Today’s News August 28, 2015

• Refugees Expose Europe's Lack Of Decency

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  I want to say something about the issue of the refugees -never ever again migrants- that are swamping Europe. So much has been said about them, and so much has happened since I made my first notes, but not a soul has put their finger on the sore spot, and the real story. At least not that I’ve seen.

  That real story is the painfully woefully inadequate -and I’m being painfully polite here- failure of Brussels and Berlin and Paris in responding to what’s been unfolding. And don’t get me started about London; there’s nothing coming from Britain these days that’s even worth talking about. When you dare talk about a ‘swarm of migrants’, you’re no longer part of the conversation.

  And it’s not as if what Europe has perpetrated upon the Greek economy, and the Greek people who depend on it, isn’t enough. It is more than enough. Only, nobody seems to be willing to understand this, to let it sink in to its fullest. But that’s still kind of alright; financial policies are not the EUs biggest failure.

  Even if even Varoufakis insists on being part of the EU -albeit a reformed one-. You can’t reform the EU. It’s allergic to any reform that would take even just a few of its powers away. That is embedded in its model. Varoufakis doesn’t sufficiently get this: you can’t any longer just change a few puppets in Brussels. Its alleged democracy is no longer anything but thin and peeling veneer.

  It’s like the old Groucho joke, that he wouldn’t want to be part on any club that would have him as a member. It’s exactly that, actually. If you want to survive in Europe, let alone with dignity and values, it cannot be done inside the EU. And the refugee crisis tells us why, even more than the Greek crisis has.

  What Brussels lacks most of all is morals, decency and compassion. It is a bureaucracy that has no human values. And this is expressed, in a painful and deadly way, not only in the streets of Athens, though it’s plenty glaringly clear there too, but even more in how the so-called Union “deals with” (that is, it doesn’t) the Mediterranean refugee issue.

  We can take a philosophical approach to this, which can be interesting, though it doesn’t change a thing. We can for instance theorize about how a country, a society, a culture, that is hundreds or thousands of years old, and has gone through numerous natural and man-made disasters in its history, like so many in Europe, will have a response formulated for the next batch of mayhem, and on how to deal with those who are the victims of said mayhem.

  That is what we see in how Italy and Greece have been trying to deal with the flood of refugees sailing off from Lybia and Turkey towards their shores. Both countries – or at least substantial segments of them – have gone out of their way to save refugees. Then late last year the EU -ostensibly- took over. But the EU has done next to nothing. It has paid lip service only. Which has cost thousands of human lives this year alone. And still nothing happens.

  Now, now, some of them are waking up. The EU agency that is supposed to deal with it, Frontex, has announced it’s going to step up efforts to halt refugees from entering Europe. Just like it did when it took over from Italy and Greece, and the main idea was to send in the military to blow up the boats of the ugly and evil people smugglers.

  Hungary is building a wall. Macedonia fired tear gas and stun grenades. The Czechs have said they’re going to send in the army. Police dogs and batons have become a common sight wherever the refugees are. Who are forced to walk a thousand miles or more, children and women and everyone. It’s a picture of disgrace. And the disgrace belongs to all of us.

  EC head Juncker, after breaking a months long silence on the topic, declared this week that there’s no need for an Immigration Summit. All EU countries need to do is comply with existing regulations. Which, if I may remind you, were ‘agreed’ upon in a time when there was no such thing as the present influx of people.

  What Europe should do, or rather should have done, because I guarantee you it’s too late now, is send as many people as needed to make sure people would stop drowning. To make sure the media would stop using the term ‘migrants’. To show Europe cares, and it alleged leaders first of all. To make sure there would be space and provisions for all who undertook the perilous journey, women, children, men, every single one.

  Europe instead has only tried to ignore the issue, hoping it would go away by itself. This has cost at least 17,000 lives so far. And they know it. Here is a picture of a 100-meter list of 17,306 migrants who have died attempting to reach Europe, a list which was recently unveiled at the EU Parliament:

  

  They know, and they’ve known for a long time. But still the UN said this week that Greece should do more. Greece? And Juncker says a summit is not needed. Juncker is supposed to be one of the main leaders of Europe. If we didn’t already know before, we now know for sure he’s no leader. Merkel? Haven’t seen her until this week when she said the situation is unworthy of Europe. But if anything, it’s unworthy of Merkel. She’s supposed to be a leader in Europe, and she’s very obviously not.

  There’s a huge amount of people in Brussels and various European capitals who are posing as ‘leaders’, and all of them have fallen way short. All of them, Merkel, first, need to shut up and act now. Not tell other nations, or her own co-Germans, that they should be ashamed. Merkel should be ashamed of herself first. And we know that there are elections coming up, but we’re talking about human lives here, for sweet Jesus’s sake. What’s wrong with you, Angela, and all those like you? What part of you guys is even human anymore? Is only your ego left?

  The EU, unlike Greece and Italy, has no history, no society, and above all no culture. The way it reacts to the refugee issue tells its entire empty story. All of it. Brussels doesn’t do anything at all in the face of thousands of people drowning. It waits for Greece to deal with the problem, which is obviously far too great for the Greeks to solve by themselves. And besides, the EU a year ago insisted on taking over rescue operations from Rome and Athens. This has brought about a strange and eery and deadly kind of Mexican stand-off.

  The EU has already failed, dramatically and irreparably, in this regard. The only help refugees get is from Italy, Greece and private parties. It’s so bad that if Greece would take “full care” of the refugees entering the country -and that’s assuming it could-, there’d be even much less hope of Brussels ever lifting a finger.

  In this fashion, the EU doesn’t just leave the refugees to their fate, it uses them as bait, as hostages, in its fight over financial and political power with Alexis Tsipras and the Syriza government. And though of course multiple voices try to lay the blame on Tsipras, that’s not where it belongs. Even if he could, he couldn’t. The only solution is for Greece to get out of the EU(ro) and restore dignity and humanity within its own borders.

  For make no mistake, if you elect to remain part of the EU, and you let Juncker and Merkel speak in your name, then the blood of all those needlessly lost lives is also on your hands. That goes for every European citizen as much as it goes for the hapless heartless leaders they have elected.

  For one thing, I can’t for the life of me understand why there are not thousands of young Dutch and German and British and French people, organized and all, in Athens, and on the Greek islands. While there are plenty of them there to get a bloody suntan on their “well-deserved vacation” while people are perishing within eyesight, and complain about their holidays being spoiled. Not all of them, I know, but c’mon, get a life! There are people dying every single day, and just because your so-called leaders let them drown doesn’t mean you should too.

  Do you even know what “a life” is anymore, either yours or that of someone else? Have you ever known? A life means caring about other people. A life is not trying to make sure your own ass can sit as pretty as it can.

  As for finding a solution to the refugee issue, Europe has done nothing to find one. The EU still wants the problem to just go away, and it wants the refugees to just go away. But it won’t and they won’t.

  Yes, we have a mass migration on our hands. And these are invariably hard to deal with. But our first priority should always be to approach the people involved with decency and compassion. And that is not happening. We are approaching them with the opposite of decency. With stun grenades and police dogs. And with misleading terminology such as ‘migrants’.

  The EU doesn’t seem to have any idea what’s causing the wave of refugees entering ‘its’ territory. When the refugees themselves state “we’re here because you destroyed our countries”, Brussels will simply say that is not true. That kind of admission is way beyond the consciousness of the ‘leadership’. But it’s a denial that won’t get them anywhere.

  Meanwhile, this issue, like so many others, is being used as a reason to plea for more EU:

  Summer Crisis Tests Europe’s New Nationalisms

  Dimitris Avramopoulos, the EU home affairs commissioner, argued last week [that] the very reach of the migration crisis shows the limits of national solutions. That, he said, puts pressure on governments to agree in Brussels to collective measures – even, he stressed, when they are not popular.

  It’s an empty hollow plea. Why agree to give up more sovereignty if Brussels only uses its growing powers to do nothing? Europeans who give in to this kind of thing give up much more than sovereignty; they give up their decency and human values too.

  The refugee issue can and will not be solved by the EU, or inside the EU apparatus, at least not in the way it should. Nor will the debt issue for which Greece was merely an ‘early contestant’. The EU structure does not allow for it. Nor does it allow for meaningful change to that structure. It would be good if people start to realize that, before the unholy Union brings more disgrace and misery and death upon its own citizens and on others.

  However this is resolved and wherever the refugees end up living, we, all of us, have the obligation to treat them with decency and human kindness in the meantime. We are not.

  

  

  

  

  

• Lies You Will Hear As The Economic Collapse Progresses

  Submitted by Brandon Smith via Alt-Market.com,

  It is undeniable; the final collapse triggers are upon us, triggers alternative economists have been warning about since the initial implosion of 2008. In the years since the derivatives disaster, there has been no end to the absurd and ludicrous propaganda coming out of mainstream financial outlets and as the situation in markets becomes worse, the propaganda will only increase. This might seem counter-intuitive to many. You would think that the more obvious the economic collapse becomes, the more alternative analysts will be vindicated and the more awake and aware the average person will be. Not necessarily…

  In fact, the mainstream spin machine is going into high speed the more negative data is exposed and absorbed into the markets. If you know your history, then you know that this is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used. Consider if you've heard similar quotes to these in the mainstream news over the past couple months:

  John Maynard Keynes in 1927: “We will not have any more crashes in our time.”

   

  H.H. Simmons, president of the New York Stock Exchange, Jan. 12, 1928: “I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”

   

  Irving Fisher, leading U.S. economist, The New York Times, Sept. 5, 1929: “There may be a recession in stock prices, but not anything in the nature of a crash.” And on 17, 1929: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”

   

  W. McNeel, market analyst, as quoted in the New York Herald Tribune, Oct. 30, 1929: “This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”

   

  Harvard Economic Society, Nov. 10, 1929: “… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”

  Here is the issue – as I have ALWAYS said, economic collapse is not a singular event, it is a process. The global economy has been in the process of collapse since 2008 and it never left that path. Those who were ignorant took government statistics at face value and the manipulated bull market as legitimate and refused to acknowledge the fundamentals. Now, with markets recently suffering one of the greatest freefalls since the 2008/2009 crash, they are witnessing the folly of their assumptions, but that does not mean they will accept them or apologize for them outright. If there is one lesson I have learned well during my time in the Liberty Movement, it is to never underestimate the power of normalcy bias.

  There were plenty of “up days” in the markets during the Great Depression, and this kept the false dream of a quick recovery alive for a large percentage of the American population for many years. Expect numerous “stunning stock reversals” as the collapse of our era progresses, but always remember that it is the overall TREND that matters far more than any one positive or negative trading day (unless you open down 1000 points as we did on Monday), and even more important than the trends are the economic fundamentals.

  The establishment has made every effort to hide the fundamentals from the public through far reaching misrepresentations of economic stats. However, the days of effective disinformation in terms of the financial system are coming to an end. As investors and the general public begin to absorb the reality that the global economy is indeed witnessing a vast crisis scenario and acknowledges real numbers over fraudulent numbers, the only recourse of central bankers and the governments they control is to convince the public that the crisis they are witnessing is not really a crisis. That is to say, the establishment will attempt to marginalize the collapse signals they can no longer hide as if such signals are of “minimal” importance.

  Just as occurred during the onset of the Great Depression, the lies will be legion the closer we come to zero hour. Here are some of the lies you will likely hear as the collapse accelerates…

  The Crisis Was Caused By Chinese Contagion

  The hypocrisy inherent in this lie is truly astounding, to say the least, considering it is now being uttered by the same mainstream dirtbags who only months ago were claiming that China's financial turmoil and stock market upset were inconsequential and would have “little to no effect” on Western markets.

  I specifically recall these hilarious quotes from Barbara Rockefeller in July:

  “Something else that doesn’t matter much is the Chinese equity meltdown—again. China may be big and powerful, but it lacks a retail base and fund managers experienced in price variations, never mind a true rout…”

   

  “Doom-and-gloom types have been saying for a long time that we will get a stock market rout when the Fed finally does move to raise rates. But as we wrote last week, history doesn’t bear out the thesis, not that you can really count on history when the sample size is one or two data points…”

  Yes, that is a bit embarrassing. One or two data points? There have been many central bank interventions in history. When has ANY central bank or any government ever used stimulus to manipulate markets through fiat infusion and zero interest fueled stock buybacks or given government the ability to monetize its own debt, and actually been successful in the endeavor? When has addicting markets to stimulus like a heroin dealer ever led to “recovery”? When has this kind of behavior ever NOT created massive fiscal bubbles, a steady degradation of the host society, or outright calamity?

  Suddenly, according to the MSM, China's economy does affect us. Not only that, but China is to blame for all the ills of the globally interdependent economic structure. And, the mere mention that the Fed might delay the end of near zero interest rates in September by a Federal Reserve stooge recently sent markets up 600 points after a week-long bloodbath; meaning, the potential for any interest rate increase no mater how small also has wider implications for markets.

  The truth is, the crash in global stocks which will undoubtedly continue over the next several months despite any delays on ZIRP by the Fed is a product of universal decay in fiscal infrastructure. Nearly every single nation on this planet, every sovereign economy, has allowed central and international banks to poison every aspect of their respective systems with debt and manipulation. This is not a “contagion” problem, it is a systemic problem to every economy across the world.

  China's crash matters not because it is causing all other economies to crash. It matters because China is the largest importer/exporter in the world and it is a litmus test for the financial health of every other country. If China is failing, it means we are not consuming, and if we are not consuming, then we must be broke. China's crash portends our own far worse economic conditions. THAT is why western markets have been crumbling along with China's despite the assumptions of the mainstream.

  China's Rate Cuts Will Stop The Crash

  No they won't. China has cut rates five times since last November and this has done nothing to stem the tide of their market collapse. I'm not sure why anyone would think that a new rate cut would accomplish anything besides perhaps a brief respite from the continuing avalanche.

  It's Not A Crash, It's Just The End Of A “Market Cycle”

  This is the most ignorant non-explanation I think I have ever heard. There is no such thing as a “market cycle” when your markets are supported partially or fully by fiat manipulation. Our market is in no way a free market, thus, it cannot behave like a free market, and thus, it is a stunted market with no identifiable cycles.

  Swings in markets of up to 5%-6% to the downside or upside (sometimes both in a single day) are not part of a normal cycle. They are a sign of cancerous volatility that comes from an economy on the brink of disaster.

  The last few years have been seemingly endless market bliss in which any idiot day trader could not go wrong as long as he “bought the dip” while Fed monetary intervention stayed the course. This is also not normal, even in the so-called “new normal”. Yes, the current equities turmoil is an inevitable result of manipulated markets, false statistics, and misplaced hopes, but it is indeed a tangible crash in the making. It is in no way an example of a predictable and non-threatening “market cycle”, and the fact that mainstream talking heads and the people who parrot them had absolutely no clue it was coming is only further evidence of this.

  The Fed Will Never Raise Rates

  Don't count on it. Public statements by globalist entities like the IMF on China, for example, have argued that their current crisis is merely part of the “new normal”; a future in which stagnant growth and reduced living standards is the way things are supposed to be. I expect the Fed will use the same exact argument to support the end of zero interest rates in the U.S., claiming that the decline of American wealth and living standards is a natural part of the new economic world order we are entering.

  That's right, mark my words, one day soon the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a “good thing”. They will claim that a strong dollar is the cause of all our economic pain and that a loss in value is necessary. In the meantime they will, of course, downplay the tragedies that will result as the shift toward dollar devaluation smashes down on the heads of the populace.

  A rate hike may not occur in September. In fact, as I predicted in my last article, the Fed is already hinting at a delay in order to boost markets, or at least slow down the current carnage to a more manageable level. But, they WILL raise rates in the near term, likely before the end of this year after a few high tension meetings in which the financial world will sit anxiously waiting for the word on high. Why would they raise rates? Some people just don't seem to grasp the fact that the job of the Federal Reserve is to destroy the American economic system, not protect it. Once you understand this dynamic then everything the central bank does makes perfect sense.

  A rate increase will occur exactly because that is what is needed to further destabilize U.S. market psychology to make way for the “great economic reset” that the IMF and Christine Lagarde are so fond of promoting. Beyond this, many people seem to be forgetting that ZIRP is still operating, yet, volatility is trending negative anyway. Remember when everyone was ready to put on their 'Dow 20,000' hat, certain in the omnipotence of central bank stimulus and QE infinity? Yeah…clearly that was a pipe dream.

  ZIRP has run it's course. It is no longer feeding the markets as it once did and the fundamentals are too obvious to deny.

  The globalists at the Bank for International Settlements in spring openly deemed the existence of low interest rate policies a potential trigger for crisis. Their statements correlate with the BIS tendency to “predict” terrible market events they helped to create while at the same time misrepresenting the reasons behind them.

  The point is, ZIRP has done the job it was meant to do. There is no longer any reason for the Fed to leave it in place.

  Get Ready For QE4

  Again, don't count on it. Or at the very least, don't expect renewed QE to have any lasting effect on the market if it is initiated.

  There is truly no point to the launch of a fourth QE program, but do expect that the Fed will plant the possibility in the media every once in a while to mislead investors. First, the Fed knows that it would be an open admission that the last three QE's were an utter failure, and while their job is to dismantle the U.S. economy, I don't think they are looking to take immediate blame for the whole mess. QE4 would be as much a disaster as the ECB's last stimulus program was in Europe, not to mention the past several stimulus actions by the PBOC in China. I'll say it one more time – fiat stimulus has a shelf life, and that shelf life is over for the entire globe. The days of artificially supported markets are nearly done and they are never coming back again.

  I see little advantage for the Fed to bring QE4 into the picture. If the goal is to derail the dollar, that action is already well underway as the IMF carefully sets the stage for the Yuan to enter the SDR global currency basket next year, threatening the dollar's world reserve status. China also continues to dump hundreds of billions in U.S. treasuries inevitably leading to a rush to a dump of treasuries by other nations. The dollar is a dead currency walking, and the Fed won't even have to print Weimar Germany-style in order to kill it.

  It's Not As Bad As It Seems

  Yes, it is exactly as bad as it seems if not worse. When the Dow can open 1000 points down on a Monday and China can lose all of its gains for 2015 in the span of a few weeks despite institutionalized stimulus measures lasting years, then something is very wrong. This is not a “hiccup”. This is not a correction which has already hit bottom. This is only the beginning of the end.

  Stocks are not a predictive indicator. They do not follow positive or negative fundamentals. Stocks do not crash before or during the development of an ailing economy. Stocks crash after the economy has already gone comatose. Stocks crash when the system is no longer salvageable. Since 2008, nothing in the global financial structure has been salvaged and now the central banking edifice is either unable or unwilling (I believe both) to supply the tools to allow us even to pretend that it can be salvaged. We're going to feel the hurt now, all while the establishment tells us the whole thing is in our heads.

   

  

  

  

  

  

• THe EMPReSS MoNeY PRiNTeR…

  

  

  

  

  

• The Scariest Number For The Oil Industry: $550 Billion

  Just over half a trillion dollars: that’s how much cash oil industry companies will need to repay in maturing debt over the next 5 years.

  Specifically, according to BMI Research cited by Bloomberg, there is $72 billion in oil-related debt maturing this year, $85 billion in 2016 and $129 billion in 2017, and a total of $550 billion in bonds and loans through 2020.

  This is a problem because while paying annual interest is one thing and easily manageable, rolling over debt when it is yielding over 10% – as is the case for over 168 global companies, or triple last year’s number – is virtually impossible. It is an even bigger problem when considering the recent surge in energy company net debt/EBITDA (shown below in red) which has recently hit an all time high, surpassing the oil sector crisis of 1999, dragging energy sector credit risk and spreads with it to all time highs.

  

   

  In fact, unless oil soars higher and miraculously concludes a second dead cat bounce, there will be hundreds of companies which are simply unable to refinance, and have no choice but to default. Considering that 20% of total debt due in 2015 belongs to US drillers (with Chinese companies coming in second with 12%), what was until last week perceived a junk bond crisis, and has been largely forgotten this week following the artificial, central-bank inspired price-action euphoria when in reality absolutely nothing has changed on the cash flow scene, expect the hangover of the post month-end window dressing orgy to come down like a ton of bricks.

  The reason: fundamentals continue to go from bad to worse, and its not just the fwd P/E chart we won’t tire of showing…

  

  … as Bloomberg adds, some earnings metrics are already breaching the lows of the 2008 financial crisis. The profit margin for the 108-member MSCI World Energy Sector Index, which includes Exxon Mobil Corp. and Chevron Corp., is the lowest since at least 1995, the earliest for when data is available.

  “There are several credits which simply won’t be able to refinance and extend maturities and they may need to raise additional equity,” said Eirik Rohmesmo, a credit analyst at Clarksons Platou Securities AS in Oslo. “The question is: would they be able to do that with debt at these levels?”

  The answer is no, as we showed ten days ago.

  

  It gets worse:

  Some U.S. producers gained breathing space by leveraging their low-cost assets to raise funds earlier this year and repay debt, Goldman Sachs Group Inc. wrote in a Aug. 6 report. This helped companies shore up their capital and reduce debt-servicing costs.

   

  That may no longer be an option because energy companies have been the worst performers in the past year among 10 industry groups in the MSCI World Index.

   

  Credit-rating downgrades are putting additional strain on the ability of oil companies to raise money cheaply. Standard & Poor’s cut the rating of Eni SpA, Italy’s biggest oil company, in April, while Moody’s Investors Service downgraded Tullow Oil Plc’s debt in March.
  Spokesmen for Eni and Tullow declined to comment.

  It is the small companies who will face the creditor firing squad first:

  “Clearly, those companies with debt to pay will have one eye firmly on oil prices,” said Christopher Haines, a senior oil and gas analyst at BMI in London. “With revenues collapsing and debt soon to mature, a growing number of companies may find themselves unable to meet repayment schedules.”

  The only loophole: if oil somehow does rebound to $60 or above, which absent a Saudi collapse or a Chinese recovery, will not happen for a while. If not, the current period of calm, where companies are racing for the producing bottom, will very soon come to an end as will the disposable cash of the energy industry. At that point the administration will have to make a choice: bail out the energy sector or reap the consequences.

  

  

  

  

  

• Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-Power

  Update: China readies new bailout mechanism – pooling CNY2 Trillion of Pension funds for "investment"

  Straight from Japan's playbook…

  • *CHINA TO START PENSION FUNDS INVESTMENT AFTER FUNDS POOLED: MOF
  • *CHINA DRAFTING RULES ON POOLING, TRANSFERRING PENSION FUNDS: YU
  • *ABOUT 2T YUAN FROM CHINA PENSION FUNDS CAN BE INVESTED: YU
  • *CHINA CAN ENSURE STABLE LONG TERM RETURN ON PENSION FUNDS: YU
  • *CHINA TO CAP RISK EXPOSURE IN PENSION FUNDS INVESTMENT: YU
  • *CHINA FINANCE MINISTRY OFFICIAL YU WEIPING COMMENTS AT BRIEFING

  How can we be so positive that this is another bailout – simple!

  • *CHINA PENSION FUNDS' ROLE IS NOT TO RESCUE STOCK MARKET: YU

  They denied it was! Of course even more worrying – is this a Greece-esque pooling of pension funds in a desperate grab for cash across the nation?

  We are sure that will work out great!!

  *  *  *

  As we detailed earlier…

  A busy night in AsiaPac before China even opens. Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody's downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits – China's bailout fund needs more money (applies for more loans from banks) – in other words – The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms – lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger – most since March, but even with last night's epic intervention, SHCOMP looks set for its worst week since Lehman.

   

  Vietnam is in trouble…

  • *VIETNAM FAILS TO SELL ANY OF 3T DONG BONDS OFFERED AUG. 27

  The first of many failed auctions for EM we suspect.

  • But Some good news:
  • *VIETNAM TO RELEASE 18,500 PRISONERS ON 70TH NATIONAL DAY

  *  *  *

  Japanese data was mixed,..

  • *JAPAN JULY OVERALL CONSUMER PRICES RISE 0.2% Y/Y (in line)
  • *JAPAN JULY RETAIL SALES RISE 1.6% Y/Y (better than expedted)
  • *JAPAN JULY HOUSEHOLD SPENDING FELL 0.2% Y/Y (much worse than expedted rise)

  So Goldilocks – enough to keep BoJ in the game (as Reuters reports)

  Japan's core consumer inflation was flat in the year to July and household spending unexpectedly fell, casting deeper doubt on the central bank's forecast that a solid economic recovery will help accelerate inflation to its 2 percent target.

   

  While the Bank of Japan has said it will look through the effect of slumping oil costs on inflation, the weak figures will keep it under pressure to expand its massive stimulus programme.

   

  Separate data showed household spending fell 0.2 percent in the year to July, confounding a median market forecast for a 1.3 percent rise and reinforcing concerns about the strength of Japan's recovery.

  And then there's China…

  Before we get started, we thought the following comparison of two stock indices today was in order… one is from a totally manipulated market that proclaims itself 'open' and 'free' with nothing to fear because "the underlying economy is doing great"… and the other is China…

  

  Notice how the ramp was almost identical in style also – an initial burst, modst pull back, then big push, then rest, then final surge into close

  But then again we already explained how past is prologue in this Nasdaq vs SHCOMP world.

  And remember – it's not China's fault…

  • *CHINA STOCK ROUT NOT THE REASON FOR GLOBAL MKT PLUNGE:SEC. NEWS

  And then Moody's did the unpossible…

  • *MOODY'S CUTS CHINA '16 GDP GROWTH FORECAST TO 6.3% FROM 6.5%

  But the biggest news is…

  • *CHINA'S RESCUE FUND APPLIES FOR MORE LOANS FROM BANKS: CAIXIN
  • China Securities Finance may have applied for 1.4 trillion yuan ($219 billion) of borrowing in the interbank market, Caixin reported, citing unidentified bank officials. The government should adopt a proactive fiscal policy and further ease monetary policy, the Economic Daily wrote in a front-page commentary.

  Which means the bailout fund needs a bailout after blowing its load last night.

  Deleveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS FOR EIGHTH STRAIGHT DAY
  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS

  Though we note that the short-selling balance rose to one-week highs.

  Even with last night's epic intervention, Chinese stocks look set for the worst week since Lehman…

  

   

  Although they are up at the open…extending gains from the US session…

  • *FTSE CHINA A50 SEPT. FUTURES RISE 1.7%

  But are fading off early highs.

  And in what appears another reform aimed at improving the economy, China lifts some restrictions…

  China's central tax authority has published a list of tax breaks for which qualifying businesses and other enterprises will no longer be required to seek prior approval to enjoy.

  And…

  The mainland has relaxed foreign investment restrictions in its once-sizzling real estate market as worries mount on capital flight in the wake of a weakening yuan and slowing economic growth.

   

  Six governing ministries, including the central bank and the commerce ministry, issued a statement scrapping previous rules that required foreign property investors to pay the full amount of registered capital for their mainland entities to mainland authorities before borrowing any loans or applying for foreign exchange transactions.

   

  "The move seems to be aimed at discouraging capital outflow after the devaluation of the yuan," said Alan Chiang, head of residential in the Greater China region for global property consultancy DTZ.

  Which we are sure will not be taken advantage of.

  Finally The Yuan – which remember is not being devalued – was fixed 0.15% stronger…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3986 AGAINST U.S. DOLLAR
  • *CHINA RAISES YUAN FIXING MOST SINCE MARCH

  

   

  Problems continue to mount for the Chinese economy…

  • *CHINA JULY INDUSTRIAL COMPANIES' PROFIT FALLS 2.9% Y/Y

  After a 0.3% drop in June, it's getting worse.

  *  *  *

  Charts: Bloomberg

  

  

  

  

  

• China Gets Creative, Turns To Swaps To Manage Yuan

  Managing markets is hard – especially when you’re doing it on a daily basis while attempting to maintain some semblance of credibility in the face of accusations that, even in a centrally planned world, your particular brand of interventions are so egregious as to stray outside the bounds of manipulated market decorum.

  That’s the rather precarious situation that China finds itself in while trying to manage a yuan devaluation that, on the surface anyway, was supposed to represent a move towards liberalization but in fact is requiring more intervention than ever and now threatens to drain the world’s largest store of FX reserves while simultaneously sucking liquidity from the market and working at cross purposes with multiple policy rate cuts. 

  In situations like these, sometimes you have to get creative which is why we weren’t entirely surprised on Thursday when trader chatter indicated that at least one big Chinese bank (on behalf of the PBoC of course) was stomping around in the onshore swaps market and indeed, as you can see from the following chart, there’s something odd going on here, and although we can’t reconcile their numbers, we have included some commentary from WSJ as well.

  

  From WSJ:

  The People’s Bank of China intervened in the market for U.S. dollar-yuan foreign-exchange swaps, causing their price to fall sharply, a movement that implies a stronger Chinese currency and lower interest rates in the world’s No. 2 economy in the future, said the people.

   

  Thanks to what each of the three people described as “massive” orders from a few commercial banks acting on the PBOC’s behalf, the so-called one-year dollar-yuan swap spread—in rough terms, a measure of the implied future differential between Chinese and U.S. interest rates—plunged to 1200 points from 1730 points Wednesday.

   

  In the offshore market, the spread dropped to 1950 points from 2310 points Tuesday, following the onshore move.

   

  A drop in the spread for dollar-yuan swaps, which consist of a spot trade and an offsetting forward transaction, would also imply a weaker spot exchange rate at a predetermined future date.

   

  “The central bank chose a rarely used tool this time—the FX swaps—to intervene and it did so via a couple of midsize banks, instead of the usual big state lenders that serve as its agent banks,” one of the people said.

   

  “In a way, it’s more effective for the central bank to manage people’s outlook of the yuan in the swap market due to the latter’s forward-looking nature,” said one of the people. “It’s likely partly in response to aggressive yuan selloffs in the offshore market.”

  

  

  

  

  

• The Great Wall Of Money

  Excerpted from Hindesight Letters (authored by Ben Davis),

  The Great Wall Of Money.

  China is in severe trouble and that trouble has already been reverberating around EM exporters for a number of years. It is just one of many dollar currency peg countries that have experienced tightening conditions because of higher US interest rate guidance and dollar strength. An unwelcome addition to their own domestic issues, but always a circular outcome, as they are inextricably linked to the US by their Bretton Woods II relationship. By devaluing and thus de-stabilising the 'nominal' anchor for Asian exchange rates, they will crush the growth engine of the developed countries on whose consumption they so rely on.

  Since 2009, we have forecast and documented the unwinding of the Bretton Woods II currency system. Financialisation of our economies and markets, which escalated post-2008 at the instigation of governments and central bankers, is going to go into full reverse for all asset classes. Economies and markets are so entwined that a drop in asset classes will lead the world back into recession. In 2013, we believed the odds had tilted firmly towards increasing debt deflation at the hands of China. Large current account deficits had led to unsustainable debt creation, and as a consequence the trade deficit countries were the first to experience a severe financial crisis. However, on the other side of the equation, the surplus countries were now experiencing their reaction to the crisis.

  In November 2013, we wrote: "The deleveraging process which began in 2008 has been a slow burner but is likely now in full swing. The deflationary risks are very high. China is the driver. All eyes on China."

  We conceive that this slow-burner of deleveraging, which has occurred since the 2008 crisis, is potentially about to engulf all asset prices. We are beginning to think the unthinkable – that just maybe asset prices will back up 20 to 30% and fast and that through the autumn we could experience even greater price depreciation.

  Almost 8 years on from the GFC, the Dow Jones Industrials are perched on the edge of a sharp drop. Will the Ghost of 1937 revisit us eight years on from the Great Crash of 1929, when U.S. stocks and the world economy got roiled all over again? This is already unfolding as we speak. Sean Corrigan's macro analysis in our ‘MidWeek Macro Musings and Money, Macro and Markets’ at HindeSightletters.com has highlighted where the fissures are opening in the global economy and markets. We are posting samples of our work from May to July in this letter to share with you how we began to believe that a global asset crash was at hand.

  The Yuan movement may well send more Chinese capital floating across the globe into financial assets and real estate, such as those at Pink Floyd's and London's iconic Battersea Power Station, but it will be short-lived. The debt deleveraging which has been engulfing Emerging Markets has just begun to turn into a ranging inferno, which will eventually burn down all, especially overpriced global assets.

  Since the GFC, 'The Great Wall of Money' that Bretton Woods II has furnished via its vendor-financing relationship, has masked the deleveraging of our world economy. The Great Wall is about to collapse and fall.

  *  *  *

  The full article is available and ready to download from Hindesight's homepage, or simply click the front cover below for the PDF

  

  In it we discuss the following in a load more detail:

  A Probable Trinity – In October 2010, we began our oft repeated narrative about the vulnerability of the Bretton Woods II monetary system in the provocatively entitled letter – 'The World Monetary Earthquake – The Dash from Cash' (The Orient Perspective).

  ---

  Yuan More Time – Despite PBoC protestations, this Chinese currency move is not a one off event. There will be many more devaluations because, as you will read, FX reserves can abate rapidly. Besides which, we believe the markets have them on the back foot.

  ---

  Taels from Cathay – As Sean (Corrigan) put it in the July/Aug Money Macro & Markets (MMM): "Wherever you look around the fringes of China—and, by extension, Greater Asia—it is hard to avoid evidence of the woes being suffered.

  ---

  The Great Wall of Money FALLS – We wrote in a recent Investor Letter: "What is increasingly evident is that market participants are increasingly embroiled in a reflexive relationship between central bank actions, guidance and price action. The more the market moves contrary to central bank desires – i.e. downwards – the more the central bank injects the bubble money and reassures markets with the promise of more infusions of its rich elixir.”

  ---

  Anglo Saxon APP'mosphere Polluted – A strong dollar currency has created headwinds for the U.S. economy through a range of channels. The latest actions of the Chinese central bank will intensify the negative impact by fostering more dollar appreciation. The U.S. already runs a significant trade deficit with China that will only be exacerbated now. The dollar has already become too restrictive and the global carry trade, which borrowed capital from the East (and lately Europe), was parked in the U.S. and other safe Anglo-Saxon currencies and markets. This capital is very vulnerable.

  ---

  Chinese Smog Pollutes Albion – The resource sector collapse and the likely end of a 32-year-cycle in 2011 has signalled that these countries are near the end of receiving the foreign capital with which they balance their books. Bar a flurry of Chinese flight capital, housing prices will begin to revert to their mean as the debt deleveraging impulse sends the Chinese smog over Albion and its commonwealth compadres.

  ---

  ReMeBer Gold? This year, I spoke to RealVision TV and stated that the market was trend-ready in gold and that, as managers of a long-only gold fund, we were trying to be agnostic and position ourselves for a break either way. I did, however, mention that when our models are trend-ready, we often get a false sharp break one way first, only to see a snap back within a few days or weeks.

  ---

  

  

  

  

  

• US Automaker Panic Button Looms After China's Top Carmaker Warns Of "Grim" Outlook

  Just two weeks ago we explained in a few simple charts why US auotmakers have a major problem looming over them. Today, as Reuters reports, that "if we build them, they will come" strategy has imploded as China's largest automaker warns "the domestic market situation in the second half of the year remains grim." With Q2 US GDP driven by a massive inventory surge, and the majority of that from autos, any hope for a sales rebirth to burn through that over-burden is a long-lost dream now as SAIC sees little to no growth over 2014.

  As we previously noted, Automakers just unleashed a massive production surge to keep the dream alive…

  

   

  With inventories at record highs (having risen for 61 straight months)…

  

   

  Which would be fine if sales were keeping up – but they are not…

  

   

  And now the subprime auto loan market is set to collapse… And further, exactly as we warned, the region where sales were supposed to soar is collapsing… As Reuters reports,

  China's largest automaker SAIC Motor Corp Ltd warned on Thursday of a grim outlook for the overall vehicle market in the second half of the year, as the slowest economic growth in 25 years and a downturn in the stock market puts off buyers.

   

  Vehicle sales in China, the world's largest car market, rose a meagre 0.4 percent in the first seven months and are predicted to grow 3 percent this year, less than half the 2014 growth rate, the China Association of Automobile Manufacturers said.

   

  The forecast by SAIC, which has joint ventures with Volkswagen AG and General Motors Co in addition to making its own brand of vehicles, follows similar warnings of a slowdown in sales from several automakers.

   

  "In the short term, although the domestic market situation in the second half of the year remains grim, following the macro economy's stabilized recovery, there are still structural growth opportunities," the company said in its earnings statement.

   

  SAIC forecast overall sales of passenger and commercial vehicles in China to total 24.1 million this year, a slight increase from 2014. It did not elaborate.

  *  *  *
  We're gonna need a bigger bailout…

  

  

  

  

  

• It's Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington

  On Tuesday evening, we asked what would happen if emerging markets joined China in dumping US Treasurys. For months we’ve documented the PBoC’s liquidation of its vast stack of US paper. Back in July for instance, we noted that China had dumped a record $143 billion in US Treasurys in three months via Belgium, leaving Goldman speechless for once. 

  We followed all of this up this week by noting that thanks to the new FX regime (which, in theory anyway, should have required less intervention), China has likely sold somewhere on the order of $100 billion in US Treasurys in the past two weeks alone in open FX ops to steady the yuan. Put simply, as part of China’s devaluation and subsequent attempts to contain said devaluation, China has been purging an epic amount of Treasurys. 

  But even as the cat was out of the bag for Zero Hedge readers and even as, to mix colorful escape metaphors, the genie has been out of the bottle since mid-August for China which, thanks to a steadfast refusal to just float the yuan and be done with it, will have to continue selling USTs by the hundreds of billions, the world at large was slow to wake up to what China’s FX interventions actually implied until Wednesday when two things happened: i) Bloomberg, citing fixed income desks in New York, noted “substantial selling pressure” in long-term USTs emanating from somebody in the “Far East”, and ii) Bill Gross asked, in a tweet, if China was selling Treasurys.

  Sure enough, on Thursday we got confirmation of what we’ve been detailing exhaustively for months. Here’s Bloomberg:

  China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

   

  Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.

   

  The latest available Treasury data and estimates by strategists suggest that China controls $1.48 trillion of U.S. government debt, according to data compiled by Bloomberg. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.

   

  
  

   

  The PBOC has sold at least $106 billion of reserve assets in the last two weeks, including Treasuries, according to an estimate from Societe Generale SA. The figure was based on the bank’s calculation of how much liquidity will be added to China’s financial system through Tuesday’s reduction of interest rates and lenders’ reserve-requirement ratios. The assumption is that the central bank aims to replenish the funds it drained when it bought yuan to stabilize the currency.

  Now that what has been glaringly obvious for at least six months has been given the official mainstream stamp of fact-based approval, the all-clear has been given for rampant speculation on what exactly this means for US monetary policy. Here’s Bloomberg again:

  China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”

   

  “By selling Treasuries to defend the renminbi, they’re preventing Treasury yields from going lower despite the fact that we’ve seen a sharp drop in the stock market,” David Woo, head of global rates and currencies research at Bank of America Corp., said on Bloomberg Television on Wednesday. “China has a direct impact on global markets through U.S. rates.”

  As we discussed on Wednesday evening, we do, thanks to a review of the extant academic literature undertaken by Citi, have an idea of what foreign FX reserve liquidation means for USTs. “Suppose EM and developing countries, which hold $5491 bn in reserves, reduce holdings by 10% over one year – this amounts to 3.07% of US GDP and means 10yr Treasury yields rates rise by a mammoth 108bp ,” Citi said, in a note dated earlier this week. 

  In other words, for every $500 billion in liquidated Chinese FX reserves, there’s an attendant 108bps worth of upward pressure on the 10Y. Bear in mind here that thanks to the threat of a looming Fed rate hike and a litany of other factors including plunging commodity prices and idiosyncratic political risks, EM currencies are in free fall which means that it’s not just China that’s in the process of liquidating USD assets. 

  

  The clear takeaway is that there’s a substantial amount of upward pressure building for UST yields and that is a decisively undesirable situation for the Fed to find itself in going into September. On Wednesday we summed the situation up as follows: “one of the catalysts for the EM outflows is the looming Fed hike which, when taken together with the above, means that if the FOMC raises rates, they will almost surely accelerate the pressure on EM, triggering further FX reserve drawdowns (i.e. UST dumping), resulting in substantial upward pressure on yields and prompting an immediate policy reversal and perhaps even QE4.” 

  Well now that China’s UST liquidation frenzy has reached a pace where it could no longer be swept under the rug and/or played down as inconsequential, and now that Bill Dudley has officially opened the door for “additional quantitative easing”, it would appear that the only way to prevent China and EM UST liquidation from, as Citi puts it, “choking off the US housing market,” and exerting a kind of forced tightening via the UST transmission channel, will be for the FOMC to usher in QE4.

  

  

  

  

  

• Global Grain Stocks At 30 Year Highs Mean Food Deflation Is Next

  Everywhere you look there’s still more evidence that the world economy is grappling with a  global deflationary supply glut.

  To be sure, this wasn’t supposed to happen. 

  Trillions in central bank cash and seven years of ZIRP across DMs was supposed to give a defibrillator shock to global demand and trade. Instead, the wealth effect never trickled down (surprise!) and wide open capital markets only served to keep insolvent producers in business, contributing to still more supply as everyone hangs on until the bitter end. As China’s slowdown continues unabated, the commodity hoarding becomes more evident and indeed on Thursday, The International Grains Council reported that global grain stocks are forecast to hit 447 million metric tons, the highest level in 29 years. 

  From the report:

  End-season grain stocks in 2015/16 (aggregate of respective local marketing years) are now placed at 447m t, up fractionally y/y. While carryovers of wheat, barley, sorghum and oats are expected to increase, maize inventories are seen retreating slightly from last year’s levels. Trade in the year ending June 2016 is forecast to be down by 2% y/y. As China has recently been a heavy importer of feedstuffs, including sorghum, barley and DDG, traders are wary of potential changes to state support mechanisms, which could alter buying patterns. 

  And more from Bloomberg:

  Wheat and corn futures in Chicago are heading for a third year of losses after back-to-back bumper global harvests and world wheat production this year will match last season’s record 720 million tons, the IGC said. European wheat crops escaped damage from heat this summer, and prospects for the U.S. corn harvest have improved, said Amy Reynolds, a senior economist at the council.

   

  Corn futures declined 6.2 percent this year on the Chicago Board of Trade and wheat slipped 17 percent. The commodity is trading about 6 percent above a five-year low set in May.

   

  France, the European Union’s largest wheat grower, will harvest 41 million tons of the grain, the IGC said. That’s higher than FranceAgriMer’s outlook earlier this month for a record 40.4 million tons. Surging supplies of grain have filled up silos in Rouen and Dunkirk and sent futures in Paris to a nine-month low.

  

  So in the end, it’s simply more oversupply in the face of still depressed demand with no hope of a turnaround on the horizon as China lands hard and consumers are constrained by lackluster wage growth and subpar DM economic “recoveries.” 

  We’ll close with what we said on Sunday in “Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks“:

  For now, however, printing money no longer equates to boosting global trade. In fact, easy monetary policy now appears to be backfiring, as even the “market” has figured out.

  

  

   

  So, sarcasm aside, what really happens next, to both shipping, trade, the global economy and markets? Sadly, unless central planning finally works after 7 years of failing ever upward… this.

  

  *  *  *

  Full IGC report:

  gmrsumme

  

  

  

  

  

• It's Not A Devaluation If The Ministry Of Truth Says So: China's "Style Council" Takes On Currency Trading

  If these are the directives China’s Ministry of Truth, in this case the China Daily “style council”, gives out to editors to pretend that the Yuan devaluation is not, in fact, a devaluation we can’t wait to find out just how long Steve Liesman will need to teach everyone in Beijing that QE, when the PBOC inevitably announces it, is really just a blessing in disguise for the middle class.

  

  h/t Matthew Taub

  

  

  

  

• The Best Explanation If Exposed As An Ashley Madison Member…

  … comes from Dan Loeb of Third Point, who as Gawker points out admits to being a member of the hacked cheating website: due diligence.

  To wit:

  “As my family, friends and business colleagues know, I am a prolific web surfer. Did I visit this site to see what it was all about? Absolutely – years ago, at the time I was invested in Yahoo and IAC and was endlessly curious about apps and websites. Did I ever engage or meet with anyone through this site? Never. That was never my intention — as evidenced by the fact that I never provided a credit card to set up an account.”

  Indeed, as the author points out, this is an “entirely plausible excuse for being on Ashley Madison” especially for someone who was financially affiliated with comparable websites. In fact, for anyone on Wall Street caught on Ashley Madison and having to explain to their significant other why they were on (a website where some 95% of the members were many to begin with) the explanation is all too simple: to test out the platform and its profitability ahead of their imminent (and now permanently scrapped) IPO. Period, end of story.

  Unless the story doesn’t end there, like in this case: “it doesn’t explain why someone who had no intention of engaging with other adulterers described himself as looking for “discreet fun with 9 or 10,” as indicated in his profile data.

  I asked Loeb why he’d entered his desire for “discreet fun” into a website he had no intention of using. He replied: “That field was part of going on the site and I gave a brief line that sounded plausible.”

   

  Loeb’s statement also doesn’t explain why he checked his private messages on an account he never used to “engage” with anyone. The profile data shows that the last time he did so was on December 9, 2013—eight months after he joined Ashley Madison.

  Here is what a better explanation may have sounded like: “I am a billionaire: does it look like I need to secretly hook up on an anonymous website when I can go out and have any woman I want?”

  

  

  

  

  

• Guest Post: The Donald Exposed (A Reality Check For Trumpeteers)

  Submitted by Jim Quinn via The Burning Platform blog,

  It is pure idiocy to support a man simply because he is outspoken, or says popular things, or has mastered the art of titillation. Have you people forgotten Chris Christie??

  • Some say “People are rallying behind him not because they agree with him, but merely because they find him to be the most truthful.” About … what truth?? The man vacillates between whatever “truth” is the most popular.
  • Others think the guy is great because he’s rich … as if that’s a legitimate marker.
  • Many like him because Trump is supposedly different; — “I’ve argued for six months, trump is our UKIP, our five star, our national front. Someone’s got to do the dirty work. You wouldn’t hire a choir boy to break kneecaps. It’s gonna take a real bull.”
  • Trump is also liked because he is “not them”. “Them” being all the other rich, deceitful, lying fucks running for POTUS. No, The Donald is “different” in this alternate universe!
  • Many people have become single issue voters, and love Trump’s illegal immigration stance, and to hell with everything else … even if it means more loss of liberty, as long as we’re “safe” from the brown taco-munchers crossing our southern border.
  • Lastly, there are a certain segment of voters who say – “How much worse could Trump be compared to President Zero and the First Grifter family?”. To which I shake my head in disbelief and where I want to scream out; “Are you fucking kidding me???!! You really don’t think it can get worse????”. Apparently, these scholars have never heard of Adolph, Josef, or Mao.

  Here’s a typical Trumpeteer Worship Meeting. I wonder if the fawning bimbo realizes that in a Nov. 1992 interview in New York magazine Mr. Trump said about women; – “You have to treat ’em like shit.”

  

  It’s all emotional bullshit because what one hardly ever reads about from these Trumpeteer Marionettes is an actual discussion about Trump on the issues. It’s more important to squeeze out yet another orgasmic fountain of joy because he threw out some Univision reporter; “Oh, look! Isn’t zee Donald just Wunderbar!!”

  Screw that. So, let’s look at what The Donald believes… by his own words. And, although I can, I will not spoon-feed you links to his quotes. If you think I’m lying, look up the quotes yourself. You might actually learn something about the Donald in the process.

  THE POLICE STATE: —- “…. we have to give power back to the police, because we have to have law and order. We have to give strength and power back to the police.”. He absolutely loves the Department Of Homeland Security. It will be the centerpiece of his immigration policy, and will become more onerous and evil than ever. This is how crazy it will get. Earlier this month, the National Zoo’s female giant panda gave birth to twin cubs. He called them “anchor babies”. I’m not kidding, and neither was Donald. He asked the National Zoo to turn over the twin cubs to the Department of Homeland Security’s Immigration and Customs Enforcement (ICE) so that they can be deported back to China. “We have to equally enforce our immigration laws. We should treat animals in the same way we treat humans.  We should not allow people or animals to abuse our immigration system by coming to the United States and having babies.” Deporting anchor pandas …. God help America!!

  THE MILITARY: — Openly states that we must have American troops on the ground in Iran, Iraq, and the “Islamic State” in parts of Syria and Iraq. Way back in 1987 on Meet The Press, he said we should use the firing of a single bullet as a reason to invade Iran, seize its oil, and “let them have the rest” of their country. Proudly stated this past August 10^th on Morning Joe –— “I am the most militaristic person there is.”  If that doesn’t convince you that America’s endless wars will not cease under his administration, then I don’t know what will. But, he’s not militaristic when it comes to himself. He avoided the Vietnam draft by claiming a medical exemption …. bone spurs.

  KILLING WHISTLE-BLOWERS: —- “I think Snowden is a terrible threat, I think he’s a terrible traitor, and you know what we used to do in the good old days when we were a strong country — you know what we used to do to traitors, right?”

  GUNS: —- “I support the ban on assault weapons and I support a slightly longer waiting period to purchase a gun”

  YOUR BANK ACCOUNT: — To reduce federal debt Trump said the federal government should directly loot the bank accounts of private citizens ….. he said it would be a “one-time tax”, yeah whatever —— and would only affect the very rich. Yeah, right. That’s the standard procedure for oppression of everyone’s rights, sooner or later. First, soak “the rich”, and when that inevitably fails, then they come after YOU.

  YOUR PROPERTY RIGHTS: — You better hope your home isn’t on some land Trump wants to develop. Trump used eminent domain to seize an elderly widow’s Atlantic City home in order to build a limousine parking lot for his clients. “Everybody coming into Atlantic City sees that property, and it’s not fair to Atlantic City and the people. They’re staring at this terrible house instead of staring at beautiful fountains and beautiful other things that would be good.” Good for The Donald, not so good for the old lady.

  THE FREE MARKET: — The Donald is a pure statist, through and through. Has zero problems with using the government to prop up corporations, including banks. Advocated for TARP. Said the Big Three auto companies should NEVER be allowed to fail. “You cannot lose the auto companies” Clamored for a government takeover of healthcare in the 1990s …. “We must have universal health care”

  ECONOMY: — Trump promises to be “the greatest jobs President that God has ever created.”  Of course, we have no fucking clue how he will do this. Maybe you Trumpeteers can help out .. not with YOUR ideas but, actual quotes from your hero, cuz I can’t find a single quote of substance.  Don’t believe me? Check out The Donald’s latest video just released. No substance, 100% pure bullshit. But, I bet it makes you Trumpeteers feel all goooood and fuzzy inside. “Murika! Hell yeah!!”

  FREE TRADE: — The Plan: slap tariffs on everyone you don’t like, and hire smart people. Problem solved!! “Free trade can be wonderful if you have smart people but we have people that are stupid. We have people that aren’t smart, and we have people that are controlled by special interests, and it’s just not gonna work.” And, “I have lobbyists that can produce anything for me, they’re great.” Wants a 35% tax at the Mexican border, a 20% tax on all imports from anywhere, and promises to repatriate all “jobs stolen by China” with a heavy tax on Chinese goods … amount yet to be determined. No nation will retaliate and everything will be A-OK.

  TAKING OIL FROM OTHER COUNTRIES: — Trump on the O’Reilly show; — “To the victor belongs the spoils. So when we go to Iraq, we spend $1.4 trillion so far and thousands of lives are lost, right? And not to mention all the poor guys and gals with one arm and no arm and all the facts, right? You stay and protect the oil and you take the oil and you take whatever is necessary for them and you take what’s necessary for us and we pay our self back $1.5 trillion or more. We take care of Britain, we take care of other countries that helped us and we don’t be so stupid.”

  ISRAEL: — Netanyahu will get a four year long blowjob from the Donald. I don’t know to what degree we are controlled by Israel, but whatever it is, it will ONLY INCREASE.  If the Donald is elected president, the United States will have its first Jewish daughter in the White House. X-ray scanners will reveal the status of penises, and only those who have snipped the dick will be allowed entrance into the Holy of Holies.

  THE CONSTITUTION & THE FED: — Not enough data. Go ahead and do a search “Donald Trump quotes about the Constitution”. Bupkus! You won’t find a single Ron Paul-ish article anywhere, or even any quotes. It’s as if he doesn’t care about the Constitution, or even knows anything about it. The same with The Fed. One can safely assume that hopes about abolishing the Fed, or even auditing it, are off the table. Trump will maintain that status quo … if not increase the power of The Fed since the Donald is at heart a Big Government guy who thinks he can control everything by simply issuing commands. Not to mention The Great Unknown: to what extent is Trump and his vast wealth beholden to banks? Who “owns” whom??

  SUPPORTING SCUMBAGS —- Trump has spent a big fortune supporting and/or buying-off a Who’s Who of American Scum; Harry Reid, Chuck Schumer, Ted Kennedy, John Kerry, Tom Daschle, Joe Biden, John McCain, Newt Gingrich, Charlie Rangel, Ed Rendell, Rahm Emanuel,  Karl Rove’s SuperPAC American Crossroads, and over $100,000 to the Bill and Hillary Clinton Foundation. Negotiation skills are pretty easy when it basically consists of buying off people.

  “I’M RICH!!”: — Sure, compared to us. BUT … he’s “only” ranked as 414^th richest man in the Forbes 2015 Richest People list! They estimate his net worth at about $4.2 billion …. a far cry from his braggadocio claims of being worth $10 billion. And a far cry from Bill Gate’s net worth of about $80 billion. And THAT’S who people like Trump compare themselves to … others, like themselves. And Trump barely makes a ripple in a room full of billionaires. With an ego as large as his, that probably eats away at him. Therefore, I call into question the whole meme that Trump isn’t in it for the money, or that he can’t be bought. You just wait and see. If Trump gets elected, he will leave office much richer, as he gets laws passed that benefit HIM. A thinking person should question if Trump’s motives are to “make America great again” or, if he just wants to enrich himself. Lastly, his exaggerated claims regarding his wealth just point to him being yet another Liar-In-Chief. But, as Americans, we’re used to that by now after eight years of Oreo, aren’t we?

  PERSONAL LIFE: — Trump’s family values include years of keeping a mistress, Marla Maples, and who, after not having marital relations with his wife for more than 16 months, flew into a rage, tore hair from her head, and violated her sexually. Abandoned his daughter with Maples, providing financial support, and nothing else. Beyond any shadow of a doubt it is a known fact that he has mob connections … and has a documented history of cheating workers and vendors, and skirting the law via bribes and payoffs.

  *  *  *

  Now, just in case you think I’m of the opinion that The Donald is all bad ….

  IMMIGRATION: — He is 100% correct regarding the problem of illegal immigration. But, his solution to rounding up the millions already here will turn this country into even more of a Police State. His belief that we can force Mexico to pay for a fence is patently fucking insanely absurd. Even more insane is the belief that a fence would be effective … unless one is willing to plant thousands of land mines, and willing to execute border hoppers. But, even land-mines didn’t keep East Germans from fleeing. It’s also a shame that some people are too goddamned stupid to understand that what keeps some people OUT, keeps even more people (YOU!!) in, and that you’re halfway to an entire nation imprisoned. Up next? Fence out Canada to complete the prison. And, you’re ignorant as hell if you think that’s impossible, forever. Even when Trump rightfully identifies a problem, his solution to the problem is childish.

  ENVIRONMENT: — Trump has called Globull Warming “bullshit”.

  EDUCATION: — “Common Core has to be ended. …. It’s a disaster.” And, “Cut the Department of Education way, way down.”

  DRUGS: — He’s in favor of legalizing drugs and using tax revenue to fund drug education. I guess SSS won’t vote for him. Nevertheless, in his tolerance, he fired a Miss USA crown winner due to her drug over-indulgence.

  *  *  *

  OK, YOUR TURN!! — I know why you like Donald. He’s a rich celebrity, and Americans just loooove their celebrities. Just check out all the Trash Rags at your grocery checkout line. You love his claim that he can’t be bought, even if it’s probably a lie. You love his image of the White Knight riding to the rescue, a real Marlboro Man hero. You love his bombastic in-your-face persona, even though you surely know in your heart that national and international politics aren’t effectively conducted that way. And, you absolutely love his entertainment value …. as do I. But, is that all you got?? Surely, you have something of substance to convince us doubters that he is worthy of occupying the White House. I’ll be waiting ….

  NOW THAT YOU HAVE A BETTER IDEA OF WHERE THE DONALD STANDS ON THE ISSUES ….. WHERE WOULD YOU PLACE HIM ON THIS CHART?

  

   

  MY CONCLUSION: — While Mr. Trump is on the correct side on a few issues, it doesn’t make up for his being on the wrong side in so many others. In the above chart, The Donald is clearly on the far left side on almost all issues. In other words, he is no different than the Same Old Crap Sandwich you’ve been fed for decades now. Yet, you Trumpeteers believe he’s The Great White Hope. Yeah, well, hope in one hand and shit in the other, and see which one fills up faster.

  Both his words and actions prove his rejection of the free market and a propensity for confiscating wealth and placing it in the hands of corporate elites and government bureaucrats. But, key to me is that he has no respect for individual rights. His non-existent stance for the Constitution is extremely problematic. Whether he has any adherence to liberty and justice is questionable at best considering his support of the most vile politicians in the nation, while running around with mobsters. This is no reformer!

  People say a politician’s moral life is of no consequence in leading a nation. This ignores the fact that a politician’s life is consumed with making DECISIONS, and what a man (or, woman) chooses is largely based on that person’s character. It is impossible to make decisions in a moral vacuum. The fact that Trump’s personal life has been one comprised by one immoral decision after another — including three marriages, infidelities, and four bankruptcies — indicate to me that he does not have the qualities of being an effective humble public servant. Rather, he possesses a tremendous ego and a disturbing lust for power. Why can’t people see this? You who say he can’t be worse than the crap we’ve had with the evil Troika of Bush(es), Clinton, and Obama, please stop kidding yourselves. This man possesses an extraordinary damage potential, worse than you’ve ever seen, if he ever directly wielded the power of the presidency.

  In a March 1990 Playboy interview Mr. Trump said; — “I know what sells and I know what people want.” The Donald is still using that strategy in 2015, and he’s playing you Trumpeteers for fools.

  Look, if you guys want to elect someone who squints a lot and says stupid shit, may I suggest you consider David Puddy? He’s not as rich, but he’ll do far less damage to this country.

  

  

  

  

  

• "Computer Glitch" Plaguing ETFs Is "Unrelated" To Monday's Flash Crash, BNY Swears

  On Wednesday, we asked if Monday’s catastrophic ETF collapse which saw over 200 funds fall by at least 10% was just a warmup for a meltdown of even greater proportions. 

  The problem, you’ll recall, was that in the midst of Monday’s flash-crashing mayhem, a number of ETFs traded at a remarkable discount to fair value. Essentially, market makers looked to have simply walked away (there’s your HFT “liquidity provision” in action) or else put in absurdly low bids in order to avoid getting steamrolled when the constituent stocks came off halt. The wide divergences weren’t arbed for whatever reason and the result was an epic breakdown of the ETF pricing mechanism. 

  

  As we wrote on Wednesday, this was proof positive that contrary to popular belief (which, incidentally, is itself contrary to common sense in this case), an ETF cannot be more liquid than the assets it references and when liquidity dries up in the underlying as it did on Monday, the market structure is clearly inadequate to cope. 

  But don’t worry, because the problem has been identified.

  It’s simply a “computer glitch” at Bank of New York Mellon. Here’s WSJ:

  A computer glitch is preventing hundreds of mutual and exchange-traded funds from providing investors with the values of their holdings, complicating trading in some of the most widely held investments.

   

  The problem, stemming from a breakdown early this week at Bank of New York MellonCorp., the largest fund custodian in the world by assets, prompted emergency meetings Wednesday across the industry, people familiar with the situation said. Directors and executives at some fund sponsors scrambled to manually sort out pricing data and address any legal ramifications of material mispricings, those in which stated asset values differed from the actual figures by 1% or more.

   

  A swath of big money managers and funds was affected, ranging from U.S. money-market mutual funds run by Goldman Sachs Group Inc., exchange-traded funds offered by Guggenheim Partners LLC and mutual funds sold by Federated Investors. Fund-research firm Morningstar Inc. said 796 funds were missing their net asset values on Wednesday. 

  Ok, got it. So basically, if you want to know what the NAV of your fund is, you’ve got to go stock-by-stock and calculate it the old fashioned way. And what, you might ask, does this mean for investors in these most liquid of all securities? 

  The effects of the breakdown are threefold: It has made ETFs more costly to trade, hindered investors’ ability to trade accurately in and out of popular investment vehicles, and forced fund companies to scurry to price securities.

  Here we see the hallmarks of liquidity: i) rising trading costs, ii) an acute inability to trade in and out of the market accurately, and iii) issuers that have no idea what’s going on. 

  And how about HFTs, who, you’re reminded, insist that they provided liquidity during Monday’s chaos? 

  Several traders said they were forced to calculate their own net asset value for ETFs and that they widened the spreads, or the difference, between listed buying and selling prices to accommodate for the higher risk of trading.

   

  “We measure our edge in terms of subpennies,” one trader said. “We can’t afford to be off by a penny.”

  So if we had to venture a guess as to what might have happened here, it might go something like this: once the halts got started, it became impossible to calculate ETF NAV causing “liquidity providers” to widen out their bid- asks in order to protect themselves against NAV uncertainty, and that, in turn, caused anyone who had a market order in to hit the bid at absurdly low prices, taking out stops, and before you knew it, the rampant confusion simply caused Bank of New York Mellon’s/ SunGard’s platform to malfunction. 

  Of course we’ll never know what really happened, but what we can say is that if the following is true, it would be some damn coincidence:

  The outage wasn’t related to the market turbulence Monday that included the largest-ever intraday point decline in the Dow Jones Industrial Average, the bank said. 

  *  *  *

  Incidentally, the official word is that the problem was caused by “an operation systems change performed on Saturday.” Read the note below and decide for yourself.

  SunGard BNY Mellon InvestOne External Statement_FINAL

  

  

  

  

  

• Aug 28 – Fed George: Prepared for Rate Hike, Despite Selloff
   

  Follow The Market Madness with Voice and Text on FinancialJuice

   

  EMOTION MOVING MARKETS NOW: 12/100 EXTREME FEAR

  PREVIOUS CLOSE: 5/100 EXTREME FEAR

  ONE WEEK AGO: 11/100 EXTREME FEAR

  ONE MONTH AGO: 17/100 EXTREME FEAR

  ONE YEAR AGO: 33/100 FEAR

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 14.54% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

  Market Volatility: EXTREME FEAR The CBOE Volatility Index (VIX) is at 26.10, 63.20% above its 50-day moving average and indicates that investors are concerned about the near-term values of their portfolios.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows is slightly greater than the number hitting highs and is at the lower end of its range, indicating extreme fear.

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
   

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B) 

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL) 

  CRUDE OIL (CL) | GOLD (GC) 

   

  MEME OF THE DAY – IT’S THE JERKS 

   

  UNUSUAL ACTIVITY

  LVS SEP 40 PUT ACTIVITY on offer @$.80 4500+ Contracts

  GPRO OCT 48 PUT ACTIVITY @$5.00 right by offer 1944 Contracts

  HZNP SEP 30 CALLS block @$1.45 on offer 3900 Contracts

  CBS OCT 47.5 CALL Activity @$1.20 on offer 3700+ Contracts

  ABT SEP 44 CALL ACTIVITY ON THE OFFER @$1.05-1.06 5100+  Contracts

  RYAM Director Purchase 5,000 @$6.9

  TEP Director Purchase 9,000 @$44.5

  ABUS Director Purchase 1,000 @$6.95

  CVX Executive Vice President Purchase 2,000 @$ 73.529  Purchase 500  @$72.37

  More Unusual Activity…

  HEADLINES

   

  PBOC Yao: Fed should delay hike, could push some EM into crisis –Rtrs

  US GDP Annualized (QoQ) Q2 S: 3.70% (est 3.20%; prev 2.30%)

  US GDP Price Index (QoQ) Q2 S: 2.10% (est 2.00%; prev 2.00%)

  US Personal Consumption (QoQ) Q2 S: 3.10% (est 3.10%; prev 2.90%)

  US Core PCE (QoQ) Q2 S: 1.80% (est 1.80%; prev 1.80%)

  Fed George: Prepared for rate hike, despite selloff –CNBC

  Fed George: Market strains warrant caution on rate hikes –Rtrs

  Atlanta Fed Q3 GDPNow Forecast (27 Aug): +1.4% (prev +1.3%)

  US Pending Home Sales (MoM) Jul: 0.50% (est -1.00%; rev prev -1780%)

  US Pending Home Sales NSA (YoY) Jul: 7.20% (est 8.30%; prev 11.10%)

  US Kansas City Fed Manufacturing Activity Aug: -9 (est -4, prev -7)

  US EIA NatGas Storage Change Aug-21: 69 (est. 60, prev. 53)

  US Initial Jobless Claims Aug-22: 271K (est 274K; prev 277K)

  US Continuing Claims Aug-15: 2269K (est 2248K; rev prev 2256K)

  Abbott lines up $25bn bid for St Jude –FT

   

  GOVERNMENTS/CENTRAL BANKS

  PBOC Yao Yudong: Fed should delay hike, could push some EM into crisis –Rtrs

  Fed George: Prepared for rate hike, despite selloff –CNBC

  Fed George: Market strains warrant caution on rate hikes –Rtrs

  Atlanta Fed Q3 GDPNow Forecast (27 Aug): +1.4% (prev +1.3%)

  Fed buys $6.6bn MBS in the week, sells none –Livesquawk

  El-Erian: QE4 isn’t on the cards –BBG View

  ECB Coeure: The euro is irreversible despite its faults –Rtrs

  BoE publishes concerns over bond liquidity –FT

  BoE Gov Carney’s rate rise comments prompted homebuying in July –CityAM

  BoJ Kuroda: BoJ can still achieve inflation target –BBG

  BoJ Kuroda: China slowdown unlikely to hit Japan exports much –Rtrs

  ESM Regling: Threat of Grexit is still there –BI

  Germany approves Greek bailout, Athens prepares to tighten belt –Dispatch Times

  GEOPOLITICS

  Chinese Navy conducting live-fire drills in East China Sea –Xinhua via BBG

  Russia to assume UN Security Council chairmanship on 1 September –TASS

  FIXED INCOME

  Fed RRP draws $71.3bn, 34 bidders (prev $68.7bn, 31 bidders) –Livesquawk

  OVERNIGHT: China said to sell Tsys as dollars needed to back yuan –BBG

  China confirms it warned US it would sell Tsys at $50bn per month –ZH

  BankRate: US mortgage rates fall amid wild up-and-down market swings

  Analysts: Bund yield seen staying below 1% until March –BBG

  Eonia closes at -0.127% (prev 0.129%) –Livesquawk

  FX

  USD: Dollar rises on solid growth, jobless claims numbers –WSJ

  JPY: Yen weaker as dollar srtonger on US data –Rtrs

  EUR: Euro as new haven moves opposite to stocks by most in decade –BBG

  GBP: Pound gains vs euro as focus turns to cbank policy –BBG

  GBP: Pound sees fortunes reverse this week –MW

  COMMODITY FX: Commodity Currencies Rise Amid Risk Appetite –LSE

  AUD: Westpac says Australian Dollar’s artificial support will fade –PSL

  CNY OVERNIGHT: China said to sell Tsys as dollars needed to back yuan –BBG

  ENERGY/COMMODITIES

  CRUDE: WTI futures settle 10.25% higher at $42.56 per barrel –Livesquawk

  CRUDE: Brent futures settle 10.25% higher at $47.56 per barrel –Livesquawk

  CRUDE: Oil rebounds to trade back above $40 a barrel –MW

  METALS: Gold prices fall on robust US GDP data –WSJ

  METALS: Copper soars over 4% as base metals stage stunning recovery in London trade –BS

  COMMODS: Commodities strike six-year lows, set to enter new cycle –F24

  COMMODS COMMENT: TD: ‘Sell energy’ trade has it wrong on nat gas stocks –FP

  EQUITIES

  M&A: Abbott lines up $25bn bid for St Jude –FT

  M&A: Abbott says it is not pursuing St. Jude –MW

  COMMENT: Shiller: Rising Anxiety That Stocks Are Overpriced –NYT

  EARNINGS: Dollar General earnings above expectations, sales miss –WSJ

  EARNINGS: Tiffany Q2 Sales Down 2%, Earnings Fall 16% –Forbes

  AUTOS: Tesla rallies after top rating from consumer reports –MW

  INDUSTRIALS: Boeing hits 777X jet milestone, says program on schedule –Rtrs

  FUNDS: Fidelity is considering dropping two giant partners –CNBC

  CRA: Fitch Upgrades Best Buy’s IDR to ‘BBB-‘; Outlook Stable

  TECH: Google says EU antitrust charges are unfounded –Rtrs

  TECH: Apple fast closing in on wearable device maker Fitbit –IDC

  TECH: Apple to debut new iPhone 9 Sept –FT

  EMERGING MARKETS

  China will struggle to meet fiscal revenue targets in 2015 –Xinhua via BBG

  OVERNIGHT: PBOC said to have intervened in CNY swap market –WSJ

  BAML: Sell into the rally, the Shanghai Composite is going to tank –BI

  Ukraine NBU cuts rates by 3ppts to 27% –IFX

   

  Ukraine agrees to 20% principal writedown with main creditors –BBG

  

  

  

  

  

• Biggest 2 Day Surge In History Saved As Epic 3pm 'VIXtermination' Ramp Undoes "Quant Omen" Tumble

  No lesser Fed-questioner than Pedro da Costa provides the visual entertainment for today…

  Market 'rebound' pic.twitter.com/ve8pIHyfwH

  — Pedro da Costa (@pdacosta) August 25, 2015

  But then, with 30 mins to go….

   

  While stocks is "wot reelly mattahs"… today's move in crude oil was simply epic…biggest single day surge since March 12th 2009 – this is a 6 sigma move based on the vol of the last 6 years (the equivalent of passing a man in the street who is 6'11" tall)

  

   

  The Dow just went from its biggest 2-day point loss to the biggest 2-day point gain… this is not going to normalize quickly…and sure enough once JPMorgan unleashed their reality omen, and Plosser pointed the finger at GDP and a 'decent' economy, everything fell…only to be rescued in the last 30 mins by a VIXtermination

  

   

  Quite a week… well over 7500 Points in the The Dow…

  

   

  While the volatility comparisons are all tothe 2008/9 period, we noted another more accurate comparison… This surge looks like the August 2007 period when Geithner leaked the news of a 50bp discount rate cut and enabled the last hoorah for banks to unwind over-extended longs into retail greater fools…

  

   

  And there is no volume in this bounce at all…

  

   

  VIX remains in backwardation… but plunged today at the front-end…beforee ripping back higher after JPM/Plosser

  

   

  After its biggest 2-day rise ever, today's retracement was of similar extreme size to other events over the last 10 years…before it broke higher

  

   

  *  *  *

  The day was very wild…

  Starting with stocks, we contonued to ramp after China unleashed exuberant plunge protection into their close… a 5.3% bounce into the close!

  

   

  And US equities kept running all day as business media cheerleaded mom-and-pop " did you miss your chance to buy low?" – until JPMorgan unleashed some facts and Fed's Plosser peed in the party punch… and then VIX was punched lower in a panic-buying last 30 mins…

  

   

  So US Stocks LIFTED 2.3% in last 30 mins… in context China LIFTED its stock market 5% – so Ken Henry must do better.

   

  Just look at the noise in VIX in the last 30 mins…

  

   

  Thanks to the biggest 2-day short squeeze in 4 years…

  

   

  The equity exuberance was not experienced in credit land…

  

   

  Today's rip was driven by energy stocks which in turn were driven by total idicoy as above in Crude…

  

   

  Because how manhy times has buying the dip in Energy stocks completely and utterly failed…

  

   

  Thinking out loud on levels…

  

   

  On the week, everything was awesome to start… but then the Quant Omen hit… but then again – there is always panic-selling driven by VIX collapse…

  

   

  But we thought it notable that Small Caps and Nasdaq rolled over after touchingthe opening gap down levels fromlast Friday's tumble…

  

   

  The Nasdaq managed to get green year-to-date, but everything else remains red…

  

   

  Treasury yields rallied as stocks fell in the afternoon – closing around unch on the day…

  

   

  The US Dollar strengthened once again on the day but faded post EU Close with USDJPY dropping after JPM dropped its reality bomb…

  

   

  Commodities were where the real action was today…

  

   

  With crude the standout craziness…

  

   

  But copper and Silver also surged…

  

   

  But But But… the clever chap on CNBC yesterday said "this proves investors confidence in the market is back"??

  Charts: Bloomberg

  

  

  

  

• Remembering The Summer Of 1929

  Submitted by Jesse via The Burning Platform blog,

  This is one of the best documentaries on the Crash of 1929 if you wish to get a feel for the times.   You may find it interesting to watch the whole thing below.I have posted the entire documentary twice before:  once, on the 80th anniversary of Black Thursday in 2009, and once before in December of 2007.

  I remember the Summer of 1929 being described as unusually hot, with the stock market going up and down like a roller coaster, making investors and pundits almost dizzy.  That is, until the great push up to the very height of the market in early September.

  It was the laissez-faire abuses of the 1920’s, the reign of supply side economics,  the institutionalized political corruption of easy money, an oversized,  overly influential and powerful financial/industrial sector that set the stage for the terrible Depression of the 1930’s.

  It also gave rise to the many reforms introduced by the FDR administration.

  Most of which have been steadily overturned, one by one, by the big money interests who care for nothing but themselves, and would do it again, and again, if allowed to do so.

  Most of the scams of the moneyed interests are remarkably simple, and the same over time.  At least they are once you scrape away the jargon, the bells and whistles, and paid for policy theories of pedigreed prostitutes.

  The titans of Wall Street are no smarter than many smart people who do much more difficult jobs and lead simple, honest lives. But they are driven, they are insatiable, and they are shameless.

  Enough people are easily fooled in each generation by well scripted ideological PR campaigns, clever revisions and misrepresentations of history, and the steady drumbeat of slogans and propaganda to allow the same old scams and abuses to come back again.  And unfortunately even very smart and powerful and greatly advantaged people are always willing to do anything for money.

  Here is a link to the transcript of this documentary.

  Narrator: At sea and on land, everyone seemed to be making money. It was a stampede of buying. And major speculators like John Jacob Rascob whipped up the frenzy. He told readers of The Ladies’ Home Journal that now everyone could be rich. September 2nd, Labor Day. It was the hottest day of the year. The markets were closed and people were at the beach. A reporter checked in with astrologer Evangeline to ask about the future of stock prices. Her answer: the Dow Jones could climb to heaven. The very next day, September 3rd, the stock market hit its all-time high.

   

  Ben Karol, Former Newspaper Delivery Boy: My father and I had an ongoing discussion about the stock market. And I used to say, “Pop, everybody’s getting rich but you. You know, you work so hard and you’re never going to make a nickel. All you do is you keep delivering these newspapers and that’s about it. The guy who’s shining shoes is in the stock market, the grocery clerk is in the stock market, the school teacher’s in the stock market. The teller at the bank is in the stock market. Everybody’s in the stock market. You’re the only one that’s not in the stock market.” And he used to sit and laugh and say, “You’ll see. You’ll see. You’ll see.”

   

  Narrator: On September 5th, economist Roger Babson gave a speech to a group of businessmen. “Sooner or later, a crash is coming and it may be terrific.” He’d been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the “Babson Break.” The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun

   

  Narrator: In the weeks to follow, the market fluctuated wildly up and down. On September 12th, prices dropped ten percent. They dipped sharply again in the 20s. Stock markets around the world were falling, too. Then, on September 25th, the market suddenly rallied.

   

  Reuben L. Cain, Former Stock Salesman: I remember well that I thought, “Why is this doing this?” And then I thought, “Well, I’m new here and these people” — like every day in the paper, Charlie Mitchell would have something to say, the J.P. Morgan people would have something to say about how good things were — and I thought, “Well, they know a lot more about this market than I do. I’m fairly new here and I really can’t see why it’s going up.” But then, when they say it can’t go down or if it does go down today, it’ll go back tomorrow, you think, “Well, they really are like God. They know it all and it must be the way it’s going because they say so.”

   

  Narrator: As the market floundered, financial leaders were as optimistic as ever, more so. Just five days before the crash, Thomas Lamont, acting head of the highly conservative Morgan Bank, wrote a letter to President Hoover. “The future appears brilliant. Our securities are the most desirable in the world.” Charles Mitchell assured nervous investors that things had never been better.

   

  Craig Mitchell, Son of Charles E. Mitchell: Practically every business leader in America, and banker, right around the time of 1929, was saying how wonderful things were and the economy had only one way to go and that was up.

   

   

  “Running for President under the slogan “Rugged Individualism” made it difficult for Hoover to promote massive government intervention in the economy. In 1930, succumbing to pressure from American industrialists, Hoover signed the Hawley-Smoot Tariff which was designed to protect American industry from overseas competition. Passed against the advice of nearly every prominent economist of the time, it was the largest Tariff in American history. (at that time the US was a large export economy with a trade surplus).

   

  Believing in a balanced budget, Hoover’s 1931 economic plan cut federal spending and increased taxes, both of which inhibited individual efforts to spur the economy.

   

  Finally in 1932 Hoover signed legislation creating the Reconstruction Finance Corporation. This act allocated a half billion dollars for loans to banks, corporations, and state governments. Public works projects such as the Golden Gate Bridge and the Los Angeles Aqueduct were built as a result of this plan.

   

  Hoover and the RFC stopped short of meeting one demand of the American masses — federal aid to individuals. Hoover believed that government aid would stifle initiative and create dependency where individual effort was needed. Past governments never resorted to such schemes and the economy managed to rebound. Clearly Hoover and his advisors failed to grasp the scope of the Great Depression.”

  

   

  

  

  

  

  

• What China's Treasury Liquidation Means: $1 Trillion QE In Reverse

  Earlier today, Bloomberg – citing the ubiquitous “people familiar with the matter” – confirmed what we’ve been pounding the table on for months; namely that China is liquidating its UST holdings. 

  As we outlined in July, from the first of the year through June, China looked to have sold somewhere around $107 billion worth of US paper. While that might have seemed like a breakneck pace back then, it was nothing compared to what would transpire in the last two weeks of August. Following the devaluation of the yuan, the PBoC found itself in the awkward position of having to intervene openly in the FX market, despite the fact that the new currency regime was supposed to represent a shift towards a more market-determined exchange rate. That intervention has come at a steep cost – around $106 billion according to Soc Gen. In other words, stabilizing the yuan in the wake of the devaluation has resulted in the sale of more than $100 billion in USTs from China’s FX reserves. 

  That dramatic drawdown has an equal and opposite effect on liquidity. That is, it serves to tighten money markets, thus working at cross purposes with policy rate cuts. The result: each FX intervention (i.e. each round of UST liquidation) must be offset with either an RRR cut, or with emergency liquidity injections via hundreds of billions in reverse repos and short- and medium-term lending ops. 

  It appears that all of the above is now better understood than it was a month ago, but what’s still not well understand is the impact this will have on the US economy and, by extension, on US monetary policy, and furthermore, there seems to be some confusion as to just how dramatic the Treasury liquidation might end up being. 

  Recall that China’s move to devalue the yuan and this week’s subsequent benchmark lending rate cut have served to blow up one of the world’s most popular carry trades. As one currency trader told Bloomberg on Tuesday, “it’s a terrible time to be long carry, increased volatility — which I think we’ll stay with — will continue to be terrible for carry. The period is over for carry trades.“

  Here’s a look at how a rules-based carry strategy designed to capture yield differences would have fared in the universe of G10 CCYs (note the blow ups around the SNB’s franc shocker and the yuan deval):

  

  In short, the music stopped on August 11 and to the extent that anyone was still dancing going into this week, the PBoC’s decision to cut the lending rate along with RRR buried the trade once and for all.  

  Estimating the size of that trade should be a good indicator for just how expensive it will be – i.e. how much in Treasurys China will have to liquidate – to keep the yuan stable. The question, as BofAML puts it, is this: “can China afford the unwinding of carry trades?”

  The first step is estimating the total size of the trade. Although estimates vary, BofAML puts the figure at between $1 trillion and $1.1 trillion. Here’s more: 

  As analyzed above, the size of RMB carry could be quite high and thus exert downward pressure on RMB. But the PBoC should have scope to defend its currency if necessary. The PBoC’s toolbox includes its $3.65tn FX reserves (at end-July), as well as measurements to tighten FX controls on individuals, corporate and banks, if necessary, including imposing stricter requirements on NOP, among others. 

   

  That said, we doubt if the PBoC will persistently intervene as rapid decline of FX reserves undermines market confidence anyway and imposes challenges to the PBoC. Alternatively, the PBoC could impose stricter FX controls but that would be considered as a backward move of capital account opening up. Nevertheless, we believe the PBoC intervention will still have spillover effects on the market. 

  In other words, if this entire $1 trillion trade gets unwound, China will need to offset the pressure by either i) draining its reserves, or ii) taking a big step backwards on capital account liberalization. The latter option would be bad news for Beijing’s efforts to liberalize markets and land the yuan in the SDR basket. 

  Of course, as noted yesterday and as tipped by SocGen earlier this week, the liquidation of $1 trillion in FX reserves would put enormous pressure on domestic liquidity, tightening money markets meaningfully, and forcing the PBoC to cut RRR 10 times (assuming 50 bps intervals). As BofA notes, China can’t “afford another liquidity squeeze like June 2013 given very poor sentiment nowadays and China’s economic downturn.”

  Putting the pieces together here – and here is the critically important takeaway – we know that the size of the RMB carry trade could be as high as $1.1 trillion. If that entire trade is unwound, it would require China to liquidate a commensurate amount of its reserves in order to keep control of the yuan – or else resort to FX controls. Here’s the point: if China were to liquidate $1 trillion in reserves (i.e. USTs), it would effectively offset 60% of QE3.

  Furthermore, based on Citi’s review of the academic literature which shows that for every $500 billion in EM reserves liquidated, the yield on the US 10Y rises 108bps, if the PBoC were to use its reserves to offset a hypothetical unwind of the entire RMB carry trade, it would put around 200 bps of upward pressure on 10Y yields.

  So in effect, China’s UST dumping is QE in reverse – and on a massive scale. Facing this kind of pressure the FOMC will at the very least need to exercise an exorbitant amount of caution before tightening policy and at the most, embark on another round of asset purchases lest China’s devaluation and attendant FX interventions should be allowed to decimate whatever part of the US “recovery” is actually real. 

  

  

  

  

  

• The Fed's Hands Are Tied Unless an Complete Meltdown Hits

  The last 12 months has seen a sharp shift in tone regarding criticism of the Fed. Up until 2014, the mainstream financial media’s view of the Fed and its policies was that they had saved the financial system in 2008 and generated an economic "recovery."

   

  Anyone with a working brain knew this was bogus: you cannot solve a debt crisis by issuing more debt. But because the financial media makes its money from financial firms’ advertising Dollars, it (the media) was happy to promote the narrative that the Fed was omniscient and expertly adept at managing the economy.

   

  Then things began to change.

   

  First in the summer of 2014, Congress moved to introduce new oversight of the Fed’s policies, particularly regarding its control of interest rates.

   

  Then the Fed was ensnared in a “leak” scandal indicating it had been providing insider information to key individuals before the public (the Fed has been leaking information for years… but the fact it became common knowledge was new).

   

  And then a growing number of commentators began to point out that the Fed’s QE programs didn’t actually do anything for the general economy, but did increase wealth inequality.

   

  It is this last item that has proven to be the most problematic for the Fed… particularly now that the markets are collapsing with interest rates already at zero.

   

  The Fed has openly stated that QE was a success because it pushed stocks higher. However, it’s hard to swallow this when stocks erase ALL of their post-QE 3 gains in a matter of four days.

   

  

   

  In simple terms, the market collapse of the last week has proven point blank that the Fed’s theories are bogus and not based on reality. Moreover, now that the financial media has begun to promote the narrative that QE creates wealth inequality, any new QE program would be seen as a bailout of the wealthy.

  This means the Fed will be unable to directly intervene to prop the markets up. We get evidence of this from the fact that NO Fed officials appeared yesterday to provide verbal intervention for the markets.

  Every other time the markets has broken down in the last six years, a Fed President appeared to talk about some new policy to prop the markets up.

  NOT THIS TIME. The Fed's silence signals that things have changed in a big way. Smart investors should start preparing now. This mess is not over by any stretch.

  If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

  You can pick up a FREE copy if you …

  Click Here Now!

  Best Regards,

  Graham Summers

  Chief Market Strategist 

  Phoenix Capital Research

   

   

  

  

  

  

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