Frontrunning: November 16

• Meet the new reserve currency: Global Power, Influence Shifting From US To China (WSJ)
• IMF Lowers Dollar, Yen Weights in Its SDR Valuation Basket, Increases Euro (Bloomberg)
• Liesman with another hilarious interview: Fed Easing Is Not Aimed at Weakening US Dollar says ex-Goldmanite and current New York Fed president Dudley (CNBC)
• China May Raise Interest Rates Several More Times, Fidelity's Bolton Says (Bloomberg)
• China Selling Stockpiled Pork, Sugar to Cut Prices (BusinessWeek)
• Revaluation pressures on emerging markets (FT)
• Eurozone Members Pressed on Debt Plans (FT)
• Ireland's Cowen to Weigh EU Steps to Shore Up Banking System (Bloomberg)
• Merkel Resilient in Face of European, ECB Opposition to Debt-Crisis Plan (Bloomberg)
• Fed's Yellen Defends Bond-Purchase Plan  (WSJ)

Economic highlights:

• Euro-Zone 25 New Car Registrations for October -16.6%. Previous -9.6%.
• Euro-Zone CPI - Core for October 1.1% y/y - higher than expected.Consensus 1.0% y/y. Previous 1.0% y/y.      
• Euro-Zone CPI for October 0.4% m/m 1.9% y/y - in line with expectations. Consensus 0.3% m/m 1.9% y/y. Previous 0.2% m/m 1.9% y/y.     
• Euro-Zone ZEW Survey (Econ. Sentiment) for November 13.8 - higher than expected. Consensus 2.0. Previous 1.8. 
• Germany ZEW Survey (Current Situation) for November 81.5 – higher than expected. Consensus 75.0. Previous 72.6.
• Germany ZEW Survey (Econ. Sentiment) for November 1.8 - higher than expected. Consensus -6.0. Previous -7.2.  
• France Non-Farm Payrolls for Q3 0.3% - higher than expected. Consensus 0.2%. Previous 0.2%.   
• Italy CPI (NIC incl. tobacco) for October 0.2% m/m 1.7% y/y – in line with expectations. Consensus 0.2% m/m 1.7% y/y. Previous 0.2% m/m 1.7% y/y.     
• Italy CPI - EU Harmonized for October 0.7% m/m 2.0% y/y – in line with expectations. Consensus 0.7% m/m 2.0% y/y. Previous 0.7% m/m 2.0% y/y. 
• UK DCLG UK House Prices forSeptember 6.1% y/y. Previous 8.1%.
• UK CPI for October0.3% m/m 3.2% y/y - higher than expected. Consensus 0.2% m/m 3.1% y/y. Previous 0.0% m/m 3.1% y/y. 
• UK Core CPI forOctober 2.7% y/y - higher than expected. Consensus 2.6% y/y. Previous 2.7% y/y.
• UK Retail Price Index for October225.8 - lower than expected.Consensus 226.0. Previous 225.3.
• UK RPI for October 0.2% m/m 4.5% y/y - lower than expected. Consensus 0.3% m/m 4.6% y/y. Previous 0.4% m/m 4.6% y/y.  
• UK RPI Ex Mort Int. Payments for October4.6% y/y – in line with expectations. Consensus 4.6% y/y. Previous 4.6% y/y. 

Comments

[the not so migh...]

Liesman/Dudley interview I caught a few minutes of. Dudly was blinking like 2 times a second.   Body language is a dead give away.  Or does Dudly have a "thing" for Liesman.

[Tsunami Effect]

Every crash is always driven by the exact same thing.  LEVERAGE DESTRUCTION.

1929 - 10% margin + trade war and no act of 33 or 34 to prevent unscrupulous stock promoters convincing everyone to buy $10 of stock for only $1 of equity! 

1930 – leverage erased due to taxes on imported goods. 

1987 – portfolio insurance, derivatives, pending rate hikes led to an evaporation of leverage and 30% drop in five days. 

2008 -  Housing related leverage to sub-prime borrowers erased after decades of programs fostering home ownership for anyone!

 Here’s how its happening right now…

1. QE2 – a hyper-inflationary disaster.  Look at every one from Bill Gross to the Chinese lining up to bash it.   -  the Fed Leveraging its balance sheet will be met with outside forces to counter-balance Bernanke’s real goal, devaluation of the dollar. BTW, debt is a form of leverage.  Inflation erases the value of that debt.  The market will catch up to this reality and do the opposite of what Bernanke is trying to engineer through bond purchases.  Sell bonds and buy inflation hedges.
2. Volatility – massive swings this year.  AND we are still at 20, a level that in PRE-2008 would have been considered a warning sign.  When market players lock in gains and sell Apple, Priceline, Netflix, etc. the hot-money, leveraged-long, risk-on trades will evaporate.
3. Valuations – ok for normal conditions but extended for a deflationary environment.   If you don’t believe that there is inflationary pressures, look no further to the FED and their spending 900B over the next 8 months to prevent it.  Deflation is by definition a leverage eraser!
4. Margin – a step up in Silver market is the beginning of something to come in other markets ---- less leverage!
5. Banking -  no loans, no demand and no money circulating in the real economy.  Why? Because the banks can make risk free profits by playing the yield curve, the excess reserves at the Fed and front-running Permanent OMO.  Leverage consistently erased since 2008.
6. “The Consumer” – who is borrowing money to spend on housing, durables, autos, etc.  Not many.  Most are paying down debt, i.e. reducing Leverage.  “The Federal Reserve says revolving credit card lines, which are made up of credit card balances, are down about 15% since the end of 2008.”   http://www.federalreserve.gov/releases/g19/Current/
7. Credit ratings – the agencies have missed another monster – PIIGS and all of Europe.  The story is unfolding just like the sub-prime debacle.  Slowly and hidden at first. It is becoming more obvious every day that Countries like Greece, Ireland, Portugal and others can’ service their debt AND pay their state employees!
8. Taxes/deficits – damned if we do raise them in a recession and damned if we don’t through our credit rating.  Obama has only one option, to cut spending and that will not happen = higher deficits and more leverage!
9. Bankruptcy – AMBAC finally died.  Did the CDS exposure underlying that go away too?  It is a triggering event necessitating payments on credit default swaps (Paying out on CDS is always a deleveraging event).  http://www.emii.com/Article.aspx?ArticleID=2714346
10. Last but not least some random facts that all add up to an eventual evaporation of leverage in the markets when the impact of these issues are realized by PMs and HF managers… House prices still declining; 8 million people still looking for work; Budget deficit approaching $ 1.3 Trillion; States & cities issuing IOUs; Capital spending by small businesses at a 35 year low; Big banks sitting on $1.2 Trillion in cash and refusing to lend; Senior citizens trying to live on 0% interest from their savings

Don’t forget the famous book and how it applies to right now.  Now that we survived the 2008 “near death experience”, seen stocks doubled, tripled, even centupled from the March 09 lows, the crowd believes that a market crash can never happen again!

[doolittlegeorge]

funny how as prices collapse "trillion dollar deficits" look like...well, like trillion dollar deficits.  Sovreign default risk in a matter of weeks?  "Talk to Cramer" phuckers.

[tom]

stockpiled pork! yum!

[tom]

stockpiled pork! yum!

[Careless Whisper]

Fraudster Banks Get Bigger Balls 

Gasparino Can't Find A Victim

http://www.nypost.com/p/news/opinion/opedcolumnists/show_us_the_victims_...

[cranky-old-geezer]

"Meet the new reserve currency: Global Power, Influence Shifting From US To China"

This is the biggest financial news of all. 

Sooner or later China and friends are going to put the smackdown on the Fed and Wall Street, America will cease to be a significant player on the world financial scene, and the dollar will be worthless.