DEADCATS2No fat ladies singing

One early reaction in China to the Politburo’s rate cuts was for a Shanghai banker to jump to his death from a high window. A bit extreme perhaps, but as Ambrose Evans-Pritchard points out, there is no net addition of stimulus in the package. So while dead bankers rarely bounce, what happened around the world yesterday looks more and more like the apparent optimism of a dead cat.

For an hour or two overnight, things were looking up as the Shanghai powered ahead by 4%. But then that was wiped out, and the Index was 1.3% down on the day…yet another new 8-month low.

Euro stocks are looking nervous, and an hour into the mission the FTSE is already 1.4% down, dipping below 6,000 again. But what many observers seem not to notice is that yesterday’s US rally ended with a distinct sound of bouncing feline cadavers. Take a squint at this:

S&P10yr26815Two things are clear from these graphs. First, towards the end of yesterday, the S&P sold off again. It is still nearly 700 points adrift of the pre Black Monday high.

Second – and here’s me being ‘totally wrong’ again – the most consistent feature of the panic day and yesterday was a rise in US ten year yields. Rising rates? I will keep on about it until somebody catches on.

All the US indices were down yesterday, in what CNN referred to as ‘an unravelling’ of the rally. To be exact, it was the most severe collapse of a rally since 2008. The S&P 500 is 1% away from erasing all its gains since the end of 2013, and its futures for today look shakey at best: climbing to 1.7% in the early CET hours today, as the Chinese sell-off returned, it has slashed to 0.5% in the last hour.

The stimulation announced by Beijing yesterday isn’t going to work solely because it’s shuffling the same pack again: it will fail as much because it’s like giving Speed to a bloke about to be executed: it isn’t going to make him walk any faster towards the gallows. There is no market out there to buy Chinese crap because neoliberal ‘policy’ has slaughtered both spending power and confidence further down the social scale.

Look at what Yanis Varoufakis (naive negotiator but first class economist) wrote about China over four years ago:

“To buy time, the Chinese government is stimulating its growing economy and keeps it shielded from currency revaluations, in the hope that vibrant growth can continue. But they see the omens. And they are not good. On the one hand, China’s consumption-to-GDP ratio is falling; a sure sign that the domestic market cannot generate enough demand for China’s gigantic factories. On the other hand, their fiscal injections are causing real estate bubbles. If these are unchecked, they may burst and thus cause a catastrophic domestic unwinding. But how do you deflate a bubble without choking off growth? That was the multi-trillion dollar question that Alan Greenspan failed to answer. It is not clear that the Chinese authorities can.”

As I keep on saying, rock and hard place. When the Boys from Beijing finally work this out – and start a crucifixion programme for Shadow Bankers – I don’t believe they will ‘do a Greenspan’; I think they will take the hit in two ways that offer them the best geopolitical advantage:

  1. They will pull out all the stops to get investment monies back in again: ‘buy at the low point’ selling plus increased debt rates
  2. They will turn from defence to offence, and from narrow market considerations to broader geopolitical opportunities…perhaps in concert with other equally desperate Brics.

Never underestimate the desperation of the Poor. When defeat is staring them in the face with nothing to lose, then it’s time to really fear them.

Earlier at The Slog: Anyone notice Osborne reducing bank customer guarantee by £10,000?


  1. I keep an eye on this site because I’ve heard some people say that “civilisation” is on a knife edge. That doesn’t seem to be the view of JW though. Just in case McBride was being serious I spent yesterday in 3 different supermarkets and now my hall is full of tinned food and lentils. Last night my 12 yr old was in tears because she’s afraid “nothing’s going to be normal “. I can’t be bothered with conspiracy theories and economic language is obscure to the point of being a foreign language. Dead cats? It’s like trying to understand quantum physics through the medium of hieroglyphics. And I’m not interested anyway. I just want to feed my children and keep them safe. So is this modest aim under serious threat? That’s all I want to know and I’d be extremely grateful for an honest answer.


  2. @Jackie

    If you have been reading this blog over time, you will have the answer.

    I am neither concerned (because I have changed my life in the past 4 years and can therefore adapt) or enthusiastic (see previous comment). I do have a protectionist streak however, and like you wish for my family to be safe and well come what may. Hedge accordingly.

    Yesterday’s comment by McBride was illuminating to say the least. But, we need to remember politics is a game.


  3. On Wall Street equity is trading at *61 annual earnings. Thus after the passage of 61 years, assuming all others factors to be as they are now, their valuation of that stock will be genuine, in Shanghei the valuations are orders of magnitude greater.
    The shallowest waters are the most treacherous.


  4. JW you may be interested in a post at Zero Hedge summarising a report by Ms. Wai Yao, an analyst at SocGen. The analysis argues that the cut in RRR and deposit an lending rates by the PBOC but as a result of about 700 billion yuan bought by the PBOC to slow the yaun’s depreciation. The purchase of such an amount , equivalent to about 106 billion USD would result in tightening liquidity which would be offset by an RRR cut of the magnitude taken by the PBOC. the analyst also argues that the sale of USD to support the yuan came from the sale of US Treasuries over the last two weeks. This would also explain the puzzling reaction of US Treasury yields at a time when there should be a flight to safety.
    In summary, the move by the PBOC had less to do with an attempt to stimulate the economy than a reaction to its FX intervention in the Open Markets.
    With talk of a year end target of 7 yuan to the USD, we can expect a rollicking time in the FX markets and US Treasury markets


  5. The situation is simple, the creation of debt just about everywhere and the operation of shadow banking and broken/rigged markets has created an untenable situation.

    Now the game is reaching its climax the US holds the trump card, they still have the reserve currency and effectively own the casino. Why anyone would think that when backs are against the wall the US would play straight is beyond me.

    Look at any system or regime in its terminal phase, no measure is too extreme or too cynical, the currency wars are not winnable it is a case of who loses most.


  6. Yes, that indeed is where we are heading at a rapid rate of knots, ‘No measure is too extreme or to cynical’.
    As I said a while back, ‘You Ain’t Seen Nuthin Yet’.


  7. I have been following the slog/zerohedge and a few others for a number of years trying to understand the madness and greed going on in the world today. I’m in my retirement years wondering how to protect my saving and best survive the coming collapse. Money in the bank take it out where do you put? Invest in gold look what’s happened to gold prices I think the only way to look at gold is not a upward investment but to try and hang on to your wealth because currency’s are not going to be worth a light. Or maybe I’m viewing this in the wrong light any suggestions would be helpful.


  8. I’m looking for work again – but my bank have just made me a new facility available without me even asking. £25,000 over 5 years.
    Should I go shopping and make it better?
    Wouldn’t even dream of it. Could ruin my life.


  9. @ Jackie
    Well done. You have made the first step, which is to wake up to the possibility that life may change in ways that are not conducive to your wellbeing.?
    That said, when you admit (“And I’m not interested anyway”), you appear not to wish to involve yourself in understanding the details? That is not really a viable option. I do a lot of reading on this subject, and I put the views of others side by side with my ‘take’, on what I see happening around me. If you don’t bother to study various views, and simply expect to be spoon fed ‘The answer!’, how do you know that answer is the correct answer?
    To narrow down the issue for you there appear to be three main possibilities ahead.
    1. Cliff Edge : Whereby the economy, and society is nearing a total collapse. This view is that one, or a domino series of events will bring the system to its knees. That collapse is perceived to be in the likely range of 2 to 10 years.
    2. Slow Ramp Descent : The society that we enjoy today, was built up industrially, creatively and inventively, by the clever use of cheap fossil fuels over the last 250 years (or so). Now that cheap fossil fuel is turning into expensive fossil fuel, those ‘civilisation gains’, will start to be given up. This view is taken to be in the 15 to 40 year range. This is a range long enough for society to adapt, if we ‘Triage’, our resources, and pull together and act wisely. Also read the Seneca effect to understand why 250 years up, does not mean 250 years down?.
    3. Stepwise or saw tooth descent : This is a combination of the above two. This belief suggests that the slow descent will be masked to a degree, by small or ‘micro collapses’ in some areas of our life, being compensated by advances (or perceived advances!), in technology. This is something that the individual needs to study and work on to see the minutia of changes in life, general.
    I could write more,.. a lot more, but then I’d be spoon feeding you, and I’m afraid there is no easy way to analyse our possible futures. You are going to have to put some work into this Jackie.?


  10. Jackie
    Civilisation has been on a knife edge for so long now, it is cut to ribbons. Nevertheless, we’re talking about a tiny % of idiots driving this trend. I remain hopeful that, once found out, they will not be replaced.


  11. @jackie
    Indigo makes some good points. In the final analysis you will have to answer one question, do you trust Cameron, Obama, Juncker etc to make these judgements for you or will you empower yourself to make them?

    Your 12 year old is essentially correct – nothing is going to be normal, or more accurately, nothing is normal now but the effects of the abnormality are being artificially obscured and buffered from people on our level. Eventually this buffer will break down and we’ll have to deal with it.

    There are 1001 things you can ‘do’ but a prescriptive list is not productive at this time, it is more important to understand how and why.
    This book might be worth a look.


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