• Bruno de Landevoisin
    09/21/2014 - 14:52
    Dear Janet; If I may be so forward, as a concerned citizen of the Constitutional Republic of the United States, it is with great consternation that I feel compelled to write you this distressing...

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Foreign Currency Liquidity Swaps (aka Global Bail Out Plan B) FAQs

Those wondering about the global Fed bailout (this is not the first time, recall How The Federal Reserve Bailed Out The World) can read the FAQ from none other than the source of the global liquidity tsunami itself.

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Did The Fed Just Buy Europe A Week?

One of our most watched indications of the pressure on European funding markets is the EUR-USD cross-currency basis swap. This simple trade is a way for European entities to take the excessive EUR funding they can get from the ECB and 'swap' it into USD to meet their significantly problematic USD funding needs. It has smashed higher (well lower in the charts) as the cost of the transaction moves with demand for the swap - indicating that demand for USD is huge and we are in as much of a liquidity crisis as we were in the middle of the 2008 critical period. What is fascinating to us is today's reaction - a 22bps jump - while being large, merely moves us back to the same levels of stress we were at one week ago. So even if this is seen as some huge form of liquidity surge, it seems not to have even solved the liquidity problems of banks, let alone solvency problems.

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UK-Iran Situation Escalates

Looks like geopolitical Plan B is still in play.


That much-needed by Corning glass price cut may still be coming.

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Wall Street Pundits' Instant Response To Global Fed Bailout

Legendary ex-Bear commentator Sal Catrini summarizes it best: "Whether this solves our long-term problems remains to be seen, but when you flood the market with liquidity, risk assets go much higher"

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Market Reaction To Global Bailout, Sovereigns Disappoint

Risk markets are tearing higher globally with equities, commodities, and credit all considerably higher. Equities and CONTEXT are back in line as this is a very systemic shift up as the dollar tanks and TSY yield surge. US equities are back to 11/18 levels but are stalling out a little here as the initial spike wears off - whether this liquidity surge fixes the insolvency crisis is the question it seems markets are considering now that they have had some time to think (and squeeze). Silver and Copper seem the largest movers for now along with AUD relatively speaking as most equity and credit assets are back to 11/18 levels. We do note that while sovereign spreads in Europe are narrower, the moves are not dramatic and in some cases are actually deteriorating still.

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ADP Payroll Print Of 206,000 Comes 4 Standard Deviations Higher Than 130,000 Consensus, Above Highest Wall Street Estimate

The global coordinated "feel good" rally is out in full force. First China, next Fed global bail out, and now ADP confirming that massive banker layoffs are actually beneficial, reporting a 206,000 increase in private payrolls in November. This compares to a consensus estimate of 132,000, and is above the highest Wall Street forecast of 200,000. In other words, first we get record volatility in the markets, and now we get record upside volatility in economic data after this number comes 4 standard deviations above consensus! More: "The increase in November was the largest monthly gain since last December and nearly twice the average monthly gain since May when employment decelerated sharply." Of course, this is not to say that America is actually making anything: "Employment in the private, service-providing sector rose 178,000 in November, which is up from an increase of 130,000 in October. Employment in the private, goods-producing sector increased 28,000 in November, while manufacturing employment increased 7,000." Still, surely, the unemployed among the 99% will be delighted to know they were actually working all along.

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Here Comes The Global, US-Funded Liquidity Bail Out

As expected, the Fed has just bailed out the world once again:

  • ECB, FED other major central bank to lower the pricing of existing USD liquidity swaps by 50BPS

And as we have been writing every single day, the worldwide dollar crunch is now confirmed:

  • At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar,

This means that the global situation is far, far more dire than the talking heads have said. Luckily, when this step fails, which it will, Mars can always come and bail us out.

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Today's Economic Data - Chicago PMI, ADP, Pending Home Sales, Beige Book

Some important economic data upcoming, which will certainly be drowned in the headline rush, now that Asia is once again on the radar.

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Albert Edwards On The BRICs As A "Bloody Ridiculous Investment Concept"... And A China Hard Landing

Just in time for the Chinese 50 bps RRR cut, we get a note from Albert Edwards reminding us just why this desperate and sudden move from China comes: "We have identified a China hard landing as one of the biggest investment shocks next year." Not only that, but the SocGen strategist takes a long overdue swipe at the world's most ridiculous concept, Jim O'Neill's BRIC debacle: "Despite recent poor  performance investors still seem to favour EM and the BRICs. My good friend and former colleague Peter Tasker came up with an alternative for the widely (over) used BRIC acronym - Bloody Ridiculous Investment Concept." It appears that the PBOC was well aware of this re-definition when it decided to announce to the world that it has started easning once again last night.

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Frontrunning: November 30

  • China Cuts Reserve Requirement for Banks as Europe Crisis Threatens Growth (Bloomberg)
  • Don’t Count on China Easing Curbs: PBOC Adviser (Bloomberg)
  • Germany Told to Act to Save Europe (FT)
  • Fed Policy Makers Sharpen Differences Over Bond-Purchase Policy (Bloomberg)
  • European Nations Pressure Own Banks for Loans (WSJ)
  • Govt tries to soothe companies' concerns (China Daily)
  • S&P Rates China Banks Higher Than U.S. Rivals (Bloomberg)
  • Republicans Make Demands on Payroll Tax Cuts (FT)
  • Eurogroup Set to Fix EFSF Leveraging Rules, Deal With Greek Aid (Reuters)

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China Begins Monetary Easing, Lowers Reserve Ratio By 50 bps: Gold, Crude, Futures Spike

It appears that China has already forgotten its close encounter with inflation as recent as a few months ago leading to assorted riots, and is instead far more concerned with the collapsing housing market. As a result it just announced a 50 bps reserve ratio cut, well in advance of when most commentators thought it would happen, on what is now the start of a monetary policy loosening cycle. The kneejerk reaction is for futures to surge and gold to spike, and crude to pass $100, even as the EURUSD was once again drifting lower overnight. And while this is beyond bullish for commodities, we doubt equities will remain bid unless Europe mysteriously fixes itself overnight too. Which won't happen. More from Reuters: "China's central bank cut the reserve requirement ratio for its banks on Wednesday for the first time in nearly three years to ease credit strains and shore up activity in the world's second-largest economy." Naturally, this ties Bernanke's hand even more as Chinese inflation will now be stoked internally in addition to importing any excess inflation to be generated by the Chairman, likely leading to an even faster spike in global inflation the next time we get US-based quantiative easing. Look for Chinese-based purchases of gold to surge.

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Commodity Inflation And Spare Capacity: Food For Thought

The '-flations' are as much part of the commonplace parlance for every sell-side strategist, talking-head, and gold-bug as dividend-stock, quality balance sheet, and long-time-horizon is for long-only managers. Whether deflation, stagflation, inflation, disinflation, or reflation, they all have their moments of sublime glory. Bank of America's Economics team have found some extremely timely 'inflation' signs in the food industry, where it is becoming, somewhat incredibly in this age of supposed frugality and deleveraging, cheaper to eat-out than to cook-at-home. This price disequilibrium has seen consumers respond accordingly; spending on food away from home has picked up while spending on food at home has slowed and also very notably households spending the marginal unit of 'time' working as opposed to 'eating' as economic frailties continue.

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About Those "Record" Black Friday Sales...

Yup. The rumors were all true: record sales... on negative margins. Because it is not difficult to dump product when you are, well, dumping.

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Chris Martenson Lecture On Why The Next 20 Years Will Be Marked By The Collapse Of The Exponential Function

In this video Chris Martenson, economic analyst at chrismartenson.com and author of ‘The Crash Course’, explains why he thinks that the coming 20 years are going to look completely unlike the last 20 years. In his presentation he focuses on the so-called three “Es”: Economy, Energy and Environment. He argues that at this point in time it is no longer possible to view either one of those topics separately from one another. Martenson explains how exponential growth works and why it is so scary that our economy is based on it. In an example he illustrates how unimaginably fast things speed up towards the end of an exponential curve. He shows that an exponential chart can be found in every one of the three “E’s” for instance in GDP growth, oil production, water use or species extinction. Due to the natural limitations on resources, Martenson comes to the conclusion that we are facing a serious energy crisis.

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