Fiscal Federalism Or Bust! Morgan Stanley Sees Dec 9th As Real European D-Day
We have often discussed the temporary and tenuous nature of any and all government-suggested solutions so far to the European crisis on the basis that the 'model' is broken. Following the decision to go for PSI, and the possibility of a sovereign leaving the Euro-zone (Greek referendum ultimatum), money is no longer fungible in and across European banks (deposits) and sovereigns as it seeks the stability of a narrower and narrower core. Arnaud Mares, of Morgan Stanley, who wrote the initial and definitive Greek story long before most others, brings up this very point; questioning the fungibility of Greek Euro deposits with French Euro deposits, for example, and interpreting the situation as a 'run on banks and governments'. His view that without a clear path to a fiscal lender of last resort - or a true fiscal federalism across a united Europe - which ensures solvent governments will never go illiquid, then the December 9th decisions mark a bifurcation point of critical import.Europe has to choose between debt assumption (enhanced federal control of national budgets accompanied by centralised funding of governments) and a debt jubilee (wide-scale debt repudiation), with all the social, economic and political consequences this entails. Mares' four-question-framework for considering the words and deeds of December 9th is critical, though complex, reading to comprehend the tipping point we are at.If governments choose to engage on the route to fiscal federalism, we believe that this does not mark the end of the crisis. It could, however, mark the beginning of the end of the crisis, as it would be a decisive first step towards stabilisation and a European federation. The alternative could well be the beginning of the end for the European confederation.
US Debt/GDP Hits Post WW2 High 99.5% Following $55 Billion Overnight Debt Increase: Total Debt Now Over $15.1 Trillion
It seems like it was only yesterday that we celebrated 15,OOO,OOO,OOO,OOOBAMA day. Two weeks later, we are now well over 100 billion in debt over this historic landmark, or $15.11 trillion to be precise, following the predicted $55 billion increase in debt with the settlement of all auctions from last week. And aside from the mind-staggering rate of new debt increase why else is this number notable? Because as we learned 10 days ago, total Q3 GDP in current dollars is $15.18 trillion. In other words, US debt/GDP is now 99.5%, the highest it has been in the post WW2 period, and rapidly rising. What is worse is that the delta to 100% debt/GDP is only $70 billion: this is about half of the next two weekly gross issuances of 3,10,30s and 2,5,7s of about $160 billion over the next two weeks. In other words by the end of 2011, debt/GDP will finally be a triple digit number percentage. And the other notable thing is that the debt limit still is $15.194 trillion. It is ironic that the economic growth ceiling and the debt issuance ceiling are now one and the same: if the the debt target number does not rise neither will the US economy. Q.E.D.The Big Jobs Report Tomorrow so gold/silver bombed/Mass.Attorney General files massive suit against 5 banks
Good
evening Ladies and Gentlemen:
Tomorrow is the jobs report and true to form the bankers went to work
shorting gold and silver right after the 2nd London fix. This has been
their modus operandi for years and today is no different. The price of
gold finished the comex session at $1735.40 down $10.20 on the day.
Silver held on pretty good but succumbed to late trading going into the
red to
Bank of Korea purchases Gold
Dow Jones is reporting that the Bank of Korea has announced that it has
increased the amount of gold in its reserves for the second time this year.
The report states that they purchased 15 tons in several batches last
month. The last purchase was back in June for a total of 25 tons.
It now has 54.4 tons in reserve. Even with the purchases this year, it
still has only 1% of its total foreign exchange reserves in gold. The
former amount was a mere 0.7%.
We do not know the actual price at which these purchases were made but
there is no doubt in my mind that they occured on forays down ... more »
David vs. Goliath
I wanted to bring to your attention how the SEC goes after small investment
advisory firms and then issues grand press releases which announce the
fines and punishment doled out to these "criminals." As you are reading
thru this, keep in mind that while the SEC and other financial markets
regulatory offices, like the CFTC for instance, are looking the other way
while big investment firms rape and pillage freely, the big bad SEC is
clamping down on small firms that fail to "adopt and implement written
compliance policies and procedures." Oh boy, it's okay to embezzle $1.2
billion i... more »
Contraction In Real GDP Flashes Warning
Economic activity as manifested in stock prices is either rising or falling
at an increasing rate. The red boxes illustrate real GDP falling below 2%
year-over year at an increasing rate. The last four contractions below 2%
(warning signs) were 2001Q2, 2007Q1, 2008Q1, and most recently 2011Q2. Each
preceded a sharp decline in equities. The world economy is highly
interconnected. If Europe...
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Copper Outlook: The Poor Man`s Gold
In November, the price of copper fell around 8 percent and the metal is
down more than 20 percent this year. It is the first annual fall in the
price of copper since 2008. Some market watchers have dubbed copper the
poor man's gold.
I own some copper, but I expect to make more, percentagewise, in
agriculture and precious metals. - *in Investor Clinic, 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... more »
Zimbabwe Bashes US Dollar, Alligns With Yuan
It was three short years ago that the small former British colony of Zimbabwe was spewing forth 100 trillion dollar bills. Since then, courtesy of a few trillion extra percent of inflationary RDA, the country had given up on its currency and replaced it with US Dollars. Now, the country's cult central banker Gideon Gono has made it clear he wishes to avoid another episode of transplant currency hyperinflation courtesy of his counterpart in the Marriner Eccles building and "has warned that Zimbabwe’s nascent economic recovery is at the mercy of the United States dollar, which is facing new pressures from the Euro-zone debt crisis." Yet the screaming sarcasm is the following: "Gono says Zimbabwe should in fact be looking to the Chinese yuan as its main currency, while urgently seeking to restore its own currency which was abandoned in 2009 after a dramatic loss of its value. With the continuous firming of the Chinese yuan, the US dollar is fast ceasing to be the world's reserve currency and the Euro-Zone debt crisis has made things even worse." And the terminal slap in the face of all that is American: "As a country, we still have the opportunity to avoid being caught napping by adopting the Chinese yuan as part of consolidating the country's look East policy." Well, if recently hyperinflating Zimbabwe is complaining about the US as being on the same path as itself, and instead wants to become a Chinese FX vassal state, perhaps alarm bells should go off somewhere. So the next time Tim Geithner is up on stage somewhere, it may be prudent for a question to be be asked: how and why is it that the world's (formerly) de facto banana republic is complaining that the next up and coming B-Rep is about to replace it in the annals of idiotic monetary policy?
Of Coordinated Intervention And The PPT. Biderman Questions Our Faith
In
one of his best rants of recent times, Charles Biderman, of TrimTabs,
exclaims his consternation at the globally co-ordinated central bank
intervention and the mainstream media's interpretation of said act.
Viewing the interventions as a sign of desperation, the avuncular
Biderman fears the instability that lurks just under the carefully
veneered surface of the markets. Describing the goal of the Fed as
having clearly changed from one of inflation and/or employment to
asset-value-elevation, he raises a critical question (that perhaps only
Noda knows the answer to): "What happens when central bank
interventions are no longer effective?". Faith in the widely held view
that money can be created out of nothing and used to solve all
financial problems is likely to be tested sooner rather than later.GM Channel Stuffing Surges To All Time Record
In the past two months, everyone has been scratching their heads just how it is possible that the US manufacturing base continues to chug along at pre-recession levels even as the world all around America burns? Today, GM may have given the answer, courtesy of its monthly disclosure of car sales which at the top line is completely irrelevant as the funding for these purchases comes almost entirely from subprime loans handed out by the government to NINJAs. What is interesting is the little blurb in every monthly report discussing the amount of dealer inventory, a topic well-known to frequent readers of Zero Hedge which has discussed GM's pervasive channel stuffing in the past, and which subsequently went quite mainstream. So how does November channel stuffing stack up? As the chart below shows, at 623,666 cars, it is an all time absolute record, and represents about 3.5 times the total GM vehicles sold in November! It is also a 31k increase in the past month, and 85k cars more in inventory than in July. Because when economic growth at all costs is needed to demonstrate just how viable America is, and a semi-nationalized car marker is one of the only conduits to "generate" economic growth, it does not matter if the end product is actually demanded or will simply corrode and rust in some dealer showroom in perpetuity. After all it is the act of building the car that matters for various monthly PMI, CMI, regional Fed and GDP purposes. Pretty much exactly like in China's goal seeked "economy." So the next time someone asks just how is it that the miraculous US decoupling continues, please point them to this chart.
IG Hangover As HY and TSYs Underperform On A Slow Equity Day
An oddly calm day at the headline equity market level hid some relatively interesting moves under the covers. With ES practically unch from last night's close and this morning's day session open having traded in a narrow range amid 'average' volume, credit markets were more volatile with investment grade credit spreads outperforming and HYG (the high yield ETF) significantly diverging from high yield spreads, which underperformed today. The unusually high IG volatility today suggests hangover short-covering and gamma (option-related) pain remained. Equities remain rich in CONTEXT to global risk assets but both were stable today with modest downward pressure in stocks and upward pressure in risk. Of the main risk drivers, TSYs (significant underperformance) and commodities were the more volatile drivers while the relative stability of FX carry helped hold ES flat. Copper ended the day worst as Oil, Silver, and Copper grouped themselves around the modest move in the USD today, with Silver well off overnight highs and Oil well off lunchtime lows (just above $100 at the close). Traders appear to be working through the reality of yesterday's news and market action (especially on credit desks) and are waiting for NFP to re-risk as implied correlation once again suggested equity index protection was modestly bid - even as VIX stabilized from gap-down opens.
Predicting Tomorrow's NFP Based On The US 4-Sigma Beat Model of "Truth": +210,000 Jobs
Since
everything is making so much sense this week, we thought it worth
using our statistical skills to estimate tomorrow's NFP print. Based on
extensive and intensive analysis of macro, micro, and technical trends,
we 'expect' a +210k print that fits nicely into the 4-Sigma-model that has been adopted by the data-providers-of-last-resort.
This is literally off the charts and a cool 60k more than everyone's
favorite bull from Deutsche Bank. Nothing would and could surprise us
more... or less.Guest Post: U.S. Corp And The Impending IMF Merger
Been lots of talk around lately regarding the collapse of the US Dollar and what that would mean for the United States of America and the world. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization. These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world. There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is the first lesson...The SDR: The Same Demented Regime
It’s fascinating to watch things play out as we rapidly approach the final rounds in the end game of the great game. The great game is of course the never-ending global struggle for power and dominance. The current entrenched powers that be have been in their positions for a very long time and they have no intention of giving up that role. What the moral and decent percentage of humanity need to understand in no uncertain terms is that these folks and their minions have no conscience. They could care less how many starve to death, get blown to bits in war or waste their lives away in front of the television set watching Snookie on the Jersey Shore. In fact, I am certain that they totally get off on these things. Degrading humanity into an animal-like state clearly appears to be their aphrodisiac. Notice how the media encourages people to go out and trample each other for a $2 waffle maker on Black Friday. The scenes of people running into Wal-Mart or Best Buy in the early morning hours when they should be at home with their families having conversation after Thanksgiving dinner reminds me of scenes of cattle being shuffled into a sorting pen. Actually if you look at this video the cattle appear much more civilized http://www.youtube.com/watch?v=C71324F_Q-8 (just go a minute and a half in). I think the second step after one sees the insane matrix we are trapped in is to free yourself from it mentally and emotionally. It is the mental and emotional control that they are really after. That is the most powerful and effective tool of control so don’t give them the satisfaction. Try to buy local and support your communities. It may cost more but in that case just buy less. You will feel good about it. More specifically, anything encouraged by the mainstream media, like spending money you don’t have on superfluous items made in China with slave labor and sold to you at a giant tax dodging corporation should be avoided if possible. With that out of the way, on to the main topic of this paragraph. The good ol’ SDR. I will tell you one thing right now. When TPTB progress to talking about IMF rescues and SDRs we are the end of the line boys and girls. This is the LAST play they have in the conventional playbook.Art Cashin's Refresher On "Post Hoc" Syndrome
Nassim Taleb rants against it all the time: the propensity for the media to frame a narrative, or a plotline, to explain market moves. His contention is that for the human mind it is always far more reasonable to have a cause and effect relationship to what is effectively an engine of chaos at the margin, especially these days when the margin is defined 70% by various algorithms, all of which engage in often times illogical feedback loops (such as the ES is high because of a high EURUSD, which however is high due to stressed French banks liquidating USD-assets and repatriating the funds to shore capital) and/or with levered synthetic products such as ETFs, amplifying the noise. On the other hand, sometimes a narrative fits: what Art Cashin describes today as the "post hoc" syndrome. Is he right, or is the human mind desperately grasping to attribute a pattern, and thus pretend it is in control, when faced with the strange attractor that modern capital markets have become. You decide. Here is Art explaining the basics of "post hoc", aka Monday Morning quarterbacking.Guest Post: The Fed’s European “Rescue”: Another Back-Door US Bank / Goldman bailout?
In the wake of chopping its Central Bank
swap rates, the Fed has been called a bunch of names: a hero for
slugging the big bailout bat in the ninth inning, and a villain for
printing money to help Europe at the expense of the US. Neither
depiction is right. The Fed is merely continuing its unfettered brand
of bailout-economics, promoted with heightened intensity recently by
President Obama and Treasury Secretary, Tim Geithner in the wake of
Germany not playing bailout-ball. Recall, a couple years ago, it was a
uniquely American brand of BIG bailouts that the Fed adopted in
creating $7.7 trillion of bank subsidies
that ran the gamut from back-door AIG bailouts (some of which went to
US / some to European banks that deal with those same US banks), to the
purchasing of mortgage-backed–securities, to near zero-rate loans (for
banks). Similarly, today’s move was also about protecting US banks
from losses – self inflicted by dangerous derivatives-chain trades,
again with each other, and with European banks. Before getting into the
timing of the Fed’s god-father actions, let’s discuss its two kinds of
swaps (jargon alert - a swap is a trade between two parties for some
time period – you swap me a sweater for a hat because I’m cold, when
I’m warmer, we’ll swap back). The Fed had both of these kinds of swaps
set up and ready-to-go in the form of : dollar liquidity swap lines and foreign currency liquidity swap lines. Both are administered through Wall Street's staunchest ally, and Tim Geithner's old stomping ground, the New York Fed.
Do You Believe In ISM Miracles? Goldman Doesn't
Given
the better-than-expected ISM print earlier, one could be forgiven for
believing that the US is just fine thank you very much. Our earlier discussion of the dispersion in the ISM sub-indices, and yesterday's discussion of the PMI 'catch-up'
nature of the very recent pre-holiday seasonal orders given the unusual
slump in October may weaken the decoupling view but strategists will
extrapolate trends as normal. Whether you believe in tooth-fairies or
decoupling, Goldman's Global Leading Indicator continues to
accelerate downward and moved into negative territory for the first
time since August 2009. Amid a broad deterioration in
components their outlook for global growth remains soft, even as the US
export miracle remains alive and well.
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