Lehman

Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."

The current illusion of recovery is a result mainly of windfalls to the financial asset owning upper strata, the explosion of transfer payments funded with borrowed public money and another supply-side bubble - this time in the energy sector and its suppliers and infrastructure. But that’s not real growth or wealth. Indeed, the desultory truth about the latter is better revealed by the fact that the American economy is not even maintaining its 20th century level of breadwinner jobs. And the real state of affairs is further testified to by the lamentable trend in real median household incomes. That figure - not distorted by the bubble at the top of the income ladder - is still lower than it was two decades ago. So much for the Keynesian rap. Yet that’s about all that underpins the latest Wall Street rip.

"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."

Lots of old market hands are talking about how its similar to the Russia default and crash of ‘98 all over again.. Actually... its worse. Much worse.

In recent years Geoffrey Raymond's annotating opportunities have slowed to a trickle courtesy of every central bank going all-in on some $11 trillion in QE (and rising fast) to create the artificial impression that the financial system is stable (because in some parallel universe 6 years of endless bailouts somehow is equivalent to stability and is expected to "boost confidence"), although if recent market volatility is any indication, he may soon be making a repeat appearance, if only in front of energy trading desks at first. And while we await Raymond to once again make mainstream media headlines, he has a special holiday gift idea for all those Zero Hedgers who have not yet parlayed their trillions (if Joe LaVorgna is correct) in savings from plunging crude prices into even more consumerism. Presenting "Existential Rage in the Workplace" from Geoffrey Raymond.

• JAPAN RULING LDP WINS 275-306 SEATS: NHK EXIT POLL
• JUNIOR COALITION PARTNER KOMEITO WINS 31-36 SEATS: NHK POLL
• JAPAN OPPOSITION DPJ WINS 61-87 SEATS: NHK EXIT POLL
• JAPAN INNOVATION PARTY WINS 30-48 SEATS: NHK EXIT POLL
• JAPAN COMMUNIST PARTY WINS 18-24 SEATS: NHK EXIT POLL
• JAPAN RULING COALITION SET TO WIN 2/3 MAJORITY, NHK EXIT POLL

The central banks are now out of dry powder - impaled on the zero-bound. That means any resort to a massive new round of money printing can not be disguised as an effort to “stimulate” the macro-economy by temporarily driving interest rates to “extraordinarily” low levels. They are already there. Instead, a Bernanke style balance sheet explosion like that which stopped the financial meltdown in the fall and winter of 2008-2009 will be seen for exactly what it is—-an exercise in pure monetary desperation and quackery. So duck and cover. This storm could be a monster.

While we are sure this will be quietly revised away through the magic of the labor department's statistical shenanigans (even though they note no "unusual" factors, this week saw the biggest WoW rise in continuing jobless claims since Nov 2008. While drawing any linkages to the collapse in the oil-well-permits is premature, the coincidence of the last 2 weeks seing a dramatic trend change in continuing claims is noteworthy.

It's a miracle... give the worst creditors access to cheap money for longer-and-longer terms and hey presto... 'expensive' stuff is available to everyone. Retail sales modestly beat expectations in November (+0.7% vs +0.6% expectations) - sending USDJPY spiking to confirm what great news this is. The driver of all this exuberance... Vehicle sales +1.7% MoM. Oddly, for all those prognosticators looking for windfall tax cuts from the oil price plunge, gasoline station sales dropped only 0.8% MoM - not exactly the consumption-boosting exuberance every talking head proclaims.. These numbers appear to be clearly in the "Fed wants to hike" narrative.

Because you can always bet on the "stupidity of the American voter" and win.

If China just suffered its biggest market selloff in years, when the plug was pulled on just $200 billion in "shadow banking" assets, let's all hope that Bank of New York and State Street, who among just the two of them control some $55 trillion in custodial, repoable assets, never get any ideas from Beijing...

Back in June, the world was speechless when Goldman's head of the ECB, Mario Draghi, stunned the world when he took Bernanke's ZIRP and raised him one better by announcing the ECB would send deposit rates into negative territory, in the process launching the Neutron bomb known as N(egative)IRP and pushing European monetary policy into the "twilight zone", forcing savers to pay (!) for the privilege of keeping the product of their labor in the form of fiat currency instead of invested in a global ponzi scheme built on capital market so broken even the BIS can no longer contain its shocked amazement. Well, the US economy may be "decoupling" (just as it did right before Lehman) and one pundit after another are once again (incorrectly) predicting that the Fed may raise rates, but when it comes to the true "value" of money, US banks have just shown that when it comes to spread between reality and the economic outlook, the schism has never been deeper.

Enter US NIRP.

Some two weeks ago (when Venezuela CDS was trading at 2300  bps) we previewed what - with almost absolute certainty - would be the first "casualty of the crude carnage" - Nicholas Maduro's little socialist paradise that couldn't: Venezuela. As a reminder, back then we learned that the OPEC member was in such dire straits it had burned through a third of a Chinese' bailout loan in the matter of days. Since then things have gone from bad to worse to freefall and why earlier today Venezuela CDS soared again by several hundred points wider touching 3100 bps (800 wider since our first post) and is now in record wide territory - suggesting the same probability default risk as when just after the Lehman collapse, crude traded briefly as low as $30 - as the bankruptcy vultures start circling over what will most certainly be the next sovereign bankruptcy carcass.

"The highly abnormal is becoming uncomfortably normal... There is something vaguely troubling when the unthinkable becomes routine."