China currency devaluation signals endgame leaving equity markets free to collapse under the weight of impossible expectations
When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.
Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.
The FTSE 100 has now erased its gains for the year, but there are signs things could get a whole lot worse.
This is how fragile the entire EU system is. If Greece sneezes, Italy coughs. The EU at best might be able to handle a Grexit, although that doesn’t look likely as stated here many times before. Look for the markets to go through a lot of turmoil but Greece is here to stay, whether its within the EU or a newly formed United States of Europe currently underway. Almost all experts agree it’s too strategically important to lose to the Sino-Soviet axis.
While things have normalized since the open thanks entirely to the SNB’s aggressive EUR-buying, CHF-selling intervention (good to see that central banks have read the BIS’ report and have learned from their prior intervention mistakes), earlier this morning we got a snapshot of what happens if and when the SNB, and then the ECB itself, finally lose control when as a result of the Greek crisis the contagion promptly spread a few hundred kilometers west to Italy where as the WSJ reported, “several Italian banks failed to start trading on Monday as fears over a Greek debt default induced many investors to shed peripheral stocks, including Italian, with banks suffering the most.” Continue reading
I have worked to keep this piece readable, and as brief as possible. My grave diagnosis demands the evidence and reasoning to support it. One cannot explain the collapse of this currency with the conventional view. “They will print money to infinity,” may be popular but it’s not accurate. The coming destruction has nothing to do with the quantity of money. It is a story of what happens when interest rates fall into a black hole.
Yields Have Fallen Beyond Zero
The Swiss yield curve looks like nothing so much as a sinking ship. All but the 20- and 30-year bonds are now below the water line.
Look at how much it’s submerged in just one week. The top line (yellow) is January 16, and the one below it was taken just a week later on January 23. It’s terrifying how fast the whole interest rate structure sank. Here is a graph of the 10-year bond since September. For comparison, the 10-year Treasury bond would not fit on this chart. The US bond currently pays 1.8%. Continue reading
While central banks’ grip on the economy seems to be waning, notes Citi’s Matt King, additional liquidity still seems as potent as ever when it comes to propping up global markets. The question in our minds revolves around whether central banks remain willing to keep pumping when the economic benefits are so questionable. Equally, though, valuations are already so elevated that we doubt they can afford to stop. One way or another, this feels like a recipe for increased volatility. Continue reading
ZURICH — The Swiss central bank is ready to intervene in the currency markets again to weaken the franc if necessary, the bank’s head said, just two days after the removal of a cap on the franc triggered a surge in the currency’s value. Continue reading
On September 6th, 2011 the Swiss National Bank (SNB) was aiming for a substantial and sustained weakening of the Swiss franc after Swiss companies threatened to leave because the rising franc reduced their exports. The SNB would no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB set out to enforce this minimum rate with the utmost determination and it began to buy Euros in unlimited quantities.
Socrates has been warning about January for the last year. Here is the forecast array on a daily level and it pinpointed the rise in in volatility for today the 15th with a Panic Cycle and turning point due as well as we can see. Continue reading
Swiss decision probably means Mario Draghi and the ECB have at last convinced Germany that QE is needed to save the eurozone
Another day, another bout of extreme market turbulence. The last cue for mayhem has been the decision by the Swiss National Bank to abandon its attempts to prevent the franc from appreciating against the euro. Given that just a month ago, the SNB said it would hold the line with the “utmost determination”, the announcement took traders by surprise. The franc soared, the euro collapsed, shares lost their gains. It was uproar. Continue reading
A referendum that would force the Swiss central bank to hold a fifth of its assets in gold could rock foreign exchange markets, analysts have warned.
On the 30th November, voters in Switzerland will head to the polls to decide whether the Swiss National Bank (SNB) should boost its gold holdings and refrain from any further selling of Swiss gold.
The referendum, proposed by the ultra-conservative Swiss People’s party, will also require the bank to repatriate all Swiss gold holdings currently held outside of Switzerland if passed.
The ban on selling gold would go into effect immediately and the SNB would have five years to reach the 20 percent requirement. Continue reading
In case anyone didn’t catch last week’s currency news:
The so-called currency wars progressed further in today’s session, as two new countries jumped on the bandwagon of selling or threatening to sell its own currency to unwind recent strength.
Overnight, RBNZ Governor Wheeler announced that the central bank had already once intervened in Forex markets to bring down the price of the New Zealand Dollar. During European trading hours, Swedish Finance Minister Borg said the Krona’s strength may become an issue for the country’s central bank. Continue reading