“If [They're] Right, Everything The Fed Has Been Doing To Try To Stimulate The Economy Isn’t Just Useless — It’s Backward”
"My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices. However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time."
"Just when did Central Bankers become world media superstars and when do we get to put them back in their box?" Strutting the world stage, flitting from press conference to rubber chicken dinner, dispensing what passes for wisdom and prognosis as if the court astrologers have toppled the mighty Nebuchadnezzar and now rule in his place. Whatever happened to discreetly overseeing the balance of payments and facelessly staunching the worst panics only when absolutely necessary? This is clearly Japan’s last stand and there is no real exit strategy except to explicitly default on its debt. But an economic collapse and a sovereign debt default on the world’s third largest economy will contain massive economic ramifications on a global scale.
Can beggars be choosers again? Judging by the drop in Greek bond prices, the answer is no. As Bloomberg reports, Greek PM Samaras is pushing back against Troika demands for up to $3 billion more savings (i.e. cuts to spending) in 2015. "It's crucial that Greek authorities work with the troika to complete the current review,” but with the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the 'aid' tranche.
One bank is already set to benefit from the ABS program no matter what its actual outcome and impact on the European economy: the same bank that spawned none other than ECB's head... Mario Draghi. According to Bloomberg, Goldman Sachs Group says it’s adding staff to its European asset-backed securities business as the bank prepares for a resurgence in the $305 billion market that shrank more than 40 percent over the past four years.
"My personal fond hope and expectation is still for a market that runs deep into bubble territory (which starts, as mentioned earlier, at 2250 on the S&P 500 on our data) before crashing as it always does. Hopefully by then, but depending on what the rest of the world’s equities do, our holdings of global equities will be down to 20% or less. Usually the bubble excitement – which seems inevitably to be led by U.S. markets – starts about now, entering the sweet spot of the Presidential Cycle’s year three, but occasionally, as you have probably discovered the hard way already, history can be a snare and not a help." - Jeremy Grantham
“Unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds,” the ECB president said in Brussels yesterday in answer to a question during his quarterly testimony to lawmakers at the European Parliament. Draghi and the uber doves appear determined to ignore the failure of QE in both the U.S. and Japan.
Major equity / Credit divergences should always be taken very seriously. They were among the best forward looking indicators at almost every major turning point for equities over the last 20 years. Today, the divergence is visible again. The fact that all this is happening while bullish sentiment in the US is at record highs is of particular worry. Everyone is expecting higher equities due to lower yields and depressed food and energy prices. But when everyone is thinking alike, no one is really thinking...
After weeks of relentless flashing red headline barrage whose only purpose was to force snap algo buying of the USDJPY pair time after time after time, Japan is once again out of FX algo danging carrots after moments ago Abe confirmed what everyone had known already: he called a snap election to seek a mandate for his decision to delay by 18 months a further sales-tax increase that had been planned for next year; he also said he would dissolve the lower house of parliament on Nov. 21 in preparation for an election in December, without specifying a date. Cited by the WSJ, Abe said "To ensure the success of Abenomics, I’ve concluded that it shouldn’t be carried out next October and instead be postponed by 18 months,” the prime minister told a nationally televised news conference, stressing that the additional tax burden would risk putting the economy back into deflation. “I will seek the people’s judgment over our economic policy."
Something is dreadfully wrong in America.
“In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I'm not saying it's good.”
Plummeting oil prices are a symptom of terrible mounting instabilities in the world. After years of stagnation, complacency, and official pretense, the linked matrix of systems we depend on for running our techno-industrial society is shaking itself to pieces. American officials either don’t understand what they’re seeing, or don’t want you to know what they see. The tensions between energy, money, and economy have entered a new phase of destructive unwind. The global economy has caught the equivalent of financial Ebola: deflation, which is the recognition that debts can’t be repaid, obligations can’t be met, and contracts won’t be honored. Financial Ebola means that the connective tissues of trade start to dissolve, and pretty soon blood starts dribbling out of national economies.
Moments ago, Bloomberg released a stunning update that Europe's largest bank is exiting the single-name, both IG and HY, CDS product line, which for years was one of its biggest revenue generators and a product in which DB was for a long time one of the best and deepest CDS trade axes. As Bloomberg reports, Deutsche Bank AG will stop trading investment-grade and high-yield credit default swaps on single credits and will instead focus on trading corporate bonds, according to a spokeswoman.
Seriously!! Draghi utters a few words - all of which we have seen and heard a thousand times before:
*DRAGHI SAYS ECB WILL DO WHATEVER IT TAKES, WITHIN ITS MANDATE
*DRAGHI SAYS EXPANDED PURCHASE PROGRAM COULD INCLUDE GOVT BONDS
and EURUSD, European stocks and bonds get uber-excited... which is odd because as Draghi himself noted in Dec 2011, the "Treaty prohibits monetray financing."
After 6 weeks of the ECB's (3rd) Covered Bond Purchase Program, the cumulative buys amount to a mere EUR 10.485 billion. It appears they are limited (by collateral availability and market liquidity.. and dealers unwillingness to sell) to around EUR3 billion per week - around the same amount The Fed's QE3 would suck up in 1-2 days of POMO. At this rate, it's a long way to go to reach the $1 trillion goal. Is it any wonder that Mario Draghi once again used the 'w' word - uttering ECB will do "whatever it takes" (cough within its mandate).