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"We've Never Seen Anything Like This" - Dumbfounded Central Bankers Brace For "Rolling Series Of Crises"

Tyler Durden's picture




 

One of the most important things to grasp about the Fed’s September (in)decision is that the FOMC had no viable options when it came to emerging markets. 

The combination of low commodity prices, falling demand, slumping global trade, a decelerating China, and the yuan devaluation have all served to accelerate capital outflows for EM and there’s certainly an argument to be made for the contention that a Fed hike and a subsequent spike in the dollar would be just about the last thing EM needs when it comes to stopping the bleeding. 

That said, there’s another line of argumentation which says the Fed missed its window to hike long ago and so now, all they’re doing in the Eccles Building is fostering continued uncertainty which is also causing capital to flow out of EM. 

In the simplest terms possible: no one really has any idea whether it’s best to rip the band-aid off or not, and adding to the confusion is the fact that the Fed has now telegraphed its own uncertainty by explicitly acknowledging the reflexivity problem, meaning EMs (and everyone else for that matter) are desperately trying to figure out how to incorporate themselves into their own outlook for what the Fed may or may not do. 

Here’s how one former Treasury economist framed the latter argument:

”Short-end rates move higher as the Fed gets closer to hiking, and that causes the dollar to strengthen, and that causes global funding stresses. They are creating the conditions that are causing the external environment to be weak, and then they say they can’t hike because of those same conditions that they have created.” 

Obviously this is an impossible quagmire. There’s no way out and the decision is just going to get more difficult with each passing FOMC meeting. It’s made all the more convoluted by the fact that not hiking sends a negative message about the US economy, thus imperiling domestic risk assets but hiking could send EM over the edge ... or maybe not... or who knows. 

The wording there is no accident. It's literally that indeterminate.

That’s the problem facing the world's EM central bankers and as you can see from the following, everyone is simply dumbfounded. 

Via The New York Times:

After a week of discussions [in Lima], bankers and policy makers agreed that stemming the rush of investments from emerging markets was one of the most important challenges facing the global economy. But there was little agreement on how to actually do that.

 

On official panels, in closed-room sessions and over drinks in Lima restaurants, market participants struggled to come to grips with the persistent flows of money escaping emerging-market stocks and bonds in search of safer investment shores.

 

“We have never seen something like this,” said Hung Tran, a senior executive at the Institute of International Finance, a trade group for global banks. Mr. Tran said that he was expecting net outflows from emerging markets to be around $800 billion for this year and next — by far the largest amount since institutions began investing in these markets in the late 1980s.

 

The fear is that these numbers could increase substantially, especially if China’s currency weakens further. That could result in a rolling series of emerging-market crises.

 

At the root of the debate has been whether the Federal Reserve’s decision last month to hold interest rates near zero has increased investor confidence in emerging markets or hurt it.

 

Those on the front lines of the outflows of funds from the emerging markets — central bankers in countries like Brazil, Turkey, Malaysia and Mexico — are beginning to say that the Fed’s decision to hold back has actually made their job more difficult. That is because instead of staying put, or making new investments, investors are rushing out all the faster, spooked that the Fed has larger fears about China and other emerging markets.

 

“I heard time and again this week from governors of emerging-market central banks that it’s not the hike itself that worries them,” said Jacob A. Frenkel, the chairman of J.P. Morgan Chase International and the former head of Israel’s central bank. “It’s how much and when it occurs.”

 

“Delaying an increase in rates only increases volatility and uncertainty in emerging markets,” said David Fernandez, a currency and bond specialist at Barclays in Singapore. “Emerging markets will continue to see outflows.”

As indicated above, there's really no telling if these bankers' assessments are correct. That is, it could very well be that when the hike actually comes - even if it's a paltry and largely "symbolic" 25 bps - the resultant "tantrum" (so to speak) will be far worse than the what would have occurred if the Fed had just remained on hold and left everyone in suspense. But again, we won't know until it's too late. 

Meanwhile, it's important to remember that the fundamentals are awful across EM and at the end of the day, that's the problem. The obsession with the Fed is unhealthy for any number of reasons, but when you've got a commodity space that's in freefall, declining global growth and trade, and acute political crises that include a civil war in one key market (Turkey) and an intractable legislative stalemate in another (Brazil), it's not entirely clear that even if the Fed were to somehow get everything just right going forward that the picture would materially change for the world's emerging economies.

 

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Mon, 10/12/2015 - 20:18 | 6660840 El Viejo
El Viejo's picture

As soon as they smell smoke there will be a mad rush for the doors.  Be prepared.

Mon, 10/12/2015 - 20:27 | 6660860 SafelyGraze
SafelyGraze's picture

dear "emerging markets" -

you know all that "development" and stuff and all those loans and stuff and how we said we wanted to "help you" and your "economy" and your "people"?

gues what.

no. wait -- let's just pause a moment to enjoy.

hugs,
tptb

don't forget us! -chrissy lagarde and dsk

 

Mon, 10/12/2015 - 21:13 | 6660999 LowerSlowerDela...
LowerSlowerDelaware_LSD's picture

How, exactly are they braced?  Is Yellen strapped to something with two by fours and stainless steel cables supporting her?

Tue, 10/13/2015 - 04:42 | 6661909 Nenad
Nenad's picture

Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy! http://motivationdose.com/is-america-babylon/

Mon, 10/12/2015 - 22:14 | 6661216 illyia
illyia's picture

2 Kewl 4 Skewl.

Tue, 10/13/2015 - 01:07 | 6661726 Nobody For President
Nobody For President's picture

Safely, that's just mean.

Funny as hell, but mean.

Mon, 10/12/2015 - 20:41 | 6660897 Commodore64
Commodore64's picture
“If the doors of perception were cleansed every thing would appear to man as it is, infinite...... debt."
Mon, 10/12/2015 - 21:40 | 6661099 SILVERGEDDON
SILVERGEDDON's picture

Pretty hard to see anything when you are behind the mask pulling the levers and snorting Krugman dust motherfuckers. 

Mon, 10/12/2015 - 20:47 | 6660924 Gambit
Gambit's picture

I cant wait for that mad rush to happen, it is time to rebuild our communities based on sound monetary system and encourage entrepreneurship.   It is the entrepreneurs – the real one, not the one that like to call themselves entrepreneurs but don’t know shit from shit- that solve problems not the government. 

Mon, 10/12/2015 - 20:49 | 6660927 BandGap
BandGap's picture

Makes the interest rate hoax look like a bait and switch. Fucking hanging out the rest of the world, just as planned.

Go figure. Let's move some ships to the Spratleys.

Mon, 10/12/2015 - 20:21 | 6660846 Shumbies
Shumbies's picture
War is Peace, Freedom is Slavery, Ignorance is Strength...
Mon, 10/12/2015 - 20:23 | 6660853 El Viejo
El Viejo's picture

Death is life.  Good is Evil and Evil good.

Mon, 10/12/2015 - 20:25 | 6660858 dimwitted economist
dimwitted economist's picture

Dumbfounded.. DumbFuckers.. i Guess QE 4  begins soon Huh?

Mon, 10/12/2015 - 20:29 | 6660866 two hoots
two hoots's picture

Would have been better of if Bernanke/Paulson would have let it alone.  But you don't make headlines if you don't do something newsworthy, books won't sell.  Now it's too late.  The IMF fears they'll be exposed if the Fed raises rates, the Fed will be exposed if they do (inflation mandate not met) and the rest of us are screwed either way.

 

HOW THE HELL DID WE (WE & THE WORLD) ALLOW CB's TO LEAD US TO SUCH A POSITION (DEBT OVERDOSE)?  HOW DID THEY BECOME SO HANDS-OFF POWERFUL?    CONGRESS HAS SOME SPLAI'N TO DO? 

MAYBE MR RYAN WILL CLEAR THINGS UP?

Mon, 10/12/2015 - 21:25 | 6661038 Solio
Solio's picture

They may do that splainin if they were around to be found , but everyone's gone to the moon.

https://video.search.yahoo.com/video/play?p=everybody%27s+Gone+To+the+Mo...

 

 

Mon, 10/12/2015 - 21:36 | 6661081 Solio
Solio's picture

Reply is to two hoots above at 20:29.

Mon, 10/12/2015 - 23:15 | 6661411 Macon Richardson
Macon Richardson's picture

You ask how did we allow CBs to lead us to such a position. What do you mean "we", paleface?  Many of us saw this avalanche coming as far back as 1992 but could do nothing about it--except get out of the way. Urging others to see the coming disaster only earned us mockery and derision. If you're one of "them" and didn't see this coming then, I think you'll get what you deserve. I bailed out two decades ago and make a decent living raising penguins on the Ross ice shelf.

Mon, 10/12/2015 - 23:43 | 6661525 TheReplacement
TheReplacement's picture

Swear ze oath of loyalty, without queztion, and I vill clear everzing up.  ~ Mr. Ryan

Mon, 10/12/2015 - 20:30 | 6660867 Ms No
Ms No's picture

"They are creating the conditions that are causing the external environment to be weak, and then they say they can’t hike because of those same conditions that they have created.” 

Then they will proceed to fein shock at the circumstance which they have created and find a third party to blame.  All parties who didn't see it coming will believe this feined surprise because they are clueless and authentically shocked themselves.  Wash.. rinse... repeat.

Mon, 10/12/2015 - 20:35 | 6660883 TheRideNeverEnds
TheRideNeverEnds's picture

nobody could have seen this coming... nobody

What say you Dennis, buy it?

Mon, 10/12/2015 - 23:45 | 6661535 TheReplacement
TheReplacement's picture

'We are definitely net bullish on this.'  ~ D to the G to the WTF?

Mon, 10/12/2015 - 20:38 | 6660892 Commodore64
Commodore64's picture

He never did that, and now he is doing it again!!!

Mon, 10/12/2015 - 20:41 | 6660903 GRDguy
GRDguy's picture

"We've never seen anything like this."  That's probably true, like folks who've seen avalanche conditions build up to a level they've never seen before above their city.  Central bankers are like those who sold off what they could; got out of town; and then shot explosives into the mass to set off the avalance.  Same-o same-o.

Mon, 10/12/2015 - 20:43 | 6660910 Commodore64
Commodore64's picture

PLEASE SOMEONE!  Send me a PM about PM!!

Mon, 10/12/2015 - 20:44 | 6660914 Dickweed Wang
Dickweed Wang's picture

. . . and over drinks in Lima restaurants, market participants struggled to come to grips with the persistent flows of money escaping emerging-market stocks and bonds . . .

Maybe those geniuses should cool it on the booze while they're trying to figure this all out . . . just saying.

Mon, 10/12/2015 - 20:54 | 6660939 Ban KKiller
Ban KKiller's picture

Musical chairs plus Russian roulette. What could go wrong? 

Meanwhile...fuck you FIG! Ha-ha! 

Mon, 10/12/2015 - 21:03 | 6660962 shovelhead
shovelhead's picture

Doing nothing is not a solution and doing something may not be a solution either...

Hoo boy. As they say in the old country...

"Sumbuddy fugged the dog".

Mon, 10/12/2015 - 21:03 | 6660965 RhoneGSM
RhoneGSM's picture

Christine LaGarde and a Hung Tran. 

Must be this week's best headline.

Mon, 10/12/2015 - 21:25 | 6661033 RhoneGSM
RhoneGSM's picture

Christine LaGarde, a Llama and  Hung Tran walked into a bar in Lima...

Mon, 10/12/2015 - 21:18 | 6661014 holdbuysell
holdbuysell's picture

Listened to a great interview of Neil Howe, co-author of "The Fourth Turning" book, on RealVision TV recently. One point made was that old institutions will be collapsed and replaced by something new. He used the analogy that the institutional landscape could be like 'wet cement' just waiting for a new impression to be created.

May humanity recognize fascist central banking as one of those institutions needing replacement with an institution centered on money controlled by the people.

Which reminds me of this:

“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”

-Lord Acton

Mon, 10/12/2015 - 21:52 | 6661142 gatorengineer
gatorengineer's picture

Lets see facebook, aapl, amzn, nflx, and walmart, 90 percent of america wouldnt notice any change in life if yhose were the only companies that existed.

Mon, 10/12/2015 - 23:53 | 6661549 TheReplacement
TheReplacement's picture

America is only 5% of the global population, or some miniscule figure like that.  At one time (twice really) Germany was exceptional and powerful.  Look at what happened to them (twice). 

This situation is going to change and the blame is going to be laid squarely on the backs of regular Americans, not the CBs.  The bombs will drop on regular Americans, not the CBs.  At least that is my take on the plan. 

Man do I honestly hope that Putin is in this for the simple motivation of Russia's national interests.  If he's part of the plan then God help us all.  China also seems to have the potential to swing either way.  I suppose it will come down to personal interests. 

 

Mon, 10/12/2015 - 21:22 | 6661024 Neochrome
Neochrome's picture

Move on, nothing to see, let the vultures to their job....

Mon, 10/12/2015 - 22:35 | 6661039 tarabel
tarabel's picture

 

 

These Janus-faced hypocrites.

All we heard in the runup to the last Fed meeting was "Please don't hike, it will hurt us in the NTEMs (Never To Emerge Markets) even if it is good for the US. Please, please, please, don't be a homophobic racist and raise rates."

Now they pretend like they got it covered either way and aren't scared of the Big Bad She-Wolf.

Mon, 10/12/2015 - 21:52 | 6661140 MrNoItAll
MrNoItAll's picture

It's the dreaded "damned if you do -- damned if you don't" conundrum on an epic scale.

Mon, 10/12/2015 - 22:12 | 6661210 yogibear
yogibear's picture

This larger amounts of QE.

Mon, 10/12/2015 - 22:34 | 6661273 i_call_you_my_base
i_call_you_my_base's picture

“I heard time and again this week from governors of emerging-market central banks that it’s not the hike itself that worries them,” said Jacob A. Frenkel, the chairman of J.P. Morgan Chase International and the former head of Israel’s central bank. “It’s how much and when it occurs.”

What a stupid line.

"It's not the hike, it's just all of its qualities."

Mon, 10/12/2015 - 23:24 | 6661450 NotApplicable
NotApplicable's picture

Sophistry at its finest!

Mon, 10/12/2015 - 23:21 | 6661441 theyjustcantstop
theyjustcantstop's picture

dumbfounded, and have never seen anything like this, say the cb's, such a line of bs.

this is their m.o..

they control most of the monetary policy in the world, they know exactly what's going on daily, never let a crisis go to waste, especially the ones they've spent time creating.

if your in an em, even most dm's, watch the skies for goldmans, jpm's, imf's and 50 other cb's jets, and helicopters landing in your capital cities, they want to find the weak politicians, where your gold is held, and then make deals, they'll Greece your ass if they can.

after the 90's, and now, will em's, dm's buy, sell, or trade their countries labor, manufacturing, and commodities in frn's again?

in the 90's with the last global recession when em's, and, dm's were fighting for their lives, to get out from under the cb's, guess who were monopolizing, and setting the price in the commodity markets you had to build backup, cb's. 

their not dumb, or surprised, if their actions can destroy one country a month by doing nothing, or raising rates, it will be decided by a very few international bankers, and what's more profitable for them, your country, and citizens be damned.

 

 

Mon, 10/12/2015 - 23:41 | 6661514 o r c k
o r c k's picture

Related to being damned, the young people of this generation will soon be looking at a draft. A great war appears to be upon the world as certain as the US response to the dying petrodollar. You may be witnessing the last gasps of civilization. If nuclear winter does not engulf us right away, anyone of military age had better prepare their response to being used as potential cannon fodder. I lived through this in the 60's but humanity was not at stake. Stand up to the monsters of premature death. Preserve your world and your future.

Tue, 10/13/2015 - 05:34 | 6661953 kareninca
kareninca's picture

Young people of this generation are too fat to draft, and don't know how to do anything that a soldier would be needed to know.  Also, they are special snowflakes.  If there is a great war (and there might be) it won't involve a lot of soldiers, just a lot of deaths. 

Tue, 10/13/2015 - 15:24 | 6663840 spacemonkey99
spacemonkey99's picture

special snowflakes love that term...but perhaps young people are just getting one step closer to hitting rock-bottom as well

Tue, 10/13/2015 - 07:57 | 6662094 Kagemusho
Kagemusho's picture

I beg to differ about humanity not being at stake. I recall very well my parent's fear watching Kennedy's broadcast about the Cuban missile crisis. We lived only a few miles northeast of Washington DC at the time, and my father having been military, knew what our chances were in the event of the US and Sovs trading missiles.Having served myself, and participated in war games in Western Europe in the 1980's, all of the scenarios went nuclear within 4 days.

All of them.

Few were happier than I was when the USSR fell, but I always felt that the danger was not over. If anything, the problem of random, unpredictable use of stolen nukes became even more likely. And few had warned that the industrial capacity of Russia would be reborn.

The intermarried, corporately bonded de facto aristocracy that runs the Western world seems to be suffering from trhe same kind of behavioral malady royalty usually leads to, one that leads to national and regional (if not global) disasters.  Namely, hubris. It shows in their economic and forreign policies, and they have chafed the Russians and Chinese once too often, to the point that traditional cultural enemies are working together to turn the tables on that oligarchy.

And as always is the case, like the old African proverb, "When the elephants fight, it is the grass that suffers." It's the ordinary citizen that will suffer the most, regardless of country.

But with 7B potential bounty hunters on this planet, the 'Masters of the Universe' had better watch their step. As my Irish mum taught me, "Beware the anger of the patient man." That patience has about run out.

 

Mon, 10/12/2015 - 23:43 | 6661519 Duc888
Duc888's picture

 

 

Banksterz, the other white meat.

Remember this in times of strife.  They brought this to us.  You did not vote for this.  Your shit bag Reps...did NOT represent you.  They fucked you.  Congress fucked you.  POTUS fucked you.

Smile, as you reach for a "leg of man".

 

I prefer mine a little bit pink on the inside, leave the skin on and make it a bit crispy.

 

 

 

Tue, 10/13/2015 - 06:13 | 6661980 StychoKiller
StychoKiller's picture

Perhaps a coupla slices of Rob Roast...and some Lady Fingers!

Tue, 10/13/2015 - 00:40 | 6661661 RaceToTheBottom
RaceToTheBottom's picture

Wow, these Central Banksters seem to know what they are talking about, I think that we should bail out more Wall Street Banksters.....

 

/S

Tue, 10/13/2015 - 01:13 | 6661737 ZippyDooDah
ZippyDooDah's picture

"The smartest guys in the room."

Ahah Ahah a hah hah hah.  Now please pull your knife out of my side.

Tue, 10/13/2015 - 01:43 | 6661782 Jungle Jim
Jungle Jim's picture

So is this bullish for gold or not? I mean, short-term. Not in eighteen months or three to five years or sometime between here and eternity.

Tue, 10/13/2015 - 02:05 | 6661796 Rock On Roger
Rock On Roger's picture

No, you're fucked JJ.

 

There's a fable or proverb or something that suggests you shouldn't put all the eggs in one basket.

Did you miss learning that one?

Tue, 10/13/2015 - 03:09 | 6661849 bid the soldier...
bid the soldiers shoot's picture

On a relatively short timeline nothing is bullish for anything.

Not even for undertakers.

Tue, 10/13/2015 - 02:47 | 6661835 Jungle Jim
Jungle Jim's picture

At the time there was only one basket left to put the few remaining eggs in.

 

Tue, 10/13/2015 - 03:18 | 6661857 Batman11
Batman11's picture

As an export driven nation you are only as healthy as your export market.

In the good old days the Western consumer provided the demand that kept the world going.

Unfortunately, Western “wealth creators” created wealth for themselves by taking it from the Western consumer

There is now a lack of demand in a world of oversupply leading to deflation. 

How is the global consumer base these days?

1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.

2) Japanese consumers have been living in a stagnant economy for decades.

3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.

4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.

5) South American and African consumers are busy struggling with economies that are disintegrating fast.

Oh dear.

Tue, 10/13/2015 - 05:22 | 6661944 Aussiekiwi
Aussiekiwi's picture

Trapped in a corner, unable to raise rates, gee wiz, who could possibly have seen this coming?

The Fed needs to get out more, perhaps if they had got out of their ivory tower and had a chat to ordinary people in the last 7 years, almost anyone in fact they would have been told about the consequences of their policies.

Tue, 10/13/2015 - 05:46 | 6661960 Youri Carma
Youri Carma's picture

There's a lot of silly talk about how and when to rase rates while the simple truth is that they can't and they won't. So stop that!

Tue, 10/13/2015 - 07:09 | 6662028 Cloud9.5
Cloud9.5's picture

Issuing debt pulls demand forward.  When all of the demand reaching to the horizon has been pulled in and consumed, the next second demand collapses.  It’s the 1920’s all over again.  Only this time we are not the world’s factory base and we are not the world’s oil exporter.

Tue, 10/13/2015 - 10:48 | 6662686 sentimenttiming
sentimenttiming's picture

Only if the chinese would listen to this guy about how the markets really worked then they could really call a bottom in the market but until then its all B.S

 

 

https://www.sentimenttiming.com/antoemang/19

Thu, 10/15/2015 - 16:04 | 6672499 silverer
silverer's picture

It's easy.  Pull the rip cord on your golden parachute and pass the job onto the next overpaid sucker.

Do NOT follow this link or you will be banned from the site!