QE destroys societies, economies and financial systems, it doesn’t heal them. So maybe it’s a touch of genius that the great powers of global finance have first pushed Keynes into the academic world and then academics like Bernanke and Yellen into positions such as head of the Fed, making everyone blind to the fact that what they think is beneficial, including many who think they’re real smart, actually hurts them most. This whole thing is so broken and perverted it’s getting hard to understand why anybody would want to continue clinging on to it. But then, what does anybody know? 95%+ of people have been reduced to pawns in someone else’s game, and they have no idea whatsoever.
Burst Chinese Housing Bubble Leads To First Annual Price Decline Since 2012; Prices Drop In Record 69 CitiesSubmitted by Tyler Durden on 10/24/2014 07:04 -0500
It has been over six months since the Chinese housing bubble has popped. What's worse, as overnight housing numbers out of China confirmed, the government has so far failed to contain the fallout, and according to the National Bureau of Statistics, which is anything but, after a fifth straight monthly decline, Chinese home prices have now wiped out all price gains in the past year. This was immediately spun as bullish by media outlets and sellside experts as "raising expectations the government will have to implement more economic support measures to cushion the blow." I.e., buy stocks because central banks will push risk prices artificially higher yet again. In other words, bad is still good and failure continues to be success.
Today US activity will be very light given the Columbus Day holiday. As DB summarizes, we have a relatively quiet day for data watchers today but the calendar will pick up tomorrow and beyond with a big focus on inflation numbers amongst other things. Indeed tomorrow will see the release of Germany’s ZEW survey alongside CPI prints from the UK, France and Spain. Wednesday’s data highlights will include the US retail sales for September, the Fed’s Beige Book, CPI readings from China and Germany, US PPI, and the NY Fed Empire State survey. Draghi will speak twice on Wednesday which could also be a source for headlines. On Thursday, we will get Industrial Production stats and the Philly Fed Survey from the US on top of the usual weekly jobless claims. European CPI will also be released on Wednesday. We have the first reading of October’s UofM Consumer Sentiment on Friday along with US building permits/housing starts. Yellen’s speech at the Boston Fed Conference on Friday (entitled “Inequality of Economic Opportunity”) will also be closely followed.
With the USD experiencing its longest stretch of weekly gains since Bretton Woods, it appears, as SocGen notes, that recent currency movements have triggered nostalgia of the pre-crisis world when dollar strength was synonymous with a prosperous global economy. However, given the extreme positioning and potential for policy-maker complacency, SocGen warns the paradox is thus that a strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum.
Which incidentally has nothing to do with stocks or bonds, and everything to do with all-important FX. To wit: "If a clear break in the yen downwards against both the dollar and euro is occurring, not only will this spell trouble for the beleaguered Chinese economy and exacerbate deflation in the west, but it will also break the spell of German economic dominance"
We have now done the math and compiled the Q2 earnings for the S&P 500 and we can indeed confirm that (at least in the second quarter) the buyback part is not only over but has ended with a thud, with the total notional amount of buybacks completed in Q2 plunging by 27% in Q2 to "only" $117 billion - the lowest since Q1 of 2013!
Despite all the 'promises' French joblessness has risen every month since April 2011... July's jump is the 2nd biggest sinmce April 2013 and at 3.424 million is a fresh record high. One can only hope (though good luck with that) that the new cabinet - same as the old cabinet - will turn things around. With 80% of French people believing that Hollande cannot fix the economy, we suspect things get worse before better...
- Jackson Hole Theme: Labor Markets Can’t Take Higher Rates (BBG), or anything else for that matter
- Kidnappers free American missing in Syria since 2012 (Reuters)
- More unpatriots: Burger King in merger talks with Canada's Tim Hortons (Reuters)
- California Quake to Cost Insurers Up to $1 Billion, Eqecat Says (BBG)
- Congo declares Ebola outbreak in northern Equateur province (Reuters)
- Missouri Governor Defends Ferguson Prosecutor (BBG)
- Kuroda Douses Japan Stimulus Expectations (WSJ)
- London Jihadi Call Vies With Banks in Canary Wharf Shadow (BBG)
- Netanyahu Signals Expansion of Air Attacks in Gaza (WSJ)
- Libya's Islamist Militias Claim Control of Tripoli (WSJ)
Following Russia's closure on several McDonalds in Moscow, the CEO of the American Chamber of Commerce is worried: "The question on my mind is: Is this going to be a knock on the door, or is this going to be the beginning of a campaign?" As Reuters reports, businessmen from both West and East are increasingly frustrated with the tit-for-tat sanctions (and their apparent lack of efficacy at anything but slowing global growth). Russian and Ukrainian CEOs joined Richard Branson to write "We, as business leaders from Russia, Ukraine and the rest of the world, urge our governments to work together to ensure we do not regress into the Cold War misery of the past." As we noted previously, Europe has suffered most, and the following European companies remain the most exposed to escalation.
We are sure this will end well... As CDS-based credit ETFs are launched, so the number of ways to 'sell' volatility (buy complacency) for retail equity investors have exploded in recent years as The Fed's stranglehold on uncertainty has continued. However, as Bloomberg reports, as VIX has tumbled in the last few weeks, investors are wagering on further declines - in the five weeks through Aug. 15, they put almost $320 million into the VelocityShares Daily Inverse VIX Short Term ETN (XIV): the longest stretch of weekly investments since the note began trading in 2010.
If yesterday's selloff catalysts were largely obvious, if long overdue, in the form of the record collapse of Espirito Santo coupled with the Argentina default, German companies warning vocally about Russian exposure, the ongoing geopolitical escalations, and topped off by a labor costs rising and concerns this can accelerate a hiking cycle, overnight's latest dump, which started in Europe and has carried over into US futures is less easily explained although yet another weak European PMI print across the board probably didn't help. However, one can hardly blame largely unreliable "soft data" for what is rapidly becoming the biggest selloff in months and in reality what the market may be worried about is today's payroll number, due out in 90 minutes, which could lead to big Treasury jitters if it comes above the 230K expected: in fact, today is one of those days when horrible news would surely be great news for the momentum algos. Still, with futures down 0.6% at last check, it is worth noting that Treasurys are barely changed, as the great unrotation from stocks into bonds picks up and hence the great irony of any rate initiated sell off: should rates spike on growth/inflation concern, the concurrent equity selloff will once again push rates lower, and so on ad inf. Ain't central planning grand?
While the allegations in the lawsuit are well-known to frequent (and all other) readers of Zero Hedge, we recommend reading the full filing as it explains in clear English just what the fixing process worked. Perhaps what is more interesting are the abnormalities in the price of gold as highlighted by Derksen, which clearly show the critical role the daily fix has in the manipulation of the price of gold, both in a downward and upward (mostly downward) direction: whichever suits the London Fix member banks.
As if trying to figure out the impact of the central banks' balance sheets and China's record debt creation on stocks wasn't enough of a complexity (actually it really isn't that complex) for a market where fundamentals haven't mattered in 5 years, there is also the issue of ETF basket creation, best known for the daily 3:30 pm ramp when ETFs catch up with their underlying components in a rising market, giving it all a procyclical turbo boost. It is here that SocGen reports that in the past fortnight, there was record equity ETF creation, mostly focusing on the S&P 500.
Stanley Druckenmiller is no stranger to the pages of Zero Hedge as he appears immune to the herd-like status-quo-hugging nature of 99% of the financial markets lackeys that strut on TV. His comments today - lengthy, aggressive, and very worried about what the Fed has done - can be summed up in the following chart and his ominous conclusion, "when the Fed ends QE, there'll be a bear market."
With the Q2 US reporting season upon us, SocGen's quant research team focuses on the deteriorating state of corporate balance sheets in the US. Despite Intel going full retard on forecast buybacks, as we remarked numerous times, US firms are starting to show the strains of having to buy back $500bn of shares every year, whilst cash flows were under pressure. Leverage, SocGen argues, is starting to become an issue... and with it the ability to fund ever more expensive buybacks to maintain the illusion of EPS growth