Thought for the day
"You can't depend on your eyes when your imagination is out
of focus."
-
Mark Twain (American, 1835-1910)
Word for the day
Larrikin (adj)
Disorderly; Rowdy.
(Source:
Dictionary.com)
Teaser for the day
Should the Representation of
the People Act, be amended to add the following ground for
automatic disqualification of elected representatives:
"If he/she stands or speaks in
the house without explicit permission of the presiding officer."
2015: Global narrative is scary
In past three months the global narrative has turned really
scary. I am sure, Santa this year will have a really tough time, for the number
of prayers are going to be much larger, louder and desperate.
I find myself thoroughly incapable in expressing the fear in my
own words, as I do not feel it with the same intensity, sitting at a distance.
I am therefore reproducing some popular sentiments.
China will be the focus of many, many boardroom discussions
around the world next year. Unlike most previous years, the topic won’t be
whether to double down on China—it will be whether to hold or even reduce
exposure to a particular sector or the country overall. With China experiencing
lower growth, greater competition, and more volatility, it won’t only be
multinational companies having these conversations. (McKinsey
& Co.)
A look at the long-term charts of the DXY Index shows just how
massive the potential reversal of this trend is; and based on Raoul’s roadmap,
the sheer size of the reversal gives us a strong hint of the degree of carnage
that will be wrought upon a world in which the dollar carry trade has reached
somewhere between $5 trillion and $9 trillion. (Mauldin economic)
Greece is back, front and centre — just as it was at the
beginning of the euro crisis in 2010 and at the depths of the euro crisis in
2011. The only difference is that now, after several more years of
depressionary policies have been foisted upon the people of that proud nation,
the likelihood of an establishment victory (and thereby a continuance of the
status quo) is far less than at either of those previous junctures. (Mauldin economic)
Do you want to know if the stock market is going to crash next
year? Just keep an eye on junk bonds.
Prior to the horrific collapse of stocks in 2008, high yield debt
collapsed first. And as you will see below, high yield debt is starting to
crash again. The primary reason for this is the price of oil. The energy sector
accounts for approximately 15 to 20 percent of the entire junk bond market, and
those energy bonds are taking a tremendous beating right now. This panic in
energy bonds is infecting the broader high yield debt market, and investors
have been pulling money out at a frightening pace. And as I have written about
previously, almost every single time junk bonds decline substantially, stocks
end up following suit. (The
Economics Collapse)
In the last two Absolute Return Letters I have argued why one
should expect global GDP growth to be below average over the next decade or so,
why interest rates should, as a consequence, remain low and why equity returns
should also disappoint. (Absolute
Return Partners)
In Europe, so far, Germany has been repatriating gold since 2012
from the US and France, The Netherlands has repatriated 122.5 tonnes a few
weeks ago from the US, soon after Marine Le Pen, leader of the Front National
party of France, penned an open letter to Christian Noyer, governor of the Bank
of France, requesting that the country’s gold holdings be repatriated back to
France; and now Belgium is making a move. Who’s next? And why are all these
countries seemingly so nervous to get their gold ASAP on own soil? (Grant
Williams)
In short, between Europe and Japan, thanks to the BOJ and ECB,
there will be literally no bonds that will make their way from the primary to
the secondary market! Which means only one thing: those looking for the marginal,
and only, source of high quality collateral in 2015, will find it coming right
out of 1500 Pennsylvania Avenue, NW in Washington. And that assumes, very
generously, that that other famous institution located on Constitution Avenue
Northwest doesn't come out of hibernation and resume soaking up collateral on
its own if and when the S&P500 finally corrects from its unprecedented, and
manipulated, bubble levels. (Goldman
Sach via Zero Hedge)
Off-shore lending in US dollars has soared to $9 trillion and
poses a growing risk to both emerging markets and the world's financial stability,
the Bank for International Settlements has warned.
The Swiss-based global watchdog said dollar loans to Chinese
banks and companies are rising at annual rate of 47pc. They have jumped to $1.1
trillion from almost nothing five years ago. Cross-border dollar credit has
ballooned to $456bn in Brazil, and $381bn in Mexico. External debt has reached
$715bn in Russia, mostly in dollars.
A chunk of China's borrowing is disguised as intra-firm
financing. This replicates practices by German industrial companies in the
1920s, which hid their real level of exposure as the 1929 debt trauma was
building up. (BIS
via Telegraph)
Do you remember seeing old pictures of the Great Depression
which depicted “lines?” There were two
types, bread lines and also lines to the front doors of banks. While we don’t see
any bread lines today, trust me, there are bread lines in every single state
and long ones at that. Nearly 50 million people in the U.S. survive on SNAP,
EBT cards or whatever they are called in your state. Can you imagine the
“confidence” it would instill if each day on your way to work you saw massive
lines of people waiting for breakfast? Or, when you came home from work you
turn on your television only to see long lines again, this time for supper? I
can see it now, some reporter out on the street giving us the “good”
unemployment, inflation or GDP news with a line of people in the background
waiting for food. My point? False economic news would be harder to “sell” and
even harder to “stomach” (pun intended). (Bill Holter in
Miles Franklin Blog)
It was during this period at the end of the 1960s and the
beginning of the 1970s that the Bretton Woods system of fixed exchange rates
was breaking down, with key developments in 1971 and 1973. There was much
academic debate over fixed versus flexible exchange rates. More economists
appeared to support fixed rates, but the other side had the advantage of being
led by Milton Friedman. As it turned out, however, flexible rates were not “chosen”
but were what was left when fixed rates collapsed. My take away from that
period most relevant today is that it is foolish to try to save a fixed
exchange rate after it has come under severe attack. I’ve heard talk all day on
the large amount of reserves held by Russia and whether they would be used to
defend the collapsing Ruble. In my opinion, that would be a total waste of
resources. The only cure for a Ruble down 50 percent is to let it go down even
more, until the market recognizes the undershoot. (Bob
McTeer)
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