- Summers Faces Key 'No' Votes if Picked for Fed (WSJ)
- NYT Editorial Board Says Summers Would Be Wrong Fed Choice (NYT)
- Russia says it's compiled 100-page report blaming Syrian rebels for a chemical weapons attack (McClatchy)
- China says Syria crisis can't be resolved with military strike (Reuters)
- G-20 Faces Growth Threats as Syria Adds to QE Exit Risks (Bloomberg)
- Apple Supplier Fire Spurs Biggest Chip Price Rise in 3 Years (BBG)
- U.S. Decided Not to Horse-Trade With Russia on Assad (WSJ)
- Financial Crisis: For Corporations and Investors, Debt Makes a Comeback (WSJ)
- Gorman Says Chance of Another Financial Crisis ‘Close to Zero’ (BBG) and in other news, "no risk of a Us downgrade" - Tim Geithner
- A Biotech King, Dethroned (NYT)
Amid the G-20 headlines ("nobody mention the war"), leaders are proudly commenting on the global co-ordination on growth and tackling joblessness (and group hugs), but it was President Obama's comments that raised a few eyebrows:
*OBAMA TOLD G-20 STIMULUS WILL BE WITHDRAWN GRADUALLY: RUSSIA
It would seem, the President has decided the decision to taper - gradually - will be his, which is odd, because - as if one needed reminding - the decision is not his to make (unless he decided to nominate himself for Fed chair?).
China Officially Backs Russia On Syria, Warns "Military Action Would Have Negative Impact On Global Economy"Submitted by Tyler Durden on 09/05/2013 07:07 -0500
Until now China had kept a relatively low profile on the Syria issue, occasionally issuing veiled support for the Assad regime. That changed at today's G-20 meeting in Russia, when China's vice-finance minister Zhu Guangyao officially launched the Syrian axis of Russia and China, both of which now indirectly support the Assad regime, and oppose US-led military intervention. From the FT: "China warned on Thursday that military intervention in Syria would hurt the world economy and push up oil prices, reinforcing Vladimir Putin’s attempts to talk US President Barack Obama out of air strikes. “Military action would have a negative impact on the global economy, especially on the oil price – it will cause a hike in the oil price,” Chinese vice-finance minister Zhu Guangyao told a briefing before the start of the G20 leaders’ talks."
What perhaps Minsky couldn’t conceive of was the point at which debt, deficits and interest rates would go to such extremes that the creation of credit itself, which was and remains the heart of capitalism, would be threatened. No longer might the seventh inning stretch lead to a Coke, some “Cracker Jacks” and the resumption of the old ballgame. Instead, zero-bound interest rates and debt/GDP ratios in a majority of capitalistic economies would begin to threaten, not heal, the nature of finance and investment in the real economy. Investors, leery of not only overleveraged investment banks such as Lehman Brothers, but overextended countries such as Greece, Cyprus and a host of Euroland lookalikes would derisk as opposed to rerisk as per the Minsky model. As well, with interest rates close to the zero bound, investors in intermediate and long term bonds would become dependent on Big Bank to do their bidding. When that QE buying power became jeopardized via tapering and the eventual ninth inning conclusion of asset purchases, then the process of maturity extension and the terming out of historically modeled corporate lending was prematurely threatened.
The petrodollar regime - that oil is bought and sold globally in U.S. dollars - is easy to understand. It boils down to these two principles: 1. Petroleum is the lifeblood of the global economy; and 2. Any nation that can print its own currency and trade the conjured money for oil has an extraordinary advantage over nations that cannot trade freshly created money for oil. This is why many analysts trace much of America's foreign policy back to defending the petrodollar regime. America's energy boom is creating consequences for the value of the dollar.
The present picture for the oil price looks increasingly bullish once more. Citi asks, is this a replay of the dynamics seen in the 1970’s? We hope not... but the feedback loop (from oil prices) to the economy and markets is undeniable...
This week will see the end of August trading and September is, along with November, one of the strongest months to own gold. This is seen in the charts showing gold’s monthly performance over different time frames - 1975 to 2011, 2000 to 2011 and our Bloomberg Gold Seasonality table from 2003 to 2013 (10 years is the maximum that can be used).
Thackray's 2011 Investor's Guide notes that the optimal period to own gold bullion is from July 12 to October 9. During the past 25 periods, gold bullion has outperformed the S&P 500 Index by 4.7%.
Forget Gross Domestic Product (GDP) as a measure of expansion ("growth") or recession - what really matters is the social recession, which continues to deepen in America. The term social recession has two distinct meanings: around 2000, the term was used to describe the erosion of social cohesion via the decline of institutions such as marriage and the rise of social problems such as teen pregnancy. We use the term social recession to describe a very different phenomenon, the social and cultural consequences of permanently recessionary economies such as Japan, and now Europe and the U.S.
Albert Edwards Storms Out Of The Gate With Calls For 450 On The S&P, Sub-1% 10 Year, And $10,000 GOldSubmitted by Tyler Durden on 08/29/2013 10:07 -0500
"The emerging markets "story" has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen’s slide and then by the threat of Fed tightening. China has flipflopped from berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart from the activists that seem to inhabit western central banks, thinks QE could be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At the risk of being called a crackpot again, I repeat my forecasts of 450 for the S&P, sub-1% US 10y yields and gold above $10,000."
Financial Times: "World Is Doomed To An Endless Cycle Of Bubble, Financial Crisis And Currency Collapse"Submitted by Tyler Durden on 08/28/2013 09:37 -0500
It's funny: nearly five years ago, when we first started, and said that the world is doomed to an endless cycle of bubble, financial crisis and currency collapse as long as the Fed is around, most people laughed: after all they had very serious reputations aligned with a broken and terminally disintegrating economic lie. With time some came to agree with our viewpoint, but most of the very serious people continued to laugh. Fast forward to last night when we read, in that very bastion of very serious opinions, the Financial Times, the following sentence: "The world is doomed to an endless cycle of bubble, financial crisis and currency collapse." By the way, the last phrase can be written in a simpler way: hyperinflation. But that's not all: when the FT sounds like the ZH, perhaps it is time to turn off the lights. To wit: "A stable international financial system has eluded the world since the end of the gold standard." Q.E.D.
If SocGen is right in its just released oil price forecast in a "Syrian war world", then the global economy is about to undergo an apoplectic shock the likes of which have not been seen since the summer of 2008, when Lehman brothers had to be taken under to generate the deflationary shock sending crude from $130 to $30 in the matter of days. The French bank's forecast in a nutshell: "Base case scenario: $125 for Brent. We believe that in the coming days, Brent could gain another $5-10, surging to $120-$125, either in anticipation of the attack or in reaction to the headlines that an attack had started. In our base case, we assume an attack begins in the next week. Upside scenario: $150 for Brent If the regional spill over results in a significant supply disruption in Iraq or elsewhere (from 0.5 – 2.0 Mb/d), Brent could spike briefly to $150." And if indeed 2008 is coming back with a vengeance, the next question is who will be this year's unlucky Lehman Brothers?
The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm. As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009. As in the mid-2000’s, there is plenty of blame to go around this time as well. The Fed is hardly alone in embracing unconventional monetary easing. Moreover, the collapsing 'developing economies' all have one thing in common: large current-account deficits. A large current-account deficit is a classic symptom of a pre-crisis economy living beyond its means – in effect, investing more than it is saving. The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad. That is where QE came into play...
Dispassionate view that Italy poses the biggest risk for the euro area and it will not wait for the German elections.
The twenty-first-century economy has thus far been shaped by capital flows from China to the United States – a pattern that has suppressed global interest rates, helped to reflate the developed world’s leverage bubble, and, through its impact on the currency market, fueled China’s meteoric rise. But these were no ordinary capital flows. Over the last decade, the vast quantities of short-term capital that were being pumped into China’s banking system drove commercial banks and other financial institutions to expand credit substantially, especially through the shadow-banking system, leading to a massive credit bubble and severe over-investment. Given this, in the event of a crisis, China would most likely have to begin selling off its massive store of US debt - and indeed it is. After spending years attempting to insulate the US economy from the upshot of its own banking crisis, the Fed may ultimately be forced to bail out China’s banks, too.
"The latest numbers that we have received, in particular from Germany, are encouraging, whether it's manufacturing, whether it's service activity, whether it's exports. That is heading in the right direction, but it needs to be sustained over time. And I'm crossing fingers for the eurozone..."