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