Simply put, either large cap Financials are cheap, or the entire U.S. equity market is still overpriced. Their precipitous decline year to date means markets fear they are both the transmission mechanism for a global slowdown/recession to come and a primary victim of that event.
It didn't take much to fizzle Friday's Japan NIRP-driven euphoria, when first ugly Chinese manufacturing (and service) PMI data reminded the world just what the bull in the China shop is leading to a 1.8% Shanghai drop on the first day of February. Then it was about oil once more when Goldman itself said not to expect any crude production cuts in the near future. Finally throw in some very cautious words by the sellside what Japan's act of NIRP desperation means, and it becomes clear why stocks on both sides of the pond are down, why crude is not far behind, and why gold continues to rise.
Having urged "don't panic" just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.
"Nobody is really sure where we go from here, and nobody is brave enough to make the call,” Peter Dixon, Commerzbank AG’s global equities economist in London told Bloomberg. “Corporate earnings season won’t provide much of a support - markets may find a floor if the Fed is extremely dovish tonight. At least investors will have time to think and reassess valuations."
A new analysis of the Trans-Pacific Partnership (TPP) international trade deal has found claims of increased jobs are likely exaggerated..."TPP would lead to employment losses in all countries, with a total of 771,000 lost jobs. The United States would be the hardest hit, with a loss of 448,000 jobs."
What will bring down the Chinese and Saudi pegs, along with a long list of other pegs, is, how appropriately, the very same markets they’ve been relying on to NOT function. The bets against Hong Kong’s ability to maintain its USD peg have already started, and China is next, along with the House of Saud (the latter two just take more fire-power). Which of course is exactly why they speak their soothing ‘confident’ words. Words that are today interpreted as the very sign of weakness they’re meant to circumvent.
Maybe this is it. Maybe the global financial system has truly reached its limit. Maybe the world has realized that the path to prosperity is not in conjuring money out of thin air, raising taxes, or going deeper into debt. Maybe people have finally figured out that an insolvent government and insolvent central bank cannot possibly continue to underpin the entire financial system. Or maybe not. But the incredible thing is how much panic there has been, particularly in banking and financial markets, just at the mere HINT of problems in the system.
“Future Economic Historians” Will Probably Call the Period That Began In 2007 “the L-O-N-G-E-S-T DEPRESSION”Submitted by George Washington on 01/11/2016 16:18 -0500
The Real Economy Is Depressed-er
The mainspring of Islamic extremism and militancy isn’t the moderate and democratic political Islam, because why would people turn to violence when they can exercise their right to choose their rulers? The mainspring of Islamic militancy is the despotic and militant political Islam of the Gulf variety. The Western powers are fully aware of this fact, then why do they choose to support the same forces that have nurtured jihadism and terroris?
Once China set the Yuan fixing some 0.5% lower, the biggest drop since the August devaluation, all hell broke loose and unleashed a global selling panic after China's stock market was promptly shut down less than 30 minutes into trading, then European shares dropped the most in more than 4 months as Asian equities plunges, as did US stock futures, the dollar weakened against the euro and the yen; crude plunged to fresh 12 year lows. Gold rose.
See For Yourself ...
Elections, elections, and more elections is the 'regime change' meme for 2016 but, as Bloomberg details, the key events of the year ahead vary from a California marijuana referendum to Brazil's Olympics, and from Davos to SCOTUS. No matter what, 2016 holds a lot of opportunity for volatility, and without The Fed's safety net, who knows what that means for markets...
America is being destroyed by problems that are unaddressed. Unbridled greed, short-term in nature, will continue to drive America into the ground.
It’s all here: unilateral Exceptionalistan in action against anyone who dares to defy imperial diktats. From Ukraine to Syria, and all across MENA (Middle East and North Africa), the proxy war between Washington and Moscow, with higher and higher stakes, won’t abate. Imperial despair over the irreversible Chinese ascent also won’t abate. As the New Great Game picks up speed, and Russia supplies Eurasian powers Iran, China and India with missile defense systems beyond anything the West has, get used to the new normal; Cold War 2.0 between Washington and Beijing-Moscow.