Archive - Sep 12, 2015 - Story

8 years to fix the malfunctioning heart of the world’s financial and legal systems but nothing was actually done... and now the clock is ticking and there is hardly any time left. The number of red lights now blinking at us, largely ignored by those who are supposed to be flying this thing, is growing all the time. It is not that any one of them is a clear harbinger of the end but taken together they paint a dismal and coherent picture – of a system eating itself. The world in which and for which our old system was built is now changing around it in fundamental ways.

In the war against the Islamic State, the United States has relied heavily on support from the skies. It’s for this reason that more than two-thirds of the $9 million-per-day of military spending on the war has been allocated to the Air Force. But what is the actual scope of the U.S. Air Force? These three charts tell the story.

"Our FCI Rule Suggests The Fed Should Think about Easing"...

Seeing the market crash from a few weeks ago, it is clear how quickly the market can ferociously hurdle in front of one's risk models. Risk models that failed to safeguard against risk when it mattered the most.  Models that left many large hedge funds hemorrhaging - top funds which by definition were supposed to protect their investors in the August tumult.  Instead when markets broke bad, a lot of things "went wrong"; and stayed that way. 

"What me?"

It’s well-known that you have to make a declaration if you physically transport $10,000 or more in cash or monetary instruments in or out of the US, or almost any other country; governments collude on these things, often informally. But we've recently had some disturbing experiences crossing borders with coins...

Positioning across the world's most-levered financial instruments has never been this crowded. With such extreme positioning across the equity, vol, and bond complex, it would seem no matter what The Fed does in September, there will be blood.

"The story that (Aylan's father) told is untrue. I don't know what made him lie, maybe fear. He was the one driving the boat right from the start. When they set off five minutes in he was looking left and right, worried, then he was speeding. Even his wife was screaming at him to slow down." Iraq-based Zainab Abbas, via her Sydney-based cousin Lara Tahseen, told Ten News she paid $10,000 for the voyage.

Faith in the QE world is waning everywhere and with very good reason. If the "wholesale money" eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that starting point rather than the irrelevant and overstated federal funds monkeying. In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it.

Over the past several years, incidents involving fake gold (usually in the form of gold-plated tungsten) have emerged every so often, usually involving Manhattan's jewerly district, some of Europe's bigger gold foundries, or the occasional billion dealer. But never was fake gold actually discovered in the form monetary gold, held by a bank as reserve capital and designed to fool bank regulators of a bank's true financial state. This changed on Friday when Russia's "Admiralty" Bank, which had its banking license revoked last week by Russia's central bank, was reportedly using gold-plated metal as part of its "gold reserves."

So far, it’s a different type of crisis – market tumult in the face of global QE, in the face of ultra-low interest rates and the perception of a concerted global central bank liquidity backstop. It’s the kind of crisis that’s so far been able to achieve a decent head of steam without causing much angst. And it’s difficult to interpret this bullishly. If Brazil goes into a tailspin, it will likely pull down Latin American neighbors, along with vulnerable Indonesia, Malaysia, Turkey and others. And then a full-fledged “risk off” de-risking/de-leveraging would have far-reaching ramifications, perhaps even dislocation and a collapse of the currency peg in China. China does have a number of major trading partners in trouble. Hard for me to believe the sophisticated players aren’t planning on slashing risk.

"A 'policy error' rate hike might well result in positive correlations among equities, commodities and bonds, due to a combination of risk off and higher rates. In this case it is not entirely clear how risk-parity funds would rebalance: A potential candidate for inflows would be currencies, and in particular the dollar. This would only put additional upward pressure on the dollar, reinforcing the “policy error” nature of the hike."

When a digital dickweed exposes the reality "the equity markets are broken," it can be shrugged off as the rantings of a kid in his mom's basement.

Europe has complex immigration rules. But, as the recent influx of refugees and economic migrants has shown, the EU government is able to flex its muscle in an ad hoc fashion in the service of compelling member states to accept the migrants and refugees. Ultimately, however, the imposed "solutions" to the migrant and refugee crisis may be a signal to many members that the EU isn't quite what they thought it was.

"The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow."