Day: September 16, 2014

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4 C’s That Could Change The Financial World As We Know It, Again

Elite Forex Blog - Market Research & Analysis
Those 4 C’s are: Confirmation, Crisis, Contagion, Catastrophe.
What type of confirmation could send the financial markets into such turmoil it could rock the very bastions of finance as we now know it?
First: Scotland votes yes to leave the U.K. If this turns out to be so, it could send shock-waves throughout the markets that run the world. i.e., Forex or World currencies.
No one with any financial acumen can look seriously at the markets as they stand at the time of this writing, and seriously argue the markets are prepared for such a resolution happening this Thursday.
If Scotland truly does vote Yes and confirms independence from the U.K. the initial shock-waves in my opinion that will hit the markets will be akin to the video we’ve all seen 1000 times when a nuclear device is unleashed with a house being obliterated. Or, the one where trees are bent over near flat to then reverse back the same.
In my humble opinion this could be a metaphor of what could take place. The reason is simple: By proof of the markets as they stand today, it is proof prima facie that everyone (especially so-called “smart crowd”) thinks it won’t happen. And the odds via polling alone show it to be the equivalent of a coin toss!
If this happens it will also confirm something just as real, and quite possibly far more instructive: With both a Federal Reserve meeting being held just days prior to such an event, the language out of this meeting could not be more important.
If it’s some revised boilerplate “till conditions improve, extended period, blah, blah, blah” based press release and conference, it will again confirm what many believed from the start, The Fed is both deaf, blind, and ill prepared to handle what might be an event such as this. An event that has the potential to make the crisis of 2008 the equivalent of a firecracker as opposed to what might be unleashed if Scotland does indeed secede.
The ramifications are truly unknown, unquantifiable, and what might be worse – unmanageable.
Then we move to crisis.
Just how does the Federal Reserve handle such a dilemma of this scale? I use the word “scale” for good reason. As many may know the Forex markets dwarf what the lovingly referred to as “mom and pop investor” believe it to be.
The saving of the “stock market” (aka the Equity Markets) in 2008 vs a Forex market crisis is the equivalent of bailing out a local bingo hall as compared to dealing with such a crisis on the scale of Las Vegas casino.
If the Forex market suddenly gets rocked with a clear fundamental breakdown and breakup of everything now known as the E.U. Along with all the tentacle entangled carry trades? Crisis might be an understatement.
Contagion across the Forex exchanges will not only wreak havoc from within it will also spread directly to the Bond markets. (which many don’t realize is also considerably larger themselves than the equity markets)
Such sweeping turmoil will most assuredly plunge the equity markets themselves into complete and utter chaos as money managers, market makers, margin executives and more decree: “Sell Everything, Close Everything, Now!”
What chaos might also be unleashed as the High Frequency Trading (HFT) algos are set loose selling anything and everything into a market where it’s suddenly revealed via news reading computers that the jig is up?
Or, what no one (and I mean no one!) thought possible till this week. What if this was the week HFT decides to not skirt the laws, but to now – obey them?! i.e., CME Rule 575 as explained by ZeroHedge: These Kinds Of Market-Rigging “Practices” Will No Longer Be Allowed On The CME
This could make the current Ebola crisis and concerns about the speed and severity of contagion look like the sniffles in a kindergarten class.
The panic, fear, mistrust, alienation, ___________(fill in the blank) that holders of what once believed were liquid assets on their books will find out rather quickly nothing runs quicker down the drain than paper gains and wealth.
If all this plays out, what will follow will be a blow to the IPO market and all it has morphed into these last few years with “free money.” So much so that one will think they actually saw Thor’s Hammer. Alibaba™ stands to be “the” poster child for top ticking headlines like never before.
Friday their stock hits the market in what has been touted as one of the most sought after and highly demanded offerings. So much so that they were able to wrap their road show early.
All this in an era of low if not non-existent GDP figures of recent memory. Along with real unemployment, and other metrics screaming recession, however these are adjusted, tweaked or adulterated so much so – it would make a vocal harmonizer jealous.
If Alibaba finds itself trying to release an IPO in this potential melee it will have ramification not only for its own offering, but for every single current high flyer in the markets from now until who knows when. The issue is not just if this happens, but what happens for everything else -if?
A catastrophe is quite possibly in the making. But it is still all in the hands of nothing more than the odds in a flip of a coin. We’ll know more Thursday when Scotland votes. Until then what we truly know is less about what if, and more about – if not.
However we do know a couple of things today that we didn’t know just 5 years ago.
First is, we understand the markets are not what people think they are. Second, the Fed is not as omnipotent as most believe. Third, 70% to 80% of what the “mom and pop” 401K holders think are trades in the markets, is an illusion. Fourth: Everyone, including many of the very professionals that work and breathe Wall Street have learned absolutely nothing since the Lehman crisis.
And what’s maybe more important than all of those combined?
They believe the chances of it repeating are not only nil, they’re betting it wont. Besides they still believe: “The Fed’s got their back!”
Problem is – will the Fed be able to save its own rear end if it does happen? Let alone theirs.
We’ll know soon enough.
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Governments spy on journalists with weaponized malware – WikiLeaks

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Journalists and dissidents are under the microscope of intelligence agencies, Wikileaks revealed in its fourth SpyFiles series. A German software company that produces computer intrusion systems has supplied many secret agencies worldwide. The weaponized surveillance malware, popular among intelligence agencies for spying on “journalists, activists and political dissidents,” is produced by FinFisher, a German company. […]

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China Launches CNY500 Billion In “Stealth QE”

Elite Forex Blog - Market Research & Analysis
It has been a while since the PBOC engaged in some “targeted” QE. So clearly following the biggest drop in the Shanghai Composite in 6 months after some abysmal Chinese economic and flow data in the past several days, it’s time for some more. From Bloomberg:
  • CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
  • PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
  • PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA
Just as expected, the Chinese “derivative” currency, the AUD, goes vertical on the news, and the S&P 500 goes vertical alongside:
For those confused what the SLF is, here is a reminder, from our February coverage of this “stealth QE” instrument.
* * *
The topic of China’s inevitable financial crisis, and the open question of how it will subsequently bail out its banks is quite pertinent in a world in which Moral Hazard is the only play left. Conveniently, in his latest letter to clients, 13D’s Kiril Sokoloff has this to say:
Will the PBOC’s Short-term Lending Facility (SLF) evolve into China’s version of QE? While investor attention has been fixated on China’s deteriorating PMI reports and fears of a widening credit crisis, China’s central bank is operating behind the scenes to prevent a wide-scale financial panic. On Monday, January 20th, 2014, when the Shanghai Composite Index (SHCOMP, CNY 2,033) fell below 2,000 on its way to a six-month low and interest rates jumped, the central bank intervened by adding over 255 billion yuan ($42 billion) to the financial system. In addition to a regular 75 billion yuan of 7-day reverse repos, the central bank  provided supplemental liquidity amounting to 180 billion yuan of 21-day reverse repos, which was seen as an obvious attempt to alleviate liquidity shortages during the Chinese New Year. However, it is worth noting that this was the PBOC’s first use of 21-day contracts since 2005, according to Bloomberg. Small and medium-sized banks were major beneficiaries of this SLF, as the PBOC allowed such institutions in ten provinces to tap its SLF for the first time on a trial basis. A 120 billion yuan quota has been set aside for the trial SLF, according to two local traders.
The central bank also said it will inject further cash into the banking system at regularly-scheduled open market operations. This is a very rare occurrence, as it is almost unprecedented for the central bank to openly declare its intention to inject or withdraw funds at regularly-scheduled open market operations. Usually, these operations only come to light after the fact.
The SLF was created as a brand new monetary tool for the central bank in early 2013 and was designed to enable commercial banks to borrow from the central bank for one to three months. Since its creation, however, the SLF program has been used with increasing frequency by the central bank.
The latest SLF is remarkable for two reasons: First, as mentioned earlier, this SLF was expanded to allow provincial-level small- and medium-sized banks, for the first time, to tap liquidity from the central bank.  As local financial institutions are usually both the major issuers and holders of local government debt, the expansion of the SLF to include local financial institutions opens a new channel for liquidity to flow from the central bank to local governments. This may suggest that the central bank, which is now on high alert for systemic risk, is willing to share some of the burden of local government, though on a very selective and non-regular basis.
The second key reason is embodied in the following central bank announcement: “[we will] explore the function of the SLF in setting the upper band of the market interest rates.” In other words, in the event that interest rates spike higher due to a systemic crisis, the central bank can intervene, via the SLF, to bring rates back down if it so desires. In addition, the PBOC did not disclose any set cap on the SLF, implying that unlimited liquidity could be provided as long as the market’s rate spike exceeds the bands set by the PBOC.
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Most important, the SLF appears to represent the PBOC’s strategy to avert China’s widely-publicized local government debt and banking-system problems. It is  worth noting that even though local government debt amounts to 30% of GDP and is growing at an alarming rate, China’s central government is relatively underleveraged, with a debt-to-GDP ratio of only 23%, which is significantly lower than the emerging-market average. Therefore, Beijing has considerable unused borrowing capacity to share some of the debt burden taken on by local governments, which would have the additional positive impact of lowering borrowing costs for those governments.

http://www.zerohedge.com/news/2014-09-16/china-launches-cny500-billion-stealth-qe

Trade the Yuan – Open a Forex Account

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Divide and Conquer in Latin America: Sabotaging BRICS in ‘our backyard’

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Since the beginning of the Western-engineered crisis in Ukraine, the world has been bombarded with propaganda about how Evil Russia is. Yet, despite what we’re all being asked to believe, there was no “Russian invasion”, MH17 was not shot down by Russia, and Ukraine hasde facto split in two. While these manipulated events on Russia’s […]

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