Morgan Stanley

"The room to ease policy further, i.e., to adopt counter-cyclical policies, is now much more limited than in the past. To the contrary, in some cases monetary tightening may be needed (despite weaker real business cycles) in order to continue to attract foreign capital, anchor domestic currencies and preserve the integrity of the respective inflation targeting frameworks. Hence, we may soon enter a period of weaker FX and higher policy and market rates: i.e., market dynamics that would resemble more the 1997 Asian Financial Crisis."

This Friday appears to be make or break for the Fed's data dependency, as the FOMC's September rate decision looms.

Riksbank won’t be passive if ECB makes big changes in its policy, Riksbank Governor Stefan Ingves says at press conference.

"I think it's pretty bad style"...

Because we know the mechanics of the currency war and the endless loop of competitive easing can be a bit confusing at times, we present the following simplified, circular flow chart from Morgan Stanley which should serve as a helpful guide to the never ending "beggar thy neighbor" loop.

• All surveyed analysts expect the ECB to keep their three key interest rates unchanged
• A number of analysts have suggested that inflation rhetoric could be downbeat and further QE is a possibility later this year, as such any potential indication to this by Draghi is likely to take centre stage at the press conference
• The central bank are said to be concerned by inflation expectations, with low energy prices and recent EUR strength raising concerns about the central bank’s mandated 2% inflation target

• Markets on edge as policymakers flex muscles (Reuters)
• European shares recover from rough ride (Reuters)
• For Stock Markets, the Moment When Humans Matter (WSJ)
• Puerto Rico's PREPA, bondholders have framework for deal (Reuters)
• Hundreds of migrants protest at Budapest station, want to go to Germany (Reuters)
• New Whale Seen Moving Tokyo Markets (BBG)

Since today was the last day of trading for Chinese stocks this week ahead of the 4-day extended September 3 military parade holiday to mark the 70th anniversary of the allied victory over Japan, and since Chinese stocks opened to yet another early trading rout coupled with the PBOC's biggest Yuan strengthening since 2010 as we observed earlier, there was only one thing that was certain: massive intervention by the Chinese "National Team" to get stocks as close to green as possible. Sure enough they tried, and tried so hard the "hulk's" green color almost came through in the last hour of trading and yet, despite the symbolic importance of having a green close at least one day this week ahead of China's victory over a World War II foe, Beijing was unable to defeat the market even once in the latest week which will hardly bode well for Chinese stocks come next week.

Is September 2015 going to be one of the most important months in modern American history?

After forensically analyzing Morgan Stanley's balance sheet (which is very much like the rest of Wall Street's balance sheet) I can draw direct parallels to that of Lehman and Bear Stearns in 2007. It's a party!

"In a securities-based loan, the customer pledges all or part of a portfolio of stocks, bonds, mutual funds and/or other securities as collateral. But unlike traditional margin loans, in which the client uses the credit to buy more securities, the borrowing is for other purchases such as real estate, a boat or education..." The result was "dangerously high margin balances,' - the products became “the vehicle of choice for investors looking to get cash for anything.” Mr. Sica and others say the products were aggressively marketed to investors by banks and brokerages.

This time, it really is different. It's "Structural", not "Cyclical". It's actually a very big difference, and banking will never be the same.

"Given the size of foreign holdings of Asian equity and debt, should foreigners reduce their portfolio holdings by 2-3% over the course of a month, it would broadly offset the region’s current account surpluses, leaving their external balances in a shakier position. During the 'taper tantrum' period, foreigners sold markedly more than 3% of their portfolio holdings through June and July 2013, highlighting the risk that portfolio outflows could cause further Asian currency weakness."

The similarities between the current crisis and that which unfolded in 1997/98 were so readily apparent that many analysts began to draw comparisons and that may have added fuel to fire over the past week. Now, there seems to be a concerted effort to calm the market by explaining that while there are similarities, there are also differences. And while some of the world's imperiled EM economies may be in better shape to defend themselves this time around, when attempting to cope with a meltdown it may be more important to look at where things are similar and on that note, here’s some color from Morgan Stanley and BofAML.

The following story is guaranteed to make you sick. Once again, we’re shown that following trillions in taxpayer funded bailouts and backstops, TBTF Wall Street banks immediately went ahead and focused all their attention obtaining loopholes in order to transfer risk and make billions upon billions of dollars in the financial matrix, as opposed to adding any benefit whatsoever to society.