Recession

"Japan’s experience suggests that QE has its limits, and could bring a range of side effects. These include years of tepid growth, the reduction in secondary trading liquidity, an increase in asset ownership by central banks (the BoJ now owns half of the national ETF market), potential formation of asset bubbles and social problems like inequality."

In the last few months we have warned of the "perversions" in US money markets (here, here, and most recently here) adding that "to ignore them at your own peril." And now, as Bloomberg reports, it appears the mainstream is beginning to recognize that something very strange is going on in debt markets. Across developed markets, the conventional relationship between ('risk-free') government debt and other 'more risky' assets has been turned upside-down. "Everybody in the fixed-income market should care about this," warns a rates strategist and in fact, it’s hard to overstate how illogical it is when swap spreads are inverted, as JPM warns the moves in swap-spreads "should be viewed as symptomatic of deeper problems."

· The tragic events in Paris are set to dictate price action at the beginning of the week in Europe

· The US sees an increase in tier 1 data this week as well as the release of the minutes from last month’s Fed meeting

"My guess is that we will have negative rates in Norway before there will be any talk of QE"...

Before it’s all said and done, the Fed will likely push to either implement a carry tax on physical cash OR ban physical cash entirely.

For the 4th month in a row, and 9th month of the last 10, Empire Fed Manufacturing survey missed expectations printing -10.74 (against expectations of -6.34). This is the 4th monthly contraction - the longest streak of contraction outside of recession. Future outlook (hope) dropped to recent lows as New Orders have now contracted for 7 straight months, and number of employees shrinks once again as the average workweek collapsed to the lowest sicne July 2011.

• Belgian Police 'Arrest' Public Enemy No.1 (Sky News)
• France Widens Crackdown at Home as Bombs Rain on Islamic State (BBG)
• Putin Goes From G-20 Pariah to Player at Obama Turkey Talk (BBG)
• Paris Attacks: 150 Raids as France Goes to 'War With Terrorism' (NBC)
• 'Rocket Launcher Found' In French Police Raids (Sky)
• Geopolitical worries lift oil after Paris attacks, but glut weighs (Reuters)
• Japan's economy falls back into recession again (BBC)

As so often happens in these upside down days, was the best thing that could happen to the market, because another economic slowdown means the BOJ, even without sellers of JGBs, will have no choice but to expand its "stimulus" program (the same one that led Japan to its current predicament of course) and buy up if not government bonds, then corporate bonds, more ETFs (of which it already own 50%) and ultimately stocks. Because there is nothing better for the richest asset owners than total economic collapse.

Last night, after Japan's quintuple recession, we had a simple question: "How is the BOJ not buying every USDJPY on this ridiculous news?" We only had a to wait a few hours...

"We expect the economy to continue to face strong headwinds from higher interest rates, exigent financing conditions, high inflation, significant labor market deterioration, higher levels of inventory in key industrial sectors, higher public tariffs and taxes, high levels of household indebtedness, weak external demand, soft commodity prices, political uncertainty, and extremely depressed consumer and business confidence."

Over the past few years when it’s come to any criticism of business models, valuations, or other concerns encompassing the social media space, along with other dubious “hacking” inspired businesses emanating from Silicon Valley, the immediate rebuttal posed fell along the lines of first being looked as “you just don’t get it” (or just crawled out from under some rock) followed with, “It’s different this time.” But there are a growing number of clues that this won't end well...We’re going to find out much sooner than later. That we're sure of.

Because nothing says 'successful monetary policy' like 5 'technical' recessions in 5 years...

If it looks like a recession, walks like a recession and quacks like a recession, it’s a recession.

For the latest bit of evidence that global trade is indeed in free fall, look no further than the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor which handle more than 50% of seaborne freight coming into the US. As it turns out, “peak” season turned out to be anything but.