Chart Of The Day: The Rise Of Global Central Planning

There was a time when the world had (somewhat) free markets. Then Lehman failed as the inevitable culmination of a credit bubble that was second in size and severity only to the one being blown currently, and the central planners took over, converting equity, bond and FX markets into nothing but monetary policy tools dominated by central banks. Below is a great summary of how parallel to SkyNet's HFT takeover of stock trading, the central planners conducted their own not so stealthy take over of all capital markets. The chart is open-ended. Expect much more intervention by the Big 4 in the months and years ahead as the circular nature of increased central bank intervention leading to less faith in financial markets leading to increased private sector deleveraging leading to increased-er central bank intervention and so on, accelerates.

Draghi Again Confirms ECB Pari Passu Status Is A Pipe Dream

Draghi has said lots of things in today's conference, most of them regurgitated. So far the most notable item is what ha already been implied on several occasions, namely that the ECB will not restructure its holdings of Greek bonds (something restructuring professionals call debt for equity in other circumstances) for one reason:

  • DRAGHI: RESCHEDULING GREEK BONDS WOULD BE MONETARY FINANCING

And there goes any hope that the Greek bonds currently in the market will soar due to an OSI restructuring. It also means that the ECB was merely, well, lying when it said that any future bond purchases under the OMT will be Pari Passu. The won't be, as this would imply, as Draghi said, a monetary financing should a PSI/OSI  restructuring ever take place in Spain. Which it will.

Jobless Claims Rise As Previous Data Revised Up Yet Again

The now-ubiquitous prior revision higher in jobless claims made the rise in jobless claims of 4,000 seem a lot less than otherwise as claims didn't even budge the market's needle. Coming in at 367k, slightly better than expected but within the 352k to 392k range that it has been in all year, the most interesting thing we can say about today's print is "it's off the lows". After last week's significant beat, no follow through is seen as we contonue to muddle through.

Mario Draghi Press Conference Webcast

The former Goldmanite head of the ECB, and CEO of DraghiFX LLC, whose only recommendation is still to not short the EUR and thus to make sure German exports suffer, is not expected to say anything too exciting or contradictory today, although he will surely be bombarded with questions about just how and when he plans on dethroning Spain's Rajoy who still refuses to play along with the program, and enact the Spanish bond buying program. Alternatively, if Draghi makes any indication the ECB is now backtracking from the OMT expansion and instead is forced to rely on first loss guarantees and other doomed ideas that failed a year ago, watch as everything goes risk off. Watch the full thing below.

Did Turkey Just Declare War On Syria?

Just out from the WSJ:

  • Turkey's parliament has approved a bill authorizing the military to conduct cross-border operations in Syria, a day after a deadly shelling from Syrian territory killed five civilians

So, just how is this different to war? And how does NATO, and specifically Article 5 feel about this? What about Russia and China?

Daily US Opening News And Market Re-Cap: October 4

Markets were in sleep mode for most of the session, ahead of the BoE monetary policy decision, as well as the ECB’s press conference where the President is unlikely to outline any new measures and instead reiterate that the ECB stands ready to do whatever is necessary. The BoE held both their rates and asset purchase target unchanged, however it is widely expected that the central bank will boost the facility by another GBP 50bln in November. Today’s supply from both Spain and France was easily absorbed by the market, both were supported by the recent decline in bond yields. Going forward, apart from digesting comments from Draghi, market participants will get to see the release of the latest weekly jobs report, durables revisions and the minutes from the FOMC.

ECB Joins BOE In Leaving Rates Unchanged

First the BOE, now the ECB has left rates unchanged. Alas: you don't win pole position in the currency debasement closed loop in which nobody ever wins (well, except for Iran) by doing nothing. But for now, both banks did just as expected.

European Bailout Rumor Du Jour Comes In Early

At least it is not the China bails out Europe one: thankfully that one is now finished. Instead it is something almost as stupid -i.e., something that was floated, then denied, then floated again, then redenied, from Reuters:

  • EURO ZONE CONSIDERING FIRST LOSS INSURANCE FOR SPANISH BONDS UNDER ASISSTANCE PROGRAMME - EU SOURCES
  • SCHEME COULD COST EU RESCUE FUND ABOUT 50 BLN EUROS FOR ONE YEAR, ENABLE SPAIN TO MEET FULL BORROWING NEEDS -SOURCES
  • NO DECISION TAKEN YET ON BOND INSURANCE SCHEME, MAY BE SEVERAL WEEKS AWAY -SOURCES

Considering the source, Reuters, was pretty much 100% wrong on Monday when it said the Spanish bailout was imminent and Germany contingent, something Germany refuted shortly thereafter, we give this rumor about the same "likelihood" of being credible as every other one that Europe is fixed. But at least it managed to get the EURUSD higher by 20 pips.

Frontrunning: October 4

  • Romney dominates presidential debate (FT)
  • What Romney’s Debate Victory Means (Bloomberg)
  • Obama Lead Shrinks in Two Battlegrounds (WSJ)
  • "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
  • Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
  • RBS facing loss after Spanish property firm collapse (Telegraph)
  • Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
  • The Woman Who Took the Fall for JPMorgan Chase (NYT)
  • European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
  • Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)

Overnight Sentiment: Spain Sells Bonds As Redemptions Loom

For the third day in a row, there is little to write home about from the overnight action. The EURUSD has been choppy following an MNI report about comments from EU officials that suggested Germany wants to delay the Troika decision on a €31.5 billion payment to Greece until after the November 12 Eurozone finmin meeting, no doubt predicated by the already discussed willingness by Europe to not rock the boat before Obama is reelected, still leaving the question hanging: just why is an entire insolvent continent so hung up on a US presidential decision. The main FX market focus is on the European Central Bank rate decision, due at 1145GMT. The ECB is widely expected to leave rates on hold just as the BOE did moments ago (it needs to hurry up if it wants to win the race to debase) although in the New Normal one can't be sure of anything. In other news Spain auctioned off a much needed €3.99 billion in various short-term bonds, the bulk of which fell under the LTRO maturity umbrella, but which was successful nonetheless if with modestly weaker short-end results, and an overall bitter aftertaste as seen by the resumption in Spanish 10 year widening, as the entire market, not to mention Draghi, is starting to get very impatient with Rajoy, who is now even getting urged by Catalonia's Arturo Mas to finally bite the bullet and demand a bailout (and resign shortly thereafter): "A bailout is inevitable; therefore the best thing to do is to make the decision without delay,” Mas said. “Spain has the potential to overcome the situation, but it will need assistance for some time." Recall that Spain's cash needs in October surge so every single successful euro raised is more than critical.

Debate Post-Mortem: Fast-Talking Romney For 'The People' As Obama Asks Gingerly If 'Got Medicare?'

As Mr. Lehrer stumbled through the evening and the incumbent's odds of a repeat fell as fast as his frustration appeared to rise, a few things became very clear. President Obama spoke for over four minutes longer than Governor Romney in this evening's slug-fest. However, the fast-talking Mitt managed to squeeze in over 8300 words as opposed to Barack's 7400 words. The word-clouds below suggest each of the candidates' focus tonight with Obama appearing focused on his opponent 'Governor Romney' with heavy use of the words 'Got' and 'Medicare'; while word-wrangler Romney focused on 'People', 'Get', 'Going', 'Government', and 'Plan' (and no 'zinger'). If you are still standing after the drinking games, here are the details...

Obama Contract Slides On InTrade

The first debate is still in progress, but the habitual gamblers who have a compulsion to bet all the time 24/7 on event outcomes have already spoken via their favorite venue InTrade, and the initial reaction is not favorable for the incumbent. Having traded over 70 for nearly two weeks, the "Obama for president" contract flash crashed below 70 promptly for the first time in many days, and has slid 8% in the past few minutes. Naturally, the contract has quite a bit to go until parity. On the other hand it does bear remembering that when it comes to predictive capacity InTrade odds are notoriously bad: just recall the Obamacare gamble when virtually everyone on InTrade was certain it would not pass. All that said, at least according to InTrade it appears that the first presidential debate has not gone quite as the current president might have planned.

First Obama vs Romney Presidential Debate - Live Webcast

At 9pm Eastern, the first of many presidential debates will begin, whose ultimate goal will be to validate in the minds of those 47% or so (aka the very loud minority) who intend to vote for the next president, that they have made the right choice. They haven't (for the reason, or rather 16,171,037,343,409 reasons, see here: neither candidate can do anything at all to prevent the debt crisis iceberg that America is careening into full speed, and which nobody could have foreseen). But it sure makes for great theater, and even better drinking games. So fire up the Interwebs, prepare your Tungstenschläger IV drip, lean back in your favorite easy, bought on credit, and soon to be repossessed chair, and be distracted, unknowing that during the duration of the debate, the US raked up another $200-$300 million in public debt (depending on the frequency and duration of the commercial breaks).

Let The Presidential Debate Drinking Games Begin

Far be it from us to encourage excess consumption; but, should you feel the need to numb yourself a little during the ensuing battle-royale between Obama and Romney, we present - for your imbibing pleasure - the official drinking game of the 2012 election debates.

4 Years After TARP - Winners, Losers, Bubbles, And Troubles

Four years ago today, the Troubled Asset Relief Program was signed into law. We thought it timely to take stock of different asset price levels with respect to that magnificent day in the history of our country as well as how a broad cross-section of global asset markets have performed relative to their pre-crisis peaks. Of the major US banks, Wells Fargo has done the best (-2.3%) while BofA and Citi are worst (down ~80%). As Goldman notes, two features stand out when we look at the broad markets: asset markets that have outperformed and are closer to pre-crisis peaks are either ‘defensive’ in some way, or have benefited inadvertently from the ‘Great Easing’ in response to the crisis. From precious metals and Swedish and Canadian house prices at the top to European bank stocks and US Growth at the bottom; 'hard assets' and 'defensives' combined with central bank yield compression has, as we would expect, dominated performance.

Fed Confused Reality Doesn't Conform To Its Economic Models, Shocked Its Models Predict "Explosive Inflation"

Below are several excerpts only the brains of those practicing the world's most useless profession (and we are very generous with that assessment) could possibly come up with, in attempting to explain the shocking outcome of reality continuously refusing to comply with their exhaustive and comprehensive Dynamic Stochastic General Equilibrium models.

Given that policymakers seldom if ever experimented with forward guidance this far in the future, there is little data to guide them. The problem, however, is that these DSGE models appear to deliver unreasonably large responses of key macroeconomic variables to central bank  announcements about future interest rates (a phenomenon we can call the "forward guidance puzzle")

But the absolute punchline you will never hear admitted or discussed anywhere else:

Carlstrom et al. show that the Smets and Wouters model would predict an explosive inflation and output if the short-term interest rate were pegged at the ZLB (Zero Lower Bound) between eight and nine quarters.This is an unsettling finding given that the current horizon of forward guidance by the FOMC is of at least eight quarters. 

In short: the Fed's DSGE models fail when applied in real life, they are unable to lead to the desired outcome and can't predict the outcome that does occur, and furthermore there is no way to test them except by enacting them in a way that consistently fails. But the kicker: the Fed's own model predicts that if the Fed does what it is currently doing, the result would be "explosive inflation."

Guest Post: Hyperinflation Has Arrived In Iran

Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, we estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation. The rial’s death spiral is wiping out the currency’s purchasing power

NATO Issues Statement On Syrian-Turkish Hostilities

Via Nato:

The most recent shelling on 3 October 20l2, which caused the death of five Turkish citizens and injured many, constitutes a cause of greatest concern for, and is strongly condemned by all Allies.

 

In the spirit of indivisibility of security and solidarity deriving from the Washington Treaty, the Alliance continues to stand by Turkey and demands the immediate cessation of such aggressive acts against an Ally, and urges the Syrian regime to put an end to flagrant violations of international law.

Complete Fed Failure: Retail Investors Pull Out Most From Domestic Equity Funds In Two Months

Just as we had suspected for months, Bernanke's attempt to herd cats and to drive retail investors into equities is now a complete and unmitigated catastrophe. According to just released ICI data, in the week ended September 26, the second full week after the announcement of QE3, retail investors pulled $5.1 billion from domestic equity funds, following a massive $4.8 billion outflow the week prior, and the most in 2 months. This is also the sixth largest weekly outflow in 2012 to date, a year in which over $100 billion has already been pulled from equity mutual funds. And since we now know that Bernanke's only motive for QE3 is to stimulate a wealth effect and to push everyone into the broken casino, where such trading farces as Kraft's flash smash today, as Knight Capital's implosion a month ago, and FaceBook's IPO, not to mention the virtually daily Flash Crash in at least one name, have killed every last shred of faith in equities, it can be safely said that QE3 has failed three short weeks after being launched. As to where the money did go: why taxable bonds of course - not even the "dumb money" is that dumb to go where the Fed tells it to, and instead merely does what the Fed does: it keeps on frontrunning the Fed's monetization of the US deficit, which is now going on for the 3rd year in a row. Eventually "this time may be different." But not yet.