Mortgage Loans

As so often happens, whenever there is a political spat in Europe, the rating agencies are quickly involved (thing S&P and Moody's downgrades and upgrades of Greece depending on how well the vassal nation is "behaving"), and moments ago S&P downgraded Poland from A- to BBB+ outlook negative, precisely due to Poland's new media law which has been the topic of so much consternation over the past week. In other words, S&P is now nothing more than a lackey for Brussels, threatening to send Polish yields higher if Poland does not fall in line.

Derivatives like credit default swaps turned a mere bubble in the US housing market into a global financial catastrophe... 

"If lenders are not making loans in a community, the opportunities for people to work their way out of poverty is pretty slim. In Baltimore, the prevailing factor behind who gets a mortgage is the racial composition of the neighborhood."

• France, Russia strike Islamic State in Syria, EU aid invoked (Reuters)
• Pressure Grows for Global Response Against Islamic State After Paris Attacks (WSJ)
• Weakened Hollande Faces Election Backlash in Wake of Attacks (BBG)
• French Official Calls for Metal Detectors at Train Stations (NYT)
• Belgium Raises Terror Threat Level, Cancels Soccer Game vs Spain (BBG)
• Foreign Companies Scrap Paris Events After Terror Attacks (BBG)

"Since Washington doesn't understand what went wrong in 2007 and 2008, so the Fed, the White House and Congress are recreating the very same conditions for another financial bubble. If it pops, we could replay the same devastating effects as occurred during the first bubble in 1999 and 2000.”

If housing tanks, the last prop under the veneer of middle class wealth collapses. No wonder the Powers That Be are so desperate to prop up housing. But the bubbles and busts they've engineered are integral to credit/asset booms; their goal--a steady, permanent rise in prices that never falters--simply isn't possible.

Some people will never learn... ever. What is happening today is nothing more than rearranging the deck chairs on the Titanic. The iceberg has been struck, we’re taking on water, and this sucker is going to sink. Game Over.

From Novotny, Coeure, and Jazbec, the leaks this morning have been clearly angled towards "do not expect any more Q€ anytime soon," so one wonders if, having seen the reaction in EUR weakness still whether Mario Draghi will try and talk these 'hawkish' comments back?

It is time for a radical denationalization of money, a privatization of the monetary and banking system through a separation of government from money and all forms of financial intermediation. That is the pathway to ending the cycles of booms and busts, and creating the market-based institutional framework for sustainable economic growth and betterment. It is time for monetary freedom to replace the out-of-date belief in government monetary central planning.

Following China's official PMI print at a 3-year low, Caixin's PMI collapsed to 47.3 - the lowest sinec March 2009. Despite another CNY150bn liquidity injection (but the biggest strengthening of Yuan since Nov 2014 and a financial conditions tightening in FX trading), China, US, and Japanese stocks are plunging... SHCOMP -4%, Dow -280, NKY -340

So why did debt levels rise so dramatically after the final central bank restraint was removed? It is essentially due to the massive subsidy central bankers provided. If you tax a thing you get less of it (think all the tax on labour) but if you subsidise it you will get more of it. As time went by, debt obviously grew ever larger and eventually large enough to become an integral part of the business cycle. In other words, central banks could not stop the subsidy for fear of creating, well, a 2008 financial meltdown.

• CHINA PBOC CUTS INTEREST RATES
• CHINA PBOC CUTS REQUIRED DEPOSIT RESERVE RATIO
• CHINA PBOC CUTS 1Y DEPOSIT RATE BY 25 BPS
• CHINA PBOC CUTS 1Y LENDING RATE BY 25 BPS
• CHINA PBOC CUTS BANKS DEPOSIT RESERVE RATIO BY 50 BPS

"It’s not how I want my epitaph to read, but it’s not a shameful thing helping people finance themselves. It’s not a bad thing."

After a lukewarm start by the Chinese "market", which had dropped for the past 6 out of 7 days despite ever escalating measures by Beijing to manipulate stocks higher, finally the Shanghai Composite reacted favorably to Chinese micromanagement of stock prices and closed 3.7% higher as Chinese regulators stepped up their latest measures by adjusting rules on short-selling in order to reduce trading frequency and price volatility, resulting in several large brokerages suspending short sell operations. At this pace only buy orders will soon be legal which just may send the farce of what was once a "market" limit up.

Due to significant retail participation and the fact that the equity mania in China has served as a distraction for a nation coping with decelerating economic growth and a bursting property bubble, some (and we were among the first) began to suggest that the broader economy and indeed, social stability, may be at risk in China if stocks continued to fall. The extent to which this suggestion represented a real concern (as opposed to the ravings of a tin foil hat fringe blog) was underscored by the extraordinary measures China adopted in a desperate attempt to stop the bleeding and, later by several sellside strategists who began to warn about possible spillovers into the real economy. Now, with Beijing still struggling to restore the stock bubble, the first signs of knock-on effects are beginning to emerge.