Last night's lack of intervention by the BOJ is finally being appreciate for the strategic bluff it was. When even an incremental QE dosage is unable to put a dent in your currency, and has in fact strengthened the JPY ever since the announcement, investors are now flocking to all safe currencies, first and foremost the CHF, which has just breached the critical 1.3000 barrier and immediately took down all stops all the way down to 1.2980. This means that the BOJ very strategically left the intervention card to the next currency debaser down the road, i.e. the Swiss National Bank, whose boss Phillip Hildebrand is now staring at his Bloomberg terminal in shock knowing full well he has no choice now but to intervene yet again. Once again, Shirakawa shows how it's done.
With concerns about surging food prices recently inflamed courtesy of the series of fires in Russia and the halt of grains exports out of the country, several heavy hitters have come out recently to discuss their views. One among them is the man with the best YTD performing macro hedge fund according to Bloomberg, Hugh Hendry, who appeared on BBC's ever-informative Newsnight to discuss potash, food prices, and other scarce resources.
Hurricane Earl has just been upgraded to a Category 3 storm, and the National Hurricane Center now predicts that after striking the Carribean islands of Barbuda, St. Barthelemy, Anguilla, and St. Maartin in the northernmost Lesser Antilles Islands tonight and Monday morning, the storm is likely to graze the Eastern seaboard from Virginia all the way to Maine, including New York, beginning on Friday and continuing into Saturday.
Personal Income Comes At 0.2%, Below Expectations; Spending Greater Then Expected; Savings Rate DeclinesSubmitted by Tyler Durden on 08/30/2010 - 08:40
July US Personal Income comes in at 0.2%, on expectations of 0.3%, and a previous print of 0.0%. Yet making less money does not prevent consumer from purchasing (i.e., not paying their mortgages), coming in at 0.4%, higher than expectations of 0.3% (previous 0.0% as well). And it appears consumers may have jumped the shark on the economic "improvement" just as we double dip, with the savings rate declining to 5.9%, compared from a revised 6.2% in the prior month (6.4% initially). Other news: US PCE Core M/M at 0.1%, inline with expectations, the same as the PCE Deflator, which came at 1.5%.
- Bank of Japan’s Moves Fail to Contain Yen (WSJ)
- ECB Likely to Extend Emergency Bank Support (FT)
- Which leads to the following - European Economic Confidence Highest in Two Years (BP) all on life support
- Bernanke Faces Scepticism on Policy Tools, May Need Fiscal Aid (Bloomberg)
- The Uncomfortable Mathematics of Monetary Policy (Reuters)
- Bubble at any cost - China Fortifies State Businesses to Fuel Growth (NYT)
- An end-of-summer puzzle for investors (Reuters)
- As nationalism rises, will the European Union fall? (WaPo)
- Bank of Japan expands bank-loan program as Yen's climb threatens expansion.
- ECB likely to extend emergency banking industry aid: reports.
- European markets rose in early trade, tracking gains in Asia.
- Fed confronts further signs of slowdown amid skepticism on policy tools.
- Pace of UK's GDP growth will slow sharply over the medium term: Comm Chambers.
- UK house prices fall most in 16 months as market hits 'repricing' phase.
- Singapore tightens loan limits to cool housing market.
The past three days of Risk On market action are all gone and forgotten, as the 250 pips of "BoJ FX intervention" have to be eliminated. As a result the USDJPY is 130 pips tighter compared to 8 hours ago, down to 84.6, and the AUDJPY and futures have followed suit. On the other end of the risk spectrum, the EUR is dropping like a rock, across every currency in the world, is testing 1.27 against the dollar, and is back down to a 1.30 handle vs the CHF. Elsewhere, Bund stops were triggered as the German bond futures hit fresh all time highs. All those who were expecting the rotation out of bonds and into stocks to begin, and bet accordingly, our condolences. Feel free to blame the BoJ.
As our economy hurtles towards its meeting with destiny, the political class seeks to assign blame on their enemies for this Greater Depression. The Republicans would like you to believe that Bill Clinton, Robert Rubin, Chris Dodd, and Barney Frank and their Community Reinvest Act caused the collapse of our financial system. Democrats want you to believe that George Bush and his band of unregulated free market capitalists created a financial disaster of epic proportions. The truth is that America has been captured by a financial class that makes no distinction between parties. These barbarians have sucked the life out of a once productive nation by raping and pillaging with impunity while enriching only them. They live in 20,000 square foot $10 million mansions in Greenwich, CT and in $3 million dollar penthouses on Central Park West. These are the robber barons that represent the Age of Mammon
The BoJ just released a decision to extend the 3 month lending program to 6 months, to expand the 6 month fixed rate facility to 30 trillion yen from 20 trillion, extended the maturity of QE, and kept the benchmark rate at 0.1%: in essence a nothingburger extension of QE, which has done miracles for the past 20 years. The key item, however, is that there was no direct mention of FX intervention by the BoJ, which was the silver bullet many had hoped for. As a result, the Yen is currently surging.
Is The Double Dip The Statistical Equivalent Of A Traffic Ticket? And Guess Which Sole Asset Class' Implied Vol Declined In The Past MonthSubmitted by Tyler Durden on 08/29/2010 - 22:54
A few days ago, BNY's Nicholas Colas was kind enough to share his perspectives on why traffic congestion and market structure are comparable, especially in the context of record high cross-asset correlations. Continuing on this series of roadside analogies, today the BNY analyst compares the economic double dip to a traffic violation, and specifically the probability of getting two speeding tickets in the span of one day. "What are the odds of being caught speeding twice in one day? One in five? One in ten? Pretty remote, one would think, given that the ratio of police to motorists on most roads is 1,000:1 or greater. I can tell you from direct and personal experience, however, that the odds of that event are much, much higher than you think. I had my driver’s license suspended for 30 days in 1997 for two tickets, issued on the same day and only a few miles apart. Here’s the thing: most people, after receiving one ticket, will drive more carefully immediately thereafter. But I, working through the math I referenced above, thought “No… The odds are actually in my favor now. I can, in fact, speed with impunity.” This proved to be an error. As it turns out, going substantially faster than the general flow of traffic will gather the attention of the law. This offsets the theoretical odds against discovery, and then some. Oh, and driving a bright yellow car. I should have mentioned that, too." And once again, the specter of market uncertainty raises its ugly head, this time in the form of spiking implied volatility, which has jumped for every asset class in the past month... except gold.
Now with an extra dose of decoupling, brought to you from the fine folks at Goldman Sachs.
Since early April, the yield on 10-year Treasury notes has dwindled from 4.0% to below 2.5% on August 24th. Meanwhile, the 12-month change in the Cleveland Fed's median CPI has hovered feebly between 0.5% and 0.6% since March. These abnormally low interest and inflation rates are fanning fears of renewed GDP contraction, a plunge into price deflation, or both. Boardrooms and blogs are humming with rumors of a 'QE II' (Quantitative Easing II) program to counter a chilly deflationary dip. One reason fears are so acute is that the Federal Reserve's main policy tool, the overnight interest rate on Fed Funds, is flatlined at zero. Moreover, via 'extraordinary measures' beginning in September 2008, the Federal Reserve added some $1.4 trillion of securities, including $1.1 trillion of MBS (mortgage-backed securities), to its balance sheet in a stimulus bid. Yet despite these heroic efforts, economic leading indicators have turned weak this summer, as sinking Treasury yields add to the disquiet. In its August meeting, the Federal Reserve downgraded its economic outlook, and backed away from plans to let its enlarged securities holdings run off as MBS mature. Instead, it committed to buying about $18 billion of Treasuries from mid-August through mid-September, mostly in the 2- to 10-year range, by reinvesting MBS principal payments. It also set a $2.05 trillion floor for its securities holdings -- thus freezing 'QE I' in place (perhaps forever) and hinting that a larger 'QE II' could follow. But if QE I isn't working, what hope would QE II have of achieving its purpose in a fresh emergency? This paper discusses a faster-acting alternative, which is feasible within the existing statutory and institutional structure -- namely, targeted purchases of international reserve assets instead of Treasury notes.
America has long had a working group on financial markets (whose sole purpose some suggest is to keep stocks from plunging in times of turbulence), so why not have a working group on that other much more critical phenomenon of US society: a trend of unprecedented unequal wealth distribution, which can be summarized as simply as pointing out that 1% of US society holds more wealth (or 33.8% of total), than 90% of the remaining portion of America (26.0%), and also is in possession of more than half of all stocks, bonds and mutual fund holdings in the US. Well, there is, even if is not formally recognized, and made up of the same distinguished professionals as the PPT (Geithner, Bernanke, Gensler and Schapiro). Hereby we present some of the key findings of the Working Group on Extreme Inequality.
Jim O'Neill Suggests It May Be Time For The US To Give Up On Our Own Middle Class, And Focus On China'sSubmitted by Tyler Durden on 08/29/2010 - 14:58
A floundering Jim O'Neill has never seen decoupling as wide as it is now, and the man is now openly hallucinating, seeing every non-developed country as a potential BRIC (see this Friday's FT OpEd: How Africa can become the next Bric). Well, of course, China needs its resources. Soon every open mine will be a "BRIC" to be exploited by Chinese interests, which come, see, and suck the place dry as they build yet more vacant cities, ghost towns, and highways to nowhere, hoping they can sustain the illusion of the world's greatest bubble for a few more months. Which is precisely all those who are betting on a collapse of China are playing it not with China CDS, but those of Australia: for when the worm turns, Bad in Beijing, will be nothing compared to the Massacre in Melbourne. Yet even Jim's nagging conscience is not allowing him to blindly continuine to ignore the other side of the coin, namely that he is once blatantly wrong, and decoupling never did, and never will occur: "What can emerge if Ben Bernanke and the Fed is wrong? What if this
slowdown is sustained, and we actually move into another recession? The
American Dream needs something new. In conventional terms, it needs
booming private investment and booming exports. And they might happen. I
find it hard to see how net exports were such a genuine real negative
contributor to Q2 GDP as reported today, and I strongly suspect this
will be reversed. But what if it isn’t? The scope for more conventional
fiscal stimulus is hardly available. So in this light, the US needs its
own BRIC equivalent. How about something real on the infrastructure
front ? ( a nice mode of transport downtown Manhattan from JFK would be a
sign). How about literally some forced measures to shift the auto user
on masse from conventional fuels ( combined with a major hike in
gasoline taxes)?" Jim's conclusion: now that China is actively moving to developing its own middle class, perhaps it is time for the US to finally roll over and admit its consumer are on longer the world economic dynamo. He asks whether it is time to "borrow a few hundred million BRIC consumers?" Surely China will be ecstatic that the US will now be funding the development of its own middle class. As for ours...Oh well.
There is much debate over whether the Federal Reserve should tighten or further ease monetary policy. This dichotomous framing overlooks another possibility, which is whether the Fed should change the mix of its stance, tightening in some areas and further easing in others. In particular, there are strong grounds for the Fed to abandon its support of the Treasury bond market and to raise gradually the federal funds rate (to say one per cent), while simultaneously increasing its purchases of mortgage backed securities. If permissible, the Fed should also purchase state government bonds according to a per capita formula. Such a recalibration of policy could have positive effects. Increased purchases of MBS will help the housing market, which remains at the heart of the US economy's problems. Declining house prices continue to inflict financial losses on banks and consumers, and the prospect of further price declines deters buyers and undermines new construction. Increased MBS purchases could help stem this problem by further lowering mortgage rates. That would help households by facilitating more mortgage refinancing, help banks by reducing foreclosures and help the construction industry by making home ownership cheaper.