M2

Amid FX Reserve Liquidation, These Are The Countries JP Morgan Says Are Most Vulnerable

While EM sovereigns as a group may be in better shape now in terms of “original sin” (i.e borrowing heavily in foreign currencies) than they were during say, the Asian Currency Crisis, the confluence of factors outlined above means no one is truly “safe” in the current environment as moving from liquidation back to accumulation will entail a sharp reversal in commodity prices and a pickup in the pace of global growth and trade.

Reflections On The Great Monetary Fiasco

All great monetary fiascos are forged upon a foundation of misperceptions and flawed premises. There’s always an underlying disturbance in money and credit masked by supposed new understandings, technologies, capabilities and superior financial apparatus. The notion back in 2006 and 2007 that the world was at the brink of a major crisis was considered absolute wackoism. Incredibly – and well worth contemplating these days - virtually no one saw the deep structural impairment associated with the protracted Bubble in “Wall Street Finance.” An even more momentous monetary fiasco has been perpetrated since the 2008 crisis, constructed upon a foundation of even more outlandish misperceptions and flawed premises.

Euro Crushed By Draghi's Latest "Whatever It Takes" Moment; Fed Speaker Barrage On Deck

The biggest event overnight came from Europe, where Draghi managed to once again jawbone the Euro lower by ober 50 pips when he told European lawmakers in a prepared testimony that downside economic risks are "clearly visible," repeating his October press conference statement, adding that the ECB will reexamine degree of accommodation in December as "inflation dynamics have somewhat weakened." And the statement that crushed the Euro: "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained." I.e., another "whatever it takes" moment.

How China Broke The World's "Bubble Machine"

China can’t allow its industrial economy to sink without a fight. It will have to devalue the renminbi to try to get more market share for its exports. It still has 80% of its workers earning less than $10 a day. A lower renminbi will reduce real wages further and make China’s exports cheaper than ever. And then, what about the rest of the world? As the renminbi goes down, the dollar, yen, and euro will have to go up. Commodities – priced in dollars – will stay down. U.S. corporate profits will fall. The stock market “tape” will go down. Consumer prices, too, will remain low... or go negative. Deflation. Deflation. Deflation.

The Dire Societal Consequences Of Stability-Obsessed Keynesians

We will be the first to admit that yield curve inversion is not the only factor causing recessions, but through the credit channel it can be an important contributor. Depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system. While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.

 

How We Got Here: The Fed Warned Itself In 1979, Then Spent Four Decades Intentionally Avoiding The Topic

At least parts of the Fed all the way back in 1979 appreciated how Greenspan and Bernanke’s “global savings glut” was a joke. Rather than follow that inquiry to a useful line of policy, monetary officials instead just let it all go into the ether of, from their view, trivial history. But the true disaster lies not just in that intentional ignorance but rather how orthodox economists and policymakers were acutely aware there was “something” amiss about money especially by the 1990’s. Because these dots to connect were so close together the only reasonable conclusion for this discrepancy is ideology alone. Economists were so bent upon creating monetary “rules” by which to control the economy that they refused recognition of something so immense because it would disqualify their very effort.

Futures Surge As ECB Bankers Resort To Verbal Intervention, Suggest More QE Needed

Aside from Chinese monetary data, it was a relatively quiet session in which traders were focusing on every move in the suddenly tumbling USD, and parsing every phrase by central bankers around the globe, as well as the previously noted piece by Fed mouthpiece Jon Hilsenrath which effectively ended the debate whether there will be rate hikes in 2015. Adding to the overnight froth were ECB speakers first Ewald Nowotny and then Spain's Restoy, who said that euro-area core inflation "clearly" below goal, remarks which were immediately assumed to signal increasing pressure to boost stimulus, and which promptly translated into even more weakness in EUR and equity strength, pushing US futures up about 15 points from yesterday's close.

Short Squeeze, Liquidity, Margin Debt & Deflation

Some things you CAN see coming, in life and certainly in finance. Quite a few things, actually. Once you understand we’re on a long term downward path, also both in life and in finance, and you’re not exclusively looking at short term gains, it all sort of falls into place. Of course, the entire global economy has been hanging together with strands of duct tape for decades now, but hey, it looks good as long as you don’t take a peek behind the facade, right?