Archive - Dec 14, 2012 - Story

Queen Elizabeth II and Prince Phillip visited the Bank of England’s gold vault and wonders like most people how the things got so bad.   Back in 2008, when the monarch visited the London School of Economics she described the credit crunch as ‘awful.’ .  Fast forward to 2012, the heart of Europe’s  4 year-old debt crisis while the Queen of England hears a financial expert compare the debt crisis to a flu epidemic or an earthquake, as hard to predict. This comparison is truly patronizing and an insult to the Queen’s intelligence. Although I am not English have some respect for your elders, especially your Queen, Britons!  Pensioners in England can recall hard times during the World War when items like sugar were a luxury.  In this new era of credit you have people complaining if they can’t borrow to have their new BMW financed to match their Cotswold’s country house or Spanish holiday home. The Queen was informed that since financial risk has been managed better (need we mention Libor?) than it was in the past, people became complacent.  She smiled and said, ‘But people had got a bit...lax, had they?’  Her Royal Highness also suggested that the Financial Services Authority may not have been hard-line enough in its policing. She said: ‘The Financial Services – what do they call themselves, the regulators – Authority, which was really quite new … it didn’t have any teeth.’ It’s rather ironic that the tour showed the gold vault since a good portion of the UK gold reserves were sold off from 1999-2002, when gold prices were at their lowest in 20 years. 

The Richmond Fed's Jeffrey Lacker, a 2012 voting member of the FOMC, who has so far been the sole objector to the Fed's policy of exiting a hole by continuing to dig deeper, has released his traditional "good cop" response to Bernanke's QE4EVA plan. The highlights: "I disagreed with the Committee’s decision to continue purchasing additional assets to stimulate the economy. With economic activity growing at a modest pace and inflation fluctuating close to 2 percent — the Committee’s inflation goal — further monetary stimulus runs the risk of raising inflation and destabilizing inflation expectations....Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve....I have dissented previously against the use of date-based forward guidance, and I supported the decision to drop such language at the December meeting....monetary policy has only a limited ability to reduce unemployment, and such effects are transitory and generally short-lived. Moreover, a single indicator cannot provide a complete picture of labor market conditions. Therefore, I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is an appropriate and balanced approach to the FOMC’s price stability and maximum employment mandates." Of course, his objection is duly noted, and summarily rejected and forgotten.

• Obama, Boehner hold "frank" meeting amid "fiscal cliff" frustration (Reuters)
• Rice Ends Bid Amid Criticism (WSJ)
• EU summit delays crucial decisions (FT)
• EU moves to cap bank bonuses at 2 times annual salary (CBC)
• Europe Wins a Battle, but Not Yet the War (WSJ)
• Banks Spurn Europe Bond Rush Amid Central Bank Loan Largesse (BBG)
• German-French Sparring Over Euro Caps 2012 Crisis Fight (BBG)
• Fed begins stress tests on bank liquidity (FT)
• Draghi’s rallying cry for new EU powers (FT)
• EU Seeks Plan to Handle Failing Banks Amid Cost Concerns (BBG)
• Berlusconi says Monti has strong EU backing (FT)
• Abe Set for Japan Victory Faces 7-Month Window to Keep Hold (BBG)
• Japan's Abe would try to keep China ties calm-lawmakers (Reuters)

In a world in which the Fiscal Cliff, including headlines, rumors, leaks, and mere whispers thereof, is the main show, all other data points are at best supporting data actors. There was a lot of support overnight - for the futures, which once again closed the prior session at the lows - with a battery of PMIs released, starting with the December HSBC China Flash PMI which printed at a excel picture perfect 50.9 vs an expectation 50.8 and above 50 for the second straight month, which sent the Shanghai Composite up 4.32%, and wiped out the bitter aftertaste from the Japan December large manufacturer Tankan index which tumbled to -12 on expectation of a -10 print, confirming the Japanese recession is deteriorating at the worst possible time. Then after China, Markit released a bevy of European PMI data which came in mixed: Services PMI rose from 46.7 to 47.8 in December, beating expectations of a 47.0 print, while the Manufacturing PMI rose modestly from 46.2 to 46.3, missing expectations of a 46.6 result. The biggest wildcard once again was Germany, where the Service PMI, like in the US, posted a sizable rise, posting above 50 for the first time in months, or at 52.1 on expectations of 50.0, and up from 49.7 last, although more disturbing was the ongoing collapse in German manufacturing which dipped from 46.8 to 46.3, on expectations of a rise to 47.2. French manufacturing data did not help posting a tiny rise from 44.5 to 44.6, missing expectations of a 45.0 print. Economic data was further confounded when Spain released its quarterly home price update, which dipped 3.8%, accelerated last quarter's -3.3% drop, and sliding by a massive -15.2% in Q3, faster than the -14.4% drop in Q2, and confirming Spanish housing has a long way to go before it is fixed.