Remember when the Chairman did a quick drive by with the much price in Operation Twist, and the market came, saw, and plunged? That was a week ago? Two? Well, as we have been predicting since December 2010, that was merely the appetizer, or as we phrased it the same as last year's July QE Lite to last year's August QE 2. Confirming both our speculation, and the realization that Bernanke knows only how to print more money and nothing else, were his first public remarks since the launch of Op. Twist, at a Cleveland Fed forum last night in which he said that "the central bank might need to ease monetary policy further if inflation or inflation expectations fall significantly... Bernanke indicated a willingness to push deeper into the realm of unconventional policy if economic growth remains anemic. ""If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation," Bernanke said. The comment was made in response to a question about a recent decline in market-based inflation expectations, which policymakers see as a good gauge of future inflation trends." And since the key "deflationary" metric that he looks at, as wrong as it may be, is the stock market, looks for stocks to resume trading with schizophrenic abandon, surging ever higher on increasingly bad economic data. Of which we will have a lot.
Here is Goldman's Dirk Schumacher chiming in with his views on the German EFSF vote expected in 50 minutes, although which is now likely to take place at noon central European due to lengthy monologues in the German parliament. "Bundestag to vote on EFSF expansion this morning. The vote will take place around 11:00 CET. After a test vote among coalition MPs it now seems that Chancellor Merkel can rely on a majority from within her own ranks. This would be an important signal, showing that Merkel indeed does have the necessary support for her course among coalition MPs....SPD fiscal expert Schneider demanded that finance minister Schäuble should "give account" in the Bundestag if the increased EFSF would still be insufficient in size. Schneider referred to the IMF's latest Financial Stability Report saying that EU banks would need €300 billion in additional capital due to the debt crisis. Note, however, that the IMF says that the calculations in the stability report are not a stress test but rather measure "spillovers" from peripheral countries to the EU banking system and that "determining capital needs would call for a fully fledged stress test". In fact, reading the stability report it is not clear to us how to interpret this €300 billion figure."
Today at 9:00 GMT, Germany is expected to vote on the EFSF in a much anticipated vote. Needless to say, while futures are slowly drifting higher on expectations of a favorable outcome, a negative vote will see the EUR plunge to parity with the USD and kill markets in minutes as it would mean that German politicians pick their careers over rescuing a failed monetary experiment and bailing out pathological big spenders and liars. As the BBC reports, "If more than 19 members of Mrs Merkel's coalition rebel against her, she will have to rely on the support of the centre-left opposition to pass the bill on new powers for the European Financial Stability Facility (EFSF)." And if she does that, we will have a rerun of Angela's ashes.
Citi's Economics team downgraded global growth expectations once again, expecting 3.0% this year (versus 4.0% last year) with more aggressive downgrades next year to only 2.9% (from 3.2% expectations last month and 3.7% two months ago). Growth revisions were downgraded for every major global economy as expectations move with Goldman's coincidentally-timed discussion of stagnation (also tonight) with advanced economies cut more than developed though Eastern Europe saw the most significant reductions. They note that 'the recent pace of GDP forecast downgrades is among the greatest of the last ten years' and extends the recent run of lower forecasts to four months-in-a-row. In a secondary note, Willem Buiter and team also pour cold water on market expectations for the EFSF pointing out, as we have done for a few weeks now at every suggestion, that all the different options have their shortcomings and are unlikely to be implemented quickly.
We have written extensively over the course of the last few weeks on the increasing rhetoric from Asia over currency fluctuations and furthermore how China was playing the US and Europe off against one another in a quasi-trade-war gambit. A flurry of headlines today/tonight via Bloomberg reminded us to revisit what is also a very worrying trend in Chinese CDS (and more broadly Asian sovereigns), as perhaps sophisticated investors look for the cheapest low cost long vol trades on a non-decoupled world devolving to its lowest common denominator. Between Carney's 'substantially undervalued Yuan' comments, record slides in Dim Sum Bonds, growing concerns over growth longevity, Japanese retail sales, Aussie home prices, Sony's troubles in currency-land, and Barclay's warning of a restart to the Yuan peg in the case of global recession - contagion and transmission channels appear alive and well in global trade.
As G-Pap goes from meeting to meeting with his hand held out making promises to asset strip and tax his country into oblivion, AP is reporting that Deputy PM Theodore Pangalos believes that the country's tax-ability is exhausted (and has exhausted for some time). It is truly astounding that this farce has gone on for so long even as it appears (from the riots/strikes/press) that everyone (serfs and lords alike now) sees through the plans.
The "BBC TV" trader, whose clip Zero Hedge first presented to the broader world and has since become an internet sensation with well over 1 million views, has just made the prime time TV circuit with a first stop on CNN. Here is some more of his story.
When one compiles the annals of the great deflationists of the early 21st century, they will be hard pressed to decide who is deserving of the title most ferocious deflationist in a runoff between David Rosenberg and Gary Schilling. And while David did not have much notable to say today, despite his daily release of interesting and insightful commentary from his perch atop Gluskin Sheff, Gary Schilling took advantage of the media vacuum to appear on Bloomberg TV and preach, what else, deflation. Among the topics touched upon were the #1 issue du jour - the Chinese hard landing, presented earlier here, and the resulting collapse in copper, on bond market volatility, on investing and speculation, and lastly on the S&P, which just like Rosenberg, he see as deserving of a 10x multiple applied to a soon to be revised S&P 500 EPS of 80 (do the math). All in all sensible stuff except for one thing: his statement "Inflating away is an excess supply world is almost impossible, even for the Fed" leaves a little to be desired. While he may be spot on, it does not mean the Fed will not try. And try it will: we expect rumblings for full blown LSAP to commence in a few days, and QE4 in which the Fed will pull a BOJ and buy ETFs, REITs (in addition to MBS and Agency bonds) early in 2012, after which it will be time to quietly depart from these continental US, or else load up on lead, spam and precious metals.
Morgan Stanley has released "A panorama of the European Debt system" - easily the most comprehensive summary analysis (in 83 pages) of the Eurozone. To wit from the authors: "In this primer, we have compiled the key background information and statistics relevant to the context in which the European debt markets operate, encompassing Europe’s Institutional Framework, the ECB and the banking system, as well as sovereign, corporate and household debt, both in aggregate and by country. The compilation reflects the most frequently asked questions our economics and strategy teams receive from clients globally." Anyone who has ever had questions or been generaly curious about the uber-dysfuctional European debt system, and that would be everyone, especially the ECB, must read this document, if nothing else for the plethora of pretty charts.
Update: the correct translation is that as of 5pm the debt has not been paid.
In this messed up post-Keynesian world which is so insolvent, it is virtually impossible to keep track of who is about to default, either technically, selectively, or really, who is already bankrupt, who is hyperinflating, and so forth. And while we all know that Europe and the US can at best hope to kick the can for a month at a time until finally they all have to face the truth, we are happy to bring to your attention the latest entrant to the technical default club: Ukraine, which will shortly join its former USSR satellite Belarus in the hyperinflation club. The fact is that the Ukraine is slowly imploding - the government had stopped Treasury payments for all budget expenses in an attempt to accumulate the cash needed to make a coupon payment on debt and which apparently investors are unwilling to roll. In all fairness, the news update indicates that the country just barely made the 5.3 billion hryvnia payment, but that may be it for now. What about the next one? Time to add some Ukraine CDS to that bankrupt sovereign basket, no matter how overflowing it may be at this point.
Diversion time. According to The Hill, in an elaborate sting/entrapment operation, the FBI arrested Rezwan Ferdaus for plotting to use drone airplanes loaded with C4 explosives and fly them into the Pentagon and Capitol. Ferdaus was made to believe he was working with members of al Qaeda, who were actually undercover agents. From The Hill: "According to the DOJ, Ferdaus aimed to create a devastating psychological impact with the attacks, saying at one point, “I just can't stop; there is no other choice for me." "Although Ferdaus was presented with multiple opportunities to back out of his plan, including, being told that his attack would likely kill women and children, the affidavit alleges that Ferdaus never wavered in his desire to carry out the attacks,” reads a DOJ press release." It is ironic how every time there is a major drop in the market or the president's rating reaches new lows we are reminded just how profoundly everyone overestimates their security, and supposedly liberty, in this (once) greatest country on earth.
The second sequential ban of short selling in Europe, which was supposed to expire at the end of the month, has just been extended. At this point we are certain Europe will not allow shorting of financial stocks. Ever. Or at least until the Eurozone implodes... Which will be far sooner than 'ever.'
- ITALY MARKET REGULATOR CONSOB EXTENDS SHORT-SELLING BAN - BBG
- SPAIN'S CNMV REGULATOR EXTENDS SHORT-SELLING BAN - BBG
Next to join the part: France. In other news, since the short sale ban was instituted, SocGen is down 18.5% and UniCredit is down 26.6%.
Around 11:15 this morning, I left my flat and headed towards the Cape Town Gold Coin Exchange to check out their kruggerrand prices today. (Note: They charge around 10% over spot, and buy coins for about 1% over spot. This is inclusive for all major coins that they carry. They have kruggerrands, eagles, and maple leaf coins in stock.) I was sitting at a red light not too far from the new football stadium they built for last year’s World Cup tournament, when suddenly all the traffic lights went out. I thought it was just a weird anomaly, so I proceeded cautiously. By the time I reached the coin shop, I realized that the whole city was without power. Again. Entire buildings had shut down, stores closed, and schools let out. It was a full-blown blackout… and it lasted for several hours. This sort of thing is not uncommon in South Africa. Politicians will tell you that electrical demand is outpacing supply because of the country’s rapidly growing economy. That’s one way to put it– lemons into lemonade.