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Yesterday, Bank of America’s technical team was kind enough to show that in the background of the dramatic intraday volatility, what the market has experienced in recent weeks has been a significant period of wholesale distribution: a concerted, behind-the-scenes offloading of risk by major market participants.

 

Today, we look at the market from a different technical angle, namely the calendar effect of both the infamous “as goes January…”, as well as in the aftermath of what historically is the strongest 3-month period of the year for capital markets, the time from November – January.

As BofA’s Stephen Suttmeier notes, Nov-Jan is the strongest 3-month period of the year, but…

November-January is the strongest consecutive 3-month period of the year. During this period, the S&P 500 is up 66.7% of the time with an average return of 3.35% going back to 1929. November 2015-January 2016 is down 6.50%. The S&P 500 has not followed this bullish seasonal pattern and is on a pace to have the eighth weakest November-January going back to 1929. January 2016 is down 5% on a pace to be one of the worst January going back to 1928.

 

…a down Nov 15-Jan 16 does not bode well for 2016:

Data going back to 1929 suggest that well-below average annual and February- December price returns follow a down or below average November-January. When the S&P 500 is down between November and January, the year is down 55.2% of the time with an average drop of 1.50%, while February-December is up 62.1% with an average rise of 0.91%. When November-January is below average, the year is down 55.0% of the time with an average drop of 0.40%, while February-December is up 57.5% of the time with an average rise of 1.44%. These are well below the 1929-2015 average returns of 7.09% for the year and 5.77% for February-December.

 

 

January is typically a bullish month but not in 2016

Seasonal data going back to 1928 suggest that January is typically a bullish month. January is the fourth best month of the year with an average return of 1.19%. January 2016 is down 7.37% MTD and bucking this bullish seasonal pattern.

 

January Barometer set up for bearish signal in 2016

Barring an S&P 500 close today above 2043.95 (December 31, 2015 close), 2016 will begin with a down January. Going back to 1928, the year is down 57.6% of the time with an average decline of 1.82%, while February-December is up 57.6% of the time with an average rise of 2.10%. This is also a combined first five days of January down andmonth of January down signal, which has occurred 18  times since 1928. After this combined weak signal, the year is down 61.1% of the time with an average drop of 2.21%, while February-December is up 50% of the time with an average rise of 1.54%. These are all well below average. See our Chart Blast: 11 January 2016 for more on the January Barometer.

 

Combined Jan & Nov-Jan Barometer is bearish for 2016

When both the November-January period and the month of January are down, which has happened 20 times going back to 1929, the S&P 500 is down 65% of the time with an average decline of 4.72%, while February-December is up 60% of the time but shows an average decline of 0.27%. Having a down January appears to magnify the downside risk after a weak November-January period.

 

* * *

And while all of the above calendar effects clearly hint at further market weakness and bearishness, never prior to 2008 in the history of the “January effect” or any other calendar effect, did central banks go “all in” on proping up stocks with QE and, as was the case last week, with desperation such as the BOJ’s QE, making a mockery of all technical analysis and self-fulfillling chart propehcies. In retrospect, this time it really is different, and one can comfortably throw the almanac at least until we find out just how this doomed experiment in central planning ends.

via Zero Hedge http://ift.tt/1nWOV3d Tyler Durden

Submitted by Erico Matias Tavares of Sinclair & Co., and reposted from the original as of May 19, 2015 in light of the recent decision by the Bank of Japan to launch negative interest rates.

What A Cashless Society Would Look Like

Calls by various mainstream economists to ban cash transactions seem to be getting ever louder, while central bankers have unleashed negative interest rates on economies accounting for 25% of global GDP, with $5.5 trillion in government bonds yielding less than zero. The two policies are rapidly converging.

Bills and coins account for about 10% of M2 monetary aggregates (currency plus very liquid bank deposits) in the US and the Eurozone. Presumably the goal of this policy is to bring this percentage down to zero. In other words, eliminate your right to keep your purchasing power in paper currency.

By forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees).

This in turn could boost consumption, GDP and inflation to pay for the massive debts we have accumulated (leaving aside the very controversial idea that citizens should now have to pay for the privilege of holding their hard earned money in a more liquid form, after it has already been taxed). So at long last we can finally get out of the current economic funk.

The US adopted a policy with similar goals in the 1930s, eliminating its citizens’ right to own gold so they could no longer “hoard” it. At that time the US was in the gold standard so the goal was to restrict gold. Now that we are all in a “paper” standard the goal is to restrict paper.

However, while some economic benefits may arguably accrue in the short-run, this needs to be balanced in relation to some serious distortions that could rapidly develop beyond that.

Pros and Cons

To be most effective, banning cash would most likely need to be coordinated between the US and the EU. Otherwise if only one of the two Western economic blocks were to do it, the citizens of that block might start using the paper currency of the other, thereby circumventing the restrictions of this policy. Can’t settle your purchase in paper euros? No problem, we’ll take US dollar bills.

This is just one aspect that can give us a glimpse of the wide ranging consequences this policy would have. Let’s quickly consider some pros and cons, as we see them:

Pros:

• Enhance the tax base, as most / all transactions in the economy could now be traced by the government;
• Substantially constrain the parallel economy, particularly in illicit activities;
• Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment;
• Foster the adoption of new wireless / cashless technologies.

Cons:

• The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money. This is why Greece may have to leave the euro, since its inability or unwillingness to adopt more austerity measures, a precondition to secure more euro loans, will force it to print drachma bills to pay for its debts;
• Paper money costs you nothing to hold and carries no incremental risk (other than physical theft); converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency directly backed by the central bank for currency backed by your local bank;
• This could have grave consequences for retirees, many of whom are incapable of transacting using plastic. Not to mention that they will disproportionately bear the costs of having to hold their liquid savings entirely in a (costly) bank account;
• Ditto for very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent, on government handouts;
• We wonder if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries;
• Illegal immigrants would be out of a job very quickly – a figure that can reach millions in the US, creating the risk for substantial social unrest;
• If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt;
• Of course enforcing a government mandate to ban cash transactions must carry penalties. This in turns means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time;
• Banning cash transactions might even propel the demise of the US dollar as the world’s reserve currency. The share of US dollar bills held abroad has been estimated to be as high as 70% (according to a 1996 report by the US Federal Reserve). One thing is to limit the choices of your own citizens; another is trying to force this policy onto others, which is much harder. Foreigners would probably dump US dollar bills in a hurry and flock to whichever paper currency that can offer comparable liquidity.

In light of the foregoing does banning cash transactions make sense to you? Aren’t the risks at all levels of society just too large to be disregarded?

Unintended Consequences

Paper money can be thought of as a form of interest-free government borrowing and therefore as a saving to the taxpayer. Given the dire situation of Western government finances, probably the very last thing we should do right now is to ban cash transactions.

Think about it. If the government prints bills and coins to settle its debts, rather than issuing bonds, it does not add to its snowballing debt obligations. Of course the counterargument is that this might result in significant inflation once politicians put their hands directly on the printing press. But isn’t this what the mainstream economists are so desperately trying to do to avoid deflation?

And it’s not like people in the West have tons of cash under the mattress. Let’s do the math. If only 30% of US paper money is held by residents, this is only about 2% of GDP, and probably unevenly distributed. It is therefore very dubious that any boost to economic activity will be that significant. In fact there is no empirical evidence that demonstrates this policy will work as intended (not that this has ever stopped a mainstream economist)

Moreover, an economy’s ability to create money would be even more impaired if its banking system were to crash – exactly at the time when it would need it the most. In reality it could be hugely deflationary because there would be no other currency alternatives. Talk about unintended consequences.

As to who could replace the US in providing paper liquidity to the world, we don’t need to think too hard. China will surely not ban cash transactions given that almost a billion of its citizens are still quite poor and most have no access to banking services (plus it seems that their own economic advisors are much more sensible). Replacing the US in offshore cash transactions would create substantial demand for the Chinese yuan, at that stage without any real competition from other major economies as presumably none would be using paper.

It is therefore doubtful that US political leaders would ever endorse such a policy; they would be effectively giving up on an incredible advantage – the US dollar ATM, to the benefit of their main geopolitical competitors. However, given the considerable influence of mainstream economists in financial and political circles this cannot be ruled out, especially during a crisis.

And it would be just the latest in a set of unprecedented economic policies:

“A depression is coming? Let’s put interest rates at zero. The economy is still in trouble? Let’s have the central bank print trillions in new securities. The banks are not lending? Let’s change the accounting rules and offer government guarantees and funds. People are still not spending? Let’s have negative interest rates. The economy is still in the tank? LET’S BAN CASH TRANSACTIONS!”

More Central Planning

The problem is that central planners never know how and where to stop. If a policy doesn’t work, they just find a way to tinker somewhere else – and with more vigor. Devolving the initiative back to the private sector is never an option.

Micromanagement of every single detail of our economic lives thus seems to be inevitable. And at that point there will be no more free markets. As pointed out by Friedrich von Hayek, “the more the state plans the more difficult planning becomes for the individual.”

Banning cash transactions seems like yet another excuse to postpone implementing real solutions to our financial problems. How can we have sustainable growth in the economy if:

• The banks are not solid enough to lend?
• Consumers are not solid enough to borrow?
• Overindebted municipalities, states and governments seek ever more tax revenues?
• An already overburdened private sector is underwriting the cost of every policy error?

The guys and gals who generate real wealth and employment need encouragement and support, not more penalties on how they choose to go about their business.

A cash ban does not address any substantive issues. What is needed is a sensible economic proposal and above all political courage to implement it, which so far seems to be lacking.

There are no free lunches in economics. A cashless society is promising to have very tangible costs to our liberties and future prosperity.

via Zero Hedge http://ift.tt/1RUedvj Tyler Durden

What must the rest of the world think?

 

 

Source: Townhall.com

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Having urged "don't panic" just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a "Treasury Single Account" (TSA) at the central bank.

 

The policy is part of new President Muhammadu Buhari's drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa's biggest economy – playing havoc with banks' liquidity ratios.

 

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria's energy revenues that has hit the naira currency and triggered flows of capital out of the country.

 

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

 

Since taking office in May, Buhari has vowed to rein in Nigeria's dependency on oil exports which account for 90 percent of foreign currency earnings. However, he has faced criticism from investors for failing to appoint a cabinet yet or outline concrete policies.

Amid confusion over the implementation of the single account policy, overnight interbank lending rates spiked to 200 percent, but Emefiele denied the policy had provoked a liquidity crisis.

"There is no shortage of liquidity," he said, pointing to an oversubscribed sale of treasury bills on Wednesday. "A spike is a momentary action. It's sentiment."

 

"I do not think there is any need for anybody to panic," he added.

But with CDS markets now implying a drastic devaluation (and capital controls already in place), it seems the time to panic has come…

 

We warned of the looming dollar shortage in March of last year, and most recently in December we warned that Africa was bearing the brunt as some of continent’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, restricted access to the greenback to protect dwindling reserves.

But, as The FT reports, it seems time is up for Nigeria, as the troubled nation has asked the World Bank and African Development Bank for $3.5bn in emergency loans to fill a growing gap in its budget in the latest sign of the economic damage being wrought on oil-rich nations by tumbling crude prices.

Nigeria’s economy is Africa’s largest and has been hit hard by the fall in crude prices — oil revenues are expected to fall from 70 per cent of income to just a third this year. 

 

Finance minister Kemi Adeosun told the Financial Times recently that she was planning Nigeria’s first return to bond markets since 2013. But Nigeria’s likely borrowing costs have been rising alongside its budget deficit. A projected deficit of $11bn, or 2.2 per cent of gross domestic product, had already risen to $15bn, or 3 per cent, as a result of the recent turmoil in oil markets.

 

…

 

The country’s financial buffers are also eroding. The central bank’s foreign exchange reserves have nearly halved to $28.2bn from a peak of almost $50bn just a few years ago. A rainy-day fund that had $22bn in it at the time of the 2008-09 global financial crisis now has a balance of $2.3bn.

 

…

 

“I think we all agree that Nigeria is facing significant external and fiscal accounts challenges from the sharp fall in . . . oil prices, as of course are all oil exporters,” Gene Leon, the IMF’s representative in Nigeria, told the FT. But he added that Nigeria was not in immediate need of an IMF programme. “We are not in that space at all.”

 

…the new government is also facing questions about its handling of the economy. Capital controls introduced last year have weighed on growth and the IMF has called for Mr Buhari to pursue alternatives.

 

The central bank introduced the first controls before Mr Buhari took office last May, but many new measures have been imposed since and the president has repeatedly voiced his support for them.

During a January visit Christine Lagarde, the IMF’s managing director, urged the government to allow the naira to trade more freely so that it could help absorb economic shocks.

“It can also help avoid the need for costly foreign exchange restrictions, which we don’t really support," she said in an address to parliament.

But Mr Buhari and his government are likely to resist a full IMF rescue programme.

The former military ruler butted heads with the IMF while leading the government in the 1980s and many observers believe he would be reluctant to invite the fund in again.

The question is – will the $3.5bn loan be used to keep social unrest from exploding on the streets or to further attempt to sustain an unsustainable peg?

As we previously warned, defending one's currency is a losing game as not only Argentina most recently, but the Swiss National Bank most infamously, will admit.

"As African central banks place restrictions on access to their dollars, while burning through these reserves to support their currencies, they are also storing up longer-term troubles. “Few investors will want to put money into a country at an official exchange rate that is not set by the market and which is not seen as sustainable in the long run,“ said Charles Robertson, global chief economist at investment bank Renaissance Capital."

For now Africa has avoided the "hyperinflation monster", the result of an all too predictable scarcity of dollars, however the countdown is on and with every passing day that oil prices do not rebound, the inevitability of a full-on continental currency collapse, with hyperinflation and social unrest to follow, becomes increasingly more likely.

Worse, Africa is just the start: while the manifestations will differ, the mechanics of the dollar shortage, which we recently quantified in the trillions of dollars, are universal, and should the Fed's rate divergence path with the rest of the world continue pushing the USD ever higher, soon this USD-shortage will escape the confines of the world's poorest continent and make landfall somewhere where it will be far more difficult to ignore the adverse consequences of the global commodity collapse and the Fed's monetary policy.

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Excerpted from Doug Noland's Credit Bubble Bulletin,

“Shock and awe” is not quite what it used to be. It still carries a punch, especially for traders long the Japanese yen or short EM and stocks. The yen surged 2% against the dollar (more vs. EM) Friday on the Bank of Japan’s (BOJ) surprising move to negative interest rates. BOJ Governor Haruhiko Kuroda has a penchant for startling the markets. Less than two weeks ago he stated that the BOJ would not consider adopting negative rates. It wasn’t all that long ago that central bankers treasured credibility.

For seven years, I’ve viewed global rate policies akin to John Law’s (1720 France) desperate move to hold his faltering paper money and Credit scheme (Mississippi Bubble period) together by devaluing competing hard currencies (zero and now negative rates devalue “money”). It somewhat delayed the devastating day of reckoning. Postponement made it better for a fortunate few and a lot worse for everyone else.

Last week saw dovish crisis management vociferation from the ECB’s Draghi. Now the BOJ adopts a crisis management stance. The week also had talk of some deal to reduce global crude supply. Meanwhile, the Bank of China injected a weekly record $105 billion of new liquidity. Nonetheless, the Shanghai Composite sank 6.1% to a 13-month low. There was desperation in the air – along with a heck of a short squeeze and general market mayhem.

Markets these days have every reason to question the efficacy of global monetary management. It’s certainly reasonable to be skeptical of OPEC – too many producers desperate for liquidity. The Chinese are flailing – conspicuously. As for the BOJ’s move, it does confirm the gravity of global financial instability. It as well supports the view that, even within the central bank community, confidence in the benefits of QE has waned.

After three years of unthinkable BOJ government debt purchases, Japanese inflation expectations have receded and the economy has weakened. Lowering rates slightly to negative 10 bps (for new reserve deposits) passed by a slim five to four vote margin. With the historic global QE experiment having badly strayed from expectations, there is today no consensus as to what to try next.

Kuroda remains keenly focused on the yen. After orchestrating a major currency devaluation, there now seems little tolerance for even a modest rally. The popular consensus view sees BOJ policymaking through the perspective of competitive currency devaluation, with the objectives of bolstering exports and countering deflationary forces. I suspect Kuroda’s (fresh from Davos) current yen fixation is more out of fear that a strengthening Japanese currency risks spurring unwinds of myriad variations of yen “carry trades” (short/borrowing in yen to finance higher-yielding securities globally) – de-leveraging that is in the process of wreaking havoc on global securities markets.

Notable Bloomberg headlines: (Thursday) “S&P 1500 Short Interest Is at Its Highest Level in Three Years.” (Friday): “Hedge Funds Boost Yen Bets to 4-Year High Days Before BOJ Shock.”

Bearish sentiment is elevated. Recent global tumult has spurred significant amounts of hedging across the financial markets. And, clearly, betting on “risk off” has of late proved rewarding (and gaining adherents). Draghi and Kuroda retain the power to incite short squeezes and the reversal of risk hedges. And central bankers can prod short-term traders to cover shorts and return to the long side. Yet the key issue is whether global central banks can propel another rally such as the 12% multi-week gains experienced off of August lows. Can policy measures resuscitate bull market psychology and reestablish the global Credit boom?

Subtly perhaps, yet the world has changed meaningfully in the five short months since the August “flash crash”. After exerting intense pressure and direct threats – not to mention the “national team’s” hundreds of billions of market support – Chinese equities traded this week below August lows. It’s worth noting that Hong Kong’s Hang Seng China Financials Index now trades significantly below August lows.

Bank stock weakness is anything but an Asian phenomenon. European bank stocks this week dropped to three-year lows. Even with Friday’s 2.7% rally, U.S. bank stocks (BKX) declined 12.6% in January (broker/dealers down 15.3%). European banks were hit even harder. The STOXX Europe 600 Bank Index has a y-t-d loss of 14.6%. This index is 31% below August highs and about 11% below August lows.

January 28 – Bloomberg (Sonia Sirletti and John Follain): “Banca Monte dei Paschi di Siena SpA led a slump in Italian banking shares after Italy’s long-sought deal on bad debts with the European Union disappointed investors. Monte dei Paschi, bailed out twice since 2009, fell 10%… in Milan trading, bringing losses this year to 45%. The eight biggest decliners among the 46 members of the Stoxx Europe 600 Banks Index were Italian lenders on Thursday. The agreement struck with the EU, which allows banks to offload soured loans after buying a state guarantee, is unlikely to clean up the financial system as fast as some in the markets had hoped, investors said. The plan stops well short of the cleanups organized in Spain and Ireland during the financial crisis. ‘The uncertainty in the Italian banking system will persist,’ said Emanuele Vizzini, who manages 3.5 billion euros ($3.8bn) as chief investment officer at Investitori Sgr in Milan. ‘The deal may help banks to offload part of their bad debt, but for sure doesn’t solve the problem, in particular for the weakest banks, which may need recapitalization.’”

Even with Friday’s 3.3% rally, the FTSE Italia All-Shares Bank index lost 22.8% in January. UniCredit, Italy’s largest bank, has a y-t-d decline of 31%. One is left to ponder where Italian sovereign yields would trade these days without Draghi.

When market optimism prevails and the world is readily embracing risk and leverage, the greatest speculative returns are amassed playing “at the margin.” “Risk on” ensures the perception of liquidity abundance, along with faith in the power of central banks and their monetary tools. In a world where liquidity is flowing, Credit is expanding and markets are bubbling, European securities markets provide attractive targets. And booming markets feed the perception that Europe’s economic recovery is sound and sustainable. It all became powerfully self-reinforcing.

But when cycles shift it’s those operating “at the margin” – i.e. junk bonds and high-beta stocks; leveraged companies, industries, economies and regions; leveraged financial institutions – that have the rug is so abruptly yanked out from under stability.

The thesis is that a momentous inflection point has been reached in a multi-decade global Credit cycle. A Monday Bloomberg headline: “So Yes, the Oil Crash Looks a Lot Like Subprime.” Others have noted the recent tight correlations between crude and equities prices. Let me suggest that the oil market provides the best proxy for the global Credit cycle. And it’s faltering global Credit that has been weighing harshly on commodities, equities and corporate Credit, while the bullish consensus bemoans that stocks have been way overreacting to modest economic slowdowns in the U.S. and throughout Europe.

A few months back the global bull market still appeared largely intact. Markets remained confident in central bankers and their monetary tools. Debt issuance was booming and the Credit Cycle seemed to sustain an upward trajectory. The global banking industry enjoyed an outwardly robust appearance – and was even to benefit from rate normalization in the U.S. and elsewhere. “Risk on” was secure, or so it appeared.

But it was the last (policy-induced) gasp of speculative excess, a “blow off” top that enticed more “money” into “developed world” stocks and corporate Credit. Meanwhile, finance was fleeing commodities, high-yield, China and EM even more aggressively. In reality, the Credit Cycle had turned – QE, negative rates, China “national team,” “whatever it takes” Draghi and a dovish Fed notwithstanding.

In newfound global Credit Cycle realities, highly leveraged China is an unfolding pileup. Vulnerability has precipitously emerged throughout the global banking system. European banks – luxuriating so popularly “at the margin” until recently – again appear acutely fragile. Recalling 2012, the European periphery is back in the crosshairs. A “bad bank” plan for the troubled Italian banking sector – that seemed doable back during “risk on” – seems less than workable with a backdrop of “risk off,” speculative de-leveraging and faltering global Credit.

Italy’s financial institutions and economy are acutely susceptible to weak securities markets and tightened Credit conditions. Italy is not alone. Greek yields surged 180 bps this month. Portuguese 10-year yields jumped 34 bps. For more than three years, “whatever it takes” monetary management has inflated securities market Bubbles. In the process, Bubble Dynamics have work surreptitiously to inflate financial and economic vulnerabilities.

It’s worth noting that Italian equities dropped 2.0% this week. Friday from Bloomberg: “Eighth Week of Europe Corporate-Debt Outflows Shows Limits of QE.” According to the article (Selcuk Gokoluk), $3.5 billion flowed out of investment-grade funds the past week. There is also heightened concern for the German economy’s exposure to China, not to mention the pressing immigrant issue and attendant political instability. There is as well increased focus on European financial and economic exposure to EM. European bank stock performance has been telling. Of the behemoth European banks, Deutsche Bank lost almost 26% of its value in January. BNP Paribas was down 16%, Credit Agricole 15%, Barclays 18%, Societe Generale 17% and Royal Bank of Scotland 17%.

This week saw 10-year bund yields sink to one-year lows. UK Gilt yields dropped to 10-month lows. It’s also worth noting the equities markets benefitting the most from Kuroda’s surprise and speculative dynamics. Brazilian equities gained 6.2% this week, with Mexico up 4.8%, Russia 3.9% and Turkey 4.6%. In the currencies, the beneficiaries were Brazil (up 2.3% this week), Mexico (2.8%), Russia (3.3%), South Africa (3.5%) and Malaysia (3.4%). It would appear that all the big gainers had oversized short positions.

I have been programmed over the years to take every short squeeze seriously. They often take on a life of their own. But back to the pressing issue: Can policy measures resuscitate bull market psychology and reestablish the global Credit boom? I do not expect either a resurgent bull market or a reemerging Credit boom. In truth, negative rates are a feeble tool in the face of global de-risking/de-leveraging dynamics. They are not confidence inspiring.

Dovish policy surprises do still afford a capable weapon to clobber those positioning for “risk off,” in the process somewhat restraining the forces of market dislocation. However, inciting squeezes and administering market punishment are not conducive to market stability or confidence. There’s a strong argument to be made that such a backdrop only compounds the challenge for the struggling global leveraged speculating community. Mainly, negative rates in theory are a tool to spur flows into risk assets and supposedly bolster securities markets. The irony is that negative rates are damaging to bank profitability. And as the Credit downturn gathers momentum, banking profits – and solvency – will be a pressing systemic issue.

via Zero Hedge http://ift.tt/1SutkKr Tyler Durden

While everyone else is considering the implications of a -25 bps rate it is time for the astute to look down the road.  New forms of bonds with larger and larger negative coupons will emerge.  Governmental entities that are quick to adopt this new type of bond will see their deficits evaporate.  Which large investment house will be the first to offer a High Extortion Bond fund?  Diversifying was important with High Yield Bonds and there is no doubt that financial advisors would urge using a High Extortion Bond fund in order to control risk.  If a High Extortion Bond goes belly up your checks might be returned uncashed.  If one insists on purchasing a specific High Extortion Bond shouldn’t there be some form of insurance one can buy to protect against this hopefully rare scenario?  In order to set the insurance rates appropriately we would also need someone like Moody’s to analyze each High Extortion Bond and give us reasoned default projections on them.  Get ready for the new frontier of finance!

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Tensions are running high in Sweden, the country with the highest per capita rate of sheltered asylum seekers.

Just yesterday we brought you video footage depicting a gang of “football hooligans” who stormed the central train station in Stockholm on the way to assaulting migrants and generally running amok in a show of nationalistic furor.

The incident came on the heels of an attack at a migrant house that left 22-year-old Alexandra Mezher dead. She was stabbed to death by an unaccompanied migrant child who was living at an asylum center in Molndal, where she had been working for several months.

“We refuse to accept the destruction of our once to safe society. When our political leadership and police show more sympathy for murderers than for their victims, there are no longer any excuses to let it happen without protest,” a kind of manifesto distributed ahead of the train station melee read. “’The justice system has walked out and the contract of society is therefore broken – it is now every Swedish man’s duty to defend out public spaced against the imported criminality.”

On Sunday, we go back to Sweden to bring you footage from inside a migrant shelter near Jonköping where a fight nearly broke out between a staff member and a distraught refugee.

It’s not entirely clear what went wrong, but here’s what The Local has to say:

In the video, one of the refugee youths is seen pleading with the worker “please, please, please”, before the worker erupts in anger.

 

“You have a problem with me?” the youth then asks, getting closer, before he begins shrieking, “fight me! fight me! fight me!” and then breaks down screaming and sobbing uncontrollably on the floor.

 

A broken table is visible. In the background, shouts of “fuck you!”, and “shut up!” are clearly audible.

 

The worker told Swedish Radio that a disturbance had broken out shortly before the video was recorded which had forced him and other staff members to lock themselves in their rooms.

 

He claimed that the man filmed apparently undergoing a nervous breakdown was the ringleader of the refugee youth, and was faking his apparent anguish for the camera.

As you can see, the “integration” process is going swimmingly.

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On Saturday, a delegation from Syria’s “main opposition” showed up in Geneva for UN-brokered peace talks, in what is supposed to represent the first steps towards some manner of negotiated settlement to the country’s protracted civil war.

“The 17-strong team from the Saudi-backed Higher Negotiation Committee (HNC), including political and militant opponents of Assad in the country’s 5-year-old civil war, is expected to have a first meeting with the U.N. mediator Staffan de Mistura on Sunday,” Reuters reports.

Well, those talks will begin beneath a pall of violence, because earlier today, some 60 people were killed by a car bomb and two suicide bombers in Damascus.

ISIS claimed responsibility for the attack (perhaps they were angry at not being invited to Geneva) saying they had “hit the most important stronghold of Shi’ite militias in Damascus.”

According to SANA, militants detonated a car bomb at a public transportation garage in Sayeda Zeinab district of Damascus, the site of Syria’s holiest Shiite shrine.

As rescuers moved in, two suicide bombers detonated their belts.

“The shrine houses the grave of the daughter of Ali ibn Abi Taleb, the cousin of Prophet Mohammed, whom Shi’ites consider the rightful successor to the prophet,” Reuters writes adding that “Syrian Ambassador Bashar Jaafari, head of the government delegation at Geneva, said the blasts in Damascus just confirmed the link between what the government says are a Saudi-led and funded Islamist ‘opposition’ and terrorism.”

Among the dead were dozens of Shiite militiamen who were fighting alongside the SAA.

Here are the visuals:

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— hosein mortada (@HoseinMortada) January 31, 2016

And so, just as the Saudis send a delegation comprised of opposition elements to Geneva, Sunni extremists who follow the very same ultra puritanical version of Islam as that espoused by Riyadh have just killed 60 people at a Shiite shrine. 

Meanwhile, Saudi officials have begun offering nearly $2 million for information that would help prevent militant attacks. As Bloomberg reported on Sunday, “authorities will pay a 1 million riyal-reward to anyone who ‘provides information about a terrorist, [while] information that leads to uncovering a terrorist cell will be rewarded with 5 million riyals.” 

If Saudi Arabia is serious about “preventing militant attacks”, perhaps the Wahhabists in Riyadh should simply look in the mirror. 

You’re welcome Saudi Arabia. You can make the $2 million check payable to Tyler Durden.

via Zero Hedge http://ift.tt/201kgh1 Tyler Durden

By EconMatters

In 2015 it was always beneficial to buy silver when it was below $14 an ounce in the futures market. Are things going to be any different in the Silver Market for 2016? Do we get a breakout in either direction this year, or does it remain largely a dead market for long term price trends.

via Zero Hedge http://ift.tt/1nWsqLB EconMatters