Monetary Policy

"The room to ease policy further, i.e., to adopt counter-cyclical policies, is now much more limited than in the past. To the contrary, in some cases monetary tightening may be needed (despite weaker real business cycles) in order to continue to attract foreign capital, anchor domestic currencies and preserve the integrity of the respective inflation targeting frameworks. Hence, we may soon enter a period of weaker FX and higher policy and market rates: i.e., market dynamics that would resemble more the 1997 Asian Financial Crisis."

With just 20 minutes to go until the latest most important jobs report ever in the history of man, Richmond Fed Chief Lacker just explained why "the case for raising rates is still strong"...

LACKER: BOTH MANDATE CONDITIONS 'APPEAR TO HAVE BEEN MET', EXCEPTIONALLY LOW RATES NO LONGER WARRANTED BY JOB MKT
LACKER: AUG. JOBS REPORT UNLIKELY TO `MATERIALLY ALTER' PICTURE

But perhaps most crucially, Lacker explains "recent financial market volatility is unlikely to affect economic fundamentals in the United States and thus has limited implications for monetary policy," removing the one last leg for permabulls to rely on (that is if you velieve The Fed is not Dow-Data-Dependent).

Moments ago, US equity futures tumbled to their lowest level in the overnight session, down 22 points or 1.1% to 1924, following both Europe (Eurostoxx 600 -1.8%, giving up more than half of yesterday's gains, led by the banking sector) and Japan (Nikkei -2.2%), and pretty much across the board as DM bonds are bid, EM assets are all weaker, oil and commodities are lower in what is shaping up to be another EM driven "risk off" day. Only this time one can't blame the usual scapegoat China whose market is shut for the long weekend.

How did the world manage to go from one acute crisis to mutliple acute crises in the space of seven years despite trillions in central bank asset purchases, you ask? Here's the crisis contagion roadmap to help explain.

Respected economist and historian and the editor of the ‘Gloom, Boom & Doom Report’ Marc Faber warned on Bloomberg TV’s Market Makers yesterday that there are now “no safe assets” including deposits and said that he is focusing “on precious metals.”

DRAGHI SAYS ISSUE SHARE LIMIT FOR QE RAISED TO 33% FROM 25%

ECB CUTS EURO-AREA INFLATION FORECASTS FOR 2015-2017

Mario Draghi holds court (on his birthday, no less) in a closely watched post-meeting presser as markets hope collapsing inflation expectations, heightened volatility, EM chaos, and China turmoil will be enough to force the ECB's hand. 

All eyes will be on Mario Draghi on Thursday as expectations for something big from the former Goldmanite have grown over the past two weeks. More specifically, some now think the odds of QE expansion have increased considerably in light of collapsing eurozone inflation expectations, the incipient threat of some $1 trillion in QE-offsetting EM FX reserve draw downs, turmoil in China's financial markets, heightened volatility across the globe, and chaos in emerging markets from LatAm to AsiaPac.

A repetitive flaw continues to circulate throughout much of the media – mainstream and Alternative, alike

Markets have "reached some kind of a tipping point," warns Marc Faber in this brief Bloomberg TV interview. Simply put, he explains, "because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks - there is no safe asset anymore." The purchasing power of money is going down, and Faber "would rather focus on precious metals because they do not depend on the industrial demand as much as base metals or industrial commodities," as it's now "obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing."

"Not 'IF' but 'WHEN central banks lose control?' The global financial repression pushed investors to invest cash in risky assets, such as property and equity. The scale of global policy interventions is trumping all fundamental factors for now. Investors should keep in mind that the road is never straight and next month should be full of potentially disruptive events impacting sharply overcrowded assets and trades. History shows that such misallocation of resources creates bubbles that can last before fully blowing; the question is not if, but when."

It is time for a comprehensive audit of Janet Yellen ’s Federal Reserve - and not just for the reasons presidential candidate Rand Paul and others have given. The Fed needs to be audited to see if its ruling body has broken the law by manipulating financial markets that are outside its jurisdiction.

Mario Draghi and the ECB have a habit of patting themselves on the back when it comes to what they imagine the happy outcomes of their monetary policy decisions have been. In fact, they have a habit of congratulating themselves on positive outcomes even before said outcomes have been observed or have even had time to play out. This time around unfortunately, "the failure looks clear."

The global economy’s finance based spine is so out of whack that it is in need of a major readjustment. Cash or better yet “near cash” such as 1-2 year corporate bonds are my best idea of appropriate risks/reward investments. The reward is not much, but as Will Rogers once said during the Great Depression – “I’m not so much concerned about the return on my money as the return of my money.”

"Worryingly, EM capital flows are already significantly undershooting the projection from the hawkish scenario. The less constructive view is that the Fed balance sheet simply matters far more for EM, with liquidity provided by the ECB and BoJ a poor compensation for the Fed’s retrenchment. The hawkish scenario of Fed stopping reinvestment next year would suggest that EM flows can get weaker, while even a more dovish scenario of a constant Fed balance sheet would not be enough to lift inflows again."