After seven long years of aggressively defending a monetary policy regime that's served to exacerbate the divide between the haves and the have-nots, the Fed looks at whether "the legend of Robin Hood" offers any helpful pointers about how to reignite America's economic growth engine. Spoiler alert: the Fed doesn't think "taking from the rich to give to the poor" would be very productive.
Because the central government is ultimately responsible for guaranteeing local government debt, and because yields on the new muni bonds are so close to those on treasurys, the newly issued local government bonds are really just treasury bonds, meaning that, in essence, the supply of Chinese government bonds is set to jump by CNY2 trillion in the coming months. If all of the local government debt ends up being refinanced, the end result will be the equivalent on CNY20 trillion in additional treasury supply.
The unanticipated recent Greek political news flow and consequent market stress are addressed in our portfolio construction by the resilience we built into higher volatility scenarios and unexpected sources of turbulence. Indeed, the risk is not so much Greece but the structural illiquidity of the market which will exacerbate any moves up or down which should be part of the equation.
Risk-taking in financial markets has gone on for too long. And the illusion that markets will remain liquid under stress has been too pervasive. But the likelihood of turbulence will increase further if current extraordinary conditions are spun out. The more one stretches an elastic band, the more violently it snaps back. Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialise at some point. Of what use is a gun with no bullets left?
The Syrian "chemical weapons" narrative is back and with it is the confirmaton that Russia will not leave the US dictate middle eastern borders unilaterally. Syria's foreign minister said on a visit to Moscow on Monday that top ally Russia had promised to send political, economic and military aid to his country. "I got a promise of aid to Syria - politically, economically and militarily," Walid al-Moualem said at a televised news conference in Moscow after meeting Russian President Vladimir Putin.
Over the last few months the financial media has not only turned deaf ears to the drama, (out of boredom) they have also blindly discounted any contagion effects as “isolated” at best – relative periphery contagion at worst. In other words: Any and all problems can be contained, mitigated, or solved by none other than your friendly neighborhood Central Bank. After all, if you listen to the so-called “smart crowd” these bankers have powers even Zeus would envy. So why worry about a little turmoil at the foot of Olympus? In any hero-worship endeavor one thing must remain constant or it all falls apart. Those that worship can never witness any event regardless of how minor: that the gods are not all that they portend to be. In other words: Allow just one moment of truth to be witnessed showing frailty instead of omnipotence – and the whole ruse falls regardless of the size and strength of the monuments and temples built to honor. For they will be abandoned: sometimes slowly, at others - all at once.
For the first time since October, 2008, China cuts both the benchmark lending rate and RRR on the same day, in a frantic attempt to sustain the country's equity bubble after stocks collapsed to the edge of bear market territory on Friday.
"As this critical domino chain of local governments in China’s credit risk situation begins to wobble, there could be significant ramifications for broad financial market stability. Such a chain reaction seems to have begun."