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Global Debt Repudiation? IMF’s Paper On The Chicago Plan Continues To Stir Opinions





The International Monetary Fund’s paper, “The Chicago Plan Revisited” by Jaromir Benes and Michael Kumhof highlighted a means to wipe out debt by legislation by using state created money to replace the private banking system and was commented on in The Telegraph by journalist Ambrose Evans-Prichard. The full paper can be read here. In sum, the paper illuminates on a plan created in 1936 by professors Henry Simons and Irving Fisher during the aftermath of the US Depression. It examines how money  created by credit cycles leads to a damaging creation of wealth.   Authors, Benes and Kumhof argue that credit-cycle trauma - caused by private money creation – has been around forever and lies at the root of debt catastrophes as far back as ancient Mesopotia and the Middle East. They claim that not only harvest cycles lead to defaults but rather the concentration of wealth in the hands of lenders would have augmented the outcome.

 
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Revenue Miss Parade Resumes With Caterpillar





Last night, in a spontaneous moment of clarity, the ZH brain trust tweeted the following:

So far we had our first "others" when Hasbro missed the topline, printing revenues of $1.35 billion vs expectations of $1.38 billion, but more importantly here comes CAT, with a whopper of a topline miss, worse than even the recent preannouncements could predict.

  • CAT REVENUES $16.45 BILLION, EXP. $16.74 BILLION, EPS$ 2.54, EXP. $2.22
  • CAT SEES 2012 EPS $9.00-$9.25, PREVIOUSLY HAD SEEN $9.60
  • CAT SEES 2012 REVENUES OF $66 BILLION, PREVIOUSLY HAD SEEN $68-70 BILLION
 
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Frontrunning: October 22





  • Dead Heat for Romney, Obama (WSJ)
  • The Cheerful Billionaire Who Thinks Obama's a Socialist (Businessweek)
  • "Get to work, Mr. Japanese Chairman": Japan Exports Tumble 10% as Maehara Presses BOJ to Ease (Bloomberg)
  • Chinese Investors Fear Chill in Canada (WSJ)
  • Rosneft Buys BP’s TNK-BP Stake for $26 Billion in Cash, Shares (Bloomberg)
  • Hong Kong Defends Its Currency Peg for First Time Since 2009 (Bloomberg)
  • Democrats threaten payroll tax cut consensus (FT)
  • Spain's Rajoy gets mixed message in regional votes (Reuters)
  • Merkel to warn UK on Europe budget veto (FT)
  • Netanyahu says doesn't know of any U.S.-Iran talks (Reuters)... neither does Iran, so near certainty
  • Der Kurrency Tsar: ECB’s Knot Backs Schaeuble Call for Stronger EU Budget Power (Bloomberg)
  • Fannie Mae Limiting Loans Helps JPMorgan Mortgage Profits (Bloomberg)
 
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Overnight Summary: Same Confusion, Different Day





Once again confusion is rife overnight, following yesterday's main European event, Spain's first "mixed" regional election, which saw Rajoy's PP party in his home state of Galicia eeking a majority by a few seats, offset by wins for nationalist parties in the Basque Country. The immediate read here is that the Galician win is an endorsement of Rajoy's "austerity poilicies" and thus EUR positive (which have yet to be actually implemented as Spanish spending continues to rise, as tax revenues continue to drop), yet it makes the likelihood that Spain requests a bailout before the Spanish regional election on November 25, which is about secession, virtually nil, and thus SPGB negative. Furthermore as Bank of America points out "some euro-area govts may remain reluctant to support Spain’s request as long as yields continue to be low, banks haven’t been recapitalized; probably reinforced by Catalonia elections" but that is a reality tale for another day - the "market" can only handle so much.

 
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RANsquawk EU Market Re-Cap - 22nd October 2012





 
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China, China, Everywhere; But Not A Drop Of QE To Drink





With this evening's news that Japan and the USA are 'backing down' from a planned 'joint security drill' to recapture a remote 'uninhabited' island in Okinawa province (apparently amid concerns of backlash from Beijing); and chatter of the PBoC gauging demand for reverse repos (instead of flooding us with newly minted Yuan which everyone believes is just the remedy), it seems very clear who the world's super-power is (militarily and economically). Furthermore, as The Diplomat explains, multi-faceted challenges to the new leadership — possible economic stagnation, social unrest, elite disunity, and a revival of pro-democracy forces — will make it more distracted and less politically capable to maintain discipline on numerous actors now involved in China's foreign policy.  The effects of such accumulated internal woes, while not necessarily aggressive, are certain to be an erratic pattern of behavior that both worries and puzzles China's neighbors and the rest of the international community. As they note, the only thing we are certain about is undertainty. "Be careful what you wish for.  A weaker China could nevertheless inflict serious damage to the world order."

 
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Q3 Earnings Season To Date Summary: Ugly... And Getting Worse





Roughly one third of the S&P has reported earnings so far, with another third reporting in the next five days and almighty AAPL on deck Thursday evening, and if there is one word to describe what has happened so far, that word would be "ugly." The same word would be used to describe how Q4 is shaping up to be. And that word will be very a optimistic prediction of what 2013 will bring unless a major catalyst develops that pushes Congress to resolve the fiscal cliff situation. So far that catalyst is missing. But going back to Q3 earnings, here is how Goldman's David Kostin summarizes events to date: "3Q reporting season is roughly one third finished. Two early conclusions: (1) Information Technology results have been startlingly weak with high-profile revenue disappointments by the four horsemen: MSFT, GOOG, IBM, and ORCL. (2) EPS guidance for 4Q has been overwhelmingly negative across all S&P 500 sectors with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect further EPS cuts of 6% loom ahead. Firms reporting next week: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX." Sorry Bob Pisani, better luck spinning earnings favorably next QE.

 
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Stock Market Fragility Fast Approaching "Flash Crash" Levels





This past Friday, on the 25th anniversary of Black Monday, Bill Gross warned that in the current centrally-planned market "central bank puts" are the modern day equivalent of "portfolio insurance", and he is right. By sending complacency to record levels, and essentially forcing investors to no longer worry, hedge and generally ignore tail risk, the central planners, in their futile attempts to reflate stocks at all costs, are guaranteeing that the market will experience just the type of fat tail event they promise will never occur. As for the catalyst that will make sure of it is none other than our old friend: high frequency trading. Because while central planning is the mechanism by which investing is dragged away from mean reversion, price clearing and fair value discovery, it is HFT that is Bernanke's analogue in the millisecond trading world (as all those who had stop limit orders (that did not get DKed) on May 6, 2010 very well remember). Because when the next Black ___day does happen, it will be due to central planning, but it will be enacted courtesy of HFT (which will never go away until the next and probably final market crash: too much exchange revenue depends on the perpetuation of this parasitic liquidity drain). Which is why it is only appropriate to warn readers that when it comes to system market fragility, the frequency and magnitude of "wild price spike" events (to put it simply) are now both rising at an exponential rate, and fast approaching Flash Crash levels.

 
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Lessons In Fiat Reality: "Why I Learned To Trade Less And Love The Farm"





Stephen Diggle is one of the least well known (except to his clients) and yet most successful hedge fund managers over the past decade - having made around two-and-a-half billion dollars during the financial crisis - but in the last few years, he came to a dramatic (and we hope enlightening for many) perspective. This fascinating presentation, in his own words, discusses "how , having made that fortune trading, [he] came to conclude that [he] wanted to preserve the real value of that fiat money windfall, [he] had to get away from trading and buy, own, and operate real assets with real cashflows." - most specifically farms. From being ridiculed as a 'Cassandra' in the mid to late 2000s, Stephen's conviction then that the world was heading for a crisis was as high as his conviction now that in order to ride the wave of global central bank intervention and the implicit macro-economic waves that will crash on every shore in the forthcoming years, that farmland (preferably diversified) is the best risk-reward 'trade' in the coming decade. An intriguing tale of reality and un-greed and everything you need to know about agriculture (from demand to demographics and from fiat-debauchment to interventionist policies) but never knew to ask. An inspiring and insightful brief presentation that offers more depth than any Jim Rogers' mini-clip on CNBC.

 
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Chinese Gold Imports Through August Surpass Total ECB Holdings, Imports From Australia Surge 900%





First it was more than the UK. Then more than Portugal. Then a month ago we said that as of September, "it is now safe to say that in 2012 alone China has imported more gold than the ECB's entire official 502.1 tons of holdings." Sure enough, according to the latest release from the Hong Kong Census and Statistics Department, through the end of August, China had imported a whopping gross 512 tons of gold, 10 tons more than the latest official ECB gold holdings. We can now safely say that as of today, China will have imported more gold than the 11th largest official holder of gold, India, with 558 tons. Yet despite importing more gold than the sovereign holdings of virtually all official entities, save for ten, importing more gold in July than in any month in 2012 except for April, importing more gold in 8 months in 2012 than all of 2011, and importing four times as much between January and July than as much as in the same period last year, here is MarketWatch with its brilliant conclusion that the 'plunge' in gold imports in August can only be indicative of the end of the Chinese gold market, and the second coming of infinitely dilutable fiat.

 
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Meet The Billionaires Behind The Best Presidents Money Can Buy





The last time we checked on the (funding) status of America's real presidential race - the one where America's uber-wealthy try to outspend each other in hopes of purchasing the best president money can buy - the totals were substantially lower. With November 6 rapidly approaching, however, the scramble to lock in those record political lobbying IRRs is in its final lap. And thanks to the unlimited nature of PAC spending, look for the spending to really go into overdrive in the next 2 weeks as the spending frenzy on the world's greatest tragicomedy hits previously unseen heights.

 
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In Historic First China Begins Oil Extraction In Afghanistan





In a surprising (if not quite shocking) move, late on Friday Canada blocked Petroliam Nasional Bhd.’s C$5.2 billion takeover of Progress Energy Resources Corp. saying the bid by the Malaysian state-owned company "wasn’t in Canada’s national interests." As BusinessWeek explains, "in what investors say is a test case for the $15.1 billion bid by CNOOC Ltd. of China for Calgary-based Nexen Inc., the Canadian government said it “was not satisfied that the proposed investment is likely to be of net benefit to Canada,” according to an Oct. 19 statement from Industry Minister Christian Paradis." While it is unclear precisely what would be of "net benefit to Canada" what is certain is that the Progress Energy move will crush investor spirits who in recent months have expected a flurry of foreign bids coming for local energy names, only to be left at the altar courtesy of government intervention. And while the outlook for foreign driven M&A in Canada has just been Ice-9'ed to a degree not seen since the BHP Billiton government-denied acquisition of Potash Corp (watch the arbs scurry out of Nexen at first trading opportunity), China is wasting no time, and is rapidly reorineting itself away from increasingly energy-protectionist governments and to "greenfield" national interest expansion opportunities. Such as Afghanistan. As Reuters reports, in a historic development, and in a key staking of regional energy claims, a Chinese oil firm, China National Petroleum Corp, has just started oil production in the country which still has thousands of US troops on the ground. Expect this issue also to suddenly be of paramount importance in next week's final presidential debate.

 
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Spanish Regional Bailout Fund Runs Out Of Money Just As Regional Elections Begin





Total bailout fund size: €18 billion. Cash bailouts already requested:

  • Cataluña: €5.023 billion
  • Andalucía: €4.906 billion
  • C. Valenciana: €4.500 billion
  • C. La Mancha: €0.848 billion
  • Canarias: €0.757 billion
  • Murcia: €0.528 billion
  • Baleares: €0.355 billion
  • Asturias: €0.2617 billion

Subtotal: €17.179

Bailout funding left: €0.821 billion. Oops.

 
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Presenting All The US Debt That's Fit To Monetize





So far the Fed's 4 year old QEasing strategy has failed for the simple reason that the smart money instead of being "herded", has far more simply decided to just front-run the Fed thus generating risk-free returns, while the "dumb money", tired of the HFT and Fed-manipulated, and utterly broken casino market, has simply allocated residual capital either into deposits (M2 just hit a new all time record of $10.2 trillion) or into "return of capital" products such as taxable and non-taxable bonds. Alas none of the above means that the Fed will ever stop from the "strategy" it undertook nearly 4 years ago to the day with QE1. Instead, it will continue doing more of the same until the bitter end. But how much more is there? To answer this question, below we present the entire universe of marketable US debt, in one simple chart showing the average yield by product type on the Y-axis, and the total debt notional on the X.

 
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Guest Post: Narcissistic Consumerism And Self-Destruction





Permanent adolescence is the state of resolving insecurity, fear and social defeat by buying things that promise the invulnerability of a fantasy self and world, and by indulging in instant gratification to mask the self-destructive derangement of broken ecosystems: not just in the natural world, but in our bodies, in our society, in our economy and in our politics. Nurturing permanent adolescence, anxiety and alienation are highly profitable, for people responding to the fear and anxiety of Thanatos (the instinct for destruction) will not only become malleable consumers, they will lose their grip on Eros, the instinct for life and love. Once lost to the Dark Side, they have no way to experience health or intact ecosystems; their world darkens as there appears to be no alternative to the Status Quo. Health is horribly unprofitable; illness, anxiety and alienation are highly profitable. That is the destructive essence of our sociopathological "engine of growth," narcissistic consumerism.

 
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