Guest Post: A Central Bank Running Suicide? SNB Prints At Pace Not Seen Since EUR/CHF Parity In August 2011Submitted by Tyler Durden on 06/04/2012 - 14:41
The most recent money supply data from the Swiss National Bank (SNB) has shown increases of huge amounts. As compared with its loss of 19 bln. francs in 2010 (3% percent of the Swiss GDP), the central bank printed tremendous 17.3 bln. in the week ending in June 1st and 13 bln. in the one ending in May 25th. These numbers were not seen since August 2011 when the SNB increased money supply by 50 bln and 40 bln per week buying the EUR/CHF at rates between 1.00 and 1.13. Now, however they are buying at 1.20 and are risking extreme losses, especially because many other central banks are dumping euros.
It's one thing for liberals to demand one group of Americans pay for another group of Americans, with a third group's money of course (until it runs out), but when a progressive think tank actually has the temerity to tell Bernanke that Europe is not socialist enough, and thus needs liberal US support, that's when things just get plain old silly. Which incidentally, is precisely what the progressive brains of Mark Weisbrot and Dean Baker, co-directors of the liberal Center for Economic and Policy Research, have done. Naturally, we are all for a humanistic effort; we also believe in leading by example. If Messrs. Weisbrot and Baker would first be kind enough to divest themselves of all their earthly possessions and bank account contents, which should be Fedexed and wired in the direction of Spain post haste, it would make their transparently theatrical pursuit of pseudo-noble causes just that more palatable to the masses who already are on the verge of poverty, and are now being asked to bail out other countries.
90 seconds that describes the sad reality of US banking and politics - in Dr.Seuss style prose. "Now cabbies and crop-pickers will pick up the slack; your taxes will bring the bankers right back; where we'll keep spreading our good news, of deregulation and free market views - 'We know what we're doing, just stop with the rules!'"
"Now we're buying both sides to do our good bidding; That whole Democracy thing? Surely You're Kidding"
The battle between rising profits & low equity valuations and the major macro-economic issues facing the world just won't go away. Michael Cembalest, JPMorgan's CIO, has been underweight equities YTD and remains so as he sees the Squid (some of the worst macro-economic imbalances on record) will beat the Whale (rising corporate profits, the lowest equity valuation multiple in decades, and a 50-year high in corporate cash balances) as he sees again and again that as soon as periods of monetary stimulus fade, so have measures of global activity. With global PMIs rolling over once again, China's growth fading as its credit creation slows, Europe's distressful situation, and the US failing to achieve escape velocity, Cembalest believes government rescues of different kinds may be on the way at some point which will probably stabilize markets, but finds it hard to see the squid-whale (macro-micro) battle being decisively resolved in 2012.
The much anticipated press conference between Merkel and Barroso, hence Barkel, in which nothing of any substance will be announced, has begun. Rolling headlines as we get them:
- MERKEL SAYS WE NEED MORE EUROPE, NOT LESS IN EURO-ZONE (sounds familiar)
- MERKEL SAYS WILL DISCUSS EUROPEAN SUPERVISIONS OF BANKS AT EU SUMMIT, BANKING SUPERVISION IS A MID-TERM GOAL
- BARROSO SAYS WILL PUSH FOR BANKING UNION AT THE COMING SUMMIT
- MERKEL SAYS EU NEEDS ANSWERS SOON ON POLITICAL UNION
- MERKEL SAYS DISCUSSING EU BANKING SUPERVISION WITH BARROSO
- BARROSO SAYS EU SHOULD DISCUSS ELEMENTS OF 'BANKING UNION' -> we agree to hold another conference at a future time
And... that's it folks. Proceed to the egress.
If there was ever an article that should spark every British citizen to immediately shift their savings into physical gold this is it. Basically, proposals are on the table to change the way inflation is calculated for bonds that payout based on the rate of change in prices. Unsurprisingly, they are purposely attempting to use an alternative measure of inflation that allows substitution (so when people can no longer buy a steak and must spend the same amount of money on spam this shows up as no inflation)! If this goes through, it is blatant theft. This is why owning TIPS in the U.S. is a total fool’s game. They will mark inflation to whatever level they want at the end of the day. To whatever is most convenient at the moment. You know, just like the banks mark their balance sheets. But don’t take my word for it…
It seems to us that the entire global financial system continues to walk the tight-rope of public-confidence in fictional reserve banking. Where it is European (or Chinese) bank runs or mega losses at US bank non-proprietary businesses, it appears the credit market has been becoming more and more fearsome of the endgame since last Summer's US downgrade when S&P made the impossible possible. While not all of the US financials have active CDS, the dependence between stocks and credit had remained high with current CDS levels inferring a drop of over 60% in XLF as the top 30 globally most systemically important financial entities reach their March 2009 peak in riskiness once again.
Marc Faber brought his typical sense of reality and truthfulness to CNBC's Squawk Box this morning and in doing so managed to stop Jeremy Siegel saying long-term-buy-and-hold for more than 7 minutes. Siegel represented the 'new-hopers' with his insight that if the ECB would just guarantee all euro-wide deposits then all would be well in the world. Faber comes over-the-top in his gentle European accent reminding the academic that "it is hard to guarantee something you have no control over". Faber then proceeds to state his view that Europe is in a deepening recession and more importantly that China is growing at a far lower pace than official statistics would infer. Reminding viewers that about 40% of US corporate profits are from outside the US and the 'vicious spiral chain reaction' from slowing demand in China for industrial commodities has lagged effects on producing countries and then aggregate demand globally, Faber fears broad-based risk sell-offs but remains notably less sanguine on US Treasuries.
JP Morgan's Tom Lee has been getting a lot of airtime lately. We hope this ends soon, as anyone who has listened to this person in the past has consistently lost money. Here is Tom Lee from May 2, 2011 explaining the reasons for hiking his 2011 year-end S&P forecast to 1475. As a reminder, the year ended at 1250, or 16% away. In any other job, this would be ground for termination, and terminal discrediting within the industry. But apparently not on sell-side Wall Street, where being wrong constantly and consistently merely leads to ever bigger bonuses. It also allows comedy financial channels to plug empty airtime with idiotic soundbites.
In all the recent talk of economic gloom and doom, not to mention JP Morgan rehearsing for its role as Federal Reserve and failing miserably, some forgot that Jon Corzine still walks free. That may change soon if James Giddens, trustee for the liquidation of MF Global has his way. In a report filed today, Gidden says: "As attempts were made to transform MF Global into a full-service global investment bank, management failed to add to its Treasury Department and technology infrastructure, which was needed to meet the demands on global money management and liquidity." He continues: "My investigation has concluded that management’s actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business, including margin calls on European sovereign debt positions." So someone was at fault: who? "I have determined there may be valid claims against individuals and entities. In my capacity as Trustee, I will make every effort to ensure that such claims result in the greatest possible returns to customers in an efficient and fair manner, whether those claims are pursued by my office or others." And specifically from his list of recommendations: "Provide for civil liability for officers and directors in the event of a commodities segregation shortfall." Well, we know there is a shortfall. So... why is Jon Corzine still walking free? Oh wait, Valukas said there were "colorable claims" against Lehman management too. Last we checked Dick Fuld is still out there... somewhere. But generally yes: it just has not been JPMorgan's year so far.
We suggested that Goldman would trim its Q2 forecast following the abysmal Factory orders number earlier. Sure enough, here it comes. To our surprise, however, the cut was on 0.1%. This can only mean that Hatzius has left more dry powder for further GDP cuts as more and more high frequency economic "misses" rise to the surface.
The reality that the global Status Quo has fixed absolutely nothing in four years is finally coming to roost in the global economy. Though there is an endless array of complexity to snare the unwary, the source of instability is both visible and easily understood: too much debt that will never be paid back. Making matters much worse, much of the money that was borrowed--by sovereign governments, local governments, households and private enterprises--was squandered on consumption or malinvestments, and so there are precious few assets or collateral underlying the debt. Even when there is an asset--for example, a vacant house in a vacant development in Spain, or a Greek bond--the market value is considerably lower than the purchase price. The reality is that trillions of dollars, euros, yen and renminbi in phantom wealth will disappear when the losses that have already taken place are finally recognized. Everyone in the world with exposure to the global economy will become poorer in terms of abundant money floating around buying goods and services as credit dries up and deleveraging wipes out trillions of dollars, euros, yen and renminbi of phantom wealth.
Sad to say, it looks like we were right last week when we pointed out the coincident ripfest on Thursday that ended perfectly at a previous VWAP close and enabled heavy volume to exit into month-end (and on those weekly option expiries). With a $26 handle once again and having traded as low as $26.57 this morning (40% from the $45 IPO-day highs and 30% from its IPO level), FakeBoom truly is the gift that keeps on giving... losses.
Nobody could have predicted that today's April Durable Goods number (and key component of where Q2 GDP is headed) just over two weeks from the FOMC's June 20 meeting, will be a slaughter. NOBODY. Printing at -0.6%, the number was a huge miss to expectations of a 0.2% rise, and is the 3rd drop in the last 4 months. The previous number was also revised lower from -1.5% to 2.1% so at least it rose. Still, this was miss number 5 out of the past 7 reports. Excluding transportation, new orders plunged 1.1%, after falling another 0.7% in march.. The main reason for the headline collapse: a 21.5% plunge in defense orders. As Bloomberg's Rich Yamarone said, "Crummy" start for 2Q investment component of GDP report as shipments of nondfense capital goods ex-aircraft fell 1.5%. Expect Q2 GDP forecast cuts from Goldman et al within minutes: we expect Hatzius to trim his 2.1% Q2 GDP estimate to about 1.8%.