Citi On The SNB Non-Intervention: Pegs Can't Fly, And Why FX Spot Market Intervention Is Not A PanaceaSubmitted by Tyler Durden on 08/17/2011 - 08:27
Citi's Steven Englander was proven 100% in his skepticism to the SNB's intervention. Here are his follow up thoughts:
- We think that the SNB is still largely reluctant to intervene on the FX spot market. Investors expecting such measures in the near term could be
disappointed in our view.
- The latest measures imply that the SNB will have to increase the size of its balance sheet by at least about CHF 40bn or 8% of the Swiss GDP
- FX spot market intervention is not a panacea and that the best that the SNB could hope for would be to prevent further CHF appreciation.
- While we could have seen the lows in EURCHF and USDCHF for now, we doubt that an uptrend in the crosses could be sustained.
The meeting between German chancellor Merkel and French president Sarkozy yesterday yielded neither an approval for Eurobonds issuance, nor any immediate extension to the EFSF; instead the two leaders did say that a financial transaction tax will be proposed in September. The news promoted risk-aversion during the European session and weighed on equities, with particular underperformance seen in financials, whereas Bunds received support and marginal widening was observed in the Eurozone 10-year government bond yield spreads across the board. Elsewhere, weakness in the USD-Index supported EUR/USD, GBP/USD and commodity-linked currencies. However, GBP came under pressure following the release of BoE’s minutes, which showed that the MPC members voted 9-0 for no interest-rate hike, together with worse than expected jobs data from the UK. In other forex news, CHF received a boost across the board after the SNB didn’t mention EUR/CHF peg in its latest communiqué. Moving into the North American open, the economic calendar remains thin, however markets look ahead to the PPI and DOE inventories reports from the US later.
The Merkel Sarkozy plans to centralize financial and economic governance in the EU has failed to calm markets and there is further weakness in stock markets today. A key aim of the meeting was to restore confidence in the euro. In the short term this has not been achieved and it is highly unlikely that it will be achieved in the long term. Centralised financial and economic governance will not be a panacea to the current debt crisis. It does nothing to address the root cause of the problem which is massive indebtedness and the saddling of taxpayers with massive liabilities incurred by banks. Concerns about currencies and currency debasement is leading to continued safe haven demand for gold.
With no major newsflow out of Europe, and no notable economic news in the US (except for PPI), we assign a probability of 99.9% to another no-volume melt up (absent news flow, because any news is bad news) as HFTs bid up every offer while collecting rebates, afterwards getting petted behind the ears for doing Brian Sack's work.
- SNB boosts steps to check franc’s rise (FT) but no peg
- The man who taught the Fed to sell Treasury puts: Markets Go From Nightmare to Bad Dream (Vincent Reinhart)
- What to make of the Franco-German Summit (FT)
- Gold Market Is a ‘Bubble Poised to Burst,’ Wells Fargo Says (Bloomberg)... but not before the bad mortgage bubble that is Wells Fargo bursts
- Putin sets sights on Eurasian economic union (FT)
- Fed’s Bullard Says New 2013 Rate Pledge Not a Signal for More Bond Buying (Bloomberg)
- Walmart warns on US weakness (FT)
- DeMark Says Stock Rally May Begin in Weeks, Buy Europe Banks (Bberg), or he could be just as wrong as last time (ZH)
- Margin Calls Push Stock Leverage Down Most in Year as S&P 500 Tumbles 12% (Bloomberg)
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc. Market Recaps to help improve your Trading and Global knowledge
More Posturing Out Of Europe: Franc Surges After SNB's Bluff Is Called, No Peg Announced, "More Of The Same"Submitted by Tyler Durden on 08/17/2011 - 07:03
As Zero Hedge was widely predicting (most recently here), there was no announcement of a fixed or floating peg in the CHF (which was obvious from a mile away: the desperate attempts to leak misinformation to the media and make the franc unattractive were enough to only fool various robots), and instead the SNB's now uber-powerless Philipp Hildebrand said that he "aims to expand banks’ sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion." Translation: "we are terrified to do anything more, we can't afford any more balance sheet losses and for all those who called our bluff, you won" - the immediate result is a 300+ pip tumble in the EURCHF. Elsewhere - pervasive disappointment among the sellsiders who actually bought this theater hook, line and sinker: "SNB seems willing to drag feet for now before pulling trigger on FX spot intervention" Valentin Marinov, strategist at Citigroup, writes in note. Ironically the market is now falling for more of the same as it anticipates something to come out of the Swiss government to also discuss measures against the strength of the CHF. However, as Goldman says (note below) hardly anything will come out of it: "After all it is the SNB who decides on the currency regime and today's announcement is, in our view, a clear signal that the SNB first wants to see how the current measures work before they will decide on any additional measures." Prepare for another 11.5 sigma move in the USDCHF as the "priced in" central bank non-intervention unwinds.
Bloomberg's Mike McDonough has put together the simplest, and thus best, chart of the latest epic collapse in the BOJ's attempt to intervene and keep the Yen from appreciating. The chart needs no explanation, and shows that the half life of BOJ interventions is not only exponentially shorter but now, outright laughable. What does need an explanation, however, is the prevailing quandary of just what sleeping medications Noda and Shirakawa will have to take once USDJPY touches on 75, then 70, then 65, then 60 and so on, and they watch, watch, watch, the "one-sided" moves in the USDJPY, helpless to do absolutely anything as the Chairman drop kicks yet another monetary opponent into a permanent knock out.
Putting The Cart On Top Of The Horse, Or Why Heaping Fiscal "Stimulus" Upon "Stimulus" Is Suicide For AmericaSubmitted by Tyler Durden on 08/16/2011 - 22:57
Every time someone mentions fiscal stimulus (and specifically the failure thereof), the conversation, after repeated empirical demonstrations that said stimulus virtually always ends in tears, will veer to the Economics 101 textbook definition of the savings-investment identity, in which Investment = Private Saving + Government Saving + Current Account (the simplistic argument goes that a surge in Government Savings, i.e. austerity, means a plunge in net investment as the private sector is unable to step up), which more than anything, seeks to provide the last possible goalseeked explanation of why Keynesian assumptions still work in post-modern monetary environments, in which monetary policy has passed into the twilight zone of global central planning (i.e., money printing is rampant and thus textbook definitions of "savings" in a ZIRP environment are completely irrelevant). The irony, as so often happens, is that those who invoke this identity (which John Hussman has done a very admirable explanation of here) mix apples and oranges, and use, incorrectly, a monetary flow concept to explain what is fundamentally a production efficiency and labor (and post facto: consumption) phenomenon. That many of said proponents also make the gross mistake in assuming that in some perverse post-Keynesian universe a reserve currency issuer (however temporary, because there is no such thing as permanent reserve) can issue an infinite amount of debt, which by implication would result in the grotesque lim interest rate=0 as debt issuance ->infinity is inconsequential: this may work in a black box vacuum, but most certainly does not work in a globalized world in which currency, and yes, binary reserve status (consisting of 1s and 0s), is fungible with a keystroke (ref: the historic August 22 start of Renminbi futures trading which the CME today disclosed the margin requirements for). What this lengthy preamble tries to say is that feeding the government monster is, contrary to what Krugman and other Keynesians will tell you, in the current regime of coincident monetary irrigation, an exercise in futility. Perhaps nobody does a better job to explain said futility than Bill Buckler in his latest edition of The Privateer, which we urge everyone, and most certainly the POTUS who just requested more fiscal stimulus, to read in order to take a step back from theoretical, and wrong, textbook formulations and to see the stimulus forest for the burning trees.
As China Says No More Stimulus, Obama Comes Begging For More.... While Promising Even MORE Cuts In The Unknown FutureSubmitted by Tyler Durden on 08/16/2011 - 20:29
Proving once again that when it comes to the definition of Banana Republic, America really has no equal, we first read in China Business News that according to PBOC adviser Li Daokui, China will "basically" maintain its existing monetary policy direction, and won't likely introduce stimulus measures as it did in 2008. Sorry "Rest of the World", you are on your own: China will no longer act as the last recourse economic (confidence) dynamo (because who the hell knows just what is going on in the mainland aside from building empty cities and grounding its entire monorail fleet, an action that was accompanied by so-called objective rating agency Dagong giving the rail ministry a rating higher than that of China itself!... once a rating agency...). However, this action of glaring sobriety does not stop our own fiscal monkeys from throwing feces at the stimulus wall in hopes something sticks. Just as last year the payroll tax was supposed to be the $100 billion gift that keeps on giving, yet crashed and burned miserable within months if not weeks, so this year we find that Obama is once again "recommending that the congressional deficit supercommittee back new measures to stimulate the lagging economy, people familiar with White House discussions said Tuesday." But that's not the funny part! No, the funny part is that even as he demands more alms, our munificent president would also "recommend the committee come up with a package that reduces the federal budget deficit by much more that its mandate of $1.5 trillion over the next decade, a senior administration official said, through changes in the tax code and social safety-net programs." So let us get this straight: more stimulus in the short-term, offset by quadrillions...nay... sextillions of savings at some point in the far future, long after the current administration is at the very bottom of the history books. Brilliant! But an even better idea: Obama should pull a Bryan Gardner and forge a money order from Hank Paulson, making Citi hand out a +/-$1 million check to every American, paid out of petty unaccounted for cash, as was the case before. Obviously, nobody noticed then; it is only Banana Republican that nobody will notice now.
Hi GW, It’s been so long! I’ve been skiing like a madman down here in Chile—but I did catch something you wrote, which I’d like to comment on, now that a blizzard has hit the slopes and I’m stuck inside with not much to do. You wrote a post yesterday, picked up by Zero Hedge and others, pointing out that Paul Krugman is advocating war as a fiscal stimulus solution. You pointed out that this position he holds is not only blatantly immoral, it is a position Krugman seems to have no problem openly pushing—your unspoken implication being that this is disastrous, considering how influential Krugman is in major policy circles. With regards to K. pushing for war as the ultimate Keynesian economic solution: I hate to say “I told you so”—but in this case—I told you so! (Cheers, mate.)
Somehow even as all that deflation in home prices continues, like perfectly joined communicating vessels, countervailing inflation continues seeping into pretty much every other aspect of society. But don't take our word for it, (or even gold's, which is just under all time record notional highs): according to Rasmussen, "Americans nationwide continue to lose faith in the Federal Reserve Board to keep inflation under control, with the number who say they are paying more for groceries now at an all-time high." Specifically, "93% of adults report paying more for groceries now than they did a year ago, the highest finding to date. Only four percent (4%) say they’re not paying more for groceries now compared to a year ago. Prior to the latest results, the number that said they are paying more for groceries ranged from low of 75% in April 2010 to a high of 91% in May of this year." However, since many of these same adults are transferring intangible "savings" from their non-payable mortgage check courtesy of a home market that has now ground to a halt for over 6 months, aka squatters rent, to pay for staples, few really mind. They just like to bitch and moan about it because it means fewer Apps downloaded for the iPad.
All In A SecTres Day's Work: Total US Debt Hits All Time Record $14,615,567,348,203.71, $28 Billion Higher OvernightSubmitted by Tyler Durden on 08/16/2011 - 16:49
Good thing the whole debt ceiling fiasco taught Tim Geithner a thing or two about being frugal, or else today's $28 billion increase in total debt to a new all time high of $14,615,567,348,203.71 may have been far, far worse. At least congress still has $127 billion in dry powder before it has to authorize the extension of the interim debt ceiling cap of $14.694 trillion. At this rate, total debt and US GDP will achieved parity in 4 months, and if the US actually contracts (negative GDP in Q2 and Q3) and enters recession, that will be one divergence spread we will never want to be on the compression side of.