I am the one who knocks


The Heisenberg

The Heisenberg has 87 articles published.

Warren On The Warpath: Calls For SEC Chair’s Head

in Uncategorized by

Sen. Elizabeth Warren is on the warpath and she ain’t taking no prisoners.

Just days after essentially running (now former) Wells Fargo CEO John Stumpf into retirement (albeit with a $135.4 million golden parachute), she’s at it again, and this time the target is SEC Chair Mary Jo White.

In a series of Tweets, Warren informed the public that she has formally called for the President to fire White for a dereliction of duty. In case you missed the fireworks:

You’re reminded that Mary Jo White once worked alongside Robert Rice (former Deutsche Bank Head of Governance, Litigation & Regulation for the Americas) and William Johnson (Deutsche’s one time outside counsel) in the U.S. Attorney’s Office for the Southern District of New York. Close with the trio was former director of the SEC’s enforcement division and Deutsche’s general counsel Robert Khuzami.

Spin revolving door, spin!

Here is Warren’s full letter to the President:

2016-10-14 Sec Letter to Potus Ocr by Walter on Scribd

Finally, here’s what happened the last time they met in person:



Everything You Need To Know About Friday

in Economy/Equities by

Friday summary:

Banks (JPM, WFC, C) all beat thanks in no small part to strong fixed income trading results. Yay.

Deutsche Bank won’t be getting a government bailout (or at least that’s what Berlin is saying on Friday). Oh, no.

Money market reform went into effect presumably making the system safer (yay) but removing nearly $1 trillion in unsecured short-term funding from the market and driving up LIBOR with no one really knows what consequences (oh, no).

Yellen spoke in Boston, and here’s Bloomberg’s summary bullets:

  • Fed Chair Janet Yellen said that “an accommodative monetary stance, if maintained too long, could have costs that exceed the benefits” by increasing the risk of financial instability or undermining price stability.
  • Benefits and potential costs of pursuing such a strategy “remain hard to quantify,” Yellen said in text of speech Fri. at conference hosted by Boston; “other policies might be better suited to address damage to the supply side of the economy”
  • Yellen’s comments were made during discussion of how demand may influence aggregate supply; comments on potential costs of easy policy followed suggestion that if strong economy can partially reverse supply-side damage, then policy makers “may want to aim at being more accommodative” during recoveries than would be called for under traditional view
  • May be “plausible ways” to reverse adverse supply-side effects by temporarily running a “high-pressure economy”
  • Yellen said that financial crisis and recovery might well prove to have been a “turning point,” as were the Great Depression and 1970s stagflation, by challenging existing views of how economy works and exposing limited understanding of economists
  • “Urgent” questions for the profession have been raised; pursuing answers to those questions is “vital” to the work of Fed and other policy makers
  • Questions include whether changes in aggregate demand can have “appreciable, persistent” effect on aggregate supply; post-crisis experience suggests that they may
  • Policy makers “clearly” need better understanding of kind of developments that contribute to financial crises
  • There’s also need to know more about how inflation expectations are formed, and how monetary policy influences them
  • More study is also needed in area of how U.S. monetary policy changes impact financial/economic conditions in rest of world
  • Cites one study that estimates level of U.S.’s potential output is now 7% below what would have been expected, based on its pre-crisis trajectory

“It struck us as completely disingenuous that she really believed a mere two data points (the number of payroll reports between now and December meeting) was really going to convince her that enough slack has been absorbed to greenlight a hike,” RBC wrote this afternoon. “Yellen speech points to more accommodation,” Jeff Gundlach told Reuters, adding that it “suggests [she’s] embraced secular stagnation theory developed by Lawrence Summers.”

Later, NY Fed chief Bill Dudley told WSJ that he expects a rate hike this year.

Meanwhile, Treasury said the US deficit as a share of GDP has widened for the first time since 2009.

Oh, and Twitter collapsed after Salesforce allegedly ruled out a buyout.

For more, see here

It’s Not A “Case Of The Hiccups,” It’s Volatility!

in Volatility by

Want to see what a world gone crazy looks like? Well, then look no further than the following (updated) set of volatility charts from Citi’s credit strategist extraordinaire Matt King, who shows us just how far off the proverbial rails our “markets” have gone:


(Chart: Citi)

As you can see, anomalies are no longer anomalies. They are now the norm.

Be afraid. Be very afraid.

But also be aware of the trading opportunities this kind of realized vol affords.

And God bless Matt King by the way – one of the best on the Street, hands down.


Watch Out, This Key Dynamic Is In Jeopardy…

in FX by


See that?

That’s the trade-weighted RMB index. And it’s key to FX markets in 2016 and beyond (read up).

That decline is absolutely critical to the post Shanghai Accord stability.

A Fed hike will turn it on its head (why do you think – besides oil prices – the Fed didn’t hike in March?) – and that’s already starting to happen. Incidentally, it’s also the biggest story of the day.

See here for the full scoop.

Elizabeth Warren Trolls Wells Fargo CEO Right Into Retirement

in Humor by

Let’s just be clear, Sen. Elizabeth Warren fears no man. No banker. And especially no John Stumpf.

Late last month we highlighted her skewering (or perhaps “epic takedown” or “Eminem-ing” would be better terms) of then-Wells Fargo CEO John Stumpf over a scandal involving the creation of so-called “phantom accounts.”

We also brought you the video clip.

Well, as you might have heard, old John retired on Wednesday saying that he “has decided it is best for the Company.”

Yes John, it probably is. But retirement isn’t all bad. Stumpf walks with a cool $135.4 million. Not too bad for someone who purportedly oversaw the creation of millions of fake accounts.

Well as you might imagine, Elizabeth Warren is beside herself. For your viewing pleasure, here is her latest tirade…

Japan To Concede Defeat On Inflation Target: Report

in FX by

Well, we suppose you can’t really blame them. After all, every attempt to achieve Kuroda’s elusive 2% inflation target and thus drag Japan out of the deflationary doldrums has thus far failed miserably…


…so it’s only a matter of time before you have to throw in the towel or at least kick the proverbial can.

Sure enough, just across the terminal:

  • Bank of Japan is considering cutting its CPI forecast for fiscal 2017 to low 1% range from the current 1.7%, Sankei reports, without attribution.
  • BOJ to release forecasts Nov. 1

Below find the full story, translated


Bank of Japan is in the “Outlook for Economic Activity and Prices (outlook report)” to publish on November 1, went into the study to be revised downward the inflation rate outlook for the 2017 fiscal year. Be adjusted in the direction to lower from the previously announced (July 31) 1 – 7% of the time to 1 percent the first half. Possibility of achieving time also put off of 2% of the price target that you are “in the 29 fiscal year” it came out.

The yen and crude oil weaker, consumer spending sluggish growth and factors. Consumer of August (excluding fresh food) price index has sunk into negative territory in the 6 consecutive months year-on-year 0, 5% decline.

September of companies of price outlook, inflation rate expected after one year of full-scale all industries includes weak such as 0, 1 point decline from an average of 0.6 percent and the previous June survey.

In the outlook report in July, while lowering the growth rate forecast of 28 fiscal year to 0, 1% from 0, 5% of the April, 29 fiscal year is also, such as the effect of large-scale economic stimulus measures by the government laid out, “prices rise to towards “the decision, it affirmed the 1-7%.

Bank of Japan is also likely to go ahead on additional monetary easing in monetary policy decision meeting of October 31 to November 1, “ahead of the US presidential election, the Bank of Japan movement difficult” from the economists out the voice of the there.


Only one thing to say…


Fed Minutes Summary

in central banks by

Via Bloomberg:
Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the Committee expected; they saw the new sentence in the third paragraph of the Committee’s statement–a sentence indicating that the case for an increase in the federal funds rate had strengthened but that the Committee had decided, for the time being, to wait for further evidence of continued progress toward its objectives– as reflecting this view.
Among the participants who supported awaiting further evidence of continued progress toward the Committee’s objectives, several stated that the decision at this meeting was a close call.
A substantial majority now viewed the near-term risks to the economic outlook as roughly balanced, with several of them indicating the risks from Brexit had receded. However, a few still judged that overall risks were weighted to the downside, citing various factors that included the possibility of weaker-than-expected growth in foreign economies, continued uncertainty associated with Brexit, the proximity of policy interest rates to the effective lower bound, or persistent headwinds to economic growth. Participants agreed that the Committee should continue to closely monitor inflation indicators and global economic and financial developments.
Against the backdrop of their economic projections, participants discussed whether available information warranted taking another step to reduce policy accommodation at this meeting. Participants generally agreed that the case for increasing the target range for the federal funds rate had strengthened in recent months. Many of them, however, expressed the view that recent evidence suggested that some slack remained in the labor market.
Members generally agreed that the case for an increase in the policy rate had strengthened. But, with some slack likely remaining in the labor market and inflation continuing to run below the Committee’s objective, a majority of members judged that the Committee should, for the time being, await further evidence of progress toward its objectives of maximum employment and 2 percent inflation before increasing the target range for the federal funds rate. It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.
With inflation continuing to run below the Committee’s 2 percent objective and few signs of increased pressure on wages and prices, most of these participants thought it would be appropriate to await further evidence of continued progress toward the Committee’s statutory objectives.
In their discussion of the outlook, participants considered the likelihood of, and the potential benefits and costs associated with, a more pronounced undershooting of the longer-run normal rate of unemployment than envisioned in their modal forecasts.
A number of participants noted that they expected the unemployment rate to run somewhat below its longer-run normal rate and saw a firming of monetary policy over the next few years as likely to be appropriate.
A couple of members emphasized that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the Committee had more scope to increase policy rates, if necessary, than to reduce them. Three members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.
Participants generally expected the unemployment rate to run somewhat below their estimates of its longer-run normal rate over the next couple of years, but they offered differing views about the extent of slack that currently remained in the labor market. Some participants pointed to the slowing in payroll gains and modest pickup in wages this year and judged that the labor market had little or no remaining slack.
Global financial conditions had improved somewhat in recent months. However, participants noted that economic growth in many foreign economies remained subdued, and inflation rates abroad generally continued to be quite low. Some participants continued to see important downside risks from abroad.
Recent readings on headline and core PCE price inflation had come in about as expected, and participants continued to anticipate that headline inflation would rise over the medium term to the Committee’s 2 percent objective. It was noted, however, that 12-month core PCE price inflation had been running at a steady rate below 2 percent, and several participants commented on factors that might be expected to restrain increases in inflation.


And for some Heisenberg Wednesday comic relief, a reader got this in their inbox this morning… complete with the text and the ad next to it:


Why Is QE Failing?

in central banks/Economy by

You might have noticed something rather disturbing unfolding over the past half decade or so when it comes to QE.

Have a look at global central bank liquidity:


(Chart: Citi)

So here we are, right back to the peak in terms of flow and yet what do we get for it? Still sluggish growth, still non-existent inflation in Europe and Japan and still subdued global trade.

Why, you ask?

Well, because the trickle-down wealth effect isn’t working. All of this stimulus is simply blowing bigger and bigger bubbles and as we said on Tuesday, keeping creative destruction from being destroyed.

So what’s the solution (well, besides allowing the damn thing to collapse like it should have in 2008 and rebuilding something that makes sense)? Well, you could fix the transmission channel to the real economy for one thing. Here with a brief explanation is Goldman’s Charles Himmelberg:

“We speculate here that, in addition to easing the unintended burden on long-term bond investors, the policy discussion will also begin to focus more on the desirability of choosing policy tools that target short-term bank credit rather than long-term capital market debt. This is partly because the latter may entail unintended costs, as described above, which may offset the benefits. But, more importantly, we suggest it is because risky investment activity – the investments that drive innovation and economic growth – tend to be funded primarily via short-term bank credit. If monetary policy could be targeted, it would ideally aim to create incentives for the pools of capital that are best-equipped to take the kinds of risks that help drive innovation and economic growth. These growth investments and their investment risks are typically borne by small business owners, entrepreneurs, private equity funds, venture capitalists and hedge funds. These investors traditionally rely more heavily on equity, so monetary policy is arguably limited in what it can do. But to the extent that such investors also rely on credit, they tend to rely on shorter-term bank credit. Which policy tools are best equipped to encourage investors and business owners to take the kinds of risks that help drive innovation and economic growth? It is hard to see how this goal is served by tools (such as QE) that aim to reduce long-term yields. The issuance of long-term debt is more or less restricted to government or large, well-established corporations.”

A Mystery For You To Solve: Where’s The Capex?

in Equities by

Deutsche Bank’s Joseph LaVorgna has a mystery for you to solve. I’ve highlighted it in the chart below:


(Chart: Deutsche Bank)

Here’s what he has to say:

“The most recent data on capital expenditures have been largely disappointing. Real nonresidential fixed investment spending (capex) has declined in two of the last three quarters and is on track to fall again in Q3.”

The bank thinks that may be a headwind for the Fed when it comes to policy normalization. Now hmmm… I wonder where all that money is going that could be going to capex? Oh! That’s right….


(Chart: Barclays)

So think about that next time you’re grateful to the companies you own for inflating their bottom line (and your wallet) by using all of their FCF for financial engineering.

Oh well, another reason not to move in December.

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