Nomura

Our world, our life, has been built on debt and propaganda for many years. They have kept us from noticing how poorly we are doing. But now a third element has entered the foundation of our societies, and it’s set to eat away at everything that has – barely – kept the entire edifice from crumbling apart. Deflation.

"Overseas views on the BOJ’s surprise easing announcement can be broken down into two camps: the reflationists, who commend the BOJ for its bold actions, and those critical of the policy, who say it is a symptom of the final stages of Japan’s economic decline. The critics can further be divided into two groups: those who believe that continuing the current policy of “Banzainomics” will lead to a collapse of the Japanese economy and government finance triggered by a crash in the JGB market, and those who worry that the ongoing devaluation of the yen under this policy will hurt their own countries’ industries.... The first group’s scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment."

• No Sign of Thaw in Obama’s Brief Encounters With Putin (BBG)
• Japan Lawmakers Prepare for Snap Elections as Abe Mulls Tax (BBG)
• Global stocks rise, Brent crude hits four-year low (Reuters)
• U.S., China to Drop Tariffs on Range of Tech Products (WSJ)
• ‘Too-Big-to-Fail’ Rule Would Raise Bar for Bank Capital (WSJ) ... and mean even bigger taxpayer bailouts
• Pot in New York: $100 Ticket. No Charges. No Record. No Nothing (BBG)
• Microsoft unveils first Lumia smartphone without Nokia name (Reuters)
• Davos-Man Ackermann Lured to Cyprus Bank by Billionaires (BBG)
• Alibaba, Apple Talks on Payments Tie-Up Focused on China (WSJ)

In the space of the last 3 weeks, Japanese stocks have swung from the most overbought in 18 months to the most oversold in 3 years to the most overbought in 18 months again. This is the fastest and most violent swing in TOPIX on record as ever-more-desperate hot money chases central bank actions around the world. As Bloomberg reports, “Japan is a very unnerving market because it behaves like an uneducated brat,” said Mikio Kumada, Hong Kong-based global strategist at LGT Capital Partners, which manages about $50 billion. Following the double-whammy of GPIF allocations and BoJ expansion, he warns "you don’t know what it’s going to do in the next moment and in many ways it’s unpredictable."

When Chinese property developer Agile Property Holdings Ltd. said this month that its chairman was taken into custody by authorities, the disclosure was a shock to Western banks that lent the company money, according to China Spectator as the fog of ever-rising asset values suddenly evaporates into the reality of an opaque real estate credit market slap them in the face. The simple fact is "it is very difficult to get a handle on the financials of a Chinese company," as a local investigative consulting firm warns "in China, nothing is what it appears to be."

• Fed set to end one crisis chapter even as global risks rise (Reuters)... you mean, for the third time?
• Insider-Trading Probe Focuses on Medicare Agency (WSJ)
• He's sorry: Rajoy Apologizes as New Wave of Graft Allegations Hits Spain (BBG)
• China could 'punish' Hong Kong over protests, says ex-HK central bank chief (Reuters)
• Dubai Insists the Boom is Not a Bubble This Time Around (BBG)
• Bank-Data Sharing Accord Expands Push to Find Tax Cheats (BBG)
• Deutsche Bank Sinks to Third-Quarter Loss on Legal Costs (BBG)
• Kim Jong Un Executes 10 Officials for Watching Soap Operas (BBG)
• French drugmaker Sanofi sacks CEO Viehbacher (Reuters)

• CDC says returning Ebola medical workers should not be quarantined (Reuters)
• Sweden’s central bank cuts rates to zero (FT)
• Hacking Trail Leads to Russia, Experts Say (WSJ)
• Discount-Hunting Shoppers Threaten Stores’ Holiday Cheer (BBG)
• Apple CEO fires back as retailers block Pay (Reuters)
• Repeat after us: all China data is fake - China Fake Invoice Evidence Mounts as HK Figures Diverge (BBG)
• FX Traders’ Facebook Chats Said to Be Sought in EU Probe (BBG)
• Euro Outflows at Record Pace as ECB Promotes Exodus (BBG)
• Apple boosts R&D spending in new product hunt (FT)

The market environment is turning sour...

• Russia Loses Oil Ally in De Margerie After Moscow Crash (BBG)
• Austria's Erste denies report it has failed stress tests (Reuters)
• Sweden gets two new sightings, as hunt for undersea intruder goes on (Reuters)
• Companies Try to Escape Health Law’s Penalties (WSJ)
• Mud and Loathing on Russia-Ukraine Border (BBG)
• NOAA employee charged with stealing U.S. dam information (Reuters)
• Lower Oil Prices Seen Easing Japan’s Trade Pain (WSJ)
• Michigan becomes 5th U.S. state to thwart direct Tesla car sales (Reuters)
• Maglev Train Seen Making Washington-to-Baltimore Trip at 311 MPH (BBG)

• 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)

• Dallas County May Declare State of Disaster From Ebola Virus (BBG)
• Markets on edge after worst turmoil in four years (Reuters)
• Central bankers may have no quick fix as markets swoon, economy weakens (Reuters)
• Risk of Deflation Feeds Global Fears  (Hilsenrath)
• U.S. health official allowed new Ebola patient on plane with slight fever (Reuters)
• Texas Hospital Fights Allegations About Ebola Protocols (BBG)
• Treasuries Gain as Oil Drops Below $80 While Stocks Slide (BBG)
• Greek Bonds Slump on Bailout Concern as Spain Misses Sale Target (BBG)
• White House shifts into crisis mode on Ebola response (Reuters)
• Obama Confronts Slippery Slope as Islamic State Advances (BBG)

• No Happy Ending for Investors in Central Bank Fairy Tale (BBG)
• Ebola Response Strains Hospitals (WSJ)
• Obama, foreign military chiefs, to thrash out Islamic State plans (Reuters)
• Draghi’s ‘Whatever It Takes’ Plan on Trial at EU Court (BBG)
• Too-Big-to-Fail Banks Face Up to $870 Billion Capital Gap (BBG)
• Iran’s Message to World: You Need Us to Fight Islamists (BBG)
• Facing new oil glut, Saudis avoid 1980s mistakes to halt price slide (Reuters)
• Ukraine Grannies Outprice Banks on Hryvnia Black Market (BBG)
• HK police use sledgehammers, chainsaws to clear protest barriers, open road (Reuters)
• Gazprom Quarterly Net Rises 13%, Misses Estimate on Ukraine Debt (BBG)

Just over a week ago, the Japanese stock market participants were stunned when stock orders amounting to a whopping $617 billion (yes Billion with a B) - more than the size of Sweden’s economy - were canceled for reasons still unknown in what was one of the biggest 'fat finger' trading errors of all time. Since then, US equity markets have suddenly become notably more volatile - and fallen significantly, VIX has seen odd intraday 'spikes', S&P futures saw the very odd 'satan signal', and USDJPY has suffered its worst losses in 3 years. This raises the question of whether US market microstructure is any better than Michael Lewis' Flash Boys' book describes.. (as we head into a bond market holiday, dismal liquidity, and a potential Black Monday), “That could absolutely happen here,” Tabb Group's Larry Tabb warns Bloomberg.

• Ebola Patient Fights for Life as Contacts are Monitored (BBG)
• GPIF Unlikely To Announce New Portfolio Until November: Delay Could Rattle Investors Hoping Fund Will Invest More in Stocks (WSJ)
• High risk Ebola could reach France and UK by end-October, scientists calculate (Reuters)
• Neves to Face Rousseff in Brazil in Surprise Comeback (BBG)
• Hong Kong democracy protests fade, face test of stamina (Reuters); A Hong Kong Protest Run on Fumes and Instant Noodles (WSJ)
• Putin Clans Said Gridlocked Over Arrest as Sanctions Bite (BBG)
• Surging dollar may be triple whammy for U.S. earnings (Reuters)
• Lloyds Said to Cut Thousands of Jobs as CEO Cuts Costs (BBG)