Monday, November 30, 2015

Three dominant themes...

...of this blog during the previous five years have been:

1.  The Chinese Crazy Crony Capitalism Corruption Crisis ("CCCCCC"™,®)

2.  The EU experiment, lacking in real amphictyonic cohesion, doing its best to proxy the CCCCCC in creating a new elite class of largely unaccountable and disinterested technocrats with entirely predictable results.

3.  Rate Compression and deflation throughout the Western World.

All of these themes are now fully assimilated.  They are "known".  History will write itself over the next two years.

On to the next project.  Courage, and shuffle the cards dear readers.

Wednesday, October 07, 2015

When accountability is vacant...

...corruption takes a seat.  No-one should be "shocked and deeply troubled" by this.

Friday, September 25, 2015

Still in the tunnel...

...of volatility.  I don't expect an exit until the holidays, one way or another.

Tuesday, September 08, 2015

Cnidarian Bleaching...

...occurs during the sudden collapse of symbiosis between corals and the polyps that reside in them.  This may be caused by many factors and scientists appear to be unable to consistently predict which causal factor determines the final outcome.

There are many factors contributing to the collapse of symbiosis between the U.S. and China, a significant one being the importation by China of U.S. fiat currency policy without associated oversight and built-in safeguards and failsafe mechanisms not implemented but evolved from experience with the shortcomings and dangers of the policy.

A major liquidity crisis is underway and the paper dragon is not equipped to counter its effects...and will find few friends given its myriad other objectionable political positions.

I note also China has announced it "intends" to cut its military personnel by 300k.  This announcement was made at a military parade.


Volatility... recursive.  That is, volatility generally begets more volatility until some form of dark equilibrium is met.  This current sell off is not over.

Some very strange activity from several levered volatility ETFs have captured my attention recently...and they do not portend well for the next following few weeks, today's rally notwithstanding.

Wednesday, August 12, 2015


...over bullet wounds.

China's devaluation does not address any of its core problems and will only exacerbate financial imbalances.  It merely serves as a signal to party members (and their families) that the party will go on a bit longer.

Do not be shocked if Bermuda and the Caymans suddenly benefit from massive custodial fund balances.

Sunday, July 26, 2015

The plot thickens...

"A secret cell at the Greek finance ministry hacked into the government computers and drew up elaborate plans for a system of parallel payments that could be switched from euros to the drachma at the "flick of a button" .
The revelations have caused a political storm in Greece and confirm just how close the country came to drastic measures before premier Alexis Tsipras gave in to demands from Europe's creditor powers, acknowledging that his own cabinet would not support such a dangerous confrontation."

Sunday, July 05, 2015

The Euro experiment.

This blog has certainly been critical of the euro experiment.  Now with events transpiring that will test the structure of the system, will the inner core countries blink?

I believe Europe is becoming bored with the project.

Recall this story...

...from last month...

June 14, 2015 6:02 am
China's hedge fund industry blooms as stocks boom

More than 4,000 new Chinese hedge and private equity funds have
launched in the last three months, fuelling a mass exodus from
traditional investment houses, as ambitious fund managers seek to
profit from the country's booming stock market.

The number of private investment funds — including securities, private
equity, and venture capital — totalled 12,285 by the end of May, up
from 7,989 three months earlier, figures from China's securities
regulator show. Assets under management increased by $75bn to $433bn.

Feng Gang, chairman of hedge fund WinSure Capital, said the government
is encouraging entrepreneurship in finance. He launched his fund in
January after 14 years at Chinese mutual fund companies, most recently
China International Fund Management, a joint venture with JPMorgan

"In the past 14 years I've never seen regulators so encouraging of
innovation. In the investment industry, we're taking the lead."

Last February, the government switched to a streamlined registration
procedure for private equity and hedge funds, abandoning the more
onerous approval process.

Employees at hedge and private equity funds have risen by over 60,000
in three months, topping 199,000 by the end of May.

Monday, June 29, 2015

Signs of the punch bowl...

...getting empty.

China’s main stock index is in freefall after enjoying a bull run that saw the Shanghai Composite gain 106pc in the past year on a wave of exuberance among investors lured by valuations, talk of initial public offerings and the expectation that Beijing will eventually launch a massive fiscal stimulus programme to boost the economy.
On Friday, the blue-chip CSI 300 index plummeted 7.8pc, while the smaller Shenzhen Composite declined by the same margin to post its lowest close since May. In the past two weeks around $1.2 trillion (£600bn) has been wiped off the value of Chinese listed companies since the market reached its peak on June 12.

Tuesday, May 05, 2015

Leverage works...

...on both sides of the ledger.

Another one for the "what could possibly go wrong" file.  U.S. margin debt at galactic levels as well.

SHANGHAI, May 5 (Reuters) - China stocks slumped early on Tuesday, as media reports of tougher margin requirements by some brokerages added to concerns about market liquidity ahead of a new batch of share listings.
Several Chinese brokerages, including CITIC Securities Co Ltd, Haitong Securities Co Ltd and Huatai Securities Co Ltd have tightened requirements for margin financing this month in a bid to control risks, the Shanghai Securities News reported on Tuesday.
The move could curb money inflows in a highly-leveraged stock market rally. The outstanding value of margin financing - the amount of money investors have borrowed to buy stocks - has exceeded 1.8 trillion yuan ($290 billion) and repeatedly smashed records in recent sessions.

Thursday, April 23, 2015

A small reminder...

of what totalitarian rule decays into.  The border mark delineates North Korea, in all its spendor.

The great rate compression...

...continues its march, just in time to be completely misunderstood by some of the more mainstream economists. Note the conspicuous absence of Central Bank QE activities in this article.  Also note the misapplication of traditional financing terms to Sovereign Currency Issuers.

The answer... the question of "Why does China not spend more of a portion of GDP on defense?" has always been "why would we give Billions to generals who may be in the unenviable positon of preventing revolution...and expecting them to simply return to the status quo.

Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four -- Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. -- raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.
China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.
“It was an unintended consequence of the Chinese government that property developers are selling equity and debt to offshore investors,” said Ben Sy, a Hong Kong-based managing director in JPMorgan Chase & Co.’s private banking division. “There happened to be huge demand from international investors in the past few years driven by the intense search for yield.”

Monday, April 20, 2015

This relationship...

...clearly has several levels of trust throughout the decades.  Forget the pollyanic notions of global unity or similar theories of peace based on commercial ties or the like.  It all reduces to military capability...and the more U.S. military assets one purchases, the more likely continued "support" is forthcoming.

WASHINGTON — To wage war in Yemen, Saudi Arabia is using F-15 fighter jets bought fromBoeing. Pilots from the United Arab Emirates are flying Lockheed Martin’s F-16 to bomb both Yemen and Syria. Soon, the Emirates are expected to complete a deal with General Atomics for a fleet of Predator drones to run spying missions in their neighborhood.
As the Middle East descends into proxy wars, sectarian conflicts and battles against terrorist networks, countries in the region that have stockpiled American military hardware are now actually using it and wanting more. The result is a boom for American defense contractors looking for foreign business in an era of shrinking Pentagon budgets — but also the prospect of a dangerous new arms race in a region where the map of alliances has been sharply redrawn.

Thursday, April 16, 2015

Here we go...

A small but noticeable attempt at new country formation.  Given the geological limitations and difficulties, micro-countries seem very attractive.

In accordance with international law, a group of Czech citizens, gathered in a Preparatory Committee, decided to declare a new state, Free Republic of Liberland, in the territory defined by the coordinates below.

Its total area of about 6 square kilometres makes Liberland the third smallest sovereign state, after the Vatican and Monaco. Liberland is located along the Danube River between Croatia and the Republic of Serbia. The territory is not claimed by either of these two states. It was a no man's land - terra nullius – as defined by international conventions.

Wednesday, April 08, 2015

Dudley understands...

...that wage pressure is "the game".  And here is where the causality chicken and egg game begins and why Fed watching is an infuriating avocation.  Do anticipated Fed actions cause market fluctuations (yes), or is the opposite more true?

But, he added, the U.S. central bank will need to "determine whether the softness in the March labor market report ... foreshadows a more substantial slowing in the labor market than I currently anticipate."

The job market had been a lone bright spot in the world's largest economy. But it has ebbed and then slowed sharply last month, reinforcing the notion the Fed would delay an initial rate hike until later in 2015 or even 2016.

Tuesday, April 07, 2015


Recall that the entire world was predicting a massive rise in U.S. rates coupled with every economist's preferred bogeyman: INFLATION!

The opportunity set for massively scalable businesses is closing.  We have not seen "any" pressure on labor rates in the previous seven years...and yet the Fed has sent trial balloons indicating a possible rate hike.

It appears the markets are put it mildly.

Still the only... in town...

The trend is likely to continue as oil prices stay low and growth in emerging markets remains weak, reducing the dollar inflows that central banks used to build reserves, according to Deutsche Bank AG.     Such a development is detrimental to the euro, which had benefited from purchases in recent years by central banks seeking to diversify their reserves, according to George Saravelos, co-head of foreign-exchange research at Deutsche Bank.     The euro’s share of global reserves dropped to 22 percent in 2014, the lowest since 2002, while the dollar’s rose to a five-year high of 63 percent, the International Monetary Fund reported March 31.     “The Middle East and China stand out as two regions that are likely to face ongoing pressures to run down reserves over the next few years,” Saravelos wrote in a note. The central banks there “need to sell euros,” he said.     The euro has declined against 29 of 31 major currencies this year as the European Central Bank stepped up monetary stimulus to avert deflation. The currency tumbled to a 12-year low of $1.0458 on March 16, before rebounding to $1.0990...

Wednesday, April 01, 2015

Very interesting...

...timing on both the agreement and the announcement of the project.

The growing economic alliance between Israel and China is moving forward with a $2 billion, 300 kilometer freight rail link connecting Eilat, on the Red Sea, with Ashdod Port, on the Mediterranean, Germany’s Deutsche Wellenews magazine reported on Monday.
The project, nicknamed the ‘Red-Med,’ was greenlit by Israel Prime Minister Benjamin Netanyahu’s cabinet, and construction, which is expected to take five years, will begin within the year.
About the link, Netanyahu said, “It’s the first time we’d be able to assist the countries in Europe and Asia to make sure they always have an open connection between Europe and Asia and between Asia and Europe.” For Netanyahu, the rail link also has a civilian use, doubling as a line for a two-hour passenger ride between Tel Aviv and Eilat, DW said.

Monday, March 30, 2015

Letter to friends...

...I wrote this short note to some friends as we were waxing philosophically about the future of the world and this republic.

The power accumulated in the past 2 decades by our G has caused some sort of shift away from justifications of Rule based on the Scotch and English (Locke, Burke, Hobbes) philosophers who informed our Constitution.  Namely, that the State is some temporary Lessee of power with the people as Lessor, with the lease itself subject to immediate revocation.

So its fascinating to me that the SCOTUS, comments by our Congress, POTUS, etc. have gravitated towards framing the G as permanent "protector" with its power deriving from a modern version of the Divine Right of Kings (the modern version being rooted in location and surveillance technology)...a much more Germanic perception of sovereignity in that the people are presumed subordinate.

And of course, I have to remind myself that the notion of competition between Nation States is a temporary shuffling of the cards.

Empires are about to make a comeback here.  Perhaps they already have.

Tuesday, March 17, 2015

If at first you don't succeed...

...try, try, try, try, try, try, try, try, try and try some more...again.

Governor Haruhiko Kuroda said he couldn’t rule out the risk of consumer prices falling in Japan after the central bank on Tuesday maintained record monetary stimulus.

The BOJ kept a pledge to expand the monetary base at an annual pace of 80 trillion yen ($660 billion

The good news.

The Recapitulator (despite some crass attempts to appropirate my blog by certain spiritually based entities) is an unaplogetic classic liberal steeped in the history of individual rights contrasted to the powers ceded to central governmental authority.

Thus, it is with great satisfaction that the manly arts remain a source of curiosity, expertise, and fulfullment to another generation of men and women who believe that action is the corrollary of a useful mind.

Monday, March 16, 2015

Worth watching.

I have criticized the NCAA on previous occassions as it clear there is a cartel and/or monoploy on Football and Bastketball players which leads to absurd results perverse incentives.

This video from popular (and funny!) social critic Mr. John Oliver is worth watching as it explores most of the issues in an entertaining (if albeit profane) way.

The lack of a market for obviously valuable services has created one of the most rediculous web of regulations regarding social interactions in the history of man.  The NCAA handbook on player behavior with respect to gifts, money, favors, etc. is nearly 500 pages long.

And as a student of propaganda, I especially enjoyed NCAA President Mark Emmert's assumption of his own conclusion with this gem:

"Converting a student to a paid employee is something entirely antithetical to the whole principle of intercollegiate completely changes the entire notion of what college sports is about."

Note especially that this simply assumes away the value argument of the players services by referencing this silly notion of the virtue of amateurism, when the most cursory examination of the control exhibited by the Universities and their agents over the players demonstrates otherwise.

What a wonderful example of how far afield fairness and decency can derail once the accountability of the market is taken away.

The One Ring.

The article implies that U.S. financing is dependent on foreign purchases of U.S. debt, which we know is a misconception.  However, this is not all about yields.  The global utopia of ONE fungible currency is not feasible...the Dollar is the global unit of price.  And, despite all the silly alarmist notions to the contrary ("the dollar could lose 90% of its value overnight, inflation!  Doom! Eschatology!  Buy Gold!) remains the One Ring that guides the global economy.

One of the recurrent themes of this blog is reminding the reader that displays and demonstration of power supercede accumulations of accounting units.  The value of the dollar is derived from the United State's absolute monopoly on security services for the world.  No other nation comes close to providing these services.  No other nation that spends a significant portion of its GDP on weapons has as peaceful a domestic population.

It is remarkable that some Economists still fear weaker nations can "bankrupt" the U.S. by selling Treasuries in some catastrophe scenario that would remove the variable of global security from their analysis.

Japan has since built a stake of $1.23 trillion, making it America’s second-largest overseas creditor, just behind China’s $1.24 trillion.
For the U.S. government, maintaining Japanese demand in the $12.6 trillion market for Treasuries is more important than ever, particularly after China pared its own holdings last year by the most on record and as the Fed prepares to raise rates.
The good news is that Japanese purchases are poised to accelerate. Of the $500 billion that investors will pull from Japan’s debt market to put abroad through 2017, about 60 percent will flow into Treasuries, said Andre de Silva, HSBC’s Hong Kong-based head of global emerging-markets rates research.
Much of the allure has to do with the U.S. tightening monetary policy at a time when more than a dozen nations around the world are cutting rates or increasing stimulus to boost growth. The European Central Bank this month followed Japan in buying government bonds to pump money into its economy.

The balance sheet...

...of the world on display in the news.  Arms deals are always and everwhere a political statement.  In this case the Middle Kingdom is duplicating the tried and true method of providing weapons with political considerations attached...on both sides of the transaction.

This balance is exemplified by Saudi Arabia, a country with the population of Texas, becoming the 2nd largest importer of large arms in the world.  They don't need the arms.  They need the alliances that purchasing the arms pays for.

China’s exports of weapons rose by a 143% between 2010 and 2014, making the world’s second largest economy the third largest arms exporter behind Russia and top dog the U.S.
The Asian superpower rose above Germany, which had held third place until 2010 but saw its exports reduce by 43% over the same period, according to a report Monday from the Stockholm International Peace Research Institute.
China also remains one of the top 10 importers of arms, but saw that number decrease by 42% over the past decade, the report said. The most significant jump in arms exports came among nations in the Gulf and the Middle East, with Saudi Arabia becoming the second largest importer of major weapons worldwide.

Monday, March 09, 2015

The palliative that is QE.

This entire excercise in signalling QE and framing it as "the tool" to solve the myriad EU banking problems is bordering on comedy.

When policy makers resolved last week to start purchases of 60 billion euros ($65 billion) a month in sovereign debt and other assets, they failed to agree on how to share losses from buying bonds with negative yields, according to three euro-zone central bank officials. National central banks might try to avoid such securities for now, according to one of the people, who asked not to be identified because the talks are private.

Tuesday, March 03, 2015

The Falcon pays homage to the Falconer...

WASHINGTON (MarketWatch) — Presidents should get the power to declare economic emergencies along the lines to declare war, said former Federal Reserve Chairman Ben Bernanke on Monday.
While the Fed retains the authority it needs to respond to another financial crisis, financial crises “tend to have a certain chaotic element to them,” that no one can predict, Bernanke said during a panel discussion sponsored by The Hutchins Center on Fiscal and Monetary Policy.
In light of this, it might make sense to give “the president some ability to declare emergencies or take extraordinary actions and not put that all on the Fed,” Bernanke said at a conference. “The constitution gives the president significant flexibility to respond to military situations,” in part because they are chaotic, he noted.
“I am sure it is not politically possible, but it would be worth thinking about,” the former Fed chairman said.

All opposition...

...pushed through the floor.

A leading Russian opposition politician, former Deputy Prime Minister Boris Nemtsov, has been shot dead in Moscow, Russian officials say.
An unidentified attacker in a car shot Mr Nemtsov four times in the back as he crossed a bridge in view of the Kremlin, police say.
He died hours after appealing for support for a march on Sunday in Moscow against the war in Ukraine.
Russian President Vladimir Putin has condemned the murder, the Kremlin says.
President Putin has assumed "personal control" of the investigation into the killing, said his spokesman Dmitry Peskov.
Investigators said the murder could have been "a provocation aimed at destabilising the country".

Friday, February 20, 2015

We know.

Given the manifold domestic issues Russia is facing, readers here are not surprised that Putin will further his nationalistic agenda for the express purpose of continued control.

That nationalistic agenda includes reclaiming some of the old satellites, and of course the dream of Asia, the Black Sea, and Constantinople (the holy land for Orthodox Christianity, one of the pillars of the new Russian nationalism.)

It matters not about capability, this is simply a statement of inent.

Nato is getting ready to fight back against Russian aggression as it poses a ‘real and present danger’ to the Baltic States, Defence Secretary Michael Fallon said yesterday.
He told of the threat to Latvia, Lithuania and Estonia as Vladimir Putin continues to ‘test us’ by deploying submarines and warplanes near British territory.
Warning of a new Cold War, he also said the UK must renew Britain’s nuclear capabilities as Russia steps up its own defences – but denied suggestions of an arms race. 


Thank goodness we have the Fed to provide these prognostications...and as a  student of obfuscation, I personally love the use of "basically" in this instance.

“There’s basically an 80 percent chance over the next 10 years that productivity growth will average between 1 and 3 percent,” the Fed official said.

And of course, "leading economists" would have more economists working on an issue (predicting productivity gains) that is inherantly un predicatble.  Is it infinite regress or recursive?

History shows how important it is that the central bank get the productivity outlook right. A sudden slowdown in the 1970s blindsided the Fed and led to a double-digit increase in inflation because officials kept monetary policy too loose as oil prices surged. In the late 1990s, then Chairman Alan Greenspan correctly saw that output per hour was accelerating and held back from raising interest rates, allowing unemployment eventually to fall below 4 percent.

Blinder, now a professor at Princeton University in New Jersey, said he’d have more economists at the central bank working on the issue if he were still there, adding this would be a “productive” use of their time.

Thursday, February 12, 2015

Follow the bouncing ball...

Sweden dives into the Negative Rates pool.   When banks start getting paid for borrowing money, it will truly be a strange new world.

The Swedish Riksbank unleashed unprecedented stimulus with a negative interest rate and quantitative easing in a race to stem a deflationary spiral blamed by some economists on premature policy tightening.
The Riksbank lowered its repo rate to minus 0.10 percent from zero. A cut had been predicted by six of the 18 economists surveyed by Bloomberg, while the remainder forecast no change.

Wednesday, February 11, 2015

Interesting article...

...which demonstrates that the journalistic public is groks the implications of the current global monetary system.  One of the major themes of this blog is to point out that definitions like "leverage" and "debt" are consistantly misapplied.

But this is besides the point. It doesn't matter how "leveraged" the Fed is. It doesn't even make sense to talk about it. Leverage, after all, is how much money a bank is borrowing. But a central bank doesn't borrow money. It prints money. So its "leverage" is meaningless. Think about it this way. When the things a bank has bought are worth less than the money it's borrowed, it's insolvent—and if its lenders figure that out, they'll push it into bankruptcy by asking for their money back all at once. So we care about leverage because more of it makes this easier to happen. But what would it take for this to happen to a central bank? Well, suppose the Fed's assets, in this case, Treasury and mortgage bonds, lose so much value that it's technically insolvent. Who would the "lenders" asking for their money back even be?

Thursday, February 05, 2015

The Fed's hubris...

quote of the day from Dallas Fed president Fisher in this article:

Fisher said lawmakers are looking to shift blame, having proven “unable to get together with their own colleagues on a working fiscal policy or construct a regulatory regime that incentivizes investment and job creation.”
“So they simply find it convenient to create a boogeyman out of an entity that does its job efficiently — the Federal Reserve,” Fisher said. “To some outsiders the Fed appears to be some kind of combination of Hogwarts, the Death Star, and Ebenezer Scrooge — especially to those who don’t take the time to read the copious amounts of reports and speeches and explanations we emit.
What arrogance.   One need only imagine an agent had taken the time to read every report and listen to every speech...would such an agent have a full understanding of what, precisely, the Fed is doing?  This is akin to the kind of recondite confusion by quantity practiced by political interests across the globe.  Only those closest to the Deity of Monetary Policy truly understand it.  All others are mere sophists who cannot possibly fathom the secrets contained and assidously guarded by The Modern Eunuch Class.

Well, that solves the Greek banking crisis...



Interesting article in Bloomberg with respect to Gold and the possiblilty that multiple financial claims exist for the same caches of gold.  This is something I have written about previously and every Gold investor must be actutely aware of what, precisely, do they "own" when entering into these contracts...because all manner of useful idiot have surfaced to drum up eschatological fantasies of the end of society and the re-emergence of Gold as "the" currency of value.

Boehringer speculates that individual bars may have several owners, perhaps as the result of bars being leased, sold, or subject to complicated financial arrangements. “I can’t prove it,” he adds, saying the onus of proof should be on the central bankers, not him. He isn’t alone in raising doubts. John Hathaway, co-manager of the $1.3 billion Tocqueville Gold Fund, says Germany might need the slow, seven-year repatriation window to unwind complex financial arrangements by which the gold was loaned out, perhaps several times. Their questions about multiple owners aren’t completely out of left field, as there is a loan market in which gold bars are put up as collateral and then sold to third parties for the duration of the deals.

First they came...

...for the Gold and I said nothing.

Physical ownership of gold is not a guarantor of security.

Wednesday, February 04, 2015

The son of the son of QE coming soon?

I have written about the unkillable beast that is QE and other forms of Central Bank asset purchases before.  At best, they are some sort of signaling mechanism that "demonstrates" a "commitment" to avoid deflation.  At worst, they are useless and massively deflationary.  And yet, they always go back to spin the wheel.

Kocherlakota said Tuesday that it is a mistake to assume that just because the real economyis healing, inflation will automatically return to healthy levels.
Among the most dovish of the Fed's current policymakers, Kocherlakota wants the U.S. central bank to hold off on rate hikes until next year.
Bond-market investors, he said, are flagging their worries about simultaneous low growth and low inflation by driving yields down. The Fed needs to take action to turn those expectations around, he said, or risk losing its credibility and with it, its ability to conduct effective monetary policy.
"It is not enough to have a goal, you have to live up to the goal," he said.
Kocherlakota said he has not thought through how much more bond buying the Fed would need to do to lift inflation more rapidly back to target.

"I think it is really more a question of making sure that people are aware that asset purchases are on the table as a tool in case we do not see inflation going back to 2 percent with sufficient alacrity," he said. "Frankly, even that statement by itself would be very helpful."

Friday, January 30, 2015

Why now?

The timing begs the question and leads me to believe there may be an official compromise with respect to Ukraine and oil prices.

Russia's central bank reversed course Friday and slashed interest rates to 15% from 17% as the nation grapples with a weak economic outlook caused in part by sanctions from the West over its actions in Ukraine and plunging oil prices.

Wednesday, January 28, 2015

All eyes on the Fed...

...which, like other global CBs, seems only to care about the Stock Market these days.  I doubt if they will rock the boat given choppy waters ahead.

Monday, January 26, 2015

More negative news...

Now public bonds are being issued below the zero boundary.  

The German State of Lower Saxony, Niedersachsen, indicated the EUR500m
no-grow 18-month Landesschatzanweisung at a price of 100.10 with a 0%
coupon for a yield of minus 0.067%.    

Wednesday, January 21, 2015

The Race is on!

The Bank of Canada just announced that it cut its main interest rate to 0.75% from 1%, joining the trend of central banks around the world trending towards easier monetary policy. 

Monday, January 19, 2015

The Danes que up.

Also noting that the Fed is fairly sanguine about the prospects for the U.S. economy in the coming quarters...quite the disparity.

Denmark on Monday became the latest European country to cut its interest rates as it attempted to dampen investor interest in the Danish krone ahead of the European Central Bank’s policy meeting on Thursday.
Nationalbank cut its deposit rate to minus 0.2% from minus 0.05%, and its lending rate to 0.05% from 0.2%.

Friday, January 16, 2015

Chart of the day...

The vertical drop is only rivaled by Mount Thor (the largest vertical airborne drop on earth)...which will be scaled by yours truly someday.

Hopefully I will not experience the vertiginous effects that many levered CHF shorts and Stock market longs experienced within an amazingly short time interval.

Thursday, January 15, 2015

The cascade effects...

...from the rapid CHF appreciation will be very painful for some countries.  The below snippet concerns Poland, but Ukraine, Hungary and other former Easter Bloc countries have significant percentages as well.

Polish banks had 131 billion zloty ($35 billion) of Swiss-franc mortgages in their portfolios as of Nov. 30, amounting to 46 percent of all home loans, according to data from the country’s financial market supervisor. Poles and other Eastern Europeans rushed for cheaper funding in francs and euros in the run-up to the global financial crisis in 2008, only to see their borrowing costs surge due to currency swings. 

The Swiss.

The Swiss have a hallowed tradition as a hub of international banking and as a base to park assets for all manner of legally oppressed (read: wealthy individuals whose home nations wish to kill them) people.

So, not to be out-done by any nation or collection of nations, the Swiss have decided to abandon neutrality during the Great Rate Compression and lead the race past the ZERO lower bound and into interstellar asset space.

Gravity is no longer a limitation for financial assets.  Think of the modeling implications for asset modeling CHF deposits and the push/pull aspects of currency appreciation vs. negative rates.

The Swiss National Bank (SNB) is discontinuing the minimum exchange rate of CHF 1.20
per euro. At the same time, it is lowering the interest rate on sight deposit account balances
that exceed a given exemption threshold by 0.5 percentage points, to −0.75%. It is moving the
target range for the three-month Libor further into negative territory, to between –1.25% and
−0.25%, from the current range of between −0.75% and 0.25%.

Wednesday, January 14, 2015

Ding Ding! All ABOOOOARD!...

...The Great Rate Compression Train!

The European Court of Justice (ECJ) on Wednesday said that the Outright Monetary Transactions (OMT) bond-buying program -- commonly seen as a predecessor to QE -- was compatible with treaty provisions and was in line with European Union law, as long as certain conditions are met.
The guidance came from Pedor Cruz Villalon, an advocate general at the court, who added that the ECB should not provide "direct" financial assistance to countries when making bond purchases, should not distort markets and would need to justify the use of such stimulus measures. It also stated that the ECB must have a "broad discretion when framing and implementing the EU's monetary policy."

The Great Rate Compression... meeting the zero bound on multiple fronts.  Recall the clamour in 1q 2014 about the imminent collapse of the Yen and resultant breakdown of the yield structure in JGBs.  This was one of the biggest trades in the world at the time.  Where are those pundits now?  I maintained at the time these pundits were on a marketing campaign to exit their positions.  Predictably, academics piled on in order to appear intelligent.  They were of course all wrong.  It merely reinforces the general principle that once an academic in ecnomics begins to comment on the "inevitability" (a word that should never be spoken on any market related issue ex-ante) of some result, its time to either be neutral or take the oppositve view.

In any case, we have now entered the event horizon of the black hole.  Nobody knows what will happen to the international fiat currency system once all these obligations mature or pass through the singularity.

Nothing like this has happens in the history of commerce on this planet, and certainly not on this level of "tacit" cooperation.  So we move to terra incognita.  What is almost required at this point is a massive failure (both economically and in ruling structure) of one of the major players in this game. They all seem to be holding out as long as possible for a re-shuffling of the deck.  This blog has long maintained it would be China that falls first, but with the current imbroblio in Europe...

Suffice to say the race to bottom during the Great Rate Compression appears to have a winner...with several other racers yet to reach the finish line.

TOKYO—Yields on Japanese government bonds hit record lows on Tuesday as foreign investors, concerned about lower oil prices, looked for a safe place to park their money.
The yield on the five-year government bond hit zero for the first time, while the benchmark 10-year yield fell to a record low 0.255%.
Yields in Japan are falling along with those in the U.S. and Europe, as a slide in oil prices heightens concerns about global growth and, in some markets, slowing inflation or even deflation. Oil prices fell by around 5% Monday to nearly six-year lows, dragging down U.S. stocks, and sank again in Asian trading on Tuesday.


They should build a wall to keep out the barbarians...

...oh wait...

But seriously, I have thought for years that China will invade North Korea.  It makes sense as a conventional and cyber warfare "warm-up" for some real conflicts, and would ingratiate themselves to the West (and to Sony Pictures).

A spate of murders by North Koreans inside China’s border is prompting some residents to abandon their homes, testing China’s ability to manage both the 880-mile (1,400-kilometer) shared frontier and its relationship with the reclusive nation.
The violence reflects a growing desperation among soldiers, including border guards, since Kim Jong Un took over as supreme leader in Pyongyang three years ago. As well as seeking food, they are entering China to steal money.


The continuing saga.  At this point given the security problems (which are not likely to go away, given the continued interest of the major monopoly currency providers to defend their respective monopolies from disruptive technology such as Bitcoin) and lack of a transaction base to out-scale counterfeiting attempts, I have no idea why anyone would continue to ultiize this currency.

That being said, the prospects for a virtual currency are great...provided they are imbedded within a sovereign (either existing or new) that can guarantee security and a critical mass of use.

Of course, this is handwaiving, but hey, dreaming is free.

Bitcoin (BTC/USD) tumbled $46.93, or 17.33%, to trade at $223.90 on Slovenia-based BitStamp during U.S. morning hours, after hitting a session low of $216.00, a level not seen since November 2013. 

Hackers stole nearly 19,000 bitcoins valued at approximately $5 million from BitStamp last week. The exchange reopened on Friday, January 9, after suspending services in wake of the theft on January 5