The perpetually wrong ADP report for August has come, printing at 91K, on expectations of 100K, and down from a downward revised 109K (previously 114K). How much of a leading indicator to Friday's NFP this is is anyone's guess: historically the ADP's error factor has been between -100% and +100%. Also as a reminder, the report does not account for the Verizon employee strike which impacted initial claims last week and which according to Goldman will likely be an addition downward wildcard in Friday's NFP.
- A German government spokesman said that the German cabinet has approved framework for a draft law on expanding the Eurozone rescue mechanism
- A French government spokeswoman said that France wants full application of a Eurozone agreement on Greece and no bilateral deals
- A German government draft mentioned that the EFSF will be allowed to recapitalise banks but only via national governments, which negated an earlier press report suggesting that the fund can lend to banks directly
- According to an Italian government source, the government is set to drop pension changes from its austerity package
- Strength was observed in CHF across the board as no comments emerged on curbing the currency's strength following the Swiss government's regular meeting
Berlusconi Risks The Bond Vigilantes' Wrath, By Reneging On All Austerity Promises Ahead Of Refi-Heavy SeptemberSubmitted by Tyler Durden on 08/31/2011 - 07:08
As previously reported, Italy is stealthily undoing its entire €45.5 billion austerity plan proposed two short weeks ago, first cutting the provision for tax hikes for high earners, and now also scrapping the proposed pension changes as Ansa reports - the pension proposal, would have excluded time at university, mandatory military service, from calculations of the retirement age and pension level. That is now gone due to a vocal opposition against every single austerity line item. Unfortunately for Italy, which has been hoping nobody would notice: Bloomberg, which has released an analysis titled "Berlusconi’s Backpedaling May Push Italy Back Toward The Brink of Disaster." It is rather self-explanatory: as a reminder the ECB is only buying Italy bonds as part of its SMP monetization expansion due to promises that Italy would slash its deficit and implement austerity. Now that this is obviously not happening, the SNB is expected to balk at future purchases of Italian debt due to Germany complaining loudly that it is supposed to carry the burden of Italy's consistent lying. Already Italian bonds have resumed their climb wider, and explains the weaker than expected BTP auction of 3 and 10 year bonds conducted yesterday.
ADP, ISM-leading Chicago PMI, and factory orders. Very little risk of headline risk out of Europe which is doing all it can to preserve the last days of its vacation, confirmed even more by Italy slowly unwinding all components of its austerity plan.
Selective Interpretation Of European Newsflow Demonstrates Ongoing QE3 Promise-Driven Risk On Confirmation BiasSubmitted by Tyler Durden on 08/31/2011 - 06:35
In yet another confirmation that absent some dramatic headlines which likely will not transpire due to all of Europe being on vacation, we will likely see another day of low volume levitation, is the over night split in action between stock futures and FX, which in turn demonstrates the selective interpretation of macro stories to validate any given cognitive bias. After dropping to overnight lows just above 1200, the futures are now preparing to print largely in the green following an overnight meltup driven, purportedly, by one single theme, namely that there is increasing German support of the EFSF after it was announced that that Germany's opposition Greens will approve new powers for the euro zone's bailout fund in a vote later in September, the party's parliamentary floor leader Juergen Trittin said on Wednesday. Per Reuters, Trittin was speaking after Chancellor Angela Merkel informed parliamentary floor leaders of the changes to the fund, which also supposedly would have bank recapitalization abilities, refuting all the rumors to the contrary from before. In other words, Europe has once again resorted to the old playbook where it floats one rumor then immediately turns around and refutes it to gauge market impact, as it did all though June and early July during the foreplay for the Second Greek Bailout. Yet ironically, while futures benefited from this, the EUR, which should be the biggest beneficiary of European stiblility actually fell substantially against Europe's safe haven currency, the CHF, on a 180 degree read of the just the same news flow. As Bloomberg explains, the CHF outperformed overnight in otherwise muted price action on concern regarding Germany’s willingness to expand EFSF commitment- bunds fall further after German cabinet backed measures to expand EFSF, allaying fears of further deterioration in Greece and Europe’s sovereign debt crisis and implying increased debt burden on Germany. On the other hand, Finnish reluctance to budge on the collateral issue then weighed down on the euro, negating all core risk transfer benefits.
Three key metrics which strongly suggest that silver remains far from a bubble if not undervalued. The first is silver’s real price today adjusted for the inflation of the last 31 years. Silver’s real high in 1980 was $130 per ounce – more than double the price today (see chart above). The second is the gold silver ratio which has averaged 15 to 1 throughout history due to geology and the fact that there are 15 parts of silver to every 1 part of gold in the earth’s crust. The third metric is comparing silver’s current bull market to that of the 1970’s. Silver has risen by a factor of 10 in the last 9 years – from near $4 in 2001 to over $41 today. In its bull market from 1971 to 1980, silver rose by over 3,199% or by a factor of more than 32 in just 9 years culminating in the blow off top in 1979. Today, the physical supply of silver bullion is much less than in the 1970’s. Also there is the ‘Asian factor’ and 3 billion people with growing incomes, many of whom see silver as a store of value against currency depreciation. Demand for silver in Asia has been increasing and in China alone silver demand is increasing from a near zero base. The demand was not present in the 1970’s.
There is the CPI... and then there is the MIT's billion price project which, as the name implies, tracks the prices of a billion products in real time. And according to the latter, annual inflation has hit a multi year high of about 4%. Perhaps someone can advise the talented Mr Evans that the 3% inflation he would so love to achieve... has in fact been eclipsed. At least, according to the real world. So take 4% inflation, add $2.5 trillion in "much more" easing, and what you get is only an economic Ph.D.'s guess. Alas, we are unqualified to have an opinion on the matter.
If you have ever wanted to "quantify" animal spirits, yet lacked the sheer imagination of how to goal seek an infinite array of numbers into a tidy little "ready for clients" package, despair not, for here is Citi, with the appropriately named "Quantifying Animal Spirits" in which Vikram's bank tries "to quantify this effect by looking and measuring periods when the market is focused on a small handful of broad (often macro-oriented) themes rather than “fundamental” analysis. Though not always apparent, these shifts in focus can have profound implications for alpha and risk." While the report is about as useful as parsing binary voodoo entrails through the magic punch card-based 8 ball of a Princeton economist, it sure does provide for some candid laughs at what passes for "analysis" at the bank which, while falling about as much as BofA (and which Paulson is still three quarters pregnant with) in recent weeks, has seen hardly a peep out of any media outlet: captured or otherwise.
Guest Post: The Rise And Fall Of US Confidence, Or Why The Fair Value Of Gold In Phase Space Is $6,000-$12,000Submitted by Tyler Durden on 08/30/2011 - 21:05
Today we look at a graph of confidence in the US system. The US confidence ratio represents the ratio of outstanding US Federal debt to the dollar value of US gold holdings (as reported*). No corrections for inflation should be necessary, as both terms are valued in the same depreciating dollars. We use the term confidence as the ability of the US to stretch this ratio to (by our thinking) absurd multiples was a reflection of the world's confidence in the United States--which differs from the ability to actually repay debts. Confidence level sank throughout the Depression up until the beginning of WWII, after which ascendant American power was reflected in a climbing confidence ratio up to the oil crisis in the early 1970s. Confidence sank as the US withdrew from Viet Nam and inflation rose until the price of gold rose sufficiently to restore confidence in American solvency. From 1980 to 2001 was a golden age for the US. In this time, both stock and bond markets were strong, the US currency was strong, and the only credible opposition to US hegemony disintegrated. But every bubble meets its pin, and ever since the planes hit the towers, the US power and prestige has gone into decline. This decline is marked by a rapid decline in the confidence index. How low will it go? There is a provocative looking left shoulder and head, suggesting a drop to the neckline somewhere around 2020, after which there may be something of a resurgence in American confidence. The anticipated completion of the bankruptcy head-and-shoulders formation promises to be a hair-raising event.
Confirming that the Fed's doves, every single one of them, are genocidal sociopaths, we have a repeat appearance from Chicago's Chuckie Evans, who first sent stocks barreling in the latest algo driven, no volume meltup, earlier, this time dodecatupling down, by telling Fed lackey Jon Hilsenrath that "we need to do much more to increase the level of accomodation"... much more as in the ~$2.5 trillion of debt that needs to be monetized in the period before Obama's desperate reelection campaign. And by "we", he means the group of 12+1 madmen bundled up in a room in the Marriner Eccles building with or without padded walls, who unlike a simple unfunded blog, believed that Q4 GDP in the US would be about 4% instead of the negative print it is about to be in a few short months. Yes sure: lets give the sociopaths-cum-Econ Ph.D's another run at destroying the world: just because the Arab Spring was not enough to demonstrate just how efficient the Fed is at toppling regimes, this time around they will make sure that the revolutionary wave sweeps across Asia, through Europe, and ends on the banks of the Potomac. Of course, if in the process it also brings with it the much desired hyperinflation that will make the US banking sector whole, who cares if a few million people die - at least Wall Street, which has long since converted its fiat wealth into gold and other real money, will be spared, go on a 5 year vacation to non-extradition Libya, then come back when the shotguns have rusted, and the pitchforks have been dulled, and pick up where they left off. Because as we all know, nobody is more "intuitive" than an Econ. Ph.D, and nobody can create greater financial innovation, aka the primary export of the US, the than someone from New York's Financial District.
A lot of people—children of the ’70’s, I suppose—claim that judgment is a bad thing: “Don’t judge! You have no right to judge!” is their mantra. They insist that we as a society have no right to judge how they live, or more importantly what they do. A lot of other people have taken up the same slogan, and adopted it as their own: People like Dick Cheney—like Monsanto and DuPont and BP, who poison us with impunity—like the oil and gas companies carrying out “fracking”, which is causing earthquakes and flammable water on the East Coast—like the TBTF banks and the prop desks front-running their clients, or illegally foreclosing on homeowners—in short, people near the top of our social pyramid. They have adopted the non-judgmental slogans: “Don’t judge! You have no right to judge! It’s not illegal! We’re not breaking the law! So don’t judge! Don’t judge!” they yell and scream as loud as they can. They seem so convincing, these slogans: It’s tempting to do what they ask—to not judge. Because judgment is hard. It’s far easier to passively accept a situation—to not pass judgment—to simply let it be—than to stand up, make a judgment, and then say it out loud.
We can blame politicians a little bit, but the bulk of the blame lies with the American people. That was kind of an epiphany for me. During the 1980s, I would occasionally have lunch with Senator Jesse Helms from North Carolina. He knew that I was highly critical of agricultural subsidies, handouts to farmers. Something Jesse Helms told me at one of our luncheons made me realize some things I had not realized until then. He said, “Walter, I agree with you 100% that these farm subsidies ought to be eliminated.” But then he asked, “Can you tell me how I can remain the senator from North Carolina and vote against them? If I do what you say, I would be voted out of office.” Applying his observation today, we can note that the biggest expenditures by the federal government are Social Security, Medicare, Medicaid and prescription drugs. Along with other entitlements, these expenditures amount to almost 60% of the federal budget. The beneficiaries of these programs vote in large numbers. Politicians who talk about cutting these programs are going to run into trouble. We have to get the American people, as much as politicians, to respect the Constitution.
Fannie, Freddie Parent Files Strawman Objection Against BAC Settlement - Sole Purpose Is To Strengthen The SettlementSubmitted by Tyler Durden on 08/30/2011 - 16:16
The FHFA filing an objection to the Bank of America settlement? Forget about it. After all should BAC implode upon having to fund another $50 billion in mortgage putback claims, and Countrywide have to be spun off and nationalized, it would simply mean that more capital would flow away from the already insolvent GSEs and to a totally new branch of taxpayer funded RMBS. Which is why are confident that the latest objection filed against the BAC settelement is merely there to weaken the case, or as Manal Mehta puts it: a Cover Your Ass filing because "they’ve pre-determined the conclusion and then will do the bare minimum discovery until they can jump ship and undermine the efforts of the rest of the objectors." Why else would anyone file a "conditional objection" whose sole purposes is " to reserve its capability to voice a substantive objection in the unlikely event that necessity should arise." Unlikely? Obviously this is Bank of America's higher power interest already doing all they can to prevent an out of control situtation getting even worse. Which after all is the whole point of why the Fed, Pimco, BlackRock et all filed the lawsuit in the first place: to ring-fence the total amount of cash outflow claims, instead of allowing Bank of America to experience death by a thousand lawsuits. In this regard, tonight's FHFA filing is nothing more than a wolf in plaintiff's clothing doing what they can to weaken the case against undoing the settlement.
China’s voracious appetite for energy from anywhere has led most oil-producing nations to attempt to feed the dragon, including Russia. But a curious situation has developed as regards Russian oil exports to the Celestial Kingdom, underlining that the two nations, which fought for global supremacy over the Communist movement for four decades, remain at best, “frenemies.” According to Chinese customs reports, last month oil imports from Russia fell by nearly half. Not so, Rosneft says, stating that deliveries are proceeding through the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline at their normal levels. Russia is now China’s ninth largest source of oil imports, with Saudi Arabia first, Iran second and Angola third. In trying to read the tea leaves in the contradictory statements emanating from Beijing and Rosneft, Russian analysts believe that China is sending Moscow a not so subtle signal that it can do without Russian imports.