Central Banks

"Absent the central banks, we would be in the later stages of a credit cycle," warns Principal Global Investors's David Blake as 2015 has now seen the most corporate debt downgrades since 2009 and the upgrade-downgrade ratio crashes to financial crisis lows. A lot of people are recognising we are closer to the end of the credit cycle than the beginning, and while stocks have bounced back dramatically as Dana Lyons' details, junk bonds have not; a combination normally associated with more extensive bear markets and recessions. As BofAML analysts warned "the slow moving train wreck seems to be accelerating."

The current stock market melt-up hardly qualifies as limp. Even the robo-machines and hyper-ventilating day traders apparently recognize that their job is to tag the May 2015 highs and then get out of the way. So when and as they complete their pointless mission, the question recurs as to why the posse of fools in the Eccles Building can’t see that they are inflating one hellacious financial bubble; and that when it blows it will deconstruct their entire 7-year project of make-pretend recovery.

In an interview on CNBC's "Trading Nation," the Gloom, Boom & Doom Report editor revealed he may not be as bearish as some may think and that he is actually a “great optimist.”

The most entertaining overnight story has to do with the latest farcical development in the Chinese "market" when just after open, it was reported that PBOC Governor Zhou said a trading link with Shenzhen will start this year which promptly sent all Chinese brokerages soaring, and the Shanghai Composite jumped over 3%. And then, out of the blue, the PBOC said the undated comments were actually as of May. As Bloomberg put it, "China’s central bank unintentionally sparked a surge in the nation’s stock market by publishing five-month-old comments from governor Zhou Xiaochuan that said a link between exchanges in Shenzhen and Hong Kong would start in 2015."

"Tent outside - full use of apartment - cheap - $90"

"I have a caravan in my driveway that I'm going to rent out."

At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread, as Bloomberg notes, what Fabozzi's bible of swap-pricing calls a "perversion" is now the rule all the way from 30Y to 2Y maturities. As one analyst notes, historical interpretations of this have been destroyed and if the flip to negative spreads persists, it would signal that its roots are in a combination of regulators’ efforts to head off another financial crisis, massive corporate issuance (which we are seeing), China selling pressure (and its impact on repo markets) and "broken" wholesale money-markets.

You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy.

"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

“A predicted global meltdown passed without event. But there are enough warning signs to suggest we are sleepwalking into another disaster”.

"But they won’t, you know. Yellen and Draghi believe in the Taylor model and the Phillips curve. Gresham’s law will be found in the history books, but his corollary has little chance of making it into future economic textbooks. The result will likely be a continued imbalance between savings and investment, a yield curve too flat to support historic business models, and an anemic 1-2% rate of real economic growth in even the most robust developed countries."

In the latest example of Washington playing catch up in the global "war" on terror PR battle, “officials familiar with the matter” have told WSJ about a concerted effort to cut off the flow of dollars to ISIS. Allegedly, the US became concerned about the amount of hard currency being shipped to Iraq over the summer. The problem: the requested amounts didn’t seem to be consistent with the country’s economic fundamentals and so, the US cut off Iraq’s access to dollar funding, nearly plunging the country into crisis.

Did you know that the United Nations intends to have biometric identification cards in the hands of every single man, woman and child on the entire planet by the year 2030?  And did you know that a central database in Geneva, Switzerland will be collecting data from many of these cards?

Financial engineering scams like Tyco and Valeant would never happen in an honest free market. Short sellers would shut them down long before they reach egregious levels of over-valuation; and the cost of honest downside market insurance (i.e. S&P 500 puts) and market driven carry cost would dramatically reduce the profitability of speculation and the amount of punters and capital in the casino. In today’s broken markets and corrupt regime of central bank driven crony capitalism, however, bubbles inflate in individual securities, as well as in broad sectors and the market as a whole, until they reach egregious, self-correcting extremes. Then they violently implode, creating immense waves of collateral damage in the process. Perhaps then the American people will learn that Yellen & Co have actually been in the un-wealth effects business for way too long.

Anyone who thinks that somehow this will not impact the rest of the globe is out of his or her mind.