Bank of England
Over the past several years, the two-day Jackson Hole symposium had garnered a particular prominence among economists and market watchers as this is where various key inflection points by the Fed were hinted, leaked or announced, including QE2, QE3 and the taper. This year, however, the gathering of central bankers in Teton County, will be less exciting due to the absense of the most important central banker in the world: Janet Yellen, which means the highlighter will be Vice-Chairman Stanley Fischer when he speaks tomorrow at 10:25pm which will be a key event given the recent market turmoil.
A half-century ago, America - and then the world - was rocked by a mighty stock-market crash that soon turned into the steepest and longest-lasting depression of all time. Those who ignore the lessons of history are doomed to repeat it - except that now, with gold abandoned and each nation able to print currency ad lib, we are likely to wind up, not with a repeat of 1929, but with something far worse...
It's a case of economic policy run amuck. Real estate development can boost the economy, under the right conditions: lots of jobs and economic activity get generated when homes are built or refurbished. And there is the wealth effect when home prices rise. But when taken to extremes - as it is today and was in the previous economic cycle consumer spending gets squeezed out in order to pay mortgages and rent. It becomes an incredibly unproductive use of capital. Simply put, we have a surge in college-age prostitution and it's the Fed's fault. It gives new meaning to the term "perverse monetary policies"
- Crude prices fall towards $40 on global glut (Reuters)
- China Central Bank Injects Most Funds Since February as Money Rates Increase (BBG)
- Divided Fed Puts Yellen on Hot Seat (Hilsenrath)
- So Long September: Bond Traders Defer Their Date With the Fed (BBG)
- More Foods Boast Non-GMO Labels—Even Those Without GMO Varieties (WSJ)
- UN to let Iran inspect alleged nuke work site (AP)
- IAEA says access to Iran's Parchin military site meets demands (Reuters)
- Time to End Quarterly Reports, Law Firm Says (WSJ)
At the risk of sounding like a broken record we'd like to say a bit more about economists' tendency to get their monetary history wrong; in particular, the common myths about the gold standard. If there's one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it. Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. But these things don't excuse the errors many economists commit in their eagerness to find fault with that "barbarous relic." The point, in other words, isn't to make a pitch for gold. It's to make a pitch for something - anything - that's better than our present, lousy money.
Druckenmiller’s fund recently bought $300 million worth of SPDR Gold Trust (GLD), an ETF that tracks the price of gold. It’s a huge bet, even for a big-time trader like Druckenmiller. He put 20% of his fund’s money into this trade, and it’s his largest position.
- $1 trillion in Emerging Market outflows in the past 13 months (FT)
- German lawmakers back third Greek bailout (Reuters)
- Dutch government faces test in "junkie" Greece debate (Reuters)
- China c.bank offers selected banks medium term lending facility (Reuters)
- Another "expert network" busted: Promontory settles over StanChart probe (FT)
- Angola to Ship Most Crude in Four Years to Meet Asian Demand (BBG)
- Hackers dump data online from cheating website Ashley Madison (Reuters)
- Yuan’s Devaluation Brings Losses for Some (WSJ)
- China stocks slump 6 percent on fears of further yuan depreciation (Reuters)
- U.S. Lacks Ammo for Next Economic Crisis (Hilsenrath)
- Emerging Markets Extend Slide as Commodities Fall; Pound Jumps (BBG)
- China yuan to move both ways, more 'adjustments' unlikely: central bank economist (Reuters)
- Playing Chinese markets is as simple as 'follow the leader' (Reuters)
- PBOC Injection Shows China Worries About Outflows (WSJ)
- Russia Fails to Soothe Oil Concerns as Citi Joins Ruble Bears (BBG)
Alas, by ignoring Keynes in 1925, Churchill triggered a calamity so severe that it not only inspired one man to kill himself beneath the British statesman’s very window but, more insidiously, also provided the impetus for the economics profession’s rejection of the “classical” axioms.
Central bankers are beginning to see what it has been like for their colleagues in Japan, where for twenty-five years with zero interest rates nothing tried seems to work. Welcome to Keynes's world of euthanized savers and state-sponsored funding. Welcome to the world of ZIRP zombies.
- China central bank under pressure to weaken yuan further (Reuters)
- Currency Rout Goes Global as Jen Sees Risk of 50% Loss on China (BBG)
- Europe Stocks Fall Most in Two Weeks as China Sparks Growth Fear (BBG)
- German Yields Drop to Record as China Boosts Bonds Around World (BBG)
- FT to Japan, Economist to Italy: Agnelli Family Raises Stake in Economist as Pearson Exits (BBG)
- Goldman Sachs to Give Out ‘Secret Sauce’ on Trading (WSJ)
- Greece's Preliminary Bailout Deal Faces German Turbulence (BBG)
To help remind readers of what happens when the entire world engages in wholesale currency war, here is a complete list of all the recent FX interventions, courtesy of Stone McCarthy.
If yesterday it was the turn of the upside stop hunting algos to crush anyone who was even modestly bearishly positioned in what ended up being the biggest short squeeze of 2015, then today it is the downside trailing stops that are about to be taken out in what remains the most vicious rangebound market in years, in the aftermath of the Chinese currency devaluation which weakened the CNY reference rate against the USD by the most on record, in what some have said was an attempt by China to spark its flailing SDR inclusion chances, but what was really a long overdue reaction by an exporter country having pegged to the strongest currency in the world in the past year.
Here is an overview of next week's events and data placed in the larger context.