Our guess is they were hoping for a little more than a 30pip lift out of the gate...Have no fear though...
*SCHAEUBLE SAYS HE'S `CONFIDENT' 'EURO CAN BE SAVED
*SCHAEUBLE SAYS EURO WILL BE `THE STABLE WORLD CURRENCY'
As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators... The American people are paying the price for allowing a few evil men to gain control of our government... We now unquestioningly accept being molested in airports. We shrug as our intelligence agencies eavesdrop on our telephone conversations and emails without the need for a court order. It is now taken for granted that we imprison people without charging them with a crime and assassinate suspected terrorists in foreign countries with predator drones. Invading countries and going to war no longer requires a declaration of war by Congress as required by the Constitution. The State grows ever more powerful.
$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 MonthsSubmitted by Tyler Durden on 11/26/2011 21:44 -0400
While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from the Welt am Sonntag notwithstanding, the Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest ever reported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world's financial institutions to the BIS for its semi-annual OTC derivatives report titled "OTC derivatives market activity in the first half of 2011." Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history. So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows. Because derivatives in addition to a core source of trading desk P&L courtesy of wide bid/ask spreads (there is a reason banks want to keep them OTC and thus off standardization and margin-destroying exchanges) are also terrific annuities for the status quo. Just ask Buffett why he sold a multi-billion index put on the US stock market. The answer is simple - if he ever has to make good on it, it is too late.
Steve Keen On Parasitic Bankers, Deluded Economists, and Why “We Are Already In The Second Great Depression”Submitted by Tyler Durden on 11/27/2011 13:20 -0400
Everything that 'deluded' orthodox economists have done so far has been designed to aid the creditors (who remain the problem) while Steve Keen, the most familiar face of the non-orthodox economists, sees the only solution to this crisis as aiding the debtors. His interview with BBC’s HardTalk this week covers a great deal of ground from modern debt jubilees (and how they should be structured), the Tea-Party and Occupy movements (and his growing fear of historically repeating the endgames of previous economic and social disenfranchisements), and the parasitic nature of our existing financial sector.
He is unequivocal on the outcome of the status quo, as he has been for many years, citing politicians as reactors not leaders with the view that the youth movements we are seeing will force change of leadership to enable non-orthodox solutions to our simple problem – too much private debt. “Write off the private debts, nationalize the banking system, and start all over again” is his starting point but his ideas on implementation warrant some attention as he attempts to promote creative instability and reduce the destructive instabilities of capitalism – recognizing that our world is not in equilibrium as every Keynesian economist would believe but inherently cyclical and unstable.
Just when Europe thought it would only have to worry about an Italian bailout, we get news that not only is Greece about to renegotiatie its entire debt haircut, but that Ireland suddenly finds itseld out of bailout cash. From the Independent: "As EU leaders dither, the European Financial Stability Facility (EFSF) -- the limp pan-euro bailout fund -- may struggle to raise enough money to fund the payments to Ireland agreed under the €67bn IMF/EU bailout package. There is "genuine fear" that the fund may not be able to access the markets as investors shun the euro region, according to UBS." As noted earlier, the EFSF's rates are soaring at an alarming pace: "every 1 per cent rise in funding costs for the EFSF costs Ireland about €200m, according to calculations by Goodbody Stockbrokers' economist Dermot O'Leary." All is good though according to UBS because should the EFSF fail in even its existing duties which do not involve being levered at an X multuiple to rescue Italy, others will step in: "But UBS indicated that there was no "immediate funding threat to Ireland" as money may also be available from the IMF and through bilateral loans from the UK, Denmark or Sweden." We wonder if the UK, Denmark or Sweden are aware that suddenly they are on the hook to rescue Ireland, which up until recently was considered the A+ student of the European bailout. If not, we are confident the bond market will shortly remind them.
In the off case that this weekend's Italian bailout rumor roundup does nothing to quell the ongoing European collapse, the status quo is already working in diversion Plan B. Enter the Arab Leage and the announcement that it has approved sanctions against Syria, including an asset freeze and an embargo on investments, effective immediately. And while the screenplay is for now a carbon copy replica of what happened in Libya, with the imposition of a "No Fly Zone" over Syria as reported previously as the most likely next step, what is unique is the response that will follow from not only Syria, but Iran (which followed in Russian footsteps and announced it would attack NATO member Turkey missiles if provoked) as well as Russia and China, all of which have made it clear that any unilateral, US/Europe-backed agression against Syria will not stand. BBC reports: "League foreign ministers adopted the unprecedented sanctions at a meeting in Cairo by a vote of 19 to three. The move came after Syria refused to allow 4,000 Arab League monitors into the country to assess the situation on the ground. Syria, one of the founder members of the Arab League, condemned the sanctions as a betrayal of Arab solidarity. Syrian Foreign Minister Walid al-Muallem accused the league of seeking to "internationalise" the conflict." We expect developments to move quickly at this point as the chaos in the developed world is hitting a fever pitch and the only logical outcome is some "localized" regional warfare here and there.
We have discussed the obvious lack of demand for EFSF paper in the last few weeks and note that Friday saw the longer-dated issue break above 4% yield - clearly indicating the market's unwillingness to 'believe' in the AAA rating (and therefore any explicit wrapper that may evolve from this entity). Peter Tchir, of TF Market Advisors, notes the headlines and rumours are already coming in fast and furious. The EFSF is starting to put out some data and is discussing tradable insurance certificates as well as very short-dated issuance (further evidence of a dearth of demand). We worry that rolling short-dated EFSF paper will lead from a liquidit crisis to a solvency crisis much faster. European leaders clearly saw how weak the market closed every day last week (futures accelerated to the downside after 4 pm) and are trying to talk up the market. We remain highly skeptical and will continue to use overly optimistic rallies to get shorter.
Uncle Sam To The Rescue After All: Latest Rumor Sees €600 Billion Bailout Of Italy From US, Pardon IMFSubmitted by Tyler Durden on 11/27/2011 11:15 -0400
The European desperation is palpable ahead of the EURUSD open in a few hours, which has to deal with the aftermath of the Friday afternoon downgrade of Belgium, the junking of Portugal and Hungary, and the prospect of an imminent downgrade of AAA-stalwarts Austria and France. So what does Europe do instead of actually proposing the inevitable debt repudiation that is the only and final outcome? Why more rumors of course. To wit: last night saw the preannouncement of Welt am Sonntag indicating that in order to bypass the lengthy process of treaty changes, Europe would instead proceed with bilateral agreements that would somehow enforce fiscal stability and convince the market that European states would follow the German leader. Well since that is sure to have absolutely no impact, overnight Italian La Stampa is out with a fresh new rumor which cites "IMF sources" according to which the US-headquartered and funded organization would provide a €600 billion loan to Italy at 4-5%. In other words, Uncle Sam, in his role as primary funding agent of the IMF would lose massive amount of money on the "market to fair value" arbitrage, only to bail out the latest European domino. As a reminder, the whole "under market rates" loan from the IMF was implemented in Greece and worked out just swell: at last check the 1 Year Greek bond was trading with a yield of over 300%. Oh, and La Stampa forgot to mention one thing: any changes to the IMF, which currently is massively underfunded and is why the organization was forced to create two new liquidity facilities: a Precautionary and Liquidity Credit line, since it is unable to fund its New Arrangements to Borrow, have to go through US Congress when it comes to expanding funding capacity. Yup, the most dysfunctional, corrupt and criminal thing in the world - the US House of Representatives, where unless everyone is short Italian CDS, this will never pass. In other words: this rumor is dead in the water.
As every major developed economy hits Bass's Keynesian Endgame, the status quo is set to change dramatically. Nowhere is this climax playing out louder than in Europe and the implicit solution of Germany-uber-alles (while seemingly inevitable though nevertheless lengthy in execution) is likely to not sit well with many of the EMU nations. To wit, The Telegraph today reports that Britain's Foreign Office is advising its overseas embassies to draw up plans to help expats should the collapse of the Euro turn explosive. Almost incredibly, a senior minister has revealed that Britain is now planning on the basis that a euro collapse is matter of time.
A lot of technical analysts and financial pundits are expecting a standard-issue Santa Claus Rally once a "solution" to Europe's debt crisis magically appears. There will be no such magical solution for the simple reason the problems are intrinsic to the euro, the Eurozone's immense debts and the structure of the E.U. itself. The accident has finally happened, and it's called the euro/European debt crisis. I see a lot of analysts trying to torture a Bullish interpretation out of the charts, so let's take a "nothing fancy" chart of the broad-based S&P 500 with five basic TA tools: Bollinger Bands to measure volatility, relative strength (RSI), MACD (moving average convergence-divergence), stochastics and volume. If we use Technical Analysis 101 (basic version), a number of things quickly pop out of this chart--and none of them are remotely bullish.
So, assuming the Peak Oil camp is on to something, what's the likelihood for a disruption-free transition to another energy source that can replace the energy output we currently enjoy from oil? There's no shortage of promising claims from new laboratory experiments, and there is a lot of optimism in political and entrepreneurial circles that renewable, alternative forms of energy (wind, solar, biofuels, etc) may be able to fill the "energy gap" in time. How realistic are these hopes?
Yesterday we highlighted the top 50 stocks that comprise the hedge fund "darling" universe. And while it is good to know which stocks will get the chop first the next time there is a major margin call induced liquidation scare, as David Kostin points out in a follow-up piece there is a much more nuanced read through for Hedge Fund data. "We estimate hedge funds own roughly 3% of the US equity market. Turnover of all hedge fund positions averaged 34% during 3Q 2011 (nearly 140% annualized). The tilt of hedge fund holdings towards large-cap stocks has been increasing for almost 10 years. The typical hedge fund operates 36% net long, down from 2Q 2011. Combining long and short position data, hedge funds have the greatest net portfolio exposure to Consumer Discretionary (23%), Information Technology (20%), and Energy (14%)." he then proceeds to list the 10 conclusions that can be derived using the most recent public 13F data (which is understandable quite stale already in our day and age of sub-24 hour investment horizons). Yet the bulk of conclusions are mostly fluff save for the following: " The average hedge fund returned -2% YTD in 2011 through November 11th compared with +2% for the S&P 500", "Hedge fund returns are highly dependent on the performance of a few key stocks" and "The typical hedge fund operates 36% net long ($394 billion net/$822 billion long), versus 46% in 2Q 2011." So just why do people still pay 2 and 20 to chase popular, concentrated stock positions while underperforming the broader market again?
It never fails. Every Black Friday we get yet another heaping helping of pure unadulterated ignorant mentally deficient bottom feeding fat-saturated sheeple mania. Every year it gets worse. And, every holiday season I am faced with the painful question of whether or not these people are actually worth saving. My answer so far has always been a begrudging "yes". Many of them have been conditioned by a society on the brink of collapse, not just of economy, but also of conscience. That doesn't mean, however, that I excuse this kind of behavior. Frankly, if some mongoloid Wal-Mart shopper tried to pepper spray me in the face for a video game, I would beat them into cranberry sauce and drink some delicious eggnog to celebrate. Is this a well balanced response? Probably not. But then again, they would likely think twice before pulling the same stunt on anyone else. Actually, in my humble opinion, at least half the population of this country needs a good a smack upside the head. Seriously......this situation is getting uncomfortably crooked.......
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.
For all its obscurity, the Fed's balance sheet is relatively simple: on the right there are the liabilities such as currency in circulation (which is relatively flat at around $1.1 trillion but rising slowly (for now) every week), and excess reserves, at $1.5 trillion, or the money that is "parked" with banks and is the topic of so much consternation: will it ever spill out into the broader economy, won't it, and if not why not, and if yes, will it cause hyperinflation, and other such tangential ruminations. Then on the left we have the assets, or the "stuff" that backs the currency in circulation and excess reserves, such as Treasurys and MBS, which total $2.6 trillion, and which are the primary variable in every Large Scale Asset Purchase episode also known as Quantitative Easing: should the Fed "print", or said otherwise, "purchase" assets, then the excess reserve number goes up first, with a hope that it will slowly spill over into currency in circulation and other broader monetary aggregates. Lastly, there is also the Fed's capital account or "shareholder equity" for purists, but since the Fed can never in theory be undercapitalized by conventional definitions, this is merely a placeholder. Another broad way of looking at the Fed's assets is "factors that supply reserve funds" or "source of cash", and liabilities as "factors that absorb reserve funds" which is, logically, "use of cash." The key assets and liabilities noted above are the major components of the "flow" - they move glacially up and down, and are priced in well in advance of such moves. It is the marginal, or far small numbers that matter, and that fluctuate materially from week to week, that are not priced in, and are thus market moving. One such curious liability which we pointed out recently is the Fed's reverse repo agreements with foreign banks: in the week following the MF Global bankruptcy these soared to a record $124.5 billion. Basically, foreign banks scrambled to procure a record amount of US Dollars while repoing Treasurys and who knows what else with the Fed, an indication that other conventional liquidity conduits had frozen in the days following the Halloween MF massacre. Since then the Fed's Reverse Repo balance has moderated to more normal levels as Treasurys have gone out of repo with the Fed. Yet something more troubling has just been spotted. In today's one-day delayed issue of the Fed's H.4.1, literally the very last number on the very last subpage in the weekly update reveals something quite disturbing. Namely the Fed's "other" non-reserve based factors absorbing liquidity. And specifically, the actual number, which rose by an unprecedented $88 billion in one week to an all time high of $115 billion for the week ended November 23! We wonder: in this day and age of trillions in fungible excess reserves, and discount window stigmata, just what was it that caused US banks to demand a record amount of effectively under the table cash from the Fed?