Capital Markets

In the last few months we have warned of the "perversions" in US money markets (here, here, and most recently here) adding that "to ignore them at your own peril." And now, as Bloomberg reports, it appears the mainstream is beginning to recognize that something very strange is going on in debt markets. Across developed markets, the conventional relationship between ('risk-free') government debt and other 'more risky' assets has been turned upside-down. "Everybody in the fixed-income market should care about this," warns a rates strategist and in fact, it’s hard to overstate how illogical it is when swap spreads are inverted, as JPM warns the moves in swap-spreads "should be viewed as symptomatic of deeper problems."

The institutional academic system is broken. We need less systemic, traditional education that only provides knowledge of low utility and more alternative education that provides the right high-utility knowledge to thrive during today's global currency wars.

While the world was following the tragic events unfolding on Friday night in France where hundreds of innocent civilians were killed or injured, an important economic development took place at the IMF, whose staff and head Christine Lagarde, officially greenlighted the acceptance of China's currency - the Renminbi, or Yuan - into the IMF's foreign exchange basket, also known as the Special Drawing Rights. Here are the initial early responses by various Wall Street analysts.

How much did the PBoC spend propping up China's stock market in Q3? By how much did they overpay? How likely are they to take an outsized loss? BofAML takes a look.

The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era. The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators like jobs and GDP components, while ignoring the explosive leading indicators starring them in the face on CNBC. The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street.

Amid warnings from Daiwa Capital Markets that policy-makers "will sacrifice Yuan stability" in order to manage the deterioration in the economy (trade and industrial production data confirming the weakness), The PBOC weakened the Yuan fix for the 8th straight day. This is the longest streak of weakness since August 2008.

“Debt wasn’t a problem during the boom years because profits kept growing. But it’s not sustainable when the economy slows."

While the market may still rally to new highs, the late August free fall in stock prices and spike in volatility served as a wake-up call for investors. In the past ten weeks, major equity indices have recovered virtually all those losses, giving investors an unusual second opportunity to position their portfolio for an important inflection point in monetary policy as the Fed likely starts raising interest rates. Simply put, investors who were not properly positioned and frustrated by their performance in the late August swoon are being given a do-over.

An "independent" commission of the World Anti-Doping Agency has found that Russia engaged in state-sponsored doping and more importantly, recommended that Russia’s track and field athletes be suspended from Olympic competition in 2016.  The "Independent" commission was led by  Canadian Dick Pound. Joining him on the commission was Richard McLaren, another Canadian lawyer and a long-standing member of the Court of Arbitration for Sport, as well as Günter Younger, head of department of cybercrime with Bavarian Landeskriminalamt. So two Canadians and a German made up an "independent" commission that now wants to bar Russia from the marquee event of the upcoming olympics.

• Global Stocks Slip Lower (WSJ)
• Dollar sits pretty, bond yields rise as Fed bets firm (Reuters)
• Takeover Loans Have Few Takers on Wall Street (WSJ)
• Chinese Buyers Seek Dollar Assets as Promise of Yuan Gains Fades (BBG)
• Banking Giants Learn Cost of Preventing Another Lehman Moment (BBG)
• Eurozone Finance Ministers Won’t Release $2.15 billion Loan to Greece (WSJ)

Back in February 2013, the creater of the BRIC acronym, Goldman's Jim O'Neill retired, but not before some very (traditionally) optimistic words of parting, namely that there is "clear evidence things are doing better economically." Nearly three years later, things are not only not doing better economically, with the entire world now engaged in outright, or quasi QE (with helicopter money to follow as Adair Turner infamous warned) just to support global asset prices, but the very emerging markets that made up the BRICs, have devolved to a state of economic freefall. And nowhere is this more obvious than in Goldman's decision to pull the plug on the infamous fund that bears the name of Goldman's most bullish acronym in history.

"The most liquid capital markets in the world," were halted for 5 seconds this morning as "great news" on surging jobs sent bond markets into turmoil...

"It is ironic that we are perhaps best known for advising “that you panic”. However, if you are anxious at the wrong time it can prove very painful. Today, we would advise that you don’t panic!
... by withdrawing the “Greenspan put” and using their asset purchase schemes to eviscerate any notion of value, the authorities have paradoxically created a safer yet more paranoid market."

- Hugh Hendry

Ok, this is China: crazy things happen all the time. But where things got outright ridiculous, was when moments ago when as China National Radio reports, Wu Shuang, a partner of Xu Xiang's at Zexi, and also an insider trading suspect, was shot and killed by Chinese police when he "resisted and tried to escape."