The panic buying by China’s newly-minted, day trader hordes took a breather on Tuesday which we think presents as good an opportunity as any to assess what factors might intervene to derail the self-feeding margin madness that has Shanghai and Hong Kong partying like it’s 1999 on the Nasdaq.
Creating even more money will not help the situation, only exacerbate it. Hyperinflation is a cancer that lurks in our monetary structure. Time to surgically remove it before it metastasizes.
Borrowing in USD was risk-on; buying USD is risk-off. As the real global economy slips into recession, risk-on trades in USD-denominated debt are blowing up and those seeking risk-off liquidity and safe yields are scrambling for USD-denominated assets. Add all this up and we have to conclude that, in terms of demand for USD--you ain't seen nuthin' yet.
FX Volatility Spikes As More Countries Enter Currency Wars; Euro Surges On Furious Squeeze After Touching 1.04Submitted by Tyler Durden on 03/12/2015 06:57 -0400
The global currency wars are getting ever more violent, following yesterday's unexpected entry of Thailand and South Korea, whose central banks were #23 and #24 to ease monetary conditions in 2015, confirming the threat of a global USD margin call is clear and present (see "The Global Dollar Funding Shortage Is Back With A Vengeance And "This Time It's Different"). But the one currency everyone continues to watch is the Euro, which the closer it gets to parity with the USD, the more volatile it becomes, and moments after touching a 1.04-handle coupled with the DXY rising above 100 for the first time in 12 years, the EURUSD saw a huge short squeeze which sent it nearly 150 pips higher to 1.0643, before the selling resumed.
The entire formerly rich world is addicted to debt, and it is not capable of shaking that addiction. Not until the whole facade that was built to hide this addiction must and will come crashing down along with the corpus itself. Central banks are a huge part of keeping the disease going, instead of helping the patient quit and regain health, which arguably should be their function. In other words, central banks are not doctors, they’re crack dealers and faith healers. Why anyone would ever agree to that role for some of the world’s economically most powerful entities is a question that surely deserves and demands an answer.
It has been a while since we have seen the USDJPY rampathon push US equities higher, so in a day dominated by central banks (first the BOE momentarily), and then the ECB's much anticipated announcement of the actual QE launch at the Draghi press conference at 1:30pm CET (taking place, ironically enough, in the place that was the blueprint for the Eurozone's capital controls, Cyprus), it only makes sense that after weeks of stage fright, the USDJPY algos reminded the world they are alive and well, and proceeded to ramp the key FX pair above 120, even though the currency that everyone will be talking about today is the Euro, hugging 1.10 as of this moment, but the real question is what happens after Draghi gives the asset buying green light: has all of Q€ been priced in already in FX, and will the EURUSD resume its surge higher, or is parity next stop?
"Monetary Policy Is Bankrupt" Dr. Lacy Hunt Warns "Bonds, Not Stocks, Are A Good Economic Indicator"Submitted by Tyler Durden on 02/27/2015 19:35 -0400
"While the wealth effect is a theoretical possibility, it is not supported by economic fact. The stock market is not a good guide to the economy, but...the bond market is a very good economic indicator. When bond yields are very low and declining it’s an indication that the same is happening to inflation and that economic activity is weak. The bond yields are not here for any fluke of reason. They are here because business conditions in the US and abroad are quite poor."
Following a quiet overnight session in which the main event appears to be a statement by Chinese premier Li for more active fiscal policy, which has pushed the metals complex higher, although technically every other asset class as well, with US equity futures set to open in fresh record high territory, even as 10Y yields around the world continue to decline, attention today will fall on the CPI print due out shortly, because if consensus is correct, January will be the first month this decade when US inflation posts a negative print, mostly due to the delayed effect of sliding commodity prices. As Deutsche recaps, the most important number today is the headline CPI where the headline YoY rate is predicted to be negative by the market (-0.1%) for the first time since 2009. Over this period the YoY rate stayed negative for 8 months. However before this we hadn't seen a full year decline since August 1955. In other words, a few months before what may be the first US rate hike for a new generation of traders, the US is set to print its first annual deflation since Lehman, transitory or not.
While the world's attention is glued to events in Greece, the real action continues to evolve quietly thousands of kilometers east, in China, where the near record surge in new loans remains unable to offset the dramatic slowdown in shadow banking issuance. And while China's bubble-chasing, animal spirits have recently reoriented themselves from real estate to the stock market, it is the real estate that holds the bulk of China's wealth. The problem here is that as China reported overnight, new-home prices in the world's most populous country just recorded their biggest annual decline ever!
China's January credit data hints that in some ways China is becoming like the US, and as ever more newly created credit money ends up in the stock market, is China about to follow the US and Europe and suffer a collapse in monetary velocity. Because whereas previously the biggest asset bubble in China was that of housing, now it is the stock market, which means that suddenly its monetary system is for all intents and purposes haunted by the same issues that affect western markets. So how long until China, too, which is battling both deflation and economic contraction, proceeds with outright monetary devaluation?
For those of you not familiar with the giant con, it is the idea that our economy is growing when, in fact, it hasn’t had growth in decades with the exception of the late 1990?s. The giant con is entirely a function of debt. The cost to the working class of falsify economic growth is beyond redemption. In the end, the path is set and there is no escaping from the debt trap in which we snagged ourselves. And so we bide our time until the weight of exponentially increasing debt collapses in on us. But then we rebuild.
China's Leading Index has fallen to its lowest since Feb 2009 this evening, down 4 straight months from credit-driven 18 month highs. This economic weakness has exaggerated the already weak tone in Yuan trading this evening pushing CNY to its weakest in almost 7 months (against the USD), its furthest on record from the CNY Fix (10-month highs), and very close to the PBOC's upper +2% band for CNY trading. At 6.23, USDCNY is over 1000 pips weaker than the CNY fix.
It feels like a good time to review what we can expect when our government and its agencies attempt to create wealth out of thin air. We can see the absurdity and hubris of our policymakers who believe they can circumvent economic laws in the following excerpt from the “The National Homeownership Strategy: Partners in the American Dream”. This little gem which we are suggesting is the document that led us to the economic devastation from which we are yet to crawl out. "For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership." So what lesson did we learn the hard way? Looking around today, absolutely nothing.
Shinzo Abe has lost his magical touch as Japan's economy is nose-diving again...