At a global aggregated level deflation has been non-existent over the last 80 years. Prior to the twentieth century, Deutsche Bank notes that years of deflation were almost as common as years of inflation. However this all changed over the last 100 years or so as global currency links to precious metals broke down periodically and then collapsed as of 1971. Furthermore, since then inflation has had an upward bias relative to most of prior history, and as such, Deutsche warns, the longer-term investor has evidence that they must approach the current low levels of bond yields with extreme caution.
For the 3rd day in a row, the USDollar flatlined as JPY & AUD weakness offset GBP & EUR strength (following Kuroda's speech this morning). Stocks dipped-and-ripped once again - as they always do into and after the EU close - with the S&P managing to scramble back into the green (but not 2,000 for 3rd day in a row) in a late-day buying panic (after some Draghi headlines saying nothing new). Not everyone was drinking the same bounce-back juice as stocks with HY credit, and JPY-carry not supportive at all. Stocks seemed to track WTI crude most closely today as oil jumped higher (abov $93) compressing the Brent-WTI spread to $5. Gold, silver, and copper slipped lower once again. The Treasury curve continued to bear flatten led by 5Y weakness.
With plunging dispersion (across stocks returns) and soaring beta to the market, it appears an increasing number of hedge fund investors believe the masters of the universe aren't worth the money. As Bloomberg reports, nine out of 10 hedge-fund managers are overpaid as management fees don't reflect declining interest rates and fund returns, according to Unigestion Holding SA, which invests $2 billion in hedge funds. With The Fed at their back, it is hardly surprising that one fund of funds manager blasts, "the philosophy of the hedge-fund industry, as it should be, is to remunerate true talent; fund managers should be remunerated when they perform. They should not be remunerated for doing nothing."
Even the escalating cold war (as in European winter cold) between Russia and the west will pale by comparison to what may happen in the far east, if the pent up for generations tensions between China and Japan, which have historically hardly been in a state of "amicable relations", finally spill over into an all out war. Which, incidentally, is precisely what a majority, or 53% of Chinese respondents, and some 29% of their Japanese peers, expect will happen in the coming years.
UPDATE:*BARCELONA POLICE SAY 1.8M PEOPLE AT PRO-INDEPENDENCE DEMO
The Spanish government is militarizing, gearing up for violent protests against the EU that are expected to turn up before a hot autumn. Spain is now equipping the police with over one billion million euros with new combat equipment. Opposition leader Antonio Trevin called the purchase therefore “a return to the times we would rather forget.” The Interior Ministry has responded merely justifying their rearming as necessary - “because of the current social dynamics”, reports the Guardian. Simply put, Spain is moving toward civil war.
It's not just Scotland... or Catalan. As The Guardian reports, polls out in the past few days in France have shown far-right Front National (FN) leader Marine Le Pen topping a presidential poll for the first time. Alongside this surge in support for FN is the utter collapse in the French people's faith in Hollande. Less than 20% of voters now approve of the French president and stunningly more than half the nation's card-holding-socialists have given up on him. An unprecedented 85% of French voters don't think Hollande should seek a second term. One word - guillotine?
As usual, every European snaction (sic) has an equal and opposite Russian reaction. Here is how the Russian Foreign ministry responded to what van Rompuy announced earlier today would be a new round of Russian sanctions, which wil finally be enforced tomorrow. First from the Russian foreign ministry:
- NEW EU SANCTIONS AGAINST RUSSIA LEAVE RUSSIA NO OTHER CHOICE BUT TO GO FOR CERTAIN COUNTER-MEASURES - RUSSIA'S PERMANENT REP TO THE EU CHIZHOV
And the punchline from the foreign ministry statement: "Finally, give people a chance for peace." So Obama channels Dubya and Putin channels John Lennon. The New Normal sure is strange.
US 5Y Treasury yields are approaching a key level, but as BofAML's Macneil Curry warns, the MOVE Index (the Treasury market equivalent of equity's VIX) is more important to focus on... as a turn higher in US Fixed Income Vol could lead to a pretty nasty snapback in the carry trade.
"This is the worst possible time for Britain to consider leaving the EU – or for Scotland to break with Britain. The EU is an unfinished project of European states that have sacrificed part of their sovereignty to form an ever-closer union based on shared values and ideals. Those shared values are under attack on multiple fronts. Russia’s undeclared war against Ukraine is perhaps the most immediate example but it is by no means the only one. Resurgent nationalism and illiberal democracy are on the rise within Europe, at its borders and around the globe."
Here’s the giant flaw in Obama’s incendiary strategy. The Peshmerga can be counted upon to ferociously defend Kurdistan against ISIS encroachment, and the Shiite militias will doubtless accomplish the same in their own territories. But no one with a modicum of historical knowledge would think it sane to send them up into the Sunni lands of the Euphrates valley to mop-up after the American bombs, missiles and drones. In short, once Washington is in full bombs away mode there will be no Free Syrian Army or reconstituted Iraqi army to finish the job. So what Obama actually launched last evening was Operation Blowback - Washington's stupidest military campaign yet.
If yesterday's tailing 10 Year auction left people concerned that today's final for the week 30 Year bond issuance would be weak, then the results put that promptly to rest, after the $13 billion reopening of Cusip RH3 priced at 3.24%, pricing 2.3 bps through the 3.263% When Issued. Furthermore, the Bid to Cover if 2.67 was above the August 2.60, well above the TTM average of 2.40, and the second highest of 2014, second only to June's 2.69. The internals were very solid as well, with Directs taking down 21.8%, above the 16.8% average, Indirects holding 45.5%, in line with last month and above the TTM average of 43.4%, and Dealers left with 32.8% of the paper which they can quickly flip back to the Fed for the next 6 or so weeks until QE ends (before it has to resume once again of course).
Here is the quote that perfectly captures our era: "People of privilege will always risk their complete destruction rather than surrender any material part of their advantage." (John Kenneth Galbraith) The trick, of course, is to mask the unspoken second half of of that statement: everybody else gets destroyed along with the Elites when the system implodes.
Well that didn't take long. After espousing his strategy last night of leading a broad coalition against ISIS, it appears President Obama's "allies" are backing away from the plan. As The WSJ reports, Germany and the U.K. on Thursday ruled out carrying out air strikes on Islamic State militants in Syria. It appears the Europeans, realizing the ire that these actions will likely cause to Putin, are stepping back - "We haven't been asked, nor will we do it," German Foreign Minister Frank-Walter Steinmeier told reporters and his U.K. counterpart Philip Hammond explicitly ruled out air strikes in Syria, after the U.K. parliament struck down such a move last year. So that leaves the French?
One quick look at the map of the UK shows the biggest impact a loss of Scotland would have on the Divided Kingdom (f/k/a UK) of England, Wales and Northern Ireland, should the "Yes" vote in the Scottish referendum garner a majority in one week. But how else would a Scottish departure impact the UK? Here are the answers...