BOTTOM LINE: Fed Chairman Bernanke delivers a) a strong defense of the Fed’s renewed monetary easing, b) a fairly explicit endorsement of near-term fiscal expansion (coupled with longer-term consolidation) in the United States, and c) a fairly explicit plea to reduce current account imbalances via exchange rate appreciation in emerging market economies.
Futures are currently experiencing a stunning moment of weakness, something not seen unless the entire Liberty 33 trading crew is at Scores. The culprit according to the three sober traders we could track down is the recently unembargoed speech to be delivered by the Bernank tomorrow in Frankfurt. In it, not too surprisingly, the inkmaster considers revealing details of his most recent DNA sequencing result to prove once and for all, that he is not the antichrist. More relevantly, what Bernanke has done to defend his reputation is to claim that QE will work, and that everything is really mercantilist China's fault, and the Fed is just woefully misunderstood. In other words nothing that has not been said before many times, just another overture which will likely precipitate a prompt round of Chinese retaliation in the form of accelerating trade wars, to be followed by further commodity price inflation in the US, leading to another ramp in Chinese inflation, etc. China now will have no choice but to either hike rates (which will pretty much end of the tech bubble), remove even more excess liquidity (real estate bubble burst) or merely export another $20 billion of crap to the US each month, pretending nothing happened (leading to more QE in the US). As Albert Edwards summarized so well earlier, the global game of chicken will continue until either China's or America's population decides it has had enough of being treated like a experimental gerbil in the endgame of failed economic chess.
Seasonally adjusted M2 has just surpassed $8.8 trillion for the first time, hitting a record $8,802.2 billion, a jump of $16 billion on a SA basis. This is the 17th out of 18 consecutive weeks that M2 has increased. On a non-seasonally adjusted basis, M2 also jumped to a record high, hitting $8,765 billion, a jump of $56.9 billion W/W, and an increase if just over $100 billion in the past two weeks alone. While the jump itself is not surprising as it comes in anticipation, and realization, of QE2 (we would love to have the semantic and highly theoretical debate of whether or not the Fed "prints money" but will focus on the practical for now), the last week's components of the M2 change were odd to say the least. In the past week we saw both the biggest drop in commercial banks savings deposits in 2010 ($61.3 billion) and the biggest jump in demand deposits ($57.6 billion).
Man U Player Of The Century Eric Cantona Appeals For Peaceful Revolution Against Banks, Calls For Europeans To Pull Their MoneySubmitted by Tyler Durden on 11/18/2010 - 21:32
A few weeks ago we noted that December 7 is becoming a grass roots "banker mutiny" day, in which citizens across Europe will pull money from their banks and thus force a pan-European bank run on what is already a bankrupt financial system, which survives each day only at the expense of the continent's increasingly indebted citizens, their life of increasing austerity, and of course, the US Federal Reserve and its final backstop. In some ways we discounted the potential reach of this movement. Enter Eric Cantona - just ask any sport afficionado who the most entertaining, flamboyant and skillful football player of 1990's Manchester United was and 9 out of 10 times you will hear that name. The icon (both in England and France) whose on field antics were only matched by his kung fu skills, and who has a massive popular following, has been recorded agitating viewers (many of them), to enact a bloodless revolution against French banks: "We don't pick up weapons to kill people, to start the revolution... the revolution is really easy to do nowadays. What is the system? The system revolves around the banks. It's based on the power of the banks... so it must be destroyed starting with the banks. This means that the 3 million people with their placards on the street... they go to the bank, withdraw their money from the banks and these ones collapse. 10 million people and the banks collapse and there is not real threat, a real revolution. We must go to the bank. In this case there would be a real revolution. It's not complicated. You simply go to the bank in your country and withdraw your money. If there are enough people withdrawing their money, the system collapses. No weapon, no blood, or anything like that." A peaceful anti-banking revolution, brilliantly explained so that everyone can understand.
Substantially more sanguine than their two key strategists Albert Edwards and Dylan Grice, SocGen's Cross Asset research has come out with a report looking at the future of the world, and the various scenarios that may end up taking us there (although the actual reality will of course be something unforeseeable). So while we play predictive games, here is how SocGen believes the upside/neutral/downside cases could look like across asset classes, and across the globe.
Can you visualize a possible scenario that could put a sudden end to the secular rise now underway in gold and silver? In a recent conference call with the research team of The Casey Report, we once again collectively tried to imagine what situation… what scheme… what government manipulation… might finally put a stake through the heart of gold. Setting the stage, I think it’s safe to assume that in order for the gold bull to decisively reverse direction, the following general conditions would have to be precedent in the economy...
More Hot Water For Phil Falcone? Company Once Linked To Kennedy Assassination Reveals Informal Investigation Of Harbinger TradesSubmitted by Tyler Durden on 11/18/2010 - 18:07
As if the recent scandals surrounding Harbinger's redemptions, his money withdrawals from a locked up fund, and his pledging of artwork to procure a loan for a mysterious capital need were not enough, next we read courtesy of Matt Goldstein that Phil Falcone is also facing an informal probe in the fund's "investments and trading in securities of particular issuers." What is very curious is that Harbinger Group was once the very infamous Zapata Corp, which has been implicated in everything from the Kennedy assassination, to the Bay of Pigs, to Watergate, to Iran Contra! While we will ignore any possible link between Falcone and the Bushes (not to mention the CIA), we will point out that Phil Falcone is chairman and CEO of the current iteration of Zapata, and that Harbinger Inc and Harbinger Capital Partners are intimately tied. And this is where the real problems arise.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 18/11/10
The only clear winner from today's GM IPO? All those who got IPO shares and flipped them to the sheep. And of course GETCO, which churned 452 million of GM's 478 million share float: in other words 95% of the entire float was traded by computers! As for everyone else, you lost: with the stock closing at the lows of the day, all retail investors who bought in post the break, and on the way down ended up with losing positions.We eagerly await the teleprompter's appearance at 4:15 pm eastern to spin this in the right way and convince people that a loss is really a gain.
One thing I do not want this article to be is a giant bashfest of New York City. I love this place. It is where I was born and it has shaped my personality in every way. The energy is like nothing else on the planet and it will always hold a spot near and dear to my psyche. Who knows, maybe I will return. That said, the current leadership in this city, and by that I mean the financial services industry and the TBTF banks in particular are destroying the city to such a degree that I think it could take a generation to recover. I hope I am wrong on this, but the longer the paper ponzi pushers control this town the worse the devastation will be... I feel very uncomfortable in New York City right now. It and Washington D.C. are at the heart of the gulag state and I have chosen to physically remove myself from it. Even if none of this was happening, I still feel like I eventually would have found myself out West. It just feels like the journey I am meant to take. The lower taxes and open spaces aren’t so bad either.
After a weeklong smackdown in muni securities of all kinds, both cash and synthetic (read CDO-like ETF time bombs), today for the first time we have seen confirmation that investors are starting to say enough. Reuters reports that for the first time since April 14, mutual fund investors withdrew a net $115 million from tax-exempt funds last week. "Funds are the largest players in the municipal market so to the extent there are outflows, that will put more upward pressure on rates[downward pressure on prices]? said Jack Bauer, managing director of fixed income at Manning & Napier, a money manager in Fairport, New York, who oversees $25 billion in assets. "It's been kind of ugly this week." See Jack Bauer is all confused - one would have though that 28 consecutive outflows from domestic stock funds may have put in just a little "downward pressure" on stocks. Wrong and wrong - in fact stocks have proven that they levitate best on fraud, mark-to-krazy klowns, and scammery precisely when redemptions and Fed-Citadel involvement is highest. Which is why we expect that once there is no money left in stock funds (a few weeks at this rate) and in muni funds soon, muni will actually surge to never before seen highs as the bizarro effect appears in full force, and whatever muni ETFs are out there will do an SRS circa November 2008.
As discussed earlier this week and last week, Murphy's law is verified in the bond market as we are inching closer to 122-30 in TY futures and the 5Y future is leaning dangerously on the 100-dma, eyeing the 118-30 support below. The market is arguably still long but trimming. All the buying last week post long end supply is getting stopped out for those who did not cash in on a quick buck, and a lot of pre-FOMC positioning is getting pushed out as well. The irony? People are starting to feed the sell-off mentioning next week's supply... just when real money is about to step up and bid the market again! If you have been playing from the short side the past couple weeks you have been right. I tried to play that way mostly with more or less success catching the tops on the pullbacks (or missing them by a few ticks), and even schatz which I thought would hold up broke the 108.80 level.
Jobless Benefits Extension Voted Down As Republican Opposition Sinks Latest Attempt For Perpetual Entitlement StateSubmitted by Tyler Durden on 11/18/2010 - 15:27
A last minute attempt by Democrats to pass a 90 day extension of jobless benefit just failed to pass in Congress. Before the vote, which only sought a 3 month extension instead of a year long one, Steny Hoyer said: "I think every Democrat will vote for it. I'm hopeful that the Republicans will vote for it." However, since democrats brought the measure up as a "suspension" bill, meaning that it required the approval of two-thirds of the House to pass, instead of under normal house rules which would have allowed the vote to pass, the extension failed. Therefore just like the last time this extension failed, look for up to 4-5 million unemployed to fall off EUC and extended claims over the next few months, with a hit of up to 2 million by the first/second week of December. To be sure, there was also a political flavor: as NBC reports "But with suspension bill now coming to the floor on the last day of votes before the Thanksgiving vacation, the vote will give House Democrats the opportunity to argue that the GOP blocked unemployment benefits for the jobless during the holiday season."
Following our last poll which saw the vast majority of Zero Hedge readers agreeing that the next iteration of monetization (not if but when) would focus on municipals, today Art Cashin agrees that in a world in which things are right out of Alice in Wonderland, with Bernanke in the role of the Mad Bearder, this is precisely what could happen.