Stanley Fischer, who cost his central bank a lot of money with his ill-timed bet to invest billions of the Bank of Israel’s foreign currency reserves on names such as Apple last year, has demonstrated that Einstein’s definition of insanity is alive and well when it comes to central-planners, has just decided to double down on stocks. Alas, this is not a joke. Bloomberg reportsthat “The Bank of Israel plans to almost double equity holdings by the end of the year after falling bond yields prompted the central bank to invest in European shares for the first time. The bank will increase its stock holdings to as much as 6 percent of foreign-exchange reserves, or about $4.5 billion, from 3 percent at the end of 2012, according to Yossi Saadon, a Bank of Israel spokesman. Investments in shares rose to about 4.5 percent of assets in the first four months of 2013 as the institution made a “small allocation” to European equities in addition to its U.S. funds, he said.” Well, if the BOI’s investment in AAPL was the beginning of the end for that company, one can start shorting Europe – an academic Keynesian just called the top.
Why is the Bank of Israel gambling in a manner that until recently was seen as taboo by even the most clueless of economist PhDs? For a reason only an absolutely clueless academic could come up with: “risk-premia.” Bloomberg again:>> Read More
In a market in which nothing matters, and where all risk asset values are set by central planners, it took a while for those unlucky few who still actually trade, to realize that the CBOE was offline all morning, hitting VIX, and various other options products. After all the CBOE just happens to be the world’s largest options exchange. According to the website currently the bulk of systems are operating normally, but according to traders on the ground this is not true, and as the CBOE also notes, the C1 system is still down.
It begs the question if the VIX is offline, just where is the actual VIX feed coming from.
Frankly, who cares: can the Fed just leak the closing S&P500 pricing fix from the Liberty 33 market making desk so we can all just go home.
Jim Rogers decries the growing uncertainty and recklessness of global central planners as the world enters unchartered financial markets:
For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don’t know. It just depends on which one goes down the most and first, and they take turns. When one says a currency is going down, the question is against what? because they are all trying to debase themselves. It’s a peculiar time in world history.
I own the dollar, not because I have any confidence in the dollar and not because it’s sound – it’s a terribly flawed currency – but I expect more currency turmoil, more financial turmoil. During periods like that, people, for whatever reason, flee to the U.S. dollar as a safe haven. It is not a safe haven, but it is perceived that way by some people. That’s why the dollar is going up. That’s why I own it. Will I own it in five years, ten years? I don’t know.
It makes it extremely difficult for the investor looking for acceptable risk/reward, or the saver looking to protect their purchasing power; as in Rogers’ view, all options have their problems:
I own gold and silver and precious metals. I own all commodities, which is a better way to play as they debase currencies. I own more agriculture than just about anything else in real assets because of the reasons we discussed before. We were talking before about the risk-free or worry-free investment. Even gold: the Indian politicians are talking about coming down hard on gold, and India is the largest buyer of gold in the world. If Indian politicians do something – whether it’s foolish or not is irrelevant – if they do something, gold could go down a lot. So I own it. I’m not selling it. But everything has problems.
Because in a world in which markets no longer are affected by fundamentals, and reflect nothing more than what politicians (and their Wall Street lobbies) believe the “fair value” of risk assets should be, it is likely that any fat-tail events will emerge not out of the markets, but out of politics (and perhaps out of central banks, although it is a safe bet that the world’s central planners will merely do much more of the same). The chart below summarizes the geopolitical hotspots of the coming 12 months, which together with everything else are no longer reflected in asset prices courtesy of the central banks completely destroying the market’s discounting function.
Confused why contrary to all public lies otherwise, Spain is Greece? Here’s why
TAX RECEIPTS THROUGH AUGUST FELL 4.6% ON YR, SPAIN DATA SHOW: perhaps their tax collectors were also on strike?
SPAIN GOVT SPENDING THROUGH AUGUST ROSE 8.9%, BUDGET DATA SHOWS: missed the austerity by just thiiiiiiis much
SPAIN JAN-AUG CENTRAL BUDGET DEFICIT 4.77% GDP VS 3.81% YR AGO
Luckily, there is always hope that the magic money tree will bloom eventually
SPAIN EXPECTS HIGHER TAX REVENUE IN COMING MONTHS
So, to summarize: revenues down, spending up, budget deficit naturally higher than last year. Oh, stop calculating… and just buy their bonds. The Central Planners will make sure the math is irrelevant always and forever.
Update: and now the denial, conveniently just after all the upside stops have been taken out, again via BBG:
An ECB spokeswoman said in an e-mailed statement that it is usual practice and nothing special that Draghi meets or talks with the members of the Governing Council. She declined to comment on the content of any talks.
Of course, this is irrelevant. All the shorts have now been taken out. So once the market tumble resumes on the realization that nothing has happened, there will be no natural buying to the downside. Brilliant central planning as usual.
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And so for the third day in a row, we get Europe continuing to talk itself up ever higher. From Bloomberg:
DRAGHI SAID TO SPEAK TO WEIDMANN BEFORE AUG. 2 COUNCIL MEETING
DRAGHI SAID TO FAVOR GIVING ESM BANKING LICENSE IN LONGER TERM
DRAGHI’S PROPOSAL SAID TO INCLUDE BOND BUYS, RATE CUT, NEW LTRO
How much higher, we wonder, can the central planners talk this market up before someone actually demands something be done?
The Chinese Schrodinger conundrum, in which two different distinct PMI indicators continue to paint opposite pictures of the economy, as explained first here, continues. Moments ago, the HSBC Flash PMI posted a decline from 49.3 in April to 48.7. This is the 7th consecutive month in which the economy is in a contraction according to HSBC, and 10th of the last 11. Needless to say, this is only half of the story, and we expect that the official Chinese PMI index will post another increase well into expansionary territory as the random number generator known as China_Economy.xls spews fresh gibberish every time F9 is hit. In the meantime, the spin has already begun, worse is better, and futures are higher simply because the expectation is that another perfectly futile RRR hike (which does virtually nothing for real cash circulating in the economy) will follow suit. Of course, if the number had come in over 50, the spin would be that China’s economy has entered into a virtuous loop as goalseeking the narrative to comply with the central planners’ market intervention continues.
and for all those coal aficionados looking for the big rip on the back of China’s resurgence, some bad news: this Flash PMI print infers zero growth in China’s Electricity Production YoY which we crudely assume means zero growth in coal demand…>> Read More
Japan Is Now Another Spinning Plate In The Global Economy Circus
At the circus, you are sometimes treated to the spinning plate act where a performer tries to keep an improbable number of plates spinning at once, racing from one plate to the next as their wobbles indicate the need for another dose of momentum. Considering the number of spinning and wobbling plates that our central planners are managing, it’s easy to be both amazed and anxious at the same time.
The difference between the spinning plate analogy and real-world economic and financial systems is that if a failure occurs out in the real world, it has a very high chance of spreading across and through the other elements of the system. Contagion is the fear, as if in finally toppling, one plate will crash into its neighbor and set off a chain reaction of falling plates.
To carry this metaphor, Japan is a wobbly plate.
For those who are in a hurry today, the bottom line is that Japan is in serious trouble right now and is a top candidate to be the next black swan. Here are the elements of difficulty that concern me the most, each one serving to reduce Japan’s economic and financial stability:
The total shutdown of all 54 nuclear plants, leading to an energy insufficiency
Japan’s trade deficit in negative territory for the first time in decades, driven largely by energy imports
A budget deficit that is now 56% larger than revenues (!!)
Total debt standing at a whopping 235% of GDP
A recession shrinking Japan’s economy at an annual rate of 2.3%
Over the past 5 months, the only reason the US market, and this economy has outperformed the world (or “decoupled” in the case of so-called US fundamentals) is because the trillions in incremental liquidity from generous central planners have homed in on US equities like a heat seeker, in the process boosting confidence, and in a reflexive fashion, making consumers believe that things are getting better (for producers of printer cartridge maybe, everyone else just keeps getting worse off in real, not nominal, terms). Paradoxically, the trillion plus injected into the system from the ECB, ended up helping not Europe, but the US. However, as every action ultimately has an equal an opposite reaction, the recent US “renaissance” has also sown the seeds of its own destruction, because one of the side effects of a massive liquidity reflation is what has happened in the energy markets where the crude complex trades at all or near all time highs. However, as the following chart from UBS shows, it is the US which has the most exposure to that other side effect of soaring liquidity: surging prices. While the number is fluid (economist humor), every $10 increase in crude prices, cuts US GDP by 1%, and less than that in Europe and the ROW. As noted yesterday and today, “strategists” have already started trimming their GDP forecasts. How long before we end up seeing already weak growth turn negative as a result of the most recent central planning reliquification experiment? Because it will – central intervention always leads to adverse consequences in due course. Only this time, corporate profits will not allow the economy (read the markets) to pull itself up by the bootstrap, as they have topped and are now sliding lower.
The only thing that is as consistent as Marc Faber’s message to get out of government bonds ahead of a bout of global hyperinflation which will arrive once the vicious cycle of printing to pay interest finally dawns (which in turn would happen once central planners lose control of an artificially created situation, which by definition, always eventually happens), is the passion with which he repeats it over… and over… and over, like a man possessed, if ultimately 100% correct. In an interview with Bloomberg’s Sara Eisen and Erik Schatzker this morning, he does what he does best – cuts to the chase: “if you think it through and you are as bearish as I am, and you think the whole financial system will one day collapse, we don’t know if in 3 years, or 5 years, or 10 years, but one day there will be a reset, and everything will be essentially started anew, then you are better off in equities than in government bonds, because a lot of government bonds will either default or they will have to print so much money that the purchasing power of money will depreciate very rapidly.” When asked if he feels uncomfortable predicting a calamity in bonds again, as he did back 2009, Faber is laconically empathic: “it is true that last year the 30 year bond returned 30%, and i owe David Rosenberg a bottle of whiskey” but analogizes: “from August 1999 to March 2000, the Nasdaq doubled, but at no time in that timeframe was it a good buy. And after it people lost a lot of money. We have now a symptom of monetary inflation and this is record corporate profits, and the second symptoms is essentially a bubble in high quality bonds: people seem so insecure and so much worried, they would rather be in a US bond with no yield, than in bonds that may not repay me, or in equities that may drop 30%. But it does not make them a good buy longer term.” Yep: only Faber can get away with calling the bond market the second coming of the Nasdaq bubble and look cool doing it