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Shadow ECB Council Pushes For Rate Cut And Monetary Easing

According to the Handelsblatt, while the majority of the members of the ECB's shadow council - an unofficial panel, independent of the ECB/Eurosystem, and comprising fifteen prominent European economists drawn from academia, financial institutions, consultancies, companies and research institute - supported an unchanged policy the bias is increasingly shifting to one of easing. This comes on the heels of Trichet's idiotic decision, just like in 2008, to start hiking rates in several months ago (ridiculed extensively on these pages and elsewhere) which not only ended up costing Europe its common currency much faster than had it merely kicked the can down the road, but could very well be the last bad decision by the ECB: should Greece be kicked out of the Eurozone as a result of this decision, the ECB is over. It is therefore not surprising that not only is the shadow council scrambling to undo 5 months of bad decision making by the ECB, but the bankers on the council, particularly RBS, PIMCO, RBS (RIP by the way), Barclays and Tudor and HSBC are either expressing an easing bias or outright pushing for a 50 bps cut. Alas, this is too little too late. And the irony is that once the Fed proceeds with QE3, and commodities surge again, the ECB will really be helpless as the continent's core redlines even as the Periphery remains terminally insolvent (ignoring for a minute the inflationary elephant in the room that is China). So will Trichet disgrace his already discredited central banker career by pushing a rate cut before he is swept out of the corner office by Mario Draghi, or will the former Goldmanite Italian become the most hated man in Germany soon, after he proceeds to ease, even as Germany still experiences Chinese inflationary re-exports. The answer will be all too clear in just a few months.



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Guest Post: This Is Why We Internationalize. This Is Why We Have A Plan

Welcome to the new reality. Executive agencies in the United States have extraordinary unchecked power. They can seize your assets, freeze your bank accounts, intercept your emails, comb through your credit card transactions, and even take away your children… all without so much as a court order or any form of oversight. We’ve explored before how you can end up on the wrong side of a government agency, even if you haven’t done anything illegal. If you are so much as suspected of wrongdoing, they can come after you… even if you’re just in the wrong place at the wrong time, they can come after you. These are two cases where the government has come after its citizens– even when they are doing the RIGHT thing. Think about it: two of the most unlikely people in the country have become enemies of the state: an eleven-year-old girl who wants to save a baby bird, and a manufacturing company that has managed to stay in business (and continue hiring!) in the midst of the worst recession in the nation’s history. This is why we internationalize. This is why we have a plan.



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ES Closed As Gold Continues Trading, Passes $1900

All stock jockeys can now step away from the terminal: both Europe and ES are now closed until late this afternoon which means the E-Trade momentum chasing baby will have to suffer its losses for at least 6 hours in complete collateral call misery. In the meantime, however, gold continues to trade for a little longer, and at last check the spam nemesis was trading over $1900 once again and just one less well known dead president away from its all time highs. We expect the record to be taken out possibly as early as this evening.



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Charting The Global Perfect Storm And SocGen's Economic "Stall Speed" Matrix

Zero Hedge first mentioned the phrase "stall speed" while discussing the Q1 US GDP, which we predicted would translate into a disappointing print for Q2, eventually leading to a negative number in Q4. This was about 4 months ago. Since then our GDP prediction has been validated, but we had yet had to see "stalling" make the vernacular. That has now changed, following the release of a brand news report by SocGen which focuses on the phenomenon of... global stall speed and how specifically this is affecting the key investment verticals around the world as well as what the possible policy responses are. But perhaps more interesting is SocGen's succinct explanation of how the world now finds itself in a global perfect storm, and whose ending will likely be very much comparable to that of the eponymous movie starring George Clooney.



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Tremonti Unexpectedly Cancels Public Appearance, Returns To Rome

Just a headline from Bloomberg for now:

  • ITALY'S TREMONTI CANCELS SPEAKING APPEARANCE IN PIACENZA
  • TREMONTI CANCELS APPEARANCE TO RETURN TO ROME TO GO TO SENATE

Will Tremonti finally resign and tell his idiot of a boss to shove it? Or will he declare the truth about Italy's toxic death spiral. Either way, the market can not wait to find out. More as we see it.



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Italy To Miss GDP Forecast, Sees Sub 1% GDP Growth

It is only a matter of time before France announces to little fanfare that its GDP is about to be slashed, and that as a result the rating agencies put it on downgrade review, and blowing up the entire EFSF mechanism. But before that one needs to shake out the weaker hands, like Italy. For better or worse, that just happened. From Reuters: "Italian economic growth is likely to fall short of the government's official forecast of 1.1 percent in 2011 and 1.3 percent in 2012, probably coming in under 1 percent, a senior government source said on Monday. "It will be very difficult for Italy to reach 1.1 percent growth this year and next," the official, who spoke on condition of anonymity, told Reuters." So if the raters needed any excuse to go ahead and downgrade Italy even more, this is it. As for France: we give them a few months before they also have to tell the truth, and face the music, although with French CDS once again trading at all time wides, the market is not waiting.



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A Week Later, The Risk Spread Compresses - Profits Booked

Back on Friday, August 26, we indicated that the stock market had gotten overly exuberant and that the "fair value" based on the now traditional Risk Context fair value regression analysis performed by Capital Context indicated a fair value for ES of about 15 points lower. Well, it took a while, but finally the spread has not only compressed, but in fact has the ES trading below its corresponding long leg. For all those who lasted out this trade which has a 100% success rate to date courtesy of idiot algos and convictionless momo chasers, congratulations.



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Here We Go: US Futures Plunge As Milan, Dax Down 5%, Italian Fins Halted, EURUSD Sub 1.41

It is unclear what just spooked the market, but whatever it is, stocks have had enough fun for the day. After the ECB just announced that it had monetized a whopping E13.3 billion in the past week, nearly double expectations, and a total of E134 billion since the SMP program's inception, the market took one quick look at just how effective this program has been, shuddered, and plunged realizing that neither ECB intervention, nor the shorting halt is doing anything at all. As a result, ES is now down 21, EURUSD just dropped below 1.41 (Chinabot is about to give up), and rolling halt of Italian banks have started, with Intessa, Mediaset and Impreglio all halted. We expect UniCredit to follow suit as usual.



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European Credit - Wider & Entering Risk Aversion Mode

I think we are entering a new crucial phase in the problems in Europe as quarter end reports will drive a notional reduction. During parts of 2007 and 2008, CEO's of banks and other financial institutions, did not want to show any exposure to sub-prime, or to certain banks, or to leveraged loans, etc. The CEO's in particular were convinced that they needed to show ZERO net exposure to the asset classes most in question. As part of the "window dressing", their risk management departments were told to be short and told to reduce notional exposures. It was no longer just an economic decision it had become a "what's best for the share price" decision. The reality, is making money is best for the share price, but that notion gets thrown out the window once CEO's panic. I believe we are there, and there are some real repercussions from that. The main problem is that we will see credit curves flatten and possibly invert. As short dated paper to the current "culprits" (sovereigns and financials) matures, the lenders will not want to roll over the positions.



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Gold Reaches $1,900 Again - Supported by Risk of U.S. Recession, German Euro Risk and Wikileaks China Gold Cables

Gold’s London AM fix this morning was USD 1,896.50, EUR 1,341.13, and GBP 1,174.67 per ounce. The gold fix was higher than Friday’s in all currencies (USD 1,854.00, EUR 1,301.23, and GBP 1,143.81 per ounce). Despite continuing denial, a recession in the U.S. is inevitable; the question is only with regard to how deep the recession is and to the nature of the recession – inflationary, stagflationary, hyperinflationary or deflationary. The consensus, especially amongst Keynesians, is that deflation is most likely. However, given the degree of currency debasement being seen internationally stagflation is also a risk. Hyperinflation, as being experienced in Belarus today, is the macroeconomic and monetary ‘black swan’. There are growing concerns that the Eurozone crisis might degenerate again soon due to the Greek debt crisis and risk of default. Over the weekend talks between Greece, the IMF and ECB representatives over new bailout funds broke down. The euro has fallen and the German local elections have added to concerns over Greece.



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Market Snapshot as Europe Implodes

Despite some better-than-expected macro data overnight (admittedly marginal), investors continue to retreat from any European exposure as sovereign stress leads to financial stress and drags non-financials into an austerity-driven slowdown. The snaps wider in credit markets are very reminiscent of crises past when being hedged at any cost was more important than any short-term trade opportunity.



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Guest Post: Why The Full Faith And Credit Of Governments Is Inferior To Real Assets And How We Can Fix It Once And For All

I used to think like a statist, and I used to agree with them. It's appealing to redistribute wealth, especially when it's not fairly achieved. But what I've realized is that the solution to creating distortions in the market is not to create more distortions by attacking the symptoms. What ends up happening when you do that is that you create a hugely complex set of rules and regulations that hinder the market, make it inefficient and most importantly makes it ripe for abuse via regulation in favor of those who make the right campaign donations to the right politicians. This is the situation we find ourselves in now: A very broken market setup to benefit those who've made the right political moves. On the other hand, you can simply end the sole cause of the problem to begin with. That sole problem is bad monetary policy. You might say that we should replace everyone in charge of the Federal Reserve with the "right" people. But even if you were able to do that, it's really a temporary fix. So how do we fix this? Sound money, debt forgiveness and a truly free market that isn't guided by the hand of the government and is instead determined by what the aggregate investor pool thinks is the right direction. Gordon Gecko was wrong overall, but he was right that greed is good. The profit motive is the key to good decisions and long-term thinking. That doesn't mean we need to be miserly dickheads who only care about ourselves, but self-enrichment and the unfettered ability to be as successful as possible is the only route to a truly higher standard of living.



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The Only Thing We Have To Fear Is Fear Itself... And Governments Telling Us What To Fear: Why The Beginning Of The End Started With FDR's...

As is well-known by now, following America's collapse in the first Great Depression back in 1929, one of the first decisions undertaken by president FDR, not even a month following the first of four inaugural speeches (in which he notably said that "the only thing we have to fear is fear itself") was to respond to the rolling bank runs and shutdowns, by doing something unprecedented: confiscating the gold of American citizens. And then he logically followed up by doing the only thing that insolvent governments know how to do: he debased the US Dollar overnight by 40% by changing the official exchange ratio of the USD to gold from $20.67 per ounce to $35.00 per troy ounce. Alas, since exchanging such gold would be impossible until 40 years later, nobody could take advantage of this generous offer. It is this point in history that to William Buckler of the famous Privateer newsletter marks the transition of American government from republican (on behalf of the people) to being authoritarian (in control of the people). It also begs the question: what did FDR offer in return for gold confiscation - after all if gold confiscation is not "something to be feared" then there is a quid pro quo. Why he gave us Social Security and the Welfare state. The same "welfare" state whose unfunded obligations amount to roughly $80 trillion, and whose increasingly tangible insolvency is precisely the reason why ever more capital is shifting right back to, you guessed it, gold. Perhaps FDR should have added that in addition to fear itself, the one other thing everyone should fear is governments believing they they know what they are doing when transitioning to central planning an an authoritarian regime based on nothing but faith.



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