For months now we have been discussing that despite the "hopes" that this time is different, there is little chance that the U.S. can remain an island of economic prosperity in the sea of global deflation. The following series of charts all suggest that current hopes of surging economic growth in the U.S., over the next several quarters, will likely be met with disappointment.
Earlier, we laid out a very reasonable explanation by none other than Europe's largest insurer AXA why the ECB's QE will fail. The ECB did not like ththis, so it decided to reply. This is how the ECB just "crushed" AXA's logic.
Over the last 100 years the Fed has had many mandates and policy changes in its pursuit of becoming the chief central economic planner for the US. Not only has it pursued this utopian dream of planning the US economy and financing every boondoggle conceivable in the welfare/warfare state, it has become the manipulator of the premier world reserve currency.All this effort by thousands of planners in the Federal Reserve, Congress, and the bureaucracy to achieve a stable financial system and healthy economic growth has failed. It must be the case that it has all been misdirected. And just maybe a free market and a limited government philosophy are the answers for sorting it all out without the economic planners setting interest and CPI rate increases. A simpler solution to achieving a healthy economy would be to concentrate on providing a “SOUND DOLLAR” as the Founders of the country suggested.
To say that Zimbabwe has not had much luck in its recent, post Robert Mugabe-goes-berserk, history with fiat money is putting it lightly. But did you know that with gold trading at prevailing depressed prices, driven over the past several years not by physical demand but by paper supply, Zimbabwe is about to have another "money" moment, only this time not with fiat but with real money. The reason: the same one why every so often we show the gold cost curve: because some miners simply can not continue operating if the "market" price of gold, with or without central bank and BIS intervention, is below their blended cost. Unfortunately for the south African country, the cost curve of the entire Zimbabwe gold mining industry is on the wrong side of the gold price line.
Spy 1: You can ask about ETF. . . . E-T-F. E, exchange. Spy 2: Yes, got it. Spy 1: How they are used, the mechanisms of use for destabilization of the markets. Spy 2: Aha. Spy 1: Then you can ask them what they think about limiting the use of trading robots. . . .
We are happy to report that the P&L drought may have finally ended, and we have none other than the man many have suggested could be next in line for the title of honorary "Tom Stolper" of the FX realm: BofA's technical strategist MacNeill Curry. Moments ago, Curry came out with a trade reco which is, not surprisingly, just in line with what the vast consensus, and not to mention the Bank of Japan, thinks: long USDJPY.
Overnight, there was much commotion in the precious metal space when, out of the blue, the IMF reported that months after announcing it had unexpectedly repatriated over 120 tons of gold from the NY Fed, the Netherlands had also purchased some 10 tons of gold in the open market, taking its total to 622 metric tons, the highest since 2007, a period in which it had been unchanged for 8 years. Except... Moments ago Bloomberg blasted something even more unexpected. Namely that the "Dutch Central Bank Says It Did Not Increase Gold Holdings"!
For those who slept through the recently-downgraded to junk "Snow Tempest In A Teapot Of 2005", you may want to check the stops of any open EURCHF trades, because, two weeks after the SNB shocked the world and blew up countless retail and institutional FX trading desks, as well as numerous macro hedge funds, the SNB - allegedly - tried to for round two earlier today, when just hours after SNB's Danthine - the same guy who said the EURCHF floor is the bedrock of SNB policy two days before the SNB eliminated it - said that "the SNB remains ready to intervene on foreign exchange markets" that this happened: a dramatic, 250 pips surge in the EURCHF starting at 3 am Eastern.
The Greek election result was worse than expected - the anti-austerity vote is massive, but it could be an empty gesture as Greece in reality has little choice: Comply with the Troika or leave the EUR. Saxo Bank's Steen Jakobsen doubts the latter will happen with the same vote as the Greeks are tired of austerity but not of being European. However, game theory dictates that some solution will be found which is sub-optimal for all parties, but the risk it will take longer than market have nerves for. There remains a consensus that “things will be ok...” but the early comments indicate the positioning is already starting...
This morning both the SNB stunner from two weeks ago, and the less than stunning ECB QE announcement from last Thursday are long forgotten, and the only topic on markets' minds is the startling surge of Syriza and its formation of a coalition government with another anti-bailout party - a development that many in Europe never expected could happen, and which has pushed Europe to the bring of the unexpected yet again. And while there is much speculation that this time Europe is much better positioned to "handle a Grexit", the reality is that European bank balance sheets are as bad if not worse than in 2014, 2013, 2012 or any other year for that matter, because none of ther €1+ trillion in NPLs have been addressed and the only thing that has happened is funding bank capital deficiencies with newly printed money. You know what they say about solvency and liquidity.
Even if you think you know how competitive devaluation works, this primer is worth it because parts 2-4 of this series will blow your socks off leaving you wondering, "Damn, why didn't I tink of that?"
In 55BC, Cicero stood before the Senate of Rome (warning of its looming demise), spoke of the “arrogance of officialdom” and the more one studies going ons throughout history, the clearer it becomes – the story remains the same, only the actors change - history repeats because the passions of man never change. Those who may grudgingly support the ECB stimulus in the hope that it will buy time for governments to enact structural overhauls, keep praying that politicians will push aside their own personal self-interests for once and focus of the interests of the people. Such wishful thinking is foolish since history demonstrates that only takes place when the system collapses. People who do hold to this view are also worried that looser monetary policy may work against structural measures. The European Central Bank’s stimulus diminishes any incentive for governments to reform. The policy makers and specialists at Davos were divided over the effect of even that program; but where do these people get off assuming they have the ability and right to manipulate the world?