Mexico

"Your fund made 5.6% net last month, to finish the year up 20.45% net. Gains came from the short book.... Your fund remains long bonds, short equities."

China is untenable in its current financial position. That is the primary problem, and so long as it remains so whatever the PBOC does will have but a fleeting impact. In more immediate terms, that is being recognized by the “dollar” run which continues to savage not just China but South America (more than just Brazil), Africa, Asia (more than China) and you might even argue Canada and Mexico. From that, we see that it isn’t China that is the problem with the “dollar”, it is the whole damn system.

• China trade surprise brings relief (Reuters)
• Obama knocks Trump, voices optimism (Reuters)
• Republican Candidates Criticize Obama’s State of the Union Address (WSJ)
• Republicans and Democrats Agree: We Hate Wall Street (WSJ)
• Oil rises for first time in eight sessions on China, U.S. stocks draw (Reuters)
• U.S. Exports First Freely Traded Oil in 40 Years (WSJ)
• China Imports Record Crude as Price Crash Accelerates Buying (BBG)

• David Bowie, musical legend behind Ziggy Stardust, dies at 69 from cancer (Reuters)
• With No Powerball Winners, Jackpot Grows to Estimated $1.3 Billion (ABC)
• Stock Gains Short-Lived as Chinese Volatility Hurts Oil, Metals (BBG)
• China's yuan spikes higher, but stocks tumble (Reuters)
• Arch Coal Files for Bankruptcy (WSJ)
• Yuan Loan Rates Soar in Hong Kong as PBOC Halts Currency's Slide (BBG)
• China stocks close down at lowest level since September (Reuters)
• Fed Eyes Margin Rules to Bolster Oversight (WSJ)

It was an ominous beginning to what is poised to be a most tumultuous year. Market participants are quickly coming to appreciate that China does in fact matter. Few understand why. Most – from billionaires to fund managers to retail investors – will “Do Nothing.” This has worked just fine in the past – repeatedly. Not understanding and not doing anything will be detriments going forward.

The half-life of the latest "market supporting" intervention by the Chinese government: just about 12 hours.

The US November Trade deficit printed at $42.4 billion, down from $44.6 billion in October and better than the $44.0 billion consensus expectation. However, instead of suggesting on overall improvement, the only reason the deficit improved is because as the BEA admitted, "exports decreased less than imports", in other words, both decreased. Specifically, imports fell 1.7% in Nov. to $224.59b from $228.36b in Oct, while exports fell 0.9% in Nov. to $182.21b from $183.78b in Oct. A key driver was another decline in petroleum imports which fell $262 million to a total of $10.7 billion courtesy of the drop in oil prices.

We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever. The butterfly effect - the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part - is on center stage.

“Play it again. I love the feel of it"...

Important pillars of the bull case evaporated throughout 2015. Global price pressures weakened, the global Credit backdrop deteriorated and the global economy decelerated. The huge bets on central bank policies left markets at high risk for abrupt reversals and trade unwinds – 2015 The Year of the Erratic Crowded Trade. Indeed, a global bear market commenced yet most remain bullish. Serious and objective analysts would view this ominously.

Elections, elections, and more elections is the 'regime change' meme for 2016 but, as Bloomberg details, the key events of the year ahead vary from a California marijuana referendum to Brazil's Olympics, and from Davos to SCOTUS. No matter what, 2016 holds a lot of opportunity for volatility, and without The Fed's safety net, who knows what that means for markets...

With just two days left in 2015, the main driver of overnight global stocks and US equity futures remains the most familiar one of all of 2015 - crude oil, which, after its latest torrid bounce yesterday has resumed the familiar "yoyo" mode, and again stumbled dropping below $37 on yesterday's surprising API 2.9 million crude inventory build, as well several more long-term "forecasts" by OPEC members, with Kuwait now budgeting for $30 oil, while Venezuela's Maduro said the oil price fell to $28/bbl and is "headed downward." As a result U.S. futures declined and European stocks fell, extending their worst December drop since 2002 in thin volume on the last full trading day of the year.

In the aftermath of the first deadly winter storm of the year, a dazed and confused nation suddenly finds itself in need of leadership. Unfortunately, it won't get it: "Obama offered condolences for those who lost their lives and for those who lost their homes in the tornadoes." He then spent the next 6 hours golfing and was "all smiles."

2015 was the year of considerable FX drawdown as desperate EM central banks attempted to rescue themselves from reality. As Barry Eichengreen noted, "Intervening to support an exchange rate that’s fundamentally overvalued is a fool’s game and a no-win situation, akin to a sovereign attempting to sustain an unsustainable debt burden rather than yielding to inevitable restructuring."