Flight to Safety
As WaPo reports, "Hillary Clinton is proposing a $250 monthly cap on the amount patients with chronic and serious medical problems would have to pay out of pocket for prescription drugs as a way to reduce the effect of skyrocketing drug prices on consumers." "Nobody in America should have to choose between buying the medicine they need and paying rent," Clinton says.
Futures Plunge On Renewed Growth, Central Bank Fears; Volkswagen Shares Crash As Default Risk SurgesSubmitted by Tyler Durden on 09/22/2015 06:49 -0400
While Asian trading overnight started off on the right foot, chasing US momentum higher, things rapidly shifted once Europe opened as attention moved back to global growth fears, global central banks losing credibility, as well as miners and the ongoing Volkswagen fiasco.
So who is the most powerful woman in the world now?
Will she raise or will she not? As financial markets focus on whether we will see a Fed rate hike this week, investors may be in for a rude awakening.
Going into Thursday, everyone - and we do mean everyone - is scrambling to predict which asset classes are most susceptible to a Fed hike. Amid the rampant confusion, BofAML asked fund managers to weigh in. Here are the results.
To be sure, whether or not Janet Yellen has made a mistake will become all too clear over time. All one need do is observe whether EMs careen further into chaos and/or whether the PBoC becomes even more schizophrenic, but as far as what to watch in the immediate aftermath of the FOMC announcement, we return to what we noted after September’s NFP print when we quoted BofAML. To wit: “If they do hike, watch the long-end.”
While we already knew that China was selling - and following the record selling of FX reserves in August, so does everyone else - an even more interesting question emerged: who is buying? Thanks to the WSJ we now know the answer: "A little-known New York hedge fund run by a former Yale University math whiz has been buying tens of billions of dollars of U.S. Treasury debt at recent auctions, drawing attention from the Treasury Department and Wall Street."
The data point everyone has been waiting on is out and, just as we tipped weeks ago, China liquidated nearly $100 billion in USD assets during the month of August in support of the yuan.
Logically, the massive liquidation of USD assets by China and other emerging market central banks should put upward pressure on UST yields and will, all else equal, work at cross purposes with DM central bank QE. But all else is never really equal...
What we’ve been experiencing in markets is the plain and simple fear that always accompanies a broken story. The human reaction to a broken story is an emotional response akin to a sudden loss of faith. It’s a muted form of what Stephen King defined as Terror … the sudden realization that the helpful moorings you took for granted are actually not supporting you at all, but are at best absent and at worst have been replaced by invisible forces with ill intent. The antidote to Terror? Call the boogeyman by his proper name. It’s the end of the China growth story, one of the most powerful investment Narratives of the past 20 years. And that’s very painful, as the end of something big and powerful always is.
News That Matters
We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…
With near record shorts in Treasuries once again, yields are collapsing as both a flight to safety and short squeeze send 30Y back below 3.00% for the first time in a month...
We are in a risk-off period, so we reiterate the need to have cash in portfolios. The US dollar and US Treasuries are the safest assets in our view...
Investors are losing money, which strikes us as largely inevitable with asset prices where they are and economic growth and profits on a downward trajectory. Losing the least amount of money may be the best source of success this year.