Wednesday, November 2, 2011

Risk of Greek Exit from Euro Zone Looms Over G20

The threat has intensified after France and Germany made it clear that Athens must decide urgently whether it wants to stay in the 12-year-old currency bloc.



ING to Cut 2,700 Jobs, Takes Greek Hit (click for story)



EU, IMF Aid to Greece on Hold Until After Referendum 



Will Spiking Vol Drag Global Growth Down?

While we grow weary of endless talking-heads pointing to contemporaneous VIX charts as somehow indicative of why equities are up/down/sideways and the lack of comprehension of the non-directional bias of what is simply a measure of dispersion, we do recognize the critical way that volatility-spikes (and other vol-related indicator divergences) reflect short- and medium-term market uncertainty. Having modeled business cycles through the eyes of realized and implied volatility, we were heartened to read Goldman Sachs excellent discussion of the macro-economic impact of uncertainty shocks and why the post-2009 vol spikes leave global growth at much greater risk of significant downside. Critically, they note that while previous episodes of vol-spikes have been relatively well-contained, current risks seem much less tightly defined with unusually frequent bouts of extreme volatility, leading to much longer-lasting impacts on growth than normal. Furthermore, the current spike in vol is both large and prolonged enough to suggest similar empirical expectations with peak negative implications likely in early 2012.

Ruinous Symbiosis Between Congress And The Fed
11/02/2011 - 18:37
Even if the congressional panel on deficit reduction comes up with a plan, Congress won't follow through. Because it doesn't have to, thanks to the Fed. 
Bruce Krasting
11/02/2011 - 19:42
The banks did MF in.

In The News Today

Dear CIGAs,

When the stand up comedy in Euroland is over the next act is called the US Dollar.


Jim Sinclair`s Commentary

There is only one tool in the toolbox that can be utilized to stop a run on financial institutions possible at any time. It is called QE and will be used to infinity before this chapter of financial history closes.
Gold is headed into the $2000s.

Bottom Line – With few options, Fed turns to ‘jawboning’ By John W. Schoen, Senior Producer
With little ammunition left in its armory, the Federal Reserve has entered the "jawboning" phase of its campaign to spur stronger economic growth.
Fed Chairman Ben Bernanke and his fellow policymakers emerged from a two-day meeting to declare they planned no major changes in their policy of using low interest rates to get the job and housing markets back on track. In a statement, the Fed pointed to a recent improvement in the outlook but warned that the recovery is still very fragile.
"Economic growth strengthened somewhat in the third quarter," the Fed said in its post-meeting statement. "There are significant downside risks to the economic outlook, including strains in global financial markets."
At least one committee member believes talk alone won’t cure the economy’s ills. Charles Evans, president of the Chicago Fed, formally dissented from the decision, saying he thinks his colleagues should be taking further action to revive growth.
So far, the Fed’s strongest artillery has had little apparent impact. Shortly after the Panic of 2008 rocked global financial markets, the central bank flooded the system with cash, slashing to zero the rate banks pay to borrow overnight. That move was followed by a massive program of buying nearly $2 trillion in bonds to force long-term rates sharply lower. But three years after embarking on its easy-money policies, unemployment remains stuck above 9 percent and the housing market is mired in its worst downturn since the 1930s.

Jim Sinclair`s Commentary

This is disgraceful.

Some 15% of U.S. Uses Food Stamps By Phil Izzo
November 1, 2011, 4:53 PM ET

Nearly 15% of the U.S. population relied on food stamps in August, as the number of recipients hit 45.8 million.
Food stamp rolls have risen 8.1% in the past year, the Department of Agriculture reported, though the pace of growth has slowed from the depths of the recession.
The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), may continue to rise in coming months as families continue to struggle with high unemployment and September’s data will likely include disaster assistance tied to the destruction and flooding caused by Hurricane Irene.
Mississippi reported the largest share of its population relying on food stamps, more than 21%. One in five residents in New Mexico, Tennessee, Oregon and Louisiana also were food stamp recipients.
Food stamp rolls exploded during the downturn, which began in late 2007. Even after the recession came to its official end in June 2009, families continued to tap into food assistance as unemployment remained high and those lucky enough to find jobs were often met with lower wages.


Two Financial Nukes Explode

By Greg Hunter’s

Dear CIGAs,

On Monday, I said at the end of my post, “I think someday we will “grow” our way out of the economic mess we are in but not before a very big fall.”  I didn’t think the fall would come the very next day–but it did.  Two monster nukes exploded on the financial landscape.  They are the surprise MF Global bankruptcy and the equally surprising Greek referendum on the second bailout package.  Kaboom and kaboom!!!  I see not one, but two giant mushroom clouds on the horizon, and destruction is headed our way.  Anyone underselling these two bombs is on some pretty heavy Prozac.  This is a turning point, and the turn is decidedly bad. It’s a global financial crash.
Two weeks ago, I wrote, “When European banks start failing, there is no way U.S. banks will be able to avoid being sucked into a vortex of default.   For anyone who thinks this crisis can be resolved with a pain free plan—forget it.  Welcome to the age of bank failures.”  (Click here for the complete post.)  I didn’t think MF Global, headquartered in New York City, would beat everyone to the punch.
MF Global is bankrupt for dealing in European sovereign debt.  CEO Jon Corzine was trying to make a quick buck with what are reported as “risky trades” and got a bankruptcy pie in the face.  There are allegations of missing money and possible criminal activity.  Considering this is coming from a former Primary Dealer in U.S. Treasuries, the Federal Reserve looks like it was asleep at the wheel of regulation once again.  Don’t forget the SEC and CFTC!  Where were the regulators?  There is no telling the amount of leverage and counterparty risk MF Global has, but we’ll be finding that out in the days and weeks to come.
And get this, for blowing up MF Global (a 200 year old company), Mr. Corzine might get a severance package of $12.1million!!  Let’s hope bankruptcy limits his pay to zero.  Heck, he should be paying money back to the company and its shareholders!   You wonder why the Occupy Wall Street people are protesting greed and corruption?  Even if MF Global does not turn into a Lehman Brothers event, it surely is one giant dead canary in the world’s financial coal mine. (Click here to read more on MF Global.)


Jim’s Mailbox


We were told… And it is starting now!


October Surprise: Can Gold Be The Panama Canal Treaty Of 2012?
Superpollster Scott Rasmussen has pulled the pin and rolled one of his patented hand grenades under the chair of the Political Class. Rasmussen’s “October Surprise” is contained in a recent poll showing 44% of likely voters favor returning to the gold standard, 28% opposed.  That intensifies.  If the public knew that it would “dramatically reduce the powers of bankers and the political class to steer the economy” support goes up to 57%.   Opposition drops to 19%.
Reducing the power of bankers and the political class —  along with gold’s empirical record of turbo-charging job-creation and economic growth — is core for gold’s proponents.  Thus, that inevitably will become public knowledge and make gold a potentially huge electoral asset.
And there’s more.  Rasmussen’s results show that 79% of Tea Party voters (and 69% of simply self-described Republicans) would favor such an elitism-constraining gold standard.  The only solid majority opposition comes, unsurprisingly, from self-described members of the political class.  If anybody picks up on this dynamic it could prove decisive in what remains a remarkably fluid field with early contests fast approaching.

Euro zone factory data suggest recession  

The US based on a growing list of negative divergences and bearish setups tracked here is not far behind Europe. The probability of an unexpected economic and financial stumble in 2012 increases with each passing day.

Headline: Euro zone factory data suggest recession
LONDON (Reuters) – The downturn in euro zone manufacturing in October was even deeper than previously thought, according to "grim" business surveys on Wednesday that showed the currency union’s debt crisis is dragging its economy back into recession.
The final Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October, which gauges changes in activity levels across thousands of euro zone manufacturers, fell to 47. 1, revised down from a preliminary reading of 47.3 and down from 48.5 in September.
This marks the third consecutive month the manufacturing PMI has been the 50 level that divides contraction from growth. Output and new orders indexes plunged to levels not seen since mid-2009.
The survey suggests the crisis is putting a chokehold on euro area business and, along with news that German unemployment unexpectedly rose for the first time in nearly two years to 7 percent, it adds pressure on the European Central Bank to cut interest rates.
The latest Reuters ECB poll from last week showed a rate cut was already on the cards by December and possibly as early as Thursday. (ECB/INT)

It’s not 2008. Financial firms have no savior  

The financial system is highly interconnected. Unlike 2008, it won’t be so easy to engineer bailouts with public funds if the dominoes based on fictionalized balance sheets start falling again.

Headline: It’s not 2008. Financial firms have no savior
NEW YORK (CNNMoney) — MF Global is no Lehman Brothers. It doesn’t have the size or the tentacles to put the entire global system at risk.
Still, MF Global’s Chapter 11 filing is spreading contagion to other financial firms around Wall Street, helping crater the stocks of companies with big trading desks like Jefferies and Fortress Investment Group.
Back in 2008, troubled financial institutions Lehman Brothers, Merrill Lynch, Washington Mutual, and Wachovia all found willing buyers in Barclays, Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo. (WFC, Fortune 500) But the market isn’t happy with any of these firms these days.
"Volunteers have been punished," said James Doak, who runs restructuring firm Miller Buckfire’s banking practice.
After saving the too big to fail institutions, the major U.S. and global banks are, if anything, in shrinkage mode.
"I don’t see a lot of bank CEOs who are daring to be great," said John Roddy, the head of investment banking at Australian bank.

Day of reckoning for shadow inventory and distressed properties – 40 percent of properties in foreclosure have not made a payment in two years or more.

Bill Fleckenstein interviewed about gold and the European credit debacle.

Smithfield, North Carolina Police May Ignore '911' Calls If Not Provided More Gas Money

Wall Street Journal: Where was the CFTC?



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