The world financial system is booby-trapped with unprecedented anomalies, deformations and contradictions. It’s not remotely stable or safe at any speed, and most certainly not at the rate at which today’s robo-machines and fast money traders pivot, whirl, reverse and retrace. Indeed, every day there are new ructions in the casino that warn investors to get out of harm’s way with all deliberate speed. And last night’s eruption in the Japanese bond market was a doozy.
Investors have pumped a whopping $9.2 billion in new equity into energy companies year to date, the most since Bloomberg records began in 1999. The euphoria won't last, and the equity issuance window is already closing: confirmation of this comes from none other than Exxon CEO Rex Tillerson who moments ago said that the "wave of oil equity issuances is destroying value", adding that "global economic conditions are not inspiring", that "demand won't solve it quickly" and that "we're still oversupplying the market."
"We expect the10y JGB auction on the 1st to be a new issue with a 0.1% coupon, but auction yields are likely to go into negative territory. We do not expect the bank sector to buy, and demand from dealers and foreign investors is unlikely to provide sufficient support. We expect the auction to be turbulent given investors are also unlikely to short futures and the possibility of a tail. "
History is pretty clear. As long as earnings are deteriorating, you don’t want to be invested in stocks. As Charlie Munger once said: “I think that every time you see the word EBITDA, you should substitute the word ‘bullshit’ earnings.”
When a leading nominee for President gets something exactly right, we should applaud them for it. In this case, Donald Trump’s call to audit the Federal Reserve is dead on correct. Most Americans don’t realize this, but the Federal Reserve has far more power over the economy than anyone else does – including Barack Obama. The funny thing is that the Federal Reserve is not even part of the federal government. It is an independent private central bank that was designed by very powerful Wall Street interests a little over 100 years ago. It is at the heart of the debt-based financial system which is eating away at America like cancer, and it has no direct accountability to the American people whatsoever.
One place that provides some glimpse into true price discovery was the just completed government tender, in which a parcel of land sold by the government in the New Territories went for nearly 70% less per square foot than a similar transaction in September.
Unfortunately, we remain stuck in the cleanup phase so long as economists and their ability to direct policy continue to suggest the Great Recession was anything other than systemic revelation along these lines; a permanent rift between what was and what can be. It is and was never about oil; only now that oil projects volatility into the dying days of eurodollar leverage.
Between 1990 and 2010, eventually 37 banks would become JP Morgan Chase, Bank of America, Wells Fargo, and Citigroup. The “Big Four” retail banks in the United States collectively hold 45% of all customer bank deposits for a total of $4.6 trillion... as the biggest got biggest-er all thanks to the very visible hand of The Fed's free money.
Back in August we noted that John Paulson managed to get himself and his investors involved in two rather dubious "firsts" in 2015: Puerto Rico became the first US commonwealth in history to default, and Greece became the first developed country to default to the IMF. Paulson had invested in Puerto Rican and Greek assets. Now, amid a client exodus, the billionaire is putting up his own holdings to secure a longstanding line of credit with HSBC.
Despite the collapse in Chinese stocks, Bloomberg reports annual sales of Chinese equity-linked structured notes across AsiaPac rose to a record(prompting Korea's financial regulator to warn investors in August that their holdings had become too concentrated in notes tied to the China H-Shares index). When banks sell the structured products to investors, they take on an exposure that's similar to purchasing a put option on the index... which needs to be hedged via index futures; and if BofAML is right, Chinese stocks in Hong Kong are poised for a fresh wave of selling now that HSCEI has crossed 8,000 as banks are forced to hedge.