globalmkts22116

Yesterday’s new Party Lines:

COMMODITIES: “It’s a supply thing, not a demand thing”
STOCKS: “This huge correction is not warranted by the data”

The robotic unanimity was stupifying at times: like a procession of Stepford Wives, the Davos whores appeared on camera to ‘explain’ why they – halfway up a Swiss mountain and entirely up themselves – know better than those just a few shades closer to the real world in New York, London, Berlin, Paris and Shanghai who find central bank tiger-balm incredible. As for those struggling to find jobs (or even the means by which ends might meet) many shades of grey below the bright young metropolitan Things, who cares what they know? They know nothing except tedious stuff like aged relatives, the price of bus fares, how to survive until the pension kicks in, and what to do about the mortgage they can’t afford any more…not even at Zirp interest rates.

But way up there in the rarified air of Davos, there’s obviously been a mass outbreak of altitude sickness. And what it’s telling us is that lead balloons can fly. No seriously, folks: they can.
Perhaps I should start by deconstructing Thursday’s oven-fresh, half-baked analyses.

COMMODITIES: “It’s a supply thing, not a demand thing”

There is an extent to which oil’s price has been artificially depressed by geopolitical manipulation and OPEC/Iranian/fracked additions to the glut. But if we had the robust economies all these muppets talk about, why wouldn’t producers and consumers just hoover up the gluts with glee?

And why, when asked what they’re doing to cope with new market conditions, do these BSDs all say “we’re gonna reduce expenses”….by which they mean firing people? So all these fired people, they’re going to use the heat from being fired to fire up consumption, right?

Also I need someone to explain why there is a copper, timber, cement and iron ore price plunge as well. Is this perhaps to do with miners and lumberjacks working all the overtime that God sends to keep gluts high and prices low?

Pretty much every objective statistic attracting any degree of trust shows shipping, trade and global overtime at an all-time low.And by the way, did anyone notice that US unemployment benefit requests just peaked? “We’re looking into it,” said another fat talking head, “it’s a mystery we’re tryin’ to puzzle out right now.”

Give me strength.

STOCKS: “This huge correction is not warranted by the data”

What data exactly are they looking at? This is what the Bank of America CEO told us yesterday afternoon:
“Things are looking good in Europe….the PMIs are optimistic, and the EU consumer has lots of money to spend”.

That is not even worthy of being called an ex cathedra assertion. It doesn’t even qualify as spin. It is a black lie. I don’t have any truck with PMI surveys: they’re just opinions about next month, not audits lastmonth. Month after month for the last five years they have been wrong – that is, overly optimistic.

And if you can find any data anywhere showing that many mass market EU consumers have “lots of money” then I’d be happy to deconstruct it. Here in France, unemployment has risen yet again, every retailer is in recession, DIY stores are flatlining and benefits are rising. In ClubMed, Italian banks are only surviving through draconian anti-shorting legislation, Portugal is in political stasis and Spain is both angry about austerity and riddled with regional nationalism. Growth has come to a halt in Germany, the refugee situation has turned into an expensive farce, and Greece is….well, barely a Sovereign State any more.

Mr Draghi makes another promise

Mario Dragula kept rates ‘steady’ yesterday. The Italian rapscallion at last accepted that zero rates, QE and shifting ECB money around the ClubMed banking system aren’t producing the required result, viz, any real sign whatsoever of a recovery. “Clearly,” he said, “we are not hitting our targets, and we can’t just do nothing”. So taking the current package that isn’t working, he offered more of it.

From here on in his speech, the EU Kremlinologists got to work trying to figure out whatTF Draghi had in mind, the main clue being “no limits on stimulus” and the disturbing (to me) “going beyond traditional barriers”. The latter bit will get him into yet another antler-fight with the Bundesbank and perhaps the Karlsruhe Court; but even worse, it sounds like he’s heading down BankofJapan Road to the funny farm.

But it was better than nothing, and so the markets rose a little and continued the day’s minor rally following the bloodbath of earlier in the week.
Correction2 over, onwards and downwards

A mixture of past experience, feel and data suggest to me that what I call ‘Correction2’ is now more or less over. Next week – barring another set of shocks – I expect some lost ground to be regained. The smiling, morbidly obese blokes and skinny adolescents will resume the Business as Usual shtick on air, but we will still not be anywhere near the peak of early summer 2015, when the Bull run started to lose its limbs one by one.
So we’re clear about which page of the hymn sheet this is, we are at Crash2, Correction2, just past the end of the beginning that began in 2008 with Crash1.
When an historic correction gets under way, this is what one traditionally sees:

beardrop
OK, it’s not exactly Live Reuters science, but it is simple. The black line starts over to the left (still in the everlasting new paradigm of growth bollocks that never ends) and we get an inititial correction….last September. That’s followed by a rally which regains quite a bit of ground, and then there’s a second drop of similar size….this week gone. Where black meets red is where we are now.

At this point, the Masters of the Universe still have lots of excusatory BS where they say it’s not a recession, it’s not a technical bear market, it’s just a blip, this is not a collapse, the economic technicals don’t support the fall, the markets are mad but of course they must prevail etc etc. However – even if only for a time – the psychological levels of The Day have been broken….the 3,000, 6,000 and 16,000 lines in our situation in Shanghai, London and New York respectively. They may be regained, but they’re no longer invincible. Think defeat of Rommel in North Africa: the Nazis are not superhuman. It’s a turning point.

From here on, the mismatch between those in the business of arse protection and those in the profession of investment gets steadily greater: the vague promises and double-standard lies are no longer believed. The falls get longer and steeper, the rallies shorter and smaller, and that domino third in line sees its centre of gravity getting higher: firms fail, economic data gets less equivocal, central bank tools have no effect.

That’s what traditionally happens, but this is a new future we’re looking at. This is a historical (and historic) reset from which there will be no turning back – but it can’t possibly be like any previous one because new variables have been introduced: QE, Zirp, globalised business, fractional reserve banking, the massive shift from income to capital power, the Brics, derivative contracts, SOL trading, dark liquidity….and that old favourite, the ‘technical glitch’.

So nobody knows how it will pan out, how long the process will take and what the exact outcome will be. What it won’t be is more of the same.

Last night at The Slog: the art of fitting in from the outside