Trade with Larry Levin

The FOMC 2-day meeting ended Wednesday and its afternoon statement didn’t contain many surprises. QE3 is over, but ZIRP remains. Some headlines follow…




And a small portion of the statement follows…

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Clearly, the most important comments were from Janet Yellen & Co.; however, how it is interpreted is a very close second. Some important statements about the Fed’s policy are below.

From Goldman Sachs…

Looks a bit more hawkish to us… Do note inflation expectations have come down. Forward guidance… considerable time following end of purchase program this month. Plosser and Fischer voted in favor aka must be sufficiently happy with something else in the statement? Kocherlakota only dissent.

Brean Capital…

1) QE gone.

2) The hawks were on board, and a dove took the time to dissent – in our Fed “U” shape pattern, we think the shift to hawkish overall Fed has commenced and the pure hawks are appeased and winning and the pure doves, losing.

3) Job highlighted and as Yellen said back at Jackson Hole – structural unemployment is higher than she thought, so less slack, and as San Fran Fed said recently, when a period occurs where wages were sticky, once they finally start to rise, it happens very quickly


Fed comes in with a bit of a Hawkish tilt as it rids of key policy line around labor market and keeps “considerable time.” The buying program has ended. Hawks Fisher and Plosser voted for the action, while Kocherlakota voted against it, which is a flip from recent votes.

And finally, here is a key portion of the FOMC statement that basically says: “We can and will do whatever we want, including not raising interest rates when we said we would, if Fraud Street wishes.”

“The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

So the NEW bond buying of QE3 has ended, but reinvestment’s of the $$trillions of bonds on the balance sheet will continue in MBS. Additionally, ZIRP will continue with no end in sight and that’s what Wall Street really wants.

Larry Levin

As we wait for the other “F” behemoth to make their announcement, I want to focus on Facebook.

The social media giant reported better than expected Q3 revenue and earnings per share Tuesday, although its stock price fell in after hours trading last night as the company spooked investors with its 2015 outlook — a year described as a major “investment” year for the world’s largest social network.

Revenue generated from advertising came in at $2.96 billion, up 64 percent from a year ago, with about 66 percent coming from mobile ads. The social media giant reported third-quarter earnings of 43 cents per share on $3.20 billion in revenue, beating expectations for 40 cents per share on $3.12 billion in revenue.

And while this is all interesting and important considering FB’s $200 billion market cap is basically equal to the GDP of the Czech Republic, an interesting aside is the importance of this social network to the banksters and their rogue traders.

We learned last week that messages on Facebook are being sought by European Union antitrust regulators as they expand a probe into alleged collusion between banks beyond work e-mails and instant messages.

According to Bloomberg, “Banks have been asked to supply all communications between traders, including social media, said three people who didn’t want to be named because the EU’s requests are private. The EU suspects that some e-mails and online messages have been erased to destroy signs that traders were illegally swapping information, one of the people said.

Chats between traders of products linked to the London and euro interbank offered rates provided key evidence for global probes that have fined banks more than $6 billion to date. One trader offered to pay a broker “whatever you want” to keep the yen Libor rate “as low as possible,” according to excerpts released by U.K. and U.S. regulators in 2012.”

While banks must comply with an EU request to hand over information they control, “it may not be able to deliver if the accounts are truly private,” said Stephen Kinsella, a lawyer at Sidley Austin LLP. “Perhaps in future” regulators “should just ‘friend’ all traders.”

Nobody ever said that traders were inherently smart, but one would think they would be a little savvier. As we’ve seen from the viral epic fail posts such as people dumping the actual ice bucket on their heads while doing the ice bucket challenge or the girl whose “suck it” post cost her dad and $80,000 settlement, social media often sheds light on the culturally prevalent stupidity and hubris.

It’s meeting time. Will the Fed be serving coffee and donuts at their two-day gathering? More likely charcoal grilled dove as the Fed isn’t really like to end six years of QE with an abrupt rate hike.

Because it kind of, sort of “works”, just ask the departed grill master, Ben Bernanke, who pompously claimed that “Quantitative Easing works in practice, but it doesn’t work in theory.” You have to love the recipe looks nice in the cookbooks, but don’t try to actually make it logic. And does QE even really look good when it’s displayed with glossy photos?

If the objective of QE was to drive down longer term interest rates, given that short term rates were already at zero, then we would have to concede that in this somewhat narrow context, QE has “worked”.

Tim Price via the Sovereign Man blog thinks the ‘QE debate should be reframed: “has QE done anything to reform an economic and monetary system urgently in need of restructuring? We think the answer, self-evidently, is “No.”

According to Price, “We’ll never know what might have happened if the world’s central banks had not thrown trillions of dollars at the banking system, and instead let the free market work its magic on an overleveraged financial system.”

So same ol’, same ol’ on the horizon as the Fed received the validation that they are still needed to be the failed net minders of the global economy with all sorts of “threats” since the September meeting. Europe, Ebola, China, Lions, Tiger and Bears, oh my!

There will be no talk of endgames at this meeting. Let’s hope they serve snacks.

Larry Levin

A pathetic defense of central-planning, excuse me – central banking – was offered by the central-planning banker in chief of the USSA a few days ago: Janet Yellen.

In her speech about “Rising Inequality” Janet spewed the following truth, but of course offered no true reason as to why it is happening -

“The extent of and continuing increase in inequality in the United States greatly concerns me. … It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”

It concerns Janet Yellen just as it “concerned” Ben Bernanke and Alan Greenspan before her. But since it is still an anxiety today, one wonders: Why has nothing changed? Could it be that this inequality is due to the central-planning banking cartel themselves?

The answer is…yes!

On Oct 17th, ECB member Yves Mersch gave a stunning speech in which he admitted that central-planning banksters are indeed the culprit of income inequality and that by extension, Janet Yellen’s speech of the same day was pure drivel.

“More generally, inequality is of interest to central banking discussions because monetary policy itself has distributional consequences which in turn influence the monetary transmission mechanism. For example, the impact of changes in interest rates on the consumer spending of an individual household depend crucially on that household’s overall financial position – whether it is a net debtor or a net creditor; and whether the interest rates on its assets and liabilities are fixed or variable.

Such differences have macroeconomic implications, as the economy’s overall response to policy changes will depend on the distribution of assets, debt and income across households – especially in times of crisis, when economic shocks are large and unevenly distributed. For example, by boosting – first – aggregate demand and – second – employment, monetary easing could reduce economic disparities; at the same time, if low interest rates boost the prices of financial assets while punishing savings deposits, they could lead to widening inequality.


So what do we know about the impact of monetary policy on the distribution of wealth, income and consumption? A comprehensive study published recently by the National Bureau of Economic Research (NBER) outlines five potential channels by which more accommodative measures might affect inequality.

The first is the ‘income composition channel’: while most households rely primarily on earnings from their work, others receive larger shares of their income from business and financial income. If more expansionary monetary policy raises profits more than wages, then those with claims to ownership of firms will tend to benefit disproportionately. Since the latter also tend to be wealthier, this channel should lead to higher inequality in response to more accommodative monetary policy. (Paging Janet Yellen…Janet Yellen…paging Janet Yellen to the reality courtesy phone)

The second is the ‘financial segmentation channel’: if some individuals and organizations frequently trade in financial markets and are affected by changes in the money supply before others, then an increase in the money supply will redistribute wealth towards those most connected to markets. (Paging Janet Yellen…Janet Yellen…paging Janet Yellen to the reality courtesy phone) To the extent that households that participate actively in financial transactions typically have higher income, then this channel also implies that consumption inequality should rise after expansionary monetary policy shocks.(Paging Janet Yellen…Janet Yellen…paging Janet Yellen to the reality courtesy phone)

The third is the ‘portfolio channel’: if low-income households tend to hold relatively more cash and fewer financial assets than high-income households, then potentially inflationary actions on the part of the central bank would represent a transfer from low- to high-income households. Again, this would tend to increase consumption inequality. (Paging Janet Yellen…Janet Yellen…paging Janet Yellen to the reality courtesy phone)

But don’t take his word for it; after all, he’s just a minor bankster in the world of the central-planning global elite. Oh, and don’t expect this opinion to last long either; when his spot comes up to be a major player of the central-planning politburo, he will certainly change his tune so that it sounds more like Super-Mario, and Benron Bernanke, and Yellen before him.

Until people demand serious change – nothing will change. Wait, I forgot about “Hopium and Changium” from The One. Oh yeah…there’s been neither hope nor change..and the beat rolls on.

Larry Levin

There sure are a lot of people out there that simply can’t handle the truth that is all around them. Some people seem to just hate any and all bad economic news. “Can’t you ignore the bad news and just report the good stuff” they ask? In fact, a few relatives have asked me that very question, which was met with a hearty laugh.

Others believe that the world revolves around what the idiots at MSNBC or Rush Limbaugh have to say. These extremely partisan robots therefore perceive anything out of that narrative with vitriolic hatred. I know because I get emails from readers of this daily missive that occasionally complain – and they make me laugh every time. I have been called BOTH a right-wing conservative and a left-wing liberal in the same week!

Left? Right? I don’t care. Both sides are useful tools of the corporate behemoths and bankster cartels, but useless to the average Joe. The average Joe is just cannon fodder to the Bush’s and the (OMG are you serious) Nobel Peace Prize winning Obama. Call me a cynic or a nihilist if you need a label, I just don’t care.

While we wait for great GDP data that is rising because of genuine business growth, and not because of the new calculations to GDP data such as the activities of drug dealing murderers and how many tricks the county’s whores have racked up, I will surely let you know.

Surprised that GDP data now counts this information? Well…maybe…uhh, how do I put this…uhh…maybe The One who makes women faint when he reads a teleprompter needed more ammo to boost his bad record. Oops, that’s a gun reference, better not offend anyone who dislikes those scary things…

So for all of you who dislike bad economic reality and are so intolerant of a different opinion of the clown-posse in Congress or the White House, I have a great video that will make it all go away: your Nirvana!

PS – I believe I should both inform and entertain when I can. Y’all need to get a grip. In the meantime, I’ll keep trading well in the markets.


It’s all a matter of perspective. Sometimes it’s a victory for the F student to get a D. Take the European banks. Prior to their financial stress tests, the consensus was that they would all fail miserably.

As it turns out, only one in five of the euro zone’s top lenders failed the health tests at the end of last year, and most of them have repaired their finances since then. It was a consensus better grade than expected, as the ECB found their problem students to be contained in the Southern classrooms of Italy, Cyprus and Greece.

What does it mean for the US markets? Who the heck knows! Are we in good news is bad news or bad news is bad news mode?

From Zero Hedge:

It started off so well: the day after the ECB said that despite a gargantuan €879 billion in bad loans, of which €136 billion were previously undisclosed, only 25 European banks had failed its stress test and had to raised capital, 17 of which had already remedied their capital deficiency confirming that absolutely nothing would change, Europe started off with a bang as stocks across the Atlantic jumped, which in turn pushed US equity futures to fresh multi-week highs putting the early October market drubbing well into the rear view mirror. Then things turned sour. Whether as a result of the re-election of incumbent Brazilian president Dilma Russeff, which is expected to lead to a greater than 10% plunge in the Bovespa when it opens later, or the latest disappointment out of Germany, when the October IFO confidence declined again from 104.5 to 103.2, or because “failing” Italian bank Monte Paschi was not only repeatedly halted after crashing 20% but which saw yet another “transitory” short-selling ban by the Italian regulator, and the mood in Europe suddenly turned quite sour, which in turn dragged both the EURUSD and the USDJPY lower, and with it US equity futures which at last check were red.

I won’t make any bold directional predictions this morning as to avoid getting schooled, but it should be an interesting week ahead.


With another massive up day in the markets on Tuesday on dismally low volume, it is officially back to the baffling and the bizarre.

Whatever the incumbent politicians will tel you in their stump speeches as we approach the mid-term elections, the “economic recovery” that we keep hearing about is less than stellar. Not that the politicians running against the incumbents seem to be offering any solutions.

But the facts speak for themselves. Here are 19 truths about the state off the US Economy from the Economic Collapse Blog:

#1 After accounting for inflation, median household income in the United States is 8 percent lower than it was when the last recession started in 2007.

#2 The number of part-time workers in America has increased by 54 percent since the last recession began in December 2007. Meanwhile, the number of full-time jobs has dropped by more than a million over that same time period.

#3 More than 7 million Americans that are currently working part-time jobs would actually like to have full-time jobs.

#4 The jobs gained during this “recovery” pay an average of 23 percent less than the jobs that were lost during the last recession.

#5 The number of unemployed workers that have completely given up looking for work is twice as high now as it was when the last recession began in December 2007.

#6 When the last recession began, about 17 percent of all unemployed workers had been out of work for six months or longer. Today, that number sits at just above 34 percent.

#7 Due to a lack of decent jobs, half of all college graduates are still relying on their parents financially when they are two years out of school.

#8 According to a new method of calculating poverty devised by the U.S. Census Bureau, the state of California currently has a poverty rate of 23.4 percent.

#9 According to the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.

#10 In 2007, the average household in the top 5 percent had 16.5 times as much wealth as the average household overall. But now the average household in the top 5 percent has 24 times as much wealth as the average household overall.

#11 In an absolutely stunning development, the rate of small business ownership in the United States has plunged to an all-time low.

#12 Subprime loans now make up 31 percent of all auto loans in America. Didn’t that end up really badly when the housing industry tried the same thing?

#13 The average cost of producing a barrel of shale oil in the United States is approximately 85 dollars. Now that the price of oil is starting to slip under that number, the “shale boom” in America could turn into a bust very rapidly.

#14 On a purchasing power basis, China now actually has a larger economy than the United States does.

#15 It is hard to believe, but there are 49 million people that are dealing with food insecurity in America today.

#16 There are six banks in the United States that pretty much everyone agrees fit into the “too big to fail” category. Five of them have more than 40 trillion dollars of exposure to derivatives.

#17 The 113 top earning employees at the Federal Reserve headquarters in Washington D.C. make an average of $246,506 a year. It turns out that ruining the U.S. economy is a very lucrative profession.

#18 We are told that the federal deficit is under control, but the truth is that the U.S. national debt increased by more than a trillion dollars during fiscal year 2014.

#19 An astounding 40 million dollars has been spent just on vacations for Barack Obama and his family. Perhaps he figures that if we are going down as a nation anyway, he might as well enjoy the ride.


Learn From A Trading Guru! Watch Larry’s response to this week’s questions about risk capital and market profiles.


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Well things are back to “normal” for the time being. Earnings disappointments, check. Bad economic news, check. Market rebound, check. Another Central Bank sticksave, check.

Yesterday it was IBM, today it is the other consumer-spending bellwether, Coke, to disappoint on earnings. But Coke didn’t just miss, it missed big, reporting $11.98 billion in sales, well below the estimated $12.12 billion. In addition, they had warnings about the future, guiding “below its long-term EPS growth target for 2014.”

Of course the shakiness of the consumer driven recovery in the US has helped to push stock index futures higher overnight.

From Zero Hedge:

Moments after Europe’s open, when once again the equity futures complex was threatening to break the upward trendline, after USDJPY took out stops and sliding below 106.3, pushing bonds both in Europe and the US to intraday highs, and the ES to session lows just above 1890, and then… here comes the ECB rumor cavalry, this time in the face of Reuters which blasted the tape with:


And because in this centrally-planned market no amount of GPIF or ECB doing what everyone knows they are doing headlines can not surprise the algos, ES has soared over 20 points from the overnight lows and is now solidly above the 200 DMA which was the clear intention of this latest sticksave.

Ironically, this happens even as the “pundits” interpret yesterday’s stronger than expected Chinese data as indicative of more China stimulus, not less! As Bloomberg summarized, “stronger-than-estimated economic data failed to convince analysts that China’s authorities will refrain from introducing more targeted measures.”

So first it was China reported better than expected goal seeked GDP “data” (if still the worst since 2009) which was evidence of more stimulus, not less, and then Reuters leaked today’s central bank “all green to buy stocks” headline.

To summarize: the S&P 500 is now almost 100 points higher from last Tuesday as the global central bank plunge protection team of first Williams and Bullard hinting at QE4, then ECB’s Coeure “ECB buying to start in a few days”, then China’s latest $30 billion “targeted stimulus”, then the Japanese GPIF hinting at a 25% stock rebalancing in the pension fund, and finally again the ECB, this time “buying of corporate bonds on secondary markets”, rolls on and manages to send stocks into overdrive. Even as absolutely nothing has been fixed, as Europe is still tumbling into a triple-drip recession, as Emerging Markets are being slammed by a global growth slowdown and the US corporate earnings picture is as bleak as it gets.

As hockey fans here in Chicago, we know the importance of a good goalie to win Stanley Cups. The Blackhawks have two in the past five years. Imagine if they had Central Bankers minding the net….can you say guaranteed championships?


Equities were not the only market that experienced high volatility last week; the bond market did as well. At one point, the 10-YR Note shocked the market by violently trading below the 2% water mark.

I believe that a great deal of that volatility was due to the sell-off in stocks, which was due to the ending of QE3 Treasury purchases, which may have sparked a short-covering rally due to one very short and very large fund. A short-covering rally in bonds forces the price higher but the yields lower, which created the sub 2% trade, albeit temporarily.

Along the same line, I read an interesting article about the Treasury market and some of its major players that you may find interesting.

Given the Fed will complete it’s “taper” shortly…the topic of who has bought, who owns, and who will buy US Treasury debt seems important.

The 1st slide shows the four classes of US Treasury buyers. (If you would like to see all of the charts, please go here It shows who purchased what since ’00 cross referencing the blended interest rates on the Treasury curve. As yields have collapsed and the alternative markets (stocks, RE, corporate or junk bonds) have improved or offered more attractive returns…only the Fed and Foreigners have continued to accumulate Treasury’s. I included the Fed’s $667 Billion in Operation Twist long bond purchases (paid for from selling all their short paper) to show the power and magnitude of the Fed’s purchases since 2011…

OK, let’s follow CBO assumptions that debt creation will continue at present levels or slightly higher til say, infinity. Who will buy the new and rollover debt? Since the yields are too low for most Public pensions or insurers or institutional buyers and without a major market downturn; they are not likely to step forward. The Intra-Gov purchases will be limited by slowing or negative Social Security surplus’ so no buyer there. And the Fed’s taper is nearly complete and the Fed will be looking to “normalize” their balance sheet by directly selling or slowing rolling off their holdings. This leaves only ”Foreigners” to maintain the Treasury bid for the vast majority of new issuance plus Fed’s “normalization”. But which “Foreigners” have been buying since ’11?

What is noteworthy about this list is that almost none of them have excess Foreign Exchange Reserves with which to purchase the US Treasury’s. And note below those running surplus’ are net sellers (UK is typically a false front for Chinese purchasing or selling).

What is noteworthy about this list is that almost none of them have excess Foreign Exchange Reserves with which to purchase the US Treasury’s. And note below those running surplus’ are net sellers (UK is typically a false front for Chinese purchasing or selling).

This would seem to imply America has 3 basic options to avoid an interest rate shock on it’s $17.8 Trillion in debt and continue it’s low interest rates supporting it’s housing market, stock buybacks, etc..

1- Belgium, the Cayman Islands, Luxembourg, Ireland, and the like nations continue to “buy” US Treasury’s with dollar reserves they don’t have?!? If nobody has questioned this one so far, maybe they never will???

2- The Fed backtracks on it’s taper and re-initiates the printing presses. Seems Fed has carte blanche to monetize as they see fit???

3- Markets collapse making Treasury’s once again the “safety” bid. This seems the likeliest scenario if neither of the two above options are employed.

Things are only getting curious and curious-er indeed!!!

Given the heightened vol in the bond market, it deserves more scrutiny.