"When Money Dies" Author Adam Fergusson And James Turk Discuss (Hyper)Inflation In The Past, In The Present And In The FutureWhen it comes to discussing monetary history, and specifically what happens when it all goes wrong, there are two must read tomes: one is "The Dying of Money" by Jens Parsson (pdf link) and the other one is "When Money Dies" (pdf link) by Adam Fergusson. Today, we are lucky to bring to you a must watch interview between James Turk of the GoldMoney Foundation and the author of the former, Adam Fergusson. They discuss the fateful decisions that led to hyperinflation in post-First World War Germany, and how central bankers as well as ordinary members of the public today would be well advised to heed this warning from history. Fergusson discusses how the hyperinflation affected different groups in German society in different ways – with debtors benefiting and huge numbers of middle-class savers wiped out. Riots, corruption and political extremism were just some of the malignancies encouraged by the hyperinflation. He points out that those who held hard currencies as well as people who held tangible assets like gold and silver were in-large part protected from the worst economic consequences of the hyperinflation. In his words: “gold remained at all times in Germany the measure of what was important to them.”
Following another weekend of consistently disappointing news on the latest and greatest bailout front, where the #1 question of just who funds the €560 billion EFSF hole remains unanswered, it is not surprising that the EURUSD has entered the pre-market session modestly lower. If China continues to posture as it has over the last 48 hours, expect this to trend lower as Asia wakes up, with the only possible saving grace the fear that weak-hand residual EUR shorts, which as noted on Friday remain at stubbornly high levels, may cover on any slide.
A few days ago China telegraphed it refuses to continue to be seen as the world's rescuer and the dumbest money in the room. Many assumed China was only kidding: after all how would China let its biggest export partner flounder? And furthermore, all China does is provide vendor financing, right? Well, as it turns out, wrong, because to China the current state of Europe is far from the terminal crisis Europe is trying to make it appear. This is happening even as a thoroughly desperate and grovelling Europe, kneepads armed and ready, has said via the EFSF's Regling that it will even consider issuing Yuan-denominated bonds. Alas, China is less than impressed. As AFP reports, "China’s state media Sunday warned that the country will not be a “savior” to Europe, as President Hu Jintao left for an official visit to the region including a G20 summit. Hu’s visit has raised hopes that cash-rich China might make a firm commitment to the European bailout fund, but in a commentary, the official Xinhua news agency said Europe must address its own financial woes. “China can neither take up the role as a savior to the Europeans, nor provide a ‘cure’ for the European malaise. “Obviously, it is up to the European countries themselves to tackle their financial problems,” it said, adding that China could only do so “within its capacity to help as a friend." A friend, who at this point is quite sensible, and realizes far better deals are to be had down the line if one merely waits. That said, we are certain China is not the only one out there with an instant notification pending the second Santorini, Ibiza or the Isle of Capri hits E-bay.
Broken Market Chronicles: Nasdaq Proposes To Make Legal What Exchanges Have Been Doing Illegally For YearsA new proposal by Nasdaq has the market purists such as our friends at Nanex and all those (very few) who still care about how broken the market is and demand something be done about it, writhing in disgust, particularly this section:
\5\ The Exchange is also changing its policies and procedures under Regulation NMS governing the data feeds used by its execution system and routing engine. Current policies state that those systems use data provided by the network processors. In the future, those systems will use data provided either by the network processors or by proprietary feeds offered by certain exchanges directly to vendors.Nasdaq's proposal admits that exchanges are supposed to use the SIP (CQS/UQDF) data for their execution system and routing engine! They want to formally change things to match what they've been doing all along so they can avoid fines and more! Why would you submit a proposal to change something you've already been doing? In other words, what the exchange is proposing, is already common practice. If exchanges are granted this proposal, Reg NMS, for all practical purposes, is no longer relevant, and there is no point in having the SIP calculate the NBBO, because it will have no meaning. Translated: the market will be, for all intents and purposes, officially two-tiered and terminally broken.
In the big picture, the market continues to be torn between two conflicting desires. On the one hand, there is a need to remain nimble and keep any "risk-on" positioning light, given that a permanent solution for the Euro zone remains elusive and that US and global growth may remain slow as also indicated in our forecasts. On the other hand, in the wake of the risk sell-off in August and September the market, in our view, remains underweight risk, which was underscored once again this past week by the outsized rally following what was really a relatively tepid EU summit. In short, while substantial uncertainty remains, there is always a possibility this gets brushed aside into year-end. Given this uncertainty, we monitor two things. First, the European policy process obviously remains key, and we will be monitoring developments into the Nov. 3-4 G-20 Summit in Cannes and the Nov. 7 Eurogroup meeting in Brussels closely. The former will be key in fleshing out any emerging market contributions to the SPV announced in the EU summit statement from this past week. The Eurogroup has been tasked with finalizing the implementation of EFSF leveraging and the SPV in November. Second, we are closely watching cyclical data in the US and elsewhere, and whether downside risks to growth are abating. In this regard, the coming week brings the global PMIs, including the all-important ISM and October payrolls, where at 75k, we are below consensus (95k). In terms of central bank meetings, we expect the FOMC to leave policy unchanged on Nov. 2.... Mario Draghi's first policy meeting as President of the ECB will be important to watch on Thursday. We hold firm to our view that a rate cut will only come in December (50bp), and the market is pricing low odds for a cut this week.