QEternity Explained: The Definitive Infographic...

 

Confused what the opportunity cost, as well as outright cost, of QEternity is? The following infographic from Demonocracy should put everything into perspective.

Dutch Prepare To "Awaken Sleeping Giant" As GRExit Plans Resume

On the inaugural day of the much-awaited holy grail of Europe - the ESM - DutchNews.nl reports that Dutch diplomats in Athens have been secretly planning for an eventual Greek exit from the eurozone (along four themes - liquidity, energy, communications, and security). "We have deliberately strictly kept this behind closed doors", a Dutch diplomat told Volkskrant, adding "I do not know who has trumpeted." Among the Dutch companies doing business in Greece are Heineken, Unilever, and Philips as one business owner note that they "send cash back to the Netherlands as soon as possible - holding as little money in Greece as possible." While the foreign affairs ministry would not confirm, the paper cites a diplomat who commented: "we do not want to awaken any sleeping giants." We suspect you just did - sshh!

Moody's Slaps ESM With Negative Outlook On Day Of Its Official Launch

Europe just can't catch a break these days. While French Fitch naturally came out earlier with a AAA rating and a stable outlook, it is Moody's, which has yet to follow through in S&P's footsteps 14 months later and tell the truth about America's AAA rating, that moments ago spoiled the ESM "inauguration" party by branding it AAA, but with a Negative outlook. So much for the most 'supersecure' CDO on earth: looks like we are not the only ones to assign comical value to the ESM's €80 billion first loss "Paid-in" tranche. Because that 12% in buffered protection can disappear very quick if and when the central planners lose control.


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IMF Cuts Global Growth, Warns Central Banks, Whose Capital Is An "Arbitrary Number", Is Only Game In Town

"The recovery continues but it has weakened" is how the IMF sums up their 250-page compendium of rather sullen reading for most hope-and-dreamers. The esteemed establishment led by the tall, dark, and handsome know-nothing Lagarde (as evidenced by her stroppiness after being asked a question she didn't like in the Eurogroup PR) has cut global growth expectations for advanced economics from 2.0% to only 1.5%. Quite sadly, they see two forces pulling growth down in advanced economies: fiscal consolidation and a still-weak financial system; and only one main force pulling growth up is accommodative monetary policy. Central banks continue not only to maintain very low policy rates, but also to experiment with programs aimed at decreasing rates in particular markets, at helping particular categories of borrowers, or at helping financial intermediation in general. A general feeling of uncertainty weighs on global sentiment. Of note: the IMF finds that "Risks for a Serious Global Slowdown Are Alarmingly High...The probability of global growth falling below 2 percent in 2013––which would be consistent with recession in advanced economies and a serious slowdown in emerging market and developing economies––has risen to about 17 percent, up from about 4 percent in April 2012 and 10 percent (for the one-year-ahead forecast) during the very uncertain setting of the September 2011 WEO. For 2013, the GPM estimates suggest that recession probabilities are about 15 percent in the United States, above 25 percent in Japan, and above 80 percent in the euro area." And yet probably the most defining line of the entire report (that we have found so far) is the following: "Central bank capital is, in many ways, an arbitrary number." And there you have it, straight from the IMF.

The ESM Has Been Inaugurated: Spain's €3.8 Billion Invoice Is In The Mail

Now that the ESM has been officially inaugurated, to much pomp and fanfare out of Europe this morning, many are wondering not so much where the full debt backstop funding of the instrument will come from (it is clear that in a closed-loop Ponzi system, any joint and severally liable instrument will need to get funding from its joint and severally liable members), as much as where the equity "paid-in" capital will originate, since in Europe all but the AAA-rated countries are insolvent, and current recipients of equity-level bailouts from the "core." As a reminder, as part of the ESM's synthetic structure, the 17 member countries have to fund €80 billion of paid-in capital (i.e. equity buffer) which in turn serves as a 11.4% first loss backstop for the remainder of the €620 billion callable capital (we have described the CDO-like nature of the ESM before on many occasions in the past). The irony of a country like Greece precommiting to a €19.7 billion capital call, or Spain to €83.3 billion, or Italy to €125.4 billion, is simply beyond commentary. Obviously by the time the situation gets to the point where the Greek subscription of €20 billion is the marginal European rescue cash, it will be game over. The hope is that it never gets to that point. There is, however, some capital that inevitably has to be funded, which even if nominal, may prove to be a headache for the "subscriber" countries. The payment schedule of that capital "invoicing" has been transformed from the original ESM document, and instead of 5 equal pro rata annual payments has been accelerated to a 40%, 40%, 20% schedule. And more importantly, "The first two instalments (€32 billion) will be paid in within 15 days of ESM inauguration." In other words, October 23 is the deadline by which an already cash-strapped Spain, has to pay-in the 40% of its €9.5 billion, or €3.8 billion, contribution, or else.

Why It's Different This Time With AAPL's iCorrection

  We have seen bigger drops in AAPL's share price and each time that dip has been bought. Critically though, not just nibbled on but backed-up-the-truck volume surges as AAPL's price fell as what seemed like institutional buyers using any dip to grab some high-beta meth into this trend. The current almost-10% drop is missing this volume surge - where are the BTFD'ers? But, but, but what about iTV, the mini-iPad, and the pending vendor-financing corporate spin-off?

Gold and silver retreat/More fallout from South African mining strikes/Sixth region in Spain asks for a bailout/Central Bank of India increases gold reserves/Barrick's problems in Pascua Lama will not go away/

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 54 minutes ago

Good evening Ladies and Gentlemen: Gold closed down by $5.50 to $1773.50 with silver finishing the comex session at $34.00 down 52 cents.  Today was Thanksgiving day in Canada and Columbus Day holiday in the USA so trading was very thin. Today the 6th regional government of Spain, Canarias has asked for a bailout.  The Central Bank of India announced an increase in gold reserves of approximately

 

Blueprint For Accountability: Drone Warfare

Gold Daily and Silver Weekly Charts - Pullback on a Light Volume Day

SP 500 and NDX Futures Daily Charts - Lightest Day of the Year

IMF's New Growth Paradigm: Kenya And Tanzania

For those who still wonder why China has given up on Europe, and is solely focusing on Africa (where none other than Goldman Sachs is opening more offices than any other bank), the IMF explains why the Berlin Beijing Conference 2.0 is now in its peak, if entirely behind the scenes. And yes, the "developed" world wishes it was one big banana republic. Amazing what not having 100%+ debt/GDP will do for one's economic prospects...

"What The Left Hand Giveth, The Right Hand Taketh Away"

If interest income as a percentage  of total personal income had remained at its 2008 level, the total would now be over $1.5 trillion. It is this $550 billion annual delta that the Fed has directly, though its policies, taken away from US consumers in terms of purchasing power. So while the Fed has taken away the bond market as a venue in which to generate current income, it is the structural failures of equities in a post-HFT world (stories of mini, amd maxi, Flash Crashes are now a daily occurrence) that prevent investors from having the same confidence about current income in a market in which terminal and fatal capital loss are all too real fears. And there are those who still wonder why the US consumer is withering away, and absent such crutches as soaring Federal non-revolving debt, used for anything but its designated purposes, would have less purchasing power now than before the crisis as a result of the Fed's failed policies.  As George Magnus so peotically summarizes it "What the left hand giveth, the right hand taketh away."

Stocks Lose Half Of Last Week's Gains With AAPL Back Under $600 Billion Market Cap

With bond-traders amiss - no doubt all celebrating the indigenous people of our great nation - volumes were dismal and so was any evidence of a BTFD mentality in risk. AAPL, amid the biggest three-day slide in almost six-months, saw pullbacks to VWAP sold immediately (signaling more institutional biased selling) ending very close to a 10% correction from its highs. This weighed on Tech (obviously) which was the worst performing sector and dragged Nasdaq (and the S&P) lower. In general equities stayed in sync with risk-assets on the day (we note that TLT's move implies around a 4-5bps compression in yields at the long-end of the Treasury curve) though the lack of liquidity made the relationships noisy. Low volumes, low range, a premature ramp in the last hour that gathered no momentum left S&P futures having retraced 50% of their low-to-high swing of last week. Gold and Oil decoupled early then recoupled late, ending the day down but outperforming the implied weakness from USD strength (EUR weakness balanced JPY and AUD strength on the day). Copper and Silver ended the day down 1.4%. VIX 'outperformed' equity weakness and pushed a notable 0.8 vols higher back over 15%.

The Three Funniest Charts You'll See This Earnings Season

S&P 500 EPS is forecast by consensus to decline 2% both sequentially and YoY in 3Q12 driven by net margin compression. As Morgan Stanley's Adam Parker notes, it appears (for now) that we can have an earnings recession without an economic recession; but the disconnect may be a lag as opposed to a decouple. Roughly 50% of companies are expected to experience YoY contraction in net margins but - and this is the 'funny' segment of this post - consensus expects an 18.2% incremental margin expansion in 2013 (from a 7.2% rise in 2012 which is down from 13.1% rise in 2011); and while 3Q EPS is expected to be negative, the following three quarters EPS growth are expected to rise dramatically (double that of 2012 on average). It seems investors (and analysts) are still willing to believe in miracles.

The Great Pacification

Since the end of the Second World War, the major powers of the world have lived in relative peace. While there have been wars and conflicts  — Vietnam, Afghanistan (twice), Iraq (twice), the Congo, Rwanda, Israel and Palestine, the Iran-Iraq war, the Mexican and Colombian drug wars, the Lebanese civil war — these have been localised and at a much smaller scale than the violence that ripped the world apart during the Second World War. Hopefully, the threat of mutually assured destruction and the promise of commerce will continue to be an effective deterrent, and prevent any kind of global war from breaking out. Nothing would be more wonderful than the continuing spread of peace. Yet we must be guarded against complacency. Sixty years of relative peace is not the end of history. 

Why The Market Should Not Expect A Bounce If A Fiscal Cliff 'Compromise' Is Reached

As earnings season is upon us, we will no doubt hear that expectations are so low that the market has it all priced in and upside is the only way to go (apart from the fact that Q4 expectations remain in the land of faeries and unicorns). Of course Q4's hockey-stick is critically going to depend on the fiscal-cliff - post-election. As we noted here, there are few positive outcomes from the fiscal cliff 'negotiations' with even a best-case 'possibility' of a 0.9% fiscal drag in the first half of 2013. Using trend growth of 3%, and Goldman's estimate of around a 4% drag (lower than the 6-plus% drag the CBO estimates), we can work back from the consensus 2.05% GDP growth for 2013 to figure what the market's priced in probability of a fiscal-cliff resolution is. It would seem the market is more than happy to almost entirely dismiss the fiscal cliff. Back of the envelope math implies only a 1.5% probability of the full fiscal cliff impact and therefore any expectation of an equity market rally on hopes of a compromise seem far-fetched with well over 95% priced in currently.


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