"Something happened The August turbulence in global markets has produced significant shifts, including a 6.6% fall in equity prices. The currencies of emerging market countries have depreciated substantially against the G-4, while emerging market borrowing rates for sovereigns and corporates have moved higher. Global oil prices have been whipsawed as have G-4 bond yields. The speed and magnitude of these movements is reminiscent of past episodes in which financial crises emerged or the global economy slipped into recession. However, nothing appears to be breaking."
In the latest example of Beijing attempting to deleverage and re-leverage all at once, China has lifted a cap on loan-to-deposit ratios for banks while simultaneously capping local government debt issuance for 2015. Meanwhile, bad loans are still on the rise at China's "big four" banks, underscoring the extent to which China's economy is rapidly deteriorating and drawing a line under the risk the PBoC is running by forcing banks to lend into an extraordinarily uncertain environment.
Precisely 24 hours ago, in an attempt to pre-empt the panic-selling open, the NYSE invoked the little used Rule 48, which was to be expected: the Nasdaq 100 has just tumbled limit down and the S&P and DJIA would follow shortly. Today, however, it is unclear just why the NYSE decided to once again invoke Rule 48 as futures are set to open about 3-4% higher, and yet that is precisely what the NYSE did. As a reminder, what this means is that mandatory opening indications are not required, which in theory should make it easier to open stocks.
By starving investors of safe return, activist Fed policy has promoted repeated valuation bubbles, and inevitable collapses, in risky assets. On the basis of valuation measures having the strongest correlation with actual subsequent market returns, we fully expect the S&P 500 to decline by 40-55% over the completion of the current market cycle. The only uncertainty has been the triggers.
Translation: the Fed is not data dependent, but it is, as we have said all along, entirely market dependent.
The status quo must be maintained...
NYSE granting "triple width opening quote relief in all option classes for August 24, 2015", Invokes Rule 48
The last time this was invoked was in Jan 2015 (during the blizzard), in June 2012 (amid a dramatic drop in pre-open futures) and in Sept 2011 amid the chaotic 400-point swings in The Dow. Funny they do not use this "Rule" when futures indicate massive upside opens?
“The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.” – James Grant
After a week of relentless FX volatility, spilling over out of China and into all other countries, and asset products, it was as if the market decided to take a time-out overnight, assisted by the PBOC which after three days of record devaluations finally revalued the Yuan stronger fractionally by 0.05% to 6.3975. And then, as a parting gift perhaps, just as the market was about to close again, the Chinese central bank intervened sending the Onshore Yuan, spiking to a level of 6.3912 as of this writing, notably stronger than the official fixing for the second day in a row. In fact the biggest news out of China overnight is that contrary to expectations, the PBOC once again "added" to its gold holdings, boosting its official gold by 610,000 ounces, or 19 tons, to 1,677 tones.
Housing is a very important component of any economy, and often an indicator of the well-being of a society. In the US, housing has been deteriorating since the sub-prime crisis. The changes are not only cyclical but structural. Past experiences need to yield to an objective analysis of where we are heading. Here is the way we see it...
Following last week's economic data tempest, capped with the disappointing US nonfarm payrolls, which has provided virtually no clarity on just what the "(Dow Jones) data-driven" Fed will do in a world in which not only is the US economy rolling over, but China is imploding, commodity deflation is raging, and global stock markets are propped up by a handful of stocks, the coming week will be far less exciting (which is just how the Hamptons crowd wants it).
Following last week's bad news for the economy (terrible ADP private payrolls, confirmed by a miss in the NFP) which also resulted in bad news for the market which suffered its worst week in years, many were focused on how the market would react to the latest battery of terrible economic news out of China which as we observed over the weekend reported abysmal trade data, and the worst plunge in Chinese factory prices in 6 years. We now know: the Shanghai Composite soared by 5%, rising to 3,928 and approaching the key 4000 level because the ongoing economic collapse led Pavlov's dog to believe that much more easing is coming from the country which as we showed last night has literally thrown the kitchen sink at stabilizing the plunge in stocks.
It began in Dec 2008. To understand it, it is necessary to understand two principles. The first is that gold is money and the dollar is credit (which is currently worth 28.4mg gold). For the second, we emphasize it's not just price, but separate bid and ask prices.
Will there be a financial collapse in the United States before the end of 2015? An increasing number of respected financial experts are now warning that we are right on the verge of another great economic crisis.
"The share of young people living with their parents--which rose sharply during the recession and its aftermath--finally began to decline in 2014. But over the last six months, this decline seems to have stalled. We find that the share of young people living with their parents has increased relative to pre-recession rates for all labor force status groups, not just the unemployed and underemployed." - Goldman Sachs