Technologies for gathering information, mining it, and using it, as the Snowden debacle shows, are phenomenally effective and cheap. But they're not perfect. Not yet.
There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization. Financialization has given those with capital and access to financier expertise ways to skim great wealth from the system without creating any value whatsoever. The hidden toxin in financialization is the resulting concentration of wealth can buy concentrations of political power. Financialization is thus self-perpetuating: once the skimming operations generate billions of dollars in profit, it only takes a relatively small piece of these profits to buy/influence the political class. Once the politicos are in your pocket, the regulators and judiciary fall into line or are marginalized by new statutes or gutted budgets. Financialization is the disease eating away the heart of the economy and what's left of democracy.
What is happening today has its roots in history. The end result is shown to us already and is gauranteed at this point.
China's Mea Culpa: "It Is Not That There Is No Money, But The Money Has Been Put In The Wrong Place"Submitted by Tyler Durden on 06/23/2013 12:36 -0400
Ten days ago, we penned "Chinese Liquidity Shortage Hits All Time High", in which we predicted ridiculous moves in the Chinese interbank market as a result of short-term funding literally evaporating as a result of the PBOC's stern refusal to step in and bail out its banking sector (despite the occasional rumor of this bank bailed out or that) by injecting trillions in low-powered money. A few days later this prediction was confirmed when the overnight repo and SHIBOR market for all intents and purposes broke down as was also reported here previously. Now, for the first time, China, via the Politburo's Chinese Hilsenrath-equivalent, Xinhua, has provided its own version of events which is as follows: "It is not that there is no money, but the money has been put in the wrong place."
Meet General Keith Alexander, "a man few even in Washington would likely recognize", which is troubling because Alexander is now quite possibly the most powerful person in the world, whom nobody talks about. Which is just the way he likes it. ... And also meet Bonesaw: "Bonesaw is the ability to map, basically every device connected to the Internet and what hardware and software it is."
The technical damage from yesterday’s bloodbath was severe. I’ve been warning readers of Gains Pains & Capital that we were heading for a serious collapse. Yesterday’s action was just the beginning.
- Turmoil Exposes Global Risks (WSJ)
- China Money Rates Retreat After PBOC Said to Inject Cash (BBG)
- Fed Seen by Economists Trimming QE in September, 2014 End (BBG)
- Booz Allen, the World's Most Profitable Spy Organization (BBG)
- Abe’s Arrows of Growth Dulled by Japan’s Three Principles (BBG)
- China steps back from severe cash crunch (FT)
- Smog at Hazardous as Singapore, Jakarta Spar Over Fires (BBG)
- U.S. Weighs Doubling Leverage Standard for Biggest Banks (BBG)
After Thursday night's global liquidation fireworks, the overnight trading session was positively tame by comparison. After opening lower, the Nikkei ended up 1.7% driven by a modest jump in the USDJPY. China too noted a drop in its ultra-short term repo and SHIBOR rate, however not due to a broad liquidity injection but because as we reported previously the PBOC did a targeted bail out of one or more banks with a CNY 50 billion injection. Overnight, the PBOC added some more color telling banks to not expect the liquidity will always be plentiful as the well-known transition to a slower growth frame continues. The PBOC also reaffirmed that monetary policy will remain prudential, ordered commercial banks to enhance liquidity management, told big banks that they should play a role in keeping markets stable, and most importantly that banks can't rely on an expansionary policy to solve economic problems. Had the Fed uttered the last statement, the ES would be halted limit down right about now. For now, however, communist China continues to act as the most capitalist country, even if it means the Shanghai Composite is now down 11% for the month of June.
China has certainly been busy since it won observer status at the May Arctic Council summit in Kiruna, Sweden. China is clearly after more than simply investment and trade opportunities as it continues to display its obsession with securing energy and other supplies where the U.S. Navy cannot or will not go. Unfortunately for Moscow, not only China but also the other new Asian members will seek to maximize their influence in the Council for many of the same reasons. The Arctic may be Russia’s home, but it can no longer be its castle.
Did you know there was a large POMO Thursday? And, did you know Friday is quadwitching? Do you care?
The table is set for a counter-trend rally Friday given these events.
But, as with any oversold or overbought condition, markets can remain that way for longer than you expect—just look at gold as an example.
The first phase of the boom has already taken place, the pullback seems to have run its course and Phase II is set to deliver fortunes.
Since we lost the deer yesterday as it was run over by bond sellers, it appears everyone else came to the realization that QE cannot be infinite, that EU event risk never went away, and that China does have a credit bubble and so it is time for the monkey. Where-ever we look today there is carnage. The superlatives are all extreme but are the biggest since Europe collapsed in October/November 2011 (preceding the coordinated global central bank bailout) - 1-day and 2-day drops in stocks the biggest in 19 months, Gold and Silver's second largest 1-day drop in 20 months, investment-grade and high-yield credit's worst 1-day and 2-day widening in 19 months, EM currencies (e.g. MXN) worst day in 19 months, Copper's worst day in 19 months, and the heaviest volume day in S&P futures in 20 months. While stocks closed at the lows of the day, Treasuries did see some buying come in the last hour or so - which appears to be safe-haven scrambling - and EUR weakness (post IMF) was trumped by JPY strength (unwinds) to drag the USD off its highs into the close.
A month ago, when stock markets around the globe were hitting all time highs, we wrote "The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"?" which as so often happens, many read, but few appreciated for what it truly was - the end of a major shadow leverage conduit (one involving unlimited rehypothecation at that),and the collapse of a core source of shadow liquidity. One month later, China's "Lehman event" is on the verge of appearing, and with Overnight repo rates hitting 25% last night, coupled with rumors of bank bailouts rampant, it very well already may have but don't expect the secretive Chinese politburo and PBOC to disclose it any time soon. So now that the market has finally once again caught up with reality, for the benefit of all those who missed it the first time, here is, once again, a look at the arrival of China's Bronze Swan.
Where's the buy-the-dip mentality? Yesterday's collapse triggered yet another Hindenburg Omen - the 7th in the last month) and it appears it is the equity market's turn for some pain as Treasuries (which initially weak) have stabilized 2-3bps higher in yield. The Dow has lost 15,000 and is down over 200 points today; the S&P 500 is testing back to its 1,600 level; but homebuilders are being battered (as clearly good is now officially bad). The S&P 500 is now the furthest below its 50DMA in 2013 - this is key as it has been critical support all the way up. Gold and Silver have been crushed (and copper and oil are following) this week so far and the USD is up 1.75% so far. Credit markets are being destroyed - investment grade spreads are 10bps wider to 90bps from FOMC.
The global liquidation wave started with Bernanke's statement yesterday, which was interpreted far more hawkishly than any of his previous public appearances, even though the Fed had been warning for months about the taper. Still, markets were shocked, shocked. Then it moved to Japan, where for the first time in months, the USDJPY and the Nikkei diverged, and despite the strong dollar, the Nikkei slumped 1.74%. Then, China was swept under, following the weakest HSBC flash manufacturing PMI print even as the PBOC continued to not help a liquidity-starved banking sector, leading to the overnight repo rate briefly touching on an unprecedented 25%, and locking up the entire interbank market, sending the Shanghai Composite down nearly 3% as China is on its way to going red for the year. Then, India got hit, with the rupee plunging to a record low against the dollar and the bond market briefly being halted limit down. Then moving to Europe, market after market opened and promptly slid deep into the red, despite a services and mfg PMI which both beat expectations modestly (48.6 vs 47.5 exp., 48.9 vs 48.1 exp) while German manufacturing weakened. This didn't matter to either stocks or bond markets, as peripheral bond yields promptly soared as the unwind of the carry trade is facing complacent bond fund managers in the face. And of course, the selling has now shifted to the US-premarket session where equity futures have seen better days. In short: a bloodbath.