Lehman

At the peak of the craziness of the last cycle, banks took to protecting themselves by buying (credit) protection on other banks as a 'hedge' for systemic risk (which instead exacerbated contagion concerns and was never going to payoff anyway given the systemic - counterparty - collapse required to trigger it). Fast forward 8 years and it appears once again, as Bloomberg reports, that banks are buying (equity) protection in order to hedge the stress-test downside scenarios enforced by The Fed.

George Orwell explained the cynical mechanism of Perpetual War in "1984" as a means to control the masses through terror and scarcity. Western Civilization has been embroiled in various continuous wars since Hitler invaded Poland. The Western public has passively abided Perpetual War, not because of scarcity, but because of consumer abundance, which was developed by virtually anonymous men like Edward Bernays in the 1920s. This is how men in the shadows transformed the American citizen into the American consumer, thus turning the public into a docile, unwitting accomplice in the mayhem which envelops the globe which so enriches those on high.

Overnight Hillary Clinton, in her latest populist push to present herself as "one of the people" wrote a NYT op-ed explaining "How I'd Rein In Wall Street", we were wondering if it would include draining Wall Street balance sheets with mandatory and far greater donations to her campaign by Wall Street firms - a strategy that may actually work as it hits banks where it hurts the most: their money. To our disappointment, this was not included.

"While funding continued to be available, such a large negative basis indicates potential market dislocations. And this may call into question how smoothly US dollar funding conditions will adjust in the event of an increase in US onshore interest rates. Similar pricing anomalies have also emerged in interest rate swap markets recently, raising related concerns."

Until pro-growth, low taxation and less regulation policy changes are enacted, we don’t foresee any changes to central bank policy nor the unsustainable market divergences and asset price distortions. Expect more media propaganda on how great the economy is while the reality is another story. Early signs are that retail sales this holiday season are poor. Nobody can predict when reality will set in and equity markets revert back to pre QE levels in 2008/09. The longer this charade continues, the lower equity markets will eventually go, and in the short-term so will commodities. Then the super cycle in commodities will begin anew. Much this will hinge on next fall’s election cycle.

So how do you grow household wealth by $18 trillion in the face of these dismal real world trends? In a word, with a printing press. But what happened today is that Draghi showed he is out of tricks and Yellen confessed she is out of excuses. Yes, this sucker is going down. And this time all the misguided economics professors turned central bankers in the world will be powerless to reverse the plunge.

"How does all this play out? Timing is the key because as gamblers know there isn’t an endless stream of Martingale chips – even for central bankers acting in unison. One day the negative feedback loop on the real economy will halt the ascent of stock and bond prices and investors will look around like Wile E. Coyote wondering how far is down. But when? When does Martingale meet its inevitable fate? I really don’t know; I’m just certain it will."

The global Central Banks have literally bet the financial system that their theories will work.  They haven’t. All they’ve done is set the stage for an even worse crisis in which entire countries will go bankrupt.

We are talking of course, about the infamous RRR-hike of 1936-1937, which took place smack in the middle of the Great Recession.

"Eventually, all of America’s lesser problems will combine into one giant problem. The very survival of the society will feel at stake, as leaders lead and people follow. The emergent society may be something better, a nation that sustains its Framers’ visions with a robust new pride. Or it may be something unspeakably worse. The Fourth Turning will be a time of glory or ruin."

The fact of the matter is that despite public opinion, there are problems that are so big that the Central Banks cannot fix them. We’ve seen this in Switzerland and China and now in Europe. It will be spreading to other countries in the near future.

How Uncle Sam seeded global Jihad... and cultivates it to this day.

Dear Mr. President, your country faces a stagnating economy... The truth is it is too late for our politicians to act, because the speculative peak that precedes the crisis is already upon us.

The Fed was out in force yesterday peddling some pretty heavy-duty malarkey about the up-coming rate liftoff at the December meeting..."If we begin to raise interest rates, that’s a good thing." That’s not a bad thing." Goldman is putting out the final mullet call for this Bubble Cycle because it knows that this bull is dying; that insiders still have massive amounts of stock winnings to unload; and that the clock is fast running out. The expiring clock is evident in the S&P 500’s one-year round trip to nowhere. Despite the fact that the Fed has ponied-up a stick save at every single meeting this year, the market’s 27 separate efforts to rally have all failed for the simple reason that the jig is up.