My meeting with Petros Christodoulou, the man in charge navigating Greece through its 300 billion euro debt storm...
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.
Another reason why Angela Merkel is furiously contemplated just how to kill the EUR next, was this morning's German manufacturing PMI which came at a far wear weaker than expected 55.3 (on expectations of 57.6). Same thing with the services PMI which missed a consensus reading of 57.0 to land at 54.6. Even Goldman's Dirk Schumacher who has long been screeching about the imminent second coming of the Sun King who will make all things well, is starting to realize that in the central bank FX game, economic outlooks now change intervention to intervention.
- Defaulting on Anglo debts now on agenda (Indepentent)
- Government perilously close to calling in IMF, report warns (Independent)
- Japan to Seek Global Understanding on FX (Reuters)
- US Banks Braced for Further Bad News (FT)... seems so deja vu (Zero Hedge)
- China Central Bank Warns of Risks Ahead For Banks (Reuters)
- Geithner vows to take China currency dispute to G20. (Reuters)... But, didn't he do that already?
- Yuan Completes Best Week in 28 Months on U.S. Calls for Gains (BusinessWeek)
- Impact of Bank Rules Likely to be 30% Tougher (FT)
- Japan PM Rejigs Cabinet and Eyes Economy (Reuters)
CPI and the Reuters/Michigan survey…
We are at a point in the September beta ramp, when the market seems to go up on all news: good, bad, worse, worst, and completely irrelevant. After all there are just 10 more trading days in which funds needs a market rise of at least another 5% before they can sleep confident that tomorrow their largest LP won't send in that dreaded redemption notice. Yet there is still one potential gray swan that the market appears to not have factored in - the emergence of full blown protectionism, which will impact the core game theory relationship between the US and China at its very foundation, and begin a process of ever-escalating defection between the two fiat system dilemmatic prisoners. What could bring this disastrous development to the fore? Why Washington, D.C. of course. And if you are about to say that there is no chance of something like that happening in the nearest term, especially before the mid-terms, not so fast. Here is Goldman's Alec Phillips explaining why the passage of a protectionist law in the next few weeks is not only possible but probable.
The recent ISM print of 56.3, which was so ridiculous, not one economist had predicted a number as high, and was therefore sufficient to validate that the US government is now actively managing the Department of Truth, managed to send stocks surging, and disconnect completely form all other correlations, as yet more stat arb desks imploded. Yet what goes up, must come down, especially in an economy gripped by the greatest Depression in history. Which is why, here is Goldman's Andrew Tilton, member of what has now become the world's most bearish economic team, explaining why the very next ISM, and certainly as soon as within a few months, will be sub-50, which will be the catalyst to plunge stocks even as all hedge funds have gone all in chasing last minute September beta with the Fed's blessing.
From Tungstenman Sachs: "Our view remains that the Federal Open Market Committee (FOMC) will once again ease monetary policy via unconventional measures in late 2010 or early 2011. Our views have not changed, and today’s comment discusses them in Q&A form. We believe that purchases of US Treasury securities cumulating to $1 trillion or more are the most likely cornerstone of the program; that the September 21 FOMC meeting is probably too early for a big announcement, but that November 2-3 is a possibility; and that it would likely “work” to a limited degree, perhaps boosting real GDP growth by a little under ½ percentage point per $1 trillion in purchases."
Goldman Does Not See A SNB Hike In 48 Hours, Eliminating Chance Of CHF Snapback On No Hike AnnouncementSubmitted by Tyler Durden on 09/14/2010 15:24 -0400
Earlier today, news that UBS had expressed the iconoclast opinion expecting the SNB to hike its rate by 25 bps to 50 bps, put the CHF into afterburner mode, inspiring a 100 pip move from the then prevailing level of 1.0030 in the USDCHF, to well below parity. Yet it appears other banks refuse to follow through, in adjusting their expectations. Goldman's Dirk Schumacher has released a note in which the European strategist says: "We expect the SNB to leave its target for 3-month Libor at 0.25% in this Thursday’s Monetary Policy Assessment and the overall tone of the statement to remain broadly unchanged." Oddly enough, it would be far more beneficial for the CHF if everyone did expect a hike, only to cause a snapback in the CHF in case there truly is no announcement. As it is however, the CHF will likely not budge all that much once Thursday news of no change hit (and it already is well linside parity with the USD). On the other hand, should the SNB indeed hike, then watch as the CHF hits all time highs, and Brequet, Patek Philippe and Milka factory workers picket the SNB demanding an accommodative monetary regime (what, you think lazy Americans are the only ones who can do it?)
Everyone's favorite N-11 expert is shifting to a new position as head of Goldman Sachs Asset Management. Alas, according to Absolute Return + Alpha, the man who pretty much coined the term decoupling has a substantial uphill climb. Based on the AR+A hedge fund score sheet, GSAM ranks almost dead last in the categories of Alignment of Interests and Alpha Generation (in the last category only beaten by quants AQR and RenTec, where Jim Simons praises the HFT role in the Flash Crash. We wonder if he will change his (swan) song once the SEC finally discovers that it was the HFT's fault all along... some time in 100 years).
- 'Goldman Conspiracy' helps China defeat U.S. - China must be quietly cheering as America's "bloodsucking vampire squid" sucks the life out of our capitalism and democracy, as the Goldman Conspiracy's insatiable greed aggressively sabotages America from within. (MarketWatch)
- SEC Questions Trading Crusade as Market Makers Disappear (Bloomberg)
- Japan PM wins party leadership battle (FT)
- China to Introduce Credit-Default Swaps by Year-End (Bloomberg) - Goldman can not be very please about this
- The 1099 Insurrection - The White House fights an effort to ease a burden on small business (WSJ)
- Bankers Fear Race to Surpass Basel III (FT)
- Goldman Sachs: Bullies on the Block (Huffington Post)
- The Future Ain't What it Used to Be, So Borrow Now (Barrons)
Goldman refuses to turn optimistic, and once again chief equity strategist David Kostin follows in the footsteps of Jan Hatzius, this time telling clients to shift to a defensive mix of stocks after recently downgrading his 2010 S&P target to 1,200. "We shift to a more defensive sector allocation in anticipation of slowing economic growth indicators and downward revisions to consensus earnings and real GDP forecasts." Just as all Wall Street economists followed Hatzius in lockstep, so all equity strategists will now begin dropping their S&P targets, especially since from this point on corporate margins can only go down.
As everyone knows by now, Goldman's (now former) top economist (and creator of such K-11 magic as BRIC and N-11) Jim O'Neill has auspiciously found a new role at Goldman Sachs, as Chairman of Goldman Sachs Asset Management (proverbially, the place which will house all remaining 99.9% of the firm's prop traders, and which with $802 billion in AUM should have enough money to pay all of the Goldman hedge funders' salaries no matter how badly they perform), even as in a completely unrelated departure, Eileen Rominger, the global chief investment officer of Goldman Sachs Asset Management is planning on retiring at the end of the year. The two are obviously completely unrelated. What can we say: on behalf of the bear (or is that realist?) community we will miss Mr. O'Neill taunts, just as he will sorely miss the "few incoming hostile emails in response, and references to some weird blog sites who apparently opine on my views." All in good humor, Jim. That said: after succeeding in (at least on the surface) eliminating Goldman Prop, Zero Hedge will next focus its attention on all the juicy gossip, innuendo, and endless fun emanating out of Goldman Sachs Asset Management. We are sure that Jim will find our continued interest in his activities almost as delightful as a ManU come back victory from 3+ goals down. And now, without further ado, here is Jim O'Neill's farewell letter...
Like a rabid bulldog that refuses to let go, Goldman's Ed McKelvey has bitten on the fact that the US economy continues to deteriorate, despite the occasional data point which the feedback loopers latch on to, only to find out the data was either manipulated or "estimated", and provides a "roadmap" for how the ongoing depression will manifest itself over the next two quarters. As his economic team has been more correct than all others, investors will be paying far more attention to his estimates, than those of a now ridiculous David Greenlaw of Morgan Stanley, who after downgrading the economy three weeks ago, upgraded Q3 GDP from 2.1% to 2.4%. High Frequency Forecast adjustments anyone? According to McKevley the ongoing weakness in the economy will manifest itself along these five key verticals: consumer spending, housing start weakness, industrial activity, ongoing labor market deterioration, and deflation. Of course, this should be sufficient to get bizarro stocks higher by a few percent today. Then again, nobody gives a rat's ass what stocks do anymore.
- Norway Buys Greek Debt as Sovereign Wealth Fund Sees No Default (Bloomberg), and in two years those responsible for the decision will be sued for criminal negligence; In other news ECB funding to Greek banks stays within €0.3 billion of all time high at €95.9 billion. Perhaps Norway meant buying ECB bonds?
- Funniest self-serving statement of the year: Greece Says Bonds Now an 'Opportunity' as Budget Deficit Falls (Bloomberg)... as opposed to yesterday when they were a catastrophic investment. Also not mentioned was the austerity is really working as Greek industrial production plunges far below expectations
- And guess what - more QE coming to a broke Europe near you: BOE Mulls ‘Second Wave’ of Bond Buying as Rebound Ebbs (Bloomberg)
- Base metals overnight flash crash in China (Reuters)
- OECD Says Slowdown `More Pronounced' Than Anticipated (Bloomberg)
- European Crisis Flares Up in Ireland (WSJ)
- A recent uptick in insider buying is normally considered a positive for the stock market, but it may be misleading for investors (Reuters)
- Japan Plans to Seek Discussions With China on Bond Purchases (Bloomberg)