Kabuki Theater Economy

ilene's picture

Kabuki Theater Economy

(Taken from this week’s Stock World Weekly)

The stock market was driven by three major influences this week: the ongoing European “Black Debt” saga, the Dollar, and rumors galore. The rumor that lifted the markets out of their initial funk on Monday was that China would be buying Italian debt. 

Discussing the double-edge sword of Chinese investments, Chinese Briefing reported, “Debt-ridden European countries are longing for China’s purchase of their public debt despite fears that the country has motivations of a ‘reverse colonization’ of Europe. Nowadays the message ‘the Chinese are coming’ can often help governments trapped in financial crisis press public refinancing needs and shore up creditworthiness.

“As for China, it is reported that the country – whose US$3.2 trillion in foreign exchange reserves still have a heavy reliance on the U.S. dollar – is seeking more diversification and is increasing its holdings of the Euro.” (Concerns Grow over China’s Presence in Europe) The notion that white knight China was riding to the rescue of Italy fizzled out on Tuesday, when it turned out the rumor was based upon preliminary discussions that were unlikely to pan out. 

On Wednesday, U.S. Treasury Secretary Tim Geithner asserted, “There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.” (Yet the Greek government one-year bonds are yielding over 110%.) Geithner pointed out that German Chancellor Angela Merkel has publicly stated “We are not going to have a Lehman Brothers,” referring to Lehman’s notorious implosion that exacerbated the financial crisis of 2008. (Geithner: Europe will not be a ‘Lehman Brothers’)

After a three-way conference between Chancellor Merkel, French President Nicholas Sarkozy and Greek Prime Minister George Papandreou on Thursday, Mrs. Merkel’s spokesman proclaimed: “German Chancellor Angela Merkel and French President Nicolas Sarkozy are convinced that Greece's future is within the euro zone.” (Merkel, Sarkozy: Greece Belongs in Currency Bloc) Also on Thursday, the Governing Council of the European Central Bank (ECB) announced its decision, “in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010.”

Are these operations “in addition to ongoing weekly seven-day operations” announced in May? Karl Denninger, The Market Ticker, thought not. He wrote:...“Wait a second...this isn't actually new! Remember, The Fed previously (like more than a year ago) announced these swap lines and more-recently announced their extension. So not only is this not new, it's not news!

“But the market is up big on the non-news news. Why? Because it appears banks are still going to be able to lie about asset values - for a little while longer.(Oh Look! More Accounting Fraud!)

John Mauldin had another take. He wrote, “The Fed is not lending to European banks or even to the various national central banks. Its customer is the ECB, which will deposit euros with the Fed to get access to dollars. Making the safe assumption that the Fed knows how to hedge currency risk (fairly easy), the only risk is if the ECB and the euro somehow ceased to exist. And these are swap lines. This is not a new concept; it has been authorized since May, 2010. The real difference is that previously it has been used only for loans with 7-day maturity, and now that is extended to 3 months. This gives the ECB the ability to lend dollars for 3 months, which they must think will entice US money-market funds back into at least short-term commercial paper. (Just stay one step ahead of the ECB and the Fed, and your loan is “safe.” We will see how enticing this is.)

“Now, this is not without costs. It is effectively another round of QE, although theoretically less permanent than the last rounds, as the swap lines have a finite and rather short-term end.” (Twist and Shout?)

According to Bloomberg, “The premium European banks pay to borrow in dollars through the swaps markets decreased after the ECB lending announcement... ‘It’s an attempt by the central banks to make sure there’s enough liquidity so the markets don’t freeze,’ said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York.

Thus, the world’s largest banks rang the liquidity bell, jointly ensuring that EU banks would have access to as many Dollars as needed. This was well-received by the stock market. In response, the Dollar traded lower, and that popped the markets as the inverse relationship between the Dollar and the Dow remained strong most of this week. 

Not everyone was persuaded that the actions of the EU powers will save the day. Peter Tchir of TF Market Advisors wrote, “Nothing that has been said or done this week goes against the view that Europe is preparing for Greece to default... After yesterdays conference call they said that Greece would remain in the Euro. They never said Greece wouldn’t default. That conference call was as likely to be scripting out the roles for the next few weeks to control the default and arrange post default financing for Greece. The language was not that strong and I don’t believe their words were chosen by accident.

“If Greece defaults the first obvious panic will be how do the European banks get funding, especially in dollars. Well, that question has been answered. The mechanism to avert short term liquidity problems after Greece defaults is now in place...

“They are going to let Greece default, try and contain the aftermath, and then get focused on some other serious issues.” (Policy Makers May Just Be Positioning for a Greek Default)

Similarly, Jamie Robertson, a Presenter at BBC World News, claimed “There may be a few people who still believe Greece will not default on its debt, but my suspicion is most of them also believe elephants can fly and the woods are populated by pixies.”

Jeff Cox at Marketwatch commented on the curious euphoria being demonstrated by the markets. “Despite a long-term picture in Europe that appears to be as unsettled as ever, investors will take any bit of good news and run with it. That’s been the message from a succession of trading days in which even the whisper of resolution the European sovereign debt problem - a conference call among policy makers, another bailout installment for Greece - sees the market go higher.” (Are Investors Taking Debt Crisis in Europe Too Lightly?)

Yves Smith of Naked Capitalism also expressed disbelief at the response of the markets to the continuing drama being played out: “Watching reenactments of scenes from the global financial crisis is a very peculiar experience indeed. The opening by the Fed of currency swap lines to allow the ECB and other central banks to extend dollar funding to Eurobanks was seen as an extreme measure the first time around, a sign of how close to the abyss the financial system had come. This time, allegedly because the powers that be acted before things got quite so dire, bank stocks rallied impressively. 

Similarly, the media treated this move as just another episode in the ongoing Perils of Pauline drama running on the other side of the Atlantic... Now narrowly, the jaundiced media response and the market bounce both make sense. The Eurodrama has gone so many chapters that it’s easy to get rescue fatigue.” (The Fed Bails Out Eurobanks Yet Again)

David Fry observed “I couldn’t say how many ‘fixes’ we’ve had over the past two years, but there have been plenty. Each has proven ephemeral, but each new effort has become more assertive. This current plan now comes with wide global support. We have to remember these governments have skin in the game for their own economies. BRIC countries have plenty of ‘stuff’ to export to a healthy euro zone so they’ll be supportive. Bernanke is also determined to be a player rumored to be adding $100 billion in aid to Europeans. Also in support were the ECB, the SNB, the BOJ and the BOE. I guess you could say; ‘it takes a village,’ eh?

“They may be just buying time since the European populace is addicted to big government programs and benefits. What will happen if EU countries in trouble don’t play ball? Many will oppose austerity demands with violence if necessary making things impossible for politicians. Expect more troubles down the road.” (Hooked On European Bailouts)

The result, for now, is that Greece’s dreaded appointment with the Ghost of Default Future has been postponed. The cycle of austerity, protests, bondholder angst, and threats of default, followed by another round of bailouts, continues. It’s becoming the perverse status quo, an endless Kabuki theater of creditors and debtors with the same players coming and going, saying the same lines over and over. On the bright side of this mess, the fairly predictable sequence of events: panic, followed by bailout, followed by euphoria, followed by panic, creates a fertile environment to make profitable trades.

But the question remains whether anything has really been resolved by these actions besides the usual can-kicking. We are confident that the bandaid-like measures being announced this week will do little to stop the infectious spread of fiscal contagion.

Of course, Europe is not alone in its economic woes. The U.S. also struggling with a weak economy, notable for a stubbornly high unemployment rate, low workforce participation, a growing number of people who have been unemployed for a very long time, and record numbers of people needing food stamps. Other manifestations of a bad economy include the newly favored pastime of Dumpster Diving (for food), according to Michael Snyder. This week’s grim report on the number of U.S. citizens currently living in poverty will certainly weigh heavily on the minds of Fed members at next week’s FOMC meeting. Expectations are running high that the Fed will do something to help stimulate the economy. The outcome, which remains to be seen, will very likely move the stock market significantly, one way or the other.

Discussing the possibilities, David Rosenberg wrote, “The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more. And this may be one of the reasons why the stock market is starting to rally (a classic 50%+ retracement, which always occur after the first 20% down-leg in a cyclical bear market would imply a test of 1,250 on the S&P 500 at the very least). Hedge funds do not want to be short ahead of next week's FOMC meeting, and who can blame them?”

What might the Fed do? David suggested several options, including simply buying more bonds (QE3) eliminating interest paid to commercial banks (to spur lending) or even purchasing foreign securities (killing two birds with one stone by supporting Europe while weakening the Dollar). “It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday. If he doesn't, then expect a big selloff.” (Forget Operation Twist: Rosenberg Says Bernanke Will Shock Everyone With What Is About To Come)

We head into the coming week “cashy” and cautious, neutral to slightly bullish. All eyes will be on the upcoming FOMC meeting and announcement on Wednesday, September 21. 


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the tower's picture

"The result, for now, is that Greece’s dreaded appointment with the Ghost of Default Future has been postponed."


Huh? Postponed how long? One day?

Georgesblog's picture

Do you remember the days when the EU and it's proposed currency, the Euro, were being hyped? The EU had a larger population than the United States. The EU had a bigger GNP than the United States, so they said. The cherry on top was that the common currency, wonder of wonders, was going to be backed 15% by gold ! Whatever happened to that part of the deal? I smell the Bait-And-Switch. It smells like rotting skunk cabbage and dog crap. This is how the debt game is played. Sucker in the suckers. Pump them full of good numbers to make them feel good about being dictated to by a foreign power. When they find out that they sold their birthright for a bowl of soup, it's too late. That's what Debt & Promises gets you,.



Dingleberry's picture

Where the fuck are you gold haters?  see gold tonite? ONCE AGAIN we got the "gold bubble is crashing" line last week. For the hundreth time. Gettin' tired of the same ol' same ol'? Seems the CBs can't keep it down, no matter how much bullshit they spew. And some of you believe it, apparently. But you probably believed in "green shoots", too.

snowball777's picture

Most gold "haters" have a market crash at the center of their thesis...not exactly "green shoot" cheerleaders. Your "rah rah" me-too-ism makes for some good laughs.

blindman's picture

qe3^. shocking. in a debt based fiat monetary system
where "money" is primarily created out of promises to pay
back at interest and principal, over time, even when expansion
and growth are obviously criminal and impossible, never mind insane,
and constitute violations of all decency and practicality.
and then there is the usury and leverage we are born to
bear/bare , like beasts for the special people, the white
blue blood zombies, so , protected by the wall street fuckwads
and their men with projectile weapons and their manufacturing goon
contractors of industrial death machines. and then there are the
ones so interested in modifying biology to patent biological masses,
food, that is you, for co-modification(corporate modification).
so well, all "matter" has become
marketable for financialization. that is you too. ?
evolt or not. generally, it makes no difference. specifically to
you it makes all the difference. so.. as has been said....
"so what"? and good luck, or not?

snowball777's picture

quantum psychodynamicists, transcend!

blindman's picture

[KR186] Keiser Report – Dollar-Trapped!
Posted on September 20, 2011 by stacyherbert| 23 Comments
Stacy Summary: We interview Bill Still.

Georgesblog's picture

Politics always plays more hokey than the WWE. Cut to the chase. Watching a bunch of suits and ties, pretending to be somebody important, is boring. The truth is so much more entertaining. First, they're all flat broke beggars. The balance of trade and the debt are both just paper at the card table.  Since I can't take these clowns seriously when they flatulate out of their mouths, I'll leave you with "The Charge of the Carprtbaggers", remember that Gunga Din said, "You shoot like a soldier, let's see if you can ride"


Manthong's picture

"Geithner: Europe will not be a Lehman Brothers"

You're right Tim, it won't.. Greece will be.

Europe will be a 2008 US Stock Market.

Stuck on Zero's picture

I just thought.  For less than the cost of bailing out the banks, the Fed could have paid off every individual's debt in the whole country.  Credit card debt, mortgages, hospital bills and all.  That would have been a tremendous boost to the economy.  Instead, we're now all indebted more than ever. 

snowball777's picture

Guess again; total private debt in the US is north of $34T (peaked at $36T in 2009).

DaveyJones's picture

more like 13 (according to govt stats)

GoldBricker's picture

You gotta source for that?

By 'private', does that include businesses (large and small private), or only individuals ('physical persons', as the quaint legalese calls us)?

A related question: are Fannie Mae, Freddie Mac, AIG and the like still counted as private businesses for purposes of this calculation?

lapedochild's picture

In July of 2011, not 2010, not 2009, but 2011 we had the Fed pledge to keep rates low till 2013, and here we are barely 2 months after this stimulus measure was announced thinking up what we'd like to hear from this Fed next?

“in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months"

WTF! WTF! WTF! Central banks cooperating?! This makes me SICK!

Does anyone seriously think the Fed will be yet even more accomodative? If so, I am afraid that they have to ramp up their meeting schedule from 8 times per year to weekly to feed the ever more hungry baby preventing from crying.


It's become more and more clear this market needs, no... demands, MONEY, lots of it. I am afriad some OT is just not going to cut it, and if the QE3 carrot is mounted on a stick for November consideratoin, they better extend that meeting all the way till December 12th, so that they can have their Dec meeting the day after. The illustration is briliant. Pumping NEEDS to happen at a faster pace by more and more players. The Euro brass is completely consumed by dealing with this nightmare, there's no time for them to govern anythig else.

QEx is irresponsible! Not in my name, enough is enough!



obejoyful's picture

One thing that is never discussed is when do they unload the Feds book.  It will be impossible for them to sell any of these "assets" because the economy will be to week.  This is a Ponzi scheme and they know it but want to extend it as much as possible.  If you have children then you see the faces that will pay for all of this.

Kayman's picture

Ben's just doing his job- providing liquidity for bonuses. Nothing else matters.

Buck Johnson's picture

Nothings been resolved, all they are doing is talking and thats it.  I still think they won't give them the money and Greece won't do anything.

Arkadaba's picture

Loved the comment: “There may be a few people who still believe Greece will not default on its debt, but my suspicion is most of them also believe elephants can fly and the woods are populated by pixies.”

JW n FL's picture




Natalie Merchant ? Which side are you on? | (Lyrics) HD • bytera


"Which Side Are You On?" is a song written by Florence Reece in 1931. She was the wife of a union organizer for the United Mine Workers in Harlan County, Kentucky. In 1931, the miners of that region were locked in a bitter and violent struggle with the mine owners. In an attempt to intimidate the Reece family, deputies hired by the mining company illegally entered and searched the Reece family home. Sam Reece had been warned in advance and escaped, but Florence and their children were terrorized in his place. That night, after the men had gone, Florence wrote the lyrics to "Which Side Are You On?" on a calendar that hung in the kitchen of her home. She took the melody from a traditional Baptist hymn, "Lay the Lily Low", or the traditional ballad "Jack Munro". Florence recorded the song and it can be heard on the CD Coal Mining Women.

Reece supported a second wave of miner strikes circa 1973, as recounted in the documentary Harlan County USA. She and others perform "Which Side Are You On?" a number of times throughout.

The song is referred to by Bob Dylan in the song "Desolation Row".

Source: wikipedia http://bit.ly/kWWIfS

JOYFUL's picture

clear evidence that the Gulf Coast disaster is still causing damage to the health of Floridians....where is the iconoclastic JW who we could formerly count upon to have all his ducks in a row when it came to important stuff?

Now masquerading as a "Laborite" factionalist in the White House Squatter's newly energized class war offensive? So much for unity in diversity! Has ZOG claimed yet another victim? Every day now seems to make Invasion of the Body Snatchers less Sci-Fi and more documentary.  

Bobby 'Dylan' Zimmerman...?!?...along with Alan Ginsburg and Leonard Cohen, one of the trio of Tzionist troubadours what seduced WASP  Norte America into an orgy of self hatred and cultural suicide?!?

We're getting real close to the point where Americans will be able to answer Bobby's taunt from his most famous work of invective....

How does it feel.....

"All our best men are laughed at in this nightmare land." 
Jack Kerouac

janus's picture

it wasn't a troika of jews that seduced this WASP.  it was the preversity of predatory capitalism that i saw first hand.

it was discovering that this lie, this white man's burden, was an excuse to rape, pillage and rob.

and this ZOG you refer to...well, yes, our blinkered policies in the mid-east are a bit baffeling.  but, buddy boy, you have no clue what you're talking about.

ALL positions of REAL power are held by anglos in this country (and this world for that matter).

this ZOG is another redherring; just like al queda; just like commies; just like the yellow peril...keep a goin.  this story has its tendrals stretching FAR back into history.

your enemy is not even WASPs...your enemy is institutional control.  quit lookin at ethnicites, bitch!  you're beeing hood-winked.

THINK...just like JW's doin.

this reflexive finger pointing is what 'they' want.  unions are not the problem, it's the control that seeks to sublimate the union unto itself (and nueter it); foodstamps aren't the problem, it's the control the exercize of the recipient's life.

i could go on forever; go fuckin read!

any questions and janus will be MORE than happy to answer....maybe, if you'd ever looked beyond rense . com you'd know a thing or two about the world.

yes, there are evil and conniving jews.  are dylan, cohen etc. part of some fucking ZOG conspiracy?  you're so fucked in the head.  they are both sincere born again Christians...they are despised by 'zionists'. 

go back and learn about your beloved lizard people or fucking brain implants or whatever the zaniness du jour is over there. 

leave the thinkin to the big boys, bitch!



Little John's picture

Timmy has taken to the woodshed.  Will wear dunce hat at tomorrow's press conference.

GoldSilverDoc's picture

A threeway with Merkel, Papandreou, and Sarkozy? 

Man, now that is just sick.

LawsofPhysics's picture

I read as far as "China seeking more diversification..."


Yeah, that's it hold more worthless fiat.  If the BRICS were smart, they would end all transactions in euros and dollars, exchange technology with resources in Africa, force the U.S. to open up access to resources in exchange for debt forgiveness (just like the U.S. has done in south america - snark) and open their markets.  They want the global reserve currency, let them have it.  Maybe they have the guts to stand up to the central bankers, obviously the west doesn't.

jballz's picture

whenever I see the word  "kabuki" I always mistake it with "bukaki" and then it means something really different...

fiddy pence haff pound's picture

sorry, Jballz, but bukake is supposed to bring good luck, at least to Japanese fishermen. No sign of good luck

anywhere near these parts.

there are however lots of circle jerks: banker-politician-banker-politician-Krugman-banker-Joe Weisenthal

and the party line continues. clusterf^&*&king, too.

ping's picture

Speaking of bukake: Angela Merkel - I totally would. Phwoarhh.