The Fed has basically borrowed from the future to improve today. The intention of Fed policy over the past 30 years has been to self-correct business cycles into a ‘steadier state’ by easing interest rates into weakness and hiking them into strength. Unfortunately, there is political-asymmetry between easing and hiking which has resulted in the stair-stepping of official interest rates down to the zero lower bound. Monetary policy has reached the practical limits of what it can do. Thus, the multi-decade credit era is coming to an end... Bad companies should be allowed to fail. Creative destruction is beneficial in the long run.
"These savings exceed the costs of the crisis - even if Greece were to default on its entire debt. [That is] even if Greece doesn't pay back a single cent, the public purse has benefited financially from the crisis."
- Grim China data keeps stimulus hopes alive (Reuters)
- Berkshire Hathaway to Buy Precision Castparts for About $37 Billion (BBG)
- Greece, lenders in final push to seal new bailout (Reuters)
- Quantitative Easing With Chinese Characteristics Takes Shape (BBG)
- Greece nears €86bn accord with creditors (FT)
- Oil Futures Signal Weak Prices Could Last Years (WSJ)
- Drop in long-term investment hinders eurozone recovery (FT)
- Two shot in Ferguson amid standoff between police, protesters (Reuters)
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.
We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…
- Deadline Draws Near for Puerto Rico (WSJ)
- U.S. to defend Syrian rebels with airpower, including from Assad (Reuters)
- Alpha Natural Resources to Seek Chapter 11 (WSJ)
- Iran’s Rouhani Says Nuclear Deal ‘More Than What Was Imagined’ (BBG)
- Cables Show Hillary Clinton's State Department Deeply Involved in Trans-Pacific Partnership (IBTimes)
- Win or Lose, U.S. Stocks Get Biggest Earnings Bang Since ’12 (BBG)
- Weaker China factories argue for more policy support as stocks swoon (Reuters)
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.
And how you will be paying for her 'exit party' bill...
"Hillary Clinton will propose a revamp of capital-gains taxes that would hit some short-term investors with higher rates, part of a package of measures designed to prod companies to put more emphasis on long-term growth," WSJ reports. Interested to know who might be pulling the strings behind the scenes? Read on...
After investing $410 million in March 2013, two billionaires are about to make a $500 million return an investment they have held just over two years, with the blessing of a whole lot of debt investors. And all they had to do was pick up the carcass of a company which did nothing more than crush its unions.
This seemingly inexhaustible credit line is now drying up, with severely negative consequences for oil producers with debt that's coming due. The row of dominoes swaying unsteadily in these stiff winds won't take much to topple.
Houses have become stocks... the higher the price, the more demand (especially as the government has your back with low down-payment loans and the re-emergence of IOs). With Existing Home Sales soaring to a SAAR of 5.49 million, the highest since early 2007, the fact that median home prices are at an all-time high appears to be any problem for the releveraging American (or Chinese) homebuyer.
"They are going to be toast. It will be one of our first levels of shorting the moment we start to see cracks, because it’s ripe with retail, emotional investors."
If yesterday's market action was boring, today has been a virtual carbon copy which started with the usual early Chinese selloff levitating into a mildly positive close, with the SHCOMP closing just above the psychological 4,000 level: the next big hurdle will be 4058, the 38.2% Fib correction of the recent fall. In the US equity futures are currently unchanged ahead of a day in which there is no macro economic data but lots of corporate earnings led by Microsoft, Verizon, UTX and of course Apple. Most importantly, some modest USD weakness overnight (DXY -0.1%) has helped the commodity complex, with gold rebounding from overnight lows, while crude has at least stopped the recent carnage which sent WTI below $50.