Note that the classic sign of crisis and capital flight, higher interest rates, falling currency, and falling bank stocks are now visible in Brazil (and elsewhere). Indeed, the correlation between Brazilian bond yields and Brazilian financials/BRL turned sharply negative during each of the past 3 systemic crises (Asia ‘98, Tech ‘02 & Lehman ’08) and is doing so again today.
Why Greece is simply a symptom of a much larger problem
"It will be appropriate at some point this year...to raise the Fed funds rate and normalize monetary policy," Yellen recently explained but given recent comments from Fed heads and the FOMC Minutes, it appears the real meme is "everything is awesome, we promise and as long as it stays that way we will hike rates just a little bit, stand back and watch the implosion, then stand ready to step back in to save the world... oh, and if Greece, China, US Shale, or LatAm blow up contagiously, we won't normalize policy ever again." Yellen speaks on the US economic outlook at The City Club of Cleveland.
Dollar downmove still seems corrective in nature. Fed hike in September still seems most likely scenario. Taalk of US recession is over the top when unemployment, broadly measured is falling and weekly initial jobless claims are at new cyclical lows.
Past: Scarily Prescient Analysis of @Grexit meets Present: Analysis of the Goldman Hedge meets Future: Goldman DisintermediationSubmitted by Reggie Middleton on 02/20/2015 16:12 -0400
A literal Tour de Force, likely the most indepth, practical analysis of the Grexit situation as you will ever read. This is why I like blogging... You can never find stuff like this in the mainstream media.
With reports of near mutiny in Syriza's ranks amid the back-bending they have done to try to meet Germany's demands - only to be abjectly denied by a non-ultimatum-setting Schaeuble - it is perhaps time to prepare (ahead of tomorrow's apparent "G" day) for the possibility that Greece creates a systemic event. As Goldman recently warned, there are aspects that leave us more worried than we have been since the start of the Euro area crisis with a tight schedule to avert a disorderly outcome. Risk markets so far have traded in a resilient (well managed) manner but risks of an accident remain and here is how Goldman suggests you hedge that exposure.
It took a while, but three months after we wrote "How The Petrodollar Quietly Died, And Nobody Noticed", someone finally noticed.
"The Ruble has fallen by 50% in a year. The price of oil has halved, the price of copper, iron ore and many other commodities has tumbled. The Swiss franc has been de-floored and the uproar was huge. All random events, all part of a pattern. Financial markets are feeling the effects of a pick-up in volatility that has followed the end of Fed QE. While zero rates were augmented with Fed bond-buying, investors went around the world in search of higher yields, in all sorts or assets and currencies. Traders and investors of one kind or another resorted to leverage to reach the yield targets they needed to match their required investment returns. All of which was fine while the party went on forever, but now that it’s ending, the outcome is anything but fine."
As the world’s number one energy consumer China is enjoying the low prices while they last. Never one to settle however, China is finding still more ways to take advantage of the dire straits gripping several oil producers...
Assume the news for next week has not already been written, What should investors, or those monitoring the international political economy be watching? Here is my list.
November's asset performance can best be summarized in just three words: oil, oil, oil. "For Brent November was the biggest one month decline since the height of the Lehman crisis in October 2008 whilst for WTI it was the worst since December 2008. Brent and WTI are now 33% and 28% lower versus where it started the year and are now trading at their lowest level since the spring of 2010."
A look at the global capital markets as if analysis matters.
Recently we posted the following article commenting on the impact of USD appreciation and dollar circulation among oil exporters, as well as how the collapsing price of oil is set to reverberate across the entire oil-exporting world, where sticky high oil prices were a key reason for social stability. Following today's shocking OPEC announcement and the epic collapse in crude prices, it is time to repost it now that everyone is desperate to become a bear market oil expert, if only on Twitter...
The Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance. A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall. This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling. But no more: "this year the oil producers will effectively import capital amounting to $7.6 billion.