The march of global de-dollarization continues. In the last few days, China has signed direct currency agreements with Canada becoming North America's first offshore RMB hub, which CBC reports analysts suggest "could double maybe even triple the level of Canadian trade between Canada and China," impacting the need for Dollars.But that is not the week's biggest Petrodollar precariousness news, as The Examiner reports, a new chink in the petrodollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petrodollar system. As Simon Black warns, "It’s happening... with increasing speed and frequency."
"The presence of a big buyer who snaps up securities regardless of yields risks preventing the market from reflecting growth and inflation accurately,” says Shinji Hiramatsu, senior investment manager at Sompo Japan Nipponkoa Asset Management, which oversees the equivalent of $9.8b. “The BOJ’s move on Oct. 31 was favorable for my investment, but made me very concerned about a loss of fiscal discipline." Shockingly, even in the basket case country that is Japan, those who directly benefit from the BOJ's terminal experiment are now openly and vocally slamming it because they know that if continues, the final endgame is now near. It has gotten so bad that Japan's population, living in unseen "misery" has had enough, with more respondents to a recent poll stating that the negative effects of Japan's QE surpass the positive. Perhaps that is why the approval of Abe's cabinet is suddenly crashing.
Globally the US Dollar carry trade is believed to be north of $3 trillion (larger than the economy of France). What happens when it begins to unwind?
Success in investing, in other words, comes not from over-reach, in straining to make the winning shot, but simply through the avoidance of easy errors. There is now a grave risk that an overzealous commitment to benchmarking is about to lead hundreds of billions of dollars of invested capital off a cliff. When a sufficient number of elephants start charging inelegantly towards the door, not all of them will make it through unscathed.
For the moment capital markets appear to be adapting to deflation piece-meal. The fall in the gold price is equally detached from economic reality. While it is superficially easy to link a strong dollar to a weak gold price, this line of argument ignores the inevitable systemic and currency risks that arise from an economic slump. The apparent mispricing of gold, equities, bonds and even currencies indicate they are all are ripe for a simultaneous correction, driven by what the economic establishment terms deflation, but more correctly is termed a slump.
while the algos would have been delighted to let October 15 slide into the collective memory made obsolete by a constantly rising market (because investors are only truly angry when the market plunges not when it surges) just as the regulators made a mockery of their fiduciary responsibilities in the aftermath of May 6, and now markets are more fragile than ever as HFTs comprise the vast majority of all trades, some appear to be complaining and even, gasp, asking questions how it is possible that the $12 trillion US Treasury market traded like an illiquid Pink Sheets pennystock, or worse, the Nikkei.Here is the WSJ with some of the complaints: “It starts moving faster and faster, and you can’t point to anything."Actually, yes you can.
The risks unleashed by central bank funding of massive carry trades, policy-driven devaluations and currency crises have yet to manifest. When they do, we'll rediscover why traders consider the FX market the 800-pound gorilla that stomps on the stock and bond markets without even noticing the squishing sound.
Swiss referendum is unlikely to be enacted into law, and if it is, there are several measures the SNB can do to limit its impact. Expect the SNB to defend the euro floor/franc cap.
- Obama urges China to be partner in ensuring world order (Reuters)
- China Sees Itself at Center of New Asian Order (WSJ)
- Xi Dangles $1.25 Trillion as China Counters U.S. Refocus (BBG)
- China's Xi, Japan's Abe hold landmark meeting after awkward handshake (Reuters)
- Revenue Softness Worries Stock Investors (WSJ)
- How BOJ’s Kuroda Won the Vote for Stimulus Expansion (WSJ)
- Bonus Season Brings More Pain for Traders (WSJ)
- Russia’s Military Encounters Risk Clash in Europe (BBG)
Following Friday's sticksave, where the usual 3:30 pm ramp brigade pushed futures just barely green into the close despite a miss in the payrolls report which the spin brigade did everything in its power to make it seem that the hiring a few hundred thousand young female waitresses was bullish for the economy, overnight we have seen a listless session, dominated by more USD-profit taking as increasingly more wonder if the relentless surge higher in the Greenback is massively overdone, especially considering that stocks are screaming "worldwide recession" excluding the US, if only for now, because as Goldman explained soaring USD means plunging Oil, means tumbling E&P capex, means lower GDP, means less growth, means lower corporate profits, and so on. That said, we expect the now trivial Virtu JPY momentum-ignition algos to activate shortly, pushing the USDJPY and its derivative, the S&P500, higher in the coming minutes, and certainly before the US market opens in under 3 hours.
By continuously intervening in all of the markets, the Fed has destroyed the information transmission system that is built into freely trading markets. Time is starting to run out for ability of the U.S. to keep kicking the can of collapse down the road. We’ve come full circle, only with China in the Midas throne this time around. Eventually the world is going to revert back to a gold-backed currency system. When this happens, the U.S. will be required to demonstrate that it possesses the amount of gold that it reports to own. The only caveat here is that we believe that the U.S. will start WW3 before it’s forced to reveal the truth about its empty gold vault. That’s how broken our system really is…
Who Said It? "Deficit Spending Is A Scheme To Confiscate Wealth. Gold Stands In The Way Of This Insidious Process"Submitted by Tyler Durden on 11/09/2014 19:14 -0500
"This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard." - Who Said It?
Stocks end the week on a weaker note roundtripping off premature exuberance into the European close after jobs data that missed expectations (or did they). Of course the kneejerk response took the S&P and Dow to record highs before the weakness set in. Thanks to a late day panic-buying rip though, Nasdaq and Russell 2000 close the week unch - no need to call Mr. Bullard. Treasury yields collapsed today, ending the week down around 3-4bps. The USD sold off today to close the week up 0.6% with JPY and AUD the weakest against the greenback on the week. Gold (and silver) rallied to close the week almost unchanged. Interestingly, despite VIX's best efforts (almost breaking under 13), stocks rolled over this afternoon (then ripped). Oil prices pushed modestly higher early on and ended the day around $78.50. The ubiquitous Friday late-day buying panic ripped everything higher - on absolutely no news - "proving" that the jobs data was great (expect, why were safe haven bond and bullion so heavily bid?)
Speaking from The Bank of France is crap-covered Paris, Janet Yellen stated that "bond purchases have ben effective", and encouraged Mario Draghi to print moar, noting "central banks need to be prepared to employ all available tools, including unconventional policies, to support economic growth and reach their inflation targets," but warned from the other side of the her two faces, that, "policy normalization will lead to heightened volatility."
The central planners are in a state of fear and panic. They are trying everything and anything to create market validation for their policies, watching with trepidation as their favored economic metrics fail to respond to all of their frenzied efforts. They are so far over the tips of their skis right now that there's nothing they won't do. By the time a central bank is behaving as recklessly as Japan, it's time to edge towards the exit, because the chance of a flash fire in the building has grown uncomfortably high. That is, instead of providing comfort, these most recent moves should invoke greater worry for those of us alert enough to see them for what they are: acts of panic.