Greenspan chimes in on the biggest debate of the post-Bernanke era, and says "America
is also pursuing a policy of currency weakening." Duh. At this point we would love to ask the dear demented revisionist: just what on earth was your policy, Mr. ex-chairman, and why is "it" really known as the Greenspan Put? At the end of the day, does all the Fed do, aside from bubbles of course, is just create insane, cannibalistic, and completely revisionist, apparatchiks?
In attending a Paul Krugman lecture yesterday, we came away with two main takeaways: 1) the Perceived Wisdoms of academic dogma run rampant throughout U.S. monetary policy; and 2) Keynesians really don’t get it. - Hedgeye Risk Management
Countries used to destroy their neighbors by sending in invading armies of screaming warriors swinging great long swords. Today, you simply buy their currency. Foreign banks are using their balance sheets to speculate in the currency markets and boost profits. Adding fuel to the fire has been efforts by the People’s Bank of China to diversify out of the dollar as a reserve asset by pouring new cash flows into the yen. This explains why the central bank’s intervention efforts to slow the yen’s appreciation have been an abject failure. How this kabuki play will end. (FXY), (YCS).
The "Current Housing Recession is Rivaling the Great Depression’s Real Estate Downturn [and] Will Easily Eclipse It In the Coming Months"Submitted by George Washington on 11/10/2010 12:43 -0400
But not yet as bad as the great 1349 crash in Florence.
With today's POMO schedule coming at 2pm, the brigade of Fed Prime Broker front-runners will feel dazed and confused around 1pm as they will have no idea how promptly after the auction they will be able to do their unconstitutional duty of buying Treasuries then flipping them right back to the Fed. And the last thing the long-end needs now is further uncertainty. As Morgan Stanley's Igor Cashyn demonstrates, the October 30Y auction had some of the weakest metrics in a year, and with foreign tensions escalating, if China wanted to "teach" the US a lesson, today would be the perfect time to do it (which would be contradictory to yesterday's record indirect take down of the 10 Year). Still, with the 30 Year yield surging, the dynamics of today's auction will be a major harbinger of things to come vis-a-vis demand for this orphaned sector of the yield curve.
- G-20 Unity Born in Crisis Fractures as Leaders Pursue Own Ends (Bloomberg)
- IMF Calls on UK to Plan for Surprises (FT)
- Rare earth prices to rise again? (Reuters)
- Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire (Bloomberg)
- Food Price Fears As US Warns On Crop Yields (FT)
- EU threatens to block Chinese bids for public contracts (Telegraph)
- Fed-Bashing Three Ways: Beating up on the Fed used to make you an oddball. Does it still? (Slate)
- Debt Limit Impasse Could Drag On For Months (RCM)
- API reports surprise declines in US fuels inventories.
- China ordered some lenders to increase their reserve ratios by 50 bps from Nov. 15.
- China posted a larger-than-forecast $27.1B October trade surplus.
- EU fined 11 airlines a total of $1.11B for forming cartel to fix air-freight tariffs.
- FDIC Board voted to take initial steps to implement higher fee structure for its deposit-insurance fund.
- G20 draws up two-tier bank plan; Global and national regulators to split focus.
China Flips Off Geithner (Again) As Trade Surplus Beats Expectations And Surges To Second Highest In Two YearsSubmitted by Tyler Durden on 11/10/2010 01:04 -0400
China just metaphorically flipped off the US, and the G-20, by not only beating trade expectations, but trouncing them, with a net positive trade surplus of $27.1 billion, compared to estimates of $25 billion. This was the second highest number since January 2009, and lower only to July's $28.7 billion. The main reason for the surge in exports was the trade balance with the EU, which at $14.5 billion is the highest since October 2008. In other words, Europe's strong currency is already impacting the continent's economic output, as end users opt to import stuff from China, instead of having it produced domestically, and not to mention stockpiling inventory in hopes that pricing power will allow prices to go up (instead of just squeezing margins even more). Ultimately, Europe is the one that is now getting hit by a double whammy of the CNY-USD peg (as the CNY is now at very low levels to the euro), as well as the recent surge in the EURUSD, due to the Fed's policies. Therefore, Europe has to continue battling not one monetary regime, but two, as its net trade balance with both the US and China are getting worse by the month. As for the all important Chinese trade balance with the US, it came flat with September, both at $18 billion, even though both imports and exports declined proportionally. Elsewhere, and possibly in anticipation of increasing inflation dangers and overheating, but still unwilling to depeg from the USD, Bloomberg reports that China has ordered some banks to raise reserve ratios by another 50 bps. This will be the second such move in under a month - last time it was another 50 bps move to 17.5%. Of course, this is no different than putting a cork in the proverbial dam.
It was another lackluster day in the market as investors are still trying to regain their bearings from last week's quadruple news high of elections, QE2, the jobs report, and Kat Dennings nude photos being released. With all of the excitement...
Many questions are swirling over last night's launch of a rogue rocket, which it appears was a submarine launched ICBM from the Pacific, 35 miles west of Los Angeles. So far pretty much everyone has denied any involvement, and as per the NYPost, "according to Fox News, NORAD and NORTHCOM would only say they were aware of the launch" even as "a navy spokesperson previously told KCBS that no navy activity was reported in the region." Yet the closest approximation for what the reason for the launch may have been comes from Robert Ellsworth, former defense secretary: "On viewing the footage, former deputy defense secretary Robert Ellsworth speculated on KCBS that the launch could be a show of military muscle. "It could be a test-firing of an intercontinental ballistic missile from a submarine ... to demonstrate, mainly to Asia, that we can do that," Ellsworth said." And China has not even sold and US bonds yet. So did China Dagong in turn retaliate earlier by downgrading the US? At this point we can only hope that the Chairman can confine his FX war to Forex terminals, without actually involving a few strategically placed mushroom clouds.
A very troubling anecdote by Art Cashin today on the possible future developments in fraudclosure: "The guest said that, sensing that suspending foreclosures could lead to a tsunami of new defaults among “current” mortgagors, they simply announced resumption as a warning. He claimed that foreclosures were not resuming because the records remain murky and would promote challenges and, perhaps, legal penalties." Cashin also looks at how the next USD-strength precipitated flash crash could look like: "If there were to be one or more sovereign defaults, the resultant flight to safety into the dollar could pull the rug out from under stocks. Even more worrisome would be some geo-political surprise. An Israel/Iran dust up could send the dollar soaring in a nano-second. That could send stocks into a trapdoor selloff that could look a lot like the “flash crash”."
The split between pundits on the fate of the key FX pair: the EURUSD, has rarely been more diametrical. On one hand you have the Steven Englanders of the world calling for a major drop in the USD, on the other, you have firms like Brown Brothers saying the USD is poised to surge. Ultimately, the arbiter will likely end up being China, and what grade the world gives to Bernanke's actions. In the meantime, here is BBH on their view of why the EUR is likely overpriced at these points. Surely, this is a view that would be very much endorsed by all of Germany, and since the EUR did its penance as the world's most overpriced currency long enough, we would not be surprised to see much more of the European weakness make headlines once again.
China Downgrades US Again, From AA To A+, Outlook Negative, Sees "Long-Term Recession", Blasts QE2, Expects Creditor RetaliationSubmitted by Tyler Durden on 11/09/2010 11:20 -0400
Fan, meet shit: "Dagong has downgraded the local and foreign currency long term sovereign credit rating of the United States of America (hereinafter referred to as “United States” ) from “AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment. The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency. The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S. Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government’s intention of debt repayment. Analysis shows that the crisis confronting the U.S. cannot be ultimately resolved through currency depreciation. On the contrary, it is likely that an overall crisis might be triggered by the U.S. government’s policy to continuously depreciate the U.S. dollar against the will of creditors."
With the dollar tumbling overnight, many were scratching their heads as to what caused the move in the dollar. Citi's Stephen Englander provides a useful explanation, which fits perfectly with the commentary from PBoC advisor Li's earlier that the dollar's position as a reserve currency is now "absurd": namely that more and more in the world are starting to look at the CNY as the new reserve currency. And as we pointed out earlier, its fixing surge of over 0.5% overnight caused many to blink. Is China finally pushing to aggressively force the dollar out?
- Fed Global Backlash Grows (WSJ)
- Warsh Says Federal Reserve's Asset Purchases May Fail to Benefit Economy (Bloomberg)
- The HFT parasites are back in full force: High-Frequency Traders Lobby, Donate to Head Off U.S. Rules (Bloomberg)
- China to Tighten Control on Inflows of Overseas Funds (Bloomberg)
- Goldman Faces Lawsuit Over $1.2 Bln Hudson CDO Deals -Filing (WSJ)
- Ireland's Next Blow: Mortgages (WSJ)
- One Law for the Rich, One Law for the Poor: The new foreclosure crisis reveals the shocking unfairness in how the law treats struggling homeowners (Stiglitz)
- Goldman, Natixis Fight Over Swaps Deal Goes to Trial in London (Bloomberg)
- A Recipe for Fascism (TruthOut)