Switzerland

26 times the GDP of Vermont!

The US takes... and China makes. With the Western world doing all it can to cripple the Iranian regime with embargo after embargo, desperate to provoke the country into an offensive move that would be promptly retaliated as a move of "liberation", Iran, which in a few short months has achieved just what all the Western central banks have been desperate to do and see its currency collapse to record lows, continues to find eager allies in the unlikeliest of places. Namely China, which today delivered the first of 12 crudesupertankers to Iran " giving Tehran extra capacity to transport its oil to Asia as it struggles against Western sanctions, but it is unclear if the ship has the permits necessary to call at global ports." What is most amusing is the glaring override of the western isolation of Iran by China, which together with India and Russia, have now become critical trading and strategic partners of Iran, a consideration which any offensive moves by Israel or the US will most likely need to factor in.

John Taylor, founder and CEO of the world's largest FX hedge fund, spoke with Bloomberg TV this morning and was his typically clarifying - if not sanguine - self when it comes to prospects in Europe and the US. Stating that he'll "probably always be a bear on the Euro", Taylor added that it is "hard to look at the European situation and see a cloudy sky become clear," and while there has been noisy swings in the movements of currencies of late, "the reason the euro is up is because the dollar is down - two guys have done this: Draghi and Bernanke." Ranging from FX to volatility, Taylor opines on the time-varying correlation of the weak euro with a strong US equity market and notes, however, that "the equity market is not showing any legs."

SNB bond-buying is "exacerbating" the gap between borrowing costs for stable countries like Germany and the rest of the 17-nation euro zone.

The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a remarkable plunge in economic freedom during the past decade. From 1980 to 2000, the US was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. The ranking of the US has fallen precipitously; from second in 2000 to eighth in 2005 and 19th in 2010. By 2009, the United States had fallen behind Switzerland, Canada, Australia, Chile, and Mauritius, countries that chose not to follow the path of massive growth in government financed by borrowing that is now the most prominent characteristic of US fiscal policy. By 2010, the United States had also fallen behind Finland and Denmark, two European welfare states. Moreover, it now trails Bahrain, the United Arab Emirates, Estonia, Taiwan, and Qatar. The Fraser Institute's massive volume on the Economic Freedom Of The World - based on the following five factors: Size of Government, Legal System & Property Rights, Sound Money, Freedom to Trade Internationally, and Regulation - covers 42 variables with the goal of quantifying the key ingredients of economic freedom.

According to data released by ACEA (European Automobile Manufacturers’ Association) new passenger car registrations fell 8.9% in August after a decline of 7.8% in July. In 2011, Germany produced 5.8 million passenger cars, of which 77% (4.5m) were exported, making cars and parts the most valuable export good (EUR 185bn). A heavily export-dependent German automotive industry looks vulnerable to setbacks in important markets.

Printing paper money: “in the case of the euro, it’s actually cotton”

Nuclear News Roundup

This time, the young generations are paying the price.

Since 2009, outside of the megabanks in Europe, the bulk of the rest of the financial system has been completely shut out of the unsecured financing markets. One of the workarounds to this liquidity problem was the reclamation or retention of covered bonds issued by the Eurozone banks themselves, but these are constrained by strict allocation rules. Once the bank reaches that defined upper bound, where it is already close to exhausting this route, the bank will be forced to find a further alternate means for funding its existing loan portfolio. We discussed the issuance of self-referential or ponzi bonds previously since - can you really “own” your own liabilities?  Since circular logic pervades the current realm of central banking, this is wholly unquestioned.  In reality, retained covered bonds are just the accounting gloss on direct monetization of past and existing mortgage loans. Covered bonds as collateral to the ECB is an extremely important bridge holding the shaky liquidity system together as it is now; as the shortage of 'good' collateral increases, banks that do not possess enough “good” collateral have self-selected themselves for extinction and resource re-allocation.  There is no economic argument for maintaining self-selected bad banks.  Free markets demand their extinction.  Anything short of that will result in escalating and perpetual liquidity and solvency crises until the real economy is freed from the yolk of bad banks and their dis-intermediation. There is no real wonder as to why we have exactly that right now – the intrusion of politics done in the name of economics.

• Italy Says It Won't Seek Aid (WSJ)... and neither will Spain, so no OMT activation, ever. So why buy bonds again?
• European Lenders Keep Ties to Iran (WSJ)
• Fink Belies Being Boring Telling Customers to Buy Stocks (Bloomberg)
• Dutch Voters Buck Euro Debt Crisis to Re-Elect Rutte as Premier (Bloomberg)
• China's Xi cited in state media as health rumors fly (Reuters)
• China vs Japan: Tokyo must come back 'from the brink' (China Daily)
• Manhattan Apartment Vacancy Rate Climbs After Rents Reach Record (Bloomberg)
• Well-to-do get mortgage help from Uncle Sam (Reuters)
• Princeton Endowment Expected to Rise Less Than 5% in Year (Bloomberg)
• Protesters Encircle U.S. Embassy in Yemen (WSJ)
• US groups step up sales of non-core units (FT)

Just in case there wasn't enough excitement and fury directed at Swiss bank account holders, which continue to dominate the presidential election "debate" above such mundane topics as the economy, or, say, reality, here comes the IRS, which as we noted yesterday collected $192 billion less than the government spent in the month of August alone, and have awarded Bradely Birkenfeld, a former UBS employee who in 2008 pleaded guilty to conspiracy to defraud the United States and was sentenced in 2009 to 40 months in prison, but received preferential whistleblower status after a prior arrangement to expose numerous Americans with Swiss bank accounts, has just been awarded $104 million.

“Hit the road, rich idiot”

The unremitting deterioration of the eurozone’s sovereign debt landscape continues to fuel uncertainties about the longevity of the euro as a hard currency. Such uncertainties are not only leading to capital flight from the EMU’s periphery to the core and destabilizing markets worldwide, but they are also beginning to frighten southern European savers into seeking refuge outside their 10-year-old currency. Such is the case of Spain – the latest tumbling economy to threaten the euro’s survival. As the crisis deepens, there is still a window of opportunity for Spaniards to turn to gold as a means to protect their wealth against the risks of increased foreign exchange volatility, forced re-denomination, or even a total currency collapse.

Suddenly the delicate balancing of variables is once again an art and not a science, ahead of a week packed with binary outcomes in which the market is already priced in for absolute perfection. Per DB: We have another blockbuster week ahead of us so let's jump straight into previewing it. One of the main highlights is the German Constitutional Court's ruling on the ESM and fiscal compact on Wednesday. On the same day we will also see the Dutch go to the polls for the Lower House elections. Thursday then sees a big FOMC meeting where the probabilities of QE3 will have increased after the weak payrolls last Friday. The G20 Finance Ministers and Central Bank Governors will meet on Thursday in Mexico before the ECOFIN/Eurogroup meeting in Cyprus rounds out the week on Friday. These are also several other meetings/events taking place outside of these main ones. In Greece, PM Samaras is set to meet with representatives of the troika today, before flying to Frankfurt for a meeting with Draghi on Tuesday. The EC will also present proposals on a single banking supervision mechanism for the Euro area on Tuesday. If these weren't enough to look forward to, Apple is expected to release details of its new iPhone on Wednesday. In summary, it will be a good week to test the theory that algos buy stocks on any flashing red headlines, no longer even pretending to care about the content. Think of the cash savings on the algo "reading" software: in a fumes-driven market in which even the HFTs no longer can make money frontrunning and subpennyiong order flow, they need it.