Market Crash

Privatization is back on the political stroke economic agenda this morning after a report commissioned by Chancellor of the Exchequer George Osborne in the UK looks like he will be set to return bailed out banks to the private sector.

Looks like the sun has gone behind the clouds in China for a bit! Not only are the solar panels creating friction between China and the EU, but now it turns out that last month saw Chinese export growth unexpectedly decrease.

The uncertainty about when the Fed will begin tapering its programme of asset purchases has increased volatility, both pushing and pulling on global financial markets. “at this juncture, the markets are more concerned about tapering than about weak [US and global] growth,” says MIG Bank’s Chief Economist, Luciano Jannelli.

Here are some of the most recent top insider dealing stories in the USA. The biggest in terms of fines!

There are times when some people bite their own nose of just to spite their face. According to a report that has just been published by the Chartered Institute of Personnel and Development (CIPD), the people working in the financial sector in 120 different countries in the world think in the overriding majority of cases that they are paid far too much for what they do. Were they serious?

If we are to believe what they said, then this is the year. 2013! It’s going to happen.. The stock-market is ready to crash yet again this year and this time it’s going to be a big one. Let’s take a look at what was said, when, why and by whom.

Given that ALL of the stock market gains since 2008 were based on Fed money printing… what do you think will happen when the Fed tries to taper QE?

Despite the mainstream media's desperate need to play down any and every potential indication that all is not well with the "buy the dip" mentality, there is no hiding the fact that volatility is back and nowhere is that more evident in the guts of the Hindenburg Omen calculation. Just as we saw in October 2007, when NYSE margin was just as extended, credit spreads were just as compressed (and today's extreme range), and valuations were just as high, the Hindenburg Omen signals are starting to cluster (in a confirming manner). First on April 15th, second on Friday, and now third today marks the first such cluster since Bernanke saved the day in August 2010. Perhaps for those not running for the hills, UBS' Art Cashin's views are noteworthy, "proponents of the Omen will tell you there has never been a crash without the presence of the Hindenburg Omen. Sounds pretty compelling, indeed. Skeptics, however, note that every occurrence of the Hindenburg Omen has not been accompanied by a crash. In fact, three out of four times, there is no crash. Sounds a lot less compelling now. So, an omen is a caution – not a cause."

The store of wealth demand is not just from Chinese ‘aunties.’ There remains an under estimation of the demand coming from wealthy Chinese and high net worth and ultra high net worth individuals (HNWs and UHNWs). 

This has not been commented upon or analysed but we have direct experience of wealthy Chinese people looking to store gold in Hong Kong and Switzerland, as have other storage providers.

Now that the BOJ's "interventionalism" in the capital markets is increasingly losing steam, as the soaring realized volatility in equity and bond markets squarely puts into question its credibility and its ability to enforce its core mandate (which, according to the Bank of Japan Act "states that the Bank's monetary policy should be aimed at achieving price stability, thereby contributing to the sound development of the national economy) Japan is left with one wildcard: the Government Pension Investment Fund (GPIF), which as of December 31 held some ¥111.9 trillion in assets, of which ¥67.3 trillion, or 60.1% in Japanese Government Bonds. Perhaps more importantly, the GPIF also held "just" ¥14.5 trillion in domestic stocks, or 12.9% of total, far less than the minimum allocation to bonds (current floor of 59%).  It is this massive potential buying dry powder that has led to numerous hints in the press (first in Bloomberg in February, then in Reuters last week, and then in the Japanese Nikkei this morning all of which have been intended to serve as a - brief - risk-on catalyst) that a capital reallocation in the GPIF is imminent to allow for much more domestic equity buying, now that the threat of the BOJ's open-ended QE is barely sufficient to avoid a bear market crash in the Nikkei in under two weeks.

There are some problems, however.

This is no time to be complacent.  Massive economic problems are erupting all over the globe, but most people seem to believe that everything is going to be just fine.  In fact, a whole bunch of recent polls and surveys show that the American people are starting to feel much better about how the U.S. economy is performing.  Unfortunately, the false prosperity that we are currently enjoying is not going to last much longer. Unfortunately, the majority appear to be purposely ignoring the economic horror that is breaking out all over the globe.

About once or twice a month for the past few years, it's been a steady ritual of mine to conduct a Google search for the words "all-time high" and "all-time low". The results provide an interesting big picture perspective on what's happening in the world.

The wild ride in Japan's bond market is a prelude to what will happen in other developed markets.

"QE detractors... see something quite different. They see QE as not responding to the collapse in the money multiplier but to some extent causing it. In this account QE – and the flatter yield curves that have resulted from it – has itself broken the monetary transmission mechanism, resulting in central banks pushing ever more liquidity on a limper and limper string. In this view, it is not inflation that’s at risk from QE, but rather, the health of the financial system. In this view, instead of central banks waiting for the money multiplier to rebound to old normal levels before QE is tapered or ended, central banks must taper or end QE first to induce the money multiplier and bank lending to increase."

However, the best argument why the type of Quantitative Easing imposed by Ben Bernanke, and the associated "necessary and sufficient" condition to exit this greatest of all monetary experiments, or eventually allow Ben and Kuroda to taper QE, i.e., the "great rotation" from government bonds into stocks (because otherwise both the Fed and the BOJ will be stuck monetizing and monetizing and monetizing until one day, soon, they own all government bonds), will never work in Japan is a simple one. And quite visual...