Archive - Mar 11, 2015 - Story

As the world's dollar funding shortage continues to unwind, EURUSD has re-collapsed to a 1.04 handle in the Asia session and dragged The USD Index above 100 for the first time since 2003. This is now the fastest surge in the USD since records began and EM FX is getting monkey-hammered. Swissy has almost retraced the entire post-SNB de-peg surge. USD strength has weakened JPY and thus miraculously lifted US equity futures (just as it did last night before the dead cat bounce collapsed to lower-lows).

"Central banks are not all singing and all dancing," and cannot avoid the consequences of what they are doing, concluding, "you and I have got grandstand seats here [to an imminent market shock]," and investors are about to "find out just how illiquid it really is out there."

"The amount a state needs to expend on guard labor is a function of how much legitimacy the state holds in its population’s reckoning... Why spy? Because it’s cheaper than playing fair. Our networks have given the edge to the elites, and unless we seize the means of information, we are headed for a long age of IT-powered feudalism."

Collapsing crude prices have left America's oil boom towns cash-strapped in the face of double-digit population growth and increased levels of drug trafficking and violent crime. As local governments struggle to cope, a prolonged slump for oil could imperil the stability of many once quiet communities. 

China is in the midst of attempting to help local governments refinance a mountain of debt, some of which was accumulated off balance sheet via shadow banking conduits at relatively high rates. According to UBS, "Chinese domestic media are saying that the authorities are considering a Chinese "QE" with the central bank funding the purchase of RMB 10 trillion in local government debt."

Global growth forecasts are falling and the risk of deflation is rising. As a result, countries that are dependent on commodity exports are especially vulnerable. Australia relies on exports to China. If prices fall and China slows down then Australia will be in big trouble.

Water is the lifeblood of humanity; it turns out it is in short supply. Like any other commodity high in demand, you should keep an eye on it for investment purposes as we get closer and closer to “peak water.” Right now, the average American consumes about 100 gallons of water per day both directly and indirectly. This is a problem of conservation and efficiency as much as it is supply, as the aging water infrastructure had its last upgrade during the Reagan era.

The currency war salvos just keep on coming.  Moments ago the BOK unexpectedly (the move was predicted by just 2 of 17 economists polled by Bloomberg) cut its policy rate from 2.00% to a record low 1.75%, in what is clearly a full-blown retaliation against the collapse currency of its biggest export competitor, Japan, whose currency has cratered to a level that many in South Korea believe has become a direct subsidy for its competing exports. As such the only question is why the BOK didn't cut earlier. And following the surprise rate cut by Thailand earlier today, the "surprise" South Korean rate cut means there are now 24 easing policy actions by central banks in 2015 alone.

China remains an export economy no matter how hard they try to convince the world they are moving otherwise. The idea of creating internal “demand” as a means to extricate marginal changes from everybody else is undoubtedly a good idea, even a noble one, but the reality of China as it exists top-down isn’t conducive for such a transformation. Further, that just isn’t realistic under the global conditions that have persisted since the Great Recession was declared over. In that respect, there isn’t much to separate what is occurring now from the Great Recession itself.

"We ourselves in the European Union provoked the conflict through our territorial expansionism in the Ukraine. We poked the Russian bear with a stick, and unsurprisingly, Putin reacted. But this now is to be used as an opportunity to build a European army... And Mr. Juncker said, we must convey to Russia that we are serious. Who do you think you are kidding, Mr. Juncker?"

"...this hiking cycle is nothing like any experienced before and the key to PEs will be how LT yields react. But in the meantime, EPS risk remains to the downside on FX, whereas the debate on magnitude of Fed hikes and how bond yields and PEs react will last all year... We see risk of a near-term 9% dip."

So much for the second Minsk ceasefire. A few hours ago, the US returned to its strategy of escalating Russian "costs" when it placed sanctions on eight Ukrainian separatists and a Russian bank, warning that recent attacks by rebels armed by Russia violated a European-brokered ceasefire in the war-torn country. The Russian response to the latest sanction pending, but the response may have been hinted at earlier today when an official from Russia's Foreign Ministery said the nation has the right to deploy nuclear arms in the Black Sea peninsula of Crimea. And finally, indicating that the semi-hot escalation between the US and Russia is close to getting out of control, Vice President Biden told Ukraine's president Wednesday the U.S. will send more aid to the country, which U.S. officials said will include small drones and armored Humvees.

While none of the current batch of currency-devaluing Central Bankers would admit that their policies are designed to weaken the currency, enhance competitiveness, and hail a new bright future of growth for their nation (by printing money), it is clear that is the chosen textbook-based path chosen. However, as the following charts show, it's not working...

The computerisation of European jobs - who will win and who will lose from the impact of new technology onto old areas of employment?