10-28-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
1-
SOVEREIGN DEBT & CREDIT CRISIS |
GREECE
PORTUGAL
Portugal budget talks collapse, threatening crisis
Reuters
Portugal Budget Discussions Break Down, Government
Collapse Imminent ZH
As BBC
reports, "the minority government of Portugal has
failed to gain opposition support for its proposed
austerity budget. A failure to pass the budget
could plunge the country back into the debt crisis it had
seemingly escaped since the summer." And this:
"Prime Minister Jose Socrates threatened to quit if the
budget fails, while the finance minister ruled out more
talks." In other words, the Portuguese government is about
to fall, bond sales are to be put on Hiatus, and talk of
the ESFS' usage is likely to reemerge, and add Portugal to
the list of recipients including Greece and Ireland.
Nielsen's take is just as dire:
If PSD were to vote against the
Budget, the Government would resign and early elections
would be called. However, since the elections cannot
be held during six months before a presidential election
(schedule for January), there would be neither a
government not a budget until well into 2011 in this case.
In my opinion, this would imply a worrisome delay in the
formulation and implementation of critical budget cuts and
reforms.
Simply said, the realization that austerity has failed,
following recent endless strikes out of France, is
becoming ever more widespread. Basically, the only two
alternatives proposed by Keynesian economics: excess
spending and thrift, are now in complete failure mode,
once again confirming that the sole economic theory used
by the world over the past century has been nothing but a
lie, providing no viable alternatives in times of real
stress.
Next up: the realization that fiat money is a broken
system.
Luckily,
Bill Gross is ahead of the pack on that one:
"Perhaps, as a vocal contingent
suggests, our paper-based foundation of wealth deserves to
be buried, making a fresh start from admittedly lower
levels."
When that last, most obstinate and intellectually
challenged Nobel-prize winning shaman of Keynesianism,
Paul Krugman finally espouses this view, that will mark
the end of the Fed, and will return gold to its rightful
place. Of course, for that to happen, Krugman will need to
populate his little pet Op-Ed column: "The
Worst Economist In The World" with daily quotations of
his own endless drivel.
|
SPAIN
Spain's Deficit Cuts Rewarded With Cheaper Funding- Euro
Credit BL
GERMANY
Merkel insists on EU treaty change FT
FRANCE
French Workers Strike in Unions' Stand on Pension Bill
BL
UK
AUSTRALIA
Aussie consumer debt on the rise - study
AAP
IRELAND
Anglo Irish bondholders to defy debt exchange FT
Ad hoc group of investors to battle against acceptance of tender offer
JAPAN
Bank of Japan offers QE details
FT
Bank of Japan to Buy Lowered-Rated Corporate Debt
BL
Bank Of Japan Accelerates Plan To Buy ETFs And Property As
A New Form Of Stimulus BI
Japan's wildest stimulus idea to date, in our view, has
been the recent proposal to buy not just government bonds,
but also ETFs and Real Estate Investment Trusts (REITs)
using freshly printed money from the central bank.
While today the Bank of Japan unveiled plans to buy 3.5
trillion yen of long- and short-term government
securities, they oddly accelerated plans to start sopping
up ETFs and REITs.
Reuters:
The central bank also said it would bring forward its
next policy board meeting to November 4-5 from November
15-16 to make arrangements to start buying exchange-traded
funds and J-REITs at an early date.
What's the rush? Perhaps they'll explain later today:
As widely expected, it decided to keep interest rates
unchanged at a range of zero to 0.1 percent by a unanimous
vote.
The BOJ will issue its twice-yearly report on the
economic and price outlook at 3 p.m. (2 a.m. ET). Governor
Masaaki Shirakawa will then hold an embargoed news
conference, with his comments expected to come out
sometime after 4:15 p.m. (3:15 a.m. ET).
Read more here >
|
|
time (et) |
report |
period |
Actual |
Consensus forecast |
previous |
Thursday, Oct. 28 |
8:30 am |
Jobless claims |
10/23 |
434,000 |
450,000 |
455,000 |
|
Credit Suisse joins fund to meet risk rules
FT
Aid to reducing capital requirement for Basel III
Basel reforms to hit investment banking arms
FT
Santander hit by Spain's bad loan rules
FT
CEO Says UniCredit Will Stay the Course
WSJ
The chief executive of Italy's UniCredit is brushing aside
pressure from top Italian shareholders and in an interview said
the bank will expand its retail and investment-banking operations
in Central and Eastern Europe.
|
Run Turkey, Run Gross
Check writing in the trillions is not a bondholder’s friend;
it is in fact inflationary, and, if truth be told, somewhat of a
Ponzi scheme. Public debt, actually, has always had a Ponzi-like
characteristic. |
4- STATE
& LOCAL GOVERNMENT |
5-
CENTRAL & EASTERN EUROPE |
Treasury- No Systemic-Risk Fears WSJ
Michael Lewis- These three words in Dodd-Frank changed everything
BI
In his latest piece for
Bloomberg, Michael Lewis explains why banks that lobbied so
exhaustively to make sure Dodd-Frank wouldn't destroy their prop
desks, seem to now be
dumping their traders or
dispatching them to new homes regardless. The answer is pretty
simple according to Lewis. Apparently the banks have zero
intention of halting prop trading practices and are simply
camoflaging those ventures by renaming the activity. This is
something we have
long suspected, and we're not the
only one ones. According to Lewis, here's the part of
the new law that is going to be
walked all over:
Unless otherwise provided in this section, a banking entity
shall not --
(A) engage in proprietary trading; or
(B) take or retain any equity, partnership, or other ownership
interest in or sponsor a hedge fund or a private equity fund.
And here's why
(from Sec. 989. of Dodd-Frank):
The term `proprietary trading' means the act of a covered
entity investing as a principal in securities,
commodities, derivatives, hedge funds, private equity firms, or
such other financial products or entities as the
[Government Accountability Office] may determine.
Lewis' bond trader said that because those three little words -
as a prinicipal - get
to be defined by the Government Accountability Office (GAO) and
the GAO has no idea what it means either - (“We’re really too
early in the process to speak to how we might define it,” said
spokeswoman Orice Williams Brown to Lewis) bankers
aren't bothering to wait around and have taken it upon themselves
to clarify its meaning.
Traders are giddy over the words, says Lewis.
An ex-JP Morganer who used to work for the bank's Chief
Investment Office
told Lewis that the unit was making huge bets with the bank's
capital despite marketing itself as a hedging desk, and would keep
carry on doing it irrespective of the Volcker Rule.
Lewis also spoke at length with a former Lehmanite who is
writing a thesis on the history of prop trading at NYU. The
ex-corporate bond trader has been chatting up other bond salesman
who "have been surprisingly open about their intentions to exploit
one obvious loophole in the new law."
Basically, "there are a hundred different ways to claim to be
acting as an agent or for a customer," the ex-Lehman Brothers
trader told Lewis, and that is going to be how commercial bankers
will take on propietry positionswithout breaking any rules.
For the full article, go to Bloomberg >
|
8-
COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE - PHASE II |
Foreclosure activity up across most US metro areas
AP
“The epidemic is spreading from the states at the ground zero
of the foreclosure problems out into areas that hadn't been
previously affected” |
Robert Shiller: End of tax credit could mean big trouble for
housing ... and banks TTicker
Wells Fargo admits foreclosure problems
FT Bank to submit additional paperwork on 55,000 foreclosures
10- EXPIRATION FINANCIAL CRISIS PROGRAM
|
11- PENSION & ENTITLEMENTS CRISIS
|
13- GOVERNMENT BACKSTOP INSURANCE |
14- CORPORATE BANKRUPTCIES |
US imposes duty on Chinese copper pipe, tube imports China Daily
China official: Dollar printing causing inflation AP
19- PUBLIC POLICY MISCUES |
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
24-RETAIL SALES
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
32-US STOCK
MARKET VALUATIONS
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
------------
The Fed's impending blunder Pritchard
It is worth reading “QE2: How Much is Needed?” by Jan
Hatzius from Goldman Sachs. His argument – crudely – is
that US interest rates at zero are 7pc too high given the
Taylor Rule on output gaps, et cetera (not that Professor
Taylor himself happens to agree, but let us not quibble).
Since rates cannot be minus 7pc, the Fed would need to
launch a $4 trillion blitz of fresh bond purchases to
fully compensate, such is the mess that America’s
leadership has inflicted on the Great Republic. I have
over-simplified: Goldman Sachs relies on a “policy gap”
concept, which factors in fiscal tightening et al.
This would push the Fed balance sheet to $6.3 trillion,
above the $5 trillion pencilled in as the upper limit
during the Great Crash.
We are no longer in a systemic financial crisis, and
the Fed’s motives have become subtly corrupted. Having
argued during the boom that it was not the business of
central banks to stop asset bubbles – and specifically
that any fall-out could “safely” be cleaned up later –
Bernanke now seems to determined to validate this absurd
doctrine, bending all the sinews of the US economic and
financial system to this end. One error leads to the next.
Simon Ward from Henderson Global Investors said his
measure of velocity is rising at a robust rate of 8.7pc.
“QE1 was justified during the crisis because monetary
velocity was collapsing at that time. But now that
velocity is recovering further QE is not needed. In fact
it is potentially very dangerous,” he said.
“If there is an `imbalance’, it
is in the US pretending it can solve structural headwinds,
overextended balance sheets, chronic unemployment and a
massive housing inventory backlog with untested Fed policy
tools,”
Bernanke is refusing to accept that the US must go
through the slow painful cure of debt-deleveraging. He is
trying to air-brush away the consequences of 20 years of
debt creation and Fed error.
The proper role for the Fed from now on is to steer a narrow course
between the Scylla of deflation and the Charybdis of inflation, for year after,
for as long as it takes, until America is properly purged. AND THEN NEVER COMMIT
SAME IDIOTIC MISTAKE AGAIN. |
Fed Instills Uncertainty about Size of QE-2, Defends USD
Dorsch
Fed Asks Dealers to Estimate Size, Impact of Debt Purchases BL
The Federal Reserve asked bond dealers and investors for projections of central
bank asset purchases over the next six months, along with the likely effect on
yields, as it seeks to gauge the possible impact of new efforts to spur growth. |
Mad Fed Should Beware Unquantifiable Outcomes Gilbert
A Paralyzed Fed Defers Decision On Monetary Policy To Primary
Dealers In An Act That Can Only Be Classified As Treason
ZH
QE2 Trashing Trifecta- Peter Orszag Joins Gross and Grantham
ZH
The president's own former advisor, and now very much
outspoken critic, Peter Orszag has joined the cool kids by
releasing the following scathing oped in the NYT, whose
topic is, drumroll, QE2: "by perpetuating an
artificially low 10-year government bond rate, the Fed may
be delaying the very fiscal policy action that the nation
most needs, while doing little to boost an economy whose
principal problem is not high long-term interest rates."
The message, for anyone having read the prior two essays,
or Zero Hedge, is nothing new. What is, is the massive
onslaught by virtually everyone of any political and
financial stature on this pretty much inevitable policy
decision by Bernanke. The question we have is did
Goldman's estimate that QE2 needs to be up to $4 trillion
blow the party? Are expectations for future monetary
easing so high (and unattainable) now that the market had
to be artificially be pushed lower so there is some upside
on November 3? Because for all those who believe that the
Fed has found religion and thinks a strong dollar is
suddenly a policy goal, we have two words: "Wake up."
Sailing the Wrong Way with QE2?, posted in
the
New York Times
To bolster the economy, we need a three-part shift in
policy:
· more fiscal expansion
(read: more stimulus) now;
·
much more deficit reduction, enacted now, to take effect
in two to three years; and
· an
improvement in the relationship between business and
government (the current antagonism, even if not the
primary explanation for slow hiring and sluggish
investment, does seem to be affecting hiring and other
business behavior).
Unfortunately, the necessary
shifts in fiscal policy are extremely unlikely to happen,
and the strains between business and government are now so
deep that they will take time to address. So we’re left
relying on monetary policy — and in particular a
much-anticipated second round of quantitative easing by
the Federal Reserve — which may create more problems than
it solves.
As Paul Krugman and others have pointed
out, the net effect of “QE2” is similar to having the
Treasury sell short-term T-bills and using the proceeds to
buy back 10-year bonds. The result is thus that the
average maturity of government debt held outside the
government falls. (From a debt management perspective and
given current interest rates, the Federal government
should probably be lengthening the average maturity of
debt held by the public rather than reducing it, but let’s
not worry about that for now.)
What are the
benefits of such a reduction in the average maturity of
government debt in the current economic environment?
They’re quite limited for two reasons. First, at the
likely scale of the Fed’s purchases, the long bond rate
will fall only modestly. And second, a modest reduction in
long-term interest rates will not have much effect on
economic activity at a time when corporations are flush
with cash and worried about the future. (As Alan Blinder
recently emphasized, “To attach some illustrative numbers
to this concept, suppose the Fed succeeds in trimming
government-bond rates by 30 basis points, and that brings
down corporate bond rates by 15 basis points. Will that
make a big difference to corporate spending?”) Many
commentators, including a few presidents of the regional
Federal Reserve banks, have noted the risks to the Fed’s
credibility from QE2.
Ironically, QE2 could make
the right policy mix less likely. In particular, any
substantial additional stimulus will probably not (and
should not) be enacted without a medium-term deficit
reduction package — and that medium-term deficit reduction
package is less likely to be enacted when interest rates
on long-term government bonds are so low.
In other words, by perpetuating an artificially low
10-year government bond rate, the Fed may be delaying
(even if very modestly, given the modest impact of the
action on long rates) the very fiscal policy action that
the nation most needs, while doing little to boost an
economy whose principal problem is not high long-term
interest rates.
|
|
GENERAL INTEREST
John
Embry - “I Guarantee Hyperinflation” King World
JPMorgan inks $6bn Brazil hedge fund deal FT
Some Small Firms Raise Prices WSJ
While most small-businesses are lowering or holding firm on
prices, some are going ahead and raising them, with positive
results.
|
Straight Talk with Mike Shedlock (aka "Mish") Chris Martenson
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
25th Sequential Stock Fund Outflow, $81 Billion Year To Date ZH
To all those (most Bob Pisani) who hoped last week was going to
be the last sequential outflow from domestic equity mutual funds,
after a modest decline in redemptions, we have some bad news.
Today,
ICI
reported the 25th outflow in a row. Total YTD money redeemed is
now $81 billion. From the market bottom in July, all the way to
the current 2010 highs, the market has seen $51 billion in 16
sequential outflows. So to recap: mutual funds are not buying,
pensions are not buying, retail is no longer even remotely
interested in touching stocks... yet the market surge won't end.
Some 2010 market highs money can't buy. For everything else,
there's Bernanke Card. It is clear now that in the Fed's pursuit
of chasing the "wealth effect" of the 1,000 or so remaining
traders, logic will simply not stand in the way.
And even if this eventually turns positive: whether it is next
week, next year, or never, what does it matter? Obviously plain
vanilla money is no longer relevant to asset flows. In a central
planning regime, all asset levels are determined by one person and
one alone.
|
CURRENCY WARS
Currency wars The IMF must take more of an active role FT
S Korea considers more capital controls FT
Andy Xie- Hot Money Flows Into Emerging Markets Will Go 'From Boiling To
Molten' BI
Andy Xie's latest is to urge emerging market nations to throw
any notion of free market economics to the wind and simply protect
themselves from speculative capital flows at all cost.
Emerging markets have already been swamped by capital, as their
asset markets can likely attest. Yet it's just beginning, says Mr.
Xie:
Caixin:
Emerging economies need a fresh spray of capital controls and
higher interest rates – because hot money inflows are about to go
from boiling to molten
...
The Republican Party is likely to win control of the House in
the November mid-term elections. With the Democrats in control of
the Whitehouse and the Republicans, the House, no meaningful
policy can be achieved to address the U.S.'s structural problems.
The Fed will come under more pressure to stimulate the economy. As
long as inflation remains low in the short term, the Fed has the
excuse to stimulate more, even though it's really driven to do so
under political pressure. The Fed will soon announce a
scaling up of QE 2. The market estimates the range to be between
US$ 500 to 1,500 billion. The dollar is expected to be highly
volatile up to the Fed's announcement. If the announced figure is
over US$ 1 trillion, the dollar is likely to depreciate, and vice
versa. While the currency volatility may decline somewhat after
the announcement, it will return when the Fed signals more
stimulus, because the monetary stimulus won't solve the structural
problems.
He's already forecasting a third round of quantitative
easing even:
First, emerging economies must stop hot money by any means.
Forget about free market dogma. This is literally a life-and-death
situation. In three months, the market may start to talk about QE
3 by the Fed. The hot money will likely double or triple from
here. Financial markets like to say that government interventions
are not effective in the end. This is nonsense. A sovereign
country can do whatever it wishes, including throwing people in
jail and confiscating foreign investment. The argument against it
is that the market would punish you for this in future by denying
you funding when you need it. Forget that. Russia gave foreign
bondholders a deep haircut a decade ago. They are bending
backwards to buy Russian bonds now. Besides, emerging economies
don't get money when they need it, like ten years ago, even with
high interest rates, and see money flooding in when they don't
need it like they do now.
...
Emerging economies, save yourselves!
He speaks more from the angle of economic policy within
emerging markets, but for investors we feel there's a practical
angle to his words as well -- we could easily have another year of
surging demand for emerging market assets should Mr. Xie's
concerns be correct.
The enactment of strict capital controls are a risk for asset
markets, but one has to gauge which asset markets are most at risk
of being hit. Property markets are probably more likely to be
targeted, given that affordability plays into governments'
considerations, as is happening in Hong Kong right now. Yet
stocks? I think we are a very long way from governments in
emerging markets being concerned about their stock market prices
being too high.
|
Q3 EARNINGS
MARKET &
GOLD MANIPULATION
JPMorgan, HSBC Accused of Manipulating Silver Futures BL
AUDIO / VIDEO
QUOTE OF THE WEEK
"The global financial system continues to be unsound in
the same way that a Ponzi scheme is unsound: there are not
enough cash flows to ultimately service the face value of all
the existing obligations over time. A Ponzi scheme may very
well be liquid, as long as few people ask for their money back
at any given time. But solvency is a different matter -
relating to the ability of the assets to satisfy the
liabilities."
John Hussman
No Margin
of Safety, No Room for Error
|
|