Brace yourselves, the zero sum game is on like Donkey Kong.
The Fed remains fixated on financial-market feedback – and thus ensnared in a potentially deadly trap. Fearful of market disruptions, the Fed has embraced a slow-motion exit from QE. By splitting hairs over the meaning of the words “considerable time” in describing the expected timeline for policy normalization, Fed Chair Janet Yellen is falling into the same trap. Such a fruitless debate borrows a page from the Bernanke-Greenspan incremental normalization script of 2004-2006. Sadly, we know all too well how that story ended.
When the wrecking ball hits, the IMF stands at the ready with the SDR composite to pick up the structural pieces.........
We’ve been keeping the long lost idea of our long lost society alive by squeezing our own children wherever we can, and telling them that if they only work hard enough, they can be whoever they want to be. But they can’t, that notion is also long lost. When you keep home prices artificially high, homeowners don’t suffer as much, even if they bought at insanely high prices, but the suffering is switched to potential buyers, who remain just that, potential, while they live in their mom’s basements for years. A surefire way to kill a society while everyone’s eagerly awaiting the growth that is just around the corner and will forever remain there. Take it from your kids. Take it from somewhere else in the world. And that’s where we’re now passing a barrier: there’s no-one to take it from anymore.
As the chart demonstrates, there has never been a time when the all important leading indicator that is the San Fran housing market (see here for the reasons why) has posted such a steep slowdown in annual price increases without a bubble of some sort, be it the dot com, the first housing or the European sovereign debt bubble, having burst. Will this time finally be different?
Willem Middlekoop, author of The Big Reset – The War On Gold And The Financial Endgame, believes the current international monetary system has entered its last term and is up for a reset. Having predicted the collapse of the real estate market in 2006, (while Ben Bernanke didn't), Middlekoop asks (rhetorically) - can the global credit expansion 'experiment' from 2002 – 2008, which Bernanke completely underestimated, be compared to the global QE 'experiment' from 2008 – present? - the answer is worrisome. In the following presentation he shares his thoughts on the future of the global monetary system; and how gold, the US and China are paramount for its outcome.
- Doctor with Ebola in New York hospital after return from Guinea (Reuters)
- Ebola Puts Spotlight on Bellevue, Key NYC Trauma Center (WSJ)
- Uber Driver Transported Ebola-Positive Doctor in New York (BBG)
- GOP Gains in Key Senate Races as Gender Gap Narrows (WSJ)
- ECB Tries for Third Time Lucky in European Stress Tests (BBG)
- Security tight in Canada as police probe Parliament gunman's ties (Reuters)
- Why Madrid's poor fear Goldman Sachs and Blackstone (Reuters)
- Fed’s $4 Trillion Holdings Keep Boosting Growth Beyond End of QE (BBG)
And just like that, the Ebola panic is back front and center, because after one week of the west African pandemic gradually disappearing from front page coverage and dropping out of sight and out of mind, suddenly Ebola has struck at global ground zero. While the consequences are unpredictable at this point, and a "follow through" infection will only set the fear level back to orange, we applaud whichever central bank has been buying futures (and the USDJPY) because they clearly are betting that despite the first ever case of Ebola in New York, that this will not result in a surge in Ebola scare stories, which as we showed a few days ago, may well have been the primary catalyst for the market freakout in the past month.
George Soros Slams Putin, Warns Of "Existential Threat" From Russia, Demands $20 Billion From IMF In "Russia War Effort"Submitted by Tyler Durden on 10/23/2014 11:35 -0500
If even George Soros is getting concerned and writing Op-Eds, then Putin must be truly winning.
From Tepper's "Short The Euro," call (which he hopes does better than his "bond bull is over" call) to Icahn's "HY credit is in a bubble... and I am short" warning, The 2-day Robin Hood conference in NYC had something for everyone. Paul Tudor Jones thinks US equities will outperform the rest of the world this year but "the piper will be paid one day," and Larry Fink says "equities are health" after last week's correction... and Whitney Tilson is short Lumber Liquidators (trade accordingly).
Last Wednesday the markets plunged on a vague recognition that the central bank promoted recovery story might not be on the level. But that tremor didn’t last long. Right on cue the next day, one of the very dimmest Fed heads - James Dullard of St Louis - mumbled incoherently about a possible QE extension, causing the robo-traders to erupt with buy orders. And its no different anywhere else in the central bank besotted financial markets around the world. Everywhere state action, not business enterprise, is believed to be the source of wealth creation - at least the stock market’s paper wealth version and even if for just a few more hours or days. The job of the monetary politburo is apparently to sift noise out of the in-coming data noise - even when it is a feedback loop from the Fed’s own manipulation and interventions.
To get a sense of just how chaotic, unprepared, confused and in a word, clueless the ECB is about just its "private QE", aka purchases of ABS, which should begin in the "next few days" (but certainly don't hold your breath) - let alone the monetization of public sovereign debt - here is Exhibit A. Because if you were confused about what is about to happen, don't worry: it appears the ECB hardly has any idea either, because it was just on October 7 when 40 ABS bonds were dropped from the ECB's "eligible for purchasing" list. And then, just a week later, the ECB changed its mind about changing it mind, and reinstated 19 of the ineligible bonds right back!
With a combined position of nearly $2 trillion in US government debt, against which they hold little or no capital buffer, US banks are now extremely vulnerable to a bond market sell-off.
The last note briefly addressed the benefits associated with the reverse repurchase facility (RRF). Indeed liabilities have increasingly moved from bank balance sheets to the Fed, freeing lending capacity. One must recall reserves are not fungible outside of the banking system (but can act as collateral for margin). With flow decreasing, the opportunity for small relative volume bids spread over a large quantity of transactions (most instances per unit time) decreased with market prices in many asset markets. Is more downside coming?
About 36 months ago Ireland’s two-year notes were yielding 14% and its government and the Brussels apparatchiks were scrambling with tin cup in hand to stave off disaster. Now their yield is negative 0.01%.