Capital Markets

Will We Never Learn? The Economic Lessons From Venezuela's Current Collapse

Shops are being looted as Venezuela's citizens, who live on top of the world’s largest oil reserves, are literally starving and dying for lack of food and medicine; all while the country’s gold reserves are being sold to finance its debt. With 1.8 million signatures on a petition for a referendum on Nicolas Maduro’s presidency, the country is threatening to become a failed state. So what should the world learn from the country’s descent into misery? In short, Venezuela is the poster child of the perils of rejecting economic fundamentals.

China Sends Yellen Another Warning, Fixes Yuan At Lowest In Over Five years

We had expected sailing would not be smooth for the FX market, when on Friday afternoon, after Yellen's' unexpectedly hawkish comments at Harvard, which sent the USD surging, we predicted a stormy sea for the Monday Yuan fix.  That is precisely what happened when moments ago the PBOC set the official exchange rate of the onshore Yuan lower by nearly 0.5%, from 6.5490 to 6.5794, the lowest fixing in more than 5 years, or February 2011.

In Stunning Reversal, IMF Blames Globalization For Spreading Inequality, Causing Market Crashes

In a stunning reversal for an organization that rests at the bedrock of the modern "neoliberal" (a term the IMF itself uses generously), aka capitalist system, overnight IMF authors Jonathan D. Ostry, Prakash Loungani, and Davide Furceri issued a research paper titled "Neoliberalism: Oversold?" whose theme is a stunning one: it accuses neoliberalism, and its immediate offshoot, globalization and "financial openness", for causing not only inequality, but also making capital markets unstable.

Is The Market Priced For A Summer Rate-Hike?

Last November, capital markets were discounting a rate hike five months later, based on Fed Funds futures. Same story today. Last November, the S&P 500 was trading near 2100. Same story today. Last November, VIX levels were around 14. Same story today. Last November, instead of waiting five months, the Fed hiked rates one month later; the S&P dropped by 10% over the next eight weeks... And as BofAML's Savita Subramanian warns, hiking during a profits recession usually hasn't ended well.

Meanwhile In China, Cow-Collateralized Stock Buybacks

Over the past few years, we have written many strange stories about China's often-ridiculous, perpetually-bubbly, always on the precipice financial system. The story about China's literal "cash cows", however, is by far the strangest.

Losing Ground In Flyover America

The Fed’s paint-by-the-numbers Keynesian incrementalism leaves it blind to the underlying rot in the US economy and to drastically over-estimate its capacity to maintain a stable growth equilibrium. In fact, corporate America is being strip-mined by Fed-fueled financial engineering and flyover America is sinking irretrievably into debt, dependency and shrinking living standards.

Saudi Officials Crackdown On FX Market As Currency Peg Starts To Strain

As we warned previously, the devaluation, or breaking of the Saudi Riyal peg to the dollar, could be the black swan event for crude oil and the recent weakness in SAR forwards - while not as violent as Nigeria's Naira - certainly signals a renewed market fear that breaking the peg is imminent. It appears Saudi officials are none too pleased with the free markets speculating on this devaluation and as Bloomberg reports, banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter, which were supposedly banned in January.

Daiwa: "Round Two Of China Capital Outflows Is About To Begin"

Now that all eyes have turned on China eager to find how it will react to a potential Fed rate hike in June or July, the question is whether the sharp Chinese devaluation unveiled overnight, which sent the Yuan to fresh 5 year lows, will be a one-off event, and whether the PBOC will intervene far more aggressively in the offshore CNY market to keep FX market turmoil to a minimum. According to at least one person, the answer is no.

The BDC Consolidation Begins: Ares Buys American Capital For $3.4 Billion

Back during the last bubble, Business Development Corporation (BDC) pioneer American Capital was one of the hottest business models (and most desired companies to work for). However, when the bubble burst, so did the company's stock price, as well as its reputation, and in the past 9 years the company failed to see its stock price recover anywhere near the levels seen during the last bubble. Which is perhaps why moments ago in a dramatic move shaking up the BDC space, ACAS announced it would sell itself to another BDC titan, Ares Capital in a deal worth $3.4 billion.

China Furious After US Launches Trade War "Nuke" With 522% Duty

China is livid: as a result of record Chinese steel dumping, the US unleashed what is nothing short of a nuclear bomb in its rapidly escalating trade war with China, by imposing duties of 522% on cold-rolled steel used in automobiles and other manufacturing. In doing so it has effectively rendered Chinese exports to the US unsustainable and will force even more excess Chinese production to remain landlocked within China's borders, making the domestic glut that much worse.

'There Will Be Banker Blood': Why JPM Is Afraid Of "Quiet Trading Floors"

With banker bonuses set to drop this year, it should be no surprise that things are not all sunshine and roses on Wall Street. After 30 years of dramatically outperforming Main Street, Wall Street wages may be set for some mean-reversion as JPMorgan analysts take an ax to the biggest global investment banks' earnings. As Bloomberg reports, "quiet trading floors" are set to depress global investment banks’ second-quarter revenue 24 percent, with weakness across equities, interest rates, currencies, with a regionally-driven weakness from Asia.

The End Of Hegemony? Russian Bond Yields Plunge Below Pre-US Sanctions Levels

With Russian stocks among the best performing in 2016 - and up dramatically since The White House issued its "sell" rating - it appears another key element of American's hegemony is also breaking down. When the US (and its European vassal states) unleashed sanction on Russia in July 2014, it sent bond yields spiking from 9% to over 14% as political and social risks were priced in (as demanded by Treasury). However, despite the ongoing sanctions and the pressure (whether implicit or explicit from Washington) on oil prices, Russian bond yields have disobeyed America and are back below 9% - the lowest level of risk since before sanctions were imposed.

Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing

"We expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q17."