Did Turkey Just Declare War On Syria?

Just out from the WSJ:

• Turkey's parliament has approved a bill authorizing the military to conduct cross-border operations in Syria, a day after a deadly shelling from Syrian territory killed five civilians

So, just how is this different to war? And how does NATO, and specifically Article 5 feel about this? What about Russia and China?

China To Challenge US Dollar Reserve Currency Status

Alan Wheatley, Global Economics Correspondent for Reuters has written a very interesting article, 'Analysis: China's currency foray augurs geopolitical strains’ where he emphasizes China’s desire to wean out the US dollar’s currency reserve status. China is actively taking steps to phase out the US dollar which will decrease volatility in oil and commodity prices and deride the ‘exorbitant privilege' the USA commands as the issuer of the reserve currency at the centre of a post-war international financial architecture which is now failing.   In 1971, U.S. Treasury Secretary John Connally said, "It's our currency and your problem". China is frustrated with what it sees as the US government’s mismanagement of the dollar, and is now actively promoting the cross-border use of its own currency, the yuan, or also called the renminbi, in trade and investment. China’s goal is to decrease transactions costs for Chinese importers and exporters. Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, said Beijing wants to see a better-balanced international monetary system consisting of at least the dollar, euro and yuan and perhaps other currencies such as the yen and the Indian rupee. "The shortcomings of the current international monetary system pose a big threat to China's economy," he said. "With more alternatives, the margin for the U.S. would be greatly narrowed, which will certainly weaken the power basis of the U.S."

European Sovereigns Weaken Further As Pattern Emerges

European sovereign bond spreads weakened notably today - extending losses from yesterday - ending the day unchanged to slightly wider on the week. There has been a rather notable pattern though emerging in the last week as from the US Open to EU Close, we see bonds consistently sold off. EURUSD pushed up above 1.30 on a decent stop-run amid Draghi's words. It seemed Draghi was a little less dovish than in recent days - no rate cuts, more pain for Portugal, no concessions on Spain. European equities underperformed European credit for the second day in a row - playing catch down as financials underperformed.

Uncle Sam's FICO Score

If the US Government were applying for a loan, what would its credit score be? ConvergEx's Nick Colas estimates it at 655 (based on www.myfico.com) - which is higher than we suspected - but consistent with the structural belief in both sovereign and personal debt rating systems that historical payment patterns matter more than ability to pay, leverage, or loan amounts.

Investing: It Is Very Difficult To Beat Compound Interest

Admin at Marc Faber Blog - 1 hour ago

I think, in general, it is very difficult to beat compound interest. If you had invested money at the time of the birth of Christ at just 5 percent, you would have a higher net worth today than that of the entire world. - *in Trading The World`s Market - Interviews With The World Great Global Investors* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

 

Wall Street Adventure

Admin at Jim Rogers Blog - 1 hour ago

I entered the investment business in 1968 with 600 dollars in my pocket, and I left in 1980, at the age of thirty-seven, with enough money to satisfy a lifelong yearning for adventure. - *in Adventure Capitalist, The Ultimate Road Trip* *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.* 

 

Food Prices Jump to Six-Month High as Dairy Costs Rise

Eric De Groot at Eric De Groot - 3 hours ago

QE1, QE2, QE3...QE(n) plus the severe drought of 2012 will pressure household budgets in 2012-2013. Chart 1: CRB Spot And Year-over-Year (YOY) Change Chart 2: CRBFoodstuffs And Year-over-Year (YOY) Change Headline: Food Prices Jump to Six-Month High as Dairy Costs Rise An index of 55 food items tracked by the FAO rose to 215.8 points from a restated 212.8... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

Climbing the Wall of Worry, Risk-On verses Risk-Off Trade

Eric De Groot at Eric De Groot - 4 hours ago

The Risk On/Off Oscillator generated a positive crossover as of August 2012 (chart). This suggests the onset of another risk-on phase (flo) despite growing expectations that another risk-off (ebb) is underway. When stocks rally against consensus expectations, it’s called climbing the wall of worry. Chart: Large Cap Stocks Total Return Index (LCSTRI) and Risk On/Off Oscillator... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

Déjà Vu All Over Again

Poor Service PMI numbers from China/UK/Good ADP number but poor manufacturing additions/USA adds 93 billion to debt on day l of fiscal year/

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 18 hours ago

Gold closed up today by $4.80 to $1777.30.  Silver rose 3 cents to $34.63. As you all can see, the bankers have dug in their heels and are defending $1780 gold and 35.00 dollar silver. There must be huge derivative consequences for the bankers at these levels as the fight is fierce. On the news front, I guess we can say that today was a snoozer as there was no real earth shaking reports.  China

Resume Of The Day: Meet The Man Who Sold 1,300 Tons Of Swiss Gold

If you are the person who sold 1,300 tons of Swiss gold in the pre-"New Normal" era, you probably would like to keep that fact to yourself. But not Michael Paprotta, or the guy who did sell 1,300 tons of gold for the Swiss National Bank from 2000 to 2005. As a reminder, the price of gold in the period was between $250 and $450, making Gordon Brown's own dump of a meager 400 tons of UK gold between 1999 and 2002 seem like amateur hour by comparison. Assuming a current price of gold of $1800 and a blended disposition price of $350/oz, this means that Switzerland effectively gave up on just under $60 billion in upside. That's ok though, the SNB's balance sheet is now full to the gills with money-good EURs. Who needs gold in a fiat regime anyway? Certainly not Michael Paprotta who gives up on tens (soon hundreds) of billions in gold upside fiat equivalents in the morning, then goes skiing in the afternoon.

Meanwhile, In Greece...

It would seem the austerity-to-social-unrest 'correlation' is proving out as 250 furious shipyard workers stormed the Greek Defense Ministry in Athens demanding to be paid their wages (which they have not seen for six months)...

Goldman: "Neither Democrats Nor Republicans Look Inclined To Budge On The Fiscal Cliff"

The market appears convinced that it now has nothing to worry about when it comes to the fiscal cliff. After all, if all fails, Bernanke can just step in and fix it again. Oh wait, this is fiscal policy, and the impact of QE3 according to some is 0.75% of GDP. So to offset the 4% drop in GDP as a result of the Fiscal Cliff Bernanke would have to do over 5 more QEs just to kick the can that much longer. Turns out the market has quite a bit to worry about as Goldman's Jan Hatzius explains (and as we showed most recently here). To wit: "our worry about the size of the fiscal cliff has grown, as neither Democrats nor Republicans look inclined to budge on the issue of the expiring upper-income Bush tax cuts. This has increased the risk of at least a short-term hit from a temporary expiration of all of the fiscal cliff provisions, as well as a permanent expiration of the upper-income tax cuts and/or the availability of emergency unemployment benefits." This does not even touch on the just as sensitive topic of the debt ceiling, where if history is any precedent, Boehner will be expected to fold once more, only this time this is very much unlikely to happen. In other words, we are once again on the August 2011 precipice, where everything is priced in, and where politicians will do nothing until the market wakes them from their stupor by doing the only thing it knows how to do when it has to show who is in charge: plunge.

Is This Why Consumer Confidence Is "Overbought"?

It would appear the US consumer has become entirely bipolar. Bloomberg's US Consumer Comfort index has swung in +/- 3-sigma ranges for much of the last few months as hope turns to despair and once again rises phoenix-like to hope. The last four weeks have seen the biggest rise in 'comfort' in six years - mirroring quite closely the chaos that was occurring in the lead up to the financial crisis. What is a little perplexing - with all this exuberant optimism and confidence, that factory orders just plunged off a cliff - falling the most since Jan 2009 (though slightly better than expected). Or is it so bad that it can only get better as the imploding economy is imploding slightly slower than expected?

The 5 Most Ridiculous Charts In US Equity Markets

The ratio of negative-to-positive pre-announcements for the third quarter earnings season is running at 4.3-to-1. As Citi's Tobias Levkovivh notes, this is the highest since 4.7-to-1 in Q1 2009 and shows management's clear lack of confidence about even short-term economic performance (elections, fiscal cliff, China slowdown, Europe depression). He, like us, expected management to 'trim back' earnings expectations on their conference calls - especially as Q4 EPS growth estimates at 8% are simply 'too optimistic'. Of course, that doesn't stop the thundering herd of extrapolating analysts from imagining what the world could be like - as the following three charts of Q2 2012, Q3 2012, and Q4 2012 earnings growth estimates so clearly indicate. It would seem that with the Fed less able to 'surprise' given its QEternity bazooka has been fired, and China's PBOC stymied, it falls back to Draghi to drive us to this unreality - and after today's more disappointing call, that appears less forthcoming.

Chart Of The Day: The Rise Of Global Central Planning

There was a time when the world had (somewhat) free markets. Then Lehman failed as the inevitable culmination of a credit bubble that was second in size and severity only to the one being blown currently, and the central planners took over, converting equity, bond and FX markets into nothing but monetary policy tools dominated by central banks. Below is a great summary of how parallel to SkyNet's HFT takeover of stock trading, the central planners conducted their own not so stealthy take over of all capital markets. The chart is open-ended. Expect much more intervention by the Big 4 in the months and years ahead as the circular nature of increased central bank intervention leading to less faith in financial markets leading to increased private sector deleveraging leading to increased-er central bank intervention and so on, accelerates.

Draghi Again Confirms ECB Pari Passu Status Is A Pipe Dream

Draghi has said lots of things in today's conference, most of them regurgitated. So far the most notable item is what ha already been implied on several occasions, namely that the ECB will not restructure its holdings of Greek bonds (something restructuring professionals call debt for equity in other circumstances) for one reason:

• DRAGHI: RESCHEDULING GREEK BONDS WOULD BE MONETARY FINANCING

And there goes any hope that the Greek bonds currently in the market will soar due to an OSI restructuring. It also means that the ECB was merely, well, lying when it said that any future bond purchases under the OMT will be Pari Passu. The won't be, as this would imply, as Draghi said, a monetary financing should a PSI/OSI  restructuring ever take place in Spain. Which it will.

Jobless Claims Rise As Previous Data Revised Up Yet Again

 
The now-ubiquitous prior revision higher in jobless claims made the rise in jobless claims of 4,000 seem a lot less than otherwise as claims didn't even budge the market's needle. Coming in at 367k, slightly better than expected but within the 352k to 392k range that it has been in all year, the most interesting thing we can say about today's print is "it's off the lows". After last week's significant beat, no follow through is seen as we contonue to muddle through.

Mario Draghi Press Conference Webcast

The former Goldmanite head of the ECB, and CEO of DraghiFX LLC, whose only recommendation is still to not short the EUR and thus to make sure German exports suffer, is not expected to say anything too exciting or contradictory today, although he will surely be bombarded with questions about just how and when he plans on dethroning Spain's Rajoy who still refuses to play along with the program, and enact the Spanish bond buying program. Alternatively, if Draghi makes any indication the ECB is now backtracking from the OMT expansion and instead is forced to rely on first loss guarantees and other doomed ideas that failed a year ago, watch as everything goes risk off. Watch the full thing below.

Daily US Opening News And Market Re-Cap: October 4

Markets were in sleep mode for most of the session, ahead of the BoE monetary policy decision, as well as the ECB’s press conference where the President is unlikely to outline any new measures and instead reiterate that the ECB stands ready to do whatever is necessary. The BoE held both their rates and asset purchase target unchanged, however it is widely expected that the central bank will boost the facility by another GBP 50bln in November. Today’s supply from both Spain and France was easily absorbed by the market, both were supported by the recent decline in bond yields. Going forward, apart from digesting comments from Draghi, market participants will get to see the release of the latest weekly jobs report, durables revisions and the minutes from the FOMC.

ECB Joins BOE In Leaving Rates Unchanged

First the BOE, now the ECB has left rates unchanged. Alas: you don't win pole position in the currency debasement closed loop in which nobody ever wins (well, except for Iran) by doing nothing. But for now, both banks did just as expected.

European Bailout Rumor Du Jour Comes In Early

At least it is not the China bails out Europe one: thankfully that one is now finished. Instead it is something almost as stupid -i.e., something that was floated, then denied, then floated again, then redenied, from Reuters:

• EURO ZONE CONSIDERING FIRST LOSS INSURANCE FOR SPANISH BONDS UNDER ASISSTANCE PROGRAMME - EU SOURCES
• SCHEME COULD COST EU RESCUE FUND ABOUT 50 BLN EUROS FOR ONE YEAR, ENABLE SPAIN TO MEET FULL BORROWING NEEDS -SOURCES
• NO DECISION TAKEN YET ON BOND INSURANCE SCHEME, MAY BE SEVERAL WEEKS AWAY -SOURCES

Considering the source, Reuters, was pretty much 100% wrong on Monday when it said the Spanish bailout was imminent and Germany contingent, something Germany refuted shortly thereafter, we give this rumor about the same "likelihood" of being credible as every other one that Europe is fixed. But at least it managed to get the EURUSD higher by 20 pips.

Frontrunning: October 4

• Romney dominates presidential debate (FT)
• What Romney’s Debate Victory Means (Bloomberg)
• Obama Lead Shrinks in Two Battlegrounds (WSJ)
• "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
• Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
• RBS facing loss after Spanish property firm collapse (Telegraph)
• Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
• The Woman Who Took the Fall for JPMorgan Chase (NYT)
• European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
• Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)

 





Today’s Items:

First…
Spain’s Tax Take Tumbles
http://www.cnbc.com

Since Spain raised its corporate tax rate, the country’s tax revenue has dropped by two-thirds from per-crisis levels.    Many small businesses have failed and big corporations have sought profits from abroad.     In 2007, the corporate tax revenue was 44.8 billion euros while in 2011 it was 17.8 billion euros.   Sounds like California.

Next…
US Households Meet 2013 Fiscal Cliff
http://www.moneynews.com

U.S. households are facing an average tax increase of $3,446 in 2013.    The top 1 percent of households would see their average federal tax rates hit 40.5 percent, up 7.2 percentage points from this year.   Nothing like tax hikes to make the economy better.    Right!

Next…
New York Charges JP Morgan with Mortgage Fraud
http://www.opednews.com

Citing misconduct, which is an understatement, in the sale of mortgage securities during the housing boom, a complaint has been filed against JP Morgan.    JP Morgan is most likely guilty of violating the Martin Act that protects the public from financial crimes, that deal with misrepresentation and omission in financial instruments.    JP Morgan most likely failed to evaluate, or more likely purposely hide, the toxicity of loans and kept investors in the dark about the defects of those loans.

Next…
Solar Industry Pushes Silver
http://www.wealthwire.com

Photography accounted for 50% of silver demand in the 20th century and has dropped to 10% today. But silver demand is far from slowing. Silver use in each cellphone and laptop is conservatively 0.2 and 0.75 grams respectfully.    In addition, in 2000, silver demand in solar panels was virtually zero, today it is about 60 million troy ounces. So, after preparing, keep stacking physical.

Next…
DHS Spies On Innocent Americans
http://apnews.myway.com

A lengthy bipartisan Senate report concludes that a multibillion-dollar information-sharing program, created in the aftermath of 9/11, has improperly collected information about innocent Americans and produced little valuable intelligence on terrorism.  It is a scathing evaluation of the Department of Homeland Insecurity.  So, what are the future plans for this program? Expansion most likely.

Next…
Poorer, Fatter, and Sicker
http://theeconomiccollapseblog.com

36 percent of all Americans are considered to be obese while only 13 percent were obese in 1962.    Median household income fell in 41 states between 2000 and 2011.    Poor Americans are living about 5 years less than the wealthy.    Glad I got rid my TV and work out 4 to 5 times a week.

Next…
Obama Advisor Says Obamacare Death Panels Coming
http://joemiller.us

Steven Rattner, a top Obama strategist and donor, conceded that the rationing of heath services under Obamacare is inevitable.    He said that it would target elderly patients and that in order for Obamacare to work, that, perhaps secret, death panels are needed.    No matter what people think of her, it now appears that Sarah Palin, who got mocked by her Death Panel comment, has been fully vindicated.

Next
Debate

Well, it appears that the debate was so bad for Obama that Chris Mathews no longer has a thrill running up his leg asking “what was he doing?”     In fact, even Bill Maher admitted that Obama looked like he needed a teleprompter.  Does Romney’s clear winning change anything?   No, we will all still lose on November 6th.

Finally, please prepare now for the escalating economic and social unrest.    Good Day!

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