Brazil

The topic of ‘currency war’ has been bantered about in financial circles since at least the term was first used by Brazilian Finance Minister Guido Mantega in September 2010. Recently, the currency war has escalated, and a ‘sanctions war’ against Russia has broken out. History suggests that financial assets are highly unlikely to preserve investors’ real purchasing power in this inhospitable international environment, due in part to the associated currency crises, which will catalyse at least a partial international remonetisation of gold. Vladimir Putin, under pressure from economic sanctions, may calculate that now is the time to play his ‘gold card’.

The global power shift from the West to the East is alive and well

Despite the apparent economic and profit news improvements recently, JPMorgan CIO Michael Cembalest notes there are a few instances where people are still flipping out. It’s worth reviewing them, he suggests, as they're indicative of risks and opportunities in financial markets heading into 2015, and of the continued presence of central banks affecting asset prices.

Four years ago, bankers, politicians, and traders were patting themselves on the back after Petroleo Brasiliero (Petrobras) raised a stunning $70 billion in the world's largest share sale, as Bloomberg reported at the time, investors bet on its plans to double output within a decade by tapping offshore fields. Things haven't worked out so well...

• Scuttled deals worth $580 billion put hedge funds on back foot (Reuters)
• Mounting Pressure on OPEC Spurs More Wagers on Oil Rally (BBG)
• It's not just US real estate: Chinese Students at U.S. Universities Jump 75% in Three Years (BBG)
• Frankfurt Open for Yuan Clearing as Liquidity Rises (BBG)
• Obama defends healthcare law after adviser criticism (Reuters)
• Michael Hasenstab Bets Big in Controversial Places (WSJ)
• Facebook seeks foothold in your office (FT)
• Russia Seen as Greatest Threat in Poll as Oil Erodes Putin Power (BBG)
• Falling Oil Prices Test OPEC Unity (WSJ)

While most people's attention has been focused on the demise of the Russian Ruble this year, since the June highs in Crude Oil, the oil-producing nations of the world have seen their currencies devalue rapidly. From Brazil to Nigeria and Algeria, the impact of lower oil revenues is starting to create a vicious circle for many of these nations... and having consequences for the very Petrodollar flows that the US relies upon...

Is this what they mean when they say 'net neutrality'? From Brazil’s rejection of American IT products - estimated that American firms will lose out on over $35 billion in revenue over the next two years - to this week's announcement that it will be building a 3,500-mile fiber-optic cable to Portugal in order to avoid the grip of the NSA, it appears the Red, White, and Blue Scare has now replaced the Red Scare of the Cold War era.

There are things in this world which simply look plain stupid, and then there are those that at closer examination prove to be way beyond stupid...

There are a number of cause-and-effect mechanisms that are creating a "dangerous spiral" in various emerging markets. As Natixis explains, this five-step vicious circle is currently affecting Russia, Brazil, Argentina and South Africa; and some of the components are now manifesting in Turkey and India.

When the wrecking ball hits, the IMF stands at the ready with the SDR composite to pick up the structural pieces......... 

Back in September, there was a summit meeting in a city that involved an organization that most Americans have never heard of. Mainstream media coverage was all but nonexistent. The place was Dushanbe, the capital of Tajikistan, a country few Westerners could correctly place on a map. But you can bet your last ruble that Vladimir Putin knows exactly where Tajikistan is. Because the group that met there is the Russian president’s baby. It’s the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. We should care what’s going on inside the SCO. Once India and Pakistan get in (and they will) and Iran follows shortly thereafter, it’ll be a geopolitical game changer.

• The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare (Matt Taibbi)
• Explains the midterm results: Optimism precedes job data (Reuters)
• EU Dream Ebbs Amid Weak Growth, Putin's Jets, 25 Years After Wall Came Down (BBG)
• SEC Probing Trading Activity at Apple Supplier GT Advanced (WSJ)
• Boehner touts bills to repeal Obamacare, build Keystone (Reuters)
• China Gold Buying Means Price Floor to Standard Chartered (BBG)
• High-Speed Ad Traders Profit by Arbitraging Your Eyeballs (BBG)
• Central Banks Can’t Be ‘Only Game in Town’ Boosting Economies (BBG) - less talking, more getting to work

"Japan is no Zimbabwe. Neither was Israel, yet from 1972 to 1987 its inflation averaged nearly 85%. As its CPI rose nearly 10,000 times, its stock market rose by a factor of 6,500 … Regular readers know that I don’t generally make forecasts, but that every now and then I do go out on a limb. This is one of those occasions. Mapping Israel’s experience onto Japan would take the Nikkei from its current 9,600 [as of October 2010] to 63,000,000. This is our 15-year price target." - Dylan Grice

The Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance. A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall.  This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling. But no more: "this year the oil producers will effectively import capital amounting to $7.6 billion.

"I was on a panel with Alan Greenspan a week ago... I said, you mean to say that the Federal Reserve is not independent? He immediately said, Marc, I never said the Fed was independent. In other words, the Fed and the Treasury and the government is basically one and the same."

"Japan is engaged in a Ponzi scheme"

"The oil price decline is not necessarily very good for the US - if oil prices went lower, it may actually have an adverse impact on the US economy"