LONG OVERDUE ECB

The market in the U.S. is long overdue for a pullback.

Problem is who gets to define long overdue, central bankers, MSM or my old girlfriend. A friend told me some time ago he was long overdue to dump his girlfriend. But he waited so long she ended up dumping him.

If this sounds like a group of wait, watch and plan central bankers who're running this charade, you might be onto to something. Be thankful you don't have to sit through those ECB meetings surrounded by 24 central banker bureaucrats. Talk about grim; that could probably make a vicar at a wedding wail.

There's probably more hedging going on in two hours there than most hedge funds do in a year of Sundays. The dragster, ECB President Mario Draghi, parsed some choice words as is the style of central bankers the world over.

In not so plain English, Draghi said the committee settled on more of the same; in other words, they were going to sit tight until his in-house economists update their forecast for inflation early next month.

Afterwards Draghi told a press conference: "I would say that the governing council is comfortable with acting next time but before we want to see the staff projections that will come out in early June."

Now if you like bureaucrat double speak here's another quote: "There is consensus about being dissatisfied with the projected path of inflation. So there is a consensus with not being resigned to expecting this," he said. "We have a consensus about action, but after seeing the staff projections in early June."

Consensus is just another term for paralysis. In the market if you wait to get a consensus before you place a trade, you going to miss most if not all of the move assuming there is one. 


   

AROUND THE WEB

1. Question: When was the last time the US Federal Reserve hiked interest rates?
 Answer:   As to the last time the Federal Reserve lifted interest rates — that was June 29, 2006, when the Fed lifted the base rate to 5.25% from 5%

Question: When was the last time the Bank of England hiked interest rates?
Answer:   The last time the Bank of England raised their interest rates was July 5, 2007, when the folks on Threadneedle Street lifted the base rate to 5.75% from 5.5%.
 http://blogs.marketwatch.com/capitolreport/2014/05/08/no-you-probably-havent-seen-a-rate-hike-via-twitter/

2. For a couple of interesting charts on bulls and bears click on link below.
\http://www.bespokeinvest.com/thinkbig/2014/5/8/fewer-bulls-than-bears.html

3. Inflation Slows in China
http://www.bloomberg.com/news/2014-05-09/china-s-inflation-slows.html

4. Nationalistic Surge Could Affect EU Elections
http://www.reuters.com/article/2014/05/08/us-sweden-primeminister-idUSBREA4712620140508

5. More From Yellen
http://www.thefiscaltimes.com/Articles/2014/05/08/Minimum-Wage-Hike-May-Hurt-Jobs-Yellen-Says

6. Big Drug Money Big Banks
http://www.ritholtz.com/blog/

DO YOU HEAR WHAT I HEAR?

It's trite but true: They don't ring a bell just before markets go south.

And sure many folks toss around a lot of verbiage about foretelling indicators, but in reality how many actually hear or see them before the fact. You can probably count them on the hand of a one-armed-three-fingered paper hanger.

Still, it's fun, entertaining and sometimes instructive to read about all those supposed indicators.
http://finance.yahoo.com/blogs/the-exchange/what-kills-bull-markets-150159636.html

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.