Today's attempt to ramp Apple into the green no matter what (and with 20% of the NASDAQ, and thousands of ETFs creating a massive feedback loop, bidding up Apple generates the biggest bang for the buck), which, if unsuccessful, will see dozens if not more funds scream at EOD once the margin calls start rolling in (yes, many are "all in"), has resulted in yet another complete collapse in all correlations. Note the simply ridiculous divergence between the AUDJPY and the ES. This is all on account of the glaring ramp undertaken by virtually everyone whose livelihood depends on the aforementioned AAPL green close. We would argue that a long AUDJPY, short ES trade makes sense, but with the market as broken as it is, only idiots would hope for anything to make sense any more.
Stephen Roach, chairman of Morgan Stanley Asia, has penned one of the most unapologetic letters bashing the central banking climate we have ever read from an institutional insider (he is still technically part of MS). And Roach should know: From 1972 until 1979, Roach served on the research staff of the Federal Reserve Board in Washington, D.C., where he supervised the preparation of the official Federal Reserve projections of the U.S. economy. As a result he is all too aware of the quality and caliber of Fed individuals. Which serves as the groundwork for this stunning speech presented on October 12 before the World Knowledge Forum in Seoul. The topics covered include the creation of, and asset bubble "resolution" authority , the collapse of America into a Japanese deflation death spiral, the general destructive worthlessness of the Fed, and other such pleasant issues. Most importantly, Roach speaks out in all too clear terms against another "hyper stimulus" round: "Whether it’s the latest round of quantitative easing now under way by major central banks or the polarizing tax cut debate in the US, there is a limited likelihood these measures will achieve meaningful traction in the real economy. The authorities would be much better off not wasting the next stimulus on policies that won’t work and better disposed toward taking actions that are directed at providing support to the true victims of this recession— namely, the structurally unemployed and underemployed." Roach's dire warning: "I fear that unless regulatory reform is accompanied by a rethinking of monetary policy, another crisis is far more likely than not."
As if we needed any further confirmation that the Fed is now willing to risk an all out bout of hyperinflation, here it comes courtesy of Chicago Fed's Charles Evans, whose comments that inflation is "acceptable", and welcome, and is the only way to battle the "liquidity trap" the US finds itself in, mirror those of NY Fed's Dudley who earlier confirmed Zero Hedge expectations that $100 billion is too low a QE2 number. Which means that very soon the Fed will buy up every single Treasury in existence. It will also kill the dollar absent Europe continuing on its path from earlier today, and saying the stress test was, in fact, a lie.
One of the more devious consequences of QE2, is that it carries the seeds of its own destruction with it. Namely, if after flooding bank basements with another $2 trillion in excess reserves, and if bank lending picks up, suddenly the amount of currency in circulation will explode by over 300% from under $1 trillion to around $4 trillion. And while a comparable increase in wages is certainly not guaranteed to occur concurrently, what this explosion in the free money will do is lead to a very rapid and drastic destabilization in the concept of a dollar-based reserve currency. The only thing that could prevent this are the Fed's mechanisms to extract liquidity from the system. Alas, the IOER process is very much unproven, and should animal spirits kindle at the peak of the biggest liquidity tsunami in history, that money will inevitably make its way to Main Street, not Liberty 33. All this has made Goldman's Ed McKelvey warn that should increased bank lending be the end result of QE2 (and ultimately that is precisely what it should be, as that would be indicative of a healthy economy), then, to put it so everyone will get it, "this would cause too much money to chase too few goods." And, as liquidity extraction then would likely be impossible, it would be the beginning of the end: "The obvious risk to this last point is if inflation expectations surge. In a stronger growth environment than now prevails, such a surge could prove difficult to control. It would require Fed officials to remove the liquidity quickly, which is why they will concentrate on purchases of Treasuries (easier to sell back into the market) and remind us continually of the tools they have developed to withdraw the liquidity (by periodically using them in small size)." Too bad the Fed will soon be forced to buy MBS (again), REITs, ETFs and pretty much everything else.
- Must read for all those who still don't get the Sino-US monetary/FX dynamics: PBOC's `Vicious Cycle' Worsened by Fed, Yu Yongding Says (BusinessWeek)
- And, apparently, this guy should read it - IMF Head Cautions on Money Flows to Asia (WSJ)
- Time to panic: Geithner vows U.S. will not devalue dollar (Reuters)
- China Daily:Appreciation Must Proceed 'Gradually' (China Daily)
- Instinet joins the Flash Crash voices of reason: SEC "flash crash" study draws another skeptic (Reuters)
- Sarkozy Stands Firm Against Pension Protests (FT)
- Japan Says Economy at Standstill (Reuters)
- EU Deal Opens Treaties for Renegotiation (FT)
19 Oct 2010 13:40 BST *DJ Trichet: Warns Not All EU Govt Finance Statistics Are Reliable
19 Oct 2010 13:40 BST *DJ Trichet: Must Close Information Gaps In Global Statistics
What's that, Trichet? The EUR is too high you say? Must kill the EUR you say? It was all a lie you say?
Read you 5x5 partner.
Zero Hedge has been approached by an individual who participated directly in the various aspects of what is now broadly known as Fraudclosure. The below narrative recounts his experience in the due diligence process of selecting loans for the MBS pipeline. And far more than just legalese "technicalities" or a broad abrogation of property rights, as he points out there is a far more palpable issue for all those who hold Mortgage Backed Securities or other pool aggregations of mortgage loans: "we have no idea what is in those packages." This coming from the person who helped pick, diligence and sort through the various loans...
Following yesterday's market observation, the USD has moved relatively convincingly and is now sitting on the resistances we indicated would be tested. AUDSD is sitting on the hourly channel support as well as on the neckline of the H&S. EURUSD is on the 76.4% retracement from yesterday's rally. The dollar index is on the neckline of the inverted H&S. Acceleration from here will mean this move is for real and there will be significant follow through (I see the next target in AUDUSD at 0.9560, at least 2%). However yesterday's rally can be broken down as an impulse in terms of Elliott structure and the EURUSD in particular does not look impulsive on the way down, so we would advise trailing stops to protect P&L and watch for a break to confirm the market has turned and last Friday's hammer on the Dollar Index has sealed the lows for now. - Nic Lenoir
Goldman announced Q3 results, in which revenue beat recently dramatically reduced estimates, coming at $8.9bln vs. Exp. $8.03bln, as the earnings print at $2.98 was markedly better than consensus of $2.29. Yet aside from the pig lipstick, results were a material deterioration from the prior year period: Net revenues in the catch all Trading and Principal Investments were $6.38 billion, 36% lower than the third quarter of 2009 and 3% lower than the second quarter of 2010. And revenues in the all important Fixed Income, Currency and Commodities (FICC), aka "whatever we want OTC spreads group" were
$3.77 billion, 37% lower than a strong third quarter of 2009, "reflecting
a challenging environment during the quarter, as activity levels were
significantly lower compared with the third quarter of 2009. The
decrease in net revenues compared with the third quarter of 2009
reflected lower results in each of FICC’s major businesses, including
significantly lower net revenues in interest rate products and credit
products." And for all those looking for the direct impact of the Goldman reputational damage, look no further than here: "Net revenues in Equities were $1.86 billion, 33% lower than a strong
third quarter of 2009. This decrease primarily reflected significantly
lower net revenues in the client franchise businesses, principally due
to lower activity levels compared with the third quarter of 2009." Lastly, some bad news for Goldman employees seeking a record bonus.
- Brazil hikes tax on incoming fixed income investment to 6% from 4%.
- China remained a net buyer of US Treasurys in Aug. China's hldgs jumped $21.7B.
- Euro zone's current account deficit widened in August to €7.5B ($10.49B).
- German investor confidence may decline to 21-month low as economy cools.
- IMF advocates capital controls as a way to handle vast flows of capital into Asia.
- Oil falls from two-week high as US crude stockpiles forecast to increase.
- World Bank cuts China, East Asia growth outlook, cautions on 'bubble'.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 19/10/10
China has raised its key interest rate by 25 bps, marking only the first time it has done so since announcing it has recovered from the global crisis. Undoubtedly, this is its response to not being labeled a currency manipulator. However, as the US will most likely never raise rates again, and with the Yuan still pegged to the dollar, unlike in a typical recovery, where this would signal the elimination of excess liquidity in an attempt to prevent inflation, this time it is a largely symbolic move. Nonetheless, this will put some serious pressure on Chinese stock markets, on the US futures, and will be very "positive" for the dollar, which ironically defeats the whole point of the exercise.
I am what many here (most especially myself) and elsewhere love to make fun of. I am a true blue Digital Dickweed. A Digital Dickweed has been defined by others as someone that is genuinely unemployed, in my case a government pensioner, errr, freeloader (100% disabled veteran), non high school graduate who lives in the basement of their parents home (or the spare bedroom of a family member’s home in my case) blogging. In essence, the old war veteran that sits on his front porch and watches the world go by, aka JAFO (Just Another Fucking Observer). So, let’s take a look see at the talk from off South Main Street. - Miles Kendig
Simon Black's Sovereign Man is currently covering a topic that will be near and dear to all Americans' hearts if the Fed gets its way: Zimbabwe. Attached are his most recent thoughts and observations from the (Zimbabwean) field, and a summary of the political, monetary and overal social chaos that currently rules in the latest (but certainly not last) country to succumb to hyperinflation. The lesson to be learned: prepare for anything. Because nobody in Harare expected to wake up one day and see all their wealth gone.