EXPECTATIONS

 
Mortgage rates hit new 2014 low as 30-years fixed rates dropped to 4.21% from 4.29%. Last time rates were this low was last November when the 30-years rate hit 4.16%.

Concerns about deflation worldwide along with a move to the so-called safe harbor have helped keep rates on US Treasury bonds low. But investors need to be asking themselves: Could this be the quiet before the storm?

Most started the year expecting rates to rise and bond prices to fall as the Fed rolled out its tapering program. A lot of investors got caught on the wrong side and just may get caught again if rates go up faster than expected. As we noted in a quote from macro trader Paul Tudor Jones recently the obvious isn't always obvious.

Many investors have been expecting a pullback in this market for a while. It hasn't happened yet. Few thought energy and utility sectors would hold up this well.  In late December last year Forbes ran an article, '3 Standout Sectors for 2014." http://www.forbes.com/sites/tomaspray/2013/12/26/3-standout-sectors-for-2014/  Energy and utilities didn't make the list. Technology was one of the sectors that did make the list.

Much of the volatility investors expected  in 2014 also hasn't shown up yet. And how many anticipated the turn around in bond prices for those EU periphery countries like Greece and Portugal? Anyone really believe they've found economic religion?

How many expected ECB Pesident Mario Draghi, the dragster, to wait so long to depreciate the euro still trading near $1.39. Draghi's done much talking but showed little action. Now he's waving the month of  June in investors' faces. Maybe we need to change his sobriquet from dragster to muddler as it seems he keeps hoping this thing will cure itself.

 In the meantime, we expect to see the euro closer to its true value $1.20
http://money.cnn.com/2014/05/08/news/economy/europe-ecb/index.html?iid=SF_BN_River 

A BIGGER PROBLEM THAN MANY REALIZE

The Ukraine has been a particular problem with respect to natural gas exports for Russia, because it has used a significant share of Russia’s natural gas exports, without paying market price for them (Figure 4). In fact, some of the time, it didn’t even pay the below-market price the Ukraine had contracted for, for natural gas exports–the reason for the Ukraine’s debt to Russia.

The above is an excerpt from "Russia and the Ukraine--The Worrisome Connection to World Oil and Gas Problems."  Here's the link to the full report. http://ourfiniteworld.com/2014/05/07/russia-and-the-ukraine-the-worrisome-connection-to-world-oil-and-gas-problems/#more-3895

AROUND THE WEB

The Putin ploy and his strategy for manipulated rebellion may be spiraling out of control..
 http://www.nytimes.com/2014/05/08/opinion/amid-tensions-a-gesture-from-putin.html?_r=0

As we've noted before it's hard to look in just about any direction these days without spotting tension. Here's one more example, China and Vietnam and the Philippines.
http://online.wsj.com/news/articles

 Fast food workers' pay demands go global and the demanding price is $15 per hour.
 http://247wallst.com/consumer-products/2014/05/07/fast-food-pay-demands-going-global/

Investors will be watching with close attention the European Central Bank's meeting Thursday and what impact it could have on the euro should there be any surprise changes.
 http://www.reuters.com/article/2014/05/08/us-markets-forex-idUSBREA330R620140508

Goldman Sachs weak on copper owing to weakness in Chinese real estate and slowing economy.
http://www.marketwatch.com/story/goldman-weak-china-property-refinforces-bearish-copper-view-2014-05-08?dist=tcountdown

HOT MONEY ON THE RISE

We mentioned hot money in a previous post three days ago. With  prices rising and yields falling on bonds from the periphery EU members those once ugly ducklings are being turned into the princes of a yield-hungry ball.



http://www.marctomarket.com/2014/05/great-graphic-emerging-market-bond.html

ORACLE TME AND MORE

It was Oracle time on Capitol Hill today.

"As long as we continue to see improvement in the labor market and we believe the outlook is for continued progress, and as long as we continue to believe and see evidence that inflation will move back up over time to our 2 percent longer-run objective, we anticipate continuing to reduce the pace of our asset purchases in measured steps,'' Fed Chair Janet Yellen told the Congressional committee.

She warned about the weakness in housing but tossed out the old comfort blanket, saying the economy was on track and should show decent growth in 2Q.

One could call it fence sitting, straddling or plain old gridlock. Wait, watch and plan. We could be mistaken, but sounds like a plan right out of this administration's foreign policy playbook.
 ----
 "It's not terrible, but it's not great...We're in somewhat of a soft cycle, but I'm getting a sense that we're just crawling out it" Disney CEO Bob Inger told the media yesterday. Disney posted adjusted earnings of $1.11 a share, beating the 96 cent average forecast of analysts surveyed by Thomson Reuters.  A year ago, Disney reported adjusted earnings of 79 cents a share.
 ----
The Treasury Department auctioned $24 billion in 10-year notes at a high yield of 2.612 percent. The bid-to-cover ratio, an indicator of demand, was 2.63.
---
CNBC has a piece today about the declining dollar http://www.cnbc.com/id/101650260 and why everyone got it wrong. The dollar isn't the only thing the experts got wrong so far this year.  They missed on energy, utilities and bonds. One could postulate that utilities and bonds are somewhat from the same camp and in a way there are. But if a kiss is just a kiss and sigh just a sigh, then what do you call a miss.?
 ---
Hedge funds don't just short a stock and keep the proceeds from the short sale in cash...Hedge funds receive cash when they short sell a stock and they use that cash to initiate long positions. They generate alpha on the short side of their trade if the short stock......more
 http://www.insidermonkey.com/blog/jonathan-burton-birinyi-associates-wrong-321279/
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After weeks of tension Putin pulled Russian troops off the Ukrainian border and urged a delay in the scheduled May 11 election. The move sent the ruble soaring and the Micex Index enjoyed its largest upward move since mid-March.
 http://www.bloomberg.com/news/2014-05-07/russian-bonds-climb-as-fresh-talks-call-attracts-bargain-hunters.html
---
Is there a spike in the wind for natural gas? Some think so after the much anticipated Short Term Energy Outlook from the Energy Information Administration noted the need to rebuild inventories after the long, hard winter.
http://www.futuresmag.com/2014/05/07/natural-gas-market-ready-for-spike

AROUND THE WEB

What You Don't See
http://www.testosteronepit.com/home/2014/5/7/explosive-hidden-leverage-threatens-to-blow-up-the-markets.html

Defense Pact
http://www.bloomberg.com/news/2014-05-06/russian-aggression-prompts-finnish-swedish-military-pact.html

Day Rates Very Large Gas Carriers 
 Mm.
 http://oilprice.com/Finance/investing-and-trading-reports/The-Most-Shocking-Chart-of-2014.html

 Drought
http://news.yahoo.com/caracas-begin-four-months-water-rationing-215758339.html;_ylt=AwrBJR9IXGlTDl4AX8_QtDMD 

 Be Advised
http://www.independent.co.uk/money/spend-save/ukraine-crisis-is-russian-roulette-for-investors-9177767.html

Wage Hikes? What Stinking Wage Hikes?


  











  

Jobs? What Stinking Jobs?
 

YELLIN SPEAKS

Later today Fed Chair Janet Yellin will unleash some more of  what we call the Janet effect when she traipses up the hill to appear before Congress .

Her testimony may turn out to be a non-event but the markets will be watching and listening for any slip of the tongue or hint that may give them an edge as to when and what the Fed's liable to do next.  

Federal Reserve Governor Jeremy Stein speaking Tuesday night at New York University pointed out that the Fed should worry less about market volatility whenever it releases its statements. "There is always a temptation for the central bank to speak in a whisper, because anything that gets said reverberates so loudly in markets," he noted.

THE SCENT OF AN IPO

One wonders who are the greater villains here, those who hawk super-sized fries and cokes (Doesn't Buffett own a few shares of Coke?) or London's version of Wall Street underwriters?

Anyway, here's a good short piece from an excellent site about the IPO shell game if you occasionally want to cudgel in shape those brain cells a bit. 

Note, too, somewhere in here you'll find the scent of Goldman Sachs.
http://www.dailyspeculations.com/wordpress/?p=9320

EXPOSURE TO RUSSIA

This is an excellent post. A couple of things here that are important. Usually there's more than meets the eye and you can't tell the players without looking. Sometimes that means digging.
 http://www.marctomarket.com/2014/05/great-graphic-bank-exposures-to-russia.html

RELATIONSHIPS

 Assumptions sometimes have an unpleasant way of guaranteeing one the wrong answers.

One of the big assumptions that trip up many of us is that relationships always hold. It's easy to fall into, after all once a body gets in motion it tends to stay there.

Traders in the carry trade sooner or later learn this. Gold after a 12 year run-up one day just stopped.

Years ago performer Garth Brooks had a song with a line about his significant other saying she may be in California but her heart's in Oklahoma only one day to return home from work to discover she's gone. There were lots of signs along the way. There usually is. 
http://www.businessinsider.com/citi-equities-no-longer-follow-earnings-2014-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A%20businessinsider%20%28Business%20Insider%29#!JALaO

That's what this chart is about, a once relied-upon relationship that somehow changed. For more proof read Paul Tudor Jones' recent comments at a New York conference peopled by market heavyweights. Jones is a legendary macro trader. Here are two quotes from his talk.

Summing up this year so far:
"Macro trading has probably been as difficult as I have ever seen it in my career."

And: "What's obvious in macro is obviously wrong."

 Read more: http://www.businessinsider.com/sohn-conference-live-blog-2014-5#ixzz30xHEGTOi