"We are all FX traders these days" - that is what we said yesterday, and unfortunately courtesy of record risk correlations to the EURUSD persisting, this is what will likely be the case until the end of the year and into 2012. As such, fundamentals go out of the window, and the only thing that matters is beta and the various FX pairs, with the EURUSD by far the most critical. Which brings us to what Goldman believes will be the key highlights in FX trading until the end of the year in 9 convenient bullets. As a word of caution: few have ever made money being across the table from Goldman; usually it is much wiser to be axed the same way Goldman's flow desk is position, i.e., doing the opposite of what the firm advises its clients.
Whatever the European experiment once was, it has morphed almost beyond recognition. The policy responses have made the problem worse, not better, and it is becoming more complex. The contagion is spreading because every policy is linking the countries more closely, not in a controlled and thoughtful way but in a haphazard poorly thought out way. Making things more complex primarily in reaction to previous moves with limited understanding of what you are getting into is a recipe for disaster, and Europe has followed this policy for years now, it is a shame they don't see it before it is too late to fix.
- ECB as Last-Resort Lender Will End Crisis: Silva (Bloomberg) just don't tell the ECB that
- Crude Futures Head for Longest Run of Weekly Gains in New York Since 2009 (Bloomberg) - QE X coming
- China central bank to legalise part of private loans (Reuters)
- Bini Smaghi’s Resignation From ECB Opens Board Seat for France (Bloomberg)
- Goldman Sachs in China: Best Investment Ever? (WSJ)
- Europe Rebuked Over Crisis by Asia-Pacific Nations Seeing Expansion Weaken (Bloomberg)
- China ‘Big Four’ Banks Lent CNY240 Bln Loans In Oct (MNI)
- Progress Amid the US Deficit-Cut Noise (Reuters)
Every day we are blugeoned with a variety of economic reports from various government agencies about the state of the economy. Most of these reports have some form or another of "seasonal adjustments", speculations, estimations or just flat out "guesses" about what is going on in the economy. What we tend to find out over time is that these numbers are generally overly optimistic during recessionary periods as we are in today. Today, we are going to look at three different polls from the Gallup organization on consumer spending, the economy and employment. The Gallup organization has studied human nature and behavior for more than 75 years and focus on what people "think and feel" about various issues. They employ many of the world's leading scientists in management, economics, psychology, and sociology, and other consultants to identify and monitor behavior. The key difference between Gallup and the various government agencies is that these polls are direct questionnaires to individuals and the responses are tallied and reported. There are no adjustments, assumptions, guesses, etc. In the famous words of Bill Clinton; "What is...is."
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 13:56 -0400
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.
While Europe stubbornly refuses to get off the pedestal of daily "risk On-Off" headline news disinformation, the time has come to shift our attention to the epic misnomer which is the US supercommittee, or the unelected sub-branch of the legislative body which is supposed to find $1.2 trillion in cuts to enact the debt ceiling hike that Obama passed in August so that America can spend itself into the drunken sailor coma. Incidentally, the country has already issued $700 billion in debt since then, and by the end of the week, total US debt will be just shy of $15.1 trillion. So at least the "benefit" of the debt ceiling, pardon, debt target hike has been implemented, if not any of the mandated budget cuts that are supposed to offset this. Unfortunately, they won't, because as the attached supercommittee trading cards created by JPM's Michael Cembalest demonstrate, as well as the associated Q&A from Goldman explaining all one needs to know about the supercommittee, hell has a better chance of freezing over than these 6 republicans and 6 democrats coming to some agreement.
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.
The answer to the question “How to Stop the Drop in Home Values” is not a matter of knee jerk reactions, more moral hazard, bad policy pushed through on a populist wind, or a problem you solve by principal reductions.
I know it's tough to think about anything but the fast-melting ice cream cone that is Europe, but there are some things you should know about China. All the reassurances you've been reading about China's "soft landing" and its "they know what they're doing" central government are probably false. Here's why: very little in China is as it seems on the surface, or as it's presented to the Big Noses (Westerners)... The only sources who actually know what's going on in China are in local government. Another fantasy Westerners lap up is that the central government actually knows what's going on, and even more laughable, knows how to "fix" everything. If you don't even know what's happening, how can you fix the problem? Westerners also don't understand "corruption." They think in terms of bribes that could be suppressed by some new rules. That is beyond laughable, for corruption isn't bribes, it's the warp and woof of how things work in China. They don't understand that pirated goods are crushed by bulldozers for a show of face; nothing changes behind the facade presented for show. There is a lot of anger and resentment in China, especially among young people. This will not go away because some new railway is built, or a new mall opens.
To put US household debt levels into a historical perspective, in order for US households to return to their long-term average for leverage ratios and their historic relationship to GDP growth we’d need to write off between $4-4.5 TRILLION in household debt (an amount equal to about 30% of total household debt outstanding).
Open Europe has today published a note on the dramatically evolving situation in Italy, with new estimates on how much the rising bond yields could cost the Italian government and an assessment of the current political situation.
- Berlusconi’s majority in the lower house of the Italian parliament remains uncertain;
- If Berlusconi falls, the best option for Italy and the eurozone would be a national unity government with a strong backing in Italian parliament;
- Italy could face an extra €28bn in interest payments over the next three years, potentially wiping out almost half of the projected €60bn budget savings by 2014;
- Italy needs widespread institutional as well as economic reforms if it is to return to economic growth.
This morning, Italian 10 year borrowing costs reached a record 6.74%, very close to the 7% threshold which financial markets see as broadly unsustainable (and which therefore often results in a self-fulfilling solvency crisis and possibly a bailout). Similar increases have been seen across the board for Italian debt of all maturities. Worryingly, short-term debt is becoming increasingly expensive (the yield curve is flattening) a sign that investors see increased risk in short-term lending (something seen in the other countries which accepted bailouts).
However, rumours of Berlusconi’s resignation triggered a rebound-effect on the stock markets yesterday. There should be no doubt that although Italy’s difficulties will not be resolved if Berlusconi goes, he is definitely a big part of the problem. So will Berlusconi resign, and what will it mean for Italy and the eurozone?
This is a tough market to trade in, and I don’t want to get chopped around or do any heavy lifting.
First there are the more legitimate skim sources - interest payments, management fees, IPO fees, M&A fees, trade commissions. Then there are the less legitimate bank sources: penalty credit card interest rates, late fees, usage fees, over-the-limit fees, late payment fees, bounced check fees, low balance fees. And the capital markets sources - front-running, insider trading, account churning, manipulation of the news cycle, the captive analyst "ratings game", trading against your own client's order book, forex trades which are marked at the day high or low irrespective of when the trade took place, market manipulations at options expiration, stuffing your managed client accounts full of dubious IPOs and new issues that your organization is earning fees from originating. Bucket shops and ponzi schemes take it even a step further - no actual financial activity takes place. Its simply robbery. And now we add the new stuff: credit default swaps without margin, fraudulent loan origination, sliced & diced mortgages, mark to myth accounting, foreclosure halts to avoid realizing losses, extend & pretend, quote stuffing, HFT trading activity that boils down to denial of service attacks on exchange computers causing delays in pricing information, highly complex derivatives sold to unsuspecting but optimistic public servants, too big to fail status providing cheap backup in the event of trouble, and increased organizational size that facilitate cartel-like control over government and regulators. But if that's not enough, there is the structure itself: they aren't doing this with saved capital, but rather with freshly printed and/or borrowed capital. Its all done with 12:1 leverage at a minimum... And if the bet goes bad, the Fed will ride to the rescue with low-cost money. But usually the bet goes well, because ordinarily the number of sources of fraud today is so HUGE, its practically impossible not to succeed.