September 7th, 2011
European reformist think tank, Open Europe, which has so far been spot on in its very skeptical assessment of the drunken, meandering rumble that various European authorities have engaged in over the past two years to mask that the EUR is predicated by a failed and discredited model, has released its comprehensive assessment of today's German Constitutional Court ruling. For anyone even remotely close to trading the EUR pairs, or their derivatives: stocks and bonds, this is a must read. In a nutshell: "Giving the Bundestag’s Budget Committee the final say over the use of the bailout fund is welcome from a democratic point of view, but will add another element of uncertainty to the eurozone crisis. However, so far the Budget Committee has consistently taken the government line on the bailout, albeit reluctantly, and it remains to be seen whether it dares to exercise its new power. The calls for the whole Bundestag to have a greater say in the dispersion of financial aid are, therefore, likely to continue.... the wording used by the Court also seems to suggest that joint debt in the eurozone could be constitutionally allowed if it involved a stronger German say over other member states’ fiscal policies. This could set Europe up for a major clash of national democracies in future, should Eurobonds be deemed necessary to hold the Single Currency together in the long term. Controversially, the Court did not give an opinion on the legality of the ECB’s bond purchase programme – despite the potential implications this programme has on price stability and the ECB’s independence. This unsettling question is likely to resurface in future." Expect this court to feature far more prominently in the months to come.
As Chazz Evans just noted, QE3 can not come soon enough, and it can certainly not be big enough. Wall Street, bonuses entirely contingent on this fiction becoming fact, is therefore more than happy to shape Fed opinion, and confirm that QE3 is now priced in to such a degree that a disappointment will raise the terrifying specter of bloodthirsty, demonic hyperdeflation once again. Below, via Bloomberg, is a summary of what the various Wall Street "strategists" also known as groputhink lemmings, because none of these said Op Twist was coming as recently as a month ago, think is coming out of the Fed as soon as 2 weeks from today...
Today's first Fed speech is out, this one by Chicago Fed dove, Chuck Evans who was recently interviewed by Russian speaking, guitar playing, arch-Keynesian Steve Liesman and dropped the first QE3 bomb a week ago, in which he basically says what he said before, namely that "very significant amounts" of added accommodation are needed. In other words: more of the same, and this time it will be different. After all 12 Fed presidents and 1 chairman can't all be insane all the time.
Yesterday we reported that following the SEC's long overdue porn-laced sabbatical, the "regulator" has launched a massive fact-finding and enforcement-information gathering mission to not only curb those vile HFT frontrunners, but is also seeking to cut off momentum accentuating strategies such a ETFs, aka synthetic stock CDOs, at the knee. This is great, there is only one problem: the SEC has no clue what an ETF is. But all that is about to be remedied. As the attached job search notice indicates, the regulator will generously spend between $126,661 and $198,333 of taxpayer money to finally get someone who actually knows something about basket creation, gamma, convexity, and the 3:30pm daily ETF-induced market ramp. The preamble: "Do you want to perform challenging work in a collegial environment, while enjoying quality of life and a competitive compensation package? Invest in your career at the U.S. Securities and Exchange Commission (SEC)!" Note: not one mention of non stop midget porn: truly a politically correct development. And since the position is for a senior special counsel, you can bet, lots and lots of money, that the SEC is about to start suing everyone in the ETF space. Starting with such Wall Street visionaries as Larry Fink... who also happens to run Wall Street. We just can't wait.
The PIIGS Fleecing Of Europe Continues Even As Italy Promises To Implement Another "Austerity" Package ImminentlySubmitted by Tyler Durden on 09/07/2011 10:31 -0400
The first Italian austerity package has not even properly failed yet (despite labor union protests to the contrary which for some odd reason believe that it has some chance of passing), and already Italy is preparing for a new round of "austerity" to appease those naive fools from the ECB so they buy Italy's otherwise bidless bonds for a few more weeks. From Bloomberg: "Italy may need a new budget- adjustment plan next month because a 54 billion-euro ($76 billion) austerity package to be voted on today won’t convince the European Central Bank to continue buying the nation’s bonds, the chairman of the Senate Finance Committee said. “How long can the ECB continue to buy Italian Treasury bonds?” Mario Baldassarri said in an interview in Rome today. “We may need another adjustment in three, four weeks which will be the real answer to the European Commission and to markets.” Because this time, unlike a month ago, it will be different. Berlusconi promises. As a reminder, Italy will vote on the current massively watered-down plan which is anything but austere later today, in a vote largely expected to pass. Said passage, however will do nothing to please Trichet, who will continue to remind Italy just who calls the shots now (oddly enough the ECB thinks that would be them... which explains the loving relationship between the Central Bank and a electorally challenged Angela Merkel). None of this changes the underlying dynamic which has become all too clear: the PIIGS have called Europe's bluff, and Europe blinked. Going forward expect much barking from the ECB and Luxembourg, warning the periphery to get its house in order... and absolutely no bite. Because everyone by now realizes that the balance of power is entirely on the insolvent countries' side. Europe can threaten to kick out a country, but as UBS demonstrated on Monday, the consequences of such a move, which would end the euro, would be up to and including that Keynesian wet dream: war.
In her response to the Financial Stability Board's recommendations and timelines for the resolution of systemically important financial institutions (SIFIs), BBA's (yes those of LI(E)BOR) Chief Executive Angela Knight worries that the steps do not go far enough. More critically, her concerns stem from the proposals leaving too much scope for self-interest as opposed to systemic stability as a whole (whocouldanode that defection might potentially be the preferred/optimum strategy in the now brothers-in-arms European game theory neighborhood).
Morgan Stanley is currently holding a call in which the firm's strategists, led by Adam Parker and Greg Peters, will be presenting their latest investment case for global equities. Sure enough, coming from Morgan Stanley the call will have a decidedly bullish tone to it, but maybe, just maybe, the firm will finally realize that as the 30 year "Great Moderation" winds down and reverts to its mean, there are other, less favorable outcomes on the horizon. Then again, this being Morgan Stanley, we doubt it. Regardless, the 52 page accompanying presentation is attached, and those who wish to dial in should just drop a line to their favorite Morgan Stanley snake oil salesman.
An already ubercynical Art Cashin chimes in on Obama's much anticipated, and very controversial (recall the latest Boehner flap on the issue) speech tomorrow and comes out sounding even more jaded than usual. In a word: don't expect any imminent rise in Obama's already record low popularity rating as a result of this speech, which if recent history is an indication, will likely generate even further class animosity within US society, now well on its way to confirming some of the more violent teleological theories postulated by Karl Marx.
...Taking a step back, we are looking at potential Nations defaulting, plus augmenting further austerity measures to try and reduce debt (which will stifle any growth for years to come), the spiral of banks coming close to nationalisation across the developed world, consumer deleveraging, rising unemployment, falling house prices and a rising loss of faith with government along with discontent and civil unrest. Why on earth would you sell gold when the outlets for safe havens are being radically reduced since the SNB move and the threat from Japan to intervene? Plus the fact that currencies offer less in the form of stores of value also. A massive shift from currency investment to precious metals could take place. Currency wars will exacerbate this and whilst the SNB move is from a small nation, what happens if one of the big boys like Japan join in? Carnage basically and trade wars and border issues will ignite and G20 could implode. Just what the world is ill-prepared for but it looks like it is brewing. Civil unrest and regime changes around the world will add to the soup.
Presenting the chart of Greek 1 Year bonds. Looking at this alone, one might get the feeling that not all that much is fixed in Europe, whose weakest link is about to file for bankruptcy any minute.
As bizarre as it is to say, but yesterday felt like a short squeeze in the US. In spite of SPX finishing down 9 points, the price action felt like shorts getting squeezed. How can that make sense? Well, anyone who set a short ahead of Jackson Hole or just after the speech, likely set it in the 1130-1160 range. The memory of stocks rallying up to 1228 is too fresh in everyone's mind, so shorts were nervous, and longs may have been set too, as hope remained that Obama, Bernanke, Trichet, and Merkel would say or do things to support the market. I believe yesterday's bounce from the lows, then late day 10 point down and back up swing cleaned up a lot of shorts, so the market is much more balanced at 1175 than it was at 1175 at Jackson Hole time. This gives us a lot more ability to trade lower. Maybe it is too bizarre to believe that we can have a short squeeze on a massively down day, but it felt like that, and it feels like people are positioned less bearish than they feel. With nothing resolved in Europe, and some signs of continued deterioration, the market is more vulnerable to a sell-off. My favorite spin yesterday was that the US will muddle along even if Europe is in trouble. Wasn't it just a few months ago that analysts were saying it is okay if the US does poorly, because over half of S&P 500 profits come from overseas? Weren't profits being enhanced because companies were selling things in Europe and translating those profits back into dollars at favorable exchange rates? Is that story gone and now globalization doesn't matter?
Tullett Prebon has been recently making headlines due to its extremely stark, objective and realistic Project Armageddon, in which it "Thinks the Unthinkable" where it reached the conclusion "that Britain’s debts are unsupportable without sustained economic growth, and that the economy, as currently configured, is aligned against growth. Radical solutions are required if a debt disaster is to be averted. All macroeconomic options have been tried, and have failed. The only remaining options lie in the field of supply-side reform. Unfortunately, public opinion may be inimical to the scale of reform that is required." Needless to say, Keynesians around the world are not happy: after all it takes away from their voodoo punch that just doing more of the same insane things over and over should eventually help. Because if not, then all the BS that is taught in Ivy League is just that... BS. Today, none other than the CEO of Tullett Prebon takes such floundering voodoo economists as Ed Balls, Samuel Brittan, Paul Krugman, George Magnus and Barack Obama, and Keynesianism in general, to task by finally saying what we have been claiming for years: Keynesianism, as applied in modern soceity, is ultimately doomed to failure, but not before we transform from an FX war to a trade war to its final state - shooting war. Because there is nothing like spilling human blood in the name of a false economic religion in its last hurrah before it is finally wiped out from the face of the world.
- German Court Upholds Bailouts (WSJ)
- Obama Said to Seek $300 Billion Jobs Package (Bloomberg)
- Euro Woes Stir Currency Fears (WSJ)
- Hilsenrath: Bernanke Takes On a Balancing Act (Hilsenrath)
- ‘Helicopter Ben’ risks destroying credit creation (Bill Gross)
- China Likely to Ease Money Policy, Journal Says (Bloomberg)
- Krugman explains why the price of gold going down is due to deflation, and why it going up is due to... deflation (NYT)
- Bernanke: US Banks' Exposure to Europe Is 'Manageable' (CNBC)
- Greece Pledges to Accelerate Austerity (Bloomberg)