Archive - Aug 26, 2011 - Story

One headline and one denial later, we now learn that the original news was in fact correct. As MarketWatch reports "UBS Friday said it may shortly begin to levy a temporary charge on Swiss franc deposits as a way of encouraging its bank customers to keep their cash in the surging Swiss currency as low as possible." In doing so, the bank joins such illustrious banks as our own BoNY which announced on August 4 it would start charging a 13 bps fee on deposits. Naturally, this is nothing but yet another attempt to devalue the recently record Swiss Franc. If proven successful, look for even more institutions to establish comparable cash prohibitive mechanisms that force savers to sell the host currency and expose themselves to FX and counterparty risk in addition to everything else that already plagues fiat.

From Goldman: "BOTTOM LINE: Bernanke offers little guidance on near-term policy outlook, but extension of September meeting makes easing at this meeting a bit more likely than before. We continue to think that further easing via manipulation of the Fed’s balance sheet —either through expansion or restructuring of the average duration of holdings—is likely by early 2012."

Will Obama blame the weather on Bush or... the weather. Find out momentarily. Audio only: the presidential vacation will not be televized.

As the stock market whipsaws continue, nothing compares to what is happening in the various Swiss Franc pairs, as both majors USDCHF and EURCHF have soared (the Franc has plunged) following rumors that UBS (and possibly more banks) have escalated the currency war by announcing charges for CHF-based deposits, thereby making CHF holdings more expensive, and forcing a sell off. It is unclear if this was a private decision or mandated through the SNB. We expect that it will take the market the usual several hours to realize that the only winner out of this move is not ES but gold (and physical at that), which once again reminds everyone it is the only money without deranged central banker counterparty risk.

Do not attempt this at home kids

All we get is that the meeting in September will be 2 days instead of 1? With Europe being so weak and the market having been so resilient in the face of bad news this week and exuberant about good news, I think we have room to sell off. I really think we have to head towards the lows. Weirdly enough, AAPL, is once again outperforming the rest of the Nasdaq. I don't see that lasting forever. For the shorts, there is now no obvious event to be scared of. Obama's 212th jobs in the future speech? I find it hard to believe that will be anything more than a yawn. Scared that Ben will intimidate Washington into doing something? Yeah, we saw their reaction to S&P - raid the offices and get the CEO fired.

Complete summary of the market response.

Bottom line: nothing now, QE3 now expected to be delivered Sept. 20? or not...

• BERNANKE SAYS FED HAS LIMITED ABILITY TO ENSURE LONG-RUN GROWTH
• BERNANKE DOESN'T SIGNAL NEW STEPS FOR PROMOTING U.S. GROWTH
• BERNANKE SAYS EXTRA DAY TO ALLOW `FULLER DISCUSSION' OF TOOLS
• BERNANKE SAYS FED TO EXTEND SEPT. FOMC MEETING TO TWO DAYS
• BERNANKE SAYS FED HAS `RANGE OF TOOLS' FOR STIMULATING GROWTH
• BERNANKE SAYS `FINANCIAL STRESS' WILL BE A `DRAG' ON RECOVERY

Sino Forest: date of death - August 26, 2011.

The soundbite response from Wall Street on the latest GDP disappointment is, as expected, decidedly not bullish.

The first revision to Q1 GDP printed at 1.0%, down from the preliminary Q2 GDP print of 1.3%, and as expected was worse than Wall Street consensus of -1.1%, although it was certainly not as bad as the miss to the preliminary number. Stone McCarthy's forecast of 0.7% is not necessarily wrong: it is probably just early: the final revision to Q2 GDP will come on September 29, one week after the next FOMC meeting, and will be the last sub 1% GDP growth number before we see a negative GDP print for Q3. Personal Consumption printed a little better than expected at 0.4%, higher than consensus of 0.2%. Alas, this number will be whacked massively in Q3. Core PCE was also slightly higher than expectations of 2.1%, coming at 2.2%. The components of the 1.0% revised GDP were: PCE: 0.3%; Fixed Investment: 1.01%, Change in Private Inventories: -0.23%; Exports: 0.41%; Imports -0.31%; and Government consumption -0.18%. This is the third consecutive quarter in which the government has taken away from growth.

For what it's worth, the DAX is almost back to yesterday's "flash" crash lows.  I'm not sure what is going on there (Greece, sovereign debt in general, slowing economy) but it is unlikely that yesterday's move was solely related to a fat finger or rumors of a downgrade.  The Dax is now down over 20% for the year.  I think the weakening economy and horrible stock performance will further impact Germany's willingness to fund bailouts across Europe.  Yes, maybe it would help their market, but I suspect the average German is going to be more worried about sending money out the door at a time of weakness, than what is the "right" decision longer term. 

• Markets focus on Fed Bernanke’s Jackson Hole speech in anticipation of getting a glimpse into the Fed’s monetary policy stance going forward
• S&P sovereign ratings head, David Beers, said that the AAA rating for the US is not likely in the near term, and S&P is looking very carefully at France’s evolving fiscal strategy
• Speculation that the German Chancellor Merkel may be ousted as early as September weighed on the DAX future
• RBA’s chief Stevens said that the central bank may act to lessen the upward pressure on inflation, which helped AUD
• CHF weakened on the back of market talk that the SNB may announce further measures to curb the currency's strength