With the threat of a potential 'black swan' event with a Trump Victory, The Elite have pulled out their "Ace in the Hole" - Russia. Russia is the most feared and misunderstood of all US artificial villians (even more than Islamic Terrorists).
December 5th 1996: After rising 210% off the 1987 crash lows, Alan Greenspan speaking at the American Enterprise Institute in Washington, asks: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" The next day, the Dow Jones Industrial Average slumps by 1% to close at 6,381.94; over the next three years, the market nearly doubles...then crashes...then doubles... then crashes... and then triples in the last five years... "rational exuberance"
The DJ Cyprus Total Market Index is at present down 99.71% from its all time high made in 2007, so we would say it is definitely the most oversold stock market in the world in all of history. From 100 euro invested at the peak, a mere 29 cents are left. Let us briefly ponder the mathematics of this wipe-out: when the market was down by 90%, it fell by another 50% at which point it was down 95% from the high. Thereafter, it fell by another 50%, ending down 97.5% from the high. Then it fell by another 50%, at which point it was down 98.75% from the high. Then it fell by 50% again and was down 99.375%. Surely this was bad enough? Nope…it then fell by yet another 50%, landing at 99.6875% down from its 2007 high.
Last week, Zero Hedge first showed a chart so simple, even a Krugman could get it: at this point (and really ever since USDJPY 110 and higher), any incremental Yen devaluation is destructive for the Japanese economy, leading to an unprecedented surge in defaults. And here is Japan Times confirming what we said, with a report that "Corporate bankruptcies linked to the yen’s slide hit a new record in November, highlighting the strains on small and midsize companies as Prime Minister Shinzo Abe campaigns for re-election on his deflation-busting economic strategy."
Confused why in the lack of any horrible economic news (unless of course someone leaked a worse than expected November payrolls print which would put QE4 right back on the table) futures are higher, especially in the aftermath of yesterday's disappointing ECB conference? Then look no further than the Yen which has now lost pretty much all control and is in freeplunge mode, rising some 25 pips moments ago on no news, but merely as wave after wave of momentum ignition algos now make a joke of the Japanese currency, whose redline of 123 (as defined by SocGen)is now just 240 pips away. At this pace, Japan's economy, which as reported yesterday has just seen a record number of corporate bankruptcies due to the plummeting yen, may well be dead some time next week. Which, with Paul Krugman as its new and improved economic advisor, is precisely as expected. RIP Japan.
In terms of the cycle of market emotions, gold is as close to ‘depression’ as we have seen (see chart). Yet, so far in 2014, gold is 14.3%, 12.3%, 5.8% and 0.4% higher in japanese yen, euros, sterling and dollars respectively (see chart).
“Can a debt crisis be cured with more debt?” it is difficult to envision a return to normalcy within my lifetime (shorter than it is for most of you). I suspect future generations will be asking current policymakers the same thing that many of us now ask about public smoking, or discrimination against gays, or any other wrong turn in the process of being righted. How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? It has been a nursery rhyme experience for sure, but more than likely without a fairytale ending.
With the Fukushima disaster having disappeared from all media coverage in recent months (and with the plan to encapsulate the radioactive plant in an ice sarcophagus recently scrapped, Japan has still to reveal what its plans are for dealing with the disaster area), the world occasionally needs a reminder of the waste land that follow when nuclear power goes horribly wrong. For that we go back to the original nuclear disaster, Chernobyl, and US photographer Phillip Grossman who, while having taken numerous pictures of the radioactive sarcophagus and its surroundings in the past, has produced his most amazing work yet courtesy of a camera-equipped drone. It allowed him to use a high powered camera and get a bird’s eye view of the surrounding landscape. The stunning result is shown in the video below.
Stocks are down... EU bonds are down... EURUSD is up, and Draghi is not providing his usual promises. Cue The Bank of Japan proxies buying USDJPY to ignite some momentum in risk assets... USDJPY just broke above 120 (for the first time since July 2007)... ran all the stops then tumbled back down...
Today we'll learn more about whether Mr Draghi becomes Super Mario in the near future as the widely anticipated ECB meeting is now only a few hours away. We will do another summary preview of market expectations shortly, but in a nutshell, nobody really expects Draghi to announce anything today although the jawboning is expected to reach unseen levels. The reason is that Germany is still staunchly against outright public QE, and Draghi probably wants to avoid and outright legal confrontation. As DB notes, assuming no new policy moves, the success of today's meeting will probably depend on the degree to which Draghi indicates the need for more action soon and the degree to which that feeling is unanimous within the council. Over the past weekend Weidmann's comment about falling oil prices representing a form of stimulus highlights that this consensus is still proving difficult to build. It might need a couple more months of low growth and inflation, revised staff forecasts and a stubbornly slow balance sheet accumulation to cement action.
"We all are in a Ponzi world right now. Hoping to be bailed out by the next person. The problem is that demographics alone have to tell us, that there are fewer people entering the scheme then leaving. More people get out than in. Which means, by definition, that the scheme is at an end. The Minsky moment is the crash. Like all crashes it is easier to explain it afterwards than to time it before. But I think it is obvious that the endgame is near."
"Today central banks give money to institutions, which are not solvent, against doubtful collateral for zero interest. This is not capitalism."
"The stock market just keeps zooming up. A low equity allocation must be hurting you now... For all purposes, this is a hideously expensive market. I don’t care if it’s a bubble or not. It’s too expensive, and I don’t need to own it. That is the problem. This is the first central bank sponsored near-bubble. There is just nowhere to hide... but... to think that central banks will always be there to bail out equity investors is incredibly dangerous."
What we experience today is completely contrary to the German (maybe not the U.S.) understanding of the role of the Central Bank. The ECB has now assumed a role not only to protect the value of our common currency against inflation but also to take action as if it is responsible to create economic growth and full employment with instruments like money printing, zero interest rates and unlimited investments in bonds which the free market is rejecting... Is it really worth it to increase the already heavy burden of public debt, which our children must service someday, by accepting even more debt in a vain effort to increase public demand? Let’s instead be happy with zero GDP growth, zero inflation and zero growth of public debt! That could be a more rational solution.