"The Virtuous Emerging Market Cycle Is Turning Vicious" Albert Edwards Remembers The 1997 Asian CrisisSubmitted by Tyler Durden on 07/30/2015 13:52 -0400
Given that some two-thirds of Wall Street traders have never experienced a Fed tightening cycle, SocGen's Albert Edwards is not surprised he gets blank looks when he tries to explain how recent events in commodity and EM markets are in many key (worying) ways similar to the 1997 Asian crisis.
"Hillary Clinton will propose a revamp of capital-gains taxes that would hit some short-term investors with higher rates, part of a package of measures designed to prod companies to put more emphasis on long-term growth," WSJ reports. Interested to know who might be pulling the strings behind the scenes? Read on...
"If in the short run, to paraphrase Benjamin Graham, equities are a voting machine, then it seems many of these votes are being coerced by interventionists.Central bankers the world over have become obsessed with asset prices, to the extent that the notion of central banks making outright purchases of equities is no longer confined to the lunatic fringe."
Is China (or the US) the next Greece?
Earlier today we commented that while stock markets across the globe, heavily influenced by central bank intervention from the PBOC to the SNB, are doing everything in the central planners' power to telegraph just how irrelevant Greece is, other indicators are far less sanguine. One example was copper, which plunged to a level not seen since February, and was in danger of breaching its 15 year support level. The commodity weakness today has persisted and is now crushing both WTI crude and Brent, both of which are in freefall, and WTI is now down over $3 on the session, or 6%, to a $53 handle, the biggest one day plunge since February to a level last seen in early April when there was much hope that the dramatic plunge in December and January was finally over. Turns out it wasn't.
In this centrally-planned world, in which nobody even denies anymore that all markets have become central banker playthings, fundamentals are irrelevant and few have a clue what this latest crash in copper may signify (some do, and it isn't pretty) an even more disturbing clue for the fate of this erstwhile "market doctor" is revealed when looking at the long-term price chart. Here, as SocGen notes, copper is in danger of breaching a huge 15 year support line... after which it is free fall for a long, long time.
We are in a risk-off period, so we reiterate the need to have cash in portfolios. The US dollar and US Treasuries are the safest assets in our view...
Investors are losing money, which strikes us as largely inevitable with asset prices where they are and economic growth and profits on a downward trajectory. Losing the least amount of money may be the best source of success this year.
Chinese QE Calls Officially Begin: Bond Swap "Sucks Liquidity", "Contributes To Stock Slump", Broker ClaimsSubmitted by Tyler Durden on 06/30/2015 20:40 -0400
"Local debt issuance sucks liquidity, reduces banks’ capital to buy bonds, contributes to stock slump," Haitong Securities says. The only option, according to the firm, is outright debt monetization by the PBoC.
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.
"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."
Of this touted €35 billion in bailout funding which Greece finally admitted it will cross "red lines" to obtain, the country will be lucky to pocket a little over €3 billion. However, considering that is how much the Greek government has already extracted out of various public pensions and municipalities as part of its quasi-capital controls unrolled previously to preserve the illusion of solvency, after the hard fought "deal" finally is inked, the Greek population will be left with... €0.
Unnamed "officials" have proclaimed a new set of Greek proposals received by Brussels tonight as "a good base," according to AFP, and thusly the Euro is very modestly bid. However, both Socgen (without a 3rd bailout of €60-80 billion over the next 3 years, Greek uncertainty remains high and leaves Grexit risk merely semi-stable) and Goldman (a deal will come only after the introduction of capital controls, a technical default on the IMF and issuance of IOUs/and a further build-up of arreas... and the damage resulting from a breaking of the integrity of the Euro would not be fixed by monetary policy alone) leave us wondering just who is buying Euros and US stocks and selling Swiss Francs as D(efault) Day looms and the 'C' word (contagion) spreads.