The newsletter gurus are now going at it all out, and the bone of contention is, not surprisingly, gold. "With fiat money in retreat all over the world -- and currencies devaluing against each other, the world's peoples will turn to the only money they can trust -- gold. I'm aware that Prechter believes gold will be heading down in a deflation, I disagree. I was there during the Great Depression, and I can tell you nobody at that time had dollars. But if you did have dollars they were trusted and they were considered as good as gold. Today, it's different. The very validity of the dollar is in question."

• U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff (Bloomberg)

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run. This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance. Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue. My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

• So much for that whole "austerity" thing: Zapatero considers easing austerity (FT):
  so let's recap - fake financial stability, fake austerity, fake bond
  auction results, fake (and delayed) accounting standards (Basel III) - Europe sure has gotten the hang of Keynesianism
• Is tide turning for realizing CMBS losses? MBIA Says It Will Have C.M.B.S. Losses (NYT)
• Bank of England warns UK recovery will be weaker than hoped (Telegraph); Bank of England Cuts Growth Outlook, Sees Inflation Undershoot (Bloomberg)
• The latest bailout for public unions and spendthrift states (WSJ)
• China Output Growth Weakens; Inflation Accelerates (Bloomberg)
• Unemployment Drives More US Home Sellers to Cut Price (Reuters)

The Mortgage Bankers Association released its weekly numbers and the Market Composite Index, a measure of mortgage loan application volume, was up 0.6% from a week before. Yet despite mortgage rates hitting all time record lows, this number was a reduction from the previous mortgage application change of +1.3%. As the press release announced: "The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.57 percent from 4.60 percent, with points decreasing to 0.89 from 0.93 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey. The effective rate also decreased from last week." In other words, the Fed's ongoing push to lower the 10 Year rate, and this the 30 Year fixed cash mortgage, will be an abysmal failure as we have reached the point where no matter what the actual rate on the mortgage is, marginal refinancing activity is now nearly flat, and soon likely to actually be negative. The Fed has fired its last bullet in an attempt to stimulate home price appreciation and failed.

Goldman's European strategist, Francesco Garzarelli explains how he interprets the market impact from the Fed's QE lite announcement: First "the Fed’s actions will act to push real rates out to 5-yrs deeper in negative territory (currently -8bp). We forecast that nominal 5-yr yields could reach 1%. Factoring in positive foreign macro influences, and accounting for an already very depressed bond premium, we believe 10-yr government yields could rally to 2.5%, but are unlikely to break below this level on a sustained basis." Second:" we remain of the view that the pro-active stance of policymaking, in the US and overseas (see Monday’s note on China by Yu Song and Helen Qiao), should continue to support moderate returns on risky assets, as cash balances become increasingly expensive to hold, and cyclical volatility declines." In other words, buy stocks. It's good to see the leopard never really does change its spots.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 11/08/10

Bloomberg has created a useful 2-dimensional chart, summarizing on one axis which states have the worst unemployment (Nevada, Michigan and Cali are at the top), but more importantly, which states actually are losing and creating jobs - not too surprisingly, Nevada is the worst in both categories. Also, not too surprisingly, North Dakota, which has about exactly zero TBTF bank branches, is the state with the lowest unemployment, and one of the highest rates of job creation. South Dakota and Nebraska also seem to have avoided the probing tentacles of Wall Street's innovative money machine.The Las Vegas strip, where Deutsche Bank is opening the first hotel with actual functional balconies on it (presumably to facilitate terminal bailouts.. or just bails), was not so lucky.

The reason they call black swans just that is because they are unpredictable. A US bond auction failure is not a black swan as everyone talks about it; the bankruptcy of Europe, Japan, the UK and the US is not a black swan as it is inevitable; that futures will somehow turn green overnight even as they are solidly in the red currently is not a black swan: it is merely a few frontrunning algos working in tandem. However, a rerun of Chernobyl would be considered a pure, unadulterated black swan. Which is why we are following the situation at the PPL Susquehanna Nuclear Power Plant near Berwick where as WNEP 16 reports, "crews are are still trying to stop a freon leak in the unit one reactor
building. PPL officials said freon gas is leaking from an important equipment
cooling system inside unit one's reactor building. Workers were forced
to evacuate the area." Of course, local residents in the Wilkes-Barre region have not been told to evacuate: can't have something like panic now, can we - wouldn't be too beneficial for stocks, which as Greenspan said two weeks ago, are the only thing, not unemployment, not inflation, that matters to the Fed.