Central Banks

"I have a problem with Berkshire’s ownership of Coke,” Ackman told an audience of about 200 people. “Coca-Cola has probably done more to create obesity, diabetes on a global basis than any other company in the world. "You have some of the best marketing in the world and a lot of happy skinny people drinking it in the advertising."

Now that there are "no taboos," and assuming the ECB doesn't take our advice on the '52 Mantles or the lumber, the only question is whether the central bank will pair a depo rate cut with the PSPP expansion (in whatever form it takes)....

Today’s dilemma – for financial markets and central bankers – is that pushing back against nascent “risk off” unleashes another forceful bout of “risk on.” At this point, it’s either Bubble on or off – destabilizing either way. The global Bubble has grown too distended and the market backdrop too dysfunctional. Central bankers over the past 25 years have created excessive “money,” while incentivizing too much finance into financial speculation. There is now way too much “money” crowded into the securities and derivative markets, and the upshot is an increasingly hostile backdrop for leverage and speculation.

Breaking a critical trendline (particularly one that has been in place for several decades) is one thing. Breaking it and then failing to reclaim it during the following bounce is indicative of BEAR MARKET.

There is “a barbarous relic” in our global monetary system. It is the U.S. dollar: the worthless, monetary relic of an empire in decline.

Once again we feel the close tug of systemic illiquidity as it transcends the usual noise about assurances to ignore or trivialize all this growing uncertainty. Even though stocks and other assets have been trading in their own world mostly free from all this more hidden esoterica, the full weight of this analysis suggests that can’t be more than a temporary deviation. Since it is the angle of economy that is ultimately driving all of this, everything depends upon a global economy that has already been beaten down far past anticipation.

Following yesterday's abysmal 3 Year auction, many rates investors were on edge ahead of today's 10 Year auction in the aftermath of the weakness across the curve seen since the "stellar" jobs report which had dragged yields higher across the curve. It turned out fears were premature, and moments ago the $24 billion reopening of 10 Years priced at a yield of 2.304%, which while highest since June, priced 0.8bps through the When Issued showing surprising demand for paper.

Prudent companies internationally are allocating capital to gold and silver bullion as a way to diversify their assets and as a form of financial insurance to protect against bank bail-ins, capital controls, currency debasement and other risks posed by another financial crisis.

In what's being described as a "palpably tense" tense auction, a "Chinese Beverly Hillbilly" dubbed "The Eccentric Mr. Liu" paid the second highest price at auction in history for a Modigliani. 

"Apple has lowered its component orders by as much as 10% according to our teams in Asia. The cuts seem to be driven by weak demand for the new iPhone 6s, as overall builds are now estimated to be below 80mn units for the December quarter and between 55-60mn units for the March quarter."

"Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%."

Today’s system is essentially a system that can drift ever further away from reality through temporal discoordination, resource misallocation and eventually capital consumption. The final coordinating mechanism is nothing less than economic recession. Without them society would regress, impoverishing first the poor, then the middle class and in the end all socioeconomic layers of society.

In short: end demand far weaker, saved by Primary Dealers, as suddenly foreign central banks are far less interested in US paper just at a time when yields are rising and purchases of said paper that much more attractive.

China is playing the long game and they could be low balling their total gold holdings – official central bank reserves and non official, governmental holdings – in order to maintain confidence in their substantial US dollar holdings and to aid their bid to join the IMF.

Compare and contrast:

- In the US, after 7 years of ZIRP and QE, the expected December rate hike is supposed to push up inflation and confirm the economy is improving; it is naturally bullish for stocks.
- In Europe, a year and a half of NIRP and a year of QE, a December rate cut further into negative territory is supposed to push up inflation and confirm the economy is improving; it is naturally bullish for stocks.