Looking ahead in the upcoming week, markets will likely scrutinise the first steps of the new Greek and Italian governments. The appointment of key cabinet positions will be of relevance to establish credibility. However, it may be a bit too early for the first concrete policy steps. Beyond politics, three themes dominate the data schedule. First, there is a raft of Q3 GDP releases in Europe (Germany, France, Eurozone, Hungary, Poland, Czech Republic). The numbers will likely still be mixed with more uniform weakness expected in the Q4 numbers. Second, we will see the beginning of the monthly survey season with the US Empire and Philly Fed releases. Finally, there is a raft of Fed speakers scheduled to talk about the economy and Fed policy. Less thematic but also relevant are retail sales numbers in the UK and the US. Of course, we will have a look at the monthly TIC numbers to gauge the capital flow pressures for the Dollar.
Bundesbank's Jens Weidmann Discusses The ECB's Role As An Overthrower Of European Rulers, Bashes EFSF IncompetenceSubmitted by Tyler Durden on 11/13/2011 12:58 -0500
One of the last remaining Germans at the ECB, Jens Weidmann, gave an interview to the FT earlier today, in which the president of the Bundesbank, shared some pragmatic responses to questions about the depths of ECB intervention in the capital markets. The man who on Tuesday clinically stated explicitly that the "ECB can't print money to finance public debt" (to which he adds today that "this is a very fundamental issue. If we now overstep that mandate, we call into question our own independence"... odd, never prevented the Fed from questioning its own independence), follows up with some much needed clarity on just where the ECB sees itself in the coming weeks and months, touches on the rumor that sent stocks surging on Friday, namely that it would proceed to fix interest rates (it won't), and shares some rather amusing observations on the recent revelation that the ECB has become a weapon of political (de)stabilization: after all it took the ECB's bond buying program - the SMP - just two days of not buying Italian bonds for Silvio Berlusconi to resign after BTPs hit an all time rock bottom price. Yet the most amusing slap in the face of the Eurocrats is precisely what we mock every single day, namely the perpetually changing nature of the EFSF on a day to day basis, confirming the cluelessness of the continent's leaders, and which has cost Europe all credibility in the face of capital markets, explaining why the EFSF has to resort to not only buying its own bonds, but issuing terse statements denying anything and everything: "EU governments have decided how to finance the EFSF. They agreed on guarantees for the EFSF and, in their last meeting, on two options on how to leverage the EFSF – by an insurance model or a special purpose vehicle. Instead of working on implementing these approaches, we now have the next idea that is completely out of the realm of what has been discussed previously. I don’t think it builds confidence in crisis resolution capabilities if from week to week, from one meeting to the next, you are questioning your last decision."
The 'tragedy of the commons' or 'free-rider' dilemma of game theoretical cocktail parties is a great framework for considering the current tug-of-war between individual sovereign fiscal actions among the European Union and the over-arching monetary policy of the ECB. If the ECB is dovish and too many states decide to suckle on the teat of liquidity - as opposed to fiscally 'behave' - then everyone loses (as we see currently evolving). The lack of any Nash (stable and dominant) equilibrium among the European nations and their hoped-for benefactor is becoming increasingly problematic for both trading and business investment.
Nomura's Global Macro Strategy group tackle the problem that is now abundantly clear, the euro area as currently constructed is not stable and so it will have to change (hence, the Euro is dead!). The direction of travel is being set out by northern European politicians and is worth noting – more Union not less. But two points are critical to note; first that the new euro area may be so different from the one the current members signed up to as to make a process of voluntary re-application for euro stage II necessary to determine future membership, and second that any new variable geometry euro will take a long period of time to set up. How then to cover the intervening period?
Without credible pre-commitment on the part of either the ECB or the fiscal authorities, the game framework indicates either a loss of independence for the ECB under substantial political pressure to shift unilaterally to the dove camp or EFSF/IMF assistance and the pooling of fiscal risks against the backdrop of a political agenda for a new euro area.
It is no secret that over the past two months, Goldman has commenced a full endorsement of Nominal GDP targetting as a method to stimulate the economy, not to mention Wall Street's bonus pool, after Ben Bernanke completely ignored Hatzius' advice to reduce the Interest on Overnight Excess Reserve rate as well as subsequent pleading for a start of MBS LSAP. Mathematics once again aside, and as we demonstrated, the math works out to an non-trivial incremental $10 trillion in debt through 2016 on top of what will be issued, to catch up with the GDP growth run rate and to eliminate the excess slack in the economy, the question is whether NGDP would achieve any tangible stimulus at all, or merely reduce the Fed's ever smaller arsenal of non-conventional means to boost the economy by one more approach. The attached rhetorical Q&A just released by Goldman seeks to answer that and any other left over questions one may have on NGDP as a policy measure, and further puts out the inverse strawman argument that it is not coming out any time soon. To wit: "We do not expect a move to an NGDP target anytime soon, although the probability would increase if growth and/or inflation slowed by more than we currently estimate." Then again, with the whole reverse psychology trademark inherent in every piece of Goldman public product, and considering the squid's previous advances to determine monetary policy have been snubbed, it may just mean that the next time the US economy implodes, this is precisely the method the Fed may use in early 2012 to guarantee another record year of Wall Street bonuses considering 2011 will be abysmal for so many Swiss and other offshore bank accounts.
The spike in yields on sovereign debt of Italy was attributable, only in part, to the Italian political turmoil we are witnessing. The other aspect dealt with CDS on Italian debt. Those holders thought they had one type of CDS protection. They realized from the events in Greece that they had something else.
I am Timothy F. Geithner. The Secretary of the Treasury under the U.S Department of the Treasury. The executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. However, by virtue of my position as the Secretary of the Treasury, I have irrevocably instructed the Federal Reserve Bank to approve your fund release via issuance of a CERTIFIED cheque drawn on Standard Chartered Bank california, USA, which is the authourized bank for your fund release.
Federal Reserve Chairman Ben Bernanke is taking his show on the road.
The IMF has released the report it prepared for last week's futile G-20 session, which incidentally saw the IMF being shut out of bailing out the Eurozone: a development which was adverse at the time but now is largely irrelevant: after all Greece has a new parliament, if still no ink to print tax forms. So what did the IMF say? Here are some key soundbites.
To print or not to print: the choice of whether to open the European Pandora's box, which as we suggested two months ago is an interesting but ultimately moot thought experiment, has suddenly become the only talking point for TV pundits desperate for eyeballs and suckers to buy their books, who are now experts not only on monetary policy but European monetary policy. And while 99% of these empty chatterboxes should be promptly muted, one person whose opinion we value in any regard is that of Jim Grant. Earlier today, with Bloomberg TV's Deirdre Bolton, he discussed not only the expected ECB response to the ever worsening contagion (while the ECB bought Italian bonds in the open market, and potentially primary against its charter, it is prohibited from buying French bonds which is why the OAT-Bund spread closed at record wides), but all the other developments in the insolvent continent. Here are some of the key sounbdbites, and, of course, the full clip.
Bernanke Tells American Soldiers To Make Good Financial Decisions Even As He Routinely Bails Out Those Who Don'tSubmitted by Tyler Durden on 11/10/2011 12:56 -0500
Ben Bernanke is speaking in Texas to some soldiers and ther families in what is mostly a boilerplate presentation: he mourns the bubble economy, protects his policies and tries to deflect focus away from the Fed, just like the ECB, to the legislative. To wit: "it doesn't feel like the recession ever ended. The unemployment rate remains painfully high, and more than two-fifths of the unemployed have been out of work for longer than six months, by far the highest ratio since World War II. These problems are very serious, and we at the Federal Reserve have been focusing intently on supporting job creation. Supporting job creation is half of our marching orders, so to speak; the other half is controlling inflation." On Congress: "the Federal Reserve was never intended to shoulder the entire burden of promoting economic prosperity. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector." Most interesting is Bernanke's attempt to get quite cozy with men and women in uniform: "soldiers who had taken the course were more likely to make smart financial choices, such as comparison shopping for major purchases, saving for retirement, and educating themselves about money management. They were less likely to make questionable financial decisions, like paying overdraft fees, taking out car title loans, and continually running credit card balances. Making good, well-thought-out financial decisions can make all the difference to your financial future." Like saving, yes? But with 0.001% deposit rates, just why should these brave men and women do anything "smart" choices: can't they simply do what the banks do every day and make dumb choices, instead knowing full well that you will bail them out. Will you bail out the soldiers of this country who follow in the banks' footsteps? Or do they need more weapons before they become too big to fail?
As far back as May 2011, Bernanke admitted the benefits of QE were less attractive. Now he’s not only admitting that asset bubbles exist (something Greenspan never admitted) but that Central Banks may even need to “burst” them!?!? In plain terms, the Fed will NOT be launching another round of QE or major policy changes until the next round of the Great Crisis hits in full force. And by that time it will be pointless anyway as once the defaults begin, the leverage in the global banking system will implode rapidly.
A Customer and Creditor's Guide to the MF Global Bankruptcy; Background & What Needs to Be Done, ProntoSubmitted by EB on 11/10/2011 09:37 -0500
Missing customer funds might be those of MF Global itself. Also, JPM gets to keep any and all collateral and cash it seized in return for $8 million?
European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.
- Former ECB vice president Papademos will be the interim Greek PM. Meanwhile, media reported that the Italian PM Berlusconi may step down by Sunday
- Market talk that the ECB is buying in the Italian and Spanish government bonds. Also, market talk that in an emergency meeting today, the ECB may decide to purchase the Italian government debt in unlimited amount
- News emerged that the ESM may not be operational in mid-2012 as Germany and France clashed on bond loss provisions
- ECB's Knot said that the ECB can keep buying bonds as long as sterilization works, adding that the central bank can speed up bond purchases. He further said that the ECB can keep purchased bonds until maturity. However, he also said that the ECB should only buy bonds when markets are panicking