Risk Management

As the towering forces that are prevailing against failing global economic architecture and the pit of debt beneath that structure, as laid out below, it is clear that the 'Epocalypse' - encompassing the roots "economic, epoch, collapse" and "apocalypse" - is here, and it is everywhere. The Great Collapse has already begun. What follows are the megatrends that will increasingly gang up in the first part of 2016 to stomp the deeply flawed global economy down into its own hole of debt.

Jamie Dimon, JP Morgan Chase
Brian T. Moynihan, Bank of America
Michael Corbat, Citigroup

I am writing to you to warn you about the disruption that is about to occur in banking.

While most amateurs will bet on most hands, take speculative positions where the odds of success are stacked against them or try to bluff their way through a losing hand; professionals play with a cold, calculated and unemotional discipline. The professional gambler understands the odds of success of every play and measures his “bets” accordingly. He knows when to be “all in” and when to “fold and walk away.” Do they succeed all the time – of course not. However, by understanding how to limit losses they survive long enough to come out a winner over time.

"Don't run with sharp objects" ... "If everyone jumped off the cliff - Would you do it too?" ...and "Don't talk to strangers!"

There are many half-truths perpetrated on individuals by Wall Street to sell product, gain assets, etc. However, if individuals took a moment to think about it, the illogic of many of these arguments are readily apparent. The index is a mythical creature, like the Unicorn, and chasing it has historically led to disappointment. Investing is not a competition, and there are horrid consequences for treating it as such.

"In a worst case scenario, the real economy effects of the oil sector and the earnings slowdown hit the frothy commercial real estate and REIT sector, which in turn begin the widening of the contagion begun by energy high yield. Combine this with the sudden stop to lower quality energy credits I believe is inevitable and you likely have stall speed – or even recession. And that’s where subprime auto ABS, student loan securitization and US munis come into the picture for the US domestic economy. Those markets get hit in recession."

We have been almost alone in our exclamations at the collapsing offshore Yuan in the last few days but since The IMF blessed China's currency with inclusion in The SDR, CNH is down 13 handles. However, now we appear to have an answer. Overnight saw commentary from CFETS (China's FX market 'manager') that indicated implicitly that Trade-Weighted Yuan was still trading too high.

The latest confirmation that the oil cartel formerly known as OPEC is effectively non-existent, came a little over an hour ago when in its latest November monthly report, the Organization of Petroleum Exporting Countries reported that total monthly crude output for the member nations rose to 31.695 million barrels per day, the highest amount produced in three and a half years.

BlueCrest Capital Management Limited "BlueCrest" announces it will, over the next several months, transition to a Private Investment Partnership, and will return to its clients the $8 billion it currently manages on their behalf.  Following the transition, BlueCrest will manage assets solely on behalf of its partners and employees.

November has been a banner month for black swans. From Leftist political coups in Portugal to terror attacks in Paris to downed Russian fighter jets in Syria, the market is gradually learning to expect the unexpected. In its latest Quarterly Economic Outlook, SocGen outlines five political and economic black swans that could land in 2016.

As usual, S&P was late, but just over three months after our explicit warning, the rating agency finally came out with the catalyst we have been expecting when moments ago it said that it had "placed its 'BBB-' long-term corporate credit rating on Hong Kong-based supply-chain management service provider Noble Group Ltd. and the  'BBB-' issue rating on the company's senior unsecured notes on CreditWatch  with negative implications." In other words, Asia's Glencore is about to be junked.

With everything red since the October 28th "hawkish" FOMC meeting - which greenlit a December rate hike and convinced the world that everything is awesome in America (well why else would The 'smart' Fed raise rates?) - today's minutes suggest an FOMC that is perhaps not quite as "whatever it takes" committed to a December liftoff...

• *FOMC MEMBERS WANTED TO CONVEY DEC. LIFTOFF MAY BE APPROPRIATE
  
• *SOME FED OFFICIALS: UNLIKELY LIFTOFF CONDITIONS MET BY DEC.
  
• *FED OFFICIALS SAID ACTUAL LIFTOFF DECISION TO DEPEND ON DATA

But bear in mind there is a lot of data between now and December 16th (including payrolls) and what if stocks drop? Pre-Minutes: 68% rate-hike odds, S&P Futs 2064, 10Y 2.28%, EURUSD 1.0640, Gold $1070, WTI $40.45

As we noted previously, for the first time ever, primary dealers' corporate bond inventories have turned unprecedentedly negative. While in the short-term Goldman believes this inventory drawdown is probably a by-product of strong customer demand, they are far more cautious longer-term, warning that the "usual suspects" are not sufficient to account for the striking magnitude of inventory declines... and are increasingly of the view that "the tide is going out" on corporate bond market liquidity implying wider spreads and thus higher costs of funding to compensate for the reduction is risk-taking capacity.

Anyone else found to have obtained at least "35 confidential documents" from the Fed on at least "20 occassions" would be sent straight to jail with a prison sentence anywhere between several decades and life.  Goldman's punishment? 0.6% of its 2014 Net Income.

After earlier in the year exposing "the greatest shorting opportunity since 2007-2009" and trading it profitably through September with "front row seats to an imminent market shock," Billionaire Crispin Odey's flagshipfund has suffered recently. As Bloomberg reports, the fund plunged 16.8% in the first 16 days of October, after the fund profited in August and September from Odey’s negative view of the Chinese economy. Odey believes that the only way economies will be able to work their way through the next downturn is by writing off capacity. Therefore, with credit tightening as well, according to Odey, it’s a good time to be short...