Major central banks claim to be independent, but they are totally under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time. What comes now is a new reality...
The world of investing as we’ve come to know it is over. Financial markets have been distorted to such an extent by the activities, the interventions, of central banks – and governments -, that they can no longer function, period. The difference between the past 6 years and today is that central banks can and will no longer prop up the illusionary world of finance. And that will cause an earthquake, a tsunami and a meteorite hit all in one. If oil can go down the way it has, and copper too, and iron ore, then so can stocks, and your pensions, and everything else.
In October, BBRY shares spiked (and dumped) on rumors that Lenovo had made an offer. Today, after a detailed report from Reuters explained that Samsung executives had offered to takeover the troubled phone-maker (or whatever they call themselves nowadays) and the stocks spiked up nearly 40% - perfectly running stopw through the mid-Nov highs and squeezing shorts out of the market... and now - after hours - BlackBerry issues a statement denying the whole thing... rigged much?
- Earnings Pessimism Jumps as Oil Threatens S&P 500 Growth (BBG)
- It’s Amateur Hour in the Booming Chinese Stock Market (BBG)
- France mobilizes 10,000 troops at home after Paris shootings (Reuters)
- European Stocks Gain With S&P 500 Futures While Oil Drops (BBG)
- Nasdaq Looks to Operate Dark Pools for Banks (WSJ)
- This Guy Called Bonds in ’14. You Listening This Time? (BBG)
- Paris attacks boost support for Dutch anti-Islam populist Wilders (Reuters)
- OPEC price war in Asia intensifies as oil falls below $50 (Reuters)
Let’s focus on what happened in the lead up to the summer of 2011, right before the markets cratered on the back of everything that was going on in Europe and the downgrade of the US' credit rating by S&P. The leveraged loans index peaked at the start of the year and traded sideways up until that eventful August. This was a sign that something was not right in the credit markets; and equities pretty much followed the same pattern. If we fast forward to today, we can see that the leveraged loans index peaked in July 2014, indicated by the red line in the graph, and has noticeably declined since; at the same time equities continued to move higher, a divergence which is a novelty in this bull market. Is this telling us something? We believe so - it is a red flag for equities.
For now, they've failed............but the fact that this watering-down was even considered is something I find sickening.
Introduce a regulation over here, an unintended consequence pops up over there. Then there are more regulations to deal with the unintended consequences. Regulations have added 100 times the volatility to one of the most liquid and ordinary derivatives in the world - the plain-vanilla EFP. Less liquidity, more volatility - welcome to 2015.
- Economists sceptical ECB bond-buying would revive eurozone (FT)
- Indonesia naval captain says may have located missing plane's tail section (Reuters)
- Oil hits five and a half year low under $55 (Reuters)
- Samaras Warns of Euro Exit Risk as Greek Campaign Starts (BBG)
- The death of active investing: Vanguard Sets Record Funds Inflow (WSJ) - thank you Fed
- Oil Downturn Has Many Wondering How Lone Star State Will Weather a Bust (WSJ)
- Hollande Says France Must Exceed 1% Economic Growth to Spur Jobs (BBG)
2014 may go down as the year when gold and silver conspiracy “theories” became conspiracy “facts” as banks globally were found to have conspired to rig the prices of gold, silver, currency and many other markets.
If the tech mania was based on magic, and the housing mania was based on a supposed fact that was historically untrue, today’s mania is a mania of manias, interlinked and resting on premises that are patently illogical, contradicted by both the historical record and current experience. Those premises are: central planning works, government debt promotes prosperity, and economic growth stems from central banks buying that debt with money they create from thin air. On these premises rest manias in governments, their debts, and central banking.
Despite the widely held belief that 2015 will be the year in which a patient Fed finally begins to normalize rate policy, we believe the Fed has no possibility of withdrawing the stimulus to which it has addicted us. QE4 was always much more probable than anyone in government or on Wall Street cares to admit. A recession and a financial panic caused by sub $60 oil will significantly quicken the timetable by which the Fed cranks up the presses. When it does, oil could once again increase in price, along with all the other things we need on a daily basis. That should finally dispel any remaining illusions that the Fed could successfully land the metaphorical plane. More QE may minimize the damage in the short-term, but we believe it will keep us trapped in our current cocoon of endless stimulus, where we will slowly suffocate to death.
It all looked so rosy just a few short hours ago. WTI crude has slipped from over $58.50 (once again testing that upper band of resistance) to back below $56 and down almost 2% from Friday's close (not stabilizing). While the S&P and Dow (futures) remain green, the Nasdaq has tumbled into the red on the heels of Gilead's weakness (the 6th largest name in the Nasdaq 100).