Swiss Franc

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason."

Until recently, the consensus assumed a strengthening of the global economy in 2016. It won’t happen. If the global economic growth manages to reach 3.1% next year, as forecast by the IMF, it will be a miracle. We are close to the end of the current economic cycle. The outbreak of a new global crisis in the coming years is inevitable.  The Fed and other central banks are in a dead-end having fallen in the same trap as the Bank of Japan. If they increase rates too much, they will precipitate another financial crisis. It is impossible to stop the accommodative monetary policy.

If it smells like a rat it probably is a rat, and so it is with respect to these deals by collusion between China and Western governments, and their chosen corporate protégés, whether on currency or trade or investment matters. This is all an exercise in some combination of crony capitalism (with cronies on both sides!) and diplomacy by stealth. The gains and gainers are deliberately kept opaque. The losers are much less evident than the gainers, on whichever side of the fence, but principle and practice tells us that the total losses are much larger than the gains.

Europe has unleashed yet another monetary panic, and nowhere is it more visible than in what happened today across the short end of Europe's government curve.  As the table below shows, more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields!

The weakness seen in world economic activity is partly the result of the lack of a real purge of the financial system in 2008. It has become unimaginable to let entire parts of the system collapse, and the titling of some financial institutions as “systemic” is part of this logic. Policymakers attempting to keep unhealthy economic and financial institutions alive are making a mistake. The very essence of capitalism lies in the process of creative destruction. What we see here is not a way out of the crisis. Instead, we are on the edge of a new financial disaster.

Far from being some trivial problem that can be fixed by pressing "print", central banks operating from a negative equity position face the possibility of i) losing their independence as they have to be recapitalized at the behest of the government, ii) being forced into policy decisions (or, perhaps more appropriately "in"decisions) that they might not otherwise make, and iii) losing the ability to control the narrative, thus heightening market concerns about the loss of omnipotence.

Since either NIRP, or QE, or most likely both, are about to cross the Atlantic and make landfall in the US before the Fed is forced to launch the monetary helicopter, those who want to know what is really coming - no, not rate hikes - are urged to read this.

Anecdotal evidence from press reports, survey data and positioning data all agree on one point: very few people believe that the recent rally could actually be for real. With a pullback underway, we now have a chance to judge its nature – this should soon tell us if the recent rally was just another fluke or if it retains the potential to become a more sustained advance.

Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies. This observer believes the two countries cannot long withstand the pain they have brought upon themselves - and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.

Central banks are fearful and unwilling to normalize but artificially high valuations across asset classes cannot be sustained indefinitely absent fundamental global growth. Central banks are in a prison of their own design and we are trapped with them. The next great crash will occur when we collectively realize that the institutions that we trusted to remove risk are actually the source of it. The truth is that global central banks cannot remove extraordinary monetary accommodation without risking a complete collapse of the system, but the longer they wait the more they risk their own credibility, and the worse that inevitable collapse will be. In the Prisoner’s Dilemma, global central banks have set up the greatest volatility trade in history.

Gains in the foreign currencies appears to be mostly short-covering rather than bottom-picking per se.  In bigger picture the dollar is consolidating its earlier gains.

It has not been a good year for retail currency broker FXCM which in January faced massive losses in the aftermath of the shocking Swiss Franc revaluation. In fact, only a $300 million bailout from Jefferies/Leucadia allowed the currency trader to meet regulatory requirements and continue operations.  Then, this morning, FXCM clients woke up with even more headaches when the currency broker admitted it had been hacked, leading to a "small number" of unauthorized wire transfers from customers’ accounts.

Gold in Q3: USD -4.5%, EUR -2.4%, GBP +1.5%, CHF +2.4%, CAD +4.6%. Global stocks fall 5% to 13% - Stocks face worst quarter since 2011 over fears for global economy

If you borrow cash then it’s not income. No one in his right mind borrows to buy consumer goods... But what if someone else borrows, is that your income?

Yellen's reaffirmation of a likely rate before year-end helped lift the dollar.  Look for some consolidation ahead of the US jobs data.