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Frontrunning: October 25

Submitted by Tyler Durden on 10/25/2010 08:42 -0400

No surprise here: US foreclosure pipeline slows (FT): "Freddie Mac, one of the two government-owned entities that finance about half all US mortgages, says that homes are taking as long as eight months to work their way through its foreclosure pipeline, two months longer than was typical before the housing crisis began."
Key Tax Breaks at Risk as Panel Looks at Cuts (WSJ)
Hilsenrath still has that inside touch, and a way with words: "Why the Fed Wants a Tad More Inflation" (WSJ)
As predicted a month ago: Bubble fear as rare earth prices soar (FT)
Sarkozy Doing `Dirty Work' Means No Scapegoat as Ratings Slump (Bloomberg)
Strike paralyses Greek rail network (Earth Times)
Waiting Ships Number Up Again In French Oil Port Strike (WSJ)
Napoleon Idiot Dynamite: The Fed must adopt an inflation target (Fred Mishkin, h/t Miles)
Unsolicited fiscal advice from the unemployed: Now Isn’t the Time to Cut the Deficit (Christina Romer)
To fix the economy, let bad banks die (LA Times)
Our Fiscal Policy Paradox (WSJ)
Deflation Disappears With Bond Market Showing Growth (BusinessWeek), or merely Fed frontrunning...
And he keeps on opening his mouth and proving... oh never mind: Geithner Expects China Will `Continue to Move' on Stronger Yuan (Bloomberg)
Global Confidence Dips as Consumers See No Quick Fix (Reuters)
G-20 to Avoid `Competitive Devaluation,' Prod China (Bloomberg)
ABC News:US, China Meet To Ease Currency Tensions (ABC)
Franco-German Bail-Out Pact Divides EU (FT)
This Stability Pact Obsession Is Not Helpful (FT)
Toyota to revise dollar forecast to 80 yen: report (AFP)

Economic Highlights:

Euro-zone Manufacturing Industrial New Orders for August 24.4% y/y, 5.3% m/m - higher than expected. Consensus 19.3% y/y 2.2% m/m. Previous 11.7% y/y -1.8% m/m.
UK BBA Loans for House Purchases 31,104 – in line with expectations. Consensus 31,000. Previous 31,781.
Australia Producer Price Index 1.3% q/q 2.2% y/y – higher than expected. Consensus 0.5% q/q 1.4% y/y. Previous 0.3% q/q 1.0% y/y.
Japan Merchandising Trade Balance Total ¥797.0B – higher than expected. Consensus ¥710.0B. Previous ¥86.0B.
Japan Adjusted Merchandising Trade Balance ¥587.6B – higher than expected. Consensus ¥495.5B. Previous ¥570.2B.
Japan Merchandising Trade Exports 14.4 y/y – higher than expected.Consensus 9.6 y/y. Previous 15.5 y/y.
Japan Merchandising Trade Imports 9.9 y/y – higher than expected.Consensus 7.4 y.y. Previous 17.9 y/y.

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Mon, 10/25/2010 - 08:47 | 674702 Cookie

Toyota to revise dollar forecast to 80 yen

Eternal japanese optimism, or is that just for this week?

Mon, 10/25/2010 - 08:48 | 674704 MeTarzanUjane

"This combination of economic slack and low inflation raises the possibility that inflation expectations will drift downwards."

Has Miles been watching the commodity markets lately, obvious the FT has not.

Mon, 10/25/2010 - 13:46 | 675190 Miles Kendig

Since you asked .. and even I know that the opinions of Mr. Mishkin do not necessarily represent those of the FT .. ROFLMAO

6. The CPF index (Chinese Pig Farmer – A basket of the favorite holdings of this intrepid class of investors) will continue to display attributes of bubbleiciousness, with some great churn potential as long as the fed’s policies remain in place, re: #5. The day will come, rather soon I suspect when the fed will be forced to move to “stabilize” the CPF as it follows Buzz Lightyear and the CME to infinity and beyond...

http://www.zerohedge.com/article/guest-post-how-can-everyone-be-so-incom...

And the Jeopardy daily double is Inflation Targets being substituted for "price stability" .. hahaha (A great tell tale concerning the fed thinking on the risks of deflation! of senior tranche holders assets that is..)

Inflation targets will be the gift that keeps on giving .. for ever .. and ever .. and ever

http://www.youtube.com/watch?v=jFVyAjj3Bs0

Inflation targets will be the pipeline through which the fed will need not go back to congress. This will be their blank check. So, don't listen to the numbers being spouted on October 29 and there abouts since it will be this targeted inflation rate that will open the door, full wide, for various purchases and churning of "other asset classes". With both off and on balance sheet options being fully employed, to nominal capacity as currently understood.

P.S. Some folks have come to understand this as the support under the "austerity" of the Cameron government. As we get to watch it become the support of an expansionist fed, without the austerity (implied) for those other suckers without the reserve currency

Mon, 10/25/2010 - 09:13 | 674736 Spalding_Smailes

High-end property prices in dozens of Chinese cities have doubled during the global financial crisis. Sales of gold bars have done the same this year. Fine pieces of jade are selling at $3,000 an ounce, up 50 percent in the past couple of months, while packets of certain types of dahongpao tea are going for $30,000 a kilogram. Art and wine auctions in China are pulling in record prices, while the Shanghai stock market surged 8.5 percent last week to the highest level in almost six months.

If it seems like there’s a lot of money sloshing around the Chinese economy, that’s because there is. Over the past two years, M1 expanded by 56 percent, M2 by 53 percent. Currently, even with much-touted “cooling measures,” both are still growing at an annual rate of about 20 percent.

...most people in China seem content to believe their country has found a fantastic new formula for prosperity.

In reality, there is rampant inflation in China. It’s just showing up in asset prices.

http://globaleconomicanalysis.blogspot.com/2010/10/massive-inflation-in-...

Eric Jansen ~

China Crash 2011 - Part I: The repetition compulsion of central bankers

It’s China’s turn to pop a world-class asset bubble and smash the global economy

• China tried to pop its property bubble once before but the global economic catastrophe caused the US financial crisis aborted the effort in 2008
• This week China re-launched the crash phase of its Greenspan Credit Bubble with Chinese Characteristics
• Watch out for flying bricks

Why don’t central banks, and the governments they front for, ever learn? The only way to prevent macro-economic damage from a collapsed asset bubble is to not allow a bubble to develop in the first place. Once a government takes the path of winning popular favor with the temporary prosperity that’s produced by asset price inflation, there is no easy way out, as Japan re-discovered in the 1990s, the US found out again in the 2000s, and China will experience soon enough. As part of our project to map out the coming decade, this week we investigate the prospect of the collapse of the Greenspan Credit Bubble with Chinese Characteristics.

Monday China embarked a new on a treacherous program of rate hikes to end a property bubble that took root there in 2005.

Here is a game readers can play at home to simulate the genius of a central bank managing an asset bubble down via interest rate hikes.

Find a cinder block and a bungee chord. Place the cinder block on the far end of your kitchen table. Attach one end of the bungee chord to the cinder block and put the other end between your teeth. Kneel down so that your face is level with the tabletop and pull the chord until it is taught.

Now it’s time to begin “tightening” the way central banks try to, bit by bit, to bring an asset bubble to a benign end, or so they believe.

Pull ¼ of an inch. If nothing happens then pull another ¼ inch. If nothing happens then do it again, and again.

Silly game, you’re thinking. A child can see how this will turn out. Sooner or later that concrete brick will sing across the table and smash your face.

As obvious as the outcome might be to a 10-year-old, the brick-in-the-face lesson remains lost on central banks. They must be slow learners because repeat it over and over. Or perhaps there is a common institutional neurosis shared among central banker’s that compels them to repeat the same mistake, to recreate the experience of concrete on teeth.

For years I’ve referred to China’s asset bubble economy as a Greenspan Credit Bubble with Chinese characteristics. This week we find that not only the policies that created China’s bubbles but even the policy responses to attempt to tame them mirror Greenspan’s.

The Fed tugged on interest rates for two years before the housing bubble finally burst and the cinder block went flying. But as we explained in 2004 (See Housing Bubbles Are Not Like Stock Market Bubbles, January 2004), when housing bubbles collapse they don’t pop like stock market bubbles. The process is slow and corrosive, like rust, rather than an sudden like a stock market crash. Bank analyst Chris Whalen can be heard repeating our forecast after the fact six years later.

The main reason that the macro-economic damage of a property bubble is far more severe and long lasting than an equity bubble is that property bubbles are debt not equity financed, and a debt is an asset on the balance sheets of the politically protected commercial banking class whereas stocks are owned by a politically diverse group. The losses of banks are pawned off on the taxpayer, and if the taxpayer can't cover it then the nation's balance sheet takes the bad debts on.

This is why, ultimately, private credit risk (See Credit Risk Pollution, April 2006) expresses itself as currency risk, and why we bought gold in 2001.

Fourth Currency (Gold) Price Rise Eight Step Thread of Causation:

Asset bubbles end in
Financial crises that cause
Debt deflation that forces
Governments to deficit-spend to reduce unemployment that results in
Fiscal crisis that leads to
Sovereign debt crisis that ends in
Currency crisis that causes
Decline in the exchange rate value of the asset bubble host country's currency

In the US case, the reduced equation is:

US asset bubbles + n years = rising gold prices

If we were in Argentina in 2001 instead of in the US we’d have bought US dollars instead of gold, but as the world’s reserve currency is the source of currency risk in the current case, the only place to go to hedge dollar currency risk was into gold.

http://www.itulip.com/forums/showthread.php/17311-China-Crash-2011-Part-...

Mon, 10/25/2010 - 11:44 | 675098 kathy.chamberli...

a fine young man told me on saturday he heard on NPR that the first vending machine to sell gold was going in an unnamed city in america. plus it will take credit cards. does this mean that now gold can probably go into a bubble? surprised this vending machine can go in, huge fees and taxes probably in the city of choice. like a luxury tax.

Mon, 10/25/2010 - 09:10 | 674742 Djirk

I agree there should be a balance sheet cleansing at the banks, but if we let the bad banks die, will there be any left?

Mon, 10/25/2010 - 09:15 | 674755 UGrev

Do we need them?

Mon, 10/25/2010 - 09:13 | 674750 Careless Whisper

this too:

Citigroup to Feds: Obey Me! Feds Deny FOIA. Citi Orders Prez: Make Speech About Open Gov

http://www.bloomberg.com/news/2010-10-25/u-s-treasury-shielding-of-citig...

Mon, 10/25/2010 - 09:15 | 674759 A Man without Q...

The Christina Romer piece really made me angry. Firstly, it seemed aimed at the audience of Sesame Street, but mainly it seemed plainly delusional. A good example of both is the following:

"WHILE immediate fiscal tightening isn’t wise for the United States, we do need to address the deficit. The best thing would be for Congress to pass a plan now that will reduce deficits when the economy is back to normal."

What are they going to do, allocate revenue to buy state lottery tickets and use the winnings to pay debts? If you keep the economy reliant on state transfer payments, then this will become the normal. Loose money policies will protect unproductive businesses and industries, welfare payments and food stamps mean employers won't pay a living wage as they know they state will make up the difference. If the government were willing to cut the structural deficit now and redirect money towards truly stimulative policies (such as tax breaks for hiring, R&D, education programs and small business grants), you would get real growth. Handing over money to keep Americans in sweat pants, eating junk food watching crap on their 40" plasma tv, is not going to do anything.

Mon, 10/25/2010 - 20:59 | 676554 Miles Kendig

If you keep the economy reliant on state transfer payments, then this will become the normal.

Sounds like the temporary stimulus of the Bush tax cuts.

Mon, 10/25/2010 - 16:18 | 676034 DosZap

To fix the economy, let bad banks die (LA Times)

This would fix the problems, NO BANKS.

Wed, 11/10/2010 - 06:13 | 715599 cheap uggs for sale

Frontrunning: October 25

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