Interesting times we live in, eh? Our global financial markets have metamorphosed more in the past fortnight than they did in the previous 14 years. Here’s a recap as to why, paying specific attention to the build-up of DERIVATIVES, and their unraveling which is causing so many of the dislocations that are now manifesting themselves.
The great unwinding we are now witnessing had its roots in myth – The Strong Dollar Policy. This myth was a conceptual concoction of former Treasury Secretary Robert Rubin and his protégé Lawrence Summers [with an academic “assist” to Barsky and the Harvard Economics Department]:
That the U.S. Dollar rallied from the 1995 time period is a matter of historical fact. In the past, soothsayers such as Sir Alan of “Bubbles” Greenspan have tried to entertain us into believing that the Dollar’s ascent was due to paradigm-shift or “The Great Productivity Miracle.”
Now we know better.
So What Made the Dollar Strong?
Forensic examination of the economic abuses that have been perpetrated on the world’s financial system reveal that the heavy application of DERIVATIVES – not productivity increases – were coincidental with and largely responsible for the Dollar’s ascent circa 1995 – 2000:
As I discussed in a piece last week, titled, The Invisible Hand and the Pox Known as Usury, the “derivatives enabling - manipulation of interest rates” led to the wholesale mis-pricing of capital that paved the way for the House of Horrors of economic abuses that followed.
The Perpetuation of Failed Monetary Policy
Today’s monetary elites, much like their predecessors, would have us believe that Additional Excess will solve the problems brought on by the gross mis-pricing of capital that got the ball rolling in the first place.
They are wrong.
In the real world, folks, when you put lipstick on a pig, you may end up with a pretty pig:
But pigs cannot fly.
Today’s Market
Overseas equity markets performed a “face plant” with Japan’s Nikkei Index coughing up 465 points to close at 10,473. North American markets didn’t fare much better with the DOW losing 369.90 to 9,955.50, the NASDAQ dropping 84.43 to 1,862.96 and the S & P losing 42.55 to close at 1,056.90. NYMEX crude oil futures lost 4.81 to close at 89.07 per barrel.
On foreign exchange markets the U.S. Dollar Index gained .48 to 81.51.
The interest rate complex was volatile with yields lower across the curve. The benchmark 5 yr. bond ended the day at 2.46% while the 10 yr. note finished at 3.48%.
Precious metals were mixed in an extreme sense; COMEX gold futures rocketed 20.50 to 856.30 per ounce while COMEX silver futures were drubbed .22 to 10.97 per ounce. On the equity side; the XAU Index was hammered for 6.60 to close at 105.49 while the HUI Index lost 15.97 to finish at 253.11.
On tap for tomorrow, at 2:00 p.m. the FOMC is due to release the minutes of their Sept. 16, 2008 meeting. Then at 3:00 p.m. Aug. Consumer Credit data is due – expected -1.2% vs. prior -3.2%.
Wishing you all a pleasant evening and a happy bank holiday – in case we have one later this week!
