Saturday, December 12, 2015

Global RISK OFF: Financial Deathstar Activation Sequence

It's called "Globalization" for a reason:
The free lunch club wants to believe that they can have their fake wealth and exploit ever-growing poverty at the same time...that's not happening...





All of the factors that have been ignored for seven years straight coalesced this week. However, they were all viewed in strict isolation as usual - because plausible deniability is the opiate of the stoned masses and vital to Wall Street bonus season...

The first order effect was continued relentless global deflation (aka. poverty) caused by the weakening of the global economy. Which forced China to continue debasing its currency. The second order effect was the fake-believe U.S. recovery and impending interest rate increase that sucked liquidity out of global markets as real U.S. interest rates screamed higher. Credit markets were hammered this week in the U.S. and overseas. Then, to Wall Street's shock and awe there was the "unforeseen" reversal of the U.S. dollar, as markets had already "priced in" the first several rate hikes. Meanwhile, the continued weakness in oil despite the weak dollar was a "Black Swan" event. Whatever. No surprise, Emerging Markets and commodities bore the brunt of these various massively correlated machinations.

U.S. deflation (red) versus short-term interest rates: Real interest rates are multi-year wide...
One of these is right, one of these meets on Tuesday...



However, the real story of the week from a proximity fuse standpoint was the violent reversal in the Yen carry trade, likely as a result of all the factors above. Euro reversal was also significant, but the failure to hold above 1.10 was somewhat less dramatic. 







Unless all of these above factors magically "reverse" next week, we're done. The detonation sequence is in its latest stages:

Friday was the first gap 'n trap since August...


The Big Short. Squeeze.
Thanks to relentless Central Bank levitation, there's been no hedging for years straight now, as bears have been forced to capitulate. So this will be the hardest landing:

Index put / call: