Central Banks

Following yesterday's abysmal 3 Year auction, many rates investors were on edge ahead of today's 10 Year auction in the aftermath of the weakness across the curve seen since the "stellar" jobs report which had dragged yields higher across the curve. It turned out fears were premature, and moments ago the $24 billion reopening of 10 Years priced at a yield of 2.304%, which while highest since June, priced 0.8bps through the When Issued showing surprising demand for paper.

Prudent companies internationally are allocating capital to gold and silver bullion as a way to diversify their assets and as a form of financial insurance to protect against bank bail-ins, capital controls, currency debasement and other risks posed by another financial crisis.

In what's being described as a "palpably tense" tense auction, a "Chinese Beverly Hillbilly" dubbed "The Eccentric Mr. Liu" paid the second highest price at auction in history for a Modigliani. 

"Apple has lowered its component orders by as much as 10% according to our teams in Asia. The cuts seem to be driven by weak demand for the new iPhone 6s, as overall builds are now estimated to be below 80mn units for the December quarter and between 55-60mn units for the March quarter."

"Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%."

Today’s system is essentially a system that can drift ever further away from reality through temporal discoordination, resource misallocation and eventually capital consumption. The final coordinating mechanism is nothing less than economic recession. Without them society would regress, impoverishing first the poor, then the middle class and in the end all socioeconomic layers of society.

In short: end demand far weaker, saved by Primary Dealers, as suddenly foreign central banks are far less interested in US paper just at a time when yields are rising and purchases of said paper that much more attractive.

China is playing the long game and they could be low balling their total gold holdings – official central bank reserves and non official, governmental holdings – in order to maintain confidence in their substantial US dollar holdings and to aid their bid to join the IMF.

Compare and contrast:

- In the US, after 7 years of ZIRP and QE, the expected December rate hike is supposed to push up inflation and confirm the economy is improving; it is naturally bullish for stocks.
- In Europe, a year and a half of NIRP and a year of QE, a December rate cut further into negative territory is supposed to push up inflation and confirm the economy is improving; it is naturally bullish for stocks.

Not all is well on Wall Street, where when one cuts all the noise, just one thing matters: the year-end bonus. It is here that as WSJ reports citing the latest survey from Johnson Associates, bonuses are expected to see a broad drop for the first time in four years.

But who is the governments' strongest ally in their 'war on cash'?

According to the CEO of Maersk, the world's biggest container shipping company, "the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting." Andersen adds that "we believe that global growth is slowing down. Trade is currently significantly weaker than it normally would be under the growth forecasts we see....we’re a little bit more pessimistic than most forecasters."

The most important question (which no one’s asking) that needs to be asked and addressed today is: With the Fed. all but signalling come heck or high-water – they’re raising in December. Do the global markets once again stand at the same ledge they did in early August? And if that is indeed so, the question that is self-evident is this: Are you now better equipped both psychologically, as well as strategically and tactically adroit to handle such gyrations? Or, have you focused on “fees” and “diversification” as expounded via today’s financial books with a tendency to just BTFD because it’s worked so well in the past regardless of forethought or angst?

The developing deflationary cycle stunting the world economy has arisen from the monumental harm that central bankers have already done, not from lack of sufficient vigor and boldness in attempting to contravene its consequences.

"Things are crazy," says Charles Biderman summing up this bizarre situation. "We’re seeing the impact of the global slowdown on the US and that’s going to continue" adds the TrimTabs founder, and, in contrast to the mainstream view on Wall Street, he doesn’t think that the Fed is going to raise interest rates (and is more likely to start a new stimulus program). "Ultimately there will be a major correction," he warns and any new stimulus will merely serve the drug-addicted market.