Consumer Confidence

All you need to read.

Some economic data out which has absolutely no impact on anything anymore. All that matters are lies and rumor. And headlines. THE BIGGER, THE MORE BOLDED AND UNDERLINED THE HEADLINES THE BETTER. Also, never forget, the better the news, the better; the worse the news, the best.

While overnight markets are rocking based on continued speculation coming from some completely uncorroborated and unconfirmed source that Europe has just boldly gone where even Goldman's Abacus has not dared to go before courtesy of the ECB's acceptance of a CDO squared "Enron Special" SPV, Germany has once again made it very clear that not only will there not be any expansion in the EFSF in regular terms, but certainly not in structural ones. As Goldman's Dirk Schumacher makes it very clear, any attempts at imposing on Germany a fait accompli reality that has no bearing in actual reality (especially one that excludes the only relevant decision-maker in Europe) will be met with increasing protests from the entire German ruling class. According to Die Welt, the Free Democratic Party is threatening to vote against overhaul of EFSF if discussions about leveraging fund don’t stop. Goldman elaborates: "FDP and CSU not fond of further increase of EFSF. Leading figures from the FDP and the CSU, the Bavarian branch of the CDU, rejected any thoughts of a further increase of the EFSF (either directly or indirectly through leverage). FDP general secretary Lindner said that "the chancellor should make clear immediately that there is no change to the business model of the EFSF." So, yes, consider that an official denial of the Liesman rumor which as typical, has no confirmation anywhere else.

• Yuan ‘Fully Convertible’ in 5 Years: Adviser (Bloomberg)
• ‘Barrier’ Around Greece Needed: Merkel (Bloomberg)
• US banks face losses on loan commitments (FT)
• Pentagon may cap executive pay reimbursement at $694,000 (WaPo)
• Debt talks fail to agree solution (FT)
• Europe Split Threatens Rescue Plan (WSJ)
• US tax authorities target bank deals (FT)
• Under fire, Europe works to bolster debt crisis fund (Reuters)
• Asia wooing Japanese companies (WaPo)
• Credible India’ drive to woo investors (FT)

It has been a while since we have referred to Bloomberg columnist Jon Weil. The reason is we were waiting for something juicy, something one can sink one's teeth in, using money from a "tax free" Swiss bank account to pay. The need to wait is now over, as Weil explains why preserving the Swiss bank's bonus pool is right up there in the list of national priorities for the Swiss country as preserving the illusion that only you and your banker know who is behind that "numbered" account, in "Swiss Must Save UBS’s Bonus Pool or Die Trying." Cutting to the chase: "this year’s UBS bonus pool isn’t doomed, per se. It’s “at risk.” And where there’s a risk there’s always a way. What the UBS bankers need is a plan to ensure that the people who bear this loss are people other than themselves. Luckily, I have prepared one. To save the UBS bonus pool, UBS’s leaders must persuade the people of Switzerland to eat the losses the company is blaming on Kweku Adoboli, and to do so with joy in their hearts. Impossible, you say? Consider the following talking points..."

• The FOMC rate-decision remains the main focus today as market participants anticipate the Fed to take further easing steps
• According to BoE’s September minutes, the MPC voted 9-0 and 8-1 to keep its benchmark interest rate unchanged at 0.50% and its asset-purchase target unchanged at GBP 200bln respectively. Most MPC members thought it increasingly likely that more QE would be warranted at some point
• CAD received support across the board following higher than expected CPI data from Canada
• Shares in BNP Paribas came under pressure on the back of market talk of a credit rating downgrade by one of the major rating agencies as early as today

No surprise in the only economic indicator of the day: The September National Association of Home Builders/Wells Fargo Housing Market Index declined from 15 to 14, missing expectations of an unchanged print, and at a 3 month low, although as the chart below shows, it is really just humming along the generational bottom with no threat of increasing any time in the near future. As the report demonstrates, sentiment was worse in 3 out of 4 regions, in Northeast at 15 vs August’s 17, in the West at 12 vs 15, and in the South at 15 vs 17; in Midwest 11 vs 10. That said, we are confident this will surge shortly, as soon as the President announces details of his plan to tax millionaires, which assuming we have hyperinflation shortly (remember: that debt won't inflate itself) means pretty much everyone.

Despite all the negative news, markets are hanging tough.  Why? I believe financial markets continue to have a "Moral Hazard" premium priced-in.  The idea that governments will step in to save the day remains entrenched in the minds' of investors.  There are signs, however, that this premium may soon be re-priced.  Indeed, this week's rally has left much to be desired.  Copper, nor the credit markets, have confirmed the move higher in equity markets.  Breadth has lagged as well.  These are signs that this latest rally isn't healthy.  Should government authorities fail to come through and Eurozone contagion takes hold, financial markets would begin to compress this premium.  A strong break of 1120 would signal that a re-pricing is ongoing.   Overall, the global economy is at a crossroads.  Until the Eurozone issues are structurally taken care of, I remain very cautious.  Capital preservation remains the name of the game.

The UMichigan read for consumer confidence came slightly better than uber-depressionary, printing at 57.8, on expectations of 57, and better than the apocalyptic 55.7 from August. To put the number in perspective, it is the second lowest since February 2009. To algorithms all that will matter, however, is that it is rising. What they will completely ignore is that consumer expectations, or the outlook for the future, just dropped yet again, from 47.4 to 47, the lowest print since May of 1980! More troubling to the Fed is the read on inflation expectations, which after declining for months, rose in both 1 year (from 3.5% to 3.7%) and 5 year (from 2.9% to 3.0%) expectations.

• European equities traded higher supported by news of a coordinated action by various central banks to enhance USD liquidity in order to ease funding concerns surrounding European banks
• EU’s Juncker said that the Eurogroup discussed collateral issue, and collateral will be given for Greek loans at an appropriate price
• EU's Rehn said France, Italy, Belgium and Spain have all ratified more flexible EFSF, adding that the first step in Eurobonds is a feasibility study which the Commission will present this autumn
• Moody’s and S&P placed UBS ratings on review for a potential downgrade

All you need to know.

We are delighted to bring to you this wonderful news:

DAVID BIANCO NO LONGER WORKS AT BOFA, SPOKESWOMAN SAYS

Which means that in the pantheon of brain dead, lemming, Koolaid Permabulls, there are now just four. It probably also means that the latest paperweight to come out of Bianco, his upgrade to the S&P from 1,400 to 1,450 has been retracted. In other news, we are confident Bianco will find the economy far less hospitable from the wrong side of the unemployment line.

Retail sales, producer prices and business inventories. Also get the final of this week's bond auctions in the form of a $13 billion 30 Year

All you need to read.

A first attempt at brainstorming to get the ball rolling ...