Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn't want to throw free money at), we found it fascinating that no lessor purveyor of the status quo's view of the world - Citigroup's chief economist Willem Buiter - that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright "helicopter" money from the central banks will avert the deepening crisis. Faced with China's 'Quantitative Tightening', the economist who proclaimed "gold is a 6000-year old bubble" and cash should be banned, concludes ominously, "everybody will be adversely affected."
When it comes to soliciting opinions, the NY Fed in general, and former Goldmanite Bill Dudley in particular, care about just one group of "advisors" - the Investor Advisory Committee on Financial Markets (a group created in July 2009 after the 2008 market crash) also known as the billionaires who run the country's biggest hedge funds, prop desks and PE firms, including JPM, Credit Suisse, Apollo, Blackrock, Blue Mountain, Brevan Howard, Tudor, Fortress, and lo and behold, David "Balls to the Wall" Tepper.
In the midst of turmoil among asset classes, investors tend to make irrational decisions, such as panicking and liquidating at inopportune times. Nobel Prize-winning Psychologist Daniel Kahneman helps explain ill-conceived reactions to the market with his concept of loss aversion. That’s the fear and feelings of loss surpass the joy one may receive from a similarly sized potential gain. In order to frame this discussion of volatility, we dug up old surveys of institutional and individual investors that recorded their responses to the 1987 market crash
Earlier this week, as the financial world was mesmerized by a min-stock market crash, the Financial Times published a dastardly little piece of fascist propaganda titled, The Case for Retiring Another “Barbarous Relic.” When you start to see increased propaganda about banning cash, you know the status quo is very scared and things are getting very serious. You’ve been warned.
"Price insensitive" flows are starting to materialize, and our goal is to estimate their likely size and timing. These technical flows are determined by algorithms and risk limits, and can hence push the market away from fundamentals. The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity, they may cause a market crash such as the one we saw at the US market open on Mondaay"
It appears the collapse of China's stock market has officially taken its first victim. While we have heard from desperate farmers who lost everything after realizing that making money in stocks is not easier than farmwork, RT reports that a 57-year-old man has allegedly committed suicide in Shenyang, the largest city in Liaoning Province, by jumping off the 17th floor of a building with a black briefcase "full of stock-related materials," local press reported.
In a well-worn tradition, where it takes one cover to offset a cover, here is Bloomberg Businessweek's latest, which shows that bears were were "covering" everywhere in the market yesterday (and continue to do so today), and certainly on the front page of the latest issue of Bloomberg's publication.
"China's exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move," Yao said. "We were wronged."
It is not hard to see history repeating itself all over again. Just look at the Chinese central bank this week cutting interest rates, just like the Fed had to do in 2008-9.
In the past week, ever since the Fed's FOMC minutes which sent the S&P tumbling from 2100 to their lows in the overnight session, some 13% lower, the US economy underwent the functional equivalent of a 15 bps rate hike, or more than half the rate hike that the Fed has been so terrified to engage in for years.
With China's equity bubble now squarely in the rearview and the stock market crash making headlines the world over, Beijing is out for blood in a desperate attempt to find a scapegoat for a market rout that has rattled the country to the core. In what is perhaps a worrying sign of things to come, overnight China arrested a journalist and a top investment banker for "spreading fake trading information" and "illegal trading", respectively.
Full Witch Hunt: Chinese Police Probe Securities Regulator While Securities Regulator Probes BrokersSubmitted by Tyler Durden on 08/26/2015 12:35 -0400
Not satisfied with having arrested a reporter and a prominent investment banker, China is also looking into alleged improprieties at CSRC, the regulator which runs the CSF equity plunge protection team. Meanwhile, CSRC is conducting its own investigations into multiple brokers.
Flawed Fundamentals, Nasty Macro, Structural Industry Change: For Wall Street Banks It Really Is Different This TimeSubmitted by Reggie Middleton on 08/26/2015 09:39 -0400
This time, it really is different. It's "Structural", not "Cyclical". It's actually a very big difference, and banking will never be the same.
"China halts intervention in stock market so far this week as policy makers debate merits of an unprecedented government campaign to prop up share prices and what to do next, according to people familiar with situation. Some leaders support argument that stock market is too small relative to broader economy to cause crisis, says one of the people, who asked not to be identified as deliberations are private Leaders also believe intervention is too costly, person says."
Every Federal Reserve Chair since 1979 has faced a notable challenge in the first 12-20 months of their tenure – something akin to capital markets “Bullies” hazing the new kid at school. Paul Volcker had the 1979-1980 Iranian oil shock/recession, Alan Greenspan the 1987 Stock Market Crash, and Ben Bernanke the 2007 Financial Crisis. Their responses shaped market perceptions about Federal Reserve priorities and set the stage for the remainder of their tenures, from Inflation-Fighting Volcker to Save-the-World Bernanke. Now, it is Chair Yellen’s turn...