Archive - Jan 7, 2016

Remember 'The Santa Claus Rally' that Bob Pisani said "we should expect" - well The Dow is now down over 1200 points from the highs just before the end of the year and extending those losses as Reuters reports, PBOC advisors are said to call for steeper yuan depreciation, pressuring the government to depreciate by 10-15%.

Last January, gunmen killed 12 people at Charlie Hebdo's offices in an apparent act of "revenge" for the publication's satirical depictions of the Prophet Mohammed. For those struggling to understand how society has devolved to a point where such atrocities are possible, even commonplace, Hebdo offers an explanation.

Over the past few days we have repeatedly heard the following statement: "China isn’t that important as it is only 7% of the U.S. economy." While that may be a true statement in relation to the economy, it is a far different matter when it comes to the financial markets. With financial markets so closely correlated, what happens in China has a direct and immediate impact on U.S. markets.

• Weakness in the Canadian Economy driving its currency lower
• Inverse relationship between commodity prices and USDCAD exchange rate
• Why there could be a reversal in trend

How did the Canadian currency reach a twelve year low?

The US Dollar reached a recent high against CAD at 1.41081 on January 6^th a level not seen since August 2003. The general bull trend the green back has been in picked up momentum since talk begun by the Fed of a return to higher interest rates.

With WTI trading with a $32 handle, collapsing below December 2008's $32.40 lows briefly overnight, OPEC's broad basket price for crude has also reached a worrisome milestone. Amid Saudi price cuts to Europe, the basket price was set at $29.71 today - the first print below $30 since April 2004.

While Gold has been grabbing the "safe haven" headlines in recent days, this morning it is Silver's turn. Having rallied 2.5%, Silver just broke its 50-day moving average for the first time in 2 months...

Venezuela is currently going through its worst crisis in history, replete with an endless list of interesting problems. Foremost among these are severe shortages in even the most basic of necessities. Economists have used these shortages as textbook examples to illustrate the pernicious effects of price controls. Few people, however, are aware that many of the country’s problems are caused by a complex monetary arrangement that makes use of four different exchange rates simultaneously. The result is that Venezuela can either be extremely cheap, or unbearably expensive, depending on the rate used.

Saudi Arabia, which entered 2015 with virtually no debt and an FX reserve war chest that amounted to around three quarters of a trillion dollars, is now viewed as less creditworthy than a country where a coalition of socialists, left-wingers, and communists just overthrew the government.

"When 63% of all Americans can’t handle a $500 emergency, and 46% of households making over $75,000 can’t handle a $500 emergency, then they are just plain stupid, frivolous, and incapable of distinguishing between wants and needs. Delayed gratification is a trait almost non-existent among Americans today."

Chinese stocks have retraced 50% of their overnight losses following the lifting of the circuit-breaker rule. China FTSE-A50 Futures trading on SIMEX are up over 250 points, trading at the highs of the day but for some context, the index is still down 14% from post-Christmas highs.

It's requiring more borrowed yen/yuan/dollars/euros just to keep the global economy from collapsing in a heap of impaired debt. The costs of waste, fraud and mal-investment are finally coming home to roost, and while near-zero interest rates serve to mask the future costs, near-zero rates cannot stem the rising tide of mal-investment. Rather, near-zero rates have fueled mal-investment, waste and unproductive spending. The diminishing returns on that strategy of "growth" are inescapable.

When Mario Draghi “disappointed” markets in December by “only” cutting the depo rate by 10 bps and “merely” extending PSPP by six months while electing not to expand monthly asset purchases, the Riksbank, the Nationalbank, the Norges Bank, and the SNB all breathed heavy sighs of relief. And while we doubt the ECB is done when it comes to going "full-Krugman" (as it were), Mario Draghi’s “hawkish” ease did buy his counterparts some breathing room. Case in point: Denmark just hiked.