One of the most serious condemnations of the race to the currency bottom to date comes not come from some peripheral media, but from the head of the World Bank itself, who in a just released Op-Ed in the Financial Times says that since the system of floating currencies established by the 1971 Bretton Woods II system, has broken down, it is time to look to a new international system of commerce, one which "should also consider employing gold as an international reference point
of market expectations about inflation, deflation and future currency
values." In other words, welcome back gold standard 2. Of course, this proposal will never attain more than a casual academic reference, as even a partial gold standard will immediately establish a lower bound on how much any given monetary authority can debase its (and, by retaliation, others') currencies. What, however, if very curious, is why this proposal is being floated precisely 3 short days after the Fed has launched its most ambitious attempt to reflate global asset prices and devalue fiat paper. And as is well-known, the IMF has also been quietly proposing a return to an ven more powerful version of the SDR.... Just what will take for the scales to tip, and for the dollar to remain a reserve currency just in retrospect.
Once again we find some strange activity occurring in these markets from a trading perspective, and it is time that the increased staff and resources of the beefed-up CTFC enforcement division look into crude oil and silver markets, in particular.
QEII has suddenly made this paper appear a bargain. Treasury bond investors are not being compensated for their risk at current yields, but muni bond investors are. If the Bush tax cuts are not extended, the effective taxable yield pops up to 4.27% for top earners. That’s a lot in this zero yield world we live in. And let’s face it, taxes are going up a lot, no matter who won the election, making these bonds even more valuable in the future. The risk of an outright default on this paper has been vastly overblown by the media. (NCP), (NVX).
"Since 1987, conspiracy theorists have maintained that the government operates a secret “plunge protection team” (PPT). Like most conspiracy theories, the PPT is hogwash and not much different from the guy who screams “the race was fixed” when his horse lost. I have listed the many reasons why the PPT is all smoke and mirrors over the years. So to save space, I won’t repeat. That having been said, QE2 is beginning to look like an open-air multi-month version of the PPT." Art Cashin
Thanks a LOT ...
Citi's Steven Englander has updated his view on what QE2 will mean for the dollar. In a nutshell: "Net, net we see this as allowing for further USD drop, but drift rather than precipitous." Basically this is precisely the stuff that will make the upcoming Ron Paul-Ben Bernanke hearings must watch TV. With the EURUSD now approaching the mid 1.41's, so far Bernanke is succeeding. The only question is whether the Fed's control over the ECB via currency swaps and asset guarantees will be sufficient leverage to allow it to destroy the dollar with impunity and send the EURUSD to a level of 1.6, as a helpless Europe sits and does absolutely nothing. Elsewhere, the USDCHF is back to a 0.96 handle. There is no question: if Europe allows the dollar to plunge here without any response it is signing off it entire export segment. And lastly, for the time being, the USDJPY has somehow not dropped below 80. It will shortly. One thing is certain: foreign banks will retaliate. Maybe not the gutless, toothless, and very much broke ECB, but everyone else, yes.
T-minus 30 minutes and counting. Here are the key technical levels in advance of the most critical FOMC decision in history, from Goldman's John Noyce, focusing on USTs, the EURUSD, USDCHF, JPY crosses, and Gold.
One of the most fanfared decisions earlier in 2010 was the Treasury's announcement that it would gradually begin to taper off the sizes of upcoming treasury auctions. Too bad that that announcement assumed that the economy would gradually stand to normalize, tax revenues would pick up, and the Fed would never be forced to perform QE on itself again. Alas, the recent issuance projection demonstrates, and as today's refunding statement confirmed, this reduction is now over. In fact, auction sizes may once again have to increase to accommodate the $100 billion a month incremental demand interest due to QE2. The statement provided by Assistant Treasury Secretary Mary Miller, who until recently was a fixed income manager at T. Rowe Price, and even more recently stated that the Fed's buying plans won't affect UST issuance (oops), provides some insight into what the Treasury's more detailed refunding expectations are.
Now that a revisionist political backlash against a system that failed its constituency in every possible way is in full force judging by the sea of red almost visible on the metaphoric CNBC heatmap (and literally so, after a casual glance at the turn in the AUDJPY pair derivative known as the futures), it is time for today's little political diversion to end, and for everyone to redirect their attention to where it belongs: namely the Marriner Eccles building located ironically enough on Constitution Avenue in D.C. With just over 12 hours left until what some consider the most important decision in the history of Keynesian economics, and of the fiat monetary regime, we wish to bring to you an extract from William Buckler's recent edition of his most excellent Privateer newsletter. In it he talks about myths and heretics, about dogma and revolution, about ignorance and abuse thereof, but mostly, he talks about the Federal Reserve, and its imminent end. Since pretty much everything else about what may happen tomorrow has been said, here is an essayistic view about what may happen the day after tomorrow.
BoomBsutBlog and the independent analysts vs Wall Street: I(we) say insolvent, or damn close, they say buy. Hmmm!!! Judging by affiliation and track record, who do you think is right?
It is peculiar that the firms that don't underwrite securities or sell information services are the most bearish on the banks, isn't it? Even the constant "just shut up and buy 'em" banks missed the ball on Google!
The Irish National Pensions Reserve Fund (NPRF) was up 1.9% in Q3, but has suffered a loss of €400m on the investments it was forced to make in Bank of Ireland and AIB.
The Commerce Department's Bureau of Economic Analysis (the uglier, less douchey stepsister to the B(L)S) released their first take on Q3 GDP this morning and it was unsurprisingly relatively more benign than a testicular mole or even Henry the IV of France.
Somehow, CLSA's Chris Wood is always correct in the end. The only prediction where he has been wrong, for now, is in his $3,400 gold price target by the end of 2010 (which was set back in 2002). But have no fear: as he explains "There is some surprise here that gold has not already gone higher given
everything that has been going on and given Billyboy’s evident
willingness to keep interest rates at zero for a long period. That gold
is not higher shows that the consensus has not yet appreciated that the
real reason to own gold is not “inflation” but rather the growing risk
that the endgame of the present policy response is the collapse of the
Western fiat paper system." And considering that there is a trader meme going around that every fake bomb is equal to $100 billion in QE, and we are up to something like 8 or 9, not to mention that the T(eleprompter)OTUS is about to make a speech post market close, the dollar is almost certainly about to get the Friendo treatment by the chairman.
Sadly only about $4Tn of our debt is owed to China, Japan and our other foreign creditors. While we may be stealing $1Tn from them, at least they get to sell us stuff. The rest of the debt, $11Tn, is owed to ourselves - to all the widows and orphans and pension funds that bought US bonds as "safe" investments as well as the poor suckers who worked their whole lives socking away 12.5% of their wages into a Social Security program whose "lock box" was raided by simply forcing retirees to lend their money to the government at unreasonably low rates and will now be paid back in dollars...
Q3 growth in line with consensus expectations-but slightly higher than ours due to faster-than-expected inventory accumulation. Growth in real final sales was a touch weaker than expected, due mainly to another large trade drag. Consumption growth was healthy, though slower than we thought, while federal government outlays and business fixed investment (mainly construction) were higher. Meanwhile, moderation in employment costs reflects budget pressures of state and local sector.