Just when you thought the humor out of the central bank that just released a stress test whose adverse scenario did not even assume the most likely Eurozone outcome, i.e., deflation, couldn't get any better, moments ago we learned that the test, which was supposed to restore confidence in Europe's banking system and in the oversight and regulatory abilities of Europe's central bank, had "errors and inconsistencies" which forced the ECB to "briefly remove from its website" the results of Italy's most insolvent bank, Monte Paschi, "after discovering an error in its key capital ratio", a bank which based on the ECB's (faulty?) failure assessment was halted countless times earlier today after crashing so hard the regulator had to ban selling it short. Again.
Lately, there has been much anguished consternation, especially among the tenured US economics professors (primarily those who make 6-digits or more per year) and of course, the Federal Reserve where as we revealed last week, at least 113 government workers make $250,000 (excluding bonuses) and thus all are confined within the cozy cocoon of America's "1%ers", about the so-called complete disappearance and collapse in inflation. So to help these ivory tower-confined individuals in their holy grail to rediscover the inflation that is more than felt by the rest of America, here are two simple charts.
This week we will find out the answer to whether the Federal Reserve will end its current quantitative easing program or not. Today was the last open market operation of the current program, and our bet is that it will be the last, for now. Here are three reasons why we believe this to be the case.
The Fed needs to "let the market cry itself to sleep," warns Triple T Consulting’s Sean Keane, and can't "keep pandering to each selloff because traders fear that the lights are going to be dimmed." The Fed is "accentuating a distortion in the markets" that's already having "unwelcome and unintended consequences."
In the first sign that, just in time for winter, the tentative European jawboning alliance against Russia is collapsing (since the "costs", sanctions and other economic means inflicted upon the Kremlin ended up backfiring and pushing Europe into a triple-dip recession instead), earlier today Poland announced that it will move thousands of troops toward its eastern borders, i.e., Ukraine, in what AP dubbed a "historic realignment of a military structure built in the Cold War."
“Keep in mind that even terribly hostile market environments do not resolve into uninterrupted declines. Even the 1929 and 1987 crashes began with initial losses of 10-12% that were then punctuated by hard advances that recovered about half of those losses before failing again... The 2007 top began with a plunge as market internals deteriorated materially, increasing day-to-day volatility, and a tendency for large moves to occur in sequence." Investors should interpret recent market strength in its full context: we’ve observed a fast, furious advance to clear an oversold “air-pocket” decline.
Copper prices are surging this morning (in the face of Goldman's recent warnings of a plunge), jumping 4 handles apparently on the heels of a WSJ story in which LME admits that a single buyer has snapped up more than half the copper held in London Metal Exchange warehouses, giving it control over a crucial source of supply and raising concerns among traders about the potential for higher prices. What is more remarkable is, as WSJ reports, on several occasions in the last month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses. Though no confirmation has been given traders suggest the firm cornering the copper market is Red Kite Group, a London hedge-fund manager that focuses on metals trading.
The United Nations' Secretary-General stated that returning workers from Ebola-stricken nations should not be mandatorily quarantined. President Obama expressed his displeasure at mandatory quarantines and "concerns with the unintended consequences of policies not grounded in science." So, the news that "Army troops returning from Ebola zones will be held in isolation for 21 days," will likely raise Obama's ire. The somewhat pathetic and stunning spin here is that Senior Pentagon officials say it is not a "quarantine," but rather "controlled monitoring."
The US stock market is open... so at least one exchange must be broken. Sure enough, as Nanex notes, NYSE Arca and BATS had "issues" this morning as 338 symbols stopped reporting trades between 1018ET and 1028ET. The stocks included AAPL, FB, FOXA and FSLR (HFT darlings). In addition S&P 500 e-mini futures liquidty was the 4th lowest ever during this morning's trading.
The conventional view tacitly assumes the global economy is dealing with one problem: recovering from the Global Financial Meltdown of 2008-09. Stimulating a "recovery" has been the focus of central banks and states everywhere. However, the additional sets of problems added as "solutions" only guarantee that the third and final crash of asset bubbles just ahead will be far more devastating than the crashes of 2000 and 2009.
It never gets old... Stocks have spiked - leaving all other asset classes in the dust - as Reuters unleashes their latest rumor:
ECB STIMULUS MAY LACK DESIRED SCALE, QE AN OPTION ACCORDING TO SOURCES: REUTERS
Reuters adds that the ECB plan to buy private sector assets may fall short and pressure is likely to build for bolder action early next year. So to sum up - Reuters first leaks the possibility of Corporate bond QE.... we do the math showing it is idiotic... and now Reuters confirms its source was enitrely wrong; we were right, and ECB has to do what everyone though it would do anyway.
According to an ECB-leaked spreadsheet (now confirmed), the impotent omnipotent central bank bought a mere EUR1.7 billion of covered bonds last week (which was largely expected) according to Bloomberg. This somewhat inglorious start to the ECB's efforts to engorge its balance by another trillion or so is supported by precedent as it has been the sovereign purchase programs that made the big difference in the past. Under pressure to "front-load the purchases" as one analyst notes, the results from last week suggest, as we have warned, there simply is not enough quality unencumbered assets lying around in Europe to make a dent in the ECB's efforts to greatly rotate taxpayer-backed free money on to bank balance sheets.