Things are getting downright scary in emerging markets as a "triple unwind" in credit, Chinese leverage, and loose US monetary policy wreaks havoc across the space. Between a prolonged slump in commodity prices and a structural shift towards weaker global trade, the situation could worsen materially going forward.
It has been more of the same in the latest quiet overnight session where many await tomorrow's NFP data for much needed guidance, and where Chinese markets opened weaker, rose during the day, then went through a mini rollercoaster, then sold off in the afternoon. The Shanghai Composite and HS China Enterprises indices finished down .9% and .3%, respectively. Trading volume continued to be very subdued, running at half the thirty day average as some 20 million "investors" have pulled out of the market to be replaced with HFTs such as Virtu. But while stock action has been muted, the story of the night so far is oil and the energy complex broke out of a tight overnight range early in the European session to continue yesterday's downward trend, seeing WTI Sep'15 futures fall below the USD 45.00 handle after yesterday's DoE crude oil inventories saw US crude output rise by 0.552%. As of this moment oil was trading at $44.72, just pennies above the low print of 2015.
A sample of charts currently on our radar
Pervasive “occupancy fraud in lending” – purposely misidentifying “investment” properties as “second/vacation” for the purpose of obtaining prime, “owner-occupied”, low-down payment mortgages vs expensive “investment” property loans — is back in a big way and driving housing demand, based on NAR’s “2015 Investment and Vacation Home Buyers Survey”. It comes on the heels of a multi-year cycle of increasingly “bad” appraisals – a widespread problem — by the Appraisal Management Companies (AMC) that in Bubble 2.0 are similarly conflicted, as independent residential appraisers were during Bubble 1.0 . Both appraisal and occupancy fraud are primary features to a speculative, house-price bubble. This is an identical replay of 2005 to 2007 that nobody recognizes, expects, or is even looking for, which will present an opportunity at some point.
As technology generally continues to advance, one thing you can be sure of is the criminal justice system’s use of innovative new “tools” will grow exponentially. This can be a good thing, but it can also be a very dangerous thing. Pennsylvania’s new law that permits the use of data showing whether people are “deemed likely to commit additional crimes” in criminal sentencing, is a perfect example of how an over reliance on technology can be a threat to liberty and due process.
'Death of gold' has been greatly exaggerated. It is important to consider gold in local currency terms. In euro, gold is up 2% in 2015, after 13% gain in 2014.
Futures Rebound On Ongoing Dollar Strength; Commodities Rise, China Slides, Greek Banks Continue PlungingSubmitted by Tyler Durden on 08/05/2015 06:51 -0400
In many ways the overnight session has been a mirror image of yesterday, with the dollar accelerating its Lockhart-commentary driven rise, which curiously has pushed ES higher perhaps as a result of more USDJPY correlation algos being active and various other FX tracking pairs. Indeed, the weak yen is all that mattered in Japan, where the Nikkei 225 (+0.5%) rose amid JPY weakness, despite opening initially lower as index heavyweight Fast Retailing (-4.5%) reported a 2nd consecutive monthly decline in Uniqlo sales. Elsewhere in mirror images, China slid 1.7%, undoing about half of yesterday's 3.7% jump, and is now down for 4 of the past 5 days.
Things not adding up with the current pricing structure...
What if the assumptions about a U.S. economic recovery and Fed rate hikes were wrong? Could observers be mistaken now about the trajectory of the Dollar vs. the Euro as they were back in 2000? Confidence is the only thing that really undergirds modern fiat currencies. But confidence can be very ephemeral...disappearing as quickly as it arrives. The U.S. Dollar benefits from confidence that the Euro currency may just be unworkable, that the U.S. economy will continue to improve, and that the Fed will raise rates throughout the remainder of 2015 and into 2016. If these expectations are unfulfilled, there could be a Euro reversal.
After a lukewarm start by the Chinese "market", which had dropped for the past 6 out of 7 days despite ever escalating measures by Beijing to manipulate stocks higher, finally the Shanghai Composite reacted favorably to Chinese micromanagement of stock prices and closed 3.7% higher as Chinese regulators stepped up their latest measures by adjusting rules on short-selling in order to reduce trading frequency and price volatility, resulting in several large brokerages suspending short sell operations. At this pace only buy orders will soon be legal which just may send the farce of what was once a "market" limit up.
The headlines are dramatic, ugly and depressing to anyone who holds gold right now. Broad market sentiment has shifted from disdain and dismissive to highly negative. Hedge funds are shorting gold aggressively, hedge funds that own gold are being "outed". The market pundits are are sticking the proverbial knife in and twisting it with glee.
We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…
Once again, in our endless search for foreign monsters to destroy, we’re creating yet more foreign monsters who will provide the next excuse for future crusades. It’s a perpetual motion machine of foreign policy madness – and the War Party likes it that way.Yes, your tax dollars are going to arm, train, and feed neo-Nazis in Ukraine. That’s what we bought into when Washington decided to launch a regime change operation in that bedraggled corner of southeastern Europe. Your money is also going to prop up the country’s war-stricken economy – albeit not before corrupt government officials rake their cut off the top.