- Swiss National Bank Starts Negative Interest Rate of 0.25% to Stave Off Inflows (BBG)
- Putin Strikes Uncompromising Stance Over Crisis Gripping Russia (BBG)
- Sony cancels North Korea movie in apparent win for Pyongyang hackers (Reuters)
- U.S. Said Set to Blame North Korea for Sony Cyber Attack (BBG)
- China’s Short-Term Borrowing Costs Surge as Demand for Money Grows (WSJ)
- Russia Currency Market Bends But Doesn’t Break (BBG)
- Jeb Bush Puts Pressure on Chris Christie for 2016 (WSJ)
- From joy to outrage, Florida's Cuban-Americans greet new U.S. policy (Reuters)
- Russians Quit London Luxury Homes as Only Super-Rich Stay (BBG)
"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."
I realise that it is not normal to have a bearish risk view for December through to mid-January. Normally markets tend to ramp up in December and early January before selling off later in January. But this year I do think things are different. One look at the moves in core bond markets over 2014, when almost everyone I talked to had been bearish bonds, paints a stunning picture. I would entitle this picture ‘The Victory of Deflation’, or (as many folks now talk about (but still generally dismiss)) ‘The Japanification of the World’. I may end up eating my words in 2015 if the US consumer does come through, but if he or she does not, then we may well need QE4 from the Fed to battle the incredibly strong headwinds of deflation around the world. And I will revert on this subject, but to me the coming ECB QE and more BOJ QE are woefully inadequate substitutes for USD Fed QE.
Soaring Inflation Around The Globe: Cartier Hikes Russian Prices By 50%, Suntory Whiskey Prices Surge 25% In JapanSubmitted by Tyler Durden on 12/17/2014 11:05 -0500
As the Fed continues to rely on seasonally-adjusted survey data to validate its belief that the time to hike rates is coming, even as market-implied inflation swap rates are back to 2008 levels, the one thing that continues to happen everywhere but in the US is precisely what the Fed wishes for the US (as we reported yesterday): devaluaing currencies and spiking inflation (and expectations), without any accompanying rise in wages, have lead consumers to a buying frenzy in Russia, and to a far lesser extent Japan. As a result, providers of products and services in these countries have been scrambling to match prices to demand, especially since the demand is purely the result demand brought forward due to plunging currencies, not the result of some magical source of widespread wealth. Case in point, Cartier, the luxury jewelery maker, raised its Russian prices by as much as 50 percent after the ruble plunged to a record low.
Most commentators remain in a state of denial about the enormity of the price fall underway. Some, failing to understand the powerful forces now unleashed, even believe prices may quickly recover. Our view is that oil prices are likely to continue falling to $50/bbl and probably lower in H1 2015, in the absence of OPEC cutbacks or other supply disruption. Critically, China’s slowdown under President Xi’s New Normal economic policy means its demand growth will be a fraction of that seen in the past. This will create a demand shock equivalent to the supply shock seen in 1973 during the Arab oil boycott. Today's ageing Boomers mean that demand is weakening at a time when the world faces an energy supply glut. This will effectively reverse the 1973 position and lead to the arrival of a deflationary mindset.... Prices have so far fallen $40/bbl from $105/bbl since we first argued in mid-August that a Great Unwinding was now underway. And there have been no production cutbacks around the world in response, or sudden jumps in demand. So prices may well need to fall the same amount again.
The rank economic cheerleading in the guise of “news” printed by the Wall Street Journal, Reuters and the rest of the financial press never ceases to amaze. But on the heels of Congress’ pathetic capitulation to Wall Street over the weekend you have to wonder if even the robo-writers who compose the headlines are on the take. How could anyone in the right mind label this weekend’s CRomnibus abomination “A Rare Bipartisan Success for Congress”? Apparently, that unaccountable plaudit was bestowed upon Washington by the WSJ solely because it avoided another government shutdown.
Last weekend’s election in Japan was the opposite of exciting. The upcoming elections in Greece, however, are another matter entirely. What’s really different about the Greek elections now and the Greek elections in 2012 is the lack of a Oh-My-God-Look-At-Greece media Narrative today, particularly in the US. Here it’s all oil, all the time, which means that any power transition in Greece will come as a big negative “surprise” to US investors and US markets. What we can tell you with confidence is that the Common Knowledge of the market today is that Greece is “fixed”, which means that any un-fixing will hit markets like a ton of bricks. It’s an asymmetric risk/reward profile – in a bad way – for global markets in general and European markets in particular.
The epic melt-up in US equities stalled "surprisingly" exactly as Europe closed and the EURJPY-pumpathon, VIX-dumpathon instantly reversed... because it's not rigged at all. The other driver - a dead-cat bounce in Crude - has also stalled as Kuwait's oil minister confirmed no new OPEC meeting until June (hardly good for oil expectations of a production cut any time soon with in OPEC). 5Y5Y inflation breakevens continue to free-fall in US, Japan, and Europe.
It is time to raise rates, deal with it Wall Street there will never be a perfect time to raise rates based upon Wall Street`s criteria.
Perhaps the most notable feature of the October Treasury International Capital report is that in October foreigners sold a whopping $27.2 billion in US equities, surpassing the dump just after the first Taper Tantrum, when they sold $27.1 billion in June of 2013 when they also sold $40.8 billion in Treasurys. This was the largest selling of US corporate stocks by foreign entities since the August 2007 quant flash crash, when some $40.6 billion in US stocks were sold by offshore accounts. However, what this month's TIC data will surely be best remember for, is that both China and Russia dumped US Treasurys in October, some $14 billion and $10 billion, respecitvely, in the process sending China's total Treasury holdings to just $1,253 billion, the lowest since February 2013 and just $30 billion more than the TSYs held by America's second largest (offshore) creditor, Japan.
- Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
- Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
- Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
- Tremble algos: the SEC has hired... "QUANTS" (WSJ)
- When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
- Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
- Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
- Amid Crisis, Pimco Steadies Itself (WSJ)
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.
In space, no one can hear you scream... unless you happen to be Venezuela's (soon to be former) leader Nicolas Maduro, who has been doing a lot of screaming this morning following news that UAE's Energy Minister Suhail Al-Mazrouei said OPEC will stand by its decision not to cut crude output "even if oil prices fall as low as $40 a barrel" and will wait at least three months before considering an emergency meeting.
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.