Yes, it did feel kinda rainy already yesterday with “Purple Rain”.
Total Risk Off close today.
Bad Rain. Bad, Bad Rain...
This Time Is Different As Icarus Blows Up & Burns The Birds Along The Way - Greece Is About To Default AGAIN!Submitted by Reggie Middleton on 09/26/2012 10:29 -0500
Greece is about to default on the investors that funded the bonds that replace the first set of investors that they defaulted on just a few months ago. Get it? Every dollar thrown into Greek bonds at par is akin to flushing money down the toilet.
The consensus view of China is that the country is imploding due to the collapse of the export sector. Such arguments make sense. But they may also be dead wrong.
Desperate North Korea has exported more than 2 tons to gold hungry China over the past year to earn US $100 million. Even in tough times during the Kim Il-sung and Kim Jong-il regimes, North Korea refused to let go of its precious gold reserves. Chosun media reports that “a mysterious agency known as Room 39, which manages Kim Jong-un's money, and the People's Armed Forces are spearheading exports of gold, said an informed source in China. "They are selling not only gold that was produced since December last year, when Kim Jong-un came to power, but also gold from the country's reserves and bought from its people." This is a sign of the desperation of the North Korean regime and also signals China’s intent to vastly increase the People’s Bank of China’s gold reserves.
The markets mood is shifting from certainty to uncertainty. The unpalatable truth about a stable Europe is it takes all its many and diverse participants to be singing off the same hymn sheet. Unfortunately they aren't. The different objectives and aims of each group are becoming increasingly apparent. The Bottom line remains if the Euro can be held together, then Italy and Spain bond yields will tighten. Simple. Unfortunately, the tensions inherent in the system threaten to pull it apart. A brief study of history will show conflict and naked self-interest are the only permanent features inherent to any human system. Name me an alliance, an empire, a union, a nation or any large political unit that has, at some point, not tried to pull itself apart? Meanwhile... the global recession gets deeper. Yesterday the slowing European economy caused Volvo to acknowledge slowing truck demand... Who could have predicted that? And its going to get worse.
- China To Maintain Prudent Monetary Policy (China Daily)
- Why Exit Is An Option For Germany (FT)
- China-Japan Ministers Hold 'Severe' Talks As Spat Damages Trade (Bloomberg)
- Eurozone Deal Over Bank Bailout In Doubt (FT)
- UBS Co-Workers Knew of Fake Trades, Adoboli Told Lawyer (Bloomberg)
- Banks Seek Changes To Research Settlement (FT)
- Secession Crisis Heaps Pain On Spain (FT)
- SEC: NY Firm Allowed HFT Manipulation (Bloomberg) - busted 'providing liquidity'?
- Germany To Tap Brakes ON High-Speed Trading (WSJ)
- Rajoy Outlines Fresh Overhauls (WSJ)
- BBC Apologizes To Queen Over Radical Cleric Leak (Reuters)
- British Banks Step Back From Libor Role (WSJ)
- Obama Seeks To Recast Ties With Arab World (FT)
More bailouts and QE, until Beethoven writes the 10th Symphony.
They All Share One Thing ...
In what is likely the biggest sabre being rattled this week in the war-of-words that is occurring in the Pacific, China announced today the launch of its first aircraft carrier. China bought the 300-meter Soviet-built vessel in 1998 from Ukraine and had it refitted to become an important step in "raising the overall fighting capacity" of its naval forces. Rear Admiral Yang Yi noted that "it is natural that China should have its own aircraft carrier," arguing that all major world powers already own similar vessels. Of course, the coincidental timing is no surprise as Reuters notes "China will never tolerate any bilateral actions by Japan that harm Chinese territorial sovereignty," Vice Foreign Minister Zhang Zhijun told his Japanese counterpart on Tuesday as the two met in a bid to ease tensions. "Japan must banish illusions, undertake searching reflection and use concrete actions to amend its errors, returning to the consensus and understandings reached between our two countries' leaders."
The Japanese have a peculiarly virulent strain of right-wing militarism that continues to influence domestic politics. In this worldview, reverence for the Imperial household is mixed with an aggrieved sense that Japan's expansion in World War II was justified (though few would say this publicly). As a result, any official Japanese attempt to apologize for the horrendous destruction, murder, enslavement and torture inflicted by Japanese forces in World War II sparks outrage in one sector of the domestic political order. Deep within this mindset is the view that the only thing wrong with World War II was that Japan lost. Even more galling to those who suffered so mightily, Japan has refused to publicly acknowledge (though they claim they have) and compensate the "comfort women," young women who were forced into prostitution to serve Japan's armed forces in the Asian/Pacific theater of World War II. This official dance between apology and refusal satisfies no one, and the general sense outside Japan is that the Japanese acceptance of guilt is grudging public relations rather than sincere. Combine an obsession with "face" and a plethora of deep-seated resentments, and you get the tinder for territorial disputes. What appears to be lost on the Chinese is the consequence of their saber-rattling and bluster: they appear to have obliterated 20 years of careful diplomacy aimed at convincing their neighbors of China's peaceful intentions.
So… the Fed has engaged in record intervention in the market and economy. Despite this, the US “recovery” has in fact been a total dud: we’re officially back in a recession. And inflation is hitting lift off. This means the US, like China and Europe, is no longer an engine for global growth. Combined these three regions account for 55% of global GDP.
Liquidity, Fund Flows and Technicals matter now. Fundamentals, Dow Theory and the real economy, not so much.
- China carrier a show of force as Japan tension festers (Reuters)
- Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
- China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
- Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
- When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
- Italy's Monti Downplays Sovereignty Risk (WSJ)
- Portugal swaps pay cuts for tax rises (FT)
- Madrid faces regional funding backlash (FT)
- Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
- Race Focuses on Foreign Policy (WSJ)
- China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)
After briefly attempting to stage a rise in the early overnight session, the EUR has since resumed its lower glidepath (something which Germany's export-focused economy and the only realy economic driver in Europe desperately needs: after all Europe is the only entity in the world whose central bank is working to promote a stronger currency) to the 1.2900 support, as once again Europe comes back into focus, exposing all its warts, scars and boils in perfect 1080HD resolution. Among the key events were a Spanish €4.00 billion bill sale as well as an Italian €3.94 billion 2 year bond sale, which despite selling at the maximum of the intended range, showed far less investor demand than on recent occasions, a development which Rabobank said is to be expected as the "Draghi effect" wanes, and once again Europe is left to its own devices. "The longer Spain delays on requesting bailout, the more the improvement in sentiment following Draghi’s pledge to save euro is likely to unwind" Richard McGuire, fixed income strategist at Rabobank, writes in client note. "Unraveling of “Draghi effect” may accelerate, with possible Moody’s downgrade this week and lack of progress at Oct. 8 Eurogroup summit." Other events out of Europe include the ongoing attempts in Spain to package lots of trash under the rug (see: Spanish Bad Bank Risks Investor Conflict With Stressed Lenders), the realization that the Swiss National Bank instead of continuing to exchange EUR for AUD, bought €80 billion of core debt according to S&P, the print of Italy's September consumer confidence which held near 15-Year lows, a French industrial sentiment which held near Two-Year lows, and so on. Greece too continues to make noises but it seems that the little country is being ignored by everyone. Catalonia's separatist tensions however are getting louder after the Barcelona province did not get the unconditional bailout it demanded (as we wrote yesterday).
If you thought it was complicated when "only" China and Japan were disputing the recent escalation in property rights over who owns those three particular rock in the East China Sea, to be henceforth called the Senkaku Islands for simplicity's sake because things are about to get far more confusing, here comes Taiwan, aka the Republic of China, not to be confused with the People's Republic of China for the simple reason that the latter officially asserts itself to be the sole legal representation of China and actively claims Taiwan to be under its sovereignty, denying the status and existence of ROC as a sovereign state (yet one which benefits from US backing), to also stake its claim over the disputed Senkaku Islands. It has done so in a very confusing manner: by replicating what it thinks China did some days ago when an "armada" of 1000 fishing boats set sail in an unknown direction and which the trigger happy media immediately assumed was in direction Senkaku. It subsequently turned out that this was not the case and as we reported, "China's fishing season stops every year in June-September in the East China Sea, where the islands are located. This year, the ban was lifted on Sunday." In short the (PR)China fishing boat amrada was not headed toward the Senkakus. Taiwan however did not get the memo, and as NKH reports, "several dozen Taiwanese fishing boats have set sail for the disputed Senkaku islands in the East China Sea, to claim access to their fishing grounds."