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Why It Really All Comes Down To The Death Of The Petrodollar
Why It Really All Comes Down To The Death Of The Petrodollar
Last week, in the global currency war’s latest escalation, Kazakhstan instituted a free float for the tenge. The currency immediately plunged by some 25%.
The rationale behind the move was clear enough. The plunge in crude prices along with the relative weakness of the Russian ruble had severely strained Kazakhstan, which is central Asia’s largest crude exporter. As a quick look at a chart of the tenge’s effective exchange rate makes clear, the pressure had been mounting for quite a while and when China devalued the yuan earlier this month, the outlook for trade competitiveness worsened.
What might not be as clear (on the surface anyway) is how recent events in developing economy FX markets following the devaluation of the yuan stem from a seismic shift we began discussing late last year – namely, the death of the petrodollar system which has served to underwrite decades of dollar dominance and was, until recently, a fixture of the post-war global economic order.
In short, the world seems to have underestimated how structurally important collapsing crude prices are to global finance. For years, producers funnelled their dollar proceeds into USD assets providing a perpetual source of liquidity, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop. That all came to an abrupt, if quiet end last year when a confluence of economic (e.g. shale production) and geopolitical (e.g. squeeze the Russians) factors led the Saudis to, as we put it, Plaxico’d themselves and the US.
The ensuing plunge in crude meant that suddenly, the flow of petrodollars was set to dry up and FX reserves across commodity producing countries were poised to come under increased pressure. For the first time in decades, exported petrodollar capital turned negative.
…click on the above link to read the rest of the article…
The HFT “Treasure Map” – Presenting The Rigged Stock Market’s Full “Latency Abritrage” In One Chart
The HFT “Treasure Map” – Presenting The Rigged Stock Market’s Full “Latency Abritrage” In One Chart
Last week, when poring through the SEC’s complaint over ITG’s criminal frontrunning of client order flow in a “experiment” prop trading group within its Posit dark pool known as “Project Omega”, we clearly laid out the “criminal fraud” that allowed the original dark pool to make money without any risk, and explained why HFT’s never lose money.
Only, in this particular case, the fraud was so egregious, even the SEC had to step in and slam ITG with the biggest fine on record for a private Wall Street exchange (at least until the fine about to be levied at Credit Suisse’s own dark pool, the biggest in the US, Crossfiner is revealed).
The reality is that most HFTs do not engage in such brazen criminal activity – most act within the confines of the law. And yet, as Virtu has shown year after year, they never lose money. How can the two coexist?
Simple: the answer is that in the aftermath of Reg NMS, and the terminal capture of regulators by those who benefit from market fragmentation, regulators blessed a two-tier market, one in which HFTs can frontrun non-HFT order flow and not be worried one bit about the consequences.
The technical term for this gross aberration of market fairness and efficiency is latency arbitrage, and it is best shown on the following annotated “map” courtesy of Nanex’ Eric Hunsader, laying out the embedded, and regulator blessed, latencies between the three big New Jersey exchange centers: Mahwah (NYSE), Secaucus (BATS), and Carteret (Nasdaq) for everyone but the top tier – the High Frequency Traders, whose only advantage is having the millions to spend both in one-time collocation setup as well as recurring microwave/laser fees to obtain faster data access which thenallows them to frontrun everyone else and generate massive returns on their investment. Returns that are due only to done thing: frontrunning.
What the map clearly shows is the unprecedented timing advantage HFTs have not only over the Securities Information Processor (SIP), which is used by virtually all non-HFT participants, who pay millions for real time feeds.
The Irony Of Market Manipulation
The Irony Of Market Manipulation
Having gazed ominously at the extreme monetary policy smoke-and-mirrors intervention in bond markets, and previously explained that “the stock market is to important to leave to the vagaries of an actual market.“ While the rest of the world’s central banks’ direct (BoJ) and indirect (Fed, ECB) manipulation of equity markets, nobody bats an eyelid; but when PBOC steps on market volatility’s throat (like a bull in a China bear store), people start complaining… finally. There is no difference – none! And no lesser Asian expert than Stephen Roach warns that we should be afraid, very afraid as he states, the great irony of manipulation, he explains, is that “the more we depend on markets, the less we trust them.”
BoJ is directly buying Japanese Stocks and the rest of the world’s central banks are buying bonds with both hands and feet… for the first time ever, central banks are set to monetize all global government debt, something we showed previously…
But with China’s heavy handed “measures” seemed to save the world (until the last 2 days)…
9-Jul-15 Thurs CSRC:
1) suspended reviews of IPOs & other secondary market fundraising activities from Jul 9;
2) asked listcos to choose 1 out of 5 measures (including share buyback by major shareholders, companies and senior executives, employee stock buyback
incentive & employee stock ownership) to protect share price.
China Banking Regulatory Commission (CBRC):
1) allowed banks to roll over matured loans pledged by stocks;
2) encouraged banks to provide liquidity to China Securities Finance Corp Ltd. (CSFC) & offer financing to listed companies to buy back shares.
China Insurance Regulatory Commission (CIRC): insurance asset mgt companies should not demand early repayment from brokers for debt products on margin financing.
Minister of Public Security & CSRC: to investigate malicious short selling activities on Jul 9.
State-Owned Assets Supervision & Admin Commission (SASAC): asked provincial SASACs to submit daily report if local SOEs’ increased stock holdings starting Jul 9.
CSFC: issued Rmb80bn short-term note in interbank market on Jul 9, yield at 4.5% p.a., duration at 3 months; and will purchase mutual fund products to stabilize liquidity.
…click on the above link to read the rest of the article…
