Archive - Sep 15, 2014

Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites. The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.

While Janet Yellen and her band of money printers work themselves into a tizzy over whether two buzz words - “considerable time” - should be dropped from their post-meeting word cloud, they might be better advised to just read the newspapers. This morning’s WSJ brings word that the lending boom which our monetary central planners are eager to stimulate is apparently off-to-the-races. Well, sort of. The item in question is a $122 billion globally syndicated loan to facilitate an M&A deal between the world’s two largest beer companies - AB InBev with a 20% global market share and SABMiller with 10%.

"So much for the ‘mini-stimulus’. The data on China’s economic performance in August released over the weekend were dismal, showing a significant and unexpected decline in growth. The boost from the government’s suite of supportive policies was always going to be temporary, but renewed weakness is appearing much sooner than expected. We had previously thought that policy could keep growth stable for a couple of quarters (see Fears For China’s Growth Postponed), but it only really worked for two months (May and June). So it looks as if the government has already lost its bet that it could keep GDP growth near its 7.5% target with only minimal intervention. With China transitioning out of its high investment phase, growth is on a downward trajectory. To alter that trajectory would require large scale monetary easing, but the government does not yet look inclined to support such a big shift in strategy. All of which points to more of the same: modest policy support and weaker growth."

It appears today's weakness in stocks (most notably high-beta momo) and bonds (HY credit weakness) was triggered by two "ma"s - grandma Yellen and grand-poohbah BABA's Ma. Hawkish FOMC concerns took the shine off HY credit (and stocks) but Treasury bonds rallied modestly (5Y -3bps, 10Y -2bps). However, high-beta momo stocks dragged Nasdaq and Russell lower as 'smart money' proclaimed this was making room for the Alibaba IPO (which raises the question - if there is so much pent-up demand money on the sidelines just dying to be lost in the stock market, then why were so many high-beta, high-growth, momo names being sold today, theoretically in order to make room for the BABA IPO?) The USDollar ended marginally higher (GBP weakness, EUR strength) but most commodities gained on the day (Copper down on China) with WTI back to $93. Stocks did have a mini-melt-up on absolutely no news whatsoever into the last hour but gave most back. The Russell 2000 is -0.5% in 2014.

Today is a rather peculiar public holiday in Japan: “Respect Old People Day”. And judging by the official demographics, an increasing proportion of the population should be revered today. One in eight Japanese is aged 75 or older. People over 65 will reach 33 million, the largest ever, roughly 25.9% of the population. The thing about demographic trends is that they’re like a huge oil tanker - once they’re on their course it’s very hard to steer them around in another direction. These are monumental, generational changes that are very hard and slow to reverse.

"There's nothing to be optimistic about," warns the professor who developed the Global Epidemic and Mobility Model to assess outbreaks, "if the number of cases increases and we are not able to start taming the epidemic, then it will be too late. And then it requires an effort that will be impossible to bring on the ground." As FredHutch reports, the deadly Ebola epidemic raging across West Africa will likely get far worse before it gets better, more than doubling the number of known cases by the end of this month, predicting as many as 10,000 cases of Ebola virus disease could be detected by Sept. 24 – and thousands more after that. “The cat’s already out of the box – way, way out," as the analysis of global mobility and epidemic patterns shows a rougly 25% chance of Ebola detection in the UK by the end of September and 18% it will turn up in the USA. "I hope to be wrong, he concludes, but "the data points are still aligned with the worst-case scenario."

Sometimes you just have to laugh... S&P green, check; catch up with AUDJPY, check; squeeze "most shorted", check... It appears the algos got the 330RAMP timing a little off. FX markets - no change; TSY markets - very small reaction, credit reacted but roundtripped.

"...we anticipate that the start of US rate hikes will do damage to markets in the short term, but that there will be greater differentiation over a more medium term between liquid and less liquid assets. In the short term, investors sell what they can, making liquid assets more vulnerable." - JPMorgan

No one disputes that the amount of Russian gas being piped through Ukraine has been cut by at least 20 percent. But who’s responsible?

We recently explained how ISIS remains so well funded but what was unclear was who exactly what purchasing their 'recently-provisioned' oil reserves? The assumption being some desperate third-world nation or some scheming offshore hedge-fund arbitrageur; however, as Sott.net reports, a senior European Union official has revealed that some EU member states have purchased oil from ISIL Takfiri militants despite their rhetoric against the group. The official declined to disclose any names but Turkey remains a front-runner (having already shunned President Obama) and potentially France (after their recent anti-Petrodollar comments).

A look at new arguments suggesting that globalization is fragmenting.  Are they really new?  Are they true? 

In the New Normal, yellow  may or may not be the new black, but stock buybacks are certainly the new CapEx. And yet, companies are still forced to continue their sad existence in which the bulk of their cash is handed over to a few loud activist investors, and thus have no choice but to spend the bare minimum on capital investments. The following table shows where it all goes.

Yuanification continues around the world. As The USA attempts to corral its allies in a 'broad coalition', an increasing number of people - including domestic economic policy advisors - are shifting away from the USD as primary reserve currency. However, the move by British Chancellor of the Exchequer George Osborne, announced Friday, is likely the most notable yet in the world's de-dollarization. As Xinhua reports, the British government intend to be the first nation (ex-China) to issue Renminbi denominated bond and to use the proceeds to finance the government's reserves of foreign currency. Osborne described this dialogue outcome as "a historic moment" and a statement of British confidence in the potential of the RMB to become "the main global reserves currency".

Glance in the rear-view mirror and say goodbye to the Era of Wishful Thinking. In this weird liminal time since the so-called Crash of 2008 leadership has depended on lies and subterfuges to prop up the illusion of resilience. The lies, frauds, and cons run between the axis of Wall Street and Washington had two fatal consequences with still-lagging effects: 1) They destroyed the capacity for markets to establish the real price of anything - rendering markets useless; 2) They disabled capital formation to the degree that we might not have the money to rebuild an economy to replace the “financialized” matrix of rackets that currently pretends to function. A lot of observers have been waiting for the moment when the fog of pretense lifts and exposes all the broken machinery within. We may be so close now that you can smell it.

Two weeks ago, as we noted here, the CME unveiled Rule 575 - designed to put an end to 'disrputive trading practices' or "rigging." Today is the first day Rule 575 is unleashed to stop "spoofing," "quote stuffing practices," and the "disorderly execution of transactions." So, as Nanex notes, why is the CME still allowing major quote-stuffing? However, it appears Rule 5757 is having a notable effect on the high-beta momo stocks where the algos play...