Lehman

"... investors are so certain about inflation that there is no insurance value in breakeven contracts. If the liquidity premium hasn’t changed, then current breakevens are consistent with 1.8% expected PCE inflation. In other words, either the market believes that even five years from now, the Fed will not achieve its target or the liquidity premia has jumped to 30bp."

History literally appears to be repeating. The mainstream media and our politicians are promising Americans that everything is going to be okay somehow, and that seems to be good enough for most people. But the signs that another massive financial crisis is on the horizon are everywhere.

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.

Things in risk land started off badly this morning, with the worst start to a year ever was set to worsen when European equities came under early selling pressure following news of German unemployment falling to record low, offset by a record high Italian jobless rate, with declining oil prices still the predominant theme as Brent crude briefly touched its lowest level since May 2009, this consequently saw the German 10yr yield print a fresh record low in a continuation of the move seen yesterday. However, after breaking USD 50.00 Brent prices have seen an aggressive bounce which has seen European equities move into positive territory with the energy names helping lift the sector which is now outperforming its peers. As a result fixed income futures have pared a large majority of the move higher at the EU open. But the punchline came several hours ago courtesy of Eurostat, when it was revealed that December was the first deflationary month for the Eurozone since the depths of the financial crisis more than five years ago, when prices dropped by -0.2% below the -0.1% expectation, and sharply lower than the 0.3% increase in November, driven by a collapse in Energy prices.

Gold will protect from currency devaluations – whether that be in the form of the euro itself being devalued or in the form of reversions to drachmas, escudos, pesetas and punts and subsequent devaluations.

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."

Back in 2008, Goldman got rid of not one but two main competitors when first Bear and then Lehman quietly went into that good night when a Goldman-controlled Fed refused to bail these banks out, in the process unleashing the biggest taxpayer-funded, and still ongoing, wealth transfer to bank executives in history. 7 years later, banks have proven surprisingly resilient to the massive commodity deflationary impulse even as the global growth is slowing to a pace not seen since the events in 2008, which is why Goldman decided it is time to take matters into its own hands with what may be the most "modest proposal" of the day, if not year: it may be time for JPM to break itself up voluntarily... a process Goldman (and its bonus-receiving employees, not to mention shareholders) would endorse wholeheartedly as it would remove its biggest and most connected competitor in the US financial landscape today.

'... assuming equity prices rise by 10% this year, for their bond allocation to stay at 37% (same as of Q3 2014), US pension funds and insurance companies would have to buy $550bn of bonds in 2015."

The reason why the BLS has not yet revealed the reality of the shifting US labor force, and why there is virtually no real wage growth across the US, is that the BLS simply backs into statistically goal-seeked results, using seasonal and statistical (birth/death) adjustments to smooth a trendline to beat a monthly bogey used by algos to bid stocks higher. Meanwhile, the reality at the micro level, is that increasingly more Americans are seeing their work status transformed from full-time to part-time status, earning less in the process, having no healthcare and retirement benefits and virtually no job security. As a result, starting this year, some 19 states just increased their minimum wage threshold, with 3 more states due to follow later in 2015. This takes place at the state level because for numerous reasons, there simply wan't enough of a consensus to pass this at the Federal level.

"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."

In November some 47.1 tons of gold were withdrawn from the NY Fed, bringing the Fed's total earmarked gold to just 6,029 tonnes: the biggest single monthly outflow going back to the turn of the century. This is also the lowest amount of gold held at the NY Fed in the 21st century.

The Japanese stock market reached its all-time-high on December 29th 1998, and as The Wall Street Journal reports, analysts were still looking forward to another strong year for shares in 1990, despite some signs of danger. Reading through the headline on that day suggests, 25 years later, investors and talking-heads have learned absolutely nothing...

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.