Archive - Oct 2010 - Story

• 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.

After the housing starts, we have the Fed executing multiple tranche open mouth operations as no fewer (and hopefully no more!) than seven members of the FOMC (not all voting) are on the docket...

• 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.

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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.

A few weeks ago, the Fed announced that the new $100 dollar note has been delayed, and will not make broad circulation by the February 2011 scheduled date. Contrary to prior rumors that either the Fed's printer had finally broken, or that all the ink had been used up, courtesy of William Banzai we now know the true reason. Over the past several months, using the smokescreen of QE 2, the Fed has been secretly contemplating two completely different monetary concepts, both very much appropriate for our Keynesian end-times. Since the Fed will shortly request public commentary on which of the two alternatives should be implemented, we present them to Zero Hedge readers first.

The latest currency war escalation does not come from any of the usual suspects (the Fed-PBoC-BOJ-ECB-SNB hate pentagongram) but from non-axis player Brazil. And it's a doozy - the country's top economic officials have decided to cancel their trip to Seoul in what is likely the first jarring demonstrating of defection from the G-20 cartel. The reason for this last minute defection from the Central Banking proletariat , as given by Finance Minister Guido Mantega and cited by Reuters, is, appropriately enough: "currency issues." Nuff said. And while Mantega has decided to pay a last minute cancellation fee, he is not alone - the president of the central bank Henrique Meirelles has also withdrawn from the list of attendees, due the totally unforeseeable event of monetary policy meetings to be held on Tuesday and Wednesday. Obviously those were unheard of when the G-20 was scheduling the time and date of its location. Next up on defection watch: Hildebrand and Shirakawa. It will go oddly elegant in addition to the (FX) suicide watch they have been on for about a week.

Some essayistic views from Brown Brothers Harriman on the current regime: in what is an elegent symmetry, BBH notes that the current collapse is merely the denouement of the earlier period of success, what the author dubs the Reagan-Thatcher model. "The current crisis is the breakdown of the Reagan-Thatcher cash register. Its own success seems to be the main culprit. It reached some logical conclusion. The leveraging and deregulation, and perhaps the sheer size of the capital stock, overwhelmed the US’s ability to absorb it and, in some quarters, raised Triffin Dilemma-like problems: the magnitude and persistence of the current account itself began undermining the cash register." Where the narrative is less elegant is the policy recommendation that China, which is perceived as the last great hope for the developed world should adopt the same failed Bismarkian model that is now in its death rattles across the entire developed world: "Ultimately the world economy must generate less surplus capital. The surplus countries need to reduce their savings by boosting consumption. One way China could reduce its incredible savings rate would be for the Chinese government to provide some of the basic public goods that most other countries provide their citizens, such as greater social security, unemployment compensation, and, yes, even national health care." In a sense, BBH suggests the US should export communism so that the oligarchy can enjoy a few more years of excess returns, after which, the flood. Yet even they realize it is likely too late to set off on such a course: "It is possible that the Reagan-Thatcher cash register cannot be salvaged. That would suggest a rather foreboding future. Yet, just as in 1971, it was impossible to have anticipated the features of the Reagan-Thatcher cash register, so too we may not be able to envisage a new one. Just like China would still have to confront its massive reserves even if they were to shift of out dollars, so too does the challenge of absorbing the vast world savings transcend national or regional focus of the more common dramatic narratives. While some  semblance of recovery is possible, without a solution to this problem, economic prosperity may not return -- no matter the configuration of  geopolitics." And this will be precisely the final outcome, no matter how hard the Krugmanites push for just another dance with the rotting corpse of John M Keynes.