Archive - Dec 2014 - Story

While it took a few hours for people (and machines) to realize exactly what China did last night, the fallout in risk markets is now clearly evident when a central bank decides enough-is-enough for speculative wealth creation bubble-followers. As we described last night, China's tightening has dramatically influenced the carry trade (USDJPY back under 120) and thus global stocks (from Abu Dhabi to Greece), global corporate bonds (all significantly wider) and European peripheral bonds (cracking wider) all face pressure. The beneficiary safe havens so far are precious metals (Gold > $1315) and US Treasuries (30Y at 2014 low yields). For now the mainstream media's narrative is that this oil-driven (which is fantasy as oil prices are up today) - this is the fallout from the marginal removal of $80bn of leverage collateral from the world's carry trades...

Those who have been following the ridiculous moves in the Shanghai Composite in recent months, knew it was only a matter of time before yet another major stock market (one which recently surpassed the Nikkei for the second largest spot in the world) crashed violently, further eroding faith in the centrall-planned "price discovery" process. The only question was when. Tonight we got the answer.

• China’s Stocks Sink Most Since 2009 as Turnover Jumps to Record (BBG)
• Greek Stocks, Bonds Tumble (WSJ)
• China tightens LGFV funding screws (BBG)
• Crude Rebounds From Five-Year Low Amid Shale-Oil Spending Curbs (BBG)
• Sexual threats, other CIA methods detailed in Senate report (Reuters)
• U.S. Takes Security Precautions Overseas Ahead of CIA Report (WSJ)
• Light-Speed Treasury Trading Governed by Rules Dating to 1998 (BBG)
• Delhi to ban all internet taxi firms after Uber rape claim (Reuters)
• Supreme Group Fined $389 Million for Overcharging Pentagon (WSJ)

It wasn't just China's long overdue crash last night. In addition to the Shanghai Composite suffering its biggest plunge since August 2009, there has been a sharp slide in the USDJPY which has broken its uptrend to +∞ (and hyperinflation), and around the time Chinese gamblers were panicking, the FX pair tumbled under 120, although since then the 120 tractor beam has been activated. Elsewhere, the Athens stock exchange is also crashing by over 10% this morning on the heels of news that the Greek government has accelerated the process to elect the next president and possibly, a rerun of the drama from the summer of 2012 when the Eurozone was hanging by a thread when Tsipras almost won the presidential vote and killed the world's most artificial and insolvent monetary union. And finally, the crude plunge appears to have finally caught up with ground zero, with ADX General Index in Abu Dhabi plunging 3.5%, also poised for the biggest drop since 2009. In fact the only thing that isn't crashing (at least not this moment), is Brent, which did drop to new 5 year lows earlier under $66, but has since staged a feeble rebound.

Back in June, the world was speechless when Goldman's head of the ECB, Mario Draghi, stunned the world when he took Bernanke's ZIRP and raised him one better by announcing the ECB would send deposit rates into negative territory, in the process launching the Neutron bomb known as N(egative)IRP and pushing European monetary policy into the "twilight zone", forcing savers to pay (!) for the privilege of keeping the product of their labor in the form of fiat currency instead of invested in a global ponzi scheme built on capital market so broken even the BIS can no longer contain its shocked amazement. Well, the US economy may be "decoupling" (just as it did right before Lehman) and one pundit after another are once again (incorrectly) predicting that the Fed may raise rates, but when it comes to the true "value" of money, US banks have just shown that when it comes to spread between reality and the economic outlook, the schism has never been deeper.

Enter US NIRP.

American comedian Chris Rock's flair for offensive but incisive comedy is well known. But his knowledge in other fields is lacking, and in some cases utterly misinformed. In a recent interview with Frank Rich of New York Magazine, the stand-up joke spitter has it all wrong when it comes to economics. No surprise there; the entertainment industry, despite raking in billions every year, is the brain trust of economic ignorance.

Unlike the Federal Reserve - which openly encourages speculative wealth creation/redistribution and has never seen an equity bubble it didn't believe was contained - the PBOC appears, by its actions tonight, to be concerned that things have got a little overheated in its corporate bond and stock markets as hot money ripped into the nation's capital markets on hints of further easing and QE-lite a few months ago. In a show of force, the PBOC simultaneously fixed CNY significantly stronger (implicit tightening) and enforced considerably stricter collateral rules on short-term loans/repos. With Chinese stocks concentrated is even fewer hands than in the US (and recently fearful of the surge in margin trading), it appears the PBOC is trying to stall the acceleration is as careful manner as possible. The result, as Bloomberg notes, is a major squeeze in CNY (biggest drop since Dec 2008), interest-rate swaps ripped higher along with corporate bond yields,  and most Chinese stocks sold off (with two down for every one up) though the latter is stabilizing now.

Just a few short months ago, investors were "buy buy buy"-ing the fact that The Baltic Dry Index had resurged off multi-year lows 'proving' China's renaissance and that world economic growth will re-approach Nirvana. Simply put, with collapsing commodity prices (iron ore for instance) and massive fleets of credit-driven mal-investment-based vessels, it should surprise no one that the shipping index just plunged back below 1000, now at its lowest for this time of year since 2008. Furthermore, the seasonal bounce always seen in Q3 was among the weakest ever. But apart from that, buy stocks...

Tonight, the Barclays Center in Brooklyn, where the Nets and the Cavaliers are playing, has devolved from the hippest venue for US and UK "royalty", to the scene of the latest Eric Garner protest, to a mobbing of a local Target store, to confrontations between protesters and police, to the outright farcical, when moments ago a NYPD cop pepper-sprayed himself by mistake and had to get EMS treatment. Watch it all unfold live and uncensored.

"...You never want to hear the phrases "low-rate environment," "investment solution," or "tapering" ever again. Or "China's unwind" or "low-return projections" or "quantitative easing" or "I've learned so much working for you these last few years and will really miss the team… but made me an offer I couldn't refuse."" Asset managers, prepare to nod vigorously.

For an estimated 1 million Beijing residents, dubbed the "rat tribe", living above ground (or in ghost cities) is a luxury they simply cannot afford. As NPR reports, with even the tiniest apartment costing a fortune (and 21 million people fighting for space), there has emerged a new 'affordable' housing option... below the city's bustling streets. Thanks to building codes that force the creation of basements and bomb shelters under new residences, there's a lot of underground space (1 - 3 floors down) that is illegally - but affordably - used for habitation. With the Shanghai Composite stock index up over 40% year-to-date, creating wealth and trickling down, how can this be possible?

Some two weeks ago (when Venezuela CDS was trading at 2300  bps) we previewed what - with almost absolute certainty - would be the first "casualty of the crude carnage" - Nicholas Maduro's little socialist paradise that couldn't: Venezuela. As a reminder, back then we learned that the OPEC member was in such dire straits it had burned through a third of a Chinese' bailout loan in the matter of days. Since then things have gone from bad to worse to freefall and why earlier today Venezuela CDS soared again by several hundred points wider touching 3100 bps (800 wider since our first post) and is now in record wide territory - suggesting the same probability default risk as when just after the Lehman collapse, crude traded briefly as low as $30 - as the bankruptcy vultures start circling over what will most certainly be the next sovereign bankruptcy carcass.

It was a little over month ago when we presented our visual guide to the Millennial generation. Since then, dissecting America's overindebted, overeducated, underqualified, underemployed, underpaid young adults - if only in charts - has become one of the nation's favorite pastimes. And so, courtesy of the US Census Bureau which too has taken a fascination with the sad plight of the one generation that, at least in theory, should carry the weight of the US economy on its shoulders, is the latest demographic dressing down of Americans aged 18 to 34.

With oil prices plunging to 5-year lows, perhaps it is time to consider the cheapness of betting on the other oil black swan...

"Every new law requires enforcement; every act of enforcement includes the possibility of violence. There are many painful lessons to be drawn from the Garner tragedy, but one of them, sadly, is the same as the advice I give my students on the first day of classes: Don’t ever fight to make something illegal unless you’re willing to risk the lives of your fellow citizens to get your way."