- Global Debt Crisis II – Total Global Debt to GDP Ratio Over 300% - Risk of Bail-Ins in 2015 and Beyond - Currency and Gold Wars - $1 Quadrillion “Weapons of Mass Destruction” Derivatives - Cold War II and New World Order as China and Russia Flex Geopolitical Muscles - Enter The Dragon – Paradigm Shift of China Gold Demand - Forecast 2015: None. Forecast 2020: Gold $2,500/oz and Silver $150/oz
Introduce a regulation over here, an unintended consequence pops up over there. Then there are more regulations to deal with the unintended consequences. Regulations have added 100 times the volatility to one of the most liquid and ordinary derivatives in the world - the plain-vanilla EFP. Less liquidity, more volatility - welcome to 2015.
Mainstream Media in the US seem to emphasize the positive aspects of the drop in prices. If our only problem were high oil prices, then low oil prices would seem to be a solution. Unfortunately, the problem we are encountering now is extremely low prices. If prices continue at this low level, or go even lower, we are in deep trouble with respect to future oil extraction. The situation is much more worrisome than most people would expect. Even if there are some temporary good effects, they will be more than offset by bad effects, some of which could be very bad indeed. We may be reaching limits of a finite world.
From Bill Gross: "I’ll leave the specific forecasting for a few weeks’ time and sum it up in a few quick sentences for now: Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.... Be cautious and content with low positive returns in 2015. The time for risk taking has passed."
"This series is about how those in power have used Freud's theories to try and control the dangerous crowd in an age of mass democracy," begins Adam Curtis, as he describes the propaganda that Western governments and corporations have utilized stemming from Freud's theories (and his nephew Bernays). The words of Paul Mazur, perhaps ironically working for Lehman Brothers at the time, sum it all up: "We must shift America from a 'needs' to a 'desires' culture. People must be trained to desire, to want new things, even before the old have been entirely consumed... Man's desires must overshadow his needs."
If there is one thing the investing public has 'learned' in the last few years, it is 'no matter how bad the fundamentals, if it's been working, buy moar of it'. And so, it is with almost certain confidence that we should expect a resurgent flood of yield-chasing muppetry into no more egregious idiocy than the subprime-mortgage-debt market. As Bloomberg reports, the subprime-slime-backed securities that were created in the years before the financial crisis in 2008, which marked the last time they were issued, have gained almost 12% this year, or six times more than junk-rated corporate debt, according to Barclays. As one money 'manager' proclaims, "a lot of the uncertainty around the asset class has been taken away." Indeed, home prices will never go down ever again, right? (Just ignore this and this)
Banks are selling a record amount of U.S. structured notes tied to the stocks of fast-growing, volatile technology companies such as Facebook and Twitter. As Bloomberg Briefs reports, sales of securities linked to Facebook soared to $457.6 million this year, more than double the $204.2 million issued during the same period of 2013. Bloomberg notes that investors are flocking to products tied to social media companies, where more volatile share prices help banks improve structured-note terms that have been hurt by low interest rates... and issuers are "trying to put shiny objects in front of the client," as the BTFD mentality gets increased leverage (and downside risk). Investors have purchased $1.88 billion of structured notes linked to the 10 most popular technology stocks so far this year - 31% more than the same period in 2013 - and $32.7bn equity- and commodity-linked notes this year alone (up ~10% YoY). As we warned last week, counterparty risks are rising.
"The highly abnormal is becoming uncomfortably normal... There is something vaguely troubling when the unthinkable becomes routine."
Who says macroprudential regulation doesn't work: according to the BIS, notional amounts of outstanding OTC derivatives contracts fell by 3% to "only"
$691 trillion at end-June 2014. This is also roughly equal to the total derivative notional outstanding just before the Lehman collapse, when global central banks volunteered taxpayers to pump a few trillion in capital to meet global variation margin calls. Clearly the system, in the immortal words of Jim Cramer, is "fine."
The Dutch and German governments were preparing emergency plans for a return to their national currencies at the height of the euro crisis it has emerged. These plans remain in place.
Kuroda has fired the shot that looks likely to trigger the next phase of the crazy monetary experiment we’ve all been living in for the last five years. Unfortunately, the next phase is where things start to get nasty. Just because equity markets cheered the latest sugar rush he guaranteed them should not make smart investors lower their guard — quite the opposite, in fact. Colonel Kuroda has gone up-country into the Heart of Darkness, and all we can do is await the Apocalypse now.
Simply put, the dollar's rise could destabilize the entire global financial system. To understand why this is so, we have to start with the source of the risk: the world's central banks.
On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a "bank run."
Abenomics Creates "Potential For Economic Collapse Triggered By Bond Market Crash", Warns Richard KooSubmitted by Tyler Durden on 11/11/2014 15:10 -0500
"Overseas views on the BOJ’s surprise easing announcement can be broken down into two camps: the reflationists, who commend the BOJ for its bold actions, and those critical of the policy, who say it is a symptom of the final stages of Japan’s economic decline. The critics can further be divided into two groups: those who believe that continuing the current policy of “Banzainomics” will lead to a collapse of the Japanese economy and government finance triggered by a crash in the JGB market, and those who worry that the ongoing devaluation of the yen under this policy will hurt their own countries’ industries.... The first group’s scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment."
Economic forecasting is a dangerous job. As Mark Twain put it in his novel Pudd’nhead Wilson, “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” Every wrong prediction could doom a career, or a bank account. Prudence and humility are the only sound tools for building one’s reputation. The talking heads on CNBC appear to know neither. They pledge allegiance to the flag of the tinkering bureaucracy. It explains the loss of ratings, and loss of confidence in the ability of “experts” to see what’s coming down the tracks. Refusing to learn from mistakes will lead to future blunders. Pundits that don’t heed this message are doomed to fail.