Capital Markets

There was some excitement in the capital markets overnight, when what was initially seen as an outright victory for Syriza, giving it an absolute, 151-seat majority in parliament - a fear that briefly pushed the EURUSD under 1.11 when the Euro PPT stepped in - ended up being a placing just shy of a majority with 149 seats. However, that same excitement fizzled several hours ago when the "radical left" party agreed to form a government with the "rightwing" group of the Independent Greeks in the aftermath of Syriza's historic win which harnessed the public backlash against years of belt-tightening, job losses and hardship.

More and more currencies are being overridden by the power of the yellow metal...

Following the deaths of 36 bankers last year, 2015 has got off to an inauspicious start with the reported suicide of Chris Van Eeghen - the 4th ABN Amro banker suicide in the last few years. As Quotenet reports, the death of Van Eghen  - the head of ABN's corporate finance and capital markets -"startled" friends and colleagues as the 42-year-old "had a great reputation" at work, came from an "illustrious family," and enjoyed national fame briefly as the boyfriend of a famous actress/model. As one colleague noted, "he was always cheerful, good mood, and apparently he had everything your heart desired. He never sat in the pit, never was down, so I was extremely surprised. I can not understand." Most believe that the suicide is not related to his work at the bank, but a former colleague had noticed that on his Facebook recently changed its job title to "former." Chris leaves behind a son - who had recently been cleared of cancer.

Over the past 48 hours, the world has been bombarded with a relentless array of soundbites, originating either at the ECB, or - inexplicably - out of Greece, the one place which has been explicitly isolated by Frankfurt, that the European Central Bank's QE will benefit everyone. Setting the record straight: it won't, and not just in our own words but those of JPM's Nikolaos Panigirtzoglou, who just said what has been painfully clear to all but the 99% ever since the start of QE, namely this: "The wealth effects that come with QE are not evenly distributing. The boost in equity and housing wealth is mostly benefiting their major owners, i.e. the wealthy." Thank you JPM. Now if only the central banks will also admit what we have been saying for 6 years, then there will be one less reason for us to continue existing. 

As we further showed, the bulk of foreign demand for New York's most expensive properties, originated in China, Russia and various other oligarch-controlled nations, where the impetus to launder illegally obtained hot money meant an impulse to buy US real estate sight unseen and virtually at any price. And all of it, of course, all cash. No mortgages.  That onslaught of foreign oligarch demand is ending, and with it so is the bubble that luxurious New York real estate found itself in on the back of some $12 trillion in central bank liquidity created out of thin air in the past 6 years. Business Week cites Manhattan real estate agent Lisa Gustin who listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000. “I thought for sure a foreign buyer would come in"... They didn't.

My conclusion is that the SNB deliberately screwed the market, and in the process shot itself in the foot for 30-50 billion dollars. What were they thinking?

There are more important factors than merely looking at the total size of the QE program that is apparently coming next week from the ECB. the greatest probability in my opinion, and the only way we believe Draghi can retain enough votes, is for the Council to reject risk sharing (as suggested in the Der Spiegel article). This means QE will be implemented by the National Central Banks who would be responsible for the purchasing of their own debt. We believe this structure is of critical importance, because unlike other ‘bail-out’ structures, such an action is anti-integration. It would be a step back-ward; a step away from being a union.

Anyone who continues to believes in the all powerful CB after today is a fool.

Just yesterday, the SEC charged Canadian Aleksandr Milrud with orchestrating a lucrative market manipulation scheme that relied on "layering" in which a trader places orders solely to trick others into buying or selling at artificially inflated or depressed prices... So we found it ironic that twice today, Nanex exposed examples of the "spoofing" manipulation in crude oil futures (which soared) and S&P 500 e-mini futures (which soared)... These are your "most liquid and transparent capital markets in the world."

Yesterday was a bad day for the HFT lobby, after not one but two incidents which exposed the high frequency parasites doing what they do best, and perhaps only: rigging markets.  And since it would be laughable if its wan't tragic, we decided to make it even more laughable, by noting that none other than intellectual titan in the House of Representatives, Maxine Waters, had a few choice words to say about the latest HFT rigging busts. That's right: Maxine Waters now opines on market microstructure issues.

So far today has been a replica of yesterday, with the crude rout continuing and pushing WTI under $45, but largely ignored by the FX carry pairs, and thus equity futures, which have seen some positive momentum from overnight trade data out of China where exports jumped 9.7% beating the 6% expectation, while imports fell 2.4% compared to a projected 6.2% decline as the trade surplus narrowed from November’s record $54.4 billion. For the full year, however, Chinese trade grew at just 3.4%, missing the government’s target of 7.5% growth for the third year in a row as the government quick to blame the slowing global economy. In any event, the USDJPY is well off the overnight lows which means the EuroStoxx is up some 0.8% which, just like yesterday, the E-mini is up some 9 points and rising. It remains to be seen if, just like yesterday, US equities will crash at a precipitous pace after the open, once algos realize that nothing at all has changed.

We are observing the emergence of a new phase in The Golden Age of the Central Banker – the cult phase – to use the sociological lingo. Joseph Heller’s brilliant book provides the starting point, not only by calling attention to the prevalence and power of Catch-22’s in the investment world today, but also in the creation of a self-regulated, faith-based system of social behavior. A Catch-22 world is not a happy world, but it is a very stable world, at least on its own terms. Change is very unlikely to come from within, and internal market risk indicators are all quite benign. But external market risk indicators are all screaming red, as the global environment has rarely been this worrisome for political shocks, trade/forex shocks, and supply shocks with the scope and power to challenge the Central Banking gods.

There is overwhelming evidence that the rampant money printing of the past decade or two has done nothing to generate sustainable growth in mainstream living standards and real wealth. Yet the monkeys keep rattling the cage, promising and demanding more ZIRP(and now N-ZIRP) and more fraudulent purchase of government debt with fiat credit congered by their printing presses. Consider some striking proof of failure...

Why does one believe the word “catastrophe” was used by The Fed's Charlie Evans? Hmmmmm? After all, the very articulated and polished minutes of what members expressed to one another as to set the current policy was just made public. We thought the verbiage of choice was now “patient.” Unless... You know you’ve either lost, or in the process, of losing control of the markets ear. In our opinion, this is an unveiled showing of possible outright panic developing behind the proverbial curtain.

• French policewoman killed in shoot-out, hunt deepens for militant killers (Reuters)
• The Bold Charlie Hebdo Covers the Satirical Magazine Was Not Afraid to Run (BBG)
• Evans Says Fed Shouldn’t Rush Rate Rise as Inflation Undershoots (BBG)
• Oil holds above $51 as traders search for floor (Reuters)
• Gross Helps Fuel New Fund With His Own Cash (WSJ)
• ECB warns Greek funding access hinges on keeping bailout (Reuters)
• Greece Jolts QE Juggernaut as ECB Gauges Deflation Risk (BBG)
• Analysts Say There's No Telling How Low Oil Prices Could Go (BBG)
• Scientists find antibiotic that kills bugs without resistance (Reuters)