Here is the BIS once again with its noble - and now thorughly 'Austrian' - public service announcement, this time warning about the implications of a global "debt trap" and how everything will end in tears (stop us when this becomes familiar). We have just one request. Next time, instead of sharing these profoundly Austrian observations with the general public, maybe you can just discuss them at the next BIS Board of Directors' meeting which consists of...
Following the release of the quarterly monetary policy report from the People’s Bank of China, it is becoming clear, as Goldman Sachs notes, that stimulus - via cuts to system-wide RRR and/or benchmark interest rates - is becoming less and less likely. The PBOC's introduction of a new facility called the medium-term lending facility (MLF) allows 'targeted' easing, and as one local economist noted, "it shows the central bank is very reluctant to loosen monetary policy." The PBOC has broadened its toolkit to arrest an economic slowdown, while seeking to avoid adding financial risks, as The PBOC said it would "continue to implement a 'prudent' monetary policy and use various tools to manage liquidity." Not the exuberant stimulus-fest the talking-heads are calling for reminding us, as Pettis previously concluded, "In China, it will be no different. Growth miracles have always been the relatively easy part; it is the subsequent adjustment that has been the tough part."
- LOL@Fundamentals: European Stocks Fall as Investors Seek Stimulus Clarity (BBG)
- Obama, Republicans sound conciliatory note but battles loom (Reuters)
- Firms drop Pimco funds from managed accounts (Reuters)
- Not All QE Is Created Equal as U.S. Outpunches ECB-BOJ (BBG)
- Ukraine Accuses Russia of Sending Troops as Truce Wobbles (BBG)
- Lenovo Slumps After Projecting China ‘Hypergrowth’ to End (BBG)
- Palo Alto Networks discovers new malware targeted at Apple devices (Reuters)
- IPO That Brought In $1 Billion in March Implodes in Denmark (BBG)
"Solutions to the world's problems are not produced in a meeting between Bill Gates and George Soros... Renewal has to come from below... Limiting the influence [of the richest] is of the utmost importance... so that today's upper-class, high-finance capitalism can once again revert to being a capitalism of the real economy and the societal center."
As Deutsche Bank observes, the Fed has been wanting to hike rates on a rolling 6-12 month horizon from each recent meeting but never imminently which always makes the actual decision subject to events some time ahead. They have seen a shock in the last few weeks and a downgrade to global growth prospects so will for now likely err on the side of being more dovish than in the last couple of meetings. They probably won't want to notably reverse the recent market repricing of the Fed Funds contract for now even if they disagree with it. However any future improvements in the global picture will likely lead them to step-up the rate rising rhetoric again and for us this will again lead to issues for financial markets addicted to liquidity. And so the loop will go on for some time yet and will likely trap the Fed into being more dovish than they would ideally want to be in 2015.
- Stick to tapering and rates pledge, says Boston Fed chief (FT)
- Turkey to let Iraqi Kurds reinforce Kobani as U.S. drops arms to defenders (Reuters)
- Obama makes rare campaign trail appearance, some leave early (Reuters)
- Japan GPIF to Boost Share Allocation to About 25%, Nikkei Says (BBG)... or three months of POMO
- Japan Stocks Surge on Report GPIF to Boost Local Shares (BBG)
- China Growth Seen Slowing Sharply Over Decade (WSJ)
- Russia, Ukraine Edge Closer to Natural-Gas Deal (WSJ)
- Leveraged Money Spurs Selloff as Record Treasuries Trade (BBG)
- After clashes, Hong Kong students, government stand their ground before talks (Reuters)
- Obama open to appointing Ebola 'czar', opposes travel ban (Reuters)
- Schools Close as Nurse’s Ebola Infection Ignites Concern (BBG)
- How the World's Top Health Body Allowed Ebola to Spiral Out of Control (BBG)
- European Stocks Rise Amid Growing Pressure for Stimulus (BBG)
- Putin Threatens EU Gas Squeeze Raising Stakes for Ukraine (BBG)
- ECB to Start Asset Purchases Within Days, Says Central Banker Coeuré (WSJ)
- Investors search for signs of end to stock market correction (Reuters)
Yesterday, in a periodic repeat of what he says every 6 or so months, Jamie Dimon - devoid of other things to worry about - warned once again about the dangers hidden within the shadow banking system (the last time he warned about the exact same thing was in April of this year). The throat cancer patient and JPM CEO was speaking at the Institute of International Finance membership meeting in Washington, D.C., and delivered a mostly upbeat message: in fact when he said that the industry was "very close to resolving too big to fail" we couldn't help but wonder if JPM would spin off Chase or Bear Stearns first. However, when he was asked what keeps him up at night, he said non-bank lending poses a danger "because no one is paying attention to it." He said the system is "huge" and "growing." Dimon is right that the problem is huge and growing: according to the IMF which just two days earlier released an exhaustive report on the topic, shadow banking (which does not include the $600 trillion in notional mostly interest rate swap derivatives) amounts to over $70 trillion globally.
Martin Feldstein, Harvard University professor alludes to what many in the financial community recognize that risk-taking is out of control.
A "Yes" vote for Scottish independence represents a "high risk" event according to Citi's Michael Saunders. With the so-called 'neverendum' now less than a month away, Citi continues to highlight three particular concerns if Scotland does vote for independence: Scotland’s relatively weak fiscal position, Scotland’s large banking system and uncertainties over the currency arrangements of an independent Scotland. The Scottish Government seems to be seeking a policy of "sterlingisation" - which even their economic advisors judge "is not likely to be a long-term solution." For now a "no" vote is most likely, however, even if the Scottish referendum does not pass, the UK political landscape is likely to remain in a state of flux.
Under the imposition of StealthFlation, the Velocity of Money lies dormant while increasing Inflationary risks build below the surface.
The soft July data have once again generated expectations of monetary easing from China. Goldman however thinks further monetary easing would have incrementally less of an impact and would come at the cost of financial stability. This diminishing impact, they argue, would result as overcapacity/oversupply restricts long-term borrowing demand and due to interest rate deregulation, which tends to move the long-term risk-free interest rate to a higher equilibrium, as seen in recent data. As the tradable sector continues to recover on the back of an improved global outlook, Goldman believes that a combination of sectoral policies aimed at easing financial stress and structural adjustment would be a better policy option. They do not expect broad macro easing or an interest rate cut in what remains of this year.
Physical gold is migrating to the East (Russia, China) and, with it, power and influence. We see it with China and Russia progressively imposing their will, building consensus with a great many countries that wish to end American domination made possible by their capacity (privilege) of issuing the world reserve currency. The saying, “He who holds the (physical) gold makes the rules”, is truer than ever. The announcement of the creation of the BRICs development bank is just the first cornerstone in the new international monetary edifice. All we have to wait for is the first official announcement from the East of a new means of settlement of commercial trade based on one or more tangible assets, with gold. Afterwards, logically, an announcement of the convertibility of certain currencies into gold, or even the creation of a new currency that would be convertible to gold, should be made.
Yesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation. Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!
- Russia bans all U.S. food, EU fruit and vegetables in sanctions response (Reuters)
- Snowden receives three-year Russian residence permit (Reuters)
- Headline of the day: Europe's Recovery Menaced by Putin as Ukraine Crisis Bites (BBG)
- Americans worry that illegal migrants threaten way of life, economy (Reuters)
- Almost 90% of Uninsured Won't Pay Penalty Under the Affordable Care Act in 2016 (WSJ)
- Germany’s Bond Advance Sends 2-Year Note Yield Below Zero (BBG)
- Gaza War’s Critics in Crosshairs as Israelis Back Offensive (BBG)
- The 1% May Be Richer Than You Think, Research Shows (BBG)
- Bank of America Near $16 Billion to $17 Billion Settlement (WSJ)
- Deep Water Fracking Next Frontier for Offshore Drilling (BBG)