Update: RBA leaves rates unchanged as expected, AUD slides as unexpected.
The AUDJPY goes berserk jumping by 20 pips as the pair goes offerless on news that the BoJ has decided to keep its policy unchanged, not precisely the news the market was expecting but the knee jerk reaction in the wrong direction shows just how habituated the market now is to endless stimulation by CBs. The news was complete as expected, as GCI pointed out earlier: "Many traders believe the central bank - after bowing last week to intense political pressure - will keep its policy unchanged for several weeks. Volatile moves in the yen will likely be the single largest determinant of additional BoJ action. The central bank's ability to purchase additional Japanese government bonds is limited to rules that require the central bank to limit holdings in long-term bonds to the outstanding balance of banknotes in circulation. This means Japan's ability to purchase JGBs fell to less than ¥20 trillion." Elsewhere, Bob Katter just confirmed his support for an Australian coalition government, which would end an impasse and result in a minority government by Labor Prime Minister Julia Gillard. The news also comes in advance of the RBA decision, which is expected to be unchanged, as summarized by Goldman (below). In the meantime, after the initial surge in the AUD, the result is an immediate selloff in the AUDJPY pair, bringing the rate to unchanged, i.e. trading on mere noise.
Another fascinating interview by Jim Rickards, in the first part of which the LTCM GC explains why he has told his clients to get out of stocks (yes, it does have to do with market manipulation and the Fed - the two most popular topics on Zero Hedge over the past year): "Markets have ceased to function as they are intended - traditionally a place to exchange values, but more importantly to perform price discovery (people rely on markets to tell them what to do or to at least give them some guidance). What's happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value. The market has become self-referential, an algo playing itself out, almost the way you would run a self-recursive equation on a computer and you get very unpredictable results from very simple equations. It has degenerated into a joke." Perhaps more relevant for those seeking some advice on where to put their money if not into stocks, is his observation that now that the Fed is in dire need to getting people to start spending, the only option left is to instill the fear of a dollar devaluation, but not against other fiat (as that would in turn lead other central banks to follow suit), but depreciation against hard currencies such as gold. "If you are the Fed and you buy up gold to $2,000 an ounce what have you done? You've depreciated the dollar by not quite 50%. Well that's pretty powerful stuff if you are trying to get people to spend money and dump dollars. So they are not out of bullets, they have what I call the golden bullet..." As Kohn today said, it is all about expectations... Well, why not make people expect that the dollar they have today will be worth half as much tomorrow versus gold?
Morgan Stanley's Qing Wang has created a new tracking concept, the China Macro Risk Radar (CMRR), whose sole goal is to provide a framework to asses and monitor risk events of low to moderate probability (high probability events already have their own standing at the firm and are singled out in client calls) and high impact. As part of its inaugural edition, MS has assigned 10 risk events to four different categories on the CMRR - each risk event is assessed according to six aspects, including its description, content, potential impact, likelihood, timeframe, and evolving direction. We present the top 10 items that are of concern to investors in China, and are likely to provide even more ammunition to the ever increasing roster of China bears.
Hatzius Makes The Strongest Case For QE2 Yet, Or How $1 Trillion In QE Buys 0.5% In GDP (And Increasingly Less)Submitted by Tyler Durden on 09/06/2010 - 19:34
Economists are not known for their fighting words. They tend to be of the meek, "world inheriting", broken clock correct twice a day, variety, so any time one of their kind goes off the territory becomes a notable event. This is precisely what Jan Hatzius did today, when he basically blasted the Fed in its completely wrong read of the economic data, which incidentally happens to be inline with what Zero Hedge has been claiming, that accounting for non-recurring, one time items, means that the entire "firm period" of late 2009 and early 2010 has been nothing than a Keynesian mirage. Hatzius says: "Later this year or early next, however, we do expect a return to unconventional monetary easing. This is because we strongly disagree with the notion that the recent slowdown in activity is a temporary “soft patch” in an otherwise fairly decent recovery, which seems to underlie the Fed’s forecast of a reacceleration in 2011 after a modestly slower period in 2010H2. On the contrary, we believe that the stronger growth of late 2009/early 2010 was a temporary “firm patch” in an otherwise extremely anemic recovery, and there is a sizable (25%-30%) risk of a renewed recession." We wonder - isn't that the whole premise behind the Keynesian cheap credit, wonder years? Does it not mean that the entire economic and market surge from 1980 onward is about to be renormalized to a fair value which is about 75% lower? There is a reason why people far smarter than us have a target of 450for the S&P... Here is why Hatzius is certain that one week (of artificially sugary data) does not a recovery make, and that QE is coming now, stronger than ever.
Sole European Bank Needs $60 Million USD And Comes Crawling To ECB, Confirming USD-Libor Funding Process ImpairedSubmitted by Tyler Durden on 09/06/2010 - 14:44
Today, the ECB announced one sole bank was allotted $60 million USD via its Fed-swap facilitated liquidity providing operation. At a comparable operation last week, the ECB announced that just one, almost certainly the same bank, had requested $40 million in dollar-denominated funding from the ECB. What is troubling is not that just one bank requested such a paltry sum of capital to last it for another 168 hours, but that precisely one bank did, indicating that the funding situation is so bad in Europe that a bank is unable to find a token $40 million in the interbank market and via traditional means, that it is forced to beg to the institution of last reserve, the ECB. Furthermore, the fixed-rate on the operation came in at 1.19% (an increase from the prior week). This is nearly 4 times the rate allegedly charged for 3 Month LIBOR, which today came in at around 0.30%. Oddly enough it is just today that the WSJ comes out with an article fanfaring the cheapness of interbank lending with "Libor Falls as Banks Sit on Cash." Judging by today's ECB action, the WSJ's article would be a little more relevant if European banks had at least some access to this abundantly cheap capital, which it appears is available to everyone except those who need it.
HFT algorithms often rely on some simple technical indicators. They can be triggered by a variety of events, but generally involve normalized price volume relationships; like velocities and accelerations over these independent variables, so one would observe price per volume and price per volume squared. The important factor that should be the focus of most discussions is not the particular reason the HFT algorithms send huge orders into the market via flashes of time that incorporate these order volumes in tens or hundreds of microseconds, rather, the issue that should be discussed is how these orders are processed and filled? Recently, at the, IQPC’s “Next Generation Algorithmic Trading Strategies Summit,” I witnessed a flurry of discussion on the topic of “Flash Crash” and the desire to prevent this-type of event from ever occurring again: for various apparent reasons. I found much of the discussion addressed many related themes relevant to the “Flash Crash,” and provided an anecdote that may be interesting to a broader audience.
Last week's economic data was hailed by all the optimists as definitive evidence the a double dip would be easily avoided. Long forgotten hopes about actual growth (it has been about 10 months since someone uttered CNBC's 2009 trademark phrase "green shoots"), the Kool Aid set has now started extolling the virtues of not falling into an outright depressionary freefall. As such, very soon the lack of images of lines in front of soup kitchens will be enough to push the Dow up by 1,000 points intraday. Additionally, the lack of a nuclear holocaust is worth at least 10% on the S&P (and has been priced in about 90% so far). And as usual, the government propaganda machine presented the data in a way in which the robotic headline scanners would immediately go nuts in another daily pumpatahon. We already presented Rosenberg's take from last week showing why the data was certainly not to be trusted in the first place. And just to reaffirm the case that not all is well, here is Goldman's Ed McKelvey demonstrating the ridiculousness of presenting last week's data as a rout for the bulls, when all it really did was beat already rock-bottom expectations, and in addition set the seeds for an even weaker Q3 GDP print.
Outflow troubles continue for the time bomb in Europe's periphery, Greece, whose second default is approaching. The central bank has just reported that in July household and business deposits declined from €216.5 billion to €212.3 billion: so much for the ECB's presence inspiring confidence. So €4 billion a month in deposits taken out, and applying a fractional reserve multiplier, means Greek banks lost another €40 billion in monetary supply in July alone. Deflation + Austerity = Kaboom. As to where these deposits are going, here is a suggestion...
The New Deal cost America $50 billion in 1930s dollars. How the times have changed - today the White House will announce a new and improved New(er) Deal, which will invest $50 billion in a 3Rs sequel - road, rail and runway, infrastructure developments. It will have roughly one thousandth the impact of the Roosevelt plan, demonstrating once again that in 80 years the only thing that has actually worked in America is the ongoing devaluation of the dollar. But don't call it failed fiscal surplus infinity +1, that would certainly not help the Democrats' InTrade odds this November. But since ARRA has now failed and GDP is stalling, and the Fed is pretty much powerless to create anything except a huge spike in gold prices once it goes full retard on monetary policy, what does one expect the president to do (aside from the obvious which is whatever the teleprompter tells him)? At least Paul Krugman will be giddy: there go two more $25 billion bond auctions to spike the economy for one or two days, only to cause another output vacuum shortly thereafter. And since no Obama plan could be complete without the creation of a czar or a bank to act as chief administration of fund misappropriation and embezzlement, the plan will also see the creation of an "Infrastructure Bank" which Wall Street is already actively plotting how to frontrun and to vicious rob blind at the expense of future generations. So congratulations America: ten days of total tax revenue were just washed down the drain to keep a few road workers busy: we'll skip the obligatory "Change you can..." jokes at this point. We also won't mention the imminent receipt of Warren Buffett's "thank you" card by the administration - that's a given.
Exclusive: The Paulson Portfolio Post-Mortem (In Which We Learn That The Maestro Himself Is Advising J.P. On Future Gold Prices)Submitted by Tyler Durden on 09/05/2010 - 23:44
We present an exclusive summary of all the Paulson & Co. portfolio facts, figures, strategy, ins and outs, and Paulson's discussions with former Fed Chairman Alan Greenspan on the "the relationship between the monetary base, the money supply, inflation and gold prices." Must read for everyone.
Summer vacation is over and things in Europe may soon start rocking and rolling all over again. Not only is France about to experience its first 24 hour general strike this Tuesday in a long time, which will likely remind everyone else in Europe (hint Greece and Ireland) that austerity is the new normal across the Atlantic and the 14th annual monthly salary is not going to come back just because nobody is talking about it, but as the FT reports Europe needs to issue double the amount of debt in September compared to August. From the FT: "Eurozone governments will try to raise €80bn ($103bn) in September compared with new bond issuance of €43bn in August. Spain is expected to attempt to borrow €7bn in September compared with €3.5bn in August, according to ING Financial Markets." The dramatic ramp up in issuance is forcing the FT to speculate that "some of the weaker economies could fail to raise the amount of money they need as eurozone governments attempt to issue double the amount of debt this month compared with August." For all those who have been waiting for the perfect storm in Europe to finally develop the time of waiting may be over.
Coxe Advisors Discusses A Fizzling Recovery, And Explains Why The Market Is Essentially Unchanged For Over A YearSubmitted by Tyler Durden on 09/05/2010 - 14:04
The ever insightful Don Coxe of Coxe Advisors has released a transcript of his recent discussion on why the rally is fizzling. Aside from everything else, which as usual is spot on and must read, any paper that has the following statement: "In the New York Times today, Paul Krugman got into one of his splenetic rages but he is a terrific and articulate exemplar of the post-Keynesian (that claims to be Keynesian) school, which basically doesn’t believe that government deficits are bad, (they are good) and paying for things in the next generation or the generations after it is okay where it to get us out of what we are in now, so as far as he’s concerned, stimulus has to be done by increasing government deficits" is worth its weight on tungsten. Coxe also does the best summary of why the market has is barely changed both YTD and on a 1 Year basis: "We have a buildup in cash (in print money that is) and we have a buildup in gold, and beyond that there’s not much going on. That’s why the S&P is up about 1% year over year and it’s hardly of the kind of environment that’s going to get those investors who left the stock market after the Flash Crash, saying “We don’t believe the market is any realistic place for ordinary individuals anymore”— this is not going to get them running back in to buy stocks." But don't believe him- after all, there are thousands of paid for newsletters and momentum models, that promise they can time each and every up and downtick, and will certainly make you a trillionaire if not a billionaire (sic).
Roubini's latest media appearance, and now that the spectre of a double dip has fully arisen there are quite a few of them, is with the FT's James Blitz in which the NYU professor does a quick 5 minute summary of what he sees as the main threats to the US economy, among which are a 40%+ chance of a double dip, a sub 1% GDP growth in H2 2010, the disappearance of all stimulus pushes (and the conversion of the fiscal stimulus from a tailwind to a headwind), an awful job market, bigger bank losses, declining home prices, a drop in the stock market, widening spreads, a feedback loop from stock markets into the economy, and much more. We are happy the professor has revised his call from a few months back seeing virtually no chance of a double dip. As to policy, Roubini thinks the US has run out of policy bullets on both the monetary and fiscal side: he is sure the Fed will do more QE, but it will be impotent as there is already over $1 trillion in excess reserves (of course, it simply means excess reserves will be $2 trillion, $3 trillion... etc. And IF the economy picks up, this money will hit broad money. But no, aside from that, there is no threat of inflation. Because the Fed is fully prepared to absorb $3 trillion in excess money....). As to Europe, Roubini thinks austerity will also result in a disaster, first for the periphery and then for Germany, so basically damned if you do and damned if you don't vis-a-vis stimulating, which is precisely what we have been saying for over a year: the central banks have boxed themselves in a corner from which there is no escaping, regardless of what they do. Lastly, on Asia, and specifically China, Roubini notes the obvious that even the world's most overheating economy is faced with so many problems that it can only do what the US has been doing so well to date: kick the can down the road.
Why The Fourth Branch Of The US Government Needs To Be Abolished, And Why "Authority" Should Never Be TrustedSubmitted by Tyler Durden on 09/05/2010 - 11:01
Yesterday we presented Dylan Grice's thoughts on why economists and their opinions should be summarily dismissed as nothing but mere noise on the steep downward slope of a series of failed "authoritarian" policy decisions, which seek to validate one false choice after another, by presenting a hypothetical and fallacious counter-outcome as a certain reality (just consider the "apocalypse" we would be living in if Goldman had failed: of course, there is no justification for this except for what Bernanke et al claim is the one true alternative reality based on nothing but their own conflicted interests), which does nothing but discredit the "science" of economics more and more with each passing day. Yet in the grand scheme of things economists are merely pawns in the hands of the landed elite: the financial system set only on perpetuating the status quo of capital and wealth reallocation from the lower classes onto itself (until there is eventually nothing left), and a government whose only prerogative is to usurp ever more control and authority, until the entire system is one of central planning in economics, social affairs, religion, and every aspect of people's daily lives, all the while pretending to operate under the guise of a democracy, which, at least in America, died long ago. Today, we present the observations of Bill Buckler from his Privateer report, which picks up where Grice left off and demonstrates why one must not only never rely on economists but on form of "authority" in general. Putting it all together is Buckler's close analysis at the glue that makes it all possible: the Federal Reserve, also known as the fourth branch of government, and the entity that provides the endless funding for all of the system's failed policies. As Buckler points out, any reversion to a system that follows the constitutional precepts of the founding fathers will need to do away with the Fed first and foremost, as "the issue is not the political will of the US government to go on spending beyond its means, it is the political will of the rest of the world to go on accepting the unworkable global system indefinitely. They will not do it." In other words, in the step leading up to the last and most important defection in the global prisoner's dilemma, it is up to the American people to take the necessary step to restore the systemic balance (which will happen regardless eventually, only in a far more violent fashion). Everything else that happens on a day to day basis is completely irrelevant.