Davos

New York City may be buried under more than a foot of snow, but global markets don't sleep, however judging by the color of futures this morning, today's respectable $2.25-$3.00 billion POMO will have a tough time digging US equities out of the red, following a tepid overnight session in which the traditional driver of futures levitation, the USDJPY, was flat as the BOJ disclosed unchanged policy despite some inexplicable hopes that Kuroda would increase QE as early as today.

The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen.  Never before has so much private debt been accumulated in such a short period of time.  All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads.  In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone.  That is more than twice the amount that the U.S. government will pay in interest in 2014. So will a default event in China on January 31st be the next "Lehman Brothers moment" or will it be something else? In the end, it doesn't really matter.  The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years. It is just a matter of time.

The world may or may not have closure on the IRS' targeting of Conservative groups (it doesn't), but by the time the media is finished with Chris Christie, he will be too. Case in point: today's report from the Hill that as a result of Bridgegate, the New Jersey Govenor has seen his popularity plummet in a head-to-head match-up against Hillary Clinton, based on a new Quinnipiac poll. "Christie dropped 9 percentage points in the poll, and now trails Clinton 46 percent to 38 percent in a potential general election matchup. That reverses a December poll that showed Christie leading Clinton 42 percent to 41 percent."

Having been outspoken over capitalism and the rise of income inequality; for the first time, an address from the leader of the world's 1.2 billion Catholics was read to the political and business elites at the World Economic Forum in Davos. Pope Francis pulled no punches as he implored attendees to remember that "humanity is served by wealth and not ruled by it," and called for "decisions, mechanisms and processes directed to a better distribution of wealth." The guilt-ridden tone was heavy as The Holy See admonished, "I wish to emphasize the importance that the various political and economic sectors have in promoting an inclusive approach which takes into consideration the dignity of every human person and the common good. I am referring to a concern that ought to shape every political and economic decision, but which at times seems to be little more than an after-thought."

One of the bigger stories overnight is Hilsenrath's latest communication from the Fed which once again simply paraphrases the status quo opinion, namely which is that the Fed will taper by another $10 billion on January 29, reducing the total monthly flow to $65 billion. "The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year, according to interviews with officials and their public comments." Of course, should the Fed not do that, as the Hilsenrath turned to Hilsen-wrath after all those Taper rumors in September ended up being one giant dud, one can once and for all completely ignore the WSJ reporter, who will have lost all his Fed sources and is now merely an echo chamber of consensus. What is notable is that the result of the latest mouthpiece effort, the USD is stronger, which means USDJPY is higher, which means US equity futures are flying.... on less QE to be announced. We eagerly await for this particular correlation pair to finally flip. The other big story, of course, is the already noted well-telegraphed in advance PBOC liquidity injection ahead of the Chinese Lunar New Year, and ahead of a potential January 31 Trust default which will certainly shake the foundations of the Chinese shadow banking system to the core. Not helping nerves was last night's announcement by Zhang Ming, a researcher and director of the international investment department at the Chinese Academy of Social Sciences, that "trusts and shadow banking will see defaults this year, and this is a good thing." Let's circle back in 6 months to see just how good it is.

With the 1% of the 1% due to engorge Davos with their high-thinking centrally-planned solutions to the world's oh-so-foreseeable problems, the FT takes a look back at a "world above it all" from 1914. Then too, Margaret McMillan notes, they would have been puzzling over how to cope with their fast-changing, troubled world. They would have worried – as they do today – about the future; concerned that the pattern of economic boom and bust was dangerously unstable; and warning that society might splinter as inequality grew and the middle classes were squeezed. One thing that would not have troubled Davos that January 100 years ago was the possibility of a major war. Europe had just come through two dangerous wars in the Balkans, which surely showed that the international order could cope with crises. And so they would have gone their separate ways confident that they would all meet again in 1915.

But fear not, dear poor people of the world, for Lloyd Blankfein, Mark J. Carney, Mario Draghi, Haruhiko Kuroda, Christine Lagarde, Jacob Lew, Shimon Peres, Larry Fink, David Cameron, Shinzo Abe, Marissa Meyer, and many others are there fighting for you. Fighting all the way...

Next time you cry over your paycheck or you scrimp and scrape to find the extra few dollars to finish the month, remember that admittedly money doesn’t grow on trees…

Markets have started the week on the back foot, despite a brief rally following a better-than-expected Q4 GDP print in China. Indeed, Asian equities recorded a small pop following the GDP report, but the gains were shortlived as the general negativity on China’s growth trajectory continues to weigh on Asian markets. In terms of the data itself, China’s Q4 GDP (7.7% YoY) was slightly ahead of expectations of 7.6% but it was slower than Q3’s 7.8%. DB’s China economist Jun Ma maintains his view that economic growth will likely accelerate in 2014 on stronger external demand and the benefits from deregulation. The slight slowdown was also evident in China’s December industrial production (9.7% YoY vs 10% previous), fixed asset investment (19.6% YoY vs 19.9% previous) and retail sales (13.6% vs 13.7% previous) data which were all released overnight. Gains in Chinese growth assets were quickly pared and as we type the Shanghai Composite (-0.8%), HSCEI (-1.1%) and AUDUSD (-0.1%) are all trading weaker on the day. On a more positive note, the stocks of mining companies BHP (+0.29%) and Rio Tinto (+0.26%) are trading flat to slightly firmer and LME copper is up 0.1%. Across the region, equities are generally trading lower paced by the Nikkei (-0.5%) and the Hang Seng (-0.7%). Staying in China, the 7 day repo rate is another 50bp higher to a three month high of 9.0% with many investors continuing to focus on the Chinese shadow banking system following the looming restructuring of a $500m trust product that was sold to ICBC’s customers.

• NSA phone data control may come to end (AP)
• China to rescue France: Peugeot Said to Weigh $1.4 Billion From Dongfeng, France (BBG)
• China to rescue Davos: Davos Teaches China to Ski as New Rich Lured to Slopes (BBG)
• Hollande’s Tryst and the End of Marriage (BBG)
• Iran has $100 billion abroad, can draw $4.2 billion (Reuters)
• Target Hackers Wrote Partly in Russian, Displayed High Skill, Report Finds (WSJ)
• Nintendo Sees Loss on Dismal Wii U Sales (WSJ)
• Goldman's low-cost Utah bet buoys its bottom-line (Reuters)
• Royal Dutch Shell Issues Profit Warnin: Oil Major Hit by Higher Exploration Costs and Lower Oil and Gas Volumes (WSJ)
• EU Weighs Ban on Proprietary Trading at Some Banks From 2018 (BBG) - so no holding of breaths?
• Sacramento Kings to Accept Bitcoin (WSJ)

From hashish to drinking cheap whiskey in Chiang Mai clubs, the following clip rounds up the 'best of' Marc Faber over the last few years...

• On the elites - "I am not sure the thinkers are in Davos"
• On the media - "you are an optimist, keep on dreaming... us foreigners just laugh"
• On solutions - "cut government expenditures by 50%; fire half the government... including the President"
• On Americans - "people in the western world have abandoned personal responsibility"
• On government - "who would have faith in the US administration, certainly not someone who thinks"
• On Gold - "not to own gold is to trust central banks, and that you don't want to do in your life"

• MOAR: BOJ Said to See Significant Room for More Bond Purchases (BBG)
• Meltdown Averted, Bernanke Struggled to Stoke Growth (Hilsenrath)
• New Mortgages to Get Pricier Next Year (WSJ)
• Republicans to Seek Concessions From Obama on Debt Limit (BBG)
• Hunting for U.S. arms technology, China enlists a legion of amateurs (Reuters)
• Jury Begins Deliberating in Case of SAC Portfolio Manager (WSJ)
• BP to Write Off $1 Billion on Failed Well (WSJ)
• Rajan Unexpectedly Keeps India Rates Unchanged to Support Growth (BBG)
• Thai protesters say they will rally to hound PM from office (Reuters)
• SEC Brings Fewer Enforcement Actions, Slows Early-Stage Probes (WSJ)

There comes a time in every bubble's life when participants who have a stake in its continuation have to employ ever more tortured logic to justify sticking with it. We have come across an especially amusing example of this recently. “Good news!” blares a headline at CNBC “Bubble concern is at a 5-year high”. Ironically, since at least 1999 if not earlier, the source of this headline has been referred to as 'bubble-vision' by cynical observers (or alternatively as 'hee-haw'). It definitely cannot hurt to be aware of market psychology and sentiment. However, the argument that a surge in searches for the term 'bubble' on Google can be interpreted as an 'all clear' for a bubble's continuation seems to have things exactly the wrong way around. The misguided behavior of financial market participants that can be observed during bubbles is merely mirroring the clusters of entrepreneurial error monetary pumping brings about.

According to the popular way of thinking, bubbles are an important cause of economic recessions. The main question posed by experts is how one knows when a bubble is forming. It is held that if the central bankers knew the answer to this question they might be able to prevent bubble formations and thus prevent recessions. Contrary to Shiller, in order to establish that a bubble is forming we don’t need to apply the same methodology employed by psychologists. What we require is the establishment of a correct definition of what bubbles are all about. Once it is done, one discovers that bubbles have nothing to do with some kind psychological malfunction of individuals – they are the result of loose monetary policies of the central bank.

The high priests of academic and “official” history love a good villain for two reasons:  First, because good official villains make the struggles and accomplishments of good official heroes even more awe-inspiring.  And, second, because nothing teaches (or propagandizes) the masses more thoroughly than the social or political lessons inherent in the documented rise and fall of the world's most despicable inhabitants.  We get shivers of fear and excitement when we discuss the evils and the follies of ancient monsters like Nero, Attila the Hun, Caligula, etc, or more modern monsters, like Mussolini, Stalin Hitler, Goebbels, Mao, Pol Pot, Idi Amin, and so on.  We take solace in the idea that “we are nothing like them”, and our nation has “moved beyond” such animalistic behavior.