In a move that will surprise exactly nobody, the Senate Budget Committee ranking member Jeff Sessions has
signaled
that "Republicans would oppose the jobs plan President Obama is
expected to announce Thursday, saying it would only put the United
States further in debt at a time when the debt is already weighing on
the economy." So while nobody even knows yet just what the full
presidential proposal to create "millions of jobs" looks like in its
entirety, we do already know it will almost certainly not happen
courtesy of a republican controlled congress. As a reminder, the US is
currently supposed to be laboring under a regime of austerity (more in
its latest, and vastly watered down Italian iteration than real cost
cutting but still) and thus it will be rather complicated for the GOP to
explain why the party is cutting with one hand and spending more with
the other. As such, any hopes for a quick and decisive passage of laws
to build more bridges to nowhere are about to be dashed. From The Hill:
"
There’s no doubt in my mind that the debt that we’ve now incurred is already weakening our economy,”
Sessions said on the Senate floor. “It comes to a point that you can’t
keep borrowing in a futile attempt to stimulate the economy when the
increased debt itself is weakening the economy.” Cue Keynesians of all
shapes and sizes kicking and screaming how more stimulus this time will
be different and how one last Heroin injection is really all it takes.
Presenting
the chart of Greek 1 Year bonds. Looking at this alone, one might get
the feeling that not all that much is fixed in Europe, whose weakest
link is about to file for bankruptcy any minute.
The Chinese yuan is the best...the US dollar is probably good in the short
term, but the absolute worst over the long term. - *in CNBC*
*Jim Rogers is an author, financial commentator and successful international
investor. He has been frequently featured in Time, The New York Times,
Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and
is a regular guest on Bloomberg and CNBC.*
As bizarre as it is to say, but yesterday felt like a short squeeze
in the US. In spite of SPX finishing down 9 points, the price action
felt like shorts getting squeezed. How can that make sense? Well,
anyone who set a short ahead of Jackson Hole or just after the speech,
likely set it in the 1130-1160 range. The memory of stocks rallying up
to 1228 is too fresh in everyone's mind, so shorts were nervous, and
longs may have been set too, as hope remained that Obama, Bernanke,
Trichet, and Merkel would say or do things to support the market. I
believe yesterday's bounce from the lows, then late day 10 point down
and back up swing cleaned up a lot of shorts, so the market is much more
balanced at 1175 than it was at 1175 at Jackson Hole time. This gives
us a lot more ability to trade lower. Maybe it is too bizarre to
believe that we can have a short squeeze on a massively down day, but it
felt like that, and it feels like people are positioned less bearish
than they feel.
With nothing resolved in Europe, and some signs of continued deterioration, the market is more vulnerable to a sell-off.
My favorite spin yesterday was that the US will muddle along even if
Europe is in trouble. Wasn't it just a few months ago that analysts
were saying it is okay if the US does poorly, because over half of
S&P 500 profits come from overseas? Weren't profits being enhanced
because companies were selling things in Europe and translating those
profits back into dollars at favorable exchange rates? Is that story
gone and now globalization doesn't matter?
...Taking a step back, we are looking at potential Nations
defaulting, plus augmenting further austerity measures to try and reduce
debt (which will stifle any growth for years to come), the spiral of
banks coming close to nationalisation across the developed world,
consumer deleveraging, rising unemployment, falling house prices and a
rising loss of faith with government along with discontent and civil
unrest. Why on earth would you sell gold when the outlets for safe
havens are being radically reduced since the SNB move and the threat
from Japan to intervene? Plus the fact that currencies offer less in the
form of stores of value also. A massive shift from currency investment
to precious metals could take place. Currency wars will exacerbate this
and whilst the SNB move is from a small nation, what happens if one of
the big boys like Japan join in? Carnage basically and trade wars and
border issues will ignite and G20 could implode. Just what the world is
ill-prepared for but it looks like it is brewing. Civil unrest and
regime changes around the world will add to the soup.
An already ubercynical Art Cashin chimes in on Obama's much
anticipated, and very controversial (recall the latest Boehner flap on
the issue) speech tomorrow and comes out sounding even more jaded than
usual. In a word: don't expect any imminent rise in Obama's already
record low popularity rating as a result of this speech, which if
recent history is an indication, will likely generate even further
class animosity within US society, now well on its way to confirming
some of the more violent teleological theories postulated by Karl Marx.
Morgan Stanley is currently holding a call in which the firm's
strategists, led by Adam Parker and Greg Peters, will be presenting
their latest investment case for global equities. Sure enough, coming
from Morgan Stanley the call will have a decidedly bullish tone to it,
but maybe, just maybe, the firm will finally realize that as the 30
year "Great Moderation" winds down and reverts to its mean, there are
other, less favorable outcomes on the horizon. Then again, this being
Morgan Stanley, we doubt it. Regardless, the 52 page accompanying
presentation is attached, and those who wish to dial in should just drop
a line to their favorite Morgan Stanley snake oil salesman.
In
her response to the Financial Stability Board's recommendations and
timelines for the resolution of systemically important financial
institutions (SIFIs), BBA's (yes those of LI(E)BOR) Chief Executive
Angela Knight worries that the
steps do not go far enough. More critically, her concerns stem from the proposals leaving
too much scope for self-interest as opposed to systemic stability as a whole
(whocouldanode that defection might potentially be the
preferred/optimum strategy in the now brothers-in-arms European game
theory neighborhood).
The first Italian austerity package has not even properly failed yet
(despite labor union protests to the contrary which for some odd reason
believe that it has some chance of passing), and already Italy is
preparing for a new round of "austerity" to appease those naive fools
from the ECB so they buy Italy's otherwise bidless bonds for a few more
weeks.
From Bloomberg: "Italy may need a new budget- adjustment plan next month because a 54 billion-euro ($76 billion)
austerity package to be voted on today won’t convince the European Central Bank to continue buying the nation’s bonds,
the chairman of the Senate Finance Committee said. “How long can the
ECB continue to buy Italian Treasury bonds?” Mario Baldassarri said in
an interview in Rome today. “
We may need another adjustment in three, four weeks which will be the real answer to the European Commission and to markets.”
Because this time, unlike a month ago, it will be different.
Berlusconi promises. As a reminder, Italy will vote on the current
massively watered-down plan which is anything but austere later today,
in a vote largely expected to pass. Said passage, however will do
nothing to please Trichet, who will continue to remind Italy just who
calls the shots now (oddly enough the ECB thinks that would be them...
which explains the loving relationship between the Central Bank and a
electorally challenged Angela Merkel). None of this changes the
underlying dynamic which has become all too clear: the PIIGS have called
Europe's bluff, and Europe blinked. Going forward expect much barking
from the ECB and Luxembourg, warning the periphery to get its house in
order... and absolutely no bite. Because everyone by now realizes that
the balance of power is entirely on the insolvent countries' side.
Europe can threaten to kick out a country, but as UBS demonstrated on
Monday, the consequences of such a move, which would end the euro, would
be up to and including that Keynesian wet dream: war.
Yesterday we reported that following the SEC's long overdue
porn-laced sabbatical, the "regulator" has launched a massive
fact-finding and enforcement-information gathering mission to not only
curb those vile HFT frontrunners, but is also seeking to cut off
momentum accentuating strategies such a ETFs, aka synthetic stock CDOs,
at the knee. This is great, there is only one problem: the SEC has no
clue what an ETF is. But all that is about to be remedied. As the
attached job search notice indicates, the regulator will generously
spend between $126,661 and $198,333 of taxpayer money to finally get
someone who actually knows something about basket creation, gamma,
convexity, and the 3:30pm daily ETF-induced market ramp. The preamble: "
Do
you want to perform challenging work in a collegial environment, while
enjoying quality of life and a competitive compensation package?
Invest in your career at the U.S. Securities and Exchange Commission
(SEC)!" Note: not one mention of non stop midget porn: truly a
politically correct development. And since the position is for a
senior special counsel, you can bet, lots and lots of money, that the
SEC is about to start suing everyone in the ETF space. Starting with
such Wall Street visionaries as Larry Fink... who also happens to run
Wall Street. We just can't wait.
Today's first Fed speech is out, this one by Chicago Fed dove, Chuck Evans who was
recently interviewed by
Russian speaking, guitar playing, arch-Keynesian Steve Liesman and
dropped the first QE3 bomb a week ago, in which he basically says what
he said before, namely that "very significant amounts" of added
accommodation are needed. In other words: more of the same, and this
time it will be different. After all 12 Fed presidents and 1 chairman
can't all be insane all the time.
As Chazz Evans just noted, QE3 can not come soon enough, and it can certainly not be
big enough.
Wall Street, bonuses entirely contingent on this fiction becoming
fact, is therefore more than happy to shape Fed opinion, and confirm
that QE3 is now priced in to such a degree that a disappointment will
raise the terrifying specter of bloodthirsty, demonic hyperdeflation
once again. Below, via Bloomberg, is a summary of what the various Wall
Street "strategists" also known as groputhink lemmings, because none
of these said Op Twist was coming as recently as a month ago, think is
coming out of the Fed as soon as 2 weeks from today...
European reformist think tank, Open Europe, which has so far been
spot on in its very skeptical assessment of the drunken, meandering
rumble that various European authorities have engaged in over the past
two years to mask that the EUR is predicated by a failed and
discredited model, has released its comprehensive assessment of today's
German Constitutional Court ruling. For anyone even remotely close to
trading the EUR pairs, or their derivatives: stocks and bonds, this is a
must read. In a nutshell: "Giving the Bundestag’s Budget Committee the
final say over the use of the bailout fund is welcome from a
democratic point of view, but will add another element of uncertainty
to the eurozone crisis. However, so far the Budget Committee has
consistently taken the government line on the bailout, albeit
reluctantly, and it remains to be seen whether it dares to exercise its
new power. The calls for the whole Bundestag to have a greater say in
the dispersion of financial aid are, therefore, likely to continue....
the wording used by the Court also seems to suggest that joint debt in
the eurozone could be constitutionally allowed if it involved a
stronger German say over other member states’ fiscal policies. This
could set Europe up for a major clash of national democracies in
future, should Eurobonds be deemed necessary to hold the Single
Currency together in the long term. Controversially, the Court did not
give an opinion on the legality of the ECB’s bond purchase programme –
despite the potential implications this programme has on price
stability and the ECB’s independence.
This unsettling question is likely to resurface in future." Expect this court to feature far more prominently in the future.
I've been asked to comment on the work of a few noted deflationists
who are calling for a top in commodity prices here. Their argument is
pretty clear cut: Because inflation is a function of available money
plus credit
(their definition), and because credit has fallen, deflation is what
comes next. When looking about for things to deflate in price,
commodities are an obvious candidate for attention because they have
risen so much over the past decade. In this view, three things have to
be true: i) Demand for commodities has to fall below supply. After all,
as long as demand exceeds supply, prices will typically rise. ii) Money,
including credit that would normally be used to buy commodities, has
to shrink. That's the definition of deflation that we're analyzing
here. iii) People's preference for money has to be greater than their
preference for 'things,' with commodities being very obvious 'things.'
That is, faith in money has to be there or people will prefer to store
their wealth elsewhere. These are all just versions of the old
supply/demand argument for commodity prices, except that our
consideration also includes the important element of the Austrian
economic view of demand for money.
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