Bank of England
Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.
We’re always interested in alternative economic frameworks that can help address the sizable gaps left open by classical approaches. Behavioral economics can fill part of that void, of course, as it describes some basic shortfalls in the assumption that we’re all superhuman welfare maximizing individuals. One step beyond that is evolutionary economics, which borrows from biology rather than psychology to form models about economic behavior.
"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."
- Fed expected to push ahead with rate hike plan (Reuters)
- Upbeat earnings lift European stocks ahead of Fed (Reuters)
- Chevron to Cut 1,500 Jobs (Rigzone)
- Can Windows 10 Revive PC Sales? (WSJ)
- U.S. Junk-Bond Buyers Left in Dark as Private Deals Become Norm (BBG)
- Jeb Bush Drawing Big Bucks From GOP Establishment (WSJ)
- Myriad of Greek Risks Means Money Managers in No Hurry to Return (BBG)
- Gas production at Gazprom set to hit post-Soviet low (FT)
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 rise of China’s currency on global markets is arguably the most significant development in currency trading since the introduction of the euro in 1999."
A former BOE employee and Mervyn King speechwriter who went on to a lucrative private sector career as a bond strategist at Deutsche Bank, and then as a hedge fund economist, is now going back to the BOE as a voting member. And that's not all. This revolving door story has a punchline...
Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. So... the central banks will panic. Again. Countries that retain some control over their monetary systems will see their interest rates fall to zero and beyond, while those that don’t will be thrown into some kind of new age hyperinflationary depression. Not 2008 all over again; this is something much stranger.
A slow week devoid of virtually any macro news - last night the biggest weekly geopolitical event concluded as expected, when Greece voted to pass the bailout bill which "the government does not believe in" just so the ECB's ELA support for Greek depositors can continue - is slowly coming to a close, as is the busiest week of the second quarter earnings season which so far has been largely disappointing despite aggressive consensus estimate cuts, especially for some of the marquee names, and unlike Q1 when a quarterly drop in EPS was avoided in the last minute, this time we won't be so lucky, and the only question is on what side of -3.5% Y/Y change in EPS will the quarter end.
While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
Today's action is so far an exact replica of Friday's zero-volume ES overnight levitation higher (even if Europe's derivatives market, the EUREX exchange, did break at the open for good measure leading to a delayed market open just to make sure nobody sells) with the "catalyst" today being the official Greek repayment to both the ECB and the IMF which will use up €6.8 billion of the €7.2 billion bridge loan the EU just handed over Athens so it can immediately repay its creditors. In other words, Greek creditors including the ECB, just repaid themselves once again. One thing which is not "one-time" or "non-recurring" is the total collapse in commodities, which after last night's precious metals flash crash has sent the Bloomberg commodity complex to a 13 year low.
The divergence theme is not longer being eclipsed by the Greek drama and the Chinese stock market slide. See how this week's developments fit into the bigger picture.
There’s one side of the story which hasn’t been highlighted at all by the mainstream media...
One senior UK bank director said: “The problem with Martin was that he made so many enemies, partly for good reason because banks did rightly need firm treatment after the crisis. But he seemed to have a mindset that all bankers were evil.”