While the world continues to be hypnotically captivated with every word out of Europe, the ongoing fiasco in the insolvent socialist continent is a welcome diversion from our own issues here in the US, which as we noted yesterday, has not "decoupled" from the rest of the world's woes but merely is "lagging." After all the European recession is now guaranteed, and no matter how it is spun it will never amount to a positive GDP event for the US, even more when considering that the PBoC's recent resumption of monetary loosening will take at least several quarters to be felt globally. But a lag to what? Why 2012 of course, and specifically the January 24-25, 2012 Fed statement when as SocGen pointed out the Fed is most likely to announce yet another $600 billion episode of quantitative easing. But why then? Why not at the December 13 meeting, the topic of Fed telegraph Jon Hilsenrath's latest piece, according to which the Fed will soon emphasize that it will never hike rates and as a result collapse all refi activity because who wants to go into a 30-year fixed at 4% when it will be available at 2% 3 months later, and at 0% 6 months after that? Simple: the Fed's balance of power is about to shift substantially. With under 30 days left in 2011, the current roster of 4 rotating voting Fed governors is about to be swept out, only to be replaced with 4 new ones. Yet as the chart below from SocGen shows, the rotation will probably be the most dramatic in Fed history as 3 die hard Hawks (and 1 dove) are eliminated only to be replaced with a panel which is almost exclusively Dovish. In fact, at the end of the day the only modest Hawk on the Fed's voting committee will be Richmond Fed's Jeffrey Lacker (the only member to vote against the drop in FX swap line rates), and even he in the past has shown his dovish wings. Which means that for all intents and purposes, the major delay in global events, and market uncertainty, merely has to last until the end of the year when the doves take over. Furthermore to anyone who will point out that in 2012 virtually every single Hawk will be mysteriously out of the voting rotation, all we can say is: "you are correct." And if Europe or Iran or China or any other event serves as a welcome distraction for a few more weeks until the Fed once again does what it does best (and only), so be it.
While EURUSD is off its highs of the evening so far, it remains 20-30pips higher and is mildly supportive (given EURJPY and also AUDJPY's moves) of the 7pt better open in ES (the e-mini S&P 500 futures contract). The Italian austerity measures seem the main driver which is odd given this is not news and was fully expected. Oil is also popping (above $101.50 now), on the Iran news we assume, and Gold is above $1750 as Silver outperforms +0.8% from Friday's close.
Classified documents surfaced in Germany that predicted a dire future for Afghanistan after the departure of NATO troops.
While everyone is focusing on what empty words and promises will come out of Europe this week which continues to valiantly, yet with utter futility, fight simple math, our friends at Religare Research remind us that there is a whole another theater of operations (pardon the phrase) that many are so far forgetting about located in the middle east which is far closer to what at the end of the day really matters: oil. As Emad Mostaque notes: 'While North Africa is busily transitioning to a set of neo-Islamist, GCC-sponsored Sunni democracies (we are positive on this trend), Shia groups in the Middle East have started to stir. In this monthly we focus on some of the key elements of the Shia tradition that may have a significant impact on global markets in the near future." Below are the key takeaways.
Iran and the United States broke diplomatic ties following the 1979 Islamic revolution and the storming of the U.S. embassy in Tehran 32 years ago. Here are details of ups and downs in their relations since the 1950's.
Perhaps it is time to point out the "trade of the day", which for some reason has seen no action yet since the Iran news has broken. Presenting the InTrade "USA and/or Israel to execute an overt Air Strike against Iran before midnight ET 30 Jun 2012" contract, which at last trade yesterday (no trades today yet), was seen trading at $24.3, or at about 24.3% implied probability. Following today's news, we would venture to guess that the upside/downside here is attractive to quite attractive.
Here we go:
IRAN MILITARY DOWNS U.S. DRONE IN EASTERN PROVINCE -TV
IRAN SAYS ITS RESPONSE TO U.S. DRONE VIOLATION OF ITS AIRSPACE WILL BE CARRIED OUT OUTSIDE IRAN'S BORDERS- FARS AGENCY
Guest Post: Furious At Latest U.S. Attack, Pakistan Shuts Down Resupply Routes To Afghanistan "Permanently"Submitted by Tyler Durden on 12/03/2011 13:05 -0500
NATO recently literally shot itself in the foot, imperiling the resupply of International Assistance Forces (ISAF) in Afghanistan by shooting up two Pakistani border posts in a “hot pursuit’ raid. Given that roughly 100 fuel tanker trucks along with 200 other trucks loaded with NATO supplies cross into Afghanistan each day from Pakistan, Pakistan’s closure of the border has ominous long-term consequences for the logistical resupply of ISAF forces, even as Pentagon officials downplay the issue and scramble for alternative resupply routes. Pakistan, long angry about ISAF/NATO cross border raids, has apparently reached the end of its tether. Following the 26 November NATO aerial assault on two border posts in Mohmand Agency in Pakistan’s turbulent NorthWest Frontier Province, Islamabad promptly sealed its border with Afghanistan to NATO supplies after the allied strikes killed 24 Pakistani soldiers.
While this story has not been caught by any of the major wires, The Australian's Jerusalem correspondent Sheera Frankel reports something quite disturbing: "All eyes on Israel after second Iranian blast. CLOUDS of smoke billowed above the city of Isfahan - evidence that the latest strike against Iran's alleged nuclear weapons program had hit its target." We will report more if this story is confirmed by any other news agencies because if true it means that at this point things behind the scenes are no longer happening in the shadows.
- Liquidity remains thin as market participants await release of the Nonfarm Payrolls data from the US. Early market talk has been for a number as high as +200k
- The Eurozone 10-year government bond yield spreads remained generally tighter across the board, with the exception of the French/German spread
- Eurodollar and Euribor futures traded under pressure during the European session on continued bank funding fears
- According to reports, EU finance chiefs gave go-ahead for work on central bank loans, and ECB lending via IMF is seen in the EUR 100-200bln range
- Merkel Says Joint Euro Bonds Unthinkable as EU Faces Marathon (Bloomberg)
- Draghi hints at eurozone aid plan (FT)
- Europe prepares oil imports embargo on Iran (FT)
- RIMM cuits guidance.... again (Marketwire)
- Sarkozy Says Euro Zone Risks a Breakup Without Further Fiscal Convergence (Bloomberg)
- King warns of ‘spiral’ into systemic crisis (FT)
- JPMorgan Follows UBS Cutting Carbon Jobs (Bloomberg)
- Merkel fights for euro she says is stronger than D-mark (Reuters)
- Hilsenrath: Fed Officials Don’t See Central Bank Cutting Discount Rate (WSJ)
Been lots of talk around lately regarding the collapse of the US Dollar and what that would mean for the United States of America and the world. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization. These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world. There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is the first lesson...
It’s fascinating to watch things play out as we rapidly approach the final rounds in the end game of the great game. The great game is of course the never-ending global struggle for power and dominance. The current entrenched powers that be have been in their positions for a very long time and they have no intention of giving up that role. What the moral and decent percentage of humanity need to understand in no uncertain terms is that these folks and their minions have no conscience. They could care less how many starve to death, get blown to bits in war or waste their lives away in front of the television set watching Snookie on the Jersey Shore. In fact, I am certain that they totally get off on these things. Degrading humanity into an animal-like state clearly appears to be their aphrodisiac. Notice how the media encourages people to go out and trample each other for a $2 waffle maker on Black Friday. The scenes of people running into Wal-Mart or Best Buy in the early morning hours when they should be at home with their families having conversation after Thanksgiving dinner reminds me of scenes of cattle being shuffled into a sorting pen. Actually if you look at this video the cattle appear much more civilized http://www.youtube.com/watch?v=C71324F_Q-8 (just go a minute and a half in). I think the second step after one sees the insane matrix we are trapped in is to free yourself from it mentally and emotionally. It is the mental and emotional control that they are really after. That is the most powerful and effective tool of control so don’t give them the satisfaction. Try to buy local and support your communities. It may cost more but in that case just buy less. You will feel good about it. More specifically, anything encouraged by the mainstream media, like spending money you don’t have on superfluous items made in China with slave labor and sold to you at a giant tax dodging corporation should be avoided if possible. With that out of the way, on to the main topic of this paragraph. The good ol’ SDR. I will tell you one thing right now. When TPTB progress to talking about IMF rescues and SDRs we are the end of the line boys and girls. This is the LAST play they have in the conventional playbook.