Bank of Japan

Major central banks claim to be independent, but they are totally under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time. What comes now is a new reality...

The world of investing as we’ve come to know it is over. Financial markets have been distorted to such an extent by the activities, the interventions, of central banks – and governments -, that they can no longer function, period. The difference between the past 6 years and today is that central banks can and will no longer prop up the illusionary world of finance. And that will cause an earthquake, a tsunami and a meteorite hit all in one. If oil can go down the way it has, and copper too, and iron ore, then so can stocks, and your pensions, and everything else.

A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the "shock and awe" bandwagon may be none other than the Bank of Japan (something we noted over the weekend in "Is The BoJ The Next SNB?"), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe's "Abenomics" policies said that the Bank of Japan "does not need to ease monetary policy further this year unless the economy is hit by a severe external shock."

Everyone loves a good conspiracy theory debate. Regardless of whether you argue for it, or against, there are times when suddenly the ramifications for plausible truth are realized that overshadow the conspiracy. This is where the plot of truth can get far more sinister than the imagined conspiracy ever could.

Top ten things that investors will likely be watching in the week ahead.

We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet - it’s hugely preferable to upside down; you hang upside-down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason. But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.

A promise is a promise is a promise... especially if it's from a Central Bank. That was true and undeniable for decades of BTFD 'equity market put'-provision by the world's central planners... until Wednesday. But now, on the heels of the Swiss National Bank's 'victory' against the vicious cycle of currency wars and monetary debauchment, The Asian Nikkei Review reports stirrings in the Bank of Japan as one official warns, "we have caused tremendous trouble for the financial industry," and many others growing anxious about continuing its massive purchases of government bonds (confronted with the program's negative side effects) and pressure from the financial industry is strengthening by the day "to scale back monetary easing soon."

At this point the current financial system was irrevocably broken. We simply had yet to feel it.

Reuters just reported that none other than the HFT's bestest buddy exchange, BATS, which earlier this week was slapped with the biggest monetary penalty ever for continuing the practice of Hide Not Slide (at least until UBS' dark pool was slapped with an even bigger fine for conducting subpennying without informing most of its clients), is about to buy the FX trading platform of KCG, formerly Knight Capital which too blew up after one of its algos went haywire and blew up the firm in milliseconds.

• BATS GLOBAL MARKETS IN TALKS TO BUY FX TRADING PLATFORM HOTSPOT FROM KCG HOLDINGS KCG.N FOR NEARLY $400 MLN - SOURCES KCG.N - RTRS

Which, of course, is great news for all those who have stepped back from the rigged circus and merely enjoy "markets" for the comedic farce they have become

"The first lesson is never trust a central banker when he or she makes a commitment or gives guidance..."

Success, we’re constantly told, breeds success. And success breeds stability. The way to avoid failure is to copy successful people and strategies. The way to continue succeeding is to do more of what has been successful. This line of thinking is so intuitively compelling that we wonder what other basis for success can there be other than 'success'? As counter-intuitive as it may sound, success rather reliably leads to failure and destabilization. Instead, it’s the close study of failure and the role of luck that leads to success. In the macro-economic arena, we think it highly likely that the monetary and fiscal policies of the past six years that are conventionally viewed as successful will lead to spectacular political and financial failures in 2015 and 2016. How can success breed failure? It turns out there are a number of dynamics at work.

At this point, the writing is on the wall: nothing can be taken for granted.  No assurances or promises or proclamations will hold.

Anyone who continues to believes in the all powerful CB after today is a fool.

'After two days of sharp intraday and vicious reversals, the BTFD algos are suspiciously missing overnight, when as reported earlier, a bout of margin calls and stop loss selling meant not crude but copper would crash in today's episode of "guess the crashing commodity", on what Goldman dubbed a Chinese demand collapse which for those confused is different than an OPEC supply glut, and is also the reason why the entire commodity complex is trading at a decade plus low. As a result copper plunged to a five and a half year low, in the process halting the market due to the severity of the plunge. But the big event overnight was the farcical announcement by the European top court, which as everyone expected, rejected the German rejection of the OMT as illegal, stating it was not only legal (with certain conditions) but greenlighting the way for the ECB's QE in one week, a move which sent the EURUSD crashing to a fresh 9 year low!

There is compelling evidence that 2015 will see a global slump in economic activity. This being the case, financial and systemic risks will increase as evidence of the slump accumulates. It can be expected to undermine global equities, property and finally bond markets, which are currently all priced for economic stability. Even though these markets are increasingly controlled by central bank intervention, it is dangerous to assume this will continue to be the case as financial and systemic risks accumulate. Precious metals are ultimately free from price management by the state. Furthermore, they are the only asset class notably under-priced today, given the enormous increase in the quantity of fiat money since the Lehman crisis. In short, 2015 is shaping up to be very bad for fiat currencies and very good for gold and silver.