Citi: "We Have A Problem"

Tyler Durden's picture

In his latest must read presentation, Citigroup's Matt King continues to expose and mock the increasing helplessness and cluelessness of central bankers, something this website has done since 2009 knowing full well how it all ends (incidentally not in a deflationary whimper, quite the opposite).

Take Matt King's September 2015 piece in which he warned that one of the most serious problems facing the world is that we may have hit its debt ceiling beyond which any debt creation is merely pushing on a string leading to slower growth and further deflation. Or his more recent report which explained why despite aggressive easing by the BOJ and ECB, asset prices continue to fall as a result of quantitative tightening by EM reserve managers and China, which are soaking up the same liquidity injected by DM central banks.

Overnight, he put it all together in a simple and elegant way that only Matt King can do in a presentation titled ominously "Don’t look down: You might find too many negatives."

In it he first proceeds to lay out how things have dramatically changed in recent months compared to prior years: first, the "appalling" asset returns and the "rising dislocations" between asset prices in recent months and especially in 2016, or a broken market which is not just about Crude (with correlation regimes flipping back and forth), or China (as YTD bank returns in Japan and Switzerland are far worse than those in the China-exposed Eurozone), as appetite for risk has effectively disappeared. Worse, as the Japanese NIRP showed, incremental easing in the form of QE actually triggered ongoing weakness, sending both the Nikkei and the USDJPY plunging, suggesting that central bank grip on markets is almost gone.

King then notes that while spreads are at recessionary levels, yields - courtesy of record low interest rates - are still quite affordable and "in principle there is nothing to worry about", perhaps it is just the market overshooting: he points out several lagging indicators such as employment and loan demand which do not suggest that a recession is imminent and all that needs to happen is to "replace fear with greed."

That is easier said than done, though, because despite all the "adjustments" data is already rapidly deteriorating, not only in manufacturing where the entire world is in a recession, but also in services as today's contractionary Markit report showed.

King then begins his conclusive tour de force by noting that "None of the his is supposed to be happening" - inflation and economic growth are supposed to be rising in a world as manipulated by central bankers as this one. Instead, the opposite is taking place.


So where does that leave us? Having laid out the issues ailing the market, he note that "maybe it all fizzles out by itself"...


Actually, it's not just one problem. Many problems.

Problem #1: the world finds itself in the aftermath of a series of bubbles inflated by central banks, compounded by the market's own realization that "we are now running out of greater fools."

Problem #2: "Whenever we’ve had these spread levels... we’ve always been rescued by central banks." This time, however, they are either late, or their interventions are failing.


Problem #3: The marginal effect of easing is no longer positive, and "everything QE was supposed to have done, it hasn't"


Problem #4: as a result of coordinated, global intervention, central banks are now forced to fight not just local but global demand shortfalls.


Problem #5: As a result of this global coordination, countries that withdraw liquidity such as EM and China, offset the "favorable" impact of central banks which contribute to liquidity.


Problem #6: as global central banks now operate as a cabal, this has "serious implications", namely 1) individual CBs not in control of their own destinies; 2) Everything ECB and BoJ are doing is being offset by outflows from EM, and 3) What do these correlations imply for

Problem #7: As a result of this required, but failed coordination, the world is left with a global problem that desperately needs a solution. "What should be done", King asks, and provides the following menu of policy actions, however as he adds, "the things which might make a difference feel miles away"... and even further after today Jack Lew warned not to expect anything out of this weekend's G-20 meeting in Shanghai.


And the final Problem: the "next phase" will likely be a crisis of confidence in central banks.

King, at his most ominous, concludes with the only possible response should it come to this: "Sell what hasn't moved against what has."

To this we would add one minor tangent: once we get to the "next phase", sell everything whose value only exists as a result of confidence in central banks.

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HopefulCynical's picture

When you start off insisting that 2+2=5 - or ANYTHING other than 4 - you're going to have problems.


JRobby's picture

Especially when you use that math for 30 years.

Ghost of Porky's picture

WTF?!?! Is the printer out of ink or something?!?

undertow1141's picture

No the printer is fine, but the balloon they are stuffing it in is about to explode.

remain calm's picture

Again, We all saw the wizard of OZ, eventaully the man behind the curtain gets discovered and thae the gig is up.

undertow1141's picture

OT kindof, Wells Fargo just announced they are setting 1.2 billion aside for gas and oil loses.

remain calm's picture

Its not enough, they know, we know it, they are hoping the media will cover their ass and let the public know it.


cowdiddly's picture

Right, that's not even enough to write down one company. They hope we did'nt notice that they are technically broke with hundreds in trouble.

And for God's sakes you slackin slumpeters, gets some HELOC loans instead of letting all that equity go to waste you peons.

turtle's picture

So the banks are just now starting to criticise central bank policy... 

ilion's picture

Citi is afraid for itself. I mean this tells you a lot about the condition of the financial system if one of the previously biggest banks in the world has become so desperate. No wonder Citi is losing on all fronts its market share. The guys cannot even manage their own business.

Nutsack's picture
Nutsack (not verified) ilion Feb 24, 2016 4:54 PM

Thank Goodness America had the foresight to elect a Magic Kneegrow with an IQ of 78. We are covered no matter what happens!

waterwitch's picture

Don't you just want to line them all up and pull out your AR-15?

cheeseheader's picture

You make a strong point...however I am partial to woodsheds and lamp posts.  Of course, woodsheds taking the most time....


I will need help, you all know....

Whoa Dammit's picture

This says it all :

Problem #5: As a result of this global coordination, countries that withdraw liquidity such as EM and China, offset the "favorable" impact of central banks which contribute to liquidity.

A first world economic fix that might have worked for an individual country does not work in a global economy that only grows workers in countries of third world status.

End of story.

McCormick No. 9's picture

Problem #7: As a result of this required, but failed (CB) coordination, the world is left with a global problem that desperately needs a solution.

Solution: One Global Central Bank. Mayer Amschel Rothschild's dream come true.

CuttingEdge's picture

Problem #5.2: The encouraged influx of 3rd world migrants to fill all those jobs created by QE in the 1st world

Squid-puppets a-go-go's picture

instead of pushing on a string they took a lighter to it - and found out it sparks!

next mistake - watch in fascination instead of running for the hills

Squid-puppets a-go-go's picture

all yours.

Who the fuck is gunna care or believe you if you pin a post with "As mentioned by Squid-puppets A-go-go, ....."

Paper Chaser's picture

Fully agree.  This isnt just a few oil co's defaulting on some payments.  The only outcome the Saudi's will accept is increased marketshare at the expense of other oil co's.  And that will only come via bankruptcies.  So these "contingency plans" that the banks are putting forward, trying to make it seem like they're being responsible and proactive, are laughable given that we all know how this story ends.

conscious being's picture

KSA could be gone before the year is out.

jakesdad's picture

personally I miss the "good ol days" when it actually took a printer with ink & paper on which to print!  at least that put a velocity constraint on it - nowadays it's three little keystrokes:

[f2], [0], [return]

think about that & let it sink in... 

Escrava Isaura's picture



Citi (today): "We Have A Problem"

Citi (tomorrow): "We Have A Problem, it us"

MFL8240's picture

Jail a few dozen of thes scumbags and get back on the Gold standard would be a good start!

Seer's picture

Been longer than just 30 years.

Problem is that these folks don't see it all in the pretext of the super-cycle.  In the past NOTHING has actually "worked;" all it ever did was push harder on growth, which is the raping of the future; it has done so with ever shorter sub/mini cycles.  The exponential function doesn't need us to understand it for it to work- reality is just that way.

Escrava Isaura's picture



"The greatest shortcoming of the human race is our inability to understand the exponential function" — Albert Bartlett

marathonman's picture

All about exponentials - according to Youtube it is the most important video you'll ever see.

Fuku Ben's picture

I'm pretty sure they like to present the formula as

2+2=4+the Vig

It at least appears to balance out that way. And based on how people have just come to accept this as the new normal in math they would probably try to claim they're doing nothing wrong.

Nawiedzony's picture

Look at all those faces , still suprised by results . 

Squid Viscous's picture

i love to hide, i love to play, and when you find me I smile and say...

Cognitive Dissonance's picture

Sticks and stones may break my bones and so do the Stasi soldiers.

knukles's picture

No more meth for you, Happy Jack

Cognitive Dissonance's picture

I can quit at all time. Really!

In fact...this time is different. Promise.

pakled's picture

"I've been snorting cocaine for 15 years, and I ain't hooked!".



/Richard Prior

Tall Tom's picture

You know? They just don't understand, right?


You have quit...hundreds if not thousands of times....both figuratively and literally.


You are so well practiced.


So I must believe you.


(What I had told to my ex wife who was a fuckin' tweakin' user after the failure of that marriage)

xtop23's picture

Sell the rip annnnnd....... yeah. Sell. If you don't have Paulson's current doppleganger on speed dial, you're better off sitting this one out. 

Next step TARP 2.0 to the tune of 5 trillion dollars or ww3..... or both.

TheFutureReset's picture

Yep. TARP2 is coming. Oil industry bailouts can be sold to the public as national defense oriented. Maybe the US can move to a war footing as a cover up to start TARP. Only problem is Putin/China will call the bluff. Even Iran could call it and make the US look a fool. 

Turkey and Saudi will be left high and dry. Europe is stuck, too. They haven't seen anything yet when it comes to refugees. Just wait until Turkey is in the coming major war. Will NATO rush to Turkey's defense with bank holidays in effect. That's just the excuse some countries need to exit the Euro and write off their debt owed to the ECB. It's as good as over for the EU. 

We are living for the first time on the brink of economically driven major war, with nukes. The US is the over extended and out maneuvered legacy power. Nukes will actually play their role as deterrents, keeping the US from messing with the moral high ground of Russia and China. 

conscious being's picture

Very plausable. I like the point in the presentation where it labels the [engineered] oil price drop as QE for the little guy. 'Cause it was.

3rdWorldTrillionaire's picture

Love the left chart under Problem 1.... that bottom right chart though, wow --- the entire bond price move from 2009-2015 was a global dead cat bounce extraordinaire. Fascinating...

Consuelo's picture

And I know what you do...



pwrtrader's picture

So put your hands on your face...

Kirk2NCC1701's picture

"Peek-a-boo, I see you!"

Indeed.  I see them too.  But I see a bunch of arrogant, entitled, pampered, presumptuous, self-aggrandizing, self-serving tyrants, who belong in the Geriatric Ward, Psych Ward or Cemetery.  

Time to spin their Wheel of Fortune, as to their Parting Gift.

iggenFlot's picture

I'm shaking like a goddamn leaf here under the kitchen table with my beef jerky and Mountain House provisions. Probably going to cry myself to sleep with my rucksack on tonight.

Anyone got an extra Gideon Bible they can spare?

cowdiddly's picture

Its in the nitestand in that cheap motel room your in.

Soul Glow's picture

Thanks Citi, we had no idea that central banks are the problem.