Lehman

The monetary politburo has every reason to fear Rand Paul’s demand for a “policy audit” of the Fed. An honest one would show that its so-called “independence” has been monumentally abused in a manner which is deeply threatening to both political democracy and capitalist prosperity. Needless to say, we can’t have that audit soon enough. In short, what the nation really needs is not an “independent” Fed, but one that is shackled to a narrow and market-driven liquidity function. The rest of its current remit is nothing more than the self-serving aggrandizement of the apparatchiks who run it; and who have now managed to turn the nation’s vital money and capital markets into dangerous, unstable casinos, and the nations savers into indentured servants of a bloated and wasteful banking system.

Business inventories grew at a mere 0.1% in December, missing expectations for the 7th of the last 8 months. This is the slowest inventory growth since May 2013. Perhaps most worrisome is the drop in sales (down 1.1%) which slammed the inventory-to-sales ratio to its highest since July 2009.

You know it's bad when... you start blaming speculators. Very reminiscent of the "it's not us, we have a solid balance sheet, it's the short selling speculators" bullshit in the days before and after the stock crashes of American Insurance Group, Bear Stearns, Lehman Brothers and Merrill Lynch; mere days after his bank's bonds crashed, the CEO of Raiffeissen Bank (Austria's 3rd largest) has stated (unequivocally) that "panic was created artificially," blaming short-sellers for his bank's demise.

Feel like trading FX has become next to impossible, with massive, gaping bid-ask spreads, strange "tractor beams", completely unexpected stop loss runs, and - of course - central banks behind every corner? Don't worry you are not alone. According to Bloomberg, that's precisely the case as "it hasn’t been this difficult to trade currencies since the collapse of Lehman Brothers Holdings Inc. shook markets worldwide."As for the reason why, well: take a guess.

There goes GDP... Inventory growth stalled notably to just 0.1% MoM in December (missing the 0.2% rise expectations) from 0.8% growth in November to its lowest since May 2013. The other side of the spectrum was even worse with Wholesale Sales sliding a worse-than-expected 0.4% leaving the December inventories/sales ratio at 1.22 (up from 1.16 in December) to the worst level since Lehman. If we build it... based on artificial price signals and mal-investment - they didn't come...

So far it has been largely a repeat of the previous overnight session, where absent significant macro drivers, the attention again remains focused both on China, which reported some truly ugly inflation (with 0.8% Y/Y CPI the lowest since Lehman, just call it deflation net of the "goalseeking") data (which as usually is "good for stocks" pushing the SHCOMP 1.5% higher as it means even more easing), and on Greece, which has not made any major headlines in the past 24 hours as patience on both sides is growing thin ahead of the final "bluff" showdown between Greece and the Eurozone is imminent. The question as usual is who will have just a fraction more leverage in the final assessment - Greece has made its ask known, and it comes in the form of 10 billion euros in short-term "bridge" financing consisting of €8 billion increase in Bills issuance and €1.9 billion in ECB profits, as it tries to stave off a funding crunch, a proposal which will be presented on the Wednesday meeting of euro area finance ministers in Brussels. The question remains what Europe's countrbid, if any, will be. For the answer: stay tuned in 24 hours.

• Greek Risk Draws Global Concern on Lehman Echo Warnings (BBG)
• Merkel to urge caution in U.S. as pressure builds to arm Ukraine forces (Reuters)
• West Races to Defuse Ukraine Crisis (WSJ)
• German-French Push Yields Ukraine Summit Plan With Putin (BBG)
• Swiss Leaks lifts the veil on a secretive banking system (ICIJ)
• Italy Lenders Seen Cleansing Books Amid Bad-Bank Plans (BBG)
• G-20 Finance Chiefs Face Tough Test in Istanbul (WSJ)
• Demand for OPEC Crude Will Rise This Year, Says Group (WSJ)... or rather prays
• U.S. Banks Say Soaring Dollar Puts Them at Disadvantage (WSJ)

Chinese imports collapsed 19.9% YoY in January, missing expectations of a modest 3.2% drop by the most since Lehman. This is the biggest YoY drop since May 2009 and worst January since the peak of the financial crisis. Exports tumbled 3.3% YoY (missing expectations of 5.9% surge) for the worst January since 2009. Combined this led to a $60.03 billion trade surplus in January - the largest ever. But apart from these massive imbalances, everything is awesome in the global economy (oh apart from The Baltic Dry at record lows, Iron Ore near record lows, oil prices crashed, and the other engine of the world economy - USA USA USA - imploding).

Having recently exposed the mainstream media's lack of objectivity in "slanted and distorted" interviews, Rand Paul has turned his focus to another staple of the status quo - his father's arch-nemesis, The Fed. As WSJ reports, Sen. Rand Paul unleashed a blistering attack on the Federal Reserve in Iowa on Fridasy evening, calling for an audit of the institution’s books and blaming it for fueling income inequality. "Once upon a time, your dollar was as good as gold," he explained, adding "then for many decades, they said your dollar was backed by the full faith and credit of government." Do you know what it’s backed by now? "Used car loans, bad home loans, distressed assets and derivatives."

Deflation remains the enemy thanks to debt, deleveraging, demographics, tech disruption & default risks. US aggregate debt is today a staggering $58.0 trillion (327% of GDP); the number of people unemployed in the European Union is 23.6 million; Greece has spent 90 of the past 192 years in default or debt restructuring. 7 years on from the GFC... The massive policy response continues. Central bank victory means that lower rates, currencies, oil successfully boosts global GDP & PMI’s in Q2/Q3, allowing Fed hikes in Q4. Bond yields would soar in H1 on this outcome. Defeat, no recovery, and currency wars, debt default and deficit financing become macro realities.

Six years on from the financial crisis and central banks are still hacking away at interest rates. Australia and Romania's did this week and while Poland and India held off, both are expected to prune rates later in 2015.

In a stunningly honest reflection on itself (and its peer group of professional prognosticating panderers), The Federal Reserve's San Francisco research group finds that - just as we have pointed out again and again - that since 2007, FOMC participants have been persistently too optimistic about future U.S. economic growth. Real GDP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Possible explanations for this pattern include missed warning signals about the buildup of imbalances before the crisis, overestimation of the efficacy of monetary policy following a balance-sheet recession, and the natural tendency of forecasters to extrapolate from recent data. The persistent bias in the track records of professional forecasters apply not only to forecasts of growth, but also of inflation and unemployment.

The Baltic Dry Index dropped another 3% today to 590 - its first time below 600 since 1986 and not far from the all-time record low of 554 in July 1986. Of course, the absolute level is shrugged off by the over-supply-ists and the 'well fuel prices are down'-ists but the velocity of collapse (now over 60% in the last 3 months) suggests this far more than some 'blip' discrepancy between supply and demand - this is a structural convergence of massive mal-investment meets economic reality.

"The S&P: This has the ominous look of what some of the Old Guard amongst the market technicians used to call “Three Peaks and a Domed House” pattern, which always gave way to substantive weakness. All we know is that Friday’s action was horrific and that the volume swells on the downside these days, and wanes on rallies!"

- Dennis Gartman