Barclays

Chinese economic data has in general been surprising to the downside in recent weeks - in opposition to the positive (seasonally adjusted awesomeness) of US data. However, for tonight's entertainment we have GDP at 7.4% YoY - perfectly in line with expectations (but the 7th consecutive quarter of slowing growth), Industrial Production beat modestly, Retail Sales beat handsomely (biggest beat in 18 months), and FAI beat...

• *CHINA 3Q GDP RISES 7.4% VS ECONOMISTS' EST. 7.4%       :NBSZ CH
• *CHINA SEPT. INDUSTRIAL OUTPUT RISES 9.2% VS 9% ECONOMISTS' EST.
• *CHINA JAN.-SEPT. FIXED-ASSET INVESTMENT UP 20.5% VS EST. 20.2%
• *CHINA SEPT. RETAIL SALES RISE 14.2% FROM YEAR EARLIER

So, no new stimulus coming anytime soon - leaving Bernanke and Draghi all alone (and the latter is stuck waiting for Rajoy to say 'Si'). AUD lurched violently up and down; US equity futures are unmoved; and Treasury yields rose perhaps 1bps.

• Obama takes offensive against Romney in debate rematch (Reuters)
• Obama Says Romney Words Aren’t ‘True’ in Second Debate (Bloomberg)
• Obama takes Romney head-on in debate (FT)
• And another joins the club: Thailand Unexpectedly Cuts Rate as Global Outlook Worsens (Bloomberg)
• PBOC Injects Less Cash (WSJ)
• Japan to Hold Special Cabinet Meeting After Economy Downgraded (Bloomberg)
• Greek Coalition Duo Reject Labour Moves Proposed by Troika (WSJ)
• Opposition wanes to Spanish aid request (FT)
• RBS to Exit U.K. Asset Protection Plan After $4 Billion Fees (Bloomberg)
• Spain Retains Investment Grade Credit Rating From Moody’s (Bloomberg)
• US diplomat asks Japan, ROK to resolve islands spat (China Daily)
• Stagnation not due to austerity, says OBR (FT)

The head of industrial and precious metals trading at Barclays, Cengiz Belentepe, has told Bloomberg that investors are selling their investments in gold ETFs and opting for the safety of allocated physical gold.

Barlcay’s Belentepe said “the question is whether the pace of buying has slowed, or whether the people have become a bit more sophisticated in recognizing the costs and liabilities.”

• Hillary Clinton Accepts Blame for Benghazi (WSJ)
• In Reversal, Cash Leaks Out of China (WSJ)
• Spain Considers EU Credit Line (WSJ)
• China criticizes new EU sanctions on Iran, calls for talks (Reuters)
• Portugal sees third year of recession in 2013 budget (Reuters)
• Greek PM says confident Athens will secure aid tranche (Reuters)
• Fears over US mortgages dominance (FT)
• Fed officials offer divergent views on inflation risks (Reuters)
• China Credit Card Romney Assails Gives Way to Japan (Bloomberg)
• Fed's Williams: Fed Actions Will Improve Growth (WSJ)
• Rothschild Quits Bumi to Fight Bakries’ $1.2 Billion Offer (Bloomberg)

Nearly four years ago, we started a series of articles in which we methodically presented evidence that LIBOR was manipulated. Then, in late June, the biggest (to date) bank conspiracy was exposed, in which it was found beyond a reasonable doubt that at least one, and in many case all (including the BOE and Fed) were if not engaging, then certainly aware of numerous instances when daily USD LIBOR fixing was fudged one way or another for various non-fiduciary, read illegal purposes. When our conspiracy theory was confirmed to be conspiracy fact (as usual), we suggested the following: "Our advice to anyone who had an adjustable rate mortgage in the period between 2005 and today: speak to a lawyer immediately about suing the living feces out of Barclays, and all other banks who crawl out of the woodwork with purported settlements. Because due to their undisputed mark manipulation, it is absolutely safe to say that ARMs, which rely on Libor for interest rate formation, were grossly manipulated by the same idiot traders who left written evidence of their manipulation year after year. Now it is their turn to pay." As of last night, this too has occurred, after several homeowners, aka Adams et al (Southern New York, 12-cv-07461) launched a class action lawsuit against Bank of America and all other LIBOR banks, accusing the defendants of "unjustly enriched themselves" by manipulating the rate, which allowed them to increase the payments by homeowners on adjustable rate loans, and boosting profits.

The fact that the major credit indices have had to resort to 'imaginary credit' in order to generate an actionable market is perhaps the final nail in the coffin of the single-name CDS market in this cycle. An artificially low spread environment, forced their by massive technical flows thanks to central-bankers' financial repression has removed a natural buyer- and seller- from the market - reducing liquidity; and combined with Dodd-Frank and more regulation (higher capital reqs), dealers are also forced to delever risk books (reducing liquidity). But, there is one glaring reason why the single-name CDS market is dying; extremely high correlation. As Barclays notes, in a market where investors’ ears are, more than ever, finely tuned to the statements of politicians and central banks and the tail outcomes for the market, it makes sense for correlation to be high – at this stage, there should be little distinction between individual names – trading the level of systemic risk premia is the focus. And sure enough, index (systemic) volumes is rising as single-name (idiosyncratic risk) trading volumes and exposures are fading fast. So what brings it back?

The overhwelming majority of investors seem to believe that some compromise will be reached to resolve the looming fiscal drag, and as we noted here, this fact is more than priced into markets. As Barclays notes however, a big deal that encompasses entitlement and tax reform is very unlikely before year-end. Hence, if the ‘cliff’ is avoided, it will be because Congress extends all expiring provisions for some time while it works on a bigger deal. Such an 'extension/compromise' move would not reduce investor uncertainty if it were only for a few months; bond markets would simply start counting down to the new date. More importantly, the discussion about the fiscal cliff misses a broader point: the US will probably have significant fiscal tightening over the next decade that is a drag on medium-term growth. Yet more investors dismiss last year's reaction to the debt-ceiling debate - a 17% decline in 2 weeks - as any kind of precedent, claiming (falsely) that this was more due to European financial difficulties. We expect fiscal issues to be the defining drivers of the next several quarters and as BofAML notes, Washington's view of this 'process' as a 'slope' combined with the dangerously negative election campaign (which will need a 180-degree reversal for any compromise) means the likelihood of a Wile E. Coyote Moment is considerably higher than most expect.

While we already know that 59-year-old (current Vice-President) Xi Jinping will become China's next President a mere two days after the US votes; the political and economic challenges he will face makes the appointment in the midst of structural upheaval a considerable 'unknown' for the many Western investors trying to decipher the CCP/PBoC's next steps (fiscally or monetarily). Stratfor's Colin Chapman and Rodger Baker succinctly discuss what we know about Xi Jinping and what the implications are for faster reform as the nation faces the end of the current economic model. Everything you wanted to (and need to) know about China's transition but were too tired to read.

Watch as The Intruders crash the Investment Banking Awards in Mayfair to present a spoof award to Barclays for their role in manipulating LIBOR.

• Global easing deluge resumes: Bank of Korea Slashes Policy Rate (WSJ)
• And Brazil: Brazil cuts Selic rate to new record low of 7.25 pct (Reuters)
• With Tapes, Authorities Build Criminal Cases Over JPMorgan Loss (NYT) Just don't hold your breath
• IMF snub reveals China’s political priorities (FT)
• Add a dash of trade wars: Revised Duties Imposed by U.S. on Chinese Solar Equipment (Bloomberg)
• IMF calls for action as euro zone crisis festers (Reuters)
• Dubai Losing Billions as Insecure Expats Send Money Abroad (BBG)
• Softbank in Advanced Talks to Acquire Sprint Nextel (WSJ)
• Lagarde calls for brake on austerity (FT)
• EU lambasts Turkey over freedoms (FT)
• Race Tightens in Two States (WSJ)

• U.S. Military Is Sent to Jordan to Help With Crisis in Syria (NYT)
• IMF Weighing New Loans for Europe (WSJ)
• Romney Targets Obama Voters (WSJ)
• China’s Central Banker Won’t Attend IMF Meeting Amid Island Spat (Bloomberg)
• Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’ (Bloomberg)
• German media bristles at hostile Greek reception for Merkel (Reuters)
• The End Might Be Near for Opel (Spiegel)
• IMF sounds alarm on Japanese banks (FT)
• Cash Tap Stays Dry for EU Banks (WSJ)
• Goldman in Push On Volcker Limits (WSJ)
• IMF Vinals: Further Policy Efforts Needed to Gain Lasting Stability (WSJ)
• King signals inflation not primary focus (FT)

While the recent revelations of multi-year LIBOR manipulation (but, but how was that possible: it involved thousands of people, operating for years, manipulating numbers - all the traditional reasons presented against conspiracy theory crackpots alleging that manipulation may be going on here, or there, or at the BLS, or somewhere), which we had said had been happening for the past 3 years, confirmed that the entire rate-based derivative market was a giant scam, at least one market spared from cartel whistleblower, i.e., insider, humiliation, was the commodities market. No longer. As the FT first reported, a Swiss trading office of Total Oil Trading sent a response letter to IOSCO (the International Organization of Securities Commissions), alleging that the same kinds of market "pricing" shennanigans that have been now exposed to have taken place over bottles of Bollinger, may have been pervasive in the crude market as well.

• Rajoy’s Deepening Budget Black Hole Outpaces Spain’s Cuts (Bloomberg)
• ECB May Need to Cut Rates Given Deflation Risk, IMF Says (Bloomberg)
• Global Recession Risk Rises (WSJ)
• Romney Leads Obama in Pew Likely Voter Poll After Debate (Bloomberg)
• IMF Sees Global Risk in China-Japan Spat (WSJ)
• Republicans shift tone on taxing the rich (FT)
• Romney casts Obama's foreign policy as weak, dangerous (Reuters)
• Europe Salutes Greek Budget-Cutting Will, Raising Aid Prospects (Bloomberg)
• U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved (Bloomberg)
• IMF Says Most Advanced Nations Making Progress Reducing Deficits (Bloomberg)
• Eurozone launches €500bn rescue fund (FT)

As we have been saying for over a year now, there are two key issues (one of which follows logically from the other) that central bankers are banging their heads against: the increasing scarcity of money good-assets, i.e., credible collateral, that can be pledged in exchange for debt at both the private and public level, and the collapsing cash flows at the corporate and household level (both incidentally direct artifacts of ubiquitous central planning and central banker intervention). This, among various other reasons chief among which is the parallel collapse in CapEx and R&D spending at the corporate level, is the main reason for the now secular decline in corporate revenues, which in turn will impact corporate profitability for years to come (now that the easy cost cuts have been made and firms have no choice but to cut into the muscle), and why any expectations that currency dilution will transform into higher profits in a time when input costs rise far more aggressively than revenues, are merely pipe dreams, as is the market's obsession with expanding PE multiples. Perhaps the best confirmation that the much needed cash flows continue to not materialize, is the news that first Amazon, and now Google, are slowly migrating to a model of vendor financing, whereby they provide credit to their product and service vendors to stimulate top line growth. And while this may boost AMZN and GOOG stock price briefly, all it indicates is what we have all know for a long time: the US consumer is once again tapped out, and is unwilling and/or unable to spend money at the rate needed to justify either the forecast S&P earnings or the applied multiple, confirming fundamentals are even more disjointed from market surreality than previously expected.

History has shown us countless times that centrally-­?planned, command style economies do not produce long-­?term economic growth. We’ve seen this will the Soviet Union, the UK, the US-­?since the Tech Crash, and today in China.