January 5: Daily Contrarian Reads

Even JPMorgan Admits “Central Banks have Created Unprecedented Distortions In Government Bond Markets”

“True Believer” central banks have created unprecedented distortions in government bond markets. Bond purchases and negative policy rates by the ECB and Bank of Japan led to negative government bond yields. Whatever their benefits may be, they also resulted in profit weakness and stock price underperformance of European and Japanese banks. The poor performance of European and Japanese banks. The poor performance of European and Japanese financials was a driver of lower relative equity returns in both regions in 2015/2016.

China Inc.’s $1.4 Trillion Foreign Currency Debts Fuel Beijing’s Efforts to Prop-Up Yuan

Chinese businesses’ foreign borrowings increased by $47.7 billion—a 4% rise—to $1.2 trillion in the third quarter of 2016 from the second quarter, official data show. State banks, traditionally big users of external funding to help replenish their capital base, accounted for 38% of the jump…..In battling to damp expectations for any precipitous fall in the yuan, the central bank has been tightening up controls on the movement of capital, making it more difficult for companies to invest overseas and limiting what individuals can do with their money. During the New Year’s holiday weekend, staffers at commercial banks said they had to work overtime to prepare their systems for the latest instructions from the foreign-exchange regulator, an arm of the central bank: Scrutinize individuals’ applications for foreign-currency purchases.

US Luxury Apartment Boom Looks Set to Fizzle in 2017

Landlords of upscale properties across the U.S. are bracing for rough conditions in 2017 that will likely force them to slash rents and offer deep concessions as a glut of supply brings a seven-year luxury-apartment boom to an end…..Developers in New York are already offering up to three months of free rent on some projects. In Los Angeles, some landlords are offering six months of free parking, and some in Houston are waiving security deposits. Meanwhile, MPF Vice President Jay Parsons said he expects little or no rent growth in urban rental markets this year.

Another Ticking Time Bomb—US Banks Have $2 Trillion Exposure To Troubled European Banking System

At a time when international business headlines are filled with reports of a massive banking bailout in Italy and the potential for systemic risks from Germany’s struggling giant, Deutsche Bank, the OFR report delivers this chilling statement: “U.S. global systemically important banks (G-SIBs) have more than $2 trillion in total exposures to Europe. Roughly half of those exposures are off-balance-sheet…U.S. G-SIBs have sold more than $800 billion notional in credit derivatives referencing entities domiciled in the EU.”

Red Ponzi Fracturing—-Chinese Yuan Flash Crashes Below 7.0/$

Did CNY flash crash yesterday? That it is even being contemplated and argued is itself an indication of these times. According to pretty much all market data, CNY fell below 7.0 to the dollar just prior to the US open……And the flash crash in CNY wasn’t limited to just this one data source. About the only part that is perfectly clear in all this is that the PBOC just confirmed what I wrote yesterday (published earlier today) as being so far behind the monetary curve. Chinese central bankers are desperate, and in desperate fear of losing total control.

Silicon Valley In 2017: The Dark Side Of ‘This Time Is Different’

There was also another “It’s different this time” proclamation which was supposed to prove 2016 to all the “nay-sayers” just how much people like myself “don’t get” social/tech/The Valley/etc. For it was we who needed to see the brilliance of their decision-making processes. And none was so heralded as to what 2016 was supposed to be than the resurgence of Twitter™, with its now multi-tasking CEO. How did all that work out? Well, as they say in “The Valley”, let’s look at another “picture” shall we?

Gold—–Ready to Spring Another Surprise

Below is an update of a number of interesting data points related to the gold market. Whether “interesting” will become “meaningful” remains to be seen, as most of gold’s fundamental drivers aren’t yet bullishly aligned. One must keep in mind though that gold is very sensitive with respect to anticipating future developments in market liquidity and the reaction these will elicit from central banks. Often this involves very long lead times.

3 US Debt Bubbles—-A Statistical Update

So here you have it, folks: 1) Corporate debt bubble is at an all-time high 2) Government debt bubble is at an all-time high 3) Household debt bubble is at an all-time high. Meanwhile, equity funding is slipping even for the usually credit-shy start ups.

The Multiple Implosions Of Toshiba—-A Lesson On The Folly Of NIRP

Toshiba, which has been embroiled in all kinds of intricate and massive financial and accounting scandals, that investors deluded themselves into thinking were now behind it, is once again melting down…….Standard & Poor’s downgraded Toshiba another notch deeper into junk, to B- with a “negative” outlook. S&P expects shareholder equity to “drastically shrink” due to the write-down, which would further weaken the conglomerate. But it still can borrow money on the cheap in NIRP Japan: According to Thomson Reuters data, the yield on its bonds due 2020 rose 17 basis points to a still minuscule 1.76%, for a junk-rated company that has been embroiled in financial and accounting scandals, and a huge and still not fully disclosed problem in its nuclear operations. The Bank of Japan has clearly killed off any remaining market discipline.

Can Trump and Putin Avert Cold War II?

“A soft answer turneth away wrath, but grievous words stir up anger,” reads Proverbs 15:1. “Great move,” tweeted President-elect Trump, “I always knew he was very smart!”……Among our Russophobes, one can almost hear the gnashing of teeth. Clearly, Putin believes the Trump presidency offers Russia the prospect of a better relationship with the United States. He appears to want this, and most Americans seem to want the same. After all, Hillary Clinton, who accused Trump of being “Putin’s puppet,” lost. Is then a Cold War II between Russia and the U.S. avoidable?