It appears President Obama’s “costs” imposed on Russia have boomerang’d just too much for Europe to take. As Reuters reports, The EU is seeking to create a single energy market, based on cross-border connections to improve security of supply and reduce dependence on Russia, which supplies roughly one third of EU energy. The headline pivot away from Putin, likely misses the fact that there is very little a stagnating Europe can do, even in the medium term, to ‘reduce’ dependence on Washington’s nemesis.
Moody’s Cuts Russia Credit Rating To Junk
History is very clear what happens with dangerous imbalances like this. They correct painfully. Through class warfare. Through currency crises. Through wealth destruction.
In Greek mythology Sisyphus was the king of Ephyra. He was punished by the gods for his chronic deceitfulness by being compelled to roll an immense boulder up a steep hill, only to watch it roll back down, over and over again.
As a delaying tactic, U.S. foreign exchange operations were often successful. They raised the potential costs of speculation and provided cover for unwanted, temporary, and ultimately reversible dollar flows. They delayed the drain of the U.S. gold stock. But to the extent that these devises substituted for more fundamental and necessary adjustments and postponed the inevitable collapse of Bretton Woods, they were a failure
The “Catastrophic Shutdown Of America’s Supply Chain” Begins: Stunning Photos Of West Coast Port Congestion
Submitted by Tyler Durden on 02/12/2015
Yesterday the European Central Bank acknowledged that the currency it manages is being sucked into a deflationary vortex. It responded in the usual way with, in effect, a massive devaluation. Eurozone citizens have also responded predictably, by converting their unbacked, make-believe, soon-to-be-worth-a-lot-less paper money into something tangible. They’re bidding gold up dramatically.
European Central Bank Is Set to Unleash a Massive Round of Quantitative Easing, Central Bank Heads Admit QE Doesn’t Work
Submitted by George Washington on 01/21/2015
We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years … is the answer doesn’t seem (right) to me.
Also yesterday, William White – the brilliant economist who called the 2008 crisis well ahead of time, who is head of the OECD’s Review Committee and was former chief economist for BIS (the central banks’ central bank) slammed QE:
QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market.
Even after the stress tests the banks are still in ‘hunkering down mode’. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up.
Mr White said QE is a disguised form of competitive devaluation. “The Japanese are now doing it as well but nobody can complain because the US started it,” he said.
Another Former Central Banker Finally Gets It: “The Idea That Monetary Stimulus Is The Answer Doesn’t Seem Right”
What is it about central bankers who wait to tell the truth only after they have quit their post. First it was the maestro himself, the Fed’s Alan Greenspan (most recently in “Greenspan’s Stunning Admission: “Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It“), and now it is the Bank of England’s former head, Mervyn King, who yesterday told an audience at the LSE that “more monetary stimulus will not help the world economy return to strong growth.” That this is happening just as we learn that in one year the world’s 1% will collectively own more wealth than the rest of the world combined, and two days before Goldman’s Mario Draghi unleashed up to €1 trillion (if not unlimited) in QE, is hardly as surprise, and will be surely ignored by everyone until the inevitable outcome of another “French revolution” finally arrives.
Submitted by Tyler Durden on 01/17/2015 – 08:51
We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet – it’s hugely preferable to upside down; you hang upside-down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason. But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.
Submitted by Tyler Durden on 01/16/2015 – 08:16
What we see now is the recovery of price discovery, and therefore the functioning economy, and it shouldn’t be a big surprise that it doesn’t come in a smooth transition. Six years is a long time. Moreover, it was never just QE that distorted the markets, there was – and is – the ultra-low interest rate policy developed nations’ central banks adhere to like it was the gospel, and there’s always been the narrative of economic recovery just around the corner that the politico/media system incessantly drowned the world in. That the QE madness ended with the decapitation of the price of oil seems only fitting.
“The Biggest Bubble Today Is Central Bank Credibility” Gerard Minack Warns “All Hell Could Break Loose”
Submitted by Tyler Durden on 01/12/2015 – 14:28
“The biggest bubble out there is central bank credibility. If Draghi was a stock he’d be on a P/E of 200! Yellen’s on 100. When that bubble pops, all hell will break loose again, and there you really just want to be in cash.”
MACRO ANALYTICS – 2015 Global Theme – DEFLATION – w/ Charles Hugh Smith
“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” Draghi said. “We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary.” More from Bloomberg.com: AirAsia Searchers in Heavy Seas FindBodies Strapped in Seats…
The seemingly-invincible US stock markets powered higher again last year, still directly fueled by the Fed’s epic quantitative-easing money printing. But 2015 is shaping up to be radically different from the past couple years. The Fed effectively abandoned the stock markets when it terminated its bond buying late last year. So this year we will finally see if these lofty stock markets can remain afloat without the Fed. Mainstream stock…
Submitted by Tyler Durden on 12/22/2014 – 15:27
“People should not be worried,” explained Kazakhstan President Nursultan Nazarbayev in a TV address over the weekend, “we have a plan in place if oil prices are $40 per barrel.” Kazakhstan, the second largest ex-Soviet oil producer after Russia, explains “there are reserves which could support people, preventing living conditions from worsening.” However, if A. Gary Schilling’s reality check of $20 oil being possible comes to fruition, as he explains, what matters are marginal costs – the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf… We wonder who has a plan for that?
Submitted by Tyler Durden on 12/12/2014 – 07:52
Courtesy of the Cronybus(sic) last minute passage, government was provided a quid-pro-quo $1.1 trillion spending allowance with Wall Street’s blessing in exchange for assuring banks that taxpayers would be on the hook for yet another bailout, as a result of the swaps push-out provision, after incorporating explicit Citigroup language that allows financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp, explicitly putting taxpayers on the hook for losses caused by these contracts…..Why not the voters let them get away with it…..so do it again to the fools…
The game has been lost, but central bankers are still on the field, wandering around in disbelief that their unspeakable powers to issue money and credit have failed. You can print all the money you want, but it will never boost wages to keep up with prices.
Figures linked to massive Russian fraud cases or connected to Russian state institutions on Western sanctions lists will speak at a Russian business forum at University College London this weekend.
Submitted by Tyler Durden on 11/24/14
As we noted here, despite record high stock prices and talking-heads imploring investors to believe CEOs are confident, they are not (consider the clear indication of a lack of economic confidence from tumbling capex and soaring buybacks), That is further confirmed today as Markit’s survey of over 6000 firms showed optimism falling sharply in October, dropping to the lowest seen since the survey began five years ago. Hiring and investment plans were also at or near post-crisis lows, while price expectations deteriorated further. More worrying, perhaps, is the US is not decoupled whatsoever, with future expectations of US business activity at the lowest since the financial crisis.
Impression Of “Change” After Obama’s Historic Immigration Decree
Submitted by Tyler Durden on 11/20/2014 – 08:56
Because when the rape and pillaging of the US middle-class begins at the very top, it won’t end until the sharp metal objects finally start falling.
Ignore The Noise: The Asians Are Picking Up The Gold Sold By ETF’s
Submitted by Sprout Money on 11/18/2014
Will the Dollar Bull Market Catch You by Surprise?
A bull market in the US Dollar is underway and its magnitude and duration are likely to catch everyone by surprise. I believe it isn’t out of the question for the USD Index to advance by at least 50% within the next 5 years. If this forecast proves correct, there will be profound ramifications for the global economy and many financial markets, particularly emerging markets.The Dollar Index has advanced by about 10% in the last 6 months, which is quite a sizeable move. However, if one takes a long-term view this isn’t a large move. What I am interested in is the USD trading sideways for the last 7 years. Usually when a market has been locked in a trading range for a long period of time a breakout to the upside signals the start of a long-term bull trend.Note the long-term chart of the Dollar Index below – the bull markets in the early 1980s and late 1990s occurred after long periods of sideways movements. After some 7 years of “oscillating” around the 80 level it is about due for an extended period of upward movement. This isn’t hard to work out. It is the “collateral damage” of an extended bull market in the dollar that will be difficult to estimate!A rising dollar is indicating the relative strength of the US economy relative to other economies and it will no doubt be a leading indicator of rising interest rates. Given that very few are expecting or positioned for higher rates in the future, this will have very important ramifications for many financial markets.This has already started to play out in a number of markets, particularly commodity markets. Although a number of commodity prices have fallen quite significantly from their highs of 2011, if the behavior of the CRB Index below is anything to go by, we may well see the average commodity price fall by another 50% within the next 5 years!Even if I am wrong and commodity prices only fall another 25% it would still take the CRB Index back to its GFC lows of about 350 and this will have a profound effect on emerging markets.
This is where we need to tread carefully – the two previous US dollar bull markets have seen dramatic collapses in emerging market economies and financial markets.
The early 1980s saw the Latin American shock. The 1995-2001 bull market brought down Asia and Russia with the Asian Tiger Crisis (1997) and the LTCM crisis (1998) respectively, one could also include the Argentine default in late 2001 as well! In short – extended periods of USD strength are associated with emerging markets financial crisis!
It has been a while since we have witnessed an emerging market centric crisis. One of the most dramatic was the “Asian tiger” crisis of 1997. During this time many emerging market currencies fell by some 50% against the USD.
Note behavior of the JPMorgan Asian Dollar Index (Asian currencies against the USD) below. This index was trending down well before the crisis hit in October 1997, the crisis didn’t occur without a long period of warning! Also note the trading range with which it has been locked in for the last 4 years – the next move will be big and by all accounts it does appear to be to the downside!
From great lows in volatility come great highs – or something like that. In July this year something occurred in currency markets that we haven’t experienced in at least a generation – “record” lows in implied volatility. Below is the JPMorgan Global Implied Volatility Index (think of it as the VIX of currency markets). It got to a record low in July.
This index only goes back to 1992. So it is a “record” as from 1992. However, if the index did go back another 20 years I find it doubtful it would have registered any lower readings.
What is the big deal here, you might ask. Never before have currency traders have currency traders been so unanimous in their belief that the USD would trade in such a narrow trading range – i.e. not move at all over the coming months. There could be a number of reasons for this but as far as I am concerned they are somewhat inconsequential!
I am a great believer in “contrarianism”. Contrarians live by the saying “when everyone thinks alike the opposite is most likely to happen”.
Why does this happen? Well, when everyone thinks alike there isn’t anyone left to think alike so by default the opposite must occur. That is easy. The hardest part is in being able to identify the extent to which everyone thinks alike. However, it is somewhat of a dead giveaway that everyone is thinking alike when a record low in implied volatility occurs!
So from a behavioral perspective currency markets are entering a period of increasing volatility, extreme lows in volatility usually lead to extreme highs so get ready for the ride!
The current level of implied volatility isn’t high by historical standards. This means that if someone wants to express a bullish view on the USD the most efficient way to do it is via long-term options.
Fundamentally – what supports a bull market in the USD and an eventual crisis in emerging markets? I previously touched upon this in my writings on the Singapore dollar and the Chinese renminbi, but in essence it is the “unwind” of the carry trade.
We would be delusional to imagine that the capital flows that have poured into emerging market real estate, local currency bond and equity markets will be immune to an appreciating US dollar and some rise in US interest rates.
I will quote Ambrose Evans-Pritchard’s latest article in the Daily Telegraph to shed light on the carry trade:
The dollar revival could prove painful for companies in Asia that have borrowed heavily in the US currency during the Fed’s QE phase, betting it would continue to fall.
Data from the Bank for International Settlements show that the dollar “carry-trade” from Hong Kong into China may have reached $1.2 trillion. Corporate debt in dollars across Asia has jumped from $300 billion to $2.5 trillion since 2005.
More than two-thirds of the total $11 trillion of cross-border bank loans worldwide are denominated in dollars. A chunk is unhedged in currency terms and is therefore vulnerable to a dollar “short squeeze”.
The International Monetary Fund said $650 billion of capital has flowed into emerging markets as a result of QE that would not otherwise have gone there. This is often fickle “low-quality” money that came late to the party.
Many of these countries have picked the low-hanging fruit of catch-up growth and are suffering from credit exhaustion. They have deep structural problems and a falling rate of return on investment. The worry is that a tsunami of money could rotate back out again as investors seek higher yields in the US, possibly through crowded exits.
Let us not forget that the US Dollar was in a bear market for some 10 years (from 2001 to 2011). Yes, one could argue over a year or two but at the end of the day the USD has been out of favour for a very long period of time. Given all the “death of the USD” commentary that was being bantered about up until a couple of months ago, it is hardly surprising that a huge complacency grew towards a multi-year bull market in the USD.
Therefore, the magnitude of the carry trade “unwind” is likely to be way underappreciated. Holders of long term call options on the USD against emerging market currencies are likely to be pleasantly surprised over the coming months.
“The chart of the US dollar is by far and away the most important chart on earth.” – Raoul Pal
Read Traders’ Ludicrous Chat Transcripts In Currency Manipulation Probe
Five major banks — including UBS, the Royal Bank of Scotland, JPMorgan Chase, HSBC, and Citibank — just got slammed with $3.4 billion in fines following a lengthy probe over accusations that traders had tried to manipulate currency markets.
Authorities in Switzerland, the UK, and the US were all involved in the investigation, which resulted in the biggest set of charges ever levied by British financial regulators.
One regulator, Britain’s Financial Conduct Authority (FCA), said that in a five-year period between January 2008 and October 2013, “ineffective controls at the Banks allowed G10 spot FX traders to put their Banks’ interests ahead of those of their clients, other market participants, and the wider UK financial system.”
The FCA continued: “These failings allowed traders at those Banks to behave unacceptably. They shared information about clients’ activities which they had been trusted to keep confidential and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market.”
Such examples of “unacceptable banker behaviour” are captured in chat transcripts among traders and released by the US Commodity Futures Trading Commission as part of its investigation. In the clip below traders from two different banks manipulate fixing windows and proceed to congratulate their team’s effort. Full story here
By Song Xin, General Manager of the China National Gold Group Corporation, Party Secretary and President of the China Gold Association.
2014-05-06 edition 6
For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the “China Dream” is realized.
Gold is the only thing carrying the dual mantels of a commodity as well as a monetary substance. It’s both a very ‘honest’ asset and forms the very material basis for modern fiat currencies. Historically, gold has played an irreplaceable role in responses to financial crises and wars as it comes to protecting a country’s economic security. Because of this, gold carries with it an honored and divine-given strategic mission in the ascend of the Chinese people and the pursuit of the “China Dream”. Read full story
It’s 2007 All Over… Except the Fed is Effectively Out of Ammo
Submitted by Phoenix Capital Research on 11/03/2014
The markets erupted last week to new highs on the Bank of Japan’s announcement that it would increase its massive QE program.
The Yen collapsed on the news and is now on the cusp of breaking a multi-decade support line:
While US stocks eked out a new high:
This move is very reminiscent of the 2007 top. At that time we had a top, followed by a quick correction and then a final blow off to eke out new record highs:
It is not merely the market that is mirroring the 2007 top.
1. Corporate debt is back to 2007 PEAK levels.
2. Stock buybacks are back to 2007 PEAK levels.
3. Investor bullishness is back to 2007 PEAK levels.
4. Margin debt (money borrowed to buy stocks) is at 2007 PEAK levels.
5. The leveraged loan market is flashing major warnings.
6. Corporate insiders are dumping shares at a pace not seen since the TECH BUBBLE TOP
7. Numerous investment legends have warned of a coming crash.
8. Investor complacency is at a record LOW.
9. The Fed has confirmed QE is ending this week, so the juice is cut off for now.
The Fed has succeeded in recreating the same environment that existed in 2007. Once again we have rampant risk taking, excessive leverage, and a stock market bubble.
The only difference is that WHEN (it’s no longer a question of IF), stocks collapse this time around, the Fed has already spent just about ALL of its ammunition.
· Interest rates are at ZERO, so the Fed cannot cut rates.
· The Fed has spent nearly $4 trillion in QE, so announcing a new QE program won’t accomplish much.
This leaves other minor policy changes, verbal interventions, and of course, the nuclear option of outright buying stocks. The Fed has been effectively doing this via QE for four years by giving money to Wall Street to buy stocks, but the Fed could always opt to do what the Bank of Japan does and simply buy stocks itself.
However, it’s not clear what any of this would accomplish. Stocks might move higher, but the accompanying economic woes wouldn’t go over well, especially given that the Fed is already in the political hot seat due to its total lack of oversight and its cozy relationship with the Big Banks.
Given that the Bank of Japan’s latest increase in QE was in fact made by a VERY divided board (the vote was 5-4 in favor of the increase), we can assume that the Fed would face similar pushback both internally and externally (particularly if the GOP takes the Senate).
In simple terms… we’re back in 2007, but the Fed will have very real limitations to what it can do when this bubble pops. And it will pop in the not so distant future.
“Perhaps sooner rather than later, investors must recognize that modern day inflation, while a necessary condition for survival, is not a sufficient condition for increasing wealth at a rate necessary to satisfy future liabilities associated with education, health care, and a satisfactory retirement. The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue. Until then, deflation remains a growing possibility – not the kind that creates prosperity but the kind that’s the trouble for prosperity.”
The Great Rig of the Last Five Years is Ending
Submitted by Phoenix Capital Research on 10/16/2014
Since 2012, when Europe was about to collapse, we’ve been told that “everything was fixed.” Everyone from finance ministers to the President of the US stated that we were in recovery and the worst was behind us.
Now, we find out that:
1) Europe is completely busted. The political class over there lied to the people, and even circumvented Democracy to keep the fraud in place. It’s telling that nationalism is on the rise there again. If your vote no longer counts… and the folks in power don’t give a flying turnip about your well being, things tend to get ugly fast.
European Financials have completely broken their trendline from the 2012 bottom:
France’s economy is imploding… gee who would have thought that socialism wouldn’t work when there’s no money to tax away anymore?
Ditto for Spain… which is now beginning the process of breaking into multiple countries.
And even Greece, which has been “saved” FOUR TIMES is collapsing again. Time to save it again!
2) In the US, we now know for a fact that all of the “data” showing us in recovery was in fact fictitious. This was a recovery “on paper” only.
Real unemployment is over 12%, nearly half of all US households are on some form of Government assistance, and GDP growth should be included in great works of fiction along with Moby Dick and The Scarlet Letter. Nothing is what it seems anymore. The great rig is ending…
This is all only the beginning. When the smoke clears, stocks could be 30% lower than where they are now, if not more.
The great rig of the last five years is ending. Are you prepared?
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis “Round Two” Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
“Now that Putin has turned away from the west and toward the east, China is drawing maximum profit from Russian necessity,” said Masha Lipman, an independent political analyst in Moscow who co-authored a study on Putin with former U.S. Ambassador Michael McFaul.
China is wasting no time filling the void created by the closing of U.S. and European debt markets to Russia’s largest borrowers. A Chinese delegation led by Premier Li Keqiang signed a package of deals today in Moscow in areas including energy and finance. Among the accords was a three-year 150 billion yuan local-currency swap deal, a double-tax treaty, satellite-navigation and high-speed rail cooperation and an agreement on implementing a May natural gas contract.
As we look back over the past hundred years, America has experienced the Great Depression, multiple recessions, stagflation and the loss of 99% of the dollar?s purchasing power – none of it would have been possible without the Federal Reserve, creating bubbles and bursting them, enslaving us with debt and destroying our purchasing power through inflation Yes, its been a wonderful lie — for the banksters And many Americans are left like George Bailey. Facing the collapse of their dreams and financial ruin There are striking parallels in Frank Capras Its a Wonderful Life to lies and tricks of the modern banker elite. Human nature doesn?t change and the greedy elite of 1913 and 2013 look much like ….
I think this is a time where people will look back on us and see it as a period of practically central bank worship. The central bankers – Draghi, Yellen, Bernanke – have become almost celebrities in America. People have invested unreasonable hopes in what these central banks can know, and what they can do. I think that, sooner or later, the investing public will become disillusioned of these ideas…. I dare say that stock prices will not continue to rise uninterrupted at the same pace. That’s not a very interesting prediction, but the stock market is certainly a cyclical thing. I think it’s fair to observe that today’s ultra-low interest rates flatter stock market valuations. Stock prices are partly valued based on a discounted flow of dividend income. To the extent that the discount rate you use to value that stream of dividend income, which depends on interest rates, is artificially low, stock prices are artificially high. I think that the burden of proof is on anyone who would assert that we are in a new age of persistently and steadily rising stock prices.
Submitted by Tyler Durden on 09/27/2014 – 11:52
In a dramatic stroke of luck for the Kremlin, this morning there is hardly a person in the world who is happier than Russian president Vladimir Putin because overnight state-run run OAO Rosneft announced it has discovered what may be a treasure trove of black oil, one which could boost Russia’s coffers by hundreds of billions if not more, when a vast pool of crude was discovered in the Kara Sea region of the Arctic Ocean, showing the region has the potential to become one of the world’s most important crude-producing areas, arguably bigger than the Gulf Of Mexico. The announcement was made by Igor Sechin, Rosneft’s chief executive officer, who spent two days sailing on a Russian research ship to the drilling rig where the find was unveiled today.
Oct. 6 (Bloomberg) – IG Market Strategist Evan Lucas discusses falling gold prices and what’s driving the drop with Bloomberg’s John Dawson on “On The Move.” (Source: Bloomberg)
Submitted on 09/26/2014 – 19:06Self-evidently, all the major economies are saturated with debt. Accordingly, central bank balance sheet expansion has lost its Keynesian magic entirely. Now the great sea of freshly minted liquidity simply fuels the carry trades as gamblers everywhere load up with any asset that generates a yield or short-run capital gain, and fund these bloated positions with cheap options and repo style finance. But here’s the obvious thing. Central banks can’t normalize interest rates – that is, allow the money markets to rise off the zero-bound – without triggering a violent unwind of the carry trades on which today’s massive asset inflation is built. On the other hand, they can no longer stimulate GDP growth, either, because the credit expansion channel to the main street economy of households and business is blocked by the reality of peak debt. Yes, the era of Keynesian money printing is over and done. But don’t wait for the small lady at the Fed to sing, eithe
Alibaba Group Holding Ltd., the e-commerce company started in 1999 with $60,000cobbled together by Jack Ma, cemented its status as a symbol of China’s economic emergence by raising $21.8 billion in a U.S. initial public offering. The company and shareholders including Yahoo! Inc. (YHOO) sold 320.1 million shares for $68 each, according to a…