Archive - Nov 13, 2013 - Story

... Is shown on the chart below, which compares indexed growth, or lack thereof, in G-5 GDP and compares it to consolidated central bank balance sheets. We bring this up because following this morning's announcement by the ECB's Praet that the European central bank may launch a round of QE (of questionable legality) it is only a matter of time before the red line really takes off and insanity hits truly unseen levels.

Milan prosecutors ordered the seizure of a substantial batch of computer and telephone equipment from Apple's Italian HQ as part of an investigation into allegations of a one billion euro tax fraud. As L'Espresso reports, the allegations surround false representation of accounting records (EUR206mm in 2010 and EUR853mm in 2011) which were recorded by the Irish entity 'Apple Sales International' but, Italian authorities suggest were services rendered for business carried out in Italy. Beyond this investigation, it seems the growing tax divergences (and loopholes) that we have previously discussed (such as the Double Irish) are becoming a key focus for an increasingly cash-strapped European periphery (among others).

We can usefully classify politicians into three categories: caretakers, practical visionaries and values-transformers. Solving profoundly structural problems by establishing a new foundation of values that most can embrace positively is the hallmark of leadership. Either those with these leadership skills are avoiding politics or the voters are rejecting them in favor of caretakers who are incapable of challenging political powerful constituencies or finding common ground for desperately needed systemic reforms.

Back in October, when Obamacare's birthing problems first became evident, and when healthcare.gov was revealed as the best website ever built... using ForTran... we suggested that it was only a matter of time before Obama blames the evil, terroristy hackers of the world and mostly of Syria. Moments ago, that just happened.

• U.S. CYBERSECURITY OFFICIAL SAYS AWARE OF ONE ATTEMPTED DENIAL OF SERVICE ATTACK ON HEALTHCARE.GOV

Good old administration: predictable to a fault. Now go get those evil, terroristy hackers.

First it was the Treasury, next it was European Commissioner Barroso who indicated he has never read "Export-led growth through exports for idiots" and announced the launch of a probe into Germany's so-called "export surplus." Because how dare Germany produce stuff that the world needs and buys, instead of flooding its economy with record debt to fund consumption-driven "groath." Well, it didn't take long for the German Economic Ministry to retort to Europe's unelected economic titans of thought, for whom it is far more important that all sink together dragged down by cement boots made out of debt, and blasted Barroso bureaucratic bluster.

White men may not have jobs, but at least they will have more time to enjoy sports actvities such as basketball, and finally learn to jump. As for any associated sport injuries: there's always Obamacare.

Despite the ECB's recent "stunning" rate cut, which sent the EUR modestly lower by a few hundred pips, the resultant resurge in the European currency has left the European Central Bank even more stunned: just what does it have to do to force its currency lower and boost Europe's peripheral economies, especially in a world in which every other major central banks is printing boatloads of money each and every month. We hinted at precisely what the next steps will be two days ago when in "Next From The ECB: Here Comes QE, According To BNP" we said "BNP is ultimately correct as the European experiment will require every weapon in the ECB's arsenal, and sooner or later the ECB, too, will succumb to the same monetary lunacy that has gripped the rest of the developed world in the ongoing "all in" bet to reflate or bust. All logical arguments that outright monetization of bonds are prohibited by various European charters will be ignored: after all, there is "political capital" at stake, and as Mario Draghi has made it clear there is no "Plan B." Which means the only question is when will Europe join the lunaprint asylum: for the sake of the systemic reset we hope the answer is sooner rather than later." Two days later, the answer just appeared when moments ago the WSJ reported that the ECB hinted more QE is, as we predicted, on the table.

House Oversight and Government Reform Committee Chairman Darrell Issa leads yet another hearing on the Obamacare implementation and the rollout of Healthcare.gov. The Committee will examine the operational challenges in the development of Healthcare.gov and the extent to which recognized Information Technology (IT) best practices were followed. This one should be fun since its the techies answering the questions - US CTO Todd Park and Deputy CIO Henry Chao answering the questions...

While the only topic of discussion for "sophisticated" investors everywhere is when (and if) the Fed will ever dare to reduce its monthly flow injection into US markets from $85 billion to a paltry $75 billion, everyone has forgotten that across the Pacific, for the past seven months the BOJ has been calmly injecting another $75 billion each and every month into the market, with no risk of this liquidity boost ever being tapered (since the broad 2% inflation target relies on ever broader wage increases that will never come). However, much to Japan's chagrin, in the current insta-globally fungible capital markets, over the past five months the bulk of this liquidity has found its way to the US stock bubble, leaving the Nikkei in the dust. As a result, the local Japanese liquidity junkies have started to loudly complain once again, and now the FT reports that "as excitement over the world’s second-biggest stock market has faded, some are now crying out for another jump-start." In other words: the BOJ must do "moar" to push the Nikkei bubble even higher following its rangebound trade since May which, worst of all, is now the primary reason why "hope is fading."

As we discussed two weeks ago, it would appear Germany's lack of willingness to throw itself on the pyre of self-sacrifice and not adopt a global Fairness Doctrine - as engendered by the US Treasury's (and IMF's) bashing of the core European nation's for maintaining its export strength and daring to keep Europe in tact and thus a periphery-damaging strong Euro - is gathering steam. None other than Europe itself is now 'probing' Germany's trade surplus, using enhanced powers over how euro nations manage their economies with the IMF urging German Chancellor Angela Merkel to curtail the trade surplus to an “appropriate rate” to help euro  partners cut deficits.

With a shiny red ballon dog selling for $58 million, perhaps it was time to take a little profit in the equity exuberance. S&P futures are down 9 points from last night's close - which in the new normal is considerable (sadly) - with no macro data headlines this morning to spark a move, we will be watching JPY (which for now is rallying awkwardly) for signs of ignition. Meanwhile, as the USD flatlines (despite dispersion in FX), Bitcoin just toppped $400 for the first time ever - doubling in the last two weeks. Precious metals are up modestly; treasury yields are limping lower; and European equities (and sovereign bonds) are having another tough day.

The lack of prosecution of bankers responsible for the great financial collapse has been a hotly debated topic over the years, leading to the coinage of such terms as "Too Big To Prosecute", the termination of at least one corrupt DOJ official, the revelation that Eric Holder is the most useless Attorney General in history, and even members of the judicial bashing other members of the judicial such as in last night's essay by district judge Jed Rakoff. And naturally, the lack of incentives that punish cheating and fraud, is one of the main reasons why such fraud will not only continue but get bigger and bigger, until once again, the entire system crashes under the weight of all the corruption and all the Fed-driven malinvestment. But what can be done? In this case, Vietnam may have just shown America the way - use the death penalty on convicted embezzling bankers. Because if one wants to promptly stop an end to financial crime, there is nothing quite like the fear of death to halt it.

• Desperate Philippine typhoon survivors loot, dig up water pipes (Reuters)
• Fading Japanese market momentum frustrates investors (FT)
• China's meager aid to the Philippines could dent its image (Reuters)
• Headline du jour: Granted 'decisive' role, Chinese markets decide to slide (Reuters)
• Central Banks Risk Asset Bubbles in Battle With Deflation Danger (BBG)
• Navy Ship Plan Faces Pentagon Budget Cutters (WSJ)
• Investors pitch to take over much of Fannie and Freddie (FT)
• To expand Khamenei’s grip on the economy, Iran stretched its laws (Reuters)
• Short sellers bet that gunmaker shares are no long shot (FT)
• Deflation threat in Europe may prompt investment rethink (Reuters)

As DB notes, it appears that markets continue to steadily price in a greater probability of a December taper judging by the 2bp increase in 10yr UST yields, 1.2% drop in the gold price and an edging up in the USD crosses yesterday. Indeed, the Atlanta Fed’s Lockhart, who is considered a bellwether within the Fed, kept the possibility of a December tapering open in public comments yesterday. But his other comments were quite dovish, particularly when he said that he wants to see inflation accelerate toward 2% before reducing asset purchases to give him confidence that the US economy was not dealing with a “downside scenario”. Lockhart stressed that any decision by the Fed on QE would be data dependent - so his comments that the government shutdown will make coming data "less reliable" than might otherwise have been, until at least December, were also quite telling. The dovish sentiments were echoed by Kocherlakota, a FOMC voter next year. In other words, an Oscar-worthy good-cop/bad-cop performance by the Fed's henchmen, confusing algotrons for the second day in a row.

What to look out for on November 13th's BoE quarterly inflation rate due at 1030GMT/0430CST