Same slide, different day, as the crude crash continues, with both WTI and Brent tumbling to multi-year highs, below $49 and $52 respectively. This happened despite the news overnight that China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year, suggesting that China will focus more on fiscal policy than monetary easing, which in turn led to much confusion in the SHCOMP, which fluctuated up and down for the day several times before finally closing unchanged. There was no confusion about the stops slamming USDJPY, and its Nikkei225 derivative which tumbled 3%, sending Japanese Treasury yields to fresh record lows. Record low yields were also seen in Germany, Austria, Belgium, Netherlands, Finland, France (and many other places), which in turn forced the US 10 Year to finally dip back under 2.00%. In fact, taken together, the average 10Y bond yield of the U.S., Japan and Germany has dropped below 1% for the first time ever, according to Citi.
In 1991, the Cold War between the US and the USSR ended, as, economically, the USSR had run its course. Since that time, the US has had the ability to back off on armaments and to strengthen itself economically, to become even more powerful as the world’s present empire. But, of course, that’s not what they did. Instead, they went headlong in the direction of becoming a more highly armed, more fascist state. Along the way, they became extremely reckless with their economy, following a Keynesian model that contributed to the greatest debt bubble the world has ever seen.
2014 may go down as the year when gold and silver conspiracy “theories” became conspiracy “facts” as banks globally were found to have conspired to rig the prices of gold, silver, currency and many other markets.
Amid the European crisis in 2012, European banks reached deep deep down to encourage depositors to lodge their savings in these highly levered financial institutions. Most notably, now defunct Bankia, which offered no lesser gift than a Spiderman Towel in exchange for a EUR300 deposit. So, one wonders just how desperate they are - and just how close to total collapse - when Chinese banks are offering Mercedes Benz, iPhones, or a gold pendant to encourage cash as Bloomberg reports one analyst warns, "Chinese banks are hemorrhaging their deposits."
How did the investment ideas we discussed throughout the year play out
China's Leading Index has fallen to its lowest since Feb 2009 this evening, down 4 straight months from credit-driven 18 month highs. This economic weakness has exaggerated the already weak tone in Yuan trading this evening pushing CNY to its weakest in almost 7 months (against the USD), its furthest on record from the CNY Fix (10-month highs), and very close to the PBOC's upper +2% band for CNY trading. At 6.23, USDCNY is over 1000 pips weaker than the CNY fix.
Iit was only this week that Bloomberg reported that "China Offers Russia Help With Currency Swap Suggestion." But in order to fully backstop Russia away from a SWIFT-world in which the dollar reigns supreme, one extra step was necessary: the launching of direct FX trade involving the Russian and Chinese currencies, either spot or forward - a move away from purely theoretical bilateral FX trade agreements - which would not only enable and make direct currency trading more efficient by sidestepping the dollar entirely, but also allow Russian companies to budget in Chinese Yuan terms. It is no surprise then that this is precisely the missing step that was announced overnight, and will be implemented starting Monday.
For those wondering where US shale exploration and production companies will be in about 2-3 years, look no further than the gold miners, where the disconnect between undaunted physical demand and relentless paper supply (after rebounding above 0%, GOFO is once again negative through the 3 month mark), and where high production costs and low selling prices, after two years of balance sheet pain, is finally leading many over the cliff. Case in point, Canadian gold-miner San Gold, which had a capitalization of over $1 billion in 2010 just filed for bankruptcy protection. It isn't the first gold-miner to wave the white flag, and it certainly won't be the last.
- Russia says NATO turning Ukraine into 'frontline of confrontation' (Reuters)
- Oil Drillers Under Pressure to Scrap Rigs to Cope With Downturn (BBG)
- Demonstrators Defy NYC Mayor's Call to Suspend Police Protests (BBG)
- U.S. to send more private contractors to Iraq (Reuters)
- ISIS Shoots Down Jet From U.S.-Led Coalition, Syrian Monitors Say (NYT)
- Russians Race to Secure Mortgages Before Costs Spiral (BBG)
- Abe Brings in Former Soldier Nakatani as Defense Minister (BBG)
- At Coke, Newest Flavor Is Austerity (WSJ)
- Fear and retribution in Xi's corruption purge (Reuters)
- UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile (BBG)
As the year winds down, a Gordian knot tying Russia, oil prices and China together is receiving a great deal of attention. Let's see if we can unravel some of the confusing twists and turns.
We turn first to China's offer of assistance to Russia. The idea that Russia could activate its CNY150 bln (~$24 bln) currency swap line with China is capturing the imagination of many.
- Christmas rally enters sixth day in Europe (Reuters)
- Downing North Korea's Internet not much of a scalp (Reuters)
- North Korean Internet Access Restored After Hours-Long Outage (BBG)
- At U.N. council, U.S. calls life in North Korea 'living nightmare' (Reuters)
- Ukraine Cuts Gold Reserve to Nine-Year Low as Russia Buys (BBG)
- De Blasio Seeks to Heal Rifts With Police After Officers Slain (BBG)
- Oil steady around $60 on hopes of strong U.S. data (Reuters) - so it fell below $60 because...
- Australian Dollar Hits Four and a Half Year Low on Chine Growth Worries (Reuters)
Just a week ago we detailed how China was preparing to bailout Russia's liquidity crisis via the 150 billion yuan swap line the two nations agreed in October. Today, as Bloomberg reports, we got confirmation as two Chinese ministers offered support for Russia. China will provide help if needed and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying; and Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of yuan for bilateral trade would have the greatest impact in aiding Russia. The Global Times (mouthpiece for the Comunist Party) wrote in an editorial this weekend, "Russia is an irreplaceable strategic partner on the international stage." Isolated?
- Police officers' slaying raises pressure on New York mayor (Reuters)
- People Call for Cooling of Racial Tensions After Murder of NYPD Officers (BBG)
- The $6.3 Trillion Frenzy That Vanquished Treasury Bears (BBG)
- China Investigates Possible Stock-Price Manipulation (WSJ)
- Citigroup Was Wary of Metals-Backed Loans (WSJ)
- UPS Turns Parking Lots Into Sorting Centers to Add Speed (BBG)
- U.S. Move to Normalize Cuba Ties Boosts Firms’ Asset Claims (WSJ)
- Meredith Whitney’s Fund Said to Drop 11% as Office Put on Market (BBG)
- Railcar Bottleneck Looms for Oil (WSJ)
Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."
"I’m tired of being outraged!"
Yesterday's epic market surge, the biggest Dow surge since December 2011 on the back of the most violent short squeeze in three years, highlighted just why being caught wrong side in an illiquid market can be terminal to one's asset management career (especially if on margin), and thus why hedge funds are so leery of dipping more than their toe in especially on the short side, resulting in a 6th consecutive year of underperformance relative to the confidence-boosting policy tool that is the S&P. And with today's session the last Friday before Christmas week, compounded by a quadruple witching option expiration, expect even less liquidity and even more violent moves as a few E-mini oddlots take out the entire stack on either the bid or ask side. Keep an eye on the USDJPY which, now that equities have decided to ignore both HY and energy prices, is the only driver for risk left: this means the usual pre-US open upward momentum ignition rigging will be rife to set a positive tone ahead of today's session.