Deutsche Bank

Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."

Something strange is going on in China.

• Icahn, Paulson Suffer Large Losses as Energy-Related Bets Sour (WSJ)
• Oil Investors Keep Betting Wrong on When Market Will Bottom (BBG)
• U.S. to sell final $1.25 billion shares of Ally Financial from bailout (Reuters)
• Ally Financial Gets Subpoena Related to Subprime Automotive Finance (WSJ)
• Russia's parliament rushes through bill boosting banking capital (Reuters)
• How a Memo Cost Big Banks $37 Billion (WSJ)
• ECB considers making weaker euro zone states bear more quantitative easing risk (Reuters)
• How the U.S. Could Retaliate Against North Korea (BBG)

• Swiss National Bank Starts Negative Interest Rate of 0.25% to Stave Off Inflows (BBG)
• Putin Strikes Uncompromising Stance Over Crisis Gripping Russia (BBG)
• Sony cancels North Korea movie in apparent win for Pyongyang hackers (Reuters)
• U.S. Said Set to Blame North Korea for Sony Cyber Attack (BBG)
• China’s Short-Term Borrowing Costs Surge as Demand for Money Grows (WSJ)
• Russia Currency Market Bends But Doesn’t Break (BBG)
• Jeb Bush Puts Pressure on Chris Christie for 2016 (WSJ)
• From joy to outrage, Florida's Cuban-Americans greet new U.S. policy (Reuters)
• Russians Quit London Luxury Homes as Only Super-Rich Stay (BBG)

• Citigroup is pleased: Obama signs $1.1 trillion government spending bill (Reuters)
• Oil holds below $60 as OPEC, Russia keep pumping (Reuters)
• 5 Things to watch at the December Fed Meeting (WSJ)
• Russia Tries Emergency Steps for 2nd Day to Stem Ruble Rout (BBG)
• Ruble crisis could shake Putin's grip on power (Reuters)
• Apple Curbs Russia Sales as McDonald’s Lifts Prices (BBG)
• Traders Betting Russia’s Next Move Will Be to Sell Gold (BBG)
• China Warms to a More Flexible Yuan (WSJ)

If the world's fifth largest trader of commodities has chosen to outright not trade gold, and thus not generate value for its shareholders over risks and fears that another, or two, or three, or a countless number of other prior "owners" may come knocking one day and demanding delivery of gold whose origin could not be documented by its trading intermediaries, and whose ownership link Gunvor is unable to trace, then just what on earth is really going on with the world's physical gold inventory (here's looking at you, Chinese gold-backed Commodity Funding Deals), and just what is the catalyst that will unleash what is essentially the infamous US mortgage robosigning scandal onto the gold arena, at which point owners of gold realize the gold they thought they owned, even if held safely in a deposit box deep in a gold vault in a safe offshore location, in reality "belongs" to someone else?

For those wondering if the CBR's intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74 76, and sending the Russian stock market plummeting by over 15%.

• Ruble Sinks to 80 a Dollar Defying Surprise Russia Rate Increase (BBG)
• Oil slumps near $59 for first time since 2009 on oversupply (Reuters)
• Oil sinks, Russian moves fail to quell nerves (Reuters)
• Fed Seen Looking Past Low Inflation to Drop ‘Considerable Time (BBG)
• Students Among Dead as Pakistan Gunmen Kill 126 at Army School (BBG)
• Repsol to buy Talisman Energy for $13 billion (Reuters)
• Indonesia’s Rupiah Erases Decline After Central Bank Intervenes (BBG)
• Anti-Islam Rally Grows as Immigrant Backlash Hits Europe (BBG)
• Saudi Arabia is playing chicken with its oil (Reuters)

• Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
• Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
• Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
• Tremble algos: the SEC has hired... "QUANTS" (WSJ)
• When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
• Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
• Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
• Amid Crisis, Pimco Steadies Itself (WSJ)

Not a day passes without pundits on either side of the debate, eager to make their case that the acute, nearly 50% plunge in the price of crude, swear up and down their preferred economic ideology of choice that said plunge is [bullish|bearish] for the economy. The reality is that the true impact of the great oil crash of 2014 will not be revealed for at least several months, however for those who can't afford to wait, or simply lack the patience, here is perhaps the most comprehensive view of the pros and cons of what has now been dubbed a "textbook macroeconomic shock" by Deutsche Bank.

"Anything that becomes a mania -- it ends badly," warns one bond manager, reflecting on the $550 billion of new bonds and loans issued by energy producers since 2010, "and this is a mania." As Bloomberg quite eloquently notes, the danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt - as HY energy spreads near 1000bps - all thanks to the mal-investment boom sparked by artificially low rates manufactured by The Fed. "It's been super cheap," notes one credit analyst. That is over!! As oil & gas companies are “virtually shut out of the market" and will have to "rely on a combination of asset sales" and their credit lines. Welcome to the boom-induced bust...

If prices fall any further (and what’s going to stop them?), it would seem that most of the entire shale edifice must of necessity crumble to the ground. And that will cause an absolute earthquake in the financial world, because someone supplied the loans the whole thing leans on. An enormous amount of investors have been chasing high yield, including many institutional investors, and they’re about to get burned something bad. We might well be looking at the development of a story much bigger than just oil.

"If it was a free market and central banks were not allowed to intervene anymore then we would be very bearish as the global financial system is still extremely fragile and not sustainable."

Deutsche Bank

• Oil slide hits European stocks, safe-haven assets sought (Reuters)
• IEA Cuts Global Oil Demand Forecast for 4th Time in Five Months (BBG)
• Cue constant pro-Abe propaganda out of Japan: Japan’s Secrecy Law Takes Effect as Abe Seeks Fair Vote Coverage (BBG)
• As if it has a choice: Japan’s GPIF Bets on Abenomics-Driven Recovery (WSJ)
• Heather Capital: How a $600 Million Hedge Fund Disappeared (WSJ)
• Senate Panel Votes to Authorize U.S. War on Islamic State (BBG)
• Japan’s 28 IPOs in 11 Days Give Abe a Lift as Startups Boom (BBG)
• U.S. authorities face new fallout from insider trading ruling (Reuters)
• Greek Stock Rout Means ASE Is 2014 Worst After Russia (BBG)

The central banks are now out of dry powder - impaled on the zero-bound. That means any resort to a massive new round of money printing can not be disguised as an effort to “stimulate” the macro-economy by temporarily driving interest rates to “extraordinarily” low levels. They are already there. Instead, a Bernanke style balance sheet explosion like that which stopped the financial meltdown in the fall and winter of 2008-2009 will be seen for exactly what it is—-an exercise in pure monetary desperation and quackery. So duck and cover. This storm could be a monster.