Friday, March 17, 2017

Global Coordinated Mega Collapse aka. Fake Wealth Effect

The flame rises but it soon descends...
There's no telling what a man might lose
After the thrill is gone 
- Eagles

It's becoming very clear now via the various coalescing data points, that the world's largest net importer of capital fabricated an echo reflation compliments of the entire rest of the world. Financial reflation papered over economic deflation via the trickle down fake wealth effect...

In other words, Central Banks conned themselves this time.

U.S. monetary divergence in 2014 brought a tsunami of capital to the U.S. while at the same time hammering Emerging Markets, China, Commodities, and Oil which then collapsed in 2015. Subsequently, the U.S. Fed took an entire year off from tightening while China, Japan, and Europe massively increased monetary stimulus. The effects of this coordinated intervention was to echo reflate asset prices in Emerging Markets, and Commodities while propelling the S&P 500 to record new highs, compliments of trillions in new hot money. All of this fake wealth papered over the core economic fundamentals which have been deteriorating in the background. The Fed itself has been fooled primarily by the manic change in RISK ON sentiment, and by the echo reflation from commodities, gasoline and oil, now fading as quickly as it came. 

Asset reflation leaked into the CPI via the trickle down fake wealth effect...

CPI with commodities:

I read recently that taking diabetes drugs to paper over a bad lifestyle in no way prevents long-term organ damage from diabetes. It just makes the final "event" more abrupt. 

Similarly, papering over a collapsing economy with printed money in no way prevents collapse. It just ensures that no doorknob sees it coming...

Loan growth with the Fed balance sheet

"Printing money was their secret to effortless wealth. They couldn't believe that no one had tried it sooner"

Some looks at the casino...

Bad week for banks

Bad week for USDJPY (with Relative Strength):

Today, highest option skew ever, daily and weekly: