Japan

With EU inflation still stuck in Japan mode and with GDP bumping along at the "new normal" pace of what might as well be 0%, the market expects more from Draghi going forward. Need proof? Just look at yields.

At 23-years old, Pete Seeger was an Army Private anxiously awaiting the opportunity to be deployed to fight fascism in the midst of World War II, when he became outraged by injustice in his own backyard. As such, he wrote the following letter to the California chapter of the American Legion. For this thoughtful expression of his First Amendment rights, Pete Seeger ended up on an FBI watch-list; a place he would remain for the next thirty years. Following a Freedom of Information Act request, we now have access to his shocking 1,800 page file...

As SOE profits continue to deteriorate at the expense of maximizing jobs and employment (recall the biggest threat facing China is a working class insurrection, or simply said, "lower and middle-class revolution") debt at these same SOEs just hit a new record high: according to the same FinMin numbers, total SOE debt rose by CNY393 billion to CNY78.3 trillion, or over $12 trillion - well above 100% of total Chinese GDP.

There’s only one investment we can think of that many people either love or hate reflexively, almost without regard to market performance: gold. And, to a lesser degree, silver. It’s strange that these two metals provoke such powerful psychological reactions - especially among people who dislike them. Nobody has an instinctive hatred of iron, copper, aluminum, or cobalt. The reason, of course, is that the main use of gold has always been as money. And people have strong feelings about money. From an economic viewpoint, however, money is just a medium of exchange and a store of value. Efforts to turn it into a political football invariably are signs of a hidden agenda, or perhaps a psychological aberration. So, let’s take some recent statements, assertions, and opinions that have been promulgated in the media and analyze them.

Goldman, Decembert 20, 2015: "We think the BoJ is closer to easing further to attempt to achieve a successful reflation than it is to giving up altogether, and so we continue to expect $/JPY higher. We recommend being long $/JPY as part of our 2016 top trade recommendation (along with short EUR/$) and forecast $/JPY at 130 in 12 months"... Three days later, the USDJPY is 100 pips lower.

This won't end well... On Tuesday, Gov. Issei Nishikawa approved the restart of the No. 3 and No. 4 reactors at the plant in Fukui on the Sea of Japan, defying an injunction by the prefecture’s District Court that had been sought by residents living within about 60 miles of the nuclear facility.

There is just one very big problem with this "solution"...

• Global Stocks Take Breather After Oil-Fueled Rally (WSJ)
• Junk Investors Evade the Trade (WSJ)
• How the Third Avenue Fund Melted Down (WSJ)
• Oil Traders Set to Pounce as U.S. Prepares to Lift Export Ban (BBG)
• JPMorgan Says Japan Inc. Must Prepare for Yen Below 100 a Dollar (BBG)

After a furious three day "dash for trash", no volume, no breadth, commodity-driven rally, even Santa is now exhausted and overnight US equity index futures were little changed with European and Asian shares mixed. The dollar has declines as gold, silver gain, with WTI initially continuing its recent meteoric rise (up over 8% in the past three days, nearly hitting $38), only to reverse and give up all overnight gains moments ago. Copper falls after Chinese stocks see a second day of weakness, down 0.7% while an unexpected tumble in the USDJPY to 7 weeks lows has dragged the Nikkei (-0.5%) and its futures down.

Rather, economic collapse is the greatest weapon at the disposal of globalists. National panic, riots, looting, starvation, magnified crime: All of these things result in mass die-offs and desperation. Desperation leads to calls for "strong leadership", and strong leadership usually results in totalitarianism. It might seem sensationalist to tie all of these possible outcomes to the Fed rate hike decision, but give it a little time. Those who make accusations of sensationalism and “fear mongering” today will be asserting tomorrow that such developments were “easily predictable.”

The market is well aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade by central bank (CB) intervention. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant, creating a highly unstable (fragile) situation that breaks violently when a sufficient catalyst causes risk to rise – overly crowded positioning meets a market with little conviction. Catalysts From BofAML's global equity derivatives desk's vantage point, it becomes clear that the biggest visible risk to financial markets is a loss of confidence in this omnipotent CB put.

"The most important channel through which the Dragon's Tail scenario can affect other markets is trade, although financial linkages and market contagion could also have a significant impact on some markets and asset prices."

2015 has witnessed several events that had, and will have, negative repercussions on individual freedom. Orwellian totalitarianism is increasingly creeping into our everyday lives. How much more intrusive will the violations of our liberties become and for how long will the establishment get away with this? With regards to the financial system, no real solution was found to issues such as those in the euro zone. Furthermore, the financial system as a whole once again got deeper into debt. For how much longer can central banks and governments continue kicking the can down the road without any real reform?

When the only healthy part of an already-impaired system turns negative, everyone will feel the resulting pain.