Following our observations last night that there was an $88 billion swing in the weekly "other" deposit account with the Fed, some have quickly come to the fore to "debunk" our observation that this is a rather curious swing in total notional, by claiming that this can easily be explained away using cash demands at the GSE level. There are two problems with this "explanation" - i) it does not actually explain the swing, and ii) it is incomplete. As noted previously, Fannie tapped the Treasury for $7.8 billion in Q3, while the quarterly Freddie Mac injection amounted to $6.0 billion. In other words the combined $13.8 billion cash draw need (assuming a deferral to the funds flow) would almost explain the $88 billion weekly shift... if only it weren't for the other $74.2 billion, which not even fully unmatched (i.e., assuming no new issuance) weekly debt maturity and interest repayment comes close to filling the gap. Furthermore, the "Other" cumulative delta for November and the YTD period is $61.5 billion and $115 billion, respectively, which is nowhere near close to explaining the total funding needs of these entities. What may explain the delta, and what these "debunkers" have missed is the full definition of the "Deposits with Federal Reserve Banks, other than Reserve Balances: Other (WOTHLB)" from the St Louis Fed which is as follows: "Other deposits at Federal Reserve Banks include balances of international and multilateral organizations with accounts at FRBNY, such as the International Monetary Fund, United Nations, International Bank for Reconstruction and Development (World Bank); the special checking account of the ESF (where deposits from monetizing SDRs would be placed); and balances of a few U.S. government agencies, such as the Fannie Mae and Freddie Mac." In other words, the GSEs may well be a part of last week's cash outflow package, but they certainly are not the full story, and other entities such as the IMF, the UN, the World Bank and the legendary in some circles ESF are all part of the "other" reserve "use of funds" destination. In other words, someone (presumably someone with some urgent window dressing needs), and it sure wasn't only (if at all) the GSEs, had a massive capital shortfall and had to resort to Fed deposits. And by the looks of things, these could have easily been "international" entities tasked with bailing out the world such as the IMF.
Risk markets are losing their patience. The Eurozone situation is approaching a major climax. This is by far the most important story to follow in the coming days and weeks. U.S. Economic data has been quite encouraging and the economy remains muddling along. If Europe took care of business quickly, global stock markets would rally sharply. The S&P 500 could possibly make a run at the bull market highs. Unfortunately, there is a major ongoing political crisis in the region. There are 3 options. Still, a Eurozone blowup would undoubtably sink the U.S. recovery. The ball's in Europe's court and they need to take action. If they act now, it may still be on time to avert a Chinese hard-landing. The bulls would end up as winners and risk assets would make a comeback. It has really all come down to this binary variable in the short-term. Government officials wanted Globalization, well they've got it.
The more unequal countries are doing worse on all these kinds of social problems. It's an extraordinarily close correlation.
The political pressure on the ECB (and implicitly the Bundesbank's oh-so-stubbornly sensible and correct bankers) to just-print-baby-print is growing by the hour (or down-tick in BTPs and OATs). The cacophony of long-only strategists, Keynesian central bankers, and desperate (under speculative attack) politicians has perhaps reached a crescendo as it appears (from a Reuters article) that the ECB has found a workaround. By lending to the IMF, who are able to do pretty much whatever they want with regard to on-lending and primary issuance support, the ECB denizens can maintain their tough no nonsense anti-monetization stance while providing a leveragable IMF with more support for whatever leveraged buying they deem necessary (cough France Italy Spain cough). And all this as the IMF scrambles to replace its European Director - what could possibly go wrong?
It's not just uninformed people who want to end the Fed.
As the U.S.-led Afghan campaign lurches into its second decade, the country’s vast untapped mineralogical resources are again emerging in the Western media, seemingly underpinning the benefits of International Security Assistance Force troops “staying the course” and defeating the insurgency, after which these resources can be tapped, both providing the administration of Afghan President Hamid Karzai with a source beyond drugs for reconstruction and Western companies who develop the reserves a handsome profit. The latest discovery is that Afghanistan is rich in rare earth elements (RREs). China currently has a near monopoly on the global production of RREs, and the price for a ton of unprocessed ore has soared to a dizzying $100,000 a ton. So, what’s wrong with this picture?
Retails Sales Beat Expectations On Levered Car And Gas Sales, As Inflation Picks Up Again In Import PricesSubmitted by Tyler Durden on 10/14/2011 08:49 -0400
There is good and bad news in today's economic data release: on one hand retail sales in September beat expectations at 1.1%, on expectations of 0.7%, and up from an upward revised 0.3% in August. Retail sales less autos was a modest beat at 0.6% on expectations of 0.3%, although the previous number was revised substantially higher from 0.1% to 0.5%. Yet confirming that the bulk of the "beat" was in auto and associated gas sales, was that Retail Sales ex Autos and Gas (duh) came at 0.5% on expectations of 0.4%. Basically, surging subprime loans to autopurchasers and the resulting increase in gasoline sales was the reason for this "surprise" beat. And as for the bad news, import prices jumped to 0.3% in September, on expectations of -0.4%, a surge from August's revised -0.2%. And while fuel imports had dropped in August -1.4%, in September these jumped to a positive 0.1%, showing just how big the monthly sensitivity to any moves in the energy complex are. In other words, should inflation persist, don't expect for retail sales, which we expect to decline to recent deleveraging at the consumer level, to persist.
No ... Only True Public Servants
William Banzai ... for the win.
Sophisticated Ignorance Or Just A Very, Very Short Term Memory? Foolish Talk of German Bailouts Once AgainSubmitted by Reggie Middleton on 09/29/2011 08:43 -0400
If I were able to show in this article that it really ISN'T different this time, would it change any decision maker's path or actions? We all know the answer to that question. Time to get those outlier event short positions ready, it's going to be a rough ride!!! A complete recap of recent events...
And 9:55 am update in which Mantega responds to Valor (and ZH):
- MANTEGA SAYS BRAZIL ISN'T PREPARING ANY MEASURE
So far the only strategic use of "unnamed government officials" has been to leak rumors, whose sole purpose is to test the market's short covering squeeze potential and to discover just how long the half-life of one after another ever more incredulous rumor is. And since the only thing to come out of Europe in the past month in terms of problem resolution (no really: there has not been one policy that has been enacted since the July 21 Greek bailout), this is a useful strategy. Alas, as Europe is about to find out, this works both ways, because as Brazilian financial site Valor Economic reports, none other than perpetual optimist Brazil, the same country that is supposedly according to one set of rumors preparing to bail out all of Europe, with or without the rest of the BRICs, is now preparing for a Greek default within the week. From Valor: "Something must happen. Greece is a few days [from bankruptcy]" said a high official source.