This page has been archived and commenting is disabled.
It Ain't Priced In
A Thought on China
I had an e-mail exchange with an old fried who now works for a large macro hedge fund up in Greenwich. The broad topic was the very long list of signs that the global economy is hitting the skids. He had this to say:
…certainly does not point to robust job growth…manufacturing activity globally really falling sharply..think weakness in Europe spilling over to those who export to the region..retail sales in Europe plunging…China growth may now be down to 3% in our view…U.S. q2 may be sub 1.5%..Europe- contraction…Brazil sub 3%...Australia slowing sharply...
I almost fell of the chair reading this. Say this group is right about China. What does it mean if its growth rate falls to 3%? A very hard landing for all manner of things, is the answer.
There have been many China bears the past year or so, but against these bearish views there has been a widespread belief that China will muddle through. My point is that China GDP = 3% is absolutely not priced into today’s market.
+++
On the Swiss Franc
.
.
Swiss reserves jumped an incredible CHF 59B ($61B) in June. The only question in my mind is, “How long can this last?” Switzerland can’t increase reserves on an unlimited basis; they can’t absorb Euro60B a month.
The current boss at the Swiss National Bank (SNB), Thomas Jordan is responsible for the Peg policy that is behind the unwanted reserve creation. It’s important to remember that Jordon is relatively new to the job. He stumbled into the hot seat when the former head of the SNB, Philippe Hildebrand’s wife got nailed trading currency when she shouldn’t have been.
Jordan is a well-educated technocrat who is also an old hand at the SNB. He inherited the currency peg policy from Hildebrand, but history will mark his name in the books if the policy fails. I’m sure that Jordon is aware of this. What’s his state of mind?
Jordan doesn't have the full support of the government behind him. The same domestic politics that successfully dumped Hildebrand are working against Jordon.
If Switzerland is to maintain the current 1.2000 peg to the Euro, there has to be something more in the offing. The endless intervention is not going to work. The FX market is much bigger than the capacity of the SNB. The only option left for Jordon is exchange controls and a complete shutdown of the Swiss border. Jordon has hinted that these steps are coming on several occasion in the past month.
When Switzerland adopts exchange controls, the rest of Europe will soon follow. What will be the global market response from these measures? It will scare the crap out of capital. I think exchange controls will bring a panic; there is no safe place to hide in a panic. The possibility of this happening is not in the price of assets today.
+++
On FX
I jumped on the short EURUSD ship last Friday (link). A gain of nearly four big figures in a week would normally have me taking the quick leveraged profits. Actually, I doubled down.
To my old eyes there was something different in the Euro trading on the week. What was missing was a “bid”.
The relative stability of the FX market (particularly the EURUSD) has been a mystery for me the past year or so. It’s as if there has been an invisible hand in the market, quietly intervening at critical times. This type of “official guidance” would explain the range trading and low volatility. I have given credit to the BIS for this activity in the past, although there is no confirmation of that.
Last week the FX market appeared to be missing that support (from whomever). We raced down from Monday through Friday, and ending up at the lows of the year. To me, it looks like a run to 1.200 is in the cards.
The question is, "What happens when that magic number is achieved"? There is very little technical support under EURUSD 1.200. It looks like it is all “air” below that level:
.
.
While the idea of the EURUSD at parity is not news to my readers, I don’t think this possibility is in the "mind" of the market today. A big down move EURUSD move would crush the S&P.
+++
.
More EU Lies
.
Last Sunday there was some euphoria in the markets and press over the EU Summit. The source of that optimism was an agreement to recapitalize Spanish banks in a fashion that did not add to the debt burden of Spain. The deep thinkers in Brussels lead us to believe that the money for Spain’s banks was coming from the ESM or EFSF. That there would be a “true” transfer of risk out of the country.
Unfortunately, those technocrats lied to us a week ago. Seven days later we find that there is no transfer of risk at all.
.
.
Not only will Spain be on the hook for any investments made in Spanish banks by either the EFSF or ESM (via a state guarantee), but the actual guarantee has been structured such that the liability will not be recorded on Spain’s books as a debt.
The question of whether the Spanish bank bailout subordinates existing bond holders has now been answered. The bondholder are sitting in the back of the bus. And they wont like being there.
Do those technocrats think the markets are stupid, and won't notice this sham?
As it turns out, the much-touted Spanish bailout is more of the same crap we have been seeing from the EU leaders for the past two years. They are unable to realize a loss, their only response is to kick the same can a bit father down the road. I’m surprised that the change in terms for Spain's bank bailout has not gotten more attention in the press this weekend. I think it will be a topic of conversation next week.
If I’m right, the Europe story goes to Red Alert status for the balance of the month. Once again, I don’t think this is “priced in”.
.
»
- advertisements -
Well, not zero, but way down.
This would hit the US multinationals hard. That is the reason I think S&P would tank. It's about earnings, it always has been.
Bruce regarding earnings it seems the trend for the past 2 years is for a company to pre warn and revise down guidance a month before earnings. The stock gets smacked, slowly recovers and then pops when they "beat" the long forgotten revised down earnings. To paraphrase Laws of physics, we will "beat expextations the whole way down".
And the price of gold? Up as a safe haven or down because it is priced in (stronger) dollars?
I just don't know about gold these days.
Gold has been moving with what I call the "Deflation Trade". It has not been acting as if it is a safe haven.
What I see coming is deflation. So that would mean gold would move down. But that doesn't sit well with me, as I see gold as a store of wealth in troubled times?
Which is it? A commodity like copper? Or is it a store of wealth?
We may find out before this heat wave is over.....
Bruce, I agree with your questions on gold, but one more question please.
To what extent does the paper gold price manipulation matter to the price of gold? My conclusion is that if it IS going on - RE; (London, CME, GLD, gold stock naked shorting, etc.,) then we do not have true price discovery. If it is NOT going on, then gold may not be the safe haven we all think it is.
I think all markets are manipulated.
Gold is a classic case. What would happen if it went up $200 in a week?
They would raise margin requirements to cool the price action. When you change the rules in the middle of the game, price discovery is hard to achieve.
The SNB has intervened for the equivalent of USD 100B in the past few months. Switzerland is a small country with a GDP of ~$500B. If the US Fed intervened by that amount, it would come to $3T (20% of GDP).
The Fed intervenes in the bond market to the tune of $50b a month.
I could go on and on with how each market is manipulated by one player or the other. I can't come up with a market that is not manipulated???
you are giving goose pimples to the Ayn Randians! When oh when de we lose that seamless, bog-downless, up in the air, auto regulating, perfectly micro seismically aware, always reactively atuned, Apache intuitive, FREE MARKET!??
Pax Americana's legacy to free world all tainted with Hiroshima magic powder as sequel to Ricardo and Adam Smith.
When did the creatures from Jekyll Island , the kings of big Oil, of Big Car and Big Everything not have their way in that austere haven of steel and concrete called WS?
Could it be even for a moment, that forever characterised unamerican trait and thus unutterable blasphemy; like the shadow of the elusive Loch Ness for rule Britannia's Dr Watson days, like the desert mirage for Foreign Legion's swan song of Beau Geste cavalcade; a thing of the imagination?
Invented by a guy who wore grey flannels and looked like a latter day Galileo running a perpetual machine all on his own that blew green backed bubbles up in the air; called John Galt.
He could have mistaken salt for black pepper! Pure scottish malt for bourbon!
A country where Oligarchs make and break the market for the land of middle kingdom hobbits.
What a moronic mish-mash of meaningless mixed metaphors!
Is that generated by software? ... or are your thought processes really that confused?
I have Falek pegged is some wealthy Venetian living in a hereditary palace bearing his family's coat of arms going back to the early Renaissance. He loves the history that issues from that specific latitude (and nothing further north) the way some people love music as long as it was written no later than the the 15th century.
in fact writing about the renaissance and its largely in Italy; you got that right! But it visits Constantinople and goes all the way to Madrid. I'll have to write more contemporary novels to brush up my knowledge of Jekyll Island legacy and the center of Londonista Shroud land.
it must be the chardonnay!
Seriously if I was Captain Sparrow I wouldn't have seen a free market if I'd sailed the Oceans for a half century. Now do you believe me?
Galt, salt and Old Long John Silver aside.
Dude, when you skip the mangled metaphors, you make sense. You're not stupid, so put away the software. ;)
BTW, Hong Kong was [almost] an entirely free market. The only things the government managed were the roads and hospitals - both of which were in an abyssmal state! - while everything else was privatised, competitive, untaxed, efficient, modern ... and cheap. It's still a pretty damned good place to live and work, even with the heavy breath of the Peking Politburo floating over it.
You seem to forget the bigger picture. Hong Kong was part of the British Empire then, hardly a open society and free market as it was an "empire". Then it became part of the US presence in Far East and saw the rise of US taking over the Britsh Raj in the cold war days until the post 1972 handshake, and the subsequent Chinese integration of NWO and outsourcing when it became a true go between between China and US financial globalisation. I am not saying that these islands of entrepreneurship do not exist. What I am saying is that they are buffer zones between empires; the exception that makes the rule. An empire has to coexist with other empires by having a buffer zone; HK, Singapore, Dubai, Monaco. Always have existed. The buffer free market is not the expression of the prevalent trend but of the fault-line between two tectonic plates; like the Andreas fault. Do you really believe that HK is the example of US continental model or of Chinese continental model. I think not. No more than Tahiti is model of french dominions and political zones of influence outside europe.
It is you who is forgetting the "bigger picture"! Having lived in two of those places, and spent time in the other two, I can tell you what the differnces are and I can tell you that you are making shit up! A shallow reading of history looking for connections that don't exist misses the underlying principles.
Hong Kong was (and in many ways, still is) a free market, irrespective of the "nominal" ownership or other reasons for allowing it to be a free market.
Once again, the oligarchs show the way to the alert who see through their "do as I say, not as I do" tactics!
They operate their drug, arms and human trafficking operations totally outside the law and the justice system, using only arbitration and ostracism to settle their own disputes, while brainwashing the sheep into believing in "the rule of law" and "the protection of the police" in order to build pervasive and stifling control systems.
So, too, do they brainwash the sheep into demanding all kinds of government ownership and regulatory control over every aspect of business and personal lives -- while in their own playgrounds there are no such restrictions on competition or other activities!
BTW, Hong Kong is neither Singapore, nor Dubai, nor Monaco (where there is stifling government control and/or a very small population).
I think by your own reasoning you have just destroyed your own case; HK is no free market its an oligarchy haven. Period.
Judging by last week, up for about 10 mins on "whoopee, NOW we're going to get QE" & then mysteriously down by enough to close convincingly -ve :D
My crystal ball says you should trade all loose FRNs for PMs by Labor Day; when the Euro goes, the DICK-tator-in-chief will declare martial law and suspend all future elections.
not a far fetched as you may think, I give it 70/30 probability
Awful lot of Mormons in the CIA, NSA and military. He'll be heading back to Kenya real quick if he tries.
they are thee to ensure that marshall law gets carried out. isn't that obvious? it won't matter if obomber or romney is president, they will do what they are told. they are conditioned to do so.
This is not the sense I get from my limited conversations with people in intelligence and military positions. Obama's support goes only as far as 'I have to obey him because it's my duty' but they still know their duty is to the constitution. He might be able to get the generals to agree to things but will the Lt.s and Cpt.s follow? My sense is not. Moot point because it won't happen anyway.
It's always the Colonels in the west. Africa, Cpts, Lts, even Sgts. The west? Colonels. The highest rank that still has contact with the troops and can get personal loyalty.
Field grade officers start at ""bird" or full Colonels. So Lt. Colonel is still not a field grade rank--it is the breaking point. Milestones
One of the great unknown questions since the Republic was founded.
RE: The military oath of office. Will the military obey the officers appointed over them or their allegiance to the Constitution. This was tested one other time only. Look to the Civil War as a guide.
Police and Federal agents on the other hand have sworn allegiance to the administrative power over them. They will not have any Constitutional issues to deal with.
...........just ain't true....The oath is to the Constitution skippy...I have sworn the oath 4 times....and that is where my loyalty is ------only to the constitution and the people, not the idiots in Gov't
Actually post summit clarification also said that no seniority would apply only loans transferred from EFSF to ESM. So loans made for ESM are senior. Those fukin liars mislead public on that too. Where are useless journalists to expose that? Nowhere. Busy gorging on handout stake dinner. They are sellout fukers.
And just what did you expect? Worldwide technocrats and politicians are OWNED by the banks just like the media. Whatever it takes, taxpayers everywhere are going to pay for banker mistakes until the whole thing collapses or we can find a way to get leaders in office who aren't.
Whatever Bruce. I respect you and consider you to be one of 'the good guys'. Deal is we just don't know what the details of this plan are. It's reekingly obvious that this shit is being manipulated and your B.I.S reference is cute:)
Maybe they let Europe crash and the USD be king just long enough to help insure that Bammy gets his destiny? Could be.
Talk about FX is fun though huh?
Have fun will you still can Bro' cause when it's all fixed against SDR trading isn't going to happen.
You can see that right?
Bruce,
All of the above are valid points. China is going to "auger in", the Swiss have already closed the border according to some reports, the EU politicians are full of shit ... but the euro valuation tipping point is when the "herd" wakes up to the key tipping point question:
"Where will money for the EU nations and banks come from IF and/or AFTER they get to pick Germany's wealth clean down to the bone?"
There is nowhere near enough capital left in all of Europe to cover the losses.
barliman
If I were Jordan, I would just use the influx into the SF to buy gold. If the price of gold drops, tough shit, he attains a depreciated currency. If it rises, he's hedged against increased valuation while he's getting rid of Swissies. Case closed, shut the window at 4, roll a big one, crack a beer, put your feet up and watch the game what's-for-dinner-honey. People make too much out of all this...
Serfs Up America!
Jordan would never do this. But there many others in Switzerland who advocate exactly as you suggest. Buy gold with the "unwanted" reserves.
The problem is that the SNB sold 1/3 of Switzerlands gold at $400/oz. That sale was done by the SNB. Stupidist thing they could have done. But they can't now turn around and buy it back at 1600. It would make them look too stupid. So it won't happen.
In addition to the issue of saving face, there is another interesting factor: the SNB is essentially printing in order to buy Euros. That printing has little effect while the Euros are on the SNB books, but they become relevant once they are spent. For example, if they go into gold, the price of gold will rise ( if someone can estimate how much, I would be interested to hear).
It would also be interesting to look at the Euro purchases purely as monetization and calculate a monetization rate relative to GDP.
The Swiss could offer - 3% interest on foreign deposits, with a rising scale, say - 10% on deposits over $1 billion.
I know it's absurd, but aren't we currently living in Absurdland ?
Nonetheless, the Swiss still have the most attractive cows on the planet. Better cowbell than "Honkeytonk Woman"
I see your "Honkeytonk Woman" and raise you a "We're an American Band".
Too stupid? Are you serious?
Would YOU not make a killer trade because "someone" else would say/think you are stupid? Hell no! Who gives a shit?
SNB is "priniting" at no cost...therefore the gold is essentially free. Swiss bonds are negative, thus their debt is being repaid for free.
Seriously, if you cannot see the REAL reason why SNB isn't buying, you should refrain from claimig to be an analyst.
OK...I'll bite. So...what exactly is the REAL reason the SNB isn't buying gold?
SNB selled gold in order to enter in the FMI.
Amerika and the international elite is forbidding the Swiss to buy gold.
They agree in exchange of having a seat at the dinner.
"I would just use the influx into the SF to buy gold"
I don't think you quite understand how FX markets work. Accepting an inflow of $60 billion/mo into the swissie only makes the currency stronger. Converting that inflow into gold would make the CHF stronger yet. In fact, it would make it impossible to maintain the EUR/CHF peg. The Swiss National Bank has been "getting rid of swissies" for several years, to absolutely no effect, except for massive billions in losses to the SNB on their crumbling euro position. Meanwhile, the Swiss (export-based) economy is stumbling under the weight of a cripplingly-strong CHF.
Aren't markets supposed to be dull in the summer? Next week may actually be *Interesting*.
(Insert famous Chinese curse here.)
Spanish 10yr bond yields are soaring; the last two trading days have seen the yields hit the magical 7%. Again. If {a big if} they continue on this trajectory and it hits 8%, Spain will be toast and another bailout will have to be arranged. They will not be able to blow hot air this time. I give it by the end of this month. At the end of it all, I believe Bernanke will have to step in via the IMF. It will sink Obama, who will have to explain to our people why he's bailing out Spain and not California.
CA will get their bailout as well. The Obama-Bernanke super duper mega re-election refinance plan that will bail out all the underwater mortgage debtors in the US. The sheeple will be so jubilant that no one will notice the bailout of the EZ at the same time.
Obama (and Bernanke) saved you fools from your buddy George Bush and his borrow and spend binge with unpaid for drugs for seniors and two wars on the credit card along with no supervision of the banksters and real estate crooks. Sure Clinton got rid of Glass Stegal but the trade-off was supervision and it did not happen under Bush/Cheney/Greenspan. Of course all this started with Reagan and his huge budge deficits to pay for a mega arms buildup while cutting taxes in a way that Eisenhower would have considered criminal. David Stockman can tell you all about that. He can also tell you all about the crony deals done to benefit the Bush/Cheney family friends in the arms and oil business.
Every study shows we are better off economically under Democratic Presidents but you loons still vote for the Republican bozos who don't understand economics or understand how to cheat the "free enterprise" system which they hate because they hate meritocracy and are the masters of "crony capitalism". I will take plenty of criticism of the Democrats ref Public Labor Unions and crooked public works projects but at least most of the time they tax us to pay for their baloney. The Republicans just borrow and cut taxes. Clinton left us with surpluses as far as the eye could see and that loser business failure dady/Rainwater supported Bush squandered it all like he did all that Saudi Bin Laden money that paid for his playing at being an oil man (that of course is why he got the Bin Ladens out of the country and never took out Osama).
Obama did take out Osama and inherited a once in a century meltdown and kept us afloat in the teeth of Republican obstruction. 8.2 % unemployment is not good but its a whole lot better than 10 or 11% or higher which is what the Bush screw ups gave us. Without the balance sheets expansions and the deficit financing we would have 25% core unemployment, especilly since the Republicans refuse to allow the rich to be taxed even though they have taken home the lions share of all income and wealth generated in the last 20 years while for the most part skimming it by financial manipulaton rather than truly earning it.
I know a lot of those turkeys because I grew up with them and I am a member of the privileged patrician class. Most of them are cheats and crooks to the core who feel entitled and don't give a f.... about ordinary Americans. In fact they feel they have a hereditary right to live better for the next upteenth generations. Go figure. In my view they are the true traitors in this country since they troll for wealth around the world and outsource American jobs whenever they can to stay on top. Then they scream when a Berni Madoff fleeces them by offering them new ways to cheat the system that are too good to be true and expect the feds to bail them out.
I know how they use corporate transfer pricing to avoid paying taxes and stash cash in offshore accounts and purchase politicians to write loopholes to contribute nothing to the general well being. I know how they use asset stripping to hollow out viable companis and pretend they are business builders. Romney is a prime example. He never came across a struggling company he did not figure out how screw out of their cashflow like Gordon Geko. He never created a product or a valuable service that would benefit ordinary people and now he is helping his sons to do the same. HIs father George would be horrified. Sure the Democrats help the Unions but its small potatoes compared to these guys.
What I fault Obama for is he has not prosecuted the banksters and other corporate crooks on a scale needed because he is trying to be a moderate. He did not fight for a single payer healthcare sysem because he deludes himself that healthcare can use market forces to bring down costs. No chance. His plan, Romney's plan and Ryans plan are ridled with corrupt crony protections for healthcare oligopolies and yes I know all about that too since I played in that space for awhile in my career. You ain't seen nothing until you observe health insurance companies, pharmaceutical companies and crooked medical supply companies and Medicare mills with crooked doctors and their business handlers rip off schemes. They are epic.
You gonna cut 'n paste this bullshit post on every thread here? Who wrote it for you? I only ask because if you believe this drivel, you're too fucking stupid to have come up with it yourself.
Amen brother
I don't like Bush but you are a serious Kool Aid drinker...Bush's largest deficit was $485 Billion, add in the war and it was $585 Billion...Obummer's deficits are north of of $ 1 Trillion...way North....and this inherited crap is , just that, CRAP. Obummer and Harry Reid owned the Senate and Nancy Pelosi & Anthony Weiner owned the House starting in 2007. The House, ghenny is where all budgets start and they must be approved by the Senate before being signed into law by the Prez....So Obummer, Reid, & Pelosi voted for the budgets and the bailouts that the Obummer would later "inherit"....As to the unfunded Medicare Rx, yea that was a huge mistake, though the competing Dem plan was even larger. ObamneyCare adds Trillions to the debt over the next decade while holding down hiring. We are truly screwed.
Obummer courts Wall St money more heavily than any president before him. He has held more fundraisers than Bush Sr, Clinton and Bush Jr combined. How many $40,000.00 a plate dinners has Obummer had this year???? There are a lot of very very wealthy people contributing to the Obummer, why is that??? Is it so they won't be prosecuted????
So for once in your adult life face facts, Bush = Bad, Obama = Worse.....All the while the Nobel Peace Prize winner is killing more people in more countries with Hellfire missles than the shrub ever thought of.....BTW, where are all the anti-war protestors today????? Hypocrite Adam Henry's
Forget the red/blue, Republican/Democratic artificially contrived divide. Whikle they keep everyone preoccupied with (ultimately) meaningless 'social' issues - God, gays and guns - BOTH parties represent their largest contributors. Our 'reperesentatives' are bought and paid for. The existing political system serves their corporate and billionaire overlords.
The same people were left running the wars and running the financial system when we changed from Bush to Obama...... doesn't matter who is in the White House. You can't have rREAL change in the existing two party system and any atttempt to provide a viable thrid choice will be squashed. Maybe Perot wasn't so paranoid in claiming his family was threatened...... and how bad are things when the ONLY way to get a third choice is having a meglomaniac billionaore running on his own money......
I dunno...I kind of liked Ross Perot...had we listened to him then we would be a lot better off today.....
+55
The 3 billion Federal dollars Moonbeam is getting for the monorail is just a re-elect Choomboy slush fund.
Just like the old days
http://www.youtube.com/watch?v=ywYWxrf5zNo&feature=related