The selloff last year was a desperate warning about the lack of resilience in credit and funding. That repo markets persist in that is, again, the opposite of the picture Janet Yellen is trying to clumsily fashion. Central banks cannot create that because their intrusion axiomatically alters the state of financial affairs, and they know this. It has always been the idea (“extend and pretend” among others) to do so with the expectation that economic growth would allow enough margin for error to go back and clean up these central bank alterations. That has never happened, and the modifications persist. Resilience is the last word we would use to describe markets right now, with very recent history declaring as much.
This week was very busy with economic data. For the most part, the majority of the data came basically inline with expectations. However, the internals of the various reports were much less encouraging. The most noteworthy report, and the least important from an investment standpoint, was the monthly employment report which came in at 288,000 jobs for the month. As with the bulk of other reports, the more important details were lost to the headlines... full-time employment relative to the working age population has remained primarily stagnant since the financial crisis and actually fell in the latest month. This is a key reason why economic growth continues to struggle.
The most dangerous organization is the now French led IMF with Christine Lagarde at the helm, which has presented a concept report in which 'debt cuts for over-indebted states are uncompromising' and are to be performed more effectively in the future by defaulting on retirement accounts held in life insurance, mutual funds and other types of pension schemes, or arbitrarily extending debt perpetually so you cannot redeem. Yes you read correctly, The new IMF paper describes in great detail exactly how to now allow the private sector, which has invested in government bonds, will be expropriated to pay for the national debts of the socialist governments. This far-reaching plan for the expropriation of savers, investors and retirees clearly shows the reality of socialism.
Opinions about the U.S. economy boil down to two views: 1) the recovery is now self-sustaining, meaning that the Federal Reserve can taper and end its unprecedented interventions without hurting growth, or 2) the current uptick in auto sales, new jobs, housing sales, etc. is as good as it gets, and the weak recovery unravels from here. The reality is that nothing has been done to address the structural rot at the heart of the U.S. economy. You keep shoving in the same inputs, and you guarantee the same output: another crash of credit bubbles and all the malinvestments enabled by monetary heroin.
If you want to gather honey, don’t kick over the beehive. This was how Dale Carnegie titled the first chapter of his 1936 personal development masterpiece—How to Win Friends and Influence People. But based on the way the US is acting, you’d think they were test-driving an entirely different manuscript - How to Lose Friends and Alienate People. Between FATCA and the BNP debacle, it appears politicians fail to realize how important the US banking system is to holding together the US economy. With all of its debt and all of its money printing, the US banking system was one of America’s last economic competitive advantages; but now we are going to see more and more foreigners curtailing their use of the US banking system... and by extension... the dollar. Without that mass of people to export dollars to, inflation will really kick in back home.
We live in a world that is becoming increasingly unstable, and people need to understand that the period of relative stability that we are enjoying right now is extremely vulnerable and will not last long. The following are 18 signs that the global economic crisis is accelerating as we enter the last half of 2014...
The Next Global Meltdown Is Baked In: Connecting The Dots Between Oil, Debt, Interest Rates And RiskSubmitted by Tyler Durden on 07/01/2014 11:05 -0400
The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk. Suppressing the market's ability to price risk is throwing common-sense fiscal caution to the winds; when risk arises from its drugged slumber despite the Fed's best efforts to eliminate it, we will all reap what the Fed has sown.
Some basic suggestions for those who are seeking shelter from the coming storms of global financial crisis and recession.
There has been a growing number of defaults since China first broke its non-payment cherry earlier this year. Names like Chaori Solar have "promised" to pay back the money they owe, only to falter on that promise mere months after a temporary reprieve. Wide-scale panic has for now been avoided by liquidity provision to banks (not shadow-banks) and mini-stimulus which many assumed was targeted at keeping the state-owned enterprises (SOEs) alive no matter what. That 'hope' all changed this weekend... As Bloomberg reports, Qilu Bank's annual report shows that Licheng district urban construction development company has not paid its loan interest..."To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan."
- Ceasefire over, Ukraine forces attack rebel positions (Reuters)
- No Good Iraq Options for Obama as Russia, Iran Jump In (BBG)
- Japan’s Cabinet Agrees to Allow Military to Help Defend Allies (BBG)
- Obama says to reform immigration on his own, bypassing Congress (Reuters)
- South Stream Pipeline Project in Bulgaria Is Delayed (NYT)
- Foreign Banks Still in the Dark About Missing Metals in China (WSJ)
- Quelle indignity: several bankers at French bank BNP Paribas will face demotions and cuts to their pay and bonuses (FT)
- Symantec Warns of Hacker Threat Against Energy Companies (BBG)
- Shrinking Office Spaces Slow Recovery (WSJ)
- Rand Paul Slams ‘Fat Cats’ With Hedge Fund in Top Donors (BBG)
We have forty Centuries of Wage and Price Controls’ and their inevitable failure to draw upon. We know how this game ends, we just don’t know precisely when. As Orwell wrote, "in a time of universal deceit, telling the truth is a revolutionary act.” The reality bears restating: as the good folk of Incrementum rightly point out, "...the monetary experiments currently underway will have numerous unintended consequences, the extent of which is difficult to gauge today. Gold, as the antagonist of unbacked paper currencies, remains an excellent hedge against rising price inflation and worst case scenarios."
Tonight's round of baffle 'em with bullshit is courtesy of a diverging AsiaPacific economic picture that is anything but supportive of the 'reality' being painted by China's official PMI (which printed at 51.0 as per expectations at 2014 highs) followed by HSBC China PMI which missed its flash estimate (with employment dropping to 8mo lows). South Korea PMI collapsed to 10-month lows; Aussie PMI faded further into contraction at 48.9; and then Japan's Tankan dramatically missed expectations, tumbling to 9-month lows (only to be followed by a 51.1 Japan print (3-month highs). Just to complete the "picture", Chinese home prices fell for the first time in over 2 years. The result, USDJPY rallies and Nikkei 225 soars 200 points... baffled?
Today is the day that Paul Singer and his Elliot Capital Management team have been waiting for. Thanks to SCOTUS' decision, as Bloomberg reports, Argentina is poised to miss a bond payment today, putting the country on the brink of its second default in 13 years, after a U.S. court blocked the cash from being distributed until the government settles with creditors from the previous debt debacle. The decade-long battle between Argentina and holdout creditors from the country’s $95 billion default in 2001 is coming to a head as the judge’s decision “closes Argentina’s options to finally force it to negotiate," and "should now stop using these delay tactics and get serious." Argentina sees it a different way, the ruling "is merely a sophisticated way of of trying to bring us down to our knees before global usurpers,” according to the economy minister Axel Kicillof.
- Facebook Researchers Manipulated News Feeds in 2012 Study (BBG)
- Argentina at Brink of Default as $539 Million Payment Due (BBG)
- Hedge fund correlation risk alarms investors (FT)
- As China Flexes Muscle, Obama Frets Over Rival’s Weakness (BBG)
- As caliphate declared, Iraqi troops battle for Tikrit (Reuters)
- Dubai Caps Worst Month Since 2008 as Real Estate Stocks Tumble (BBG)
- Russian Advisers Ready Iraq to Use New Combat Aircraft (BBG)
- Blackstone Readies Big-Bet Hedge Fund (WSJ) - so what was GSO?
- Pope says communists are closet Christians (Reuters)
- Thomson Reuters revising FX trading standards (Reuters)
It is the last day of not only the month but also the quarter, not to mention the halfway point of 2014, which means that window dressing by hedge funds will be rampant, as they scramble to catch up some of the ground lost to the S&P 500 so far in 2014. Most likely this means that once again the most shorted names will ramp in everyone's face and the short side of the hedgie book will soar, further pushing hedged P&L into the red, because remember: in a market in which all the risk is borne by the Fed there is no need to hedge.