China

The dream and demand of Bernie Sanders and all of the other "democratic socialists" of all political parties is that all or at least significant parts of human life need to be micromanaged and controlled by government so people may be liberated from the "tyranny" of not having all they may want without finding effective ways of acquiring it through honest and peaceful work. The "freedom" about which Bernie Sanders speaks, and before him Franklin Roosevelt, in fact, involves a loss of liberty into an even greater degree of political paternalism.

Things must be going well in the "war on terror," as the US Air Force just admitted that it is fast running out of bombs to drop on ISIS after "B-1s have dropped bombs in record numbers." As ZeeNews reports, Air Force chief of staff General Mark Welsh said as America ramps up its military campaign against the Islamist terror group, the Air Force is now "expending munitions faster than we can replenish them."

China burned through some $40 billion in FX reserves in November in support of the yuan while the headline drawdown came in at a whopping $87 billion inclusive of valuation effects. It was the third largest decline in history and suggests that despite a misleading $11 billion increase in October, capital flight continues unabated.

A terrible deterioration.

Less favourable financial market conditions, combined with a weaker macroeconomic outlook and increased sensitivity to US interest rates, heighten the risk of negative spillovers to EMEs once US rates do start to rise in the United States”

One month ago, Credit Suisse confirmed what we had reported in the previous several weeks, namely that according to channel checks, iPhone supply chain orders had weakened recently adding that "in our view, the continued weak supply chain news could weigh on Apple shares for the next few weeks/quarters." The market did not like the news and sold AAPL stock only to promptly BTFD as it always has in the past 7 years: after all any transitory weakness is merely an opportunity to buy, right? Only this time the weakness may not be transitory, because as of this morning we now have not one but three updated channel checks all pointing to a substantial slowdown in AAPL's flagship product and core revenue generator, the iPhone.

After a week full of macroeconomic and headline news (and blooper) fireworks, it’s a fairly quiet start to the week today, with the usual post-payrolls lull in the US.

• Obama in speech to nation vows to defeat 'new phase' of terrorist threat (Reuters)
• Clinton Urges Social-Media Intelligence Sharing in Terror Fight (WSJ)
• Obama urges tech, law enforcement to address social media used for plots (Reuters)
• NATO says won't send ground troops to fight IS (Reuters)
• Le Pen Scores Historic Victory in France's Regional Elections (BBG)

With Draghi's Friday comments, which as we noted previously were meant solely to push markets higher, taking place after both Europe and Asia closed for the week, today has been a session of catch up for both Asian and Europe, with Japan and China up 1% and 0.3% respectively, and Europe surging 1.4%, pushing government bond yields lower as the dollar resumes its climb on expectations that Draghi will jawbone the European currency lower once more, which in turn forced Goldman to announce two hours ago that it is "scaling back our expectation for Euro downside."

Iraq “may soon ask Russia for direct military intervention in response to the Turkish invasion and the violation of Iraqi sovereignty."

“There have been arrests and crackdowns before on grass-roots labor organizations here,” one activist, He Shan, said in a telephone interview from Shenzhen, a mainland city that abuts Hong Kong. “But this is the most concentrated, the most serious. For us, this is unprecedented.”

"It is our humble belief that the consensus at the Fed does not fully understand the magnitude of the problems in corporate credit markets and the unintended consequences of their policy actions."

It’s important to respect the power of econometric models. It’s important to work with econometric models. But we don’t care who you are... whether you’re the leader of the world’s largest central bank or you’re the CIO of an enormous pension fund or you’re the world’s most successful financial advisor... it’s a terrible mistake to trust econometric models. But we all do, because we’ve been convinced by modeling’s henchman, The Central Tendency.

Until pro-growth, low taxation and less regulation policy changes are enacted, we don’t foresee any changes to central bank policy nor the unsustainable market divergences and asset price distortions. Expect more media propaganda on how great the economy is while the reality is another story. Early signs are that retail sales this holiday season are poor. Nobody can predict when reality will set in and equity markets revert back to pre QE levels in 2008/09. The longer this charade continues, the lower equity markets will eventually go, and in the short-term so will commodities. Then the super cycle in commodities will begin anew. Much this will hinge on next fall’s election cycle.

"Deteriorating market breadth and herding into an ever-narrower number of stocks is classic market top behavior. Currently, there are many other warning signs that are also being ignored. The merger mania, the stock buyback frenzy, the year-over-year declines in corporate sales and falling earnings for the entire S&P 500 index, the plunges this year in the high-yield and leveraged loan markets, the topping and rolling over of the massive (record) level of stock margin debt... and I could go on."