February 7th, 2012
- Please - we beg you, help us - IMF Urges Beijing to Prepare Stimulus (WSJ)
- Stalemate in talks on Greek austerity measures (Telegraph)
- U.S. Sets Money-Market Plan (WSJ)
- Forty States Sign On to Foreclosure ‘Robo’ Settlement (Diana Olick)
- Greece bail-out funds could be split (FT)
- Japan Adopts Stealth Intervention as Yen Gains Hurts Growth (Bloomberg)
- Papademos to Meet Greek Party Chiefs as ‘Great Sacrifices’ Loom (Bloomberg)
- Glencore-Xstrata deal meets shareholder opposition (Reuters)
- Romney campaign takes aim at rival Santorum (Reuters)
The surge in the U.S. money supply in recent years has sent gold into a series of new record nominal highs. Money supply surged again in 2011 sending gold to new record nominal highs. Money supply has grown again, by more than 35% on an annualized basis, and this is contributing to gold’s consolidation and strong gains in January. The Federal Reserve's latest weekly money supply report from last Thursday shows seasonally adjusted M1 rose $13.2 billion to $2.233 trillion, while M2 rose $4.5 billion to $9.768 trillion.
So now, as an infallible way of making little ease, great ease, I began to contract a quantity of debt.--Charles Dickens
Overnight excitement from the RBA (no rate cut) and concerns at China's GDP growth given a European recession did nothing to initially slow risk markets early on as they reached up to yesterday's highs as ES (the e-mini S&P 500 futures contract) and BE500 (the broad Bloomberg equity index for Europe) pushed higher out of the gate (as AUD strength sustained carry trades - which appear now to be leaking back off). EUR managed to get back to yesterday's highs and found resistance and once it began to leak lower (and USD lower implicitly) then equities (and commodities on China un-easing concerns) started to stumble pretty hard. Following China's Shanghai Composite, European stocks are now down around 1% and credit is slowly gathering pace to the downside (though not as weak as stocks for now). Portugal showed some strength early on but has given that back as most sovereigns are trading 0-3bps wider in 10Y cash spreads for now (likely the trigger for non-sovereign credit). Some comments from Juncker on special Greek accounts and Klass Knot on the Euro's success top off a quiet morning with some risk off starting to gather pace.
Just a week ago we brought readers' attention to the fact that Francois Hollande, the Socialist Party candidate who is leading most opinion polls in the French presidential election, was extending his lead; well the lead is growing, to now 58-42 in the second round. In a must-read discussion this evening, George Magnus of UBS points to the significance of the French elections and how Hollande's victory could unleash 'a new wave of instability and uncertainty, and that the relative calm or optimism in financials markets since the turn of the year would prove short-lived'. Specifically Magnus highlights how the politics of Europe could well trump the liquidity of the ECB as the main determinant of the Euro Area's prospects. While not playing down the role of the initial (and forthcoming second) LTRO, the UBS senior economic adviser has grave concerns of the much bigger and less tangible issues of sovereignty and national self-determination that will not only impact Greece (very shortly) but also Germany, France, and the Euro-zone itself. The French election could be a catalyst for Franco-German (Merkande? Hollel?) divisions which 'would not sit comfortably inside the ECB or in the minds and actions of investors' and is evidently an unpriced and under-appreciated risk in global markets currently.
A primer on reverse socialism.
Over the past week we have repeatedly exposed the BLS' shennanigans to both keep the headline unemployment rate suppressed and to generate an upward bias in the market courtesy of a "bigger than expected beat" of expectations. Granted, various semantics experts continue to scratch their heads in attempting to explain a collapsing labor force when even Goldman's Sven Jari Stehn just predicted that it will drop to 63.1% by the end of 2012 (and 62.5% by the end of 2015). Funny then that the US will have no unemployment left when the participation rate drops to 58.5%. And no, the "population soared argument based on revised data" doesn't quite cut it when the bulk of said surge not only did not get a job, but was not even counted toward the labor force. Yet what the biggest flaw with all these arguments that vainly (and veinly) attempt to defend the US economy as if it is growing, is that they focus exclusively on the quantity of jobs, doctored or not, and completely ignore the quality. We have decided to step in and fill this void.
And so we've come full circle. The WSJ is reporting that the Federal Reserve Bank of New York will be seeking bids by the middle of this week for roughly $6 Billion dollars worth of residential mortgage backed securities currently held in Mainden Lane II. This would be on the heels of a $7 Billion dollar sale on January 19th to Credit Suisse.
Had to cross post this discussion with my brother Michael Whalen from The Institutional Risk Analyst. The past articles in The IRA require a $99/yr subscription, but the most recent is free.
Also note link to comment by Barry Ritholtz on The Big Picture re: the Facebook IPO. Actually Goldman Sachs led the covert IPO and hype festival last year, but the folks at the SEC and FINRA were sound asleep.
When all else fails, pretend it's all good. Like what Australia did, following the just released announcement by the RBA that it is keeping the cash rate unchanged at 4.25% on expectations of a 25 bps rate cut. Which begs the question: is China re-exporting the lagging US inflation it imported over 2011? So it appears to Glenn Stevens, who just said that "Commodity prices declined for some months to be noticeably off their peaks, but over the past couple of months have risen somewhat and remain at quite high levels." Or maybe they are not pretending and inflation is still alive and very much real? It also means that Chinese inflation continues to be far higher than what is represented, but we probably will just take the PBoC's word for that. Or not, and wonder: did the RBA just catch the PBOC lying about its subdued inflation? And if that is the case, does anyone really wonder why that very elusive RRR-cut is coming with the same certainty as the Greek creditor deal? Either way, the AUDJPY spikes by 80 pips on the news, however briefly, and if the traditional linkage between the AUDJPY and the market is preserved, it should have a favorable impact on risk as it means at least one hotbed of inflation remains. On the other hand, it also means that Chinese easing is a long way off... and in a market defined solely by hopes for central bank intervention this is not good. And amusingly, just as we write this, Bloomberg release a note that the PBOC is draining funds: "China’s money market rates rose after PBOC resumed fund drain via a repo operation, showing it remained cautious toward policy easing." Translation: "Hopes for a near-term RRR cut could be dashed, Credit Agricole CIB strategist Frances Cheung writes in note to clients." Oops. Furthermore, the PBOC did 26 billion yuan in repos, meaning it is set to conduct a net liquidity withdrawal for this week according to Credit Agricole. Withrawing liquidity when the market expects RRR cuts? Fughetaboutit. (and reread the Grice piece on why only idiots define inflation by the CPI or the PCE).
Just when Japan can least afford it....
No, don't worry, no new taxes.
Call it the economists’ Truman Show.
The mainstream view uniting the entire political spectrum is that all our financial problems can be fixed by what amounts to top-down, centralized policy tweaks and regulation: for example, tweaking policies to "tax the rich," limit the size of "too big to fail" financial institutions, regulate credit default swaps, lower the cost of healthcare (a.k.a. sickcare), limit the abuses of student loans to pay for online diploma mills, and on and on and on. But what if the rot is already beyond the reach of more top-down policy tweaks? Consider the recent healthcare legislation: thousands of pages of obtuse regulations that require a veritable army of regulators staffing a sprawling fiefdom with the net result of uncertain savings based on a board somewhere in the labyrinth establishing "best practices" that will magically cut costs in a system that expands by 9% a year, each and every year, a system so bloated with fraud, embezzlement and waste that the total sum squandered is incalculable, but estimated at around 40%, minimum....The painful truth is that we are far beyond the point where policy/legalist regulatory tweaks will actually fix what's wrong with America. The rot isn't just financial or political; those are real enough, but they are mere reflections of a profound social, cultural, yes, spiritual rot. This is the great illusion: that our financial and political crises can be resolved with top-down, centralized financial reforms of one ideological flavor or another. It is abundantly clear that our crises extend far beyond a lack of regulation or policy tweaks. We cling to this illusion because it is easy and comforting; the problems can all be solved without any work or sacrifice on our part.