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By Tyler Durden

Now that not only Mario Draghi but also Ben Bernanke have joined in the loud and growing chorus of “economic experts” debating the arrival of the monetary paradrop and suggesting that that helicopter money “may be the best available alternative“, it is just a matter of time before helicopter money is actually implemented, “maybe not today, but in the next recession” according to Deutsche Bank.

And it is the same Deutsche Bank that provides a handy primer how to trade (or frontrun as the case may be) this now inevitable and terminal monetary policy.

From DB’s George Saravelos, “Helicopters 101: your guide to monetary financing“

Market implications

The starting point of understanding asset moves should be the type of policy response as well as its effectiveness. Here we assume an aggressive form of stimulus large enough to generate an increase in inflation and growth expectations – for instance, a one-off write-down of debt owned by the central bank as well as large-scale fiscal stimulus financed by the issuance of zero-coupon perpetual bonds bought by the central bank. We assume that the market perceives the policy as “successful”, namely that both growth and inflation expectations rise. Under this scenario, we would expect the following:

Bond yields should rise and the curve should bear-steepen. Our colleagues in fixed income last year published a framework on understanding the drivers behind long-dated yields.26 We list the components of the 10-year yield below and the anticipated impact:

Taking all the factors above, the ultimate effect on yields is ambivalent, depending on the interaction between falling credit risk, rising demand-supply imbalances (downward pressure on yields) versus higher growth and inflation expectations (upward pressure). At one extreme, if the market perceives the policy as a failure, credit risk and demand/supply imbalances are likely to dominate, putting even further downward pressure on yields. At the other extreme, if the policy is perceived as a loss of monetary discipline, inflation expectations would spike, leading to an aggressive re-pricing of yields higher.

On balance, under the assumption of policy “success” without fears of hyperinflation, we would conclude that bond yields rise, driven by the long end.

• The currency should weaken, but may eventually strengthen. Real yields have proven one of the most important drivers of currency moves in the post-crisis years, so the effect of helicopter money on FX will likely depend on their direction. The large depreciations in both the euro and yen over the last few years were driven by large downward shifts in real yields (charts). The effect of helicopter money on real yields is ambivalent, as outlined above. We assume that inflation expectations would dominate over growth, at least initially, with a central bank commitment to keep nominal rates low for long also helping. Eventually higher growth and tighter policy could lead to a stronger currency, however. Other frameworks suggest that currencies should at least initially weaken as well. The monetary approach to exchange rate determination concludes that the relative supply of money between two economies ultimately …read more

  Source: How To Trade The Coming Helicopter Money: Deutsche Bank Explains

      

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By Tyler Durden

After a week like this:

• Retail Sales Tumble
• Industrial Production Plunge
• Inventories-to-Sales Surge
• 30Y Yield UNCH
• Oil UNCH
• Small Caps +3%

This seemed appropriate:

This was the worst two-week period for US Macro surprises since Dec 1st 2015…

And GDP expectations plunged…but stocks don't care…

On the week it was all about a huge short-squeeze… This was the 2nd biggest weekly short-squeeze since Dec 2011

Which left the Small Caps and Trannies top on the week..

Energy and Financials had a good week but faded notably the last 2 days…

Stocks also decoupled from Oil prices…

And Bonds ain't buying it…

Treasury yields fell notably today, pressing 30Y all the way back to unchanged on the week, flattening 5s30s by around 5bps on the week..

The USD Index had a good week (as China devalued) with Swissy weakness offsetting commodity currency weakness…

Copper & Crude slipped lower after China data (so it was all stimulus-based hope?) but the big news was the yuuge divergence between gold and silver… This was Silver's biggest week since May 2015

The biggest weekly plunge in the Gold/Silver ratio since Aug 2013…

Finally this is the week in crude… Unchanged after an epic ramp early on… but today was Crude's biggest drop in 2 weeks ahead of Doha

See you all Sunday for Doha headline hockey.

Charts: Bloomberg

…read more

Source: Silver Soars, Stocks Roar On 2nd Biggest Short-Squeeze Since 2011

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By Tyler Durden

After a week like this:

• Retail Sales Tumble
• Industrial Production Plunge
• Inventories-to-Sales Surge
• 30Y Yield UNCH
• Oil UNCH
• Small Caps +3%

This seemed appropriate:

This was the worst two-week period for US Macro surprises since Dec 1st 2015…

And GDP expectations plunged…but stocks don't care…

On the week it was all about a huge short-squeeze… This was the 2nd biggest weekly short-squeeze since Dec 2011

Which left the Small Caps and Trannies top on the week..

Energy and Financials had a good week but faded notably the last 2 days…

Stocks also decoupled from Oil prices…

And Bonds ain't buying it…

Treasury yields fell notably today, pressing 30Y all the way back to unchanged on the week, flattening 5s30s by around 5bps on the week..

The USD Index had a good week (as China devalued) with Swissy weakness offsetting commodity currency weakness…

Copper & Crude slipped lower after China data (so it was all stimulus-based hope?) but the big news was the yuuge divergence between gold and silver… This was Silver's biggest week since May 2015

The biggest weekly plunge in the Gold/Silver ratio since Aug 2013…

Finally this is the week in crude… Unchanged after an epic ramp early on… but today was Crude's biggest drop in 2 weeks ahead of Doha

See you all Sunday for Doha headline hockey.

Charts: Bloomberg

…read more

Source: Silver Soars, Stocks Roar On 2nd Biggest Short-Squeeze Since 2011

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The NBA announced that it is keeping its 2017 All-Star Game in Charlotte, North Carolina, despite the state’s passage of an “anti-LGBT” bathroom law. …read more

Source: NBA keeps 2017 All-Star Game in N.C.

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By Tyler Durden

In January we pointed out “the last bubble standing,” as China's crashing equity market had spurred massive inflows – directed by a “well-meaning” central-planning committee's propaganda – sparking a massive bubble in Chinese corporate bond markets (in an effort to enable desperately weak balance-sheet firms to roll/refi their debt and keep the zombies alive). That has now ended as China's junk bond risk has soared to 5-month highs with its worst selloff since 2014. As HFT warns, “we should avoid junk bonds.”

China’s high-yield bonds are in the midst of their worst two-month selloff since the end of 2014 and investors say they have yet to fully price in the risk of defaults as the economy slows. The gap reached a four-month high of 379 basis points, from as low as 352 on Jan. 19, as at least seven companies reneged on bond obligations this year, up from one in the same period of 2015.

As Bloomberg details,

“Most high-yield bonds haven’t fully priced in default risks,” said Zhao Hengyi, Shanghai-based deputy director of the bond fund department at HFT Investment Management Co., which oversees 46.9 billion yuan ($7.2 billion) of assets. “We should avoid junk bonds.”

Premier Li Keqiang has pledged to pull support from zombie firms that have wasted financial resources and dragged on economic growth, which is slowed to 6.7 percent in the first quarter. Chinese companies must repay a total of 31.3 billion yuan of bonds rated AA- or lower this year, the most on record, according to Bloomberg data based on rankings from the nation’s four-biggest rating firms. Corporate notes rated AA- or lower are considered as junk bonds in China.

China’s corporate debt burden is heavy, but if you have a lot of savings and lending, the leverage compared with countries without high saving rates is not very high, People’s Bank of China Governor Zhou Xiaochuan told a briefing in Washington on Thursday. The PBOC has lowered benchmark interest rates six times since 2014, driving a record rally in the bond market and underpinning a jump in debt to 247 percent of gross domestic product.

At least 37 Chinese firms postponed or scrapped 35.2 billion yuan of planned note sales through April 13, compared with nine companies pulling 12.4 billion yuan a year ago, data compiled by Bloomberg show. About half of the cancellations took place this week after state-owned China Railway Materials Co. halted its bond trading Monday.

“The recent default events have hurt investors,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing. “So it’s natural for bond yield spreads to go up.”

As BofA warns however, there are signs that the risk-free rate in China may have bottomed and that the credit spread is widening.

This may check any enthusiasm in the market, in our view. We consider the latest rally to be tactical and we don’t recommend that investors chase it. We maintain our year-end target for HSCEI of 9,000 and, for SHCOMP, 2,600.

Chart 1 shows the 5-year Chinese Government …read more

Source: "Last Bubble Standing" Bursts – China Junk Bond Risk Soars

    

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Johnson & Johnson, the world’s largest contact lens manufacturer has dropped its minimum pricing requirements, paving the way for looming price wars. …read more

Source: Your contact lenses are about to get less expensive

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By Tyler Durden

Following Monday’s decision by a special committee to commence the impeachment process against president Dilma Rousseff, all attention had been focused on the number of Congressional votes that the pro-impeachment movement would have ahead Sunday’s critical vote. As a reminder, impeachment would require two-thirds support, or 342 of the 513 lower-house lawmakers, to send the case to the Senate.

And then, following a failed attempt to stall the impeachment process last night when Brazil’s Supreme Court allowed the impeachment process to proceed despite Rousseff’s protests, moments ago, Brazil’s Folha newspaper reported that this critical 342 threshold had been met.

• BRAZIL PRO-IMPEACHMENT VOTE TALLY REACHES 2/3 THRESHOLD: FOLHA

The result: Brazilian stocks, which had already surged today, and were up 22% YTD not to mention up 44% from January’s lows, extended the rally of what has been this week’s best performing market ahead of this weekend’s impeachment vote.

Citing Ari Santos, a trader at brokerage H.Commcor in Sao Paulo, Bloomberg reports that “the market is anticipating the improvement of the economy with new policies,” said “That’s the main driver for Brazil’s stocks today as it has been in the past weeks.”

However, such an optimistic assessment may be premature: first, not only is Rousseff going to fight the process, which next goes to the Senate, tooth and nail, but a political crisis just 4 months ahead of the Olympics will hardly be beneficial for the Brazilian economy, which as we have been reported for the past year, is now openly in a depression.

“The view that Sunday’s impeachment vote will be some sort of a denouement is wide of the mark,” Nicholas Spiro, a partner at Lauressa Advisory Ltd. and previously a consultant on sovereign-credit risk, said from London. “Irrespective of the outcome, it is bound to raise more questions than answers. Markets are far too confident that Brazilian politics is moving in the right direction as far as political stability and economic reforms are concerned.”

For now, however, as the chart below shows, traders are pushing green first, and asking questions later.

…read more

Source: Brazil Stocks Soar After Rousseff Impeachment Vote Passes Critical Threshold

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AMC says no to texting at the movies after reports that the theater chain would it allow it in the future.

Popular: Guns in America | Sanders Demands Clinton Apologize | Blindsided: How ISIS Shook The World

…read more

Source: AMC says it’s not going to allow texting at the movies

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By Tyler Durden

We were wrong: several minutes ago when we documented the collapse in the Gallup Economic confidence, we said that “we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.” Moments ago the official print came out and it was not pretty: sliding from 91 to 89.7, not only did the print miss expectations of a rebound to 92.0, but was the lowest print since September 2015, as well as the fourth consecutive drop.

The reason for the drop? Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.

And as UMich calculates, “the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.” Hardly a glowing endorsement of the 2.7% quarterly GDP growth needed to hit the Fed’s optimistic forecast.

This is what the report said:

Consumer confidence continued its slow overall decline in early April, marking the fourth consecutive monthly decline. To be sure, the sizes of the recent losses have been quite small, with the Sentiment Index falling just 2.9 Index-points since December 2015, although it was down 6.2 Index-points from a year ago and 8.4 points below the peak in January 2015. None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead.

Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation. These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016. Overall, the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.

Add to this the concern about rising gas prices that was voiced by Gallup and suddenly you have a very troubling picture of the US economy.

But perhaps most troubling for the Fed is that while 1 year inflation expectations remained unchanged at 2.7%, the 5 year forward forecast dropped from 2.7% to 2.5%, implying that whatever the Fed is doing to boost expectations of rising prices is not working.

…read more

Source: Consumer Sentiment Tumbles To Lowest Since September; Umich Expresses Concern About "Resilience Of Consumer"

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By Tyler Durden

Less than six months after we pointed out that the BoJ owns 52% of the entire Japanese ETF market, Reuters reports that the Kuroda’s Peter Pan fairy tale, aka the Bank of Japan, is thinking about buying even more. The BoJ is said to be currently buying $30 billion of ETF’s a year under its current policy, however since the Nikkei is down over 10% this year, that figure is apparently not enough to keep the market propped up.

Here’s how the BoJ’s holdings in the Japanese ETF market looked visually in recent months:

“Increasing ETF buying in huge amounts, combined with a modest increase in bond buying and an interest rate cut, could be the only way left to surprise markets,” said a former BOJ executive who retains close contact with incumbent policymakers.

The reason for the BOJ’s desperation shift to monopolizing the equity market next is that as we have warned since 2014, it is running out of bonds to purchase: “the BOJ’s huge bond purchases are also drying up market liquidity, which further limits the scope for a large increase.”

“They are crossing off a list of things that aren’t possible, and the only thing that’s left is buying ETFs,” said Richard Jerram, economist at Bank of Singapore.

Japan’s ETF market is just 15.8 trillion yen, of which the BOJ already holds about half, but ETFs can be easily cobbled together by brokerages, so there is scope for plenty more, given Japan’s TOPIX stock market weighs in at 500 trillion yen.

Recall that the Bank of Japan’s purchasing of ETF’s does in fact lift the market, but questions remain around how much losses the bank will incur after the euphoria wares off, and how they can ever exit their position without collapsing prices.

“The BoJ will not easily be able to retract this liquidity in the future without destabilizing markets“, said Andrew Meredith, co-managing director at Tyton Capital Advisors

What “retraction”? The BOJ will never be able to “retract” as at this point this is the all in gamble; Kuroda knows very well that should the Nikkei drop a few more percent, he and Abe are out. Even the BOJ itself realizes this:

There are doubts raised within the BOJ, too, but those voices are in retreat as Kuroda stretches the limits of monetary policy, and dissenters to his radical money-printing policies are being replaced by supporters, the sources say.

“I don’t think worries about an exit are high on the list of the BOJ’s priorities,” said another source familiar with the BOJ’s thinking.

Worse, increasingly every BOJ proposal is being seen as a joke by even the “serious” members of the analyst community.

Jerram at Bank of Singapore said he was not convinced buying ETFs would help much with the BOJ’s principal goals, however, as there wasn’t a clear transmission into economic performance.

“They do something for the sake of doing something, and people see through that pretty quickly,” he said.

With the only tangible success …read more

Source: The Bank Of Japan Already Owns Over Half Of All ETFs; It Wants To Own More

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