Deutsche On QE3, It's $800bn Or Bust!

Buried deep in the 137 pages of Fixed Income 2012 Outlook, Deutsche's bond group looks at the implications of an extremely flat US Treasury Curve and implicitly low bond risk premium. Based on 5Y5Y rates relative to long-term growth and inflation expectations, tail inflation risks, and estimates of supply/demand shocks, the current bond risk premium are at levels that were witnessed ahead of the bond market sell-off of 1994, at the peak of the bond market conundrum of 2004-2006 and around QE announcements. This 100bps or so of 2s10s 'flatness' relative to real short rates and expected deficits also corroborates this risk premium. So what does this tell us? The extremely low risk premium fully captures QE expectations. Empirically, they find USD19bn of new QE tends to reduce real rates by 1bps and based on this and a model of fundamentals and risk aversion parameters, they find that Twist was fully priced in last September and since then the current dislocation suggests another full QE2-style package of about $800bn is already priced into the market (ex MBS reinvestment). We just hope the market is not disappointed.

The MF Global Trade Is Not Coming To (European) Town - Why The ECB's 3 Year LTRO Is The Latest Bailout Flop

On Friday, as the Eurobond market was briefly soaring, we attributed the move to sentiment that was best captured by a note out of Morgan Stanley's govvie desk: "The carry trade is happening, there is no doubt about it. In SPGBs (45bps tighter t0) we estimate 15-20bn (incl 6bn auction) of buying from domestic mid sized banks and cajas THIS WEEK (500mm is usual 2way trading volume per day). We are seeing the same starting with Italian mid tier banks in BTPs today (35bps tighter t0). Also Ireland seems to be very well bid up to 2016 maturities (75bps tighter on day). While Huw and Laurence anticipated this in their research piece on the LTRO from yesterday, we certainly did not expect it to be this intense and front loaded, this is the strongest buying we have seen all year, it feels a lot like QE." In simple summary, what MS was hoping and praying (because if clients are buying, MS is selling) its clients would believe, is that European banks would promptly forget that Europe has trillions of rolling over financial corporate debt, and instead of focusing on generating the cash needed to pay down maturities if no buyer stepped up, banks would somehow re-lever, by buying up even more sovereign debt in hopes of catching a few bps of carry, and completely ignoring the "#1 issue at the heart of the Eurozone crisis"^TM - the fundamental supply/demand paper mismatch. Not to mention that any statement which needs the redundant "there is no doubt about it" is a 100% lie. It took the market about 3 hours to wake up from its zombified state and to do a 180, proceeding to rapidly sell off European debt following the realization that the Morgan Stanely thesis is nothing but a purely self-serving lie. The fine folks at Reuters IFR explain why MS completely botched this one up, and why Eurobanks are finally starting to wake up to the realization that the MF Global trade just may not be coming to town.

Things That Make You Go Hmmm - Such As Europe's "Comprehensive Solution"

Five months ago, Zero Hedge first boiled down the math of the European bailout as follows: "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP." And while everyone was assuming Germany would be delighted to go down for the proverbial insolvency "ride" one more time, we strongly urged not to make that assumption, as we posited the fundamental equation running through the mind of every German: is the opportunity cost of keeping the euro high enough to threaten either a complete German economic meltdown (fiscal support), or hyperinflation (massive ECB intervention), and that the outcome would not be the one the Eurocrats wanted. While at the time our speculation was seen as preposterous, it has since become mainstream (just look at the Eurostoxx). The latest observation on just this comes from Grant Williams' latest "Things that make you go hmmm" where he says: "France and Germany need to be prepared to foot the bills that are coming due and, by ‘France and Germany’, I mean Germany because, with a budget deficit of 7.1%, and debts of 83% of GDP, France WILL be downgraded shortly and will be in no position to chip in to the EFSF as their own ship begins to take on a serious amount of water in the shape of rising borrowing costs. That leaves the intransigent Germans. With a budget deficit of 4.3%, a record of having exceeded the mandated deficit limit in seven of the past eleven years a debt-to-GDP level of 85% and climbing, not to mention an economy that is on the verge of a recession (I told you not to MENTION that), Germany may soon have to go  and sit somewhere quiet in order to reflect on what to do next." And so on.

Global Economic Crisis: The USA, An Insolvent and Ungovernable Country

by Global Europe Anticipation Bulletin (GEAB), GlobalResearch.ca:
As announced in previous GEABs, in this issue our team presents its anticipations on the changes in the United States for the period 2012-2016. This country, the epicentre of the global systemic crisis and pillar of the international system since 1945, will go through a particularly tragic in its history during these five years. Already insolvent it will become ungovernable bringing about, for Americans and those who depend on the United States violent and destructive economic, financial, monetary, geopolitical and social shocks. If the United States today is already very different from the “super-power” of 2006, the year the first GEAB was published, announcing the global systemic crisis and the end of the all-powerful US, the changes we anticipate for the 2012-2016 period are even more important, and will radically transform the country’s institutional system, its social fabric and its economic and financial weight.
At the same time, every December, we evaluate our anticipations for the year just ended. This exercise, too rarely practiced by the think tanks, experts and media (1) is a tool enabling our subscribers (2) as well as our researchers to verify that our work retains a high added-value and and is in direct contact with reality. This year our score improved slightly and LEAP/E2020 attained an 82% success rate in its anticipations for 2011.
In addition we also detail our recommendations on foreign currencies, gold, stock exchanges and the consequences of the United Kingdom’s marginalization within the EU (3) on the Pound, Gilts and UK debt and we set out some advice on developments of the American institutional system (4).
In this public communiqué we have chosen to present an excerpt from our anticipation on the changes in the United States for the 2012-2016 period.
But before addressing the American case, we wish to review the situation in Europe (5).
Read More @ GlobalResearch.ca

Mailbox: It's Not All In The Dollar

Eric De Groot at Eric De Groot - 3 minutes ago

There's more going on that money flows between the Euro, Dollar and Gold. The media has gone out of it way to paint gold as nothing more than risk asset without safe haven qualities despite mounting analytical evidence that suggests otherwise. This begs to question why and why now? As Jim writes, “I do not subscribe to it’s all in the dollar when the problems of Euroland are so intense and... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

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Biggest Risk for the U.S. Economy in 2012

Admin at Jim Rogers Blog - 1 hour ago

The Street.com piece on "Biggest Risk for the U.S. Economy in 2012" with the participation of Jim Rogers. *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.* 

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Reuters Video: I Am Not That Bearish On Equities

Admin at Marc Faber Blog - 2 hours ago

Dr. Faber, talking to Reuters from the NYSE. *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* more »

 

December 18 2011: 2012 - The end -and the return- of Europe as we know it

Ilargi at The Automatic Earth - 4 hours ago

John Vachon Big Cop October 1938"Policeman, Lincoln, Nebraska" Ilargi: 2012 may not bring the end of the world, but it will bring the end of the Eurozone and the European Union as we've known them. There are now too many things that can potentially go wrong, and some of them will. The fact that the European Union counts 27 different constitutions, and the Eurozone 17, makes it either

Ron Paul raises donations that are considered to be contrary to common sense MUST SEE! 

Guest Post: America’s Iraq Experience: Invasi-Eradicavi-Turbavi

Julius Caesar undoubtedly was showing off with his Veni-Vidi-Vici (I came, I saw, I conquered) when referencing to his short war outside Zela (Zile) in Turkey over two millennia ago.  Similarly, if we were to use a short catchy-comment for the almost nine years America has invested in its “Iraq Mission,” we would be on target by condensing the US experience in also three Latin words, although not as melodic this time: Invasi-Eradicavi-Turbavi which sadly stand for, I invaded, I destroyed and I threw-into-chaos. No matter what the Pentagon and White House tell us, the fiasco in Iraq likely stands as the most costly mistake in America’s history, a true Keystone Kops type of political dark comedy.  And it wasn’t a bad or flawed decision by a singular moron or group of morons – Bush the Younger, Sadist Cheney and Loquacious Rumsfeld composing the original warpath triumvirate, together with two dozen equally deranged staff of their inner circles.  Unfortunately, this time Congress, together with a brainwashed public, closed rank with an evil and criminal White House.  So, whether the American citizenry likes it or not… the Iraq conflict wasn’t just Bush’s war, but “the peoples’ war,” a war with a dangerous aftermath yet to come, one we’ll likely be paying for in the future with additional blood and treasure.




Chart of The Day: The Currency Collapse After A Euro Breakup

Posted by: EconMatters

Post date: 12/18/2011 - 09:46

The possibility of a Euro breakup is looming larger than ever.   Forecast by ING sees an immediate fall in individual currencies in 2012, and GDP output falls ranging from 7... 

 

 

 

 

Why SIPC? MF Global Customers Were Thrown Under the Bus on Day 1

Posted by: EB

Post date: 12/18/2011 - 08:29

This goes for MFG's gold & silver customers too, who otherwise would have been put ahead of creditors. 

 

 

 

 

Throw the bums out!

Posted by : Bruce Krasting

Post date: 12/18/2011 - 08:17

A Sunday rant. 

 

 

 

 

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