It seems like history is accelerating. Momentous events have been occurring regularly since 2007. Our political and financial leaders are blindsided on a daily basis by each new crisis. The majority of the American public continues to be apathetic, willfully ignorant, and constantly absorbed by their array of electronic gadgets and mindless drivel spewed at them by media conglomerates. Rather than think critically, most Americans allow left wing and right wing mainstream media to formulate their opinions for them through their propaganda and misinformation operations. Linear thinkers, who make up the majority of the political, social, media and financial elite in this country, believe the world progresses and moves ever forward. In reality, the world operates in a cyclical fashion, with generations throughout history reacting to events in a predictable manner based upon their stage in life. The reason the world has turned so chaotic, angry and fraught with danger since 2007 is because we have entered another Fourth Turning. Strauss & Howe have been able to document a fourfold cycle of generational types and recurring mood eras in American history back 500 years. They have also documented the same phenomenon in other countries.
- Market talk that China may contribute towards the EFSF. Meanwhile, Japanese PM Noda said Japan will consider continued buying of EFSF bonds
- According to an EFSF spokesman, the EFSF is putting off the sale of its 10-year securities
- Weakness in the USD-Index boosted EUR/USD, GBP/USD and commodity-linked currencies
- According to the German foreign minister, the Greek rescue plan cannot be renegotiated
- Markets look ahead to the FOMC rate decision followed by Fed’s Bernanke press-conference
This week's MoF intervention in the FX markets, while not quite unprecedented (trailblazer Hildebrand aside), was certainly sizable, surprising, and potentially sustained - no matter how many times we were told by Mr. Azumi that he was 'watching' closely. Our question, and one discussed in a Bloomberg story this evening, is it possible to change the course of USDJPY via intervention - and perhaps more presciently (given growing global interest in capitalist/Keynesian spending escalation), was the expected $512bn loss that the country faces on these FX positions alone worth it? Tohru Sasaki, of JPMorgan's Global FX Strategy group, address his concerns at both the unilateralism and the worrying perspective that the Japanese might try to emulate the SNB - which he sees as almost impossible to achieve - especially since the ceiling on CHF leaves JPY and USD as the only anti-cyclical currencies.
“It’s difficult to change the trend of the currency market.
Even if the action can stem the currency’s gains temporarily, the yen will eventually appreciate.”
The Ironic, Prophetic Nature of the MF Global Bankruptcy Filing and It's Potential Ramifications of Lehman 2.0!!!Submitted by Reggie Middleton on 11/01/2011 08:20 -0400
Here is video outlining precisely how MF would collapse due to Fed policy, made at the beginning of the year! This wasn't hard to see coming. How many of you are willing to bet that MF Global will NOT be the Lehman of 2011? Let me rundown a few hard, painful and accurate observations that you guys who fell for that rough ass bear market rally might have overlooked.
A strong shift in sentiment against the Euro was the theme of yesterdays action, this has resulted in a big shift in retail positioning in the EURGBP today which went from over 60% of retail traders being short (and correct) to now over 60% being long (and wrong as they are most of the time). In keeping with our contrarian view we maintain a short bias on EURGBP.
It just goes from bad to worse for Europe, which had been hoping to issue €5 billion in 15 year bonds to finance part of the Irish bail out via the EFSF. Instead, once seeing the orderbook, or lack thereof, Europe ended up slashing the notional by 40% and the maturity by 33%, to a €3 billion issue due 10 years from now. And that is hardly the end of the concessions. As the FT reports, "The bond from the European Financial Stability Facility will only target €3bn, instead of €5bn, and will be in 10-year bonds rather than a 15-year maturity because of worries over demand. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity. Banks hired to manage the deal are Barclays Capital, Crédit Agricole and JPMorgan." Do you see what happens Larry, when China walks? But so we have this straight, Europe plans to fund a total of €1 trillion in EFSF passthrough securities.... yet it can't raise €5 billion? Just.... Priceless.
While household-sentiment measures are at levels typically observed during a recession, an increase in spending during the third quarter boosted growth to the highest level of the year, Commerce Department figures showed Oct. 27. The schism partly reflects consumer ire with the government’s failure to reduce 9.1 percent unemployment or stem rising deficits, said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management.
Once again, Bill Gross proves he can think outside of the box better than most, with the following paragraph from his latest letter to clients: "the investment question du jour should be “can you solve a debt crisis with more debt?” Penny or no penny. Policymakers have been striving to answer it in the affirmative ever since Lehman 2008 with an assorted array of bazookas and popguns: 0% interest rates, sequential QEs with a twist, and of course now the EU grand plan with its various initiatives involving debt write-offs for Greece, bank recapitalizations for Euroland depositories and the leveraging of their rather unique “EFSF” which requires 17 separate votes each and every time an amendment is required. What a way to run a railroad. Still, investors hold to the premise that once a grand plan is in place in Euroland and for as long as the U.S., U.K. and Japan can play scrabble with the 10-point “Q” letter, then the markets are their oyster. Not being one to cast pearls before swine or little Euroland PIGS for that matter, I would tentatively agree with one huge qualifier: As long as these policies generate growth."..."My original question – “Can you solve a debt crisis by creating more debt?” – must continue to be answered in the negative, because that debt – low yielding as it is – is not creating growth. Instead, we are seeing: minimal job creation, historically low investment, consumption turning into savings and GDP growth at less than New Normal levels. The Rogoff/Reinhart biblical parallel of seven years of fat followed by seven years of lean is not likely to be disproven in this cycle. The only missing input to the equation would seem to be how many years of fat did we actually experience? More than seven, I would suggest." And that, dear readers, is the bottom line: put otherwise, we have experienced 30 years of deviation from the mean courtesy of the biggest, and most artificial in history, cheap debt-inspired period of global "growth." And we are due for the mother of all mean reversions when the central planners finally realize their methods to defeat this simplest of methemaical concepts, have failed.
- Azumi Pledges More Action After Yen Intervention (Bloomberg)
- Japan to buy more EFSF bonds-Europe fund chief (Reuters)
- Draghi in Battle Mode From Day One at ECB (Bloomberg)
- Berlusconi Stays Defiant as Europe’s Crisis Focuses on Italy Reform Effort (Bloomberg)
- Hu starts key trip to Europe (China Daily)
- Europe will not offer China concessions for aid: Juncker (Reuters)
- Europe Might Have Blown Last Chance to End Its Crisis (Bloomberg)
- Schäuble calls for EU lead on Tobin tax (FT)
- UK faces "economic suicide" if on EU margins – Clegg (Reuters)
Despite measures to tackle the Eurozone debt crisis from last week's EU leaders' summit, the implementation details remained unclear and there remained uncertainty about the Chinese contribution in solving the crisis, which dented the appetite for risk. Furthermore, the OECD and UBS cut their respective growth forecast for the Euroarea, which also weighed on the sentiment, and led European equities to trade lower, with underperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices. Weakness in equities provided support to Bunds, whereas the Eurozone 10-year government bond yield spreads widened across the board, with particular widening seen in the Italian/German spread on the back of debt and political concerns surrounding Italy. In the forex market, Japan intervened in the FX market overnight, which resulted in the weakening of JPY across the board. In other news, strength in the USD-Index weighed on EUR/USD, GBP/USD and commodity-linked currencies. Moving into the North American open, markets look ahead to economic data from the US in the form of Chicago PMI, and NAPM-Milwaukee, together with the Canadian GDP figures.
So the EU finally reached a debt deal and hell (or at least New York City) froze over. Thursday's meteoric rise was followed by a relatively calm Friday but is losing steam as more and more nagging doubts set in. Italian and Spanish bond yields have failed to participate in the rally and in fact Italian yields are reaching yields not seen in decades. The EFSF has morphed into an incredibly complex entity and there is no indication that Regling is up to the task of running their various programs optimally. The Asian trip seems ill advised at best and a debacle at worst. What is he asking China to invest in? China has money, and I don't doubt that under the right terms will invest in Europe. But they need terms. What terms is the EFSF getting on the bank recap portion? Do they even know or have they even thought about it? Are they even willing to let China invest in banks on a big scale? What about buying bonds? Since there are no details on the new first loss protected bonds, what can Regling be asking them to invest in? At some point China has accumulated these reserves because they understood it matters what you invest in. I wonder if not only did this trip annoy China but has actually increased their concern that European leaders are way in over their heads on this financial crisis. Even Japan was only willing to say they would take some more of the German/French backed good EFSF bonds, albeit at a slower rate of purchase. Does anyone really doubt the AAA bonds backed by the 6 AAA countries still have a bid?
We ended last week with 88%+ of USDJPY traders long and wrong for many months now. Today Japan sold the yen for the second time in less than three months after it hit another all time high against the dollar last week. As usual...retail traders are quickly moving position and we are seeing a strong drop in overall long positions to 70.83%. We expect this trend to continue but its important to note that past interventions haven't done a whole lot to stem the tide.
For the last 45 minutes, USDJPY has been unable to shake loose of 79.2 by more than a pip or two. Following the SNB and their efforts with EURCHF, which as far as we recall is technically pegged at 1.20, is Azumi now pushing another of our freely floating foreign exchange currencies to a peg, as he soaks up any and all USDJPY offers under 79.20? Gold is down a little (in its knee-jerk response to USD strength reflecting off the JPY intervention) but one has to wonder if slowly but surely we are being reverted to the 'rigidity' of a gold standard? Lastly, we eagerly await to hear the justification for this unilateral defection by a G-X member 5 days ahead of the G-20 meeting in Cannes this Friday (and we can't wait for Schumer and Geithner to proclaim Japan a currency manipulator). Lastly, to all those who so vehemently were debating whether the EURUSD is down or not earlier (when it opened lower), feel free to take a look at the EURUSD chart right...about...now - 150 pips that worthless semantics will never get you back.
Update - It's Official:
AZUMI SAYS JAPAN INTERVENED IN THE CURRENCY MARKET
AZUMI: JAPAN WILL CONTINUE TO INTERVENE UNTIL HE'S SATISFIED
AZUMI SAYS INTERVENTION WAS DUE TO STRONG SIGNS OF SPECULATION - thank god Mrs Watanabe is not speculating on the short side.