Friday, September 4, 2015

The Yuan/Lehman Event: 1997 x 2008 = 1929

ZH: Sept. 4, 2015
The 1929 Analog Is In Play aka. "Surprise" crash from all time high

As it was in 1929, the first/last/only dip, got bought:



Looking back on it, the Chinese Yuan devaluation will be seen as this era's Lehman Moment...

Though right now considered a singular uncorrelated "Black Swan" event, the circumstances and pressures leading up to China's currency capitulation had been setting up years prior in broad daylight. The event was largely ignored due to conditioned market complacency arising from six years of non-stop Central Bank "liquidity" support. Now inconveniently culminating in the major central banks being ALL IN.  

BBG: Aug. 25th, 2015
Multi-trillion global carry trades (borrowing in one currency investing in another) which were working grand as recently as April, were forced to come off for the first time since Lehman. The combined effect of Emerging Market domino currency debasement and carry debt unwind/funding currency strengthening will make Lehman seem like a picnic i.e. 1997 x 2008. 

The S&P then and now:
The average S&P stock peaked two years ago. Also Lehman was NOT considered a short-covering event, which is why the market bounced last week...

Extreme deflation visualized:

The momentum feedback collapse in Global macro forced the Yuan devaluation:
Canadian dollar, Russian stocks, U.S. deflation index, EM currencies, all commodities including oil:

Western Carry Trades (G10)

Asian Carry Trades
vis-a-vis Yen/Aussie dollar

Critical sectors rolled over a long time ago...

We've had ample warning for what comes next.

This will make Lehman seem like a fucking picnic.