BIS

"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."

The myth of harsh lending conditions in the US is probably only matched in its disconnect from reality by the just as entertaining narrative of the "one-time, non-recurring" harsh winter crushing Q1 GDP. A narrative which even needed support from none other than former Fed Chairman Bernanke who allegedly was denied a mortgage refinancing on the $672K loan he still owes for his 3-bedroom, 2100 square foot home (a story which is about as credible as 17 year olds making $72 million by cornering the penny-stock market). For the truth we go to the Office Of the Comptroller of the Currency, which just reported in its annual survey that for the third year in a row, U.S. banks relaxed loan underwriting standards, "a trend mirroring the lax lending just before the financial crisis." To wit: "This year's survey showed a continued easing in underwriting standards, with trends very similar to those seen from 2004 through 2006," said Jennifer Kelly, senior deputy comptroller for bank supervision.

One month ago, shortly after we reported that "Silver Coin Sales At US Mint Soar To Highest In Two Years" we learned that the "US Mint Sells Out Of Silver Eagles Following "Tremendous" Demand." That, however, did not prevent the mint from selling just about 5 million ounces in the period since the announcement, and as Reuters reported last week, "Strong investor demand lifted American Eagle Silver Bullion coin sales to a record for the second straight year, the U.S. Mint said on Tuesday." For those confused, it is clear that another year of record demand for physical silver explains why the price of silver is down 12.5% in 2014 after being down 36% last year. Why? Because as we said a month ago, "when it comes to precious metals, thanks to the BIS and the central banks, Paper beats Rock every time."

This weekend's reading list is a collection of articles discussing the good, the bad and the ugly of the dive in crude oil prices.

For the first time in almost 3 years, the 'market' is fighting the PBOC in the FX markets. The last month has seen USDCNY rise almost 9 handles to as high as 6.21 (the weakest CNY in 5 months). At the same time, the PBOC's official 'fix' of CNY has been strengthened to below 6.12 (the strongest CNY in 9-months) diverging by the most in six months from the market. "The market is staying cautious and even bearish on the China macro outlook," notes Morgan Stanley, but as HSBC explains, "China doesn't want to join the currency wars [and wants to stall any speculation on trend] and that explains the fix movement." Simply put, markets doubt the PBOC and believe it will eventually be dragged into the currency war or just fundamentally deteriorate enough to warrant capital flight.

First the BIS came out with the following stunner when discussing markets: "The highly abnormal is becoming uncomfortably normal. Central banks and markets have been pushing benchmark sovereign yields to extraordinary lows - unimaginable just a few years back. There is something vaguely troubling when the unthinkable becomes routine." And now the routine of the unthinkable has forced Deutsche Bank to look at the unprecedented disconnect between the collapse in energy assets and the general market - which continues its hypnotized, low-volume levitation - and conclude that it makes absolutely no sense:  "We find current dislocation between deep distress in Energy assets and marginal reaction in broad market indexes to be inconsistent with each other. Either energy has to rebound noticeably, or it could pull broader market indexes lower. Exceptions to this assessment are rare."

Many global macro factors are coming to a head. Downside in Treasury prices are at minimum limited this week. Treasuries are a safe haven, under-owned, under-loved, with pick up in yield to other sovereigns and denominated in a safer currency. Here is what is worrying the sell-side...

Curious how over the past 6 years we got to a point where the market is now so irreparably broken, even the BIS couldn't take it anymore and threw up all over the the world's central bankers? Then look no further than the following chart summarizing 6 years of global central bank liquidity injections that have made it imperative to use quotation marks every time one writes the word "market"

Back in June, the world was speechless when Goldman's head of the ECB, Mario Draghi, stunned the world when he took Bernanke's ZIRP and raised him one better by announcing the ECB would send deposit rates into negative territory, in the process launching the Neutron bomb known as N(egative)IRP and pushing European monetary policy into the "twilight zone", forcing savers to pay (!) for the privilege of keeping the product of their labor in the form of fiat currency instead of invested in a global ponzi scheme built on capital market so broken even the BIS can no longer contain its shocked amazement. Well, the US economy may be "decoupling" (just as it did right before Lehman) and one pundit after another are once again (incorrectly) predicting that the Fed may raise rates, but when it comes to the true "value" of money, US banks have just shown that when it comes to spread between reality and the economic outlook, the schism has never been deeper.

Enter US NIRP.

"It is, of course, possible to draw comfort from recent events. Those who do so stress the speed of the rebound. At the same time, a more sobering interpretation is also possible. To my mind, these events underline the fragility - dare I say growing fragility? - hidden beneath the markets' buoyancy. Small pieces of news can generate outsize effects. This, in turn, can amplify mood swings. And it would be imprudent to ignore that markets did not fully stabilise by themselves. Once again, on the heels of the turbulence, major central banks made soothing statements, suggesting that they might delay normalisation in light of evolving macroeconomic conditions. Recent events, if anything, have highlighted once more the degree to which markets are relying on central banks: the markets' buoyancy hinges on central banks' every word and deed." BIS

"The highly abnormal is becoming uncomfortably normal... There is something vaguely troubling when the unthinkable becomes routine."

Without doubt, the most memorable line from the latest quarterly report by the BIS, one which shows how shocked even the central banks' central bank is with how perverted and broken the "market" has become is the following: "The highly abnormal is becoming uncomfortably normal.... There is something vaguely troubling when the unthinkable becomes routine." Overnight, "markets" did all in their (central banks') power to justify the BIS' amazement, when first the Nikkei closed green following another shocker of Japanese econ data, when it was revealed that the quadruple-dip recession was even worse than expected, and then the Shanghai composite soaring over 3000 or up 2.8% for the session, following news of the worst trade data - whether completely fabricated or not - out of China in over half a year.

Who says macroprudential regulation doesn't work: according to the BIS, notional amounts of outstanding OTC derivatives contracts fell by 3% to "only"
$691 trillion at end-June 2014. This is also roughly equal to the total derivative notional outstanding just before the Lehman collapse, when global central banks volunteered taxpayers to pump a few trillion in capital to meet global variation margin calls. Clearly the system, in the immortal words of Jim Cramer, is "fine."

Confused why in the lack of any horrible economic news (unless of course someone leaked a worse than expected November payrolls print which would put QE4 right back on the table) futures are higher, especially in the aftermath of yesterday's disappointing ECB conference? Then look no further than the Yen which has now lost pretty much all control and is in freeplunge mode, rising some 25 pips moments ago on no news, but merely as wave after wave of momentum ignition algos now make a joke of the Japanese currency, whose redline of 123 (as defined by SocGen)is now just 240 pips away. At this pace, Japan's economy, which as reported yesterday has just seen a record number of corporate bankruptcies due to the plummeting yen, may well be dead some time next week. Which, with Paul Krugman as its new and improved economic advisor, is precisely as expected. RIP Japan.

Central bankers reached a new low overnight when Swiss National Bank President Thomas Jordan warned of "disastrous consequences" from a pulpit in a church on a historic hill in the town of Uster, Switzerland, which Bloomberg dubbed the 'sermon on the hill.' "Hungry people don't stay hungry for long, they get hope from fire and smoke as they reach for the dawn..."