of homes are only seconded by AUTO repos, and its not just new or lease through the lender, its through "payday" quick loan car title lenders, as most Americans (76% paycheck to paycheck; 62% with less than $1000 savings) are caught between a rock and a hard place.  The service sector is about to get slammed so hard, it may not get back up and it wont be the energy sector defaults, it will be the student and sub prime auto loan defaults, along with the new age FHA sub prime mortgages, which IS the housing market, that make headlines.

FYI, RMBS evaporated -85% in this reflated housing bubble, the FED bought 1.7T in old collateral, while new securitized MBS is agency issuance, the majority of FHA 96.5% LTV; FICO as low as 580 and with OVER 50% debt ratios.  Liquidity in that market space has been contracting for some time now, the amount of paper trading has gone to a standstill, as dealers and even the big four have all but abandoned it. If there is another liquidity crunch, its going to hit MBS and by default housing due to credit contraction, hard.

Re: Dimon, the risk isn't the guys who take the unicorn haircut, its the cascade and contagion that might occur...

The strange thing is last week, bond dumping (China, et al) to raise dollars masked rising liquidity issues, US bonds (longer duration secondary market) sold off,  bringing the dollar down. So media narrative, BOND DUMPING, WEAK DOLLAR.  Not so fast Joe, or you finish outside...  On a weak dollar, commodities went where? Gold went up, but commodities went down..

Meanwhile, the Yen 119 and Franc 0.95 went UP vs dollar (carry trades) while June 2018 eurodollar futures hit a new high, as treasury yields went to lows not seen since April, and 30 day paper sold at ZERO and NEGATIVE. Last two days, short term on the run 30 day T bills spike 130 pips going over 3 mo and 6 mo.

All the above does not say WEAK it says TOIT, as in liquidity tight.  The last time I saw this occur was just after China devalued between Aug 11 - 24th. Oh and that CBOE SKEW spike to an all time high, which  I mentioned here. The odds of occurrence are 25% within the next 30 days. Just sayin.

For those already in the circle of trust, or celebrating Festivus, your experience on Sunday at BWLD was inspiring… as I am sure the J-E-T-S were. Here's something that you might be interested in, replete with football references, and a lecture from the legendary Hall of Fame Coach Bill Walsh.  Enjoy.