Archive - Sep 20, 2010 - Story

This week the Fed goes into overdrive mode, making sure September hedge fund redemption requests are minimum. Starting today, Brian Sack will buy a few billion bonds dated 2016-2020, followed up by a new batch of bonds maturity 2013-2014, and will complete the week's trifecta on Friday by monetizing a fresh $2-3 billion of 2014-2016 bonds. Look for stocks to open lower and surge higher in the tried and true fashion of completely expected Fed market manipulation, once PDs convert their marginal bond holdings into stocks as the September short-covering frenzy goes to an all new level.

Overnight gold hit a fresh all time record as increasingly more people make their own decision to go back to the gold standard, away from endless currency dilution, and away from the dollar as reserve currency. Curiously, the latest salvo in the case of the latter came from Malaysia which, courtesy of the FT, we learn has "bought renminbi-denominated bonds for its reserves, marking a
significant advance for Beijing’s attempts to internationalise the use
of its currency, pitched by Chinese policymakers as a long-term rival to
the US dollar." While relatively under the radar, this development will have huge implications for global capital flows: as Credit Agricole's Dariusz Kowalczyk, says, "the central bank’s move is also expected to herald further diversification into Chinese government securities by other Asian countries. This brings the renminbi’s credibility to a whole new level. It will have a domino effect, starting among China’s trading partners in Asia. Then it will gradually spread globally." Of course, it also shows that what China does to Japan by buying up its bonds, the world can do to China. However, in exchanging the renminbi for the dollar as global reserve currency of choice, Beijing will be more than happy to allow this, even as the US, its infinite budget deficit, and its outright lack of a budget, grows increasingly isolated.

Earlier today, after a few prodding phone calls from European based sources to remind the rating agencies that their only purpose in life is to continue validating the global ponzi system, both Fitch and Moody's announced they would slap the European Financial Stability Fund (EFSF) with its lowest pre-bankruptcy rating of AAA. Of course, this kind of rude reminder that the facility exists, and ergo, that Europe is still broke can only mean one thing: the EFSF is about to be used again, perhaps as soon as tomorrow, when Ireland, whose largest banks are insolvent, will attempt to sell €1-1.5 billion of bonds (although today's most recent blow up in Irish-Bunds spreads does not bode well for that particular auction). In fact, even Goldman's traditionally cheery Erik Nielsen says "As I have discussed in recent weeks, we think there is a measurable probability that [the EFSF] be activated some time next year – along with the IMF – for Ireland and Portugal, and it could also be used if Greece needs another dose of cash sometime later on." And just to confirm that even a cursory glance beneath the covers demonstrates that Europe is and continues to be locked out of general liquidity markets, is today's ongoing 7 day Liquidity Providing tender result, which for the 5th week in a row shows that one solitary bank is using the Fed's swap line to borrow the meager amount of $60 million at the whopping rate of 1.17%.

• Abu Dhabi bonds heads for the best quarter in a year.
• Asian stocks fall on US economic growth concern; Mining shares decline.
• Crude Oil rises for first time in five days after decline draws investors.
• Euro rises to $1.3077 in European trading.
• Europe debt crisis abating as government traders see yield spreads narrow.
• FDA to consider approval of genetically engineered salmon.
• Fed to cut growth forecast, Europe rescue faltering: Pimco's El-Erian.
• French competition watchdog fines banks $503M due to price fixing.
• Gold may extend gain to record this week on economy concern: survey.
• Greek bank stress tests delayed; Athens to raise more money on capital markets.

• Greek bank stress tests delayed until glitchless passage can be ascertained. No way would Europe want to test someone if there is even a small risk they fail (FT)
• Europe debt crisis abates as traders see yield spreads narrow (Bloomberg), yet oddly enough Irish Bund spread surge to 390...strange this thing reality
• Lenihan Rules Out Outside Aid for Ireland as Bond Auction Nears (Bloomberg)
• Raghuram Rajan - Perhaps Paul Krugman believes that by labeling other economists as politically extreme, he can undercut their credibility. But his is badly weakened by the myriad errors he makes. (The American)
• Bond Markets Get Riskier (WSJ)
• Shock Waves for Stocks If GOP Wins Congress (Bloomberg)
• Fear and loathing in Paris and Brussels (FT)

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 20/09/10