The Market Radar

We anticipate, monitor, and comment on market moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t  afford to ignore us.

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Merkel Retains Power, Far Right Moves To Bundestag

Just when you thought eMac – Emmual Macron –  had stamped out right-wing populism in Europe, here come the Germans.   The country’s two leading political parties,  the Christian Democrats (CDU/CSU – “The Union) and the Social Democrats (SPD),  who are were the governing coalition took a beating in today’s election.

German Elections_FT Chart1
The CDU,  Chancellor Angela Merkel’s party,  and its sister party, the CSU,  lost almost 9 percent of the votes won relative to 2013 and the the SPD lost 5.5 percent.

The hard right populist party the Alternative for Germany (AfD) gained nearly 9 percent; the Free Democratic Party, pro free markets, civil liberties, and globalism gained 5.7 percent;  the Green Party picked 1 percent;  and the Left Party increased by. 0.3 percent.

The Social Democrats have already stated they will move to the opposition and Ms. Merkel will have to cobble together, for the first time a three-party coalition government,  most likely consisting of the Christian Democrats (CDU, CSU), the Free Democratic Party (FDP), and the Greens.

The new government will be more unstable, and it will create more market uncertainty.

Jubilant AfD

Furthermore,  the jubilant Alternative for Germany (AfD), who campaigned to “take their country back”  (sound familiar?) will be the third largest party and will (Deutsche)mark the first time a hard right populist party is represented in the Bundestag.   Just as they are in other countries, some say this is the final normalization of German politics.

Mainz University professor Jürgen Falter saw this is a “normalisation” of German politics. – FT

Nevertheless,  in a post tonight on Spiegel Online, Stefan Kuzmany comment on the election and the AfD,

…the AfD is no ordinary party. Its ranks, even its leadership, include people who openly court far-right positions, who want to take a positive view of the German military’s actions in World War II, who play down the Holocaust and want to abolish the remembrance of it. And now those people will soon be sitting in the German parliament, the Bundestag. –  Spiegel Online

The right-wing populists have already announced their intention to “chase down” Ms. Merkel every day.

To counter the AfD,  the Chancellor Merkel may have to tact to the right, especially on immigration, but this may cause instability within her new fragile coalition.

Market And Economic Implications

Will the Greens demand the current German Finance Minister, Wolfgang Schäuble, step down?  Will the stance on the ECB’s QE policy harden?  Will FDP remain skeptical of Macron’s proposal to shore up the eurozone?

No reaction in the markets tonight with the S&P futures and the euro flattish.

On the margin,  the election results are risk market bearish and we suspect the euro some weakening in the common currency after its massive run.

But politics, generally,  are mostly noise and transitory unless they portend some major structural changes.  Populism would count as a major structure change.

More, important, however,  Europe’s economic recovery is gaining momentum.   Moreover,  Europe is in a massive bond bubble and we expect a taper tantrum sometime in the next month.    Negative rates with the current momentum is absurd.

A little over an hour to the European open.

Gute Nacth!


German Elections_Spiegel Chart2


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Week In Review – September 22

Global Stock Indices

Relatively quiet week in global equity markets given the FOMC’s historic decision to start reducing the Federal Reserve balance sheet, to which we called the market action a big double cheese non-burger.

Argentina continues  rockin’ the free world, up almost over 5 percent this week and closing in on the 50 percent mark for the year.  Argentina’s competitiveness is getting a double boost with a weaker currency, down 9 percent against the dollar this year and the dollar index is down 10 percent.   That’s about 20-25 percent boost in euro terms.

Emerging market equities have been stellar this year.

“After lagging for many years, there has been a significant breakout to two-year highs in the MSCI Emerging Markets Index relative to the S&P 500,” he wrote in a note, calling this “another indicator that the EM strength could be legitimate and should continue to be a place to find potential alpha in well-diversified portfolios.”  – Ryan Detrick via MarketWatch

Turkey down on “dodgy” politics and as global markets begin to fret over carry trade countries with high-interest rates to attract hot money capital flows to cover current account deficits.   Turkish 10-year yield up 27 bps on the week.


Global 10-year Bond Yields

Big move down in Portugal 10-year yields as the sovereign recaptured its investment grade rating from S&P.   Brazil continues to come in as markets are true believers in potential economic reforms of a government under political fire.  Brazil and Indonesia bonds rates are honey to yield seeking capital in a NIRP and ZIRP world.

Turkey hit with what was noted in stock section above.

The UK and China sovereign ratings were downgraded this week.  Ratings agencies always the last to turn out the lights and markets are way ahead of the them.

The “head for spread” continues.  Junk in 12 bps.


Global Currencies

Dollar relatively stable and strong against EM.  The Dixie holding above the 91-92 level on the FOMC action.  Euro/$  having a tough time cracking and holding the 1.20 level.    Shorts may get nervous.


Select Commodities

Nothing big except iron ore continues to flop.  Not that bad of a week for the complex given the Fed action.


Other Risk Indicators

Energy stocks,  this year’s big laggard,  bought up as expectation crude in a new higher range of $50-55.   Euro banks up on stronger PMIs throughout Europe.  Russell looks like it is ready to take out new high.   Stress index and VIX lower.   Markets believe all is well.


On Our Radar Next Week

  • We are watching North Korea as tensions ratchet up.  The debacle now has morphed into what looks like a cage fight between “Twitter Man” vs. “Rocket Man”.  Markets are not going to like this.
  • Fallout of Saturday’s New Zealand election, which returned a hung parliament. Not expecting much impact.
  • The results of Germany’s election will be more interesting
  • Watching Spain for potential instability leading up to Catalonia’s independence vote on October 1.
  • Watching fallout from Kurdish independennce vote from Iraq set for Monday.   Turkey not happy.
  • Will Aaron Rodgers, QB of the Green Bay Packers, take a knee in today’s game? President Trump’s tirade against the NFL in his speech in Alabama on Friday night is blowing up in his face and has transformed a racial issue into an assault on the First Amendment.  Caesar should not pick on the circuses and the gladiators.  Always a losing proposition to awaken the masses.
  • Lots of Fed doves speak next week. Janet Yellen at 11:50 eastern on Tuesday.
  • Economic data: Wednesday – Durable goods; Thursday – GDP, and Friday – Personal Income.
  • Most important,  European bond markets as ECB is way behind the curve, especially given last week’s strong PMIs (see the chart below)

Notice a prevailing narrative from the above?

The whole world, even now the west, is slouching toward tribalism.

Most important, we are preparing for the coming October correction we have been looking for.

Stay thirsty, my friends.

Key Charts

The red dot represents the markets’ expectation versus  FOMC dots.  Market expecting much lower policy rates than Fed officials.  See here.








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Sector ETF Performance – September 22


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Global Risk Monitor – September 22




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The Sermon On The Mount[ain Of Debt]

“Blessed are the young, for they shall inherit the national debt.” – President Herbert Hoover

The Hoover administration thought there was no room and was ideologically opposed to fiscal expansion to stimulate aggregate demand.  Furthermore, Keynesian theory was not even developed at the time.  The General Theory of Employment, Interest and Money  was not published until February 1936.

A policy error, partially due out of  ignorance, that led to the Great Depression, though it was monetary policy and the Fed’s failure as “lender of last resort” that “put the Great in the Great Depression.”

…what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary  – Milton Friedman

Here is Ben Bernanke,

The problem within the Fed was largely doctrinal: Fed officials appeared to subscribe to Treasury Secretary Andrew Mellon’s infamous ‘liquidationist’ thesis, that weeding out “weak” banks was a harsh but necessary prerequisite to the recovery of the banking system. Moreover, most of the failing banks were small banks (as opposed to what we would now call money-center banks) and not members of the Federal Reserve System. Thus the Fed saw no particular need to try to stem the panics. At the same time, the large banks – which would have intervened before the founding of the Fed – felt that protecting their smaller brethren was no longer their responsibility. Indeed, since the large banks felt confident that the Fed would protect them if necessary, the weeding out of small competitors was a positive good, from their point of view. – Ben Bernanke

National Debt

06/29/1929 =  16,931,088,484.10    (16.8 % of GDP)

09/20/2017 =  20,179,769,858,967.22     (104.9 % of GDP)

Source:  U.S. Treasury Department

How many generations can keep “kicking the can down the road”?

Have we finally bumped up against the upper bound of the debt limit?   “This Time Is Different.”

Prepare for the “clash of generations.”

It has already started.

Ernie_Kicking the Can

Ernest Hemingway “kicking the can the down the road” in Sun Valley, Idaho.

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COTD: The Trillion-Dollar Club

Norway’s sovereign wealth fund hit $1 trillion for the first time on Tuesday, driven higher by climbing stock markets and a weaker U.S. dollar.

The milestone valuation was reached for the first time on Sept. 19 at 2:01 a.m. in Oslo, Norges Bank Investment Management said in a statement on Tuesday. – Bloomberg, Sepember 19

Trillion Dollar Wealth Managers_Sep21

(COTD = Chart of the Day)

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FOMC: A Big Double Cheese Non-Burger

Monetary policy history made today.

The  Federal Open Market Committee (FOMC)  confirmed it would begin its long-awaited quantitative tightening (QT).

In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.  – FOMC, September 20

They also left another rate hike on the table this year.   The average dots remained fairly constant:  2017 – 1.41 percent; 2018 – 2.04 percent;  2019 – 2.63 percent; 2020 – 2.85 percent; and Long Run – 2.78 percent.


The dots imply about seven more rate hikes in this cycle.  The longer run median dot came in a bit from the last meeting (see Yellen’s comments below).

Market Reaction

The markets took it all in stride as in one big double cheese non-burger.   Just as we expected.

It may take the markets a few days to digest the FOMC actions before we get a clearer picture of the direction of the markets.

FOMC Price Move_Sept20

All other things remaining equal — and they never do – it is going to take a while for this tightening cycle to start biting.   Rates are still too low, and there is too much central bank liquidity in the system.

Just check out the bull market in almost everything since the Fed began Orwellian tightening nearly two years ago, albeit at a snail’s pace, just as they said they would.

Impact of Fed_Sep20

On the margin,  we do expect volatility to pick up a bit,  however.   QT is just another grain of sand piling up in the structured criticality paradigm of global markets that could cascade into a series of avalanches.

Time to be a tourist and not a permanent resident.

All Eyes On European Bonds

Now we turn our eyes to the European bond market bubble.

We will be posting a daily table of interest rate changes and movements in various sovereign spreads to the German Bund.  Whoever is left holding euro-denominated bonds has to be nervous after the Fed move today.  They surely know the ECB beckons.

Who is going to buy those bonds at such low rates with growth and inflation picking up?

Bond Bubble_1_Sep19

Bond Bubble_2_Sep19


Prayers for those who took down the mega-long duration 100-year Austrian bonds at 2.10 percent.   A move of 100 bps will almost slice the bond price in half.  The Austria 30-year currently yields around 1.60 percent.   A great deal, no?

Will the euro be around in 10 years, much less 100 years?  We suspect many flippers in that deal gaming a short-term interest rate move.

A sign of the top?  Do you hear those bells ringing?

October Sell Off

The soon to come European bond market temper tantrum is the external shock we expect to ignite a decent sell-off in global risk markets in October.   There are other events, such as an economic or policy shock coming out of China’s 19th National Congress of the Communist Party, that can also rock the markets.

Don’t discount a potential big macro swan coming out of Washington either.

We are not looking for a bear market, but a decent size flash-type crash that may last a few days or a few weeks, which can be bought.   Everyone is waiting to pounce — until volatility spikes and fear takes over.   It should be fast and furious, especially with the rise of the buy the dipper algos and trading ‘bots.

Mr. October on deck.   Stay tuned.

Money quotes from Chair Yellen’s presser:

  • Nonetheless, our understanding of the forces driving inflation isn’t And in light of the unexpected lower inflation readings this year, the Committee is monitoring inflationdevelopments closely.
  • we continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective.
  • That expectation is based on a review that the federal funds rate remains somewhat below its neutral level. That is, the level that is neither expansionary nor contractionary and keeps the economy operating on an even keel.
  • Because the neutral rate currently appears to be quite low by historical standards, the federal funds rate would not have to rise much further to get to a neutral policy stance. But because we also expect the neutral level of federal funds rate to rise somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion.
  • the median estimate of the longer run normal value edged down to 2.8 percent.
  • our balance sheet will decline gradually and predictably. For October through December, the decline in our securities holdings will be capped at $6 billion per month for treasuries and $4 billions per month for agencies.
  • These caps will gradually rise over the course of the following year to maximums of $30 billion per month for treasuries and $20 billion per month for agency securities, and will remain in place through the process of normalizing the size of our balance sheet.
  • by limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against the outsized moves in interest rates and other potential market strains.
  • changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy.   – Chair Janet Yellen,  September 20



Here is the Addendum, from the June FOMC meeting referenced in today’s release.

Addendum to the Policy Normalization Principles and Plans

All participants agreed to augment the Committee’s Policy Normalization Principles and Plans by providing the following additional details regarding the approach the FOMC intends to use to reduce the Federal Reserve’s holdings of Treasury and agency securities once normalization of the level of the federal funds rate is well under way.1

  • The Committee intends to gradually reduce the Federal Reserve’s securities holdings by decreasing its reinvestment of the principal payments it receives from securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps.
    • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
    • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
    • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve’s securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.
  • Gradually reducing the Federal Reserve’s securities holdings will result in a declining supply of reserve balances. The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system’s demand for reserve balances and the Committee’s decisions about how to implement monetary policy most efficiently and effectively in the future. The Committee expects to learn more about the underlying demand for reserves during the process of balance sheet normalization.
  • The Committee affirms that changing the target range for the federal funds rate is its primary means of adjusting the stance of monetary policy. However, the Committee would be prepared to resume reinvestment of principal payments received on securities held by the Federal Reserve if a material deterioration in the economic outlook were to warrant a sizable reduction in the Committee’s target for the federal funds rate. Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.


  1. The Committee’s Policy Normalization Principles and Plans were adopted on September 16, 2014, and are available at On March 18, 2015, the Committee adopted an addendum to the Policy Normalization Principles and Plans, which is available at Return to text

Last Update: June 14, 2017


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Fed Day With Extremely Loose Financial Conditions

Today is the day,  folks.

The consensus is the Fed announces the start of quantitative tightening (QT).   History in the making.

Draining Liquidity

Though monetary tightening officially began in December 2015,  this will be the first time the Fed drains liquidity from the financial system in any meaningful amount.

That is because of the Orwellian monetary policy we have discussed in previous posts.   That is paying interest on reserves – i.e., injecting liquidity into the system through paying interest on reserves  – rather than a traditional monetary policy where open market operations remove liquidity by draining reserves to peg the Fed Funds rate.

As a result, the Fed has lost control of the financial markets, in our opinion.

Consider this.  Since the monetary tightening began:  1) the S&P500 is up almost 23 percent; 2) the 10-year T-Note is down 4.8 bps; 3) the 2-10s yield curve has flattened 46 bps; 4) Corporate credit spreads have come way in  with AAA – 12 bps, BB -97 bps, BB – 241 bps, and B -346 bps;  5) the dollar index has fallen 6.7 percent; 6) the VIX is down over 50 percent; 7) the JP Morgan sovereign bond ETF (EMB) is up almost 20 percent; 8) the emerging markets equity ETF is up over 46 percent, and 9) commodities, measured by the CRB is up only 4.79 percent.

Emerging market equities up almost 50 percent in a Fed tightening cycle?  WTF?  Aren’t they supposed to flop during a U.S. monetary contraction?

Granted the nature of capital flows to emerging markets are much different today.   We will have much more to say on the structural changes taking place in EM sometime soon.

Is a move from zero to 1 1/4 percent in policy rates with liquidity injections really a monetary tightening?   The markets seem not to think so.  What ever happened to “don’t fight the Fed”?


Finacial Conditions_Sep20

Given the extremely loose financial conditions,  coupled with the monumental and unprecedented task of shrinking such a large balance sheet, it is difficult to anticipate what tone the Fed will strike in their FOMC announcement later today.  We think most members realize they have blown a massive asset bubble.

Given the small window for a soft landing in the asset markets and the adverse economic consequences of a hard landing,  the Fed will be inclined to reassure the markets.  The markets are likely to focus on the dots and where they perceive the terminal rates are heading.  We suspect around 3 percent the markets get very nervous, but not there yet until inflation picks up.

The start of a $10 billion reduction in reserves may cause volatility to pick up a bit, but not crash the markets.  Moving to, say, a 10 percent reduction in the balance sheet will begin to bite hard.  Will the markets allow that?

The Fed’s Big Problem

The Fed is in an impossible situation. They need to shrink the balance sheet,  so as not to overshoot policy rates,  and remove a lot of reserves from the system, but financial markets may not allow it.   If credit and growth begins to expand rapidly and inflation picks up, they may  not have a choice, however.

They may have already crossed the Rubicon, and we never see a “normalized” Fed balance sheet.  Asset markets now rule the day and the economy, for that matter.

In addition, bull markets are fun.  Hardly anybody cares to stress test market drivers and their views because everyone is making a ton of money.   For now.

The Fed will start by trimming no more than $10 billion per month from its balance sheet, with that cap rising each quarter for a year until it hits $50 billion per month.

That should shed nearly $300 billion in bonds over the first 12 months, and nearly $500 billion over the second, according to analysts’ projections.

The main unanswered question is whether the central bank will spread its remaining monthly repurchases evenly across the spectrum of maturities, or whether it will focus on shorter-dated assets and accelerate the process.

That will affect how far long-term yields may rise as the Fed allows bonds to run off. Another wild card may be the pace at which the Fed’s mortgage-bond holdings shrinks, which depends in part on homeowners’ refinancing decisions. – Reuters

To quote Churchill,

Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. – Winston Churchill, November 10, 1942

Ironically, the inverse of the beginning of the end will most likely begin on the European continent, the genesis and original home of Churchill’s war.  That is where the big bond bubble is and the ECB is waaaaaaaaay behind the curve and in a big pickle.

Growth and inflation are picking up and interest rates are much too low.

The Euro

Why is the euro rallying?  Because it can.

The euro/dollar move is a classic case of Le Chatelier’s principle, or “The Equilibrium Law”, first introduced into economics by the great Paul Samuelson.

When any system at equilibrium is subjected to change in concentration, temperature, volume, or pressure, then the system readjusts itself to counteract (partially) the effect of the applied change and a new equilibrium is established.

In other words, whenever a system in equilibrium is disturbed the system will adjust itself in such a way that the effect of the change will be nullified.

.. It is common to take Le Chatelier’s principle to be a more general observation, roughly stated:

Any change in status quo prompts an opposing reaction in the responding system

Bonds cannot or are slow to adjust to the much improved economic and inflationary conditions in Europe due to repression caused by the ECB’s asset purchases (QE).  The pressure has to be released elsewhere to maintain a general equilibrium, and the currency market has little or no government intervention and trades relatively free.  It may also be causing the euro to overshoot its equilibrium value.

European Temper Tantrum On its Way And New Divergence

Bond Bubble_1_Sep19

We expect a European bond market temper tantrum sometime soon, most likely in October, where market interest rates – those that can – will increase sharply as they worry about the ECB’s dilemma.  It should spill over into the U.S. markets, given the high comovement with the Bund and U.S. bonds,  and cause the short, sharp sell-off in risk assets we are expecting.  The sell off can be bought as interest rates will still be relatively low unless inflation really gets out of hand.

Never take Bagehot’s dictum lightly:   John Bull can stand many things, but he can not stand [negative, zero, and] two percent.   Yield and return chasers will bury the shorts in this type of financial environment.

The start of a bear market ex/ some Black Swan event?   Probably not, unless the trading ‘bots short circuit and magnify the downdraft, which is a real possibility.  We would not be trying to catch the falling knife, but given the increase in technology and the new market structure you must be quick to buy the turn.   Most sell offs have now morphed into flash crashes.

A seven to plus ten percent correction and a decent blowout in credit spreads precipitated by the  European bond market temper tantrum with the level of current valuations?   In a heartbeat.

Cash has a very high option value today, but also a high opportunity cost in this raging bull market.

Therein lies your investment dilemma. We could be wrong in our analysis and view.

However, remember these words,

“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made big money for me. It was always my sitting.” – Jesse Livermore

Time to be a tourist and take up alien residency.

Mr. October on deck.

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China’s Communist Party Structure

We noticed today  someone tweeted an old post from our blog from way back when.  It has an excellent graphic of the structure of China’s Communist Party and its leaders that were selected after the last Party Congress in 2012.

Since the once-every-five-years congress begins on October 18th and it is on our market event risk checklist,  we thought you’ would be interested in a repost of the excellent graphic.  We are expecting a decent pullback in risk assets in October.

Here is what happens at the Party Congress,

The Communist Party constitution requires the Party to hold a national congress every five years.  The most recent congress, the 18th, was held in November 2012. At each Congress, delegates elect a new Central Committee in a modestly competitive process: the Party leadership nominates approximately 10% more candidates than available positions. The current Central Committee is composed of 205 full members and 171 alternate members. They include 33 women (8.8% of the full 376-member Central Committee) and 39 ethnic minorities (10.4%). – Congressional Research Service

Since assuming power at the last Party Congress in 2012, President Xi Jinping has consolidated power and risen to one of China’s strongest leaders since Mao.

Here is Barron’s on what to expect,

With the reshuffling formally occurring in October, there is a likelihood that China curtails their lax credit policies in an effort to avoid what some believe could be an epic bubble/bust scenario,” says Ralph Drybrough, co-founder of StratiFi, a portfolio-hedging service for investment advisors.

There is no consensus on the meeting. Credit Suisse analysts, for example, are telling clients that efforts will be made to reassure investors about China’s economic and market stability.

Disagreement makes a market, of course. In anticipation of heightened turbulence, Drybrough has constructed a three-part trade that essentially entails buying volatility in China, selling volatility in the U.S. financial sector, and tamping the risk of both positions with calls on the CBOE Volatility Index, or VIX.  – Barron’s,  September 1

Bloomberg reports the Party has no stomach for market volatility before and during the party,

The China Securities Regulatory Commission has ordered local brokerages to mitigate risks and ensure stable markets before and during the Communist Party’s twice-a-decade leadership congress next month, according to people familiar with the matter. The CSRC has also banned brokerage bosses from taking holidays or leaving the country from Oct. 11 until the congress ends, the people said. The regulator didn’t immediately reply to a faxed request for comment. – Bloomberg, September 12


We wonder if the Party planners knew they would begin on the eve and meet through the 30th anniversary of the 1987 U.S. stock market crash?

Chinese Leaders_Sep19
We have added another chart that is more clear on the hiearchy of China’s power structure.
Chinese Hierarchy_Sep19
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COTD: China Levers Up As ROW Does Opposite

We knew that credit expansion is the mother’s milk of economic growth,  but even this chart surprised us.   The global nominal private non-financial debt level x/ China has been flat since 2008.   As in flat in nominal terms not as a percent of world GDP!

Explains the weak recovery in the U.S. and the rest of the west.

Could the data in the chart be about to change and we are in the midst of a global private credit impulse, which is driving global growth expectations higher?  Could there be a measurement problem?  We suspect much of the flat growth in private debt is a reduction in mortgage debt in the United States.

Many doubters out there.   See here and here.

Global Private non-financial debt_Sep19

Hat Tip:  Tuomas Malinen



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