Plummeting oil prices are a symptom of terrible mounting instabilities in the world. After years of stagnation, complacency, and official pretense, the linked matrix of systems we depend on for running our techno-industrial society is shaking itself to pieces. American officials either don’t understand what they’re seeing, or don’t want you to know what they see. The tensions between energy, money, and economy have entered a new phase of destructive unwind. The global economy has caught the equivalent of financial Ebola: deflation, which is the recognition that debts can’t be repaid, obligations can’t be met, and contracts won’t be honored. Financial Ebola means that the connective tissues of trade start to dissolve, and pretty soon blood starts dribbling out of national economies.
A stunner this morning by ECB board member Yves Mersch who said earlier today that the ECB balance-sheet expansion is "neither an end in itself nor a fetish." As quoted by Bloomberg, the ECB member said that "the effect on rates that comes along with it is at best a collateral benefit." Nothing new here: we have discussed why unlike Japan and the US, the biggest gating factor for Europe is the presence of freely-available, unencumbered collateral that could, at least in theory, be purchased by the ECB. Which brings us to the Mersch punchline: "Theoretically the ECB could purchase other assets such as gold, shares, ETFs to fulfill its promise of adopting further unconventional measures to counter a longer period of low inflation."
Perhaps the biggest shock following last night's completely expected and very predictable (previewed here over a month ago) Japanese slide into triple- (actually make that quadruple) dip recession, is that it took the BTFTripleDip recession algos as long as they did to recover most of the overnight futures losses. Because after surging to 107 on a confused short squeeze kneejerk reaction, the USDJPY subsequently tumbled 150 pips to 105.50 as rationality briefly emerged, and the market wondered for a few brief hours if rewaring the destruction of one's economy is actually a prudent thing. Then, however, when European traders started walking into work, the now default USDJPY levitation on no volume came right back, and with that the correlation algo buying of E-mini futures, no doubt helped by the Bank of Japan itself taking advantage of the CME's ES liquidity rebate program. Because without confidence as expressed by the lowest and only common denominator left - global equities - there is nothing else.
Washington’s ability to rig markets has allowed Washington to keep its economic house of cards standing. The extent of financial corruption involving collusion between the mega-banks and the financial authorities is unfathomable. The Western financial system is a house of cards resting on corruption. Can it stand forever or are there so many rotted joints that some simultaneous collection of failures overwhelms the manipulation and brings on a massive crash? Time will tell.
If there were no puppet masters in Washington DC or the Kremlin, what would happen next week?
Some may herald the new ISIS coins as the successor of the dollar. Fat chance. It may not be fiat money, but is still not viable currency outside of where ISIS rules by sword.
Needless to say, this relentless expansion of the bubble eventually kills off the bears, the skeptics, the prudent and even the militantly incredulous. Undoubtedly, that is where we are now because the global economic news has been uniformly negative since the October dip, yet the market has resumed its relentless melt-up. Under such circumstances, therefore, it is well to remember that we are in the middle of the greatest central bank fueled inflation in recorded history, and that this insidious inflation has been channeled into financial assets owing to the arrival of peak debt everywhere around the world. But that is the Achilles heel of the game. As the bubble takes on ever greater girth, it becomes increasingly susceptible to a negative shock to confidence.
Brace yourselves, the zero sum game is on like Donkey Kong.
Our world, our life, has been built on debt and propaganda for many years. They have kept us from noticing how poorly we are doing. But now a third element has entered the foundation of our societies, and it’s set to eat away at everything that has – barely – kept the entire edifice from crumbling apart. Deflation.
A look at the price action of the dollar, S&P 500 and US 10-year yields as if analysis matters.
- "The hate us for our..." Americans’ Cellphones Targeted in Secret U.S. Spy Program (WSJ)
- Ukraine and Russia take center stage as leaders gather for G20 (Reuters)
- Moscow and Kiev trade accusations; U.S. warns Russia against escalation (Reuters)
- Heartland Central Banker Calls Asset Bubbles Top Concern (BBG)
- U.S. Said to Give Banks December Deadline in FX Probe (BBG)
- Series of Failures Enabled White House Breach, Report Finds (WSJ)
- Yen plumbs seven-year trough on likely Japan sales tax delay (Reuters)
- JPMorgan Chase Bankers Said to Lead Moscow Departure (BBG)
Kuroda has fired the shot that looks likely to trigger the next phase of the crazy monetary experiment we’ve all been living in for the last five years. Unfortunately, the next phase is where things start to get nasty. Just because equity markets cheered the latest sugar rush he guaranteed them should not make smart investors lower their guard — quite the opposite, in fact. Colonel Kuroda has gone up-country into the Heart of Darkness, and all we can do is await the Apocalypse now.
Simply put, the dollar's rise could destabilize the entire global financial system. To understand why this is so, we have to start with the source of the risk: the world's central banks.
"It's important to remember that a little gold goes a long way. If you had 5-10% allocation in your portfolio from 2000 to 2010, you wouldn't have suffered a lost decade" ... “I believe that now is a good time to take advantage of negative short-term trading sentiment,” Wickwire of Fidelity Investments said.
"Most Important Chart For Investors" Updated: Edwards Sees USDJPY 145 Next And "A Tidal Wave Of Deflation Westward"Submitted by Tyler Durden on 11/13/2014 09:38 -0500
What happens next? Here, straight from the horse's mouth that got the first part of the rapid Yen devaluation so right, is the answer. As Edwards updates with a note from this morning, "the yen is set to follow the US dollar DXY trade-weighted index by crashing through multi-decade resistance - around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards."