How did our financial system weaken to the point where a quarter of a percent increase in rates is more than it can handle?
It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets. The core paradox - that central banks can't control both domestic and global FX markets with the same set of policies - cannot be resolved by printing $1 trillion, or even $5 trillion. Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.
The world is in the waning days of a historic multi-decade experiment in unfettered finance. International finance has for too long been effectively operating without constraints on either the quantity or the quality of Credit issued. From the perspective of unsound finance on a globalized basis, this period has been unique. History, however, is replete with isolated episodes of booms fueled by bouts of unsound money and Credit – monetary fiascos inevitably ending in disaster. We see discomforting confirmation that the current historic global monetary fiasco’s disaster phase is now unfolding.
During the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed's bailout of the western financial system. If past is prologue, one should ask: what current or future event is driving the ongoing redemption of 246 tons of gold (and rising) from the NY Fed this time?
"It’s not how I want my epitaph to read, but it’s not a shameful thing helping people finance themselves. It’s not a bad thing."
The $12 Trillion Fat Finger: How A "Glitch" Nearly Crashed The Global Financial System - A True StorySubmitted by Tyler Durden on 08/08/2015 23:43 -0400
... in under a minute, the hateful script had taken offline the entire system in much the same manner as chucking a spanner into a running engine might stop a car. The databases, as always, were flushing their precious data onto many different disks as this happened, so massive, irreversible data corruption occurred. That was it, the biggest computer system in the bank, maybe even the world, was down. And it wasn't coming back up again quickly. At the time this failure occurred there was more than $12 TRILLION of trades at various stages of the settlement process in the system. This represented around 20% of ALL trades on the global stock market.
"It's all noise," squeaks Laszlo Birinyi, deflecting concerns about revenues, earnings, Europe, China, commodities, and rates as he unleashes his latest extrapolation. "If we continue to grow at 11bps per day, the S&P will be at 3,200 within 2 years," he warbles as he hopes his ruler - which missed its 2013 projection by 1100 points - is forecasting better this time.
After a lukewarm start by the Chinese "market", which had dropped for the past 6 out of 7 days despite ever escalating measures by Beijing to manipulate stocks higher, finally the Shanghai Composite reacted favorably to Chinese micromanagement of stock prices and closed 3.7% higher as Chinese regulators stepped up their latest measures by adjusting rules on short-selling in order to reduce trading frequency and price volatility, resulting in several large brokerages suspending short sell operations. At this pace only buy orders will soon be legal which just may send the farce of what was once a "market" limit up.
There could be trouble ahead....
This charmed circle includes Google, Amazon, Baidu, Facebook, Saleforce.com, Netflix, Pandora, Tesla, LinkedIn, ServiceNow, Splunk, Workday, Ylep, Priceline, QLIK Technologies and Yandex. Taken altogether, their market cap clocked in at $1.3 trillion on Friday. That compares to just $21 billion of LTM net income for the entire index combined. The talking heads, of course, would urge not to be troubled. After all, what’s a 61X trailing PE among today’s leading tech growth companies?
"What Europe Wants" - to use global issues as excuses to extend its power:
- environmental issues: increase control over member countries; advance idea of global governance
- terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
- global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
- EMU: create a crisis to force introduction of “European economic government”
The rescue of AIG should not serve as a source of comfort to investors.
It’s happening. As expected, dynastic politics is prevailing in campaign 2016. After a tease about as long as Hillary’s, Jeb Bush (aka Jeb!) officially announced his presidential bid last week. Ultimately, the two of them will fight it out for the White House, while the nation’s wealthiest influencers will back their ludicrously expensive gambit. And here’s a hint: don’t bet on Jeb not to make it through the Republican gauntlet of 12 candidates (so far). After all, the really big money’s behind him.
As we previously noted, liquidity is there when you don't need it, and it promptly disappears once it is in demand. Consider it "cocktease capitalism." If liquidity lasts longer than 4 hours, call the CFTC because you may be experiencing a spoof. Right now, the ultimate spoof is setting up as the credit default swap market collapses, and a global bond market margin call is just around the corner.