>>> What to look at today - 30th of March 2022

 Stocks in Asia rose Wednesday as investors weighed prospects for a de-escalation in the war in Ukraine that could reduce pressure on commodity prices, allowing inflation to ease and slowing the pace of monetary policy tightening. 
A gauge of Asia Pacific shares rose for a second day, lifted by Hong Kong and China. Equities fell in Japan as the yen lifted off a six-year low and as some stocks traded without the rights to the next dividend. U.S. futures wavered after the S&P 500 gained for a fourth day and the Nasdaq 100 also climbed. Bonds got a reprieve from their recent rout as hopes for progress in talks between Russia and Ukraine drove down oil prices and inflation expectations. A slide in long-end yields saw the two- to 10-year curve briefly invert -- typically a signal of impending recession, though its accuracy is in doubt after years of heavy stimulus.  In Japan, bonds climbed with the yen after the Bank of Japan pledged to buy more securities than planned and include longer-dated debt. Oil reversed a little of its slide as investors remained circumspect about the chances of a resolution to the war. Russia said it will sharply reduce military activity near Ukraine’s capital Kyiv and its chief negotiator said Moscow would take steps to “de-escalate” the conflict. The talks failed to reach agreement on a cease-fire, however, and the Pentagon said Kyiv remains under threat. The dollar slipped.  Consumer sentiment appears resilient, as the latest U.S. confidence data suggest solid job growth has offset Americans’ concerns over accelerating inflation for now. Government data Friday are expected to show the economy probably added close to a half million jobs in March as the unemployment rate fell to 3.7%. Chinese technology stocks pared gains after a Wall Street Journal report of new curbs in the live-streaming industry.  US after Hours MLKN +9.1%, LULU +7.4%, MU +4.1% higher on earnings; CHWY -13.3% falls on earnings; RH +0.7% up on earnings and plans for a 3-for-1 split

Nikkei -1,73% Hang Seng +1,17% CSI +2,16% Shanghai +1,45% Shenzen +1,73%

Eur$ 1,1109 CNH 6,3680 CNY 6,3595 JPY 121,94 GBP 1,3100 CHF 0,9287 RUB 90,8125 TRY 14,6185 WTI$ 104,5 Gold 1,923,82 BTC 47,400 -0,15% ETH 3,390 -0,03%

S&P -0,0% Nasdaq -0,05% EuroStoxx 0,00% FTSE +0,08% Dax -0,14% SMI +0,00%

Macro :
- BofA Warns Stock Surge Is Bear-Market Trap With Curve Inverted
- U.S. Short Sellers Face Risk of Squeezes, Citi Strategists Say
- Hedge Funds That Took Abramovich’s Billions Have No Way Out
- Hackers Steal $590 Million From Ronin in Latest Bridge Attack
- China Is Systemic Rival Threatening German Economy, Lindner Says

Keep an eye on :
- AB FP : AB Science Says It’s Evaluating Whether to Appeal AMF Decision
- AIR FP : Air Canada Aims to Eventually Operate 45 Airbus A220s
- BESI NA : BE Semiconductor to Offer EU175M 7-Year Convertible Notes: Terms
- DBK GY : Nexi Shares Sold for Gross Proceeds of About EU38.3m: Terms
- EKTAB SS : Elekta: NHS Supply Chain Ordered Multiple Licenses for Proknow
- EDP PLC : EDP Holder BlackRock Raises Stake to 10.01%
- ECV GY : Encavis Sees 2022 Oper Ebitda Above EU285M, Est. EU262.5M
- EOAN GY : Fortescue Provides Clarification on Comments on MoU With E.ON
- G IM : Del Vecchio, CRT End Generali Investors Consultation Pact
- KIN BB : Nicolas De Clercq to Depart as CFO of Kinepolis
- MTO LN : U.K. CMA Raided Mitie Office Earlier in March, Guardian Reports
- KCR FH : Cargotec, Konecranes Abandon Merger After DOJ Threatens to Sue
- NENTB SS : Nent Proposes Name Change to Viaplay Group
- NEXI IM : Nexi Holder Deutsche Bank Offers About 3.48m Shares: Terms
- PNL NA : PostNL Calls Belgian Action Out of Proportion, Unacceptable
- RNO FP : Renault Is Said to Explore AvtoVaz Ownership Transfer in Russia
- SHEL LN : Shell to Boost Supply of Key Oil Grade From U.S. Gulf of Mexico
- SIP BB : Sipef Warns For Upward Price Pressure On Indonesian Palm Levy
- TIT IM : Telecom Italia Is Said to Ask for Details on KKR Bid by April 4
- UBS SW : UBS Starts New $6B Share Buyback Program As Of March 31
- URW NA : Unibail-Rodamco-Westfield To Reinstate Dividends From 2023

>>> US After Hours Summary: MLKN +9.1%, LULU +7.4%, MU +4.1% higher on earnings;

After Hours Summary: MLKN +9.1%, LULU +7.4%, MU +4.1% higher on earnings; CHWY -13.3% falls on earnings; RH +0.7% up on earnings and plans for a 3-for-1 split

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: MLKN +9.1%, LULU +7.4% (also authorizes $1 bln stock repurchase program), HLTH +6%, MU +4.1%, VRNT +2.3%, RH +0.7% (also announces intent to do a 3-for-1 stock split), PRGS +0.6%, SLGC +0.5%, RCII +0.5% (reaffirms guidance for 1Q22 and FY22, announces mgmt change), PVH +0.3%, CALM +0.1%

Companies trading higher in after hours in reaction to news: VIR +9.6% (to be added to S&P SmallCap 600), RMO +3.9% (announces shipment of first pedigree packs to key customer), CSTL +2.6% (granted Advanced Diagnostic Laboratory Test status by CMS), SUNL +2.3% (names new CFO), WDC +1% (in sympathy with MU earnings), WE +0.8% (appoints CEO Sandeep Mathrani to role of Chairman), DDD +0.7% (to create joint venture with Dussur for expansion of additive manufacturing in Saudi Arabia), KGC +0.3% (to divest Russian assets), CPT +0.2% (to be added to S&P 500), FSR +0.1% (establishes Environmental Policy ahead of Nov 2022 start of production date)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: CHWY -13.3%, MVST -7.8%, SPWH -4.3%, CNXC -3.4%

Companies trading lower in after hours in reaction to news: GERN -17.2% (stock offering), NWN -6.1% (stock offering), MTDR -4.6% (to be added to S&P MidCap 400), UDR -2.3% (stock offering), HESM -1.4% (commences offering of 7.9 mln Class A shares by selling shareholders; signs accretive $400 mln sponsor unit repurchase agreement), ARRY -1.4% (concludes that certain periods should not relied upon due to error)

FT : Barclays halts new US retail structured products after $15bn error

Barclays halts new US retail structured products after $15bn error
Regulators investigate trading breach after bank says it will have to pay investors at least £450mn

Barclays has shut the sale of new retail structured products in the US while being investigated by regulators over a $15bn trading error, in a hit to a lucrative unit of its investment bank.

The lender announced on Monday that it was having to pay investors at least £450mn over a clerical error that dated back to 2019 but was only discovered this year. At least one of its largest shareholders has also sold shares worth £900mn in the group this week, in what is shaping up to be an early crisis for CS Venkatakrishnan, the new chief executive.

Under US market rules, providers of structured products — pre-packaged investment strategies based on derivatives — are required to register an amount of products they intend to issue, known as a shelf.

Barclays formerly had a licence whereby its shelf automatically increased the more products it issued, but this was removed following a trading scandal, according to people familiar with the matter who would not be drawn on the precise run-in with regulators.

They added that the bank had continued to operate as if its shelf would automatically increase, which caused it to breach its limit.

In August 2019, the bank set its maximum shelf at $20.8bn, but earlier this month discovered it had exceeded that amount by $15.2bn. It immediately stopped issuing new shares in two popular exchange-traded notes to limit the damage, which meant trading went haywire in the two products. The bank then spent the next two weeks estimating the potential damage, according to a person familiar with the matter.

Barclays’ breach of its limit means the bank is required to buy back affected securities at their original price, known as a rescission offer.

The US Securities and Exchange Commission has begun investigating the breach, according to people with knowledge of the matter, while the UK’s Financial Conduct Authority confirmed to the Financial Times that it was discussing the matter with Barclays.

The bank told the FT that, while it had stopped issuing new structured products in the US, it would continue to issue exchange-traded notes that were registered before it first breached the shelf in February last year.

“As we indicated in our announcement on March 28, Barclays Bank intends to file a new automatic shelf registration statement with the SEC as soon as practicable,” it said in a statement.

“We are continuing to issue structured products on other issuance programmes, including in Europe and Asia-Pacific, and remain committed to our global structured products business.”

Barclays has said the impact of the breach will cause it to delay its share buyback plan and analysts have predicted the group’s first-quarter results will be hit.

On Tuesday one of Barclays’ largest shareholders sold a 3.4 per cent stake in the business through a block trade facilitated by Goldman Sachs. The two largest active investors in Barclays’ share register — the Qatar Investment Authority and US investment group Capital — declined to comment on whether they sold the stake.

FT : Bill Ackman to abandon public battles for quieter investment approach

Bill Ackman to abandon public battles for quieter investment approach
Founder of activist hedge fund Pershing Square says he intends to work behind the scenes with companies

Billionaire hedge fund manager Bill Ackman is abandoning his use of aggressive activist campaigns to publicly shame company boards and executives to bring about change and bolster share prices, he said in an annual report to investors.

Pershing Square Capital Management’s founder said on Tuesday that he planned to be a less vocal shareholder, buying large blocks of publicly traded companies and working behind the scenes with companies on any concerns or strategies.

“[A]ll of our interactions with companies over the last five years have been cordial, constructive, and productive,” Ackman said in the report. “We intend to keep it that way as it makes our job easier and more fun, and our quality of life better.”

The announcement formalises a shift in the way Ackman invests after he made his name on Wall Street running bruising campaigns against companies such as retailer JCPenney, payrolls provider ADP and Canadian Pacific Railway.

The change, which Ackman is calling “Pershing Square 3.0”, comes amid an improvement in performance from the billionaire investor as he has retreated from public fights, instead building stakes in strong-performing companies such as restaurant group Chipotle Mexican Grill, retailer Lowe’s and hotelier Hilton Worldwide.

After three years of losses between 2015 and 2017 driven by a disastrous investment in Valeant Pharmaceuticals, Pershing Square has become one of the hedge fund industry’s top performers.

In 2019 it generated a 58 per cent net return, about double the S&P 500 stock index. During pandemic-plagued 2020, Pershing Square generated a 70 per cent net return, while the firm was able to keep pace with rising markets last year, gaining 26.9 per cent.

Pershing Square’s turn in performance has come as Ackman has taken a quieter approach by focusing on companies that do not require big fixes. After exiting multi-level-marketing company Herbalife in 2018 at a loss, he also abandoned short selling — betting against companies’ share prices — and running public campaigns in search of a profit.

“[W]e have permanently retired from this line of work,” Ackman said in the annual report.

Instead, Ackman has hedged his heavy exposure to stocks in recent years by placing hedges against the broader market that have made Pershing Square billions of dollars, which it has reinvested into the market.

In 2020, at the outset of the coronavirus pandemic, Ackman bought more than $70bn in protection against credit markets that made Pershing Square $2.6bn, allowing the firm to build large stakes in Starbucks and Hilton.

A year ago, Pershing Square paid over $150mn to put on about $100bn of hedges to protect itself against rising interest rates. In January, Ackman sold the majority of those hedges for $1.2bn, using the proceeds to build a stake of more than $1bn in streaming media company Netflix.

As interest rates have since risen, it has put the value of Pershing Square’s remaining hedges at $2.1bn, or over 10 per cent of the $15bn firm’s overall assets.

As of March 22, Pershing Square’s interest rate hedges had protected the firm against a broad market drop due to plunging tech sector valuations and the war in Ukraine. The firm was down just 2.2 per cent this year, beating the S&P 500.

(ZH) One Bank Spots Powerful Selloff Trigger Hidden Within Historic Market Diver

One Bank Spots Powerful Selloff Trigger Hidden Within Historic Market Divergence

Remember when Zoltan Pozsar said one month ago that Powell has to crash the market in order to spark the recession he so desperately needs to finally contain inflation? He may not have long to wait according to the latest note from Bank of America's derivatives team...
Bear markets produce the most vicious rallies - recall the relentless facerippers of Oct/Nov 2008 or March 2020 - and indeed, over the last two weeks, the S&P has produced one of its sharpest rallies in history. As shown below, the recent 10-day ramp ranks in the 98th %ile of bear market rallies and in the 99.5th %ile of non-bear market rallies
The recent rally has also surpassed the largest 10-day returns in 7 of the S&P’s 11 bear markets since 1927 and was actually larger than any of those bear market rallies when controlling for the size of the prevailing max drawdown.
This historic bear market rally is "Not explained by fundamentals" according to BofA, and is taking place despite what the bank's derivatives strategists note is clearly weaker macro fundamentals (more hikes, higher inflation, and curve inversion) and the Fed leaning against equity market strength to hike faster (i.e., the birth of the short "Fed call", the opposite of the bullish Fed put).
Some numbers: the rally has sent the S&P 6.7% above where it stood before Russia first moved into Ukraine on 24-Feb, bringing the bank's measure of cross- asset stress down in tandem.
During the same time:
  • The Fed funds rate priced in for Dec-2022 is up from 1.57% (6 hikes) to 2.10% (8 hikes)
  • US 10yr inflation breakevens have risen from 2.58% to 2.96%
  • The 2s/10s Treasury curve just inverted (and certainly by far more than it ever did pre-GFC)
  • Investors thinking we are “late in the cycle” up from 48% to 60% in our March. Fund Manager Survey, and “global recession” jumped to 2nd biggest tail risk.
Instead, markets have been dragged higher on the back of yet another epic short squeeze, and an even more furious gamma squeeze as Nomura's Charlie McElligott explained earlier.
As one of Goldman's top traders noted over the weekend in a surprisingly bearish note, the light positioning and inflated earnings are not enough to sustain gains: Indeed, as BofA notes, some blame the rally on light equity positioning and a positive effect of inflation through higher earnings. On the latter, the experience of the 1970s suggests otherwise (S&P returned 1.6% ann. during the decade). At the same time, Bank of America's strategists note that the lack of equity positioning (evident in the bank's Bull & Bear signal enter a “Buy” territory and lack of vol convexity in the selloff), even if it helped this bounce, seems unlikely to sustain it against this challenging macro backdrop.
While stocks are whistling past the graveyard, rates markets a lot more stressed, and are pricing in a lot more risk than equities. As shown in the chart below, the spread between the S&P gain and Treasury selloff over the last 10 days is the 5th biggest since the GFC.
Even more stunning, the increase in rates vol (MOVE Index) relative to falling equity vol (VIX) has been the largest since 2009 and one of the largest ever.
What tends to follow? In the 2009 episode, the S&P fell 7% in the next 6 weeks in what was its first sizeable dip since the GFC low.
But wait there's more, because now that the “Fed put” has transitioned into a “Fed call”, any market upside is at best questionable: According to BofA, "investors should have by now stopped counting on the “Fed put” to come to the rescue. In fact, we think the Fed put has been for now replaced with a (short) “Fed call”.
What do we mean by this? The Fed is seeking tighter financial conditions to aid their fight against inflation, and in practice this means lower risk assets. Hence, they may hike faster on equity rallies, limiting the upside in stocks. Case in point: various financial conditions measures (and our GFSI index) have actually loosened since the Mar FOMC and triggered an avalanche of “50bp” comments from Fed speakers (see Global Rates Weekly)
As a counter to its bearish view, BofA notes that softer inflation is the only true, but unlikely upside risk: The arrival of the short “Fed call” suggests the key catalysts for sustained upside in US equities is one that, without harming growth, lowers the Fed’s need to quickly raise rates back to neutral. The most visible upside risk, therefore, is inflation softening on its own from here. And yet most economists see risks of inflation worsening on its own. Other upside catalysts that may only work in the short term are:
  • Retail buying returns or earnings shine: but with the inflation backdrop unchanged, this allows the Fed to tighten further (and options data suggests extreme retail buying has not returned)
  • Russia-Ukraine ceasefire: most positive near-term, falling commodities may be positive for equities (Exhibit 16), but lower geopolitical risk allows the Fed to hike faster (recall they pushed back against 50bps in March due to the conflict)
  • Fixed income markets break before equities notice: the Fed is most sensitive to credit spreads and in theory could be forced to rescue credit before equities wake up to reality; however, this has never happened before, and it would only kick the can down the road if inflation doesn’t abate
How to trade this? In summary, for a moderate grind higher towards all-time highs, the bank likes buying S&P call ratios (buy 1, sell 2) in May, selling elevated implied vol and offering up to a 4.7-to-1 payout. To hedge downside risks, consider buying S&P June put spread collars, which cheapen the cost of the hedge by also selling away upside (this time above all-time highs) and offer close to a 10-to-1 max payout.
  • To rent upside: with positioning still arguably light, the pain trade remains a grind higher. To participate in a continued grind higher for a low upfront cost and with limited downside risk, BofA likes buying call ratio overlays in SPX, benefitting from elevated implied vol. For instance, one can buy SPX May 4650/4800 1x2 call ratios (buy one & sell two calls) for 0.70% (4.7x max payout, ref. 4575.52). The short calls are struck at all-time highs.
  • To hedge: the earlier points reinforce our preference for put spread collars as cheap protection, particularly when initiated on a rally as sharp as the S&P has just delivered. For instance, consider buying SPX Jun 4900/4400/3900 put spread collars for 1.1% (9.9x max payout, ref. 4575.52). The short call is struck 2% above all-time highs.
  • Risks: beyond the upfront premium, the risk to both trades is a rally beyond the short call strike.
Much more in the full BofA note available to pro subs in the usual place.

>>> US Close Dow +0,97% S&P +1,23% Nasdaq +1,84% Russell +2,65% VIX 18,90 -3,72%

Closing Stock Market Summary

The S&P 500 rose 1.2% on Tuesday, as reported progress in peace talks helped keep the positive momentum intact despite a key inversion in the Treasury market. The Nasdaq Composite (+1.8%) and Russell 2000 (+2.7%) outperformed the benchmark index while the Dow Jones Industrial Average rose 1.0%. 

The positive start was catalyzed by news that Russia agreed to reduce military operations near Kyiv and that it's willing to speed up the timeline for a meeting between Presidents Putin and Zelensky. President Biden and European leaders were more skeptical, with Mr. Biden saying they were going to wait and see for what Russia does instead of believing its words.

The stock market took the reports at face value, using the news as a good excuse to maintain its rebound-minded intentions. Shares of Apple (AAPL 178.96, +3.36, +1.9%) rose for the 11th straight session, and ten of the 11 S&P 500 sectors finished in positive territory. 

The heavily-weighted information technology (+2.1%) and consumer discretionary (+1.5%) sectors were among the top performers behind the real estate sector (+2.9%), while the energy sector (-0.4%) bucked the positive trend amid a decline in oil prices ($104.33, -2.14, -2.0%). 

Oil, like other commodities and the dollar (98.41, -0.68, -0.7%), was pressured by the prospects of a ceasefire agreement. The dollar weakened against a stronger euro (+0.9% to 1.1088). 

Elsewhere, a widely-followed recession indicator in the Treasury market briefly flashed red for the first time since 2019. Specifically, the 2-yr yield (+1 bps to 2.35%) briefly traded higher than the 10-yr yield (-8 bps to 2.40%), which is typically viewed as a harbinger for a recession between 6-24 months after the inversion. 

Bullish investors noted that equities tend to rally in the months between the inversion and recession while others downplayed the significance of the indicator, arguing that the Fed's policy accommodation has distorted the long-end of the curve. 

On a related note, Philadelphia Fed President Harker (non-voter in FOMC) told CNBC that an inversion of the yield curve has mixed evidence regarding recession indicators. Former New York Fed President Dudley opined in a Bloomberg piece that a recession is "virtually inevitable" because the Fed is behind the curve. 

Reviewing Tuesday's economic data:

  • The Conference Board's Consumer Confidence Index rose to 107.2 in March (consensus 107.5) from a downwardly revised 105.7 (from 110.5) in February. In the same period a year ago, the index stood at 109.0.
    • The key takeaway from the report is that consumers benefited from continued growth in late Q1, though expectations for the near future continued weakening, which has the potential to pressure future spending plans.
  • Job openings decreased to 11.266 million in February from a revised 11.283 million (from 11.263 million) in January.
  • The FHFA Housing Price Index for February increased 1.6% m/m (consensus 1.3%), and the S&P Case-Shiller Home Price Index for February increased 19.1% yr/yr (consensus 18.7%).

Looking ahead, investors will receive the third estimate for Q4 GDP, the ADP Employment Change report for March, and the weekly MBA Mortgage Applications Index on Wednesday.

  • S&P 500 -2.8% YTD
  • Dow Jones Industrial Average -2.9% YTD
  • Russell 2000 -5.0% YTD
  • Nasdaq Composite -6.6% YTD

(ZH) "Hard Landing Virtually Inevitable" - Countdown To Recession Begins As 2s10

"Hard Landing Virtually Inevitable" - Countdown To Recession Begins As 2s10s Curve Inverts

While several asset-gatherers and commission-rakers will try to gaslight investors into monitoring the steepening in the 3M2Y spread - "see no recession to fear there"; for anyone who has actually lived through a Fed hiking cycle, or has read any market history, the 2s10s curve is the most-monitored, the most-studied, and the most accurate predictor of recession the market has to offer.
And today, after a long wait...
...2s10s has finally inverted...(according to Bloomberg data 2s10s spread was -0.23bps)
...chasing the rest of the curve (3s10s, 5s10s, 5s30s, 20s30s) all into inversion...
As Deutsche Bank's Jim Reid notes this morning, there has never been such a directional divergence possibly because the Fed have never been as behind the curve as they are today.
For a sense of just how far behind, The Taylor Rule suggests given the current inflation rate and unemployment rate, The Fed needs to hike by an absurd-sounding 1155bps to get back to 'normal'...
But back to the divergences in the curve, Reid notes that the remarkable thing is that the two have always gone hand in hand directionally until around December 2021 when 3m10s started to steepen as 2s10s collapsed.
If market pricing is correct, they will rapidly catch up over the next year so it’s possible that in 12 months’ time this measure will be flat.
As a reminder, every hiking cycle that has inverted the curve has led to a recession within 1-3 years.
The table from DB below shows the details of every Fed hiking cycle over the last 70 years alongside the time to recession, yield curve shape, and inflation at the first hike. DB has ordered this by length of time from first hike to recession to demonstrate that the quickest recessions following hikes were associated with an inverted curve by the time the Fed stopped hiking.
On average it takes around three years from the first Fed hike to recession. However all but one of the recessions inside 37 months (essentially three years) occurred when the 2s10s curve inverted before the hiking cycle ended. With all the recessions that started later than that, none of them had an inverted curve when the hiking cycle ended. In fact, hiking cycles that ended with the curve in positive territory saw the next recession hit 53 months on average after the first rate hike, whereas the next recession for hiking cycles that ended with an inverted curve started on average in 23 months, just under two years. All these cycles eventually saw an inverted curve but this happened after the Fed stopped hiking. As a reminder, none of the US recessions in the last 70 years have occurred until the 2s10s has inverted. On average it takes 12-18 months from inversion to recession. Then again, the Fed has never before started a rate hiking cycle when inflation was already 7.9%.
Many would prefer to ignore this indicator, or make general excuses for why it's different this time "because of QE", "because of COVID", "because of Putin", but as Jim Reid explains so eloquently:
...for me I think about it very differently. I don’t care why the curve inverts as I think the transmission mechanism is through animal spirits. When a curve is steep it should encourage entrepreneurial behaviour as borrowing costs at the front end are low relative to potential returns. In an inverted curve environment, the rational investor/entrepreneur/business should be more risk averse and either place more money in safe assets at the front end or do less animal spirits enhancing longer-term investments/economic activity.
As Reid notes, this all operates with a lag but if I exaggerate to illustrate, if 2yr yields are 5% and 10yr yields are 1% then rational economic agents will be highly likely to park money at the front end and wait for better opportunities irrespective of how negative the term premium is.
But, as a new Piper Sandler study finds, stocks and bonds tend to do quite well in the window between yield-curves inverting and the onset of the actual recessions.
“The broad stock-market appreciates between inversions and the onset of the subsequent recession,” Roberto Perli, the head of global policy at Piper Sandler, wrote in a note with his colleagues Tuesday.
“With the exception of the Volcker years, fixed-income assets always appreciated, with mortgages, investment-grade corporates, and munis as top performers.”
“Overall, the message seems clear for equity and fixed-income investors alike: Don’t get too gloomy as soon as the yield curve (or a portion of it) inverts -- doing so is very likely to leave performance on the table,” Perli wrote.
We do note that this study 'excludes the Volcker years' and the 'burst of the equity bubble' - consider that before piling in.
However, bear in mind that this could well be what The Fed wants - politics and plunge protectors aside - as the only solution to soaring inflation...
In fact, for those who still believe 'the consumer is strong' and 'just look at the stock market', we suggest just look at sentiment surveys - all crashing to multi-decade lows as inflation expectations hit multi-decade highs.
As none other than the former head of the Hew York Fed, Bill Dudley, wrote this morning, The Fed’s application of its framework has left it behind the curve in controlling inflation. This, in turn, has made a hard landing virtually inevitable.

(ZH) Which Major Currency Will Be The First To Fall?

Which Major Currency Will Be The First To Fall?

...Could the euro beat the Yen in the race to the graveyard?
Before saying anything else, it is important to note, when it comes to the major currencies, it is safe to assume they are manipulated by central banks. It is in the best interest of Central Bankers to keep them trading in a rather tight pattern as so not to rock the foundation of the global financial system. On top of the stress being placed upon economies due to the war in Ukraine, the one thing bankers don't want to deal with is the growing fear the fiat monetary system is about to fail.
The destruction of the myth that a major currency cannot fail could create a situation where we would see skittish investors dumping currencies in mass. As wealth rushed from currencies into tangible assets inflation would soar. When a currency implodes it fosters a transfer of wealth from those holding the now worthless paper to those holding other currencies or tangible assets. The group-think of all the major central banks until just recently has been concreted into a global monetary policy favoring inflation in order to support economic growth. This monetary policy is now being challenged by rising prices at the same time economies are slowing.
It is important to remember that fiat currency systems depend on the faith of its users and participants to survive. The emergence of a slew of new cryptocurrencies is an indication faith in the current fiat currencies is beginning to wane. These digital currencies that have flooded the market are disconnected from central banks. Also adding to the perception we are about to see a major shakeup in the global financial system are efforts by countries such as China and Russia to move more trade away from the dollar. This is happening at the same time we see the cost of living for the 16 nations that share the euro currency rose to 5.1% in January, a new record high, few interest rate increases expected in 2022, and a time the German PPI is 18% and Spain’s 31%.
Recently, Zoltan Poz­sar, an In­vest­ment Strategist at Credit Suisse and is based in New York, has appeared all over the media touting a theory that would affect us all. He is touting the idea Russian sanctions combined with its relationship with China and a crisis in some commodities are threatening the dollar’s reserve status. He claims this will bring about a Bretton Woods III event where commodity collateral may repave the road to hard money.
While Pozar may not be completely right, if we are moving in that direction, the effect has broad implications for all of us. It would substantially redefine the relationship between fiat currency and tangible assets. A strong argument can be made that even though the BOJ is the top dog when it comes to monetizing debt it may not be for long. The ECB is catching up in the percentage of central bank holdings of government bonds in percent of total issuance. Considering all of Europe's problems the big issue is envisioning a scenario from which an economic renaissance might flow.
To say the Euro-zone banking system deception which has been going on for many years is continuing understates the size of the fraud occurring before our eyes. A program known as "Target 2" has been the salvation of the euro and is responsible for preventing countries from collapsing. Since 2015 when Draghi started QE, the Bundesbank has been buying bonds on the market. The Italian central bank is dependent on the ECB which buys Italian government bonds. Germany then sends euros to Italy transferring the debt via Target 2 to their German bank. The growing differences in the Target 2 balance sheet are the result of the Germans taking these bonds. Italians have also added to the capital flight by liquidating their bonds and sending their money abroad.
Italy Is Far Worse Post Covid-19
Target 2 translates into enormously huge debt claims on the Germans that are not covered by any securities. In short, if Italy (or even Spain) would withdraw from the Euro-zone, the Germans would be left holding worthless paper. The bottom-line is Brussels and Germany must continue buying what could be considered, "bad debt" to keep the system afloat. All this raises the question of when the value of the euro will begin to reflect the stress which has been masked over and greatly ignored. In short, the choice of Europe has been whether to put a lot of bad debt on the balance sheet of the European Central Bank or deal with defaults and the contagion that flows from them. To be clear, many German economists criticize Target 2 and see it as a check that cannot be cashed.
As for the yen, for a long time, many investors have viewed it as a safe-haven currency, so much in fact that it has been called a "widowmaker" trade for those betting on its decline. For years Japan has been the poster child and living proof that low-interest rates do not guarantee economic growth and prosperity. Going unnoticed by many investors is that the BOJ has been pumping up Japan's stock market by buying into the ETF market. This has morphed into a program that seems akin to Mario Draghi's fraud of doing "whatever it takes" to give the appearance their economy is moving forward. Following along the line of thought that while there is no way of avoiding the final collapse of a boom brought about by credit expansion years ago, Ludwig Von Mises wrote; "The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." In short, the BOJ now has little choice but to go all-in which strips away any illusion all is well.
Japan Led The Way In This Experiment
Before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. At the time the idea was that only by letting its zombie banks and industries fail could Japan clean out the system and move forward. Instead, the Government of Japan ran huge deficits and ran up massive debt. For decades Japan languished and avoided disaster only by the fact that it enjoyed a large trade surplus year after year and was able to pigtail onto the rapid growth occurring in China. Today much of that trade surplus has vanished but Japan's massive debt remains.

After 2008 Japan decided to put itself on the leading edge of an experiment to propel its economy forward. This includes the BOJ not only expanding its balance sheet but pumping up the market by jumping into the ETF market, what the country is not doing is taking big steps toward economic reform. All this has morphed into a program that seems to share a key focus on doing "whatever it takes" to keep the economy moving forward. The problem in pursuing the flawed policy of never allowing the market to slip but putting it on a path ever upward until everyone doubting the strength of the market finally capitulates is that it thwarts true price discovery.
Recently articles have surfaced exploring how the central banks and governments have distorted true price discovery in stock markets across the world. By buying stocks they are taking or transferring branches of industry or commerce from the private sector to state ownership or control. The keyword here is "ownership." This is because the state may choose to abdicate control over decisions leaving them in the hands of management. It has been estimated the BOJ holds around 35 trillion yen, accounting for roughly 80% of Japan’s ETF market. In some ways, the actions of Japan's central bank could be considered nothing more than a new model of "stealth nationalization."
This is a course filled with moral hazard since it destroys true price discovery the bedrock of free markets. We cannot underestimate the importance between assets prices and the feedback signals they send. These are critical in determining value, especially when it comes to assets such as stocks, bonds, currencies, or paper promises which carry no utility value and can perform no useful task. When true price discovery is lost or impaired management teams no longer get market feedback as to whether an executive decision is good or bad, this dilutes the market's ability to reward and punish companies no matter how disastrous their decisions.
To keep the illusion of a viable economy alive central banks must continue expanding credit and debt so the wheels do not come off the economy. It is hard to create the illusion all is well if unemployment soars and defaults skyrocket. This means the central banks remain trapped in a box Ben Bernanke built, Janet Yellen reinforced, and Jerome Powell has not tried to escape from. It is easy to see how central bank policy, right or wrong, falsely accomplishes two things, it bolsters and supports current holdings while reinforcing the image markets are climbing higher because our economic future is getting brighter which is a narrative mainstream media is glad to provide.

This may have started as a "short-term solution" but Ben Bernanke upped the ante by setting the money printing machines on high and flooding America and the world with QE. When other central bankers embraced this solution the world embarked on a grand experiment. The big problem is momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed. Current policies are not creating true growth in productivity or real wealth but simply driving up the value of certain markets and assets. This benefits those who own or have assets but does little or even hurts the poor or those who have nothing. It also increases economic inequality and social unrest. The harsh reality central bankers, politicians, and the world must face is the medicine for curing high inflation is high-interest rates. This will not go down well and to some an unacceptable solution.
For years, Japan and Italy, both mired in debt, have been on artificial support. Not only the size of the debt, but the quality of the debt, suggest a huge drop in the values of their currencies must occur. Weakness in the euro or even the yen almost certainly will result in a stronger dollar which could be the catalyst for a crisis in currencies issued by emerging market economies. In short, there is the potential to see such an incident over to the rest of the developed world and evolve into a global deleveraging event. This will most likely be seen as part of the great reset many of us have come to expect will occur at some point. Meaning, promises will be broken and rules will be rewritten as we go through the wash. If I'm correct this reset will involve a massive transfer of wealth with many people having their assets rinsed away as society gets put through the wringer.