Success, we’re constantly told, breeds success. And success breeds stability. The way to avoid failure is to copy successful people and strategies. The way to continue succeeding is to do more of what has been successful. This line of thinking is so intuitively compelling that we wonder what other basis for success can there be other than 'success'? As counter-intuitive as it may sound, success rather reliably leads to failure and destabilization. Instead, it’s the close study of failure and the role of luck that leads to success. In the macro-economic arena, we think it highly likely that the monetary and fiscal policies of the past six years that are conventionally viewed as successful will lead to spectacular political and financial failures in 2015 and 2016. How can success breed failure? It turns out there are a number of dynamics at work.
"we venture that the SNB will sooner or later be forced to permit the franc to appreciate and thus to enrich the holders of low-priced, three-year call options on the Swiss/euro exchange rate. It's a long shot, to be sure--the options are cheap for a reason--but we judge that the prospective reward is worth the obvious risk." - Jim Grant, Sept 14th, 2014
Market Wrap: "It's Turmoil" - Overnight Gains Wiped Out, Futures Trade Below 2000 On SNB "Shock And Awe"Submitted by Tyler Durden on 01/15/2015 06:56 -0500
To paraphrase a trader who walked into the biggest FX clusterfuck in years, "it's total, unprecedented market turmoil." So while the world gets a grip on what today's historic move by the SNB means, which judging by the record 13% collapse in the Swiss Stock Market shows clearly that the SNB market put is dead and the SNB may be the first central-banking hedge fund which just folded (we can't wait to see what the SNB P&L losses on its EURCHF holdings will be), here is what has happened so far for anyone unlucky enough to be walking into the carnage some 2 hours late.
Just yesterday, the SEC charged Canadian Aleksandr Milrud with orchestrating a lucrative market manipulation scheme that relied on "layering" in which a trader places orders solely to trick others into buying or selling at artificially inflated or depressed prices... So we found it ironic that twice today, Nanex exposed examples of the "spoofing" manipulation in crude oil futures (which soared) and S&P 500 e-mini futures (which soared)... These are your "most liquid and transparent capital markets in the world."
As the world’s number one energy consumer China is enjoying the low prices while they last. Never one to settle however, China is finding still more ways to take advantage of the dire straits gripping several oil producers...
If the Barclays Skyscraper Index, which posits bursts of skyscraper construction are a harbinger of great economic collapse and market crashes, is accurate, then the world is in for a, well, world of pain. And nowhere more so than in China. As Skyscraper Center reports, 2014 saw an all-time high record 97 buildings of 200 meters or more completed with an increasing shift towards Asia (with a stunning 76% of all tall-building construction). For the seventh year in a row, China completed the most (58) skyscrapers... mal-investment boom much?
At the very least, the ‘great recession’ seems likely to continue. A serious recession or depression will likely collapse the already fragile banking system, especially in Europe, and the savings of ordinary people and companies will become exposed to bail-ins.
- U.S. Index Futures Decline on Commodities Slump, Growth Concerns (BBG)
- Al Qaeda claims French attack, derides Paris rally (Reuters)
- Charlie Hebdo With Muhammad Cover on Sale With Heavy Security Precautions (BBG)
- How an Obscure Tax Loophole Brought Down Obama's Treasury Nominee (BBG)
- ECB’s bond plan is legal ‘in principle’ (FT)
- Charlie Hebdo fallout: Specter of fascist past haunts European nationalism (Reuters)
- DRW to acquire smaller rival Chopper Trading (FT)
- Oil fall could lead to capex collapse: DoubleLine's Gundlach (Reuters)
'After two days of sharp intraday and vicious reversals, the BTFD algos are suspiciously missing overnight, when as reported earlier, a bout of margin calls and stop loss selling meant not crude but copper would crash in today's episode of "guess the crashing commodity", on what Goldman dubbed a Chinese demand collapse which for those confused is different than an OPEC supply glut, and is also the reason why the entire commodity complex is trading at a decade plus low. As a result copper plunged to a five and a half year low, in the process halting the market due to the severity of the plunge. But the big event overnight was the farcical announcement by the European top court, which as everyone expected, rejected the German rejection of the OMT as illegal, stating it was not only legal (with certain conditions) but greenlighting the way for the ECB's QE in one week, a move which sent the EURUSD crashing to a fresh 9 year low!
Today's prime time event hasn't even arrived, that would be the European Court of Justice (ECJ) delivering its final opinion on the legality of the ECB’s previously announced OMT program, in less than an hour, and already the fireworks have begun, most notably out of Asia where after yesterday's epic commodity drubbing many were caught with their pants down and margin calls up, and what followed was a classic liquidation puke, when Copper prices crashed over 8% on the LME, to fresh 5 year lows and below USD 5,500/T in London.
In comparing pre-collapse USSR to Russia today, commentators and analysts showcase their ignorance. Recent events, such as the overthrow of the government in Ukraine, the secession of Crimea and its decision to join the Russian Federation, the subsequent military campaign against civilians in Eastern Ukraine, western sanctions against Russia, and, most recently, the attack on the ruble, have caused a certain phase transition to occur within Russian society, which, I believe, is very poorly, if at all, understood in the west. This lack of understanding puts Europe at a significant disadvantage in being able to negotiate an end to this crisis.
When an accounting 'fudge' accounts for $300 billion of a nation's Balance of Payments, you might suspect something is amiss. And sure enough, as Goldman notes, the growing 'error and emission' items in China’s balance of payments may reflect a pickup in hidden cash transfers as China's anti-corruption probes encouraged the corrupt oligarchs to get their money out of dodge. As Goldman warns, "such outflows may be harder to contain with regulations, a continuation of their recent acceleration could start posing tangible financial stability concerns."
COMEX Copper crashed to as low as $242.35 (from $261.70 before China's open). The catalyst for the move is unclear but between technical level breaks at $250 (and support at 2010 lows), World Bank global growth forecast cuts, and capitulation on CCFD rehypothecation deal hedges... massive volume is pushing through futures markets... LME prices are as low as $5,500/mt... Crude prices are also tumbling (WTI back below $46)
We see far too much complacency out there when it comes to interest rates, in the same manner that we’ve seen it concerning oil prices. We live in a new world, not a continuation of the old one. That old world died with Fed QE. Just check the price of oil. There have been tectonic shifts since over, let’s say, the holidays, and we wouldn’t wait for the ‘experts’ to catch up with live events. Being 7 weeks or two months late is a lot of time. And they will be late, again. It’s inherent in what they do. And what they represent.