China overtakes Germany to become the world's third largest arms exporter just as Western military spending outside the US fails to keep pace with China and Russia.
Moments ago the January TIC data update was released, and while China continued selling US paper, liquidating another $5.2 billion in January and bringing its new total to the lowest since January 2013, Japan - yes that Japan whose central bank is now moentizing 100% of its own debt issuance because the country is now effectively insolvent and absent constant monetization of its debt it is finished - bought $8 billion in US debt, in the process trying China as America's largest foreign creditor for the first time in history, with both nations holdings $1.239 trillion in US TSYs.
unlike the late summer and early fall of 2014, when the rise in the Chinese stock market could be attributed to the PBOC's PSL "QE Lite", the relentless buying leg that started in mid-November has stunned most people, as nobody has been able to figure out just who is responsible for all this buying. Until now. According to Reuters, it is precisely China's trust firms, with total assets of $2.2 trillion, and who together with Banker Acceptances comrpise the bulk of China's shadow banking pipeline, are shifting more cash into frothy capital markets and over-the-counter (OTC) instruments instead of loans. In other words, instead of using their vast cash hoard of over $2 trillion to re-lend and stimulate China's economy, China's unregulated, shadow banking conduits are now directly buying stocks!
This week's main event will be the FOMC announcement on Wednesday at 2:00 pm and the subsequent press conference, the conclusion of the March 2-day Fed meeting, in which it is widely expected that Yellen will announce the end of the Fed's "Patience" with an economy in which resurgent waiters and bartenders continue to skew the job market even if it means consistently declining wages for 80% of the US labor force. Here is a summary of what else to expect this week.
- Germans Tired of Greek Demands Want Country to Exit Euro (BBG)
- Weak euro powers European stocks to new highs (Reuters)
- Siemens Cheers Euro Slump as Emerson Eases Dollar’s Sting (BBG)
- A Police Gadget Tracks Phones? Shhh! It’s Secret (NYT)
- If Economists Were Right, You Would Have a Raise by Now (BBG)
- iWatch: who’s going to pay $17K for a device that will be obsolete in two years? (Barrons)
- Ferguson Suspect Said to Claim He Wasn’t Firing at Police (BBG)
- Why Bankers Are Leaving Finance for No-Salary Tech Jobs (BBG)
It started off as the perfect storm for futures: after Sunday night's latest plunge in WTI, which saw it drop to the lowest price since Lehman, the double whammy that has now forced Deutsche Bank to become the first major institution to forecast no growth for S&P500 EPS in 2015, namely the strong dollar, reared its ugly head and the EURUSD seemed dangerouly close to breaching the all important 1.04-1.05 support level we first noted last week. However, overnight parties tasked with preserving "financial stability" appear to have once again stepped in, and not only has the EURUSD rebounded off 1.05, but crude is now just barely down from the Friday close as all firepower is put to the same use, that sent the Shanghai Composite soaring by 2.3% overnight, and which sent the Dax over 12,000 for the first time ever.
I am not sure how long Mario Draghi can carry on this QE Charade, but it is quite obvious that there is nothing more to be gained from the program.
"Sensitive data from around 170 major companies, including the UK’s Atomic Weapons Establishment and Lockheed Martin, might have been compromised after British Telecom web traffic was accidentally rerouted through Ukraine," RT reports.
When even JPMorgan strongly implies that the ECB's QE is about to fail, one short week after it started, now may be a time to panic: "In all, we note the above analysis challenges the ability of the Eurosystem to meet its quantitative target without distorting market liquidity and price discovery."
Fed to lose patience. Many expected Norway and Switzerland to cut rates. Could they be disappointed?
Suddenly the narrative that “everything is awesome” is showing to not be as “awesome” as it was first proclaimed. Merely a few months have passed since the ending of QE and praises of awesomeness everywhere are morphing into questions more akin to “Oh no: not again!” And with that we are now watching those who pushed, pulled, and levitated that narrative scramble desperately to push another narrative back onto the stage that worked so many times before: “Every sell off over the last 6 years has shown to be a profitable buying opportunity.” i.e., Just buy the dip (JBTFD). Yet it would seem these dips; are far different.
It's a total shock that maniacs who borrow nearly 100% on interest only terms to lose rental money to speculate on housing capital gains would love low interest rates. And with the lowest mortgage rates in Australian history, coinciding with the sloppiest lending standards in Australian history, combining with the highest property prices in Australian history, added to the highest household debt to income ratio in Australian history, what would you expect the biggest idiot of a treasurer in Australian history to do?
Why understanding of market cycles is crucial for investment success
The bust of Aussie boom-towns, collapse of the mining industry, dramatic capital outflows, and a bursting housing bubble all have one thing in common, according to billionaire hedge fund manager Crispin Odey - "China is everything to Australia in lots of ways." Simply put, he tells The Australian Financial Review, economies dependent on China for income, including Australia, are headed for recession and central banks will not be able to able to come to the rescue because they have exhausted the arsenal of policy weapons. "We've got a very old-fashioned recession which is spreading across the world," and Australian banks face a tough time ahead too because there are indications bad debt risks are rising.
Rich valuations point to the likelihood of low returns across asset classes. [W]e develop a cross-asset approach to risk premia and implement it across the asset classes. The results show that valuations are rich across the board. This indicates markets may become shaky as we get closer to the first Fed rate hike in nine years.