recovery

Following June's 0.8% surge in business inventories (the most in 4 years) which surged inventrory-to-sales to 1.37x - the highest since 2009 - July's data confirms the recession looms large as inventory accumulation appears to have hit its limit, up only 0.1% MoM (inventory-to-sales hovers at 1.36x - historic recession levels). Remembering that this data is lagged by 2 months (in the face of disastrous Empire Fed inventory collapse, auto production collapse and retail sales weakness), it appears the "if we build it, they will come" economy just got slapped in the face with the reality that 'Field of Dreams' was a fiction, just like The US 'Recovery'. Time for The Fed to hike rates?

It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets. The core paradox - that central banks can't control both domestic and global FX markets with the same set of policies - cannot be resolved by printing $1 trillion, or even $5 trillion. Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.

Almost two weeks after we explained why any hope for a QQE boost by the BOJ is a myth, and that any increase in monetization will simply lead to a faster tapering and ultimately halt of Kuroda's bond purchases the market finally grasped this, when overnight the BOJ not only did not easy further as some - certainly the USDJPY - had expected, but kept its QE at the JPY80 trillion level and failed to offer any hints of further easing that many had hoped for, pushing the Nikkei down from up almost 400 point intraday to virtually unchanged and sending the USDJPY back under 120. JGBs also traded lower on concerns there may not be much more QE to frontrun.

We noted earlier the premature exuberation in USDJPY and Nikkei 225 - despite most of the sell-side not expecting anything from The BoJ - and it appears the banks were right and the FOMO traders wrong. The Bank of Japan made no change to its monetary policy (no increased buying, no shift in ETF allocations, and no NIRP for now). BoJ members spewed forth their usual mix of "everything is awesome" and "any quarter now" for the recovery but the market wasn't buying it. That leaves only one thing left to cling to for a "we must buy" crowd - no change today 'guarantees' moar QQE in October.

It appears someone is betting on Kuroda and his cronies to do something later this evening (just like they did as The Fed stopped QE3 back in October) in some wierd monetray policy quid pro quo of - dump Yen all you like as long as the carry trade is alive and well. USDJPY is up from 119.85 to 120.50 (and NKY up over 400 points from US session lows), as perhaps the fact that The BoJ's ETF-buying kitty is running dry at a crucial time. Chinese equity markets are extending yesterday's losses as margin debt declines to a 9 month low (still +62% YoY), injects another CNY50bn and strengthens the Yuan fix for the 3rd day in a row; but in a somewhat embarrassing move, Washington has decided not to impose sanctions on China ahead of Xi's first state visit next week.

The world is becoming increasingly chaotic and the American people are seeking a leader who can bring order, make tough decisions, and capture the zeitgeist of this moment in history. They are in search of a prophet generation (Boomer) Grey Champion, whose arrival marks the moment of darkness, adversity and peril as the Fourth Turning careens towards its climax. The Grey Champion doesn’t necessarily have to be a good person, but they must lead and display tremendous confidence in their cause and path. Franklin, Lincoln, and FDR have many detractors, but during their Fourth Turnings, they most certainly led, casting aside obstacles (sometimes illegally) and enduring dark days and bleak prospects for success. Is there someone of that stature ready to lead the American people now?

Never go full Krugman...

News That Matters

Major depressions do not occur overnight. They go in downward waves, interrupted at intervals by false recovery waves.  But the collapse will continue, unstoppably. Like any house of cards, once it begins to actually fall, no further Band-Aids will stop the inevitable. So, what might that trigger be?

First it was Deutsche Bank, and now UniCredit. "Italy's biggest bank by assets, is planning to cut around 10,000 jobs, or 7 percent of its workforce, as it seeks to slash costs and boost profits, a source at the bank told Reuters on Monday," Reuters reports.

As Reuters reports, "Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division, financial sources said on Monday."

"The eagerly awaited Fed meeting is upon us. Regardless of the actual decision, we suggest that the market impact could end up being positive. If the Fed does raise rates, but at the same time reassures the market that this will be a gradual process, it would be received well. If, on the other hand, the Fed delays the move, this could be interpreted as a signal that the Fed is aware of and is responding to recent market concerns." - JPM

While any moves in the US stock market ahead of Thursday are largely irrelevant, as only Yellen's statement in 4 days will unleash epic algo buying or short covering (yes, according to JPM the Fed statement is bullish no matter what), it is what happened in China that is concerning, because while we had expected Chinese stocks to go nowhere in particular now that index future trading volumes have plunged by 99% or perhaps rise on hopes of even more easing after the latest terrible economic data, the Shanghai Composite dropped 2.7%, but it was the retail darling Shenzhen Composite which tumbled 6.7% - its worst selloff since August 25, while China's Nasdaq, the ChiNext crashed -7.5%.

For now, US equity futures are higher on the day, rising by 9 point after being 14 points higher ealier, driven mostly by USDJPY correlation algos, and perhaps by Goldman's conviction that the Fed will not hike in September and may delay hiking until 2016 altogether. However, we expect this initial euphoria higher to fade momentarily, once the vacuum tubes realize that the catalyst of Friday's surge higher, namely Gartman's latest flipflopping is no longer on the table: as of tonight, just 1 trading day after his latest reco, Gartman has been stopped out as his 1.5% limit was hit when futures rose above 1962 this evening.

"All this points to weaknesses in domestic and international policy arrangements - arrangements that have so far been unable to constrain sufficiently the build-up and unwinding of hugely damaging financial booms and busts across countries.Hence a world in which debt levels are too high, productivity growth too weak and financial risks too threatening. This is also a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks' every word and deed, in turn complicating the needed policy normalisation. It is unrealistic and dangerous to expect that monetary policy can cure all the global economy's ills."