"How would US Treasury bulls in the private sector react if they knew in advance that the second largest owner of Treasuries, the PBOC, was a forced seller of Treasuries. Such compelled selling would be obvious before US markets opened each morning as downward pressure on the RMB exchange rate in Asia forced the PBOC to liquidate foreign currency assets to defend the fixed exchange rate. Would even Treasury bulls stand in the way of such a large and predictable liquidation? If they didn’t then the second phase of The Great Reset would come to pass and the decline of EM external deficits would force tighter monetary policy in both EM and DM."
On a day when market participants will care about only one thing - how hawkish (or dovish) the FOMC sounds at 2:00 pm (no Yellen press conference today) - Chinese stocks provided the usual dramatic sideshow and traded unchanged or modestly negative for most of the day despite the latest $100 billion injection, the close of trading on Wednesday was a mirror image of what happened in the last hour on Monday, as various Chinese "plunge-protection" mechanism went into a furious buying frenzy and government-backed funds rushed to buy anything that trades in the last 60 minutes of trading in what may be the most glaring example of banging the close yet.
The German Council of Economic Experts is out with a new report on euro area crisis management which backs state bankruptcies and euro exits for governments deemed "uncooperative." "A permanently uncooperative member state should not be able to threaten the existence of the euro. In view of this, the Council of Economic Experts recommends that the withdrawal of a member state from the currency union must be possible as an utterly last resort," the council says.
Greece has no future, so long as it clings to the euro. The dollar won't servce you much better. A drachma will only harm the Greek people. That leaves one other option.
Just as Japan thought they could go back to pre-Plaza Accord growth rates by holding on to the old ways in the 1990s, the Chinese will expect the growth miracle to return in 2016 with the “right” policies. It will not. It is all a mirage though. Just as in Japan, the Chinese will not allow the market process to do its magic to get the economy back on a stable footing. Draconian measures to stop the recent stock market rout are a clear testimony of that. In other words, the Chinese economy will resemble that of Japan, and it will do so very soon, if it is not already there. China is heading straight into a zero growth environment, and will be mired there for years to come.
As The Greek government presses The ECB for 'permission' to reopen its stock market, it may want to reconsider. GREK, the Greek Stock Index ETF trading in US markets, is down over 3% today and has plunged to its lowest since the peak of the crisis in 2012 (near its lowest since 1989). Just as in China, The ECB (who is now very much in charge) seems to believe that if markets are not open for locals, then they have no 'real' idea just how bad things are.. and with National Bank of Greece stock trading at record lows (below $1), and the expectations of bail-ins looming, that is not what The ECB wants the people to see...
The S&P 500 and Russell 2000 are very close to joining the Dow Industrials and Transports in negative territory for the year. The S&P 500, which has fallen 5 straight days for the first time since January, is now back below its 200DMA, having swung from euphoric "Greece is fixed" exuberant record highs in just a week of rising volume. The Dow is the furthest below its 200DMA since October's Jim Bullard-rescued dump. Treasury yields are plunging.
On the heels of a veritable bloodbath in Chinese equities overnight which saw the SHCOMP slide a harrowing 8.5%, the entire world is now beginning to take a hard look at the notion that dramatic bouts of selling pressure are aggravated and perhaps triggered by an unwind in the multiple backdoor margin lending channels that allowed investors to skirt official restrictions on leverage and helped to drive the market’s world-beating rally. Here is the complete guide to China's CNY4 trillion shadow margin edifice.
To understand what really happened earlier today, one should read the Bloomberg explanation, according to which it was the ECB which rejected proposals by Greek authorities to reopen country’s financial markets with no restrictions in place for both Greek and foreign traders, citing an Athens Exchange spokeswoman. And just like that, we wave goodbye to the Hellenic Republic, and greet the Mediterranean Vassal Province of Mario and Merkel. Because as of this moment, no Greek decision can be taken without the direct or indirect express prior approval of either the ECB and/or Berlin.
The purpose of this article is to outline, with facts, large global structural issues that everyone, bulls and bears alike, should be fully aware of. This article will focus on much larger structural issues that have been building for years and decades. And no this article is not so much about central banks, debt issues, Greece, China, deficits, etc. While all these are important as part of the overall picture, they are mere current symptoms of a much larger issue that is at the core of all that is already in play and will only deepen in our societies in the decades to come.
Straight-forward discussion of next week's economic data and events, and why it is important for the dollar.
Venezuela’s hyperinflation is reaching its final stages. It is probably already far too late for the government to stop the complete collapse of its currency. The bolivar is in the process of transforming from a medium of exchange to tinder for wood-stoves. Venezuelans who had the presence of mind to convert their savings into gold or foreign currency in good time are likely to survive the conflagration intact. Governments never seem to learn. They all believe they can somehow overrule economic laws by diktat. This is not only true of Venezuela’s government, but of practically every government in today’s world. Central planning of money has been adopted everywhere. Venezuela merely shows us what the end game for every fiat money system looks like.
You do not start confiscating deposits at banks until the government itself is bankrupt and cannot foot the bill for a bailout.
In a note by BofA's Michael Hartnett, the bank looks at the latest EPFR fund flows and concludes that the wave of commodity "capitulation" revulsion selling has finally arrived.