And so, one by one, the crazy pills theories start rolling out. Yesterday, as we first pointed out, Deutsche Bank made waves when it became the first "serious" organization to suggest that the Fed has now missed its tapering window, and will plough on thorough until the next downturn without ever lowering the pace of Flow (of course the reflexive paradox that the economy would be in an out of control depression without QE in the first place somehow does not figure in that calculation). And while this has not been a novel idea (we first predicted that once perpetual QE starts it will never taper, long before QE 3, aka QEternity was even publicly announced last summer) today, all the penguin "pundit" copycats have jumped aboard this theory. Well, not all. SocGen has decided to make waves of its own with an even crazier pills idea: instead of no taper... ever... the Fed, that glorious redistributor of wealth from the middle class to the 1%, while happy to adhere to that old saying: "a funded welfare program a day, keeps the guillotines away" will not only not announce a Taper in next week's FOMC meeting but will in fact hike QE!
In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the "news" of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last. On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today's correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.
Troika Wants To Strip Greece Of Defense, Auto Industries, Greece Balks: The Troika-Greece Can-Kicking Toxic LoopSubmitted by Tyler Durden on 10/23/2013 08:14 -0500
While the world awaits with bated breath until the moment that Greece can no longer afford to pretend it is solvent and has to apply for its third bailout from Europe, or else threaten to take down Deutsche Bank and its tens of trillions in gross derivatives, the world has to listen to the constant jawboning from the Troika which for the past nearly 4 years continues to express its displeasure with Greece, and yet still provides every Euro of funding the imploding country requests. In the latest iteration of this charade, the Troika has apparently flexed its muscles and made it clear that if Greece wants to receive the next round of cash, it will have to shutter the state-owned Hellenic Defense Systems (EAS) and the Hellenic Vehicle Industry (ELVO). In short: shut down the domestic defense and auto industries, and we'll talk. Oh, and if as a result you have to import your guns and cars from Germany (whose generous funding has kept you afloat so far), and have to take out Deutsche Bank loans to pay for them, so be it.
With the government reopened, and the debt-ceiling non-negotiation off the table, if only for another 3 months, Wall Street's experts have fallen back to what they do worst: attemping to predict when the Fed will Taper. And just as virtually all economists were convinced the September tapering is a done deal, so nobody sees a Taper in the next three months, and certainly not before March, or, in the case of Larry Fink, June 2014. One thing, however, that nobody in polite, statist company has brought up yet is not only the possibility, but increasingly the probability, that there may not be a taper. At all. Well, Deutsche Bank - the first of any major Wall Street institution - just floated "that" particular bubble. To wit: since "the Fed possibly only has a narrow window to taper before it’s faced with economic headwinds again and if this is the case then why bother taper at all?"
- Deutsche Bank 170k
- Bank of America 170k
- HSBC 171k
- Citigroup 180k
- UBS 195k
- JP Morgan 195k
- Barclays 200k
- Goldman Sachs 200k
- Despite budget win, Obama has weak hand with Congress (Reuters)
- Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
- Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
- Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
- J.P. Morgan Aimed to Limit Damage (WSJ)
- EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
- Wall Street Profits May Halve in Second Half (WSJ)
- Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
- Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
- Italy plans to offer guarantees on govt bond derivatives (Reuters)
- Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)
Following last week's last two day panic buying driven not by data (since in the US it has been delayed until late October and November, and elsewhere in the world it is just getting worse) but by the catalyst that the US isn't going to default (yes, that's all that is needed to push the S&P to all time highs) and just hopes that the tapering - that horrifying prospect of the Fed reducing its monthly monetization by $15 billion from $85 to $70 billion in line with the decline in the US deficit - will be delayed until March or June 2014 because, you see, the Fed isn't sure how the economy is doing, it makes no sense to even comment on the market. Squeezes, momentum ignitions, rumors about what Messers Bernanke and Yellen had for breakfast, Goldman's 2015 S&P forecast of 2100: that's the lunacy that passes for market moving factors. News, and reality, have long since been put in the dust. Just keep an eye on flashing read headlines, and try to buy (remember: anyone caught selling by the NSA is guaranteed a lifetime of annual IRS audits) ahead of the algos. That's what Bernanke's centrally-planned "market" has devolved to.
JPMorgan Chase has had a bad year. Not only has the bank just reported its first quarterly loss in more than a decade; it has also agreed to a tentative deal to pay $4 billion to settle claims that it misled the government-sponsored mortgage agencies Fannie Mae and Freddie Mac about the quality of billions of dollars of low-grade mortgages that it sold to them. Other big legal and regulatory costs loom. JPMorgan will bounce back, of course, but its travails have reopened the debate about what to do with banks that are “too big to fail.” We now have a global plan, of sorts, supplemented by various home-grown solutions in the US, the UK, and France, with the possibility of a European plan that would also differ from the others. In testimony to the UK Parliament, Volcker gently observed that “Internationalizing some of the basic regulations [would make] a level playing field. It is obviously not ideal that the US has the Volcker rule and [the UK has] Vickers…” He was surely right, but “too big to fail” is another area in which the initial post-crisis enthusiasm for global solutions has failed. The unfortunate result is an uneven playing field, with incentives for banks to relocate operations, whether geographically or in terms of legal entities. That is not the outcome that the G-20 – or anyone else – sought back in 2009.
If mere hope of an "imminent" deal starting on Thursday and continuing through Monday, with no actual deal but who cares about details, was enough to push the DJIA up by 600 points, then all it would take to set a new record market high today, is for another day to pass - one day before the October 17 X-Date when one Senator can filibuster the US through the deadline on their own, and when the House still has to have a voice on what the Senate has been doing - without an actual debt deal. After all, the market is so "centrally-planned" all that is needed is knowledge that Bernanke will get to work, and is getting to work to the tune of $85 billion a month, mixed in with some hope. And with today's "market for idiots" facilitating POMO of over $5 billion which guarantees a green close, all that is needed is a complete failure in talks for the SPX to go limit up on even more hopes things will be fine any second now... if not right now.
- Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
- As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
- The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
- China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
- Vegetable prices fuel Chinese inflation (FT)
- China Slowing Power Use Growth Points To Weaker Output Data (MNI)
- London Wealthy Leave for Country Life as Prices Rise (BBG)
- Gulf oil production hits record (FT)
- Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts (WSJ)
- Weak Exports Show Limits of China’s Growth Model (WSJ)
Late last night, Paul Ryan wrote a WSJ op-ed titled "Here's How We Can End This Stalemate" in which some believe he provided the framework for what a possible fig leaf offering on the government shutdown and debt ceiling compromise could look like. While on the surface this may be grounds for optimism, the reality is that Ryan, whose entire proposal is based on the assumption that Obama is willing to negotiate which for now he has shown repeatedly he won't, merely fell back to his traditional "grand bargain" talking point made so clear during the Mitt Romney presidential campaign. What Ryan does suggest is yet another angle to a common bargaining position, one which would be certainly more palatable to Obama: because in order to get both parties happy and reach a compromise, all that would happen is for various long-term assumptions would be changed, with zero actual, real current impact - something politicians are good at, because it does not generate an adverse impact during their tenure (afterwards, it becomes someone else's problem).
"Over the last 12-24 hours the small cracks that have appeared in financial markets over the last week have started to edge open a little bit wider. On the plus side this may start to help concentrate the minds of the politicians a bit more after another day of stalemate and lack of urgency. Our thoughts are that this will get resolved when either the market forces the issue with a big sell-off or when we get closer to an as yet unspecified hard-date as to when the US runs out of money." - DB's Jim Reid
As we have discussed previously, the "partial government shutdown" that we are experiencing right now is pretty much a non-event - especially with the un-furloughing of The Pentagon. Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world. In fact, only about 17% of the federal government is actually shut down at the moment. This "shutdown" could continue for many more weeks and it would not affect the global economy too much. On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous. A U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash that would make 2008 look like a Sunday picnic. If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
"We debated buying a bank, which we came close to doing. It remains an option for us," Carne Ross, a board member of the Occupy Money Cooperative (an offshoot of the Occupy Wall Street movement) says. "We eventually came to this [the debit card], as the easiest way to get a financial product out there."
Source: Not The Onion.