Lehman

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."

A dispassionate look at the week ahead.

You thought gold was "only" for wealth preservation? You ain't seen nothing yet.

One of the great myths about investing that we’re told by the mainstream investment education is that we should “buy and hold” for the long term. Let's look at the numbers...

The reaction to today's blockbuster noise-ridden jobs data is muted in stocks but bonds are sending some complicated and uncomfortable signals. 2Y yields are 6-7bps higher and 30Y yield are now unchanged (havingbeen 4-5bps higher) as the market prices in short-term Fed action and the implicit medium-term economic weakness expected. This 6-7bps flattening of the 2s30s curve has crushed the spread to 234bps - below levels seen as Lehman failed and near Summer 2012's cycle lows. But we are sure 2015 will be the year that rates rise... right?

Here's a paradox: a month after the democrats were massacred in the House in the midterm elections due to America's revulsion with the non-recovery, and a week after the worst start to the holiday shopping season since Lehman, the WSJ tells us that 2014 will be the best year for jobs in the New Millennium.

In terms of the cycle of market emotions, gold is as close to ‘depression’ as we have seen (see chart). Yet, so far in 2014, gold is 14.3%, 12.3%, 5.8% and 0.4% higher in japanese yen, euros, sterling and dollars respectively (see chart).

First it was Shoppertrak, then it was the National Retail Federation, then it was IBM, and now, with its own set of internal data, here is Bank of America slamming the door shut on US retail spending as a source of Q4 growth, and proving once and for all that the extended Thanksgiving-weekend, and the start to US holiday spending season, was the biggest dud since Lehman.

November's asset performance can best be summarized in just three words: oil, oil, oil.  "For Brent November was the biggest one month decline since the height of the Lehman crisis in October 2008 whilst for WTI it was the worst since December 2008. Brent and WTI are now 33% and 28% lower versus where it started the year and are now trading at their lowest level since the spring of 2010."

“A highly competitive environment, early promotions and the ability to shop 24/7 online all contributed to the shift witnessed this weekend,” Mr. Shay said.

While we have covered the aberration that is a negative gold GOFO rate previously and in extensive detail in this post, an abridged version of what negative GOFO means comes courtesy of Deutsche Bank's recent discussion on what a successful Swiss gold referendum. To wit: "It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual as gold is traditionally used as a source of collateral for cash financing.... [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments." In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today's latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time!

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.

The last time the world's largest oil and gas drill operator, Seadrill, halted its dividend payment was in 2009, shortly after Lehman had filed and the world was engulfed in a massive depression. Retrospectively, this made sense: the company was struggling not only with depressionary oil prices, but with a legacy epic debt load as can be seen on the chart below. So the fact that the stock of Seadrill collapsed by 20% today following a shocking overnight announcement that it had once again halted its dividend despite what is a far lower debt load than last time, indicates that when it comes to energy companies, the current global economic "recovery" - if one believes the rigged US stock market - is actually worse than the Lehman collapse.

Having surged to last October's highs last month, Chicago PMI tumbled back to mediocrity in November, missing extrapolatedly exuberant expecatations by the most since July. As 60.8 (against 63.0 expectations) this is barely above the levels of Q1's polar vortex as New Orders, Employment, and Production all fell (with only 2 components rising). This is the 4th largest MoM drop since Lehman but MNI remains confident that "the trend remains positive..."

The actions of central bankers around the globe which have been driving stock prices higher are not a sign of control. They are signs of desperation. They are losing control. Their academic theories have failed. Their bosses insist they turn it up to eleven. Something is going to blow. You can feel it. John Hussman knows what will happen. Do you?