Sep 03

Today’s News September 3, 2015

  • America – Good, Bad Or Ugly? Part 1: The Bad

    Submitted by Thad Beversdorf via FirstRebuttal.com,

    I wanted to start with The Bad and then move on to The Ugly so that I can end on a positive note with The Good.

    So over the past couple days I’ve read several articles in which someone who is publicly an adamant proponent of righteous behaviour was exposed as being a complete hypocrite (think essentially any politician).  And this really got me to thinking about the epidemic that has befallen America.  We no longer have anyone in positions of trust acting with any sense of integrity.  Our policymakers, bankers, corporations, unions, etc., all of these institutions have become nothing but a mechanism to enhance the personal positions of those who have the ability to directly or indirectly control the actions of those institutions.

    By the late 1990’s the world was in the most prolonged period of global peace since WWII.  Accordingly, military budgets around the world were being slashed.  And so those with the powers that be decided the world therefore required some new wars to ensure peace continued (not kidding that is exactly what they argued), as I evidenced in an article last year, The Most Essential Lessons of History that No One Wants to Admit.  Now the thing is, it’s not just politicians and policymakers that are devoid of any common decency these days but those who can manipulate every facet of our society.

    Let’s look at central bankers for instance.  The other day David Stockman wrote a great article highlighting the ridiculousness of statements by the Fed Vice Chair, Stanley Fischer.  The point is Fischer is either out of touch, out of his mind or lying to us.  But it’s not just at the highest levels that we see this type of human decay.  Not at all.  Let’s look to an area that so many of us know intimately, the financial services sector.  Now there are a lot of examples we could use here but let’s look at a particularly interesting firm infamous for its culture of indiscretions.  Jefferies LLC, which used to be Jefferies & Company Inc., is a mid tier investment bank, similar to Goldman Sachs in that it has no retail branches.

    In 2012 Richard Handler, CEO of Jefferies, was actually the highest paid banker on Wall Street.  And not to be left out in the cold, Handler’s number two, Brian Friedman also topped the charts as discussed in a Bloomberg article from 2013 which explored the credit risk such payouts create.  Now making absurd amounts of money may or may not be ethical but what I find more interesting is the blatant hypocrisy of guys like Richard and Brian.  As has been written about many times (e.g. here and here) is the fact that Richard and Brian put out a monthly company wide letter with words of ‘wisdom’ that are to guide and encourage their employees to rise above the fray.  They look something like this from a recent monthly letter…

    “…By the way, the capitalism concept really never took hold in Russia because the only way lasting, open markets work is through transparency, a culture of integrity and rule-following, and a true legal system.”

    Now that sounds admirable on the surface, however, the reality when we look at the culture at Jefferies is anything but above the fray.

    Remember Jesse Litvak?  He’s the only banker that has been personally prosecuted, convicted and sent to prison for fraud related to TARP and was a Jefferies Managing Director at the time.  Now for those of you that don’t remember, Litvak was caught lying to a customer when an employee of his accidentally sent that client an email exposing the lie.  In the end, Litvak tried to explain away his actions to the court by saying it was common practice at Jefferies.  The government agreed according to a quote from a bloomberg report, “Litvak wasn’t the only employee who lied to his customers, the government said. ”

    Now some might feel well one example doesn’t prove a corrupt culture, right?  And I only wish it were but a fleeting example, unfortunately though isn’t.  Perhaps the most outrageous banking scandal of all time was Sage Kelly, Head of Global Health Care Investment Banking, for Jefferies.  Sage Kelly is the real deal.  He is Wall Street anthropomorphized in all its glory as depicted in a classic article by the boys at ZeroHedge.  And again it appears that it wasn’t just poor behaviour by one man but a culture taken on by several top investment bankers at Jefferies.  And surely the severely outlandish culture adopted by these bankers is not the type of behaviour that goes unnoticed.  For unlike artists, legends in banking are known, not in death, but in the here and now.

    What is less known is that Jefferies was actually sued by UBS for the way in which they acquired Sage and his Investment banking group from UBS, as this article by the NYT describes.  But it appears that for Richard Handler and his executive officers, being called out for inappropriate behaviour is not a deterrent as some 3 years later Jefferies was sued by Newedge for the very same thing, as described in this FT article.  It’s beginning to seem that despite Richard and Brian’s monthly words of moral and ethical enlightenment to their employees, it is them that have failed to live up to the benchmark they preach.

    Now when a CEO is making $58M a year he should be held to a higher standard of accountability.  But what we find is quite the opposite, as we regularly see now in America those in positions of notable status are exempt from consequences.  The Rich Handlers, Donald Rumsfelds, Hilary Clintons of the world reap all the upside and zero downside.  Similar to the market having a Fed put, members of America’s upper class have a legal put.  They simply are not held to the same standard to which the rest of us are held.  And so if Litvak had the letters CEO in front of his name surely he would have been spared any prison time.  Instead a large fine would have been paid into the Treasury’s General Fund and all would have been forgiven.

    And so the consequences are worn by the non-elites, that is, the rest of us.  The Rumsfeld lies that took us to Iraq and all of the subsequent continued fallout (now ISIS) are worn by soldiers fighting a synthetic enemy created in a social laboratory to perpetually expand defense industry contracts.  The selling of favours and foreign policy deals by Hillary are worn by the families that lost loved ones in Benghazi.  The multiple failures of Handler to properly manage risk and culture inside his firm led to rising legal and regulatory costs and declining business further leading him to shut down, only three years after purchasing, Pru Bache, a 130 year old company that had weathered the worst of storms.  His failures are worn by thousands of non-six-figure income financial services sector employees that lost their jobs when he closed the doors on the 130 year old company but while he continues to receive his 8 figure compensation.

    We can all think of literally a hundred examples of the legal put provided to those in the American upper class.  And while any single example has a story of tragedy behind it, it is the assumed immunity we give across the board to those with a notable status that perpetuates their self serving indifference to those for which their duties are naturally responsible but now unaccountable.   Yet we give them immunity, in part, because they do a fantastic job of portraying themselves as having concern for right and wrong and falling on wrong only due to circumstances outside of their control.

    This really pinpoints the issue.  While we listen to politicians, central bankers and CEO’s preach publicly about doing what’s right, ensuring economic stability, protecting the middle class and watching out for our employees and customers, it’s all absolute bullshit now isn’t it.  That is, while guys like Rich and Brian pretend to be angelic proponents of good behaviour their firm is clearly an absolute disgrace in an industry already known for its lack of integrity.  And it’s surely not just Jefferies but the general corporate and political culture in this nation that suffers from a lack of accountability and a lack of character.  Apologies and fines are great but they don’t deter the bad behaviour that always lands on the rest of us, that much is clear.

    This nation has become a land where character and integrity are secondary to profits for the few and self serving interests of the powerful.  And as we are seeing already for the third time in this millennium’s infancy, stability and prosperity can be but short lived for even the highest paid CEO’s in such a world.

    In Part II, I am going to expose The Ugly by releasing a recorded conversation of perhaps, contextually, the ugliest example of just how callous and inhumane our banking executives have become.  Watch for it.

  • China's "Historic" 70th Victory Day Parade: Live Webcast

    For those wondering why Chinese futures aren’t crashing as of this moment, only to surge in the last hour of trading like plunge protected clockwork, the reason (and also the patriotic alibi behind China’s “National Team” valiant, if failed, attempts to get a green Shanghai Composite close the past three days) is shown below: this is what Tiananmen Square looked like moments ago before the start of China’s “historic” 70th V-day parade celebrating the anniversary of the end of the second world war as well as China’s victory over Japan, not necessarily in that order (it is still unclear if those five Chinese ships parked off of Alaska are in any way related to today’s festivities).

    Here, via Xinhua, is a list of China’s contributions in the war effort:

    • 1 million — Since the July 7 Incident in 1937, when full-scale war against Japanese aggression broke out, the Chinese battlefield tied up about 1 million Japanese troops, or two thirds of the total Japanese army.
    • This allowed the Soviet Union to deploy more than half a million troops from the Far East to the country’s major battlefield with the German Nazis, thus accelerating its victory against Germany.
    • 1.5 million — As the major battlefield of the Pacific War, China inflicted heavy casualties on the Japanese aggressors, costing them 1.5 million troops, which makes up more than 70 percent of total Japanese military casualties in the war.
    • 1.28 million — After the war, more than 1.28 million Japanese troops surrendered their weapons to China, accounting for about 50 percent of those who surrendered overseas.
    • 35 million — China was one of the crucial fighters in WWII and made tremendous sacrifices during the war. According to incomplete statistics, Chinese military and civilian casualties added up to approximately 35 million.
    • That accounts for one third of the total casualties suffered by all countries during WWII.

    What makes this year’s parade unique is that for the first time in addition to the countless participants from the People’s Liberation Army, nearly 1000 troops from 17 countries will participate in the parade.

    The preparations started early as this video of downtown Beijing confirms. Alternatively, this is what China’s capital will look like once the SHCOMP is back to 2000:

    Then the troops starting arriving:

    … then the foreign soldiers:

    … and the people:

    … the occasional celebrity:

    … then the generals:

    Until finally Xi himself showed up:

    And, naturally, the guests of honor among which none other than Vladimir Putin:

     

    Finally, for those sitting in front of their computer in Chinese stock market rollercoaster withdrawal, here is a live feed from Beijing to fill the transitory void in your lives:

  • "It's A Tipping Point" Marc Faber Warns "There Are No Safe Assets Anymore"

    Markets have "reached some kind of a tipping point," warns Marc Faber in this brief Bloomberg TV interview. Simply put, he explains, "because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks – there is no safe asset anymore." The purchasing power of money is going down, and Faber "would rather focus on precious metals because they do not depend on the industrial demand as much as base metals or industrial commodities," as it's now "obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing."

     

    Faber explains more… "I have to laugh when someone like you tries to lecture me what creates prosperity"

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    Some key exceprts…

    On what central banks hath wrought…

    I think that because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks there is no safe asset anymore. When I grew up in the '50s it was safe to put your money in the bank on deposit. The yields were low, but it was safe.

     

    But nowadays, you don't know what will happen next in terms of purchasing power of money. What we know is that it's going down.

    On the idiocy of QE…

    in my humble book of economics, wealth is being created through, essentially, a mixture of capital spending, and land and labor. And if these three production factors are used efficiently, it then creates a prosperous society, as America became prosperous from its humble beginnings in 1800, or thereabout, to the 1960s, '70s. But it's ludicrous to believe that you will create prosperity in a system by printing money. That is economic sophism at its best.

    On the causes of iunequality…

    unfortunately the money that was made in U.S. stocks wasn't distributed evenly. And we have precise statistics, by the way published by the Federal Reserve, who actually benefited from the stock market boom post-2009. This is not even one percent of the population. It's 0.01 percent. They took the bulk.

     

    And the majority of Americans, roughly 50 percent, they don't own any shares anyway. And in other countries, 90 percent of the population do not own any shares. So the printing of money has a very limited impact on creating wealth.

    On China's lies… and its commodity contagion…

    I indicated on this program already a year ago, the Chinese economy was decelerating already then. It's just that the fund managers didn't want to accept it.

     

    And now it's obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing in China, but more likely either no growth at all or maybe around two percent, but no more than that.

     

    So that has a huge impact on commodity prices, and in turn it has a huge impact on the economies of all the raw material producers around the world from Latin America, to Australasia, Russia, Middle East, Africa and so forth. And these countries then with falling commodity prices have less money to buy, also less money to buy American goods.

    On Asian currency devaluation… and a Chinese economic collapse…

    Yes. These countries just followed the example of what Mr. Draghi and Kuroda tried to achieve with lowering the value of their currencies, which is actually to create a depression in real incomes and a contraction of world GDP in dollar terms, and a contraction of world trade in dollar terms, which is of course negative for economic growth around the world.

     

    Well, I mean, we have to put the achievements of China and also of President Xi in the context of what China was 20, 30 years ago, and what it is today. And it's a remarkable change. Now will China have a very serious setback? And don't forget, the U.S. after 1800 had numerous financial crises, and depressions, and the Civil War, and went through World War I, and through the depression years, and World War II and so forth. And the country continued to grow.

     

    I think China is, from a cyclical point of view now, in a very serious downturn, serious. And from a secular point of view, I think there is still tremendous growth opportunity in China in the long run. But, as I said, cyclically I think they're going to have a tough time

    On where to invest…

    I would rather focus on precious metals, gold, silver, platinum because they do not depend on the industrial demand as much as base metals, as industrial commodities.

     

    If I had to turn anywhere, where, as you say, the opportunity for large capital gains exists, and the downside risk is in my opinion, limited, it would be the mining sector, specifically precious metals, mining companies, in other words, gold shares.

     

    I would buy mining stocks. I am not saying they will go up, but I think they will go down less than a lot of other shares. And by the way, if you ask me about relative value, I think emerging markets are not yet cheap, cheap, but I think the return expectation I would have over the next seven to 10 years by investing in emerging markets would be much higher than, say, in U.S. stocks. The U.S. market is overhyped and is expensive in terms of valuations from a historical perspective. Emerging markets are no longer terribly expensive.
     

  • Who Would Win World War 3? The Infographic

    For those unaware, China is conducting a massive military parade on Wednesday to commemorate the 70th anniversary of the end of World War II.

    The event – which is accompanied by a three-day public holiday – is important for Xi Jinping, who is keen to project China’s strength to the world, especially in the wake of the country’s economic deceleration and highly publicized stock market meltdown. 

    Of course the parade also comes amid heightened tensions between Washington and Beijing.

    China’s land reclamation efforts in the South China Sea – where the PLA has constructed nearly 3,000 acres of new sovereign territory atop reefs – has regional US allies on edge. The dispute came to a head earlier this year when China effectively threatened to shoot down a US spy plane carrying a CNN crew over the Spratlys. 

    It’s against this backdrop that we recently brought you infographics demonstrating China’s South China Sea naval superiority on the way to asking who would win a maritime conflict. Below, courtesy of CNN, is a simple infographic which puts the militaries of the US and China side by side on the way to making a comparison that may well become increasingly relevant in the new bipolarity.

  • Guest Post: Trump Can Win The GOP Nomination

    Submitted by Bruce Bartlett via The Fiscal Times,

    To save myself from answering this question repeatedly, these are the thoughts I have had about Trump since he became a presidential candidate, which were partly expressed in a Politico article over a month ago.

    First of all, I think his support is firm and shows no sign of diminishing. He has already weathered storms such as his criticism of John McCain that would have doomed any other candidate. Anyone who thinks he is the current version of Cain, Bachmann, Santorum or other nutcase that briefly led the GOP field in 2012 is dead wrong.

    Keep in mind also that in primary elections, one doesn’t need majority support to win in a field with multiple candidates. And intensity of support is often more important than the percentage. Support for the designated favorite of party insiders is often exaggerated in polls and I think Trump’s supporters are unusually motivated.

    Second, Trump’s positions on the issues are largely irrelevant to his success. None of his supporters care whether a wall across Mexico is remotely feasible or that he regularly flip-flops on the issues. What he is selling is attitude and a certain fascistic form of leadership. He will get things done, his supporters believe. And it’s less important what he will do than that he will do something.

    Ironically, Republicans brought this on themselves in two ways. To begin with, they grossly oversold what they could do just with control of Congress. The Republican base really seems to have simply forgotten about the presidential veto or the Senate filibuster. They seem to have thought all they had to do was pass bills with a simple majority and they would magically become law. How else to explain voting over and over and over again to repeal Obamacare. It makes no sense unless my assumption is correct.

    Additionally, Republicans are suffering from the gridlock that they themselves caused. We all know that nature abhors a vacuum, but I think it abhors gridlock as well. That has always been the appeal of fascism and it would be very foolish to believe that Americans are immune from its attractive qualities of getting things done that need to get done. And let us not forget that Trump is talking about genuine problems even if his solutions are simplistic or even wrongheaded.

    My third point in Trump’s favor is his willingness to fund his own campaign and ability to run such a campaign on the cheap. By the latter, I mean that he started his campaign with close to 100% name ID and he has the amazing ability to get massive free media exposure any time he wants it. The mainstream media seem powerless to ignore the newsworthiness of anything he says about anything at any time in any place. In lieu of a traditional campaign staff, all Trump needs are the PR people he has long employed, a scheduler and a pilot for his plane.

    Related to this, I would note that Trump has a very powerful ally in the form of talk radio. Rush Limbaugh and Mark Levin have been especially strong in their support for Trump, in part because Trump’s base and theirs are one and the same. It is extremely valuable to any candidate to have such a megaphone at his disposal, whipping up support, attacking his enemies, explaining away his mistakes etc. This also explains why Trump can treat Fox News with the disdain it deserves. It helped create the Trump monster, thinking he could be controlled, and discovered to its horror than he cannot.

    Fourth, as a consequence, the traditional means of controlling an out-of-control candidate are not available to the GOP leadership. They cannot deny him media exposure or money or organizational support because he doesn’t need them. Moreover, the anointed GOP nominee, Jeb Bush, has turned out to be a remarkably poor politician. His ineptness makes me wonder how he ever got elected dog catcher. And the rest of the GOP field lacks the name ID or support to catch up. But, importantly, because several have deep pocketed supporters, they too can afford to stay in the race indefinitely, keeping the field divided to Trump’s advantage..

    This means it is very unlikely that the stop-Trump forces can coalesce around one candidate. The field will remain divided until the end, meaning that Trump needs no more support than he has now to win the nomination. As I have said repeatedly, the key to understanding Trump is not the ceiling on his support, but the floor, which appears higher than the ceiling of all the other candidates.

    Lastly, I think many Republicans simply delude themselves that Trump is not a serious candidate who cannot, for some reason, get the nomination. I say, don’t underestimate his ego, which we know is and always has been enormous. If he can win the GOP nomination, why shouldn’t he go for it? I would also point to the example of Wendell Willkie, a very Trump-like candidate who won the GOP nomination in 1940. Then as now, he took advantage of the fact that as the anti-government party, Republicans are unusually attracted to non-politicians.

    I am not yet ready to predict that Trump will be the GOP nominee, but I am disinclined to bet against him. I honestly don’t see how any of his current opponents can beat him. I think his odds of winning the nomination are better than even. Whether he can win the general election is another question that I will discuss at a later date.

    Final note – the Democrats’ growing disarray plays into Trump’s hands because it reduces the importance of electability as a prime requirement for the GOP nominee.

  • Meanwhile, In Sweden, Banks Are Refusing To Open Savings Accounts

    Early in July, Sweden’s Riksbank proved its dedication to the post-crisis central bank mantra of “if it’s broken, break it some more” when, after becoming the first country to witness observable, indisputable evidence of QE’s failure, the central bank pushed rates further into negative territory and expanded QE. 

    The problem for Sweden, as we documented in “For The First Time Ever, QE Has Officially Failed”, is that QE had soaked up so much of the available high quality collateral that bond yields and the krona were moving in the wrong direction (i.e. higher) meaning that more QE would only exacerbate the situation, leading to still higher yields and a stronger currency. Incidentally, to avoid distorting the market even further, Morgan Stanley thinks the Riksbank may have to resort to mortgage bonds in the not-so-distant future. 

    Of course as we’ve seen, things can always get NIRP-er-er in the new paranormal which is why the market is pricing in a 50% chance of more easing from the Riksbank at tomorrow’s meeting. 

    The problem is that if you go NIRP and still are not able to achieve the kind of economic outcomes you were looking for by essentially forcing depositors to choose between a tax on their savings and pulling money out and spending it, well then the next logical thing to do is to stop accepting deposits, which is apparently what it’s come to in Sweden. Here’s more from Radio Sweeden:

    Richard Landén from Helsingborg, southwest Sweden, tried to open a simple savings account at Swedbank. But the bank wanted him to move over his entire account, including his monthly salary deposits and any savings he had.

     

    “You have to be an complete customer, they said. It’s either that or nothing at all, apparently,” Landén told Swedish Radio News.

     

    Swedbank declined to comment on the case.

     

    Sweden’s central bank has cut its key interest rate, the repo rate, to -0.35 percent, meaning making a profit on savings alone has become nearly impossible. The central bank will announce its next interest rate decision on Thursday.

     

    Exactly how many people have been denied opening a savings account is hard to say. But savings advisor Claes Hemberg at Avanza Bank thinks it’s a new trend. Several customers have been in touch with him about it

     

    “Yes, savers get in touch and ask: ‘Can the bank refuse me?'” he said.

     

     

    “I think it’s pretty bad style. At the same time, I have been a customer there before five years ago and has been very well treated. In this case, it was quite the contrary. It was a strange attitude from the beginning, I think,” says Landen.

     

    According to Swedish law, barring any extenuating circumstances like suspected money laundering or large debts, banks are not allowed to deny anyone from opening an account.

    But deny they apparently will, because “simple” (i.e. probably small) savings accounts are nothing but a cost center, money-losing hassle and because anyone looking to open such an account isn’t likely to be an individual with vast economic resources (i.e. is likely to be middle income at best), and because those types of people have a far higher propensity to spend what’s in their pocket (see chart below) shutting them out kills two birds with one humiliating denial stone by alleviating the bank of the aggravation of servicing their accounts and by refusing to allow people to save, thereby effectively forcing the issue in terms of M2 velocity.

     

    So in other words Mr. Landén from Helsingborg, either give the bank enough of your business to matter or else go do your patriotic duty and spend whatever you had planned to save. The Riksbank will thank you for it.

  • Heresy! China Won't Stick To IMF, World Bank Lending "Religion" With AIIB

    Back in April, China was flying high. The stock market had reached dizzying heights on the back of an unprecedented surge in margin debt, creating billions in paper profits for millions of farmers and housewives turned day traders. Around the same time, Beijing had accidentally pulled off a major diplomatic coup. The China-led Asian Infrastructure Investment bank had just wrapped up a wildly successful membership drive after a surprise decision by the UK to back the new venture opened the floodgates and emboldened other US allies who, despite Washington’s best efforts to convince them otherwise, decided to join up.

    The effort to recruit members was in fact so successful, that Beijing went out of its way to dispel the notion that the new bank represented an attempt on China’s part to usher in a new era of yuan hegemony and rewrite the rules of the post-War global economic order. 

    Despite the Politburo’s best efforts to toe the line between acknowledging the bank’s early success and unnerving Western members who, although happy to participate, are still acutely aware that a dying hegemon is still a hegemon and therefore would prefer it if Beijing didn’t rub the whole thing in Washington’s face, it was abundantly clear to everyone involved that the AIIB represented no less than a changing of the guard and a revolution against the US-dominated multilateral institutions that many emerging countries believe have failed to respond to seismic shifts in the global economy. 

    Unfortunately for China, the AIIB was forced to take a back seat in terms of media coverage to the country’s dramatic equity market meltdown and, subsequently, to the devaluation of the yuan which, you’re reminded, will play an outsized role in any financing extended by the new lender. But as the carnage in financial markets grabs the headlines, the AIIB is quietly making preparations to officially commence operations and as Reuters notes, China is set to “rewrite the unwritten rules of global development finance” by doing away with certain conditionalities required by Western multilateral lenders. Here’s Reuters with the story:

    The Asian Infrastructure Investment Bank (AIIB) will require projects to be legally transparent and protect social and environmental interests, but will not ask borrowers to privatize or deregulate businesses for loans, four sources with knowledge of the matter said.

     

    By not insisting on some free market economic policies recommended by the World Bank, the AIIB is likely to avoid criticism leveled against its rivals, who some say impose unreasonable demands on borrowers.

     

    It could also help Beijing stamp its mark on a bank regarded by some in the government as a political as much as an economic project, and reflects scepticism in China about the virtues of free market policies advocated in the West.

     

    “Privatization will not become a conditionality for loans,” said a source familiar with internal AIIB discussions, but who declined to be named because he is not authorized to speak publicly on the matter.

     

    “Deregulation is also not likely to be a condition,” he added. “The AIIB will follow the local conditions of each country. It will not force others to do this and do that from the outside.”

     

    A reduced focus on the free market could give the AIIB greater freedom to run projects, said a banker at a development bank who declined to be named.

     

    For example, development banks that finance a water treatment plant may require the price of treated water to be raised to recoup costs, even if local conditions are not conducive to higher prices.

     

    The AIIB, on the other hand, could avoid hiking prices and rely instead on other sources of financing, such as government subsidies, to defray costs, he said.

     

    A successful AIIB that sets itself apart from the World Bank would be a diplomatic triumph for China, which opposes a global financial order it says is dominated by the United States and under-represented by developing nations.

     

    Criticism of international development lending is not new, said Susan Engel, a professor at Australia’s University of Wollongong who has studied the impact on the World Bank of free market ideas often referred to as the Washington Consensus.

     

    “It’s a religion – this commitment to the involvement of the private sector even in sectors where, in fact, their involvement is shown to do harm,” Engel said of the U.S.-based lender.

    By not insisting on privatization for funds – which has recently manifested itself in the auctioning of Greek state assets in exchange for loans from Brussels and ultimately, from the IMF – the AIIB will give borrowers a choice, which will in turn allow them to select the financing option that they believe best fits their particular circumstances. This echoes comments made by Nomura’s Rich Koo in July. Recall: 

    Until now the IMF was the only choice for countries in need of financial assistance, which meant they had no choice but to accept the economic and fiscal reforms it demanded.

     

    But if the IMF has competition, countries in need of help will most likely shop around for the institution offering the easiest terms.

    While that choice may, as Koo goes on to note, lead some countries to “delay necessary reforms,” it may also allow everyone involved to avoid the type of mistakes that are inevitable when decisions are made unilaterally. That is, to the extent the IMF is fallible (and if they are anything, it’s fallible), the existence of an alternative could prove invaluable in a crisis scenario. We go briefly back to Koo:

    There is something to be said for the US argument that there should be only one refuge for economically troubled nations which takes responsibility for ensuring they carry out necessary reforms. However, that view is based on the underlying assumption that the US and the IMF will correctly diagnose the problems it encounters.

     

    In reality, the US and the IMF completely misread the Asian currency crisis that began in 1997, and their errors caused tremendous damage to crisis-struck countries in the region.

     

    The decision of many Asian countries to participate in the AIIB is probably due in part to a distrust of the US born during the currency crisis.

    And with that, we will conclude with the following question: How ironic will it be when the first loans China makes through the AIIB are to the very same Asian countries who supported the new lender because of their negative experience with US-led institutions during the last Asian Financial Crisis, but whose descent into a replay of that crisis is the direct result of China’s move to devlaue the yuan?

  • The QE End-Game Decision Tree: Not "If" But "When" Central Banks Lose Control

    Make no mistake, the writing has been on the wall for quite some time and we haven’t been shy about pointing it out.

    Central banks are losing control.

    Trillions upon trillions in post-crisis asset purchases haven’t given the global economy the defibrillator shock the world’s central planners were depending on to bring about a sustained and robust recovery.

    Indeed, the opposite appears to have materialized.

    Subdued demand and trade looks to have become structural and endemic rather than cyclical and rather than create “healthy inflation”, seven years of accommodative monetary policy has only served to bury the world in a global deflationary supply glut. And that’s just the big picture. The more granular we get, the more apparent it is that central banks are no longer in the driver’s seat.

    Inflation expectations across the eurozone have collapsed despite Mario Draghi’s best efforts to assure the public that PSPP has been an overwhelming success and similarly, inflation expectations have tumbled in the US ahead of a expected rate hike which looks less likely by the day. Meanwhile, in Sweden, the Riksbank has sucked so much high quality collateral from the system that QE has actually reversed itself, giving the world its first look at what happens when QE demonstrably fails. And let’s not forget Japan, where the world’s most hilariously absurd example of central bankers gone stark raving mad has done exactly nothing to pull the country out of the deflationary doldrums.

    And so here we stand, on the precipice of crisis with central banks having run out of both ammunition and credibility. In short, it’s time to ask if central banks have officially lost control. For the answer, and for the “QE end-game decision tree”, we go to BNP.

    Note that if CB’s do lose it, the likely scenario is: “deflation, vicious cycle… economic depression”.

    *  *  *

    From BNP

    Not “IF” but “WHEN central banks lose control?”

    The global financial repression pushed investors to invest cash in risky assets, such as property and equity. The scale of global policy interventions is trumping all fundamental factors for now. Investors should keep in mind that the road is never straight and next month should be full of potentially disruptive events impacting sharply overcrowded assets and trades. History shows that such misallocation of resources creates bubbles that can last before fully blowing; the question is not if, but when.

    Risk assets and risk parameters would be massively affected in the event central banks lose control; in the meantime, EDS Asia believes that central bank maturities that use forward guidance matter more than the QE process itself. The Fed and the ECB have been providing guidance which partly explains the low short-term volatility. The BoJ is moving toward this behaviour, managing the news flow: therefore there is a case for the NKY index going up slowly with a lower upfront volatility and a term structure closer to the US one: in that sense, we have started to observe an “SPX-isation of the NKY Index” in the past few months before this summer’s risk-off, as short dated volatility was trading lower. In China, the PBoC intervention learning curve is steep; this is the reason we believe the next equity leg up will be accompanied by an elevated volatility regime.

    The quantitative easing started in the US more than six years ago and the SPX index, as well as selective risky assets, are now hovering at the high end of their valuation histories. Recent price actions are testimony of the fragility of imbalances built over the years. Investors may recall the Japan easing experience in 2005 and 2006; an early exit, together with a global financial crisis, caused a Japanese equities meltdown (between mid-2007 and late-2008).

    In the decision tree, EDS Asia addresses the potential “QE end-game scenarios” [attempting to] answer the question “Are central banks losing control?” and providing a time horizon and probabilities affecting each path, which should allow investors to get a clearer overview. 

  • Martin Armstrong Warns: The #1 Terrorist Group Is You, Domestic Citizens

    Understand this now. As Jim Quinn explains, YOU are the enemy of the state. They don’t give a shit about you. They treat you as sheep and cows to be sheared and milked. If you start questioning them, they will slaughter you. They have militarized the police forces and put you under 24 hour surveillance because they fear an uprising. There only a few hundred thousand of them and there are millions of us. A conflict is looming.

    As Armstrong Economics' Martin Armstrong details, government talks about Islamic terrorists, but their number one fear is YOU.

     

    The internment camps are for you, not Islamic extremists. Government CANNOT honor its promises so it will not even try.

    They are confiscating money everywhere, doubling fines, and punishing people for insane things.

    A neighbor received a ticket and a $200 fine for using a cell phone while driving. The use? Looking at the Google Maps. She even went to court with her phone records to prove she was not on the phone. The judge declared that she should have looked at that BEFORE she left. I suppose if you write down the directions and look at the piece of paper that is OK, you just can’t look at it on your phone. That applies to even looking at the time on your phone.

     

    The government claims it wants to eliminate guns to protect society. The problem will be that the criminals do not buy their guns at a store. They want to disarm the public because you are their number one fear as outlined in this discussion paper.

  • China Explained (In 1 Image)

    Presented with no comment… (because we do not want to be “detained”)

     

     

    h/t @pdacosta

  • Presenting Never-Ending QE In One Easy Flowchart

    In case you haven’t noticed, the world’s central banks are locked in an epic race to the devaluation bottom in desperate pursuit of a post-crisis economic recovery that never came despite trillions in worldwide QE and on August 11, in the currency war equivalent of the United States entering World War II, China devalued the yuan, serving notice that, to quote Xi Jinping, “the lion has woken up.”

    China’s move has sent shockwaves through the emerging market world and caused the Fed to reconsider the timing of the ever elusive “liftoff” and now, with the sputtering engine of global growth and trade set to export its deflation across the globe, countries like India and South Korea must decide how to respond. 

    Because we know the mechanics of the currency war and the endless loop of competitive easing can be a bit confusing at times, we present the following simplified, circular flow chart from Morgan Stanley which should serve as a helpful guide to the never ending “beggar thy neighbor” loop. 

    From MS:

    At the beginning of the game, the global economy is at an arbitrary point of equilibrium, similar to a chess board, with the pieces representing policy tools that are used to achieve one’s goal—growth and inflation—the king. Once a central bank makes an initial move to achieve a new equilibrium, it sets in motion a sequence of moves from other central banks, which we refer to as the opening repertoire. Suddenly, the game becomes unbalanced and requires more policy changes until a new equilibrium is achieved.

  • Why The Federal Reserve Should Be Audited

    Submitted by John Crudele via NYPost.com,

    It is time for a comprehensive audit of Janet Yellen ’s Federal Reserve – and not just for the reasons presidential candidate Rand Paul and others have given.

    The Fed needs to be audited to see if its ruling body has broken the law by manipulating financial markets that are outside its jurisdiction. A thorough investigation of the Fed will show once and for all if its former chief Ben Bernanke and current Chairwoman Yellen should go to jail.

    I know, that’s a bold statement coming as it does on Sept. 1, 2015, with Wall Street still in half-bloom. But it won’t be so preposterous some day in the future if the stock market suffers a full-blown economy-busting collapse and Congress and everyone else are looking for scalps.

    The Fed should be audited as a brokerage firm would be — its financial holdings, its transactions, market orders, emails and phone calls. Special attention should be given to what is called the “trade blotter” at the Federal Reserve Bank of New York, which handles all market transactions for the Fed.

    The Fed’s dealing with foreign central banks — especially at times of market stress — should be given special attention. Trades in the wee hours of the morning should be in the spotlight.

    Not surprisingly, the Fed is strongly opposed to an audit and sees it as an intrusion into its autonomy. Washington shouldn’t be intimidated.

    Autonomy? Hah! That ended when the central bank started playing footsie with Wall Street.

    Let’s look at what happened to the stock market last week, and it’ll explain what I think those who audit the Fed need to look for.

    As you probably remember, stocks were headed for oblivion on Monday, Aug. 24. The Dow Jones industrial average was down 1,089 points early in the day before the index rallied for a close that was “only” 588 points lower.

    China’s problems. Weak US economic growth. Greece. The possibility of an interest-rate hike. Those and other issues were the root causes of last Monday’s woe.

    But Wall Street’s real problem is that there is a bubble in stock prices created by years of risky monetary policy by the Fed. Quantitative easing, or QE — the experiment in money printing that has kept interest rates super-low — hasn’t helped the economy (and even the Federal Reserve Bank of St. Louis concluded that). But QE did force savers into the stock market whether they wanted to take the risk or not.

    None of that is illegal.

    But the Fed now finds itself in the awkward position of having to protect the stock market bubble it created. So Yellen and her board of governors must have been pretty nervous when the Dow and other market indexes fell by an unprecedented amount on Aug. 24.

    Then, overnight, there was massive buying of Standard & Poor’s 500 Index futures contracts. This was the remedy proposed by a guy named Robert Heller back in 1989 just after he left the Fed board. The Fed, Heller proposed, should rig the stock market in times of collapse.

    Were those contracts being bought overnight by some Wall Street cowboy for whom potential losses in the disastrous market were of no concern? Or was it the Fed propping up the market?

    Stock prices initially reacted well to the mysterious overnight buying on Tuesday, and the Dow was up 442 points — until it wasn’t anymore. The blue-chip index finished Tuesday, Aug. 25, with a loss of more than 200 points.

    Then the same magical buying of S&P futures contracts happened Tuesday night and early Wednesday morning. Stocks again went up at the opening on Wednesday, but this time the gain held.

    Credit was given to William Dudley, the head of the NY Fed I mentioned above, who offered his soothing opinion that interest rates probably wouldn’t be raised by the Fed at its September meeting.

    “Once again, the Federal Reserve helped save the day for investors,” the New York Times wrote in a front-page article that cited Dudley’s speech.

    But that wasn’t true — not unless Dudley’s speech leaked ahead of time. Stocks were up before Dudley’s talk and actually fell when he began speaking. That was probably due to the fact that Dudley pooh-poohed the idea of another dose of QE.

    Wall Street got lucky the rest of the week ahead of this past weekend’s St. Louis Fed annual conference in Jackson Hole, Wyo. Plus, the month of August was coming to an end — usually a time when traders pretty up their books.

    Money managers don’t want stocks to go down right before their performance is locked in and reported to clients.

    The Fed has certain mandated responsibilities. It is supposed to keep inflation within a certain range. It is also charged with protecting the US dollar. Plus — and this is a modern-day responsibility — the Fed is supposed to help the economy and keep unemployment low.

    Even if you agree with Heller that the market sometimes needs help, there is an enormous risk in doing this too often.

    First, traders come to think that there is no risk in the stock market — a belief that has been proven wrong time and again.

     

    Second, investors have no way of telling what the real value of stocks is.

     

    And third, certain well-placed people on Wall Street will always know what the Fed is doing and benefit from it. And when the financial elite benefit, regular folks suffer.

    It’s time to find out what the Fed has been up to. In this case, ignorance isn’t bliss — it’s costly.

  • Sep 3 – Obama Secures Iran Nuclear Deal With Barbara Mikulski Vote

    Follow The Market Madness with Voice and Text on FinancialJuice

    EMOTION MOVING MARKETS NOW: 10/100 EXTREME FEAR

    PREVIOUS CLOSE: 9/100 EXTREME FEAR

    ONE WEEK AGO: 5/100 EXTREME FEAR

    ONE MONTH AGO: 22/100 EXTREME FEAR

    ONE YEAR AGO: 42/100 FEAR

    Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 25.22% 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:  NEUTRAL The CBOE Volatility Index (VIX) is at 26.09. This is a neutral reading and indicates that market risks appear low.

    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 – DUBAI GOLD DEALER OLYMPICS

     

    UNUSUAL ACTIVITY

    MU SEP 20 CALL ACTIVITY @$.11 on OFFER 2400+ Contracts

    FAST SEP 38 PUT ACTIVITY ON OFFER @$.70 2500+ Contracts

    TWTR DEC 50 CALLS 1500+ @$.15 .. also activity in the DEC 40 calls

    APLE EVP, Chief Legal Counsel P    5,592  A  $ 17.88

    MTZ 10% Owner Purchase 10,000 A $15.98 and Purchase 5,000 A $15.63

    More Unusual Activity…

     

    HEADLINES

     

    Fed’s Beige Book: Economic activity continues to expand modestly

    US ADP Employment Change Aug: 190K (est 200K; rev. 177K, prev 185K)

    Gross Says Fed Move May Be Too Little Too Late Amid Turmoil

    EU’s Moscovici calls for comprehensive debate in Eurozone reform

    Greece to miss 2015 privatisation sales target: agency chief

    Obama secures Iran nuclear deal with Barbara Mikulski vote

    DOE US Crude Oil Inventories (WoW) Aug-28: 4667K (est 900K; prev -5452K)

    Baxalta Said to Abandon Takeover Talks With Drugmaker Ariad

    Spielberg’s DreamWorks to split from Disney

     

    GOVERNMENTS/CENTRAL BANKS

    Fed’s Beige Book: Economic activity continues to expand modestly –Fed

    Gross Says Fed Move May Be Too Little Too Late Amid Turmoil –BBG

    EU’s Moscovici calls for comprehensive debate in Eurozone reform –Welt [Transalted]

    Greece to miss 2015 privatisation sales target: agency chief –Rtrs

    Merkel Ally Spahn Sees IMF Joining Greek Bailout, Lauds Tsipras –eKathimerini

    IMF Hopes For Orderly Transition For China To Internationalize Yuan –Rtrs

    China regulator says punishes three stock trading platforms –Rtrs

    China futures exchange further tightens rules on stock index futures trading –Rtrs

    Polish Central Bank Base Rate Left Unchanged At 1.50%, As Expected –Nasdaq

    GEOPOLITICS

    Obama secures Iran nuclear deal with Barbara Mikulski vote –CNN

    Russian Northern Fleet to practise nuclear-powered submarine rescue in Barents Sea –TASS

    China and South Korea agree to seek a 3-way summit with Japan in Oct. or Nov. –BBG

    FIXED INCOME

    Bond yields higher after Fed’s Beige Book –CNBC

    US bond yields head higher as jobs data looms –FT

    Sudden Dry Spell for Bond Sales –WSJ

    European banks fight back in fixed income –FT

    FX

    Dollar gains strength while EM currencies tumble heavily –FT

    Euro Falls Before ECB Policy Meeting –BBG

    USD/JPY Meanders in Shallow Range Around 120.00 –WBP

    Ruble Falls Second Day as Citigroup Sees Further Weakness on Oil –BBG

    China’s yuan slips on pre-holiday dollar demand despite intervention –Rtrs

    ENERGY/COMMODITIES

    WTI settles up 1.85%, at $46.25 a barrel –CNBC

    Gold eases after 4-day gain, awaiting signal on U.S. rates –Rtrs

    Copper rebounds as Chinese stock market pares losses –Rtrs

    DOE US Crude Oil Inventory Change (WoW) Aug-28: 4667K (est 900K; prev -5452K)

    DOE US Distillate Inventory Change (WoW) Aug-28: 115K (est 1000K; prev 1436K)

    DOE Cushing OK Crude Inventory Change (WoW) Aug-28: -388K (est 400K; prev 256K)

    OPEC oil output in Aug falls from record on Iraq disruption –Rtrs survey

    Shell Nigeria lifts force majeure on Bonny Light Crude –Rtrs

    Gold demand from China and India picks up –FT

    El Nino expected to take toll on sugar and rice prices –FT

    EQUITIES

    Wall St up 1 pct as China fears ease –Rtrs

    European stocks stage modest pre-ECB rebound –FT

    FTSE closes positive, follows Wall Street gains –RTRS

    Baxalta Said to Abandon Takeover Talks With Drugmaker Ariad –BBG

    Spielberg’s DreamWorks to split from Disney –Hollywood Reporter

    Citi Joins Bid For GBP 13bln Taxpayer Bank Assets –Sky News

    Tesco Prefers Buyout Firm MBK’s Bid For South Korea Unit –Rtrs

    Online Gambling Firm GVC ‘Not Prepared To Walk Away’ From Bwin –Rtrs

    Rebekah Brooks to return to News UK as CEO –MktWatch

    EU regulators clear Shell purchase of BG Group –RTRS

    Vivendi Earnings Rise, Boosted By Sale of Brazilian Unit –WSJ

    Fitch Downgrades E.ON to ‘BBB+’, Stable Outlook

    EMERGING MARKETS

    South Africa Doesn’t Warrant Negative Outlook, Moody’s Says –BBG

    China Futures Exchange: To Further Tighten Rules On Stock Index Futures Trading –Rtrs

     

    Puerto Rico Electric Says Agreement Reached With Bondholders –BBG

  • Central Banks Nervous As Alternative Currency With David Bowie's Face Goes Viral

    Submitted by John Vibes via TheAntiMedia.org,

    One of the best ways for the general public to take power back is to develop alternative currencies — both local and global — that allow people to trade outside of the corporate-government banking systems and central bank notes.

    Many people in different areas of the world have been moderately successful at implementing local currencies, such as Mountain Hours or Ithaca Hours, which have gained traction in the U.S.

    In London, an interesting alternative currency bearing the face of pop singer David Bowie has recently come into circulation. According to Market Watch, the local currency is specialized for the Brixton community in southwest London. It is officially called the “Brixton Pound.”

     

    Tom Shakhli, manager of the Brixton Pound effort, said:

    “They are using it because they want to feel connected to the local area. Every time you use it, you’re like a financial activist. You’re taking part in this act which is subverting the norm, which is to hand over your £10 note very passively.”

    Shakhli pointed out that the project is intended to make a statement about the foundation of money, as well as provide an alternative to the current monopoly.

    Shakhli said that his main goal with the project is to ask:

    “What is money? Does it have to be either printed by the state or created by the banks? Why can’t money be localized? Why can’t money feature a pop star or a black historian? Does it have to feature establishment figures?”

    So far, there are currently 200 local businesses that have signed up to participate in the Brixton Pound program.

    The increasingly popular Brixton Pound is making central banks nervous — and rightly so. Following the success of the Brixton Pound, new alternative local currencies are now popping up all over the U.K. The Oxford Pound, Kingston Pound, and Palace Pound are just a few of the currencies that have been recently introduced. The Bank of England has been forced to respond to these local currencies because of their popularity, deeming them “voucher schemes” and warning the public that they are unprotected when using them.

    A document released by the Bank of England claims that:

    “Local currency schemes lead to significant and unanticipated impacts on aggregate economic activity.”

    According to the document, the Bank of England will also attempt to delegitimize local currencies by

    “Design[ing] features and marketing material [to] help users recognise that local currency paper instruments are like vouchers and not banknotes.”

    *  *  *

    For the economy to really be in the hands of the people, it is necessary to decentralize the currency and to have an open-source network of competing currencies that are community based and easily exchangeable. While it is impossible to predict how we will trade a century or even five years from now, we can still observe how people are innovating within their own areas and take those lessons into account for when state and bank issued currencies finally diminish in value to the point where they are unusable.

  • Second Largest US Pension Fund To Sell 12% Of Stocks Holdings In Advance Of "Another Downturn"

    While many continue to debate if what with every passing day increasingly looks like a global recession, one from which the US will not decouple no matter how many “virtual portfolio” asset managers claim the contrary, there are those who without much fanfare are already taking proactive steps to avoid the kind of fallout that the markets have hinted in the past month of trading, is inevitable. Some such as Calstrs: the nation’s second largest pension fund with $191 billion in assets (smaller only than Calpers), which as the WSJ reports is “considering a significant shift away from some stocks and bonds amid turbulent markets world-wide.”

    The move represents “one of the most aggressive moves yet by a major retirement system to protect itself against another downturn.” A downturn which the pension fund implicitly suggests, is now inevitable.

    According to the WSJ, the top investment officers of the California State Teachers’ Retirement System will move as much as $20 billion, or 12% of the fund’s portfolio, into “U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund.”

    Actually considering the relative underperformace of hedge funds, which have largely underperformed the market both during the upcycle, and have fared no better during the volatility of the past month, Calstrs may want to just buy whatever Treasurys China has to sell. Which, incidentally, also answers a suddenly very pertinent question: if China is selling US paper, who will buy it? Well, pension funds for one – the same entities who have had an abnormally heavy allocation to stocks in recent years, and now are seeking to cash out. Which while favorable for bond yields, is hardly good news for stocks – because in this illiquid market, and painfully thin tape, just who will buy the tens of billions of stocks that pension funds will decide to sell.

    And it will certainly be more than just Calstrs: once one fund announces such a dramatic shift in strategy, most tend to follow.

    So when will the Calstrs reallocation take place? According to WSJ,” the board is expected to discuss the proposal at a meeting later today in West Sacramento, Calif. A final decision won’t be made until November.  The new tactic—called “Risk-Mitigating Strategies” in Calstrs documents posted on its website—was under discussion for several months as the fund prepared for a scheduled three-year review of how it invests assets for nearly 880,000 active and retired school employees. But the recent volatility around the world has provided a fresh reminder of how exposed Calstrs’ investments are when markets swoon.”

    Furthermore, as the WSJ points out, the question is now that the market appears to have topped out (at least until the next QE), what will be the proper distribution between stocks and bonds in a typical pension fund portfolio.

    Pension funds across the U.S. are wrestling with how much risk to take as they look to fulfill mounting obligations to retirees, and the fortunes of most are still heavily linked with the ebbs and flows of the global markets despite efforts to diversify their investments. State pension plans have nearly three-quarters, or 72%, of their holdings in stocks and bonds, according to Wilshire Consulting.

    That number is certain to decline in the coming months.

    What is also notable is that while Calstrs’ is at least considering investing in hedge funds, its cousin, the California Public Employees’ Retirement System, decided last year to exit all hedge-fund investments. Other pensions seeking to become more conservative have beefed up stakes in bonds or international stocks. “Calstrs Chief Investment Officer Christopher Ailman said in an interview he hopes the potential shift could help stub out heavy losses during gyrations because the investments don’t generally track as closely with market swings.”

    Actually they do: if the past few years have shown anything, it is that not only do “hedge” funds not hedge, in broad terms, they are merely highly levered beta chasers, who will gate their LPs at the first sign of abnormal market turbulence. Which is why we wouldn’t be surprised if Calstrs ends up reallocating entirely in plain vanilla Treasurys.

    As for the punchline, as usual it is saved for last: “Calstrs has not made any major moves in recent weeks amid the turmoil in China and the U.S. markets. Mr. Ailman said he knew there would be turbulence after Asian markets tumbled last month, but he said Calstrs chose to stay put because it views itself as a long-term investor and because its largess means it has limited countermoves when stock prices fall.”

    Ah, “a long-term investor” – the legendary words every asset managers uses when they have a position that is so underwater, they have no choice but to hold on. Who can possibly forget Norway’s sovereign wealth fund which was investing in Greek bonds for “infinity“…

    * * *

    And while a US pension fund is at least doing the prudent thing, and preparing to rotate out of the riskiest asset just as the market tops out, here comes Japan where things traditionally are upside down, and where we read that with the largest pension fund in the world, the GPIF, having maxed out its allocation “dry powder”, another massive pension funds is set to start selling bonds to buy stocks, even as the Nikkei continues to flirt with decade highs. Bloomberg reports:

    As the world’s biggest pension fund nears the end of its switch from sovereign bonds into stocks, investors are looking at Japan Post Bank Co. as the next actor big enough to move markets.

     

    The postal lender, the biggest holder of Japanese government bonds after the central bank, sold 5.1 trillion yen ($42 billion) in JGBs in the three months ended June, after offloading a record amount of the debt last fiscal year. The $1.2 trillion Government Pension Investment Fund, known as the whale, said last week stock and fixed-income holdings were all within 3 percentage points of their targets, suggesting it has almost completed a planned shift into riskier assets including global bonds and shares.

     

    The Bank of Japan needs to find about 45 trillion yen in JGBs from the market to meet its annual goal for boosting money supply to stimulate the economy. Japan Post Bank, with 49.2 percent of its 206.5 trillion yen held in domestic debt, fits the profile and needs to seek higher profits ahead of a possible public share sale this year.

     

    The postal bank said in April it plans to increase investments in assets aside from JGBs, such as foreign securities and corporate bonds, by 30 percent to 60 trillion yen in the fiscal year ending March 2018.

     

    Like GPIF, Japan Post Bank has been reducing its dependency on domestic government bonds. The bank owned 101.6 trillion yen in sovereign debt at the end of June, with the ratio falling below 50 percent of holdings for the first time. Unlike GPIF, however, Japan Post Bank hasn’t been increasing domestic stocks. It held just 900 million yen of local equities at the end of the first quarter, unchanged from March.

    It will be soon. So good luck Japanese pensioners: nothing screams fiduciary responsibility quite like your asset manager dumping a safe, government backed asset (even if there are 1.1 quadrillion of them) and buying a risky one which is trading at the highest price and valuation since the dot com bubble.

    Then again, with Japan’s demographic crisis where more adult than infant diapers are sold every year, a little proactive culling of the top-heavy pyramid – courtesy of a few million “so sorry, all your pension funds have vaporized” letter – may be just what the deranged Keynesian doctor ordered.

  • eVIXeration & Gartman Send Stocks Soaring "Back To Normal"

    This seemed appropriate after last night's BOJ and PBOC efforts and today's oil idiocy…

    And then this utter farce…a 1% surge in the S&P and 4 point crash in VIX in the last 30 minutes!!

     

    The VIX front-end term-structure "normalizes" out of backwardation – but back-end remains stressed…

     

    As this was the longest period of backwardation since 2011's plunge

     

    On NO VOLUME!

     

    So let's start with stocks – which CNBC reflected on as "back to normal" with today's 275 point rally in The Dow

    Thank you very much-o, Mr. Kuroda… As the media began their pre-open jawboning this morning they had the backdrop of a triple-digit gain in The Dow to support any and every bullish – everything's fine – mantra – all thanks to a 120 point rip the moment Japan opened… Until the l;ast 30 minute spanic buying onmthe back of VIX clubbing, stocks went nowhere…

     

    But of course, no one cares – its tonight's news headlines that count – and Trannies are up 2% as

     

    But on the week, it all remains red…

     

    Which dragged Nasdaq barely into the green year-to-date!

     

    Do not get too excited…

     

    VIX dropped 15% today – its biggest drop in almost 2 months

     

     

    We note VIX was crushed around the market break mid-afternoon and VXX was presured to the lows of the day (first non-short-squeeze in a few days…)

     

    After Europe closed, HY bonds were not loving it…

     

    Bonds were battered again during the US session leaving 30Y 6bps higher on the week (even as stocks remain well red)…

     

    but we note the collapse on 2Y swap spreads (and 5Y) continues…

     

    The US Dollar drifted higher on the day but remains lower on the week – notably quiet day in FX markets (especially JPY anchored at 120)…

     

    Gold was modestkly weaker but silver jumped. Crude and Copper were joined at the hip in this morning's melt-up…

     

    Silver was an illiquid mess….

     

    So let's just have a look at the day in Crude!!! (just like yesterday we ripped into the NYMEX close then faded)…

     

    With China closed for the rest of Parade Week, we wonder what market gets monkeyhammered tonight? (Don't forget FTSE A50 Futures trade in Signapore 😉

    Charts: Bloomberg

  • Is It A Correction Or A Bear Market?

    Submitted by John Murphy,

    What Difference Does It Make?

    There's a debate in professional circles as to whether the stock market is in a correction or a bear market. It makes a difference. Let's define what they are. A stock market "correction" is a drop of more than 10%. Most corrections average about -15%. A bear market is a drop of 20% or more. Bear market losses have averaged -30%, and last longer than corrections. The last two bear markets between 2000 and 2002 and 2007 to 2009 lost -50%. Those losses were much bigger than most bear markets. Those precise definitions can lead to problems however. The price bars in Chart 1 show the S&P 500 losing -21% during 2011 from May to the start of October. That qualified as a bear market.

     Closing prices, however, lost -19% which signaled a correction. I recall a debate at the time as to whether or not that qualified as a bear market. As it turned out, 2011 was only a correction. Moving averages "death crosses" often signal a bear market, but not always. Chart 2 shows the (blue) 50-day average falling below the red 200-day average during 2010 and 2011 for the SPX. [50 and 200day EMAs also turned negative both years].

    The SPX lost -17% in 2010 before turning back up. That was also a correction. Bear markets don't always last a long time either. Bear markets in 1987, 1990, and 1998 lasted only three months, and bottomed during October. 

    A LONGER-RANGE LOOK AT THE S&P 500…

    The monthly bars in Chart 3 show the last two bear markets in the S&P 500 starting in 2000 and 2007 which lost -50% and 57% respectively; and the SPX reaching a new record in spring 2013 which ended the "lost decade" of stocks that started in 2000. The horizontal line drawn over the 2000/2007 peaks should act a solid floor beneath the price bars. A drop to that flat line would represent a drop of 26% which would qualify as a bear market. But that would still leave the SPX in a secular uptrend.

    The rising trendline drawn under the 2009/2011 lows shows potential support near 1700. A retest of that support line would represent an SPX lost of 20% which qualifies as a bear market. Chartwise, however, an SPX drop into bear market territory (-20% to 26%) would still be within its long-term uptrend. So it might not matter that much after all whether we're in a "correction" or "bear market" as long as the secular uptrend remains intact.

    S&P 500 RUNS INTO SELLING…

    Last week, I used Fibonacci retracement lines over the Dow Industrials to identify levels where more selling was likely. Chart 4 applies those (red) lines to the S&P 500 measured from its July high to its August low.

    The SPX has already run into selling near 2000 which was a 50% bounce. It has lost ground since then, but remains above last week's climactic low. The SPX will probably "back and fill" for a month or two in an attempt to repair recent technical damage. That would take us into October which has marked the bottom of most previous corrections. In the meantime, a retest of the August low wouldn't be surprising. That would be an important test. As long as last October's low remains intact, I will continue to lead toward the "correction" camp. But there are enough negative warnings to justify a very cautious stance.

  • #WhiteLiesMatter

    Lies, Damn Lies, and Political speech… It appears little white lies matter.. and so do blatant black ones…

     

     

    Source: Townhall

  • With China's Markets Closed For 2 Days, The "National Team" Comes To America

    Following China’s adoption of Nasdaq surveillance technology (to catch those malicious sellers), it appears ‘Murica decided to borrow The National Team for the last 30 minutes of the day today.

    We need stock higher, so dump VIX, ramp AAPL, and all is well.

     

    As AAPL vol was crushed: a 5 vol crash in the last 30 minutes!

     

    … all to get The Nasdaq Green for 2015:

     

    Open, daily manipulation – it’s not only for the Chinese.

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