Testimony

While all eyes and ears will conveniently and expectedly be on the Fed announcement and press conference in a few hours, the real action continues to take place in China, where the liquidity crunch is becoming unbearable for the local banks (and will only get worse the longer Bernanke and Kuroda keep their hot money policies). The CNY benchmark money-market one-week repo rate was 138bp higher overnight to a 2 year high of 8.15%. The 7 day Interest-Rate swap rose for a record 13th day in a row jumping +10 bps to 4.08%, the highest since September 2011. China sold 10 Year bonds at a 3.50% yield, above the 3.47% expected, and at a bid to cover of 1.43 which was the lowest since August 2012. Moody’s commented that local government financing vehicles (LGFVs) pose significant risks to Chinese banks. LGFVs accounted for 14% of loan portfolios at end-2012 according to Moody’s.

First it was the "most important" payroll print in years, then the "most important" retail sales number, and now we are just days ahead of the "most important" FOMC statement in years as well, as the fate of the centrally-planned markets lies in the hands of Bernanke's decision to taper, or not to taper. The main catalyst for now still appears to be an ongoing wrong interpretation of Hilsenrath's Thursday blog post in which some still see reaffirmation by the Fed that it won't taper, when all the Fed's mouthpiece said is that the short-end would be anchored even as the long-end is allowed to rise. Looking at the well-known no volume levitation futures action, which in the overnight session has wiped out all of Friday's losses and then some simply due to a 2.73% rise in the Nikkei overnight back above 13,000 driven by the USDJPY briefly regaining 95.00, the market has made up its mind (if only for the time being) that whatever decision the Fed takes regarding the monthly level of liquidity injection is a bullish one. At least until it changes its mind next.

NSA Leaks Help – Rather than Hurt – the United States

The Bank of England's Andrew Haldane is not a man to mince his words (see here and here) but perhaps the excess truthiness in his latest testimony to British MPs may have many questioning his ability as a central-banker (unable to lie when it is required). "Let's be clear. We've intentionally blown the biggest government bond bubble in history," Haldane said. "We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted." As Canadian Carney steps into the BoE head shoes, it seems Haldane has some (indirect) advice there also, as The Guardian reports his comments that the committee had not been "entirely free" of political interference during the crisis; and that he hoped to "improve decision-making," in a less hierarchical, more diverse, somewhat humbler organization." The "biggest risk to global financial stability... would be a disorderly reversion in the yields of government bonds globally." he said, adding that there had been "shades of that" in recent weeks.

Army Gen. Keith Alexander, director of the National Security Agency and head of U.S. Cyber Command is currently testifying in front of the Senate Appropriations Committee's scheduled session. As TPM reported, Alexander had already met with the Senate Intelligence Committee on Tuesday. Sen. Dianne Feinstein (D-CA), who chairs the committee, said the committee had asked Alexander to declassify some information pertaining to the NSA surveillance programs so that Congress could better explain their purpose to the public. "I think they're really helpful," Feinstein said, as quoted by CBS News. "And that's the problem, it's all classified... If we can get that declassified then we can speak much more clearly." Watch the hearing live below.

Overnight, following the disappointing BOJ announcement which contained none of the Goldman-expected "buy thesis" elements in it, things started going rapidly out of control, and culminated with the USDJPY plunging from 99 to under 96.50 as of minutes ago, which was the equivalent of a 2.3% jump in the Yen, the currency's biggest surge in over three years. Adding insult to injury was finance ministry official Eisuke Sakakibara who said that further weakening of yen "not likely" at the moment, that the currency will hover around 100 (or surge as the case may be) and that 2% inflation is "a dream." Bottom line, NKY225 futures have had one of their trademark 700 points swing days, and are back knocking on the 12-handle door. Once again, the muppets have been slain. Golf clap Goldman.

"... equity markets were quick to shrug off the uncertainty and extended their gains as investors expected poor fundamentals to be followed by further policy easing."

The New York Times, The Associated Press, The Huffington Post, CNN and now, of course, Fox News: these are the media organizations, superficially from across the political spectrum, which have said they will boycott a meeting with the DOJ's embattled head, Eric Holder, on the topic of the DOJ's (not to mention the NSA's) Nixonian abuse of the first amendment and eavesdropping wherever and whenever it so chooses. The twist: the meeting is, paradoxically, supposed to be "off the record." One wonders: was this the DOJ's idea of being open and transparent - to hold a closed door meeting with the same media that it, allegedly, has been spying on, and thus put the media whose job is to report events - as in keeping the public informed - in a place where it can't do precisely that? It is as if the Marx Brothers are writing the tragicomic script for a sequence of events that inevitably ends with Holder's resignation and Obama's washing his hands of the whole affair.

Because sometimes you just have to laugh...

With the euphoric market once again serving as a much needed distraction from far bigger geopolitical issues, many have forgotten the plethora of scandals the Obama administration has recently found itself engulfed in. This may change shortly, following news that the head of the US Department of Justice, Eric Holder himself, is now being investigated for lying under oath. Will he too receive an extended absence of leave (with pay) after pleading the fifth, or will the circle of lies slowly but surely start to unwind? Of course, in the New Normal it is probably not only expected, but given, that the chief legal enforcer is just a little more equal when it comes to the same justice he is tasked to enforce.

Even if the monetary fuel for this whirl of self-reinforcement is not lacking, the market still needs a narrative around which it can cluster psychologically. It needs a canon of shared myth about which the bard can weave a reassuringly familiar refrain so as to reinforce the sense of community when the members of the clan gather to listen to his warblings amid the flickering fires and guttering torchlight of the Great Hall at night. Despite the bubbles everywhere, hastily shrugged off by the Chairman-in-chief we must add, we are still all suckers for a good saga. As far as we can see, the current narrative contains several key themes... What could possibly go wrong?

Once again: The FOMC minutes had nothing to do with overnight's events, especially since both Ben Bernanke and Bill Dudley made it very clear previously that for any tapering to occur (and which is supposedly bullish according to David Tepper, who may finally be done selling to momentum chasers) if ever, the economy would have to be be stronger (which is of course a paradox because it is the Fed's QE that is making the economy weaker). If anything, the minutes reminded us that there is a mutiny in the FOMC with finally someone having the guts to say on the record that Bernanke is blowing a bubble - something never seen before on the official FOMC record. And after all, the Nikkei opened way up, not down. It was only after the realization of what soaring bond yields mean for, wait for it, stocks (despite central planner promises that it is soaring bond yields that are a good thing - turns out, they aren't) that the sell-off really started. That, and of course copper, and the end of the Chinese Copper Financing Deals arrangement that has been China's illicit cross-asset rehypothecation scheme for years (more shortly). So in a nutshell, here is what has transpired so far, courtesy of Bloomberg.

"Never attribute to malice that which is adequately explained by stupidity"

What is 410 words and is released precisely 180 seconds after the FOMC's minutes? Why Jon Hilsenrath's FOMC minute-parsing piece of course. Which we can only assume means Jon was on the "preapproved" list for early distribution and pre-analysis, because not even we can analyze and type that fast. We are confident he did not breach the embargo. Because that would not look good for the Fed already being investigated by the Inspector General for last month's humilating breach.

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