This is it, folks; this is the endgame right in front of our faces. The year of 2014 is the new 2007, with all the negative potential but 100 times more explosive going into 2015. Our nation has wallowed in slowly degrading financial conditions for years, hidden by fake economic statistics and manipulated stock prices. All of it has been a prelude to a much more frenetic and shocking event. We expect a hailstorm of geopolitical crises over the next year to provide cover for the shift away from the dollar. Ultimately, the death of the dollar will be hailed in the mainstream as a “good and necessary thing.” They will call it “karma.” They will call it “progress.” They will even call it “decentralization” and a success for the free market. But it will not feel like a positive development for the American public, who will suffer greatly as the dollar crumbles.
"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."
Crude Continues Slide, Ruble Stabilizes, US Futures Rebound As Global Stocks Slump: All Eyes On YellenSubmitted by Tyler Durden on 12/17/2014 06:50 -0500
Previewing today's market: near record low liquidity, with chance of ridiculous volatility in the Ruble, energy and equity markets. While no doubt today's main event will be the "considerable" FOMC announcement and the Fed's downward-revised economic projections followed by Yellen's press conference, what traders will be most excited by is that, finally, Jim Bullard will no longer be bound by the blackout period surround FOMC decisions, and as such can hint of QE4 again at his leisure during key market inflection (i.e., selling) points.
If the world's fifth largest trader of commodities has chosen to outright not trade gold, and thus not generate value for its shareholders over risks and fears that another, or two, or three, or a countless number of other prior "owners" may come knocking one day and demanding delivery of gold whose origin could not be documented by its trading intermediaries, and whose ownership link Gunvor is unable to trace, then just what on earth is really going on with the world's physical gold inventory (here's looking at you, Chinese gold-backed Commodity Funding Deals), and just what is the catalyst that will unleash what is essentially the infamous US mortgage robosigning scandal onto the gold arena, at which point owners of gold realize the gold they thought they owned, even if held safely in a deposit box deep in a gold vault in a safe offshore location, in reality "belongs" to someone else?
Let's pause for a moment, take a breath, and reflect on what has happened. As Scotiabank's Guy Haselmann notes, "The current market environment means that prices of securities can move wildly and to previously unforeseen and unexpected levels. For many, P&L management and financial survival will trump economic valuation." But what does all this mean for The Fed tomorrow?
But what about the massive cajillion-dollar tax cut for American manufacturers from the oil-drop? US Manufacturing PMI collapsed to 53.7 in December, missing expectations of a rebound to 55.2 by the most on record and falling to its lowest since January 2014 - the middle of the Polar Vortex. This is the 4th monthly drop in a row off the mid-year "yay recovery is here" record highs and 4th miss in a row as economists continue to 'price in' the hockey-stick. The employment sub-index dropped to its lowest since July and new orders collapsed to its lowest since January. This comes on the heels of Germany's 18-month lows for its Manufacturing PMI. No decoupling after all. As Markit noted about Germany, "the data are consistent with only marginal GDP growth in the fourth quarter at best," and we suspect the same is coming for USA soon, as they add "a cooling in the pace of expansion from unusually strong rates earlier in the year."
For those wondering if the CBR's intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74 76, and sending the Russian stock market plummeting by over 15%.
- Ruble Sinks to 80 a Dollar Defying Surprise Russia Rate Increase (BBG)
- Oil slumps near $59 for first time since 2009 on oversupply (Reuters)
- Oil sinks, Russian moves fail to quell nerves (Reuters)
- Fed Seen Looking Past Low Inflation to Drop ‘Considerable Time (BBG)
- Students Among Dead as Pakistan Gunmen Kill 126 at Army School (BBG)
- Repsol to buy Talisman Energy for $13 billion (Reuters)
- Indonesia’s Rupiah Erases Decline After Central Bank Intervenes (BBG)
- Anti-Islam Rally Grows as Immigrant Backlash Hits Europe (BBG)
- Saudi Arabia is playing chicken with its oil (Reuters)
The biggest event of the coming week is surely the FOMC announcement on Wednesday, when as most expect, will see the Fed's language shifting from "considerable time" to "patient." But while "most" also expect this to be the preamble toward Fed hiking rates in mid-2015, some disagree.
After the worst week for stocks in years, and following a significantly oversold condition, it will hardly come as a surprise that the mean reversion algos (if only to the upside), as well as the markets themselves (derivative trading on the NYSE Euronext decided to break early this morning just to give some more comfort that excessive selling would not be tolerated) are doing all they can to ramp equities around the globe, and futures in the US as high as possible on as little as possible volume. And sure enough, having traded with a modestly bullish bias overnight and rising back over 2000, the E-Mini has seen the now traditional low volume spike in the last few minutes, pushing it up over 15 points with the expectation being that the generic algo ramp in USDJPY ahead of the US open should allow futures to begin today's regular session solidly in the green, even if it is unclear if the modest rebound in the dollar and crude will sustain, or - like on every day in the past week - roll over quickly after the open. Also, we hope someone at Liberty 33 tells the 10Y that futures are soaring: at 2.13% the 10Y is pricing in nothing but bad economic news as far as the eye can see.
While the entire financial world is hanging on to every Mario Draghi word in hope Europe finally improves the market's (if not the economy's) "fundamentals" to new record highs, and joins the rest of the "developed" world's central banks in injecting trillions of liquidity into the Div/0 P/E stocks "whatever it takes" (because in a world where only multiple expansion is left, the ECB is the last wildcard at least until the US is dragged right back into the global recession and the Fed admits any pipe dreams of a rate hike in 2015 were just that), something far more different may be taking place behind the scenes. According to at least one journalist, the Fiscal Times' Patrick Smith, "Draghi appears set to leave Frankfurt and return to his native Italy the first chance he gets."
The story here is not Oil; it’s about a massive bubble in risk assets fueled by borrowed Dollars blowing up. The last time around it was a housing bubble. This time it’s an EVERYTHING bubble. And Oil is just the canary in the coalmine.
The largest economy of the Eurozone is showing important signs of fatigue...
One sign would be for non-energy junk bonds to begin dropping in price. That would mean large holders are exiting from all junk bonds, not just those companies affected by low oil prices.
Another sign would be sudden drops in share prices for banks or insurance companies that hold small amounts of energy-related bonds or bank loans, a clue that some market participants think they have derivative exposure.
A third sign to look for would be the rumors or news that the big, investment-grade energy companies are having trouble renewing their Commercial Paper, bank loans or maturing bonds (the Exxon-Mobils and Shells of the world).
One thing is certain about the ensuing “race to the bottom”. Japan’s retirement colony will end up with the hindmost. And they will surely burn professors Krugman and Summers in effigy—-even if driftwood is the only fuel they have left.