04Sep2015 Market Close: Markets Closed Down Ahead Of Monday Holiday, Indicators Remain In Bear Land, WTI Oil Shows Strength At 46

What We Read Today 04 September 2015

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary “reading list” which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for “reading list” items are gratefully reviewed, although sometimes space limits the number included.

This feature is published every day late afternoon New York time. For early morning review of headlines see “The Early Bird” published every day in the early am at GEI News (membership not required for access to “The Early Bird”.).

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Geneva wealth managers pay defrauded investors to settle Madoff case

GENEVA (Reuters) – Five former Geneva wealth managers have paid “substantial compensation” to settle criminal complaints brought by clients whose assets they had invested with U.S. fraudster Bernard Madoff, the Geneva prosecutor’s office said on Friday.

Muddled jobs report leaves Fed in a ‘jam’ watching markets

NEW YORK/RICHMOND, Va. (Reuters) – The latest U.S. jobs report was not definitively good or bad enough to help the Federal Reserve decide whether to raise interest rates later this month, leaving the decision hanging on volatility in financial markets over the next couple of weeks.

Boeing sticks with 747 production plans despite sales drought

NEW YORK (Reuters) – Boeing Co said on Friday it is sticking to current production plans for its 747 jumbo jet despite a canceled order that left no net new orders for the plane in 20 months.

Meanwhile In Submerging Markets: An FX Bloodbath

Things were already bad enough for emerging markets going into August. Persistently low commodity prices, slumping demand from China, depressed global trade, and a “diminutive” septuagenarian waving around a loaded rate hike pistol in the Eccles Building had served to put an enormous amount of pressure on the world’s emerging economies.

And then, the unthinkable happened.

No longer able to watch from the sidelines as the export-driven economy continued to buckle from the pain of the dollar peg, China devalued the yuan. What happened next was nothing short of a bloodbath. The carnage is documented below.

First note that just moments after the PBoC’s yuan move we said the following:

Biggest immediate loser from China’s devaluation: Brazil

— zerohedge (@zerohedge) August 11, 2015

Well sure enough, with the exception of the kwacha, the Belarusian ruble, and the tenge (which went to a free float overnight late last month), that has proven to be demonstrably correct as you can see from the following overview of EM FX performance since China’s deval:

And here’s the big picture which also shows that EM FX has fallen 16 of the last 18 weeks with this week being the worst stretch since March:

G20 promises transparency on rate moves as global economy disappoints

ANKARA (Reuters) – World financial leaders will agree to calibrate and communicate monetary policy carefully to avoid triggering capital flight, but will not call an expected U.S. rate rise a risk to growth, a draft communique showed on Friday.

Wall St. drops as jobs data leaves Fed-watchers hanging

(Reuters) – U.S. stock indexes dropped almost 2 percent on Friday as a mixed August jobs report did little to quell investor uncertainty about whether the Federal Reserve will increase interest rates this month.

The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play

The most important piece of news announced today was also, as usually happens, the most underreported: it had nothing to do with US jobs, with the Fed’s hiking intentions, with China, or even the ongoing “1998-style” carnage in emerging markets. Instead, it was the admission by ECB governing council member Ewald Nowotny that what we said about the ECB hitting a supply brick wall, was right. Specifically, earlier today Bloomberg quoted the Austrian central banker that the ECB asset-backed securities purchasing program “hasn’t been as successful as we’d hoped.”

Why? “It’s simply because they are running out. There are simply too few of these structured products out there.”

So six months later, the ECB begrudgingly admitted what we said in March 2015, in “A Complete Preview Of Q€ — And Why It Will Fail”, was correct. Namely this:

… the ECB is monetizing over half of gross issuance (and more than twice net issuance) and a cool 12% of eurozone GDP. The latter figure there could easily rise if GDP contracts and Q€ is expanded, a scenario which should certainly not be ruled out given Europe’s fragile economic situation and expectations for the ECB to remain accommodative for the foreseeable future. In fact, the market is already talking about the likelihood that the program will be expanded/extended.

… while we hate to beat a dead horse, the sheer lunacy of a bond buying program that is only constrained by the fact that there simply aren’t enough bonds to buy, cannot possibly be overstated.

Among the program’s many inherent absurdities are the glaring disparity between the size of the program a …

Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump

Early last month in “Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed’s Blessing,” we noted the irony inherent in the fact that Saudi Arabia, whose effort to bankrupt the US shale space has blown a giant hole in the country’s fiscal account, was set to tap the debt market in an effort to offset a painful petrodollar reserve burn.

“Saudi Arabia is returning to the bond market with a plan to raise $27bn by the end of the year, in the starkest sign yet of the strain lower oil prices are putting on the finances of the world’s largest oil exporter,” FT reported at the time.

The reason this is so ironic is that at various times, we’ve characterized persistently low crude prices as essentially a battle between the Fed and the Saudis. Many struggling US producers would likely have been out of business months ago were it not for the fact that ZIRP has kept capital markets wide open, allowing otherwise insolvent drillers to stay afloat. Obviously, that works at cross purposes with Riyadh’s efforts to “preserve market share”, and so ultimately, the Saudis are betting their FX reserves can outlast ZIRP.

There are other factors at play here that weigh on Saudi Arabia’s financial situation including two proxy wars and the defense of the riyal peg which is why turning to the bond market is an attractive option especially considering that capital markets are so favorable thanks to – and here’s the irony – the very same Fed policies that are keeping US shale producers in business.

But Saudi Arabia’s “war” with the US shale space isn’t unfolding in a vacuum and now Qatar is looking to borrow to alle …

BlackBerry to buy rival Good Technology for $425 million

TORONTO (Reuters) – Canada’s BlackBerry Ltd said on Friday it will buy rival mobile software provider Good Technology Corp for $425 million, to boost its ability to help corporate clients manage smartphones running on different operating systems.

End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought

Submitted by Kurt Cobb via OilPrice.com,

The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word “panic.” Pan’s appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters.

Here is the crux of the matter as expressed in a piece which I wrote last year:

The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out….

Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.

Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borde …

Massachusetts regulator investigates BNY Mellon fund pricing snafu

BOSTON (Reuters) – The top securities regulator of Massachusetts said on Friday he is investigating the computer glitch at BNY Mellon Corp that last month disrupted pricing on more than $400 billion worth of mutual fund and exchange-traded fund assets.