Wednesday, November 30, 2011

Of Imminent Defaults And Self Deception. Kyle Bass Prepares For The Worst

In his latest letter to LPs, Kyle Bass of Hayman Capital Management, offers his tell-tale clarity on what may lie ahead for Europe and Japan. With his over-arching thesis of debt saturation becoming more plain to see around every corner, Bass bundles the simple (and somewhat unarguable) facts of quantitative analysis with a qualitative perspective on the cruel self-deception that we all see and read every day about Europe.
Whether it is Kahneman's "availability heuristic" (wherein participants assess the probability of an event based on whether relevant examples are cognitively "available"), the Pavlovian pro-cyclicality of thought, or the extraordinary delusions of groupthink, investors in today’s sovereign debt markets can't seem to envision the consequences of a default.
His Japanese scenario is no less convicted, as we have discussed a number of times, with the accelerant of this debt-bomb being the very-same European debacle and his time-frame for this is set to begin in the next few months.




Global Bailout Surprise Twist Endings Presents: "Stocks Soar As Investors Bet On Gov't Rescue Plan"

First Black Friday, and now the Modern Finance Farce Company Surprise Twist Ending takes on the global bailout...




How The U.S. Will Become A 3rd World Country (Part 1)


The United States is quickly becoming a post industrial neo-3rd-world country. Partly as a consequence of worsening unemployment and lack of economic opportunity, falling real wages and household incomes, growing poverty and increasing concentration of wealth, the U.S. government faces a historic fiscal crisis. Dominant corporate influence over the U.S. government, particularly by large banks, weakening rule of law at the federal level and destructive tax policies are compounding the economic problems facing the United States. Barring fundamental reforms or a hyperinflationary collapse of the U.S. dollar (due to the fiscal problems of the U.S. government), the deterioration of the U.S. economy will continue and accelerate. As the U.S. economy continues its decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate and the 3rd world status of the United States will become apparent.





Central Banks’ Latest Move Shows Desperation
George Washington
11/30/2011 - 18:35
Hey, at least a handful of Ben's buddies will make a bundle ...




China Manufacturing Contracts As New Export Orders See Biggest 2 Month Drop Since Dec2008


UPDATE: HSBC China Manufacturing PMI prints at 47.7, deteriorating at fastest rate (and lowest level) in 32 Months
Suddenly this morning's RRR cut doesn't feel quite so much like China doing Europe a favor. Chinese Manufacturing PMI printed at a lower-than-expectations 49, signaling its first contraction (<50) since Feb 2009. As if it was really ever so, as clearly concerns were growing since we had the Flash PMIs earlier in the month. Across the board, sub-indices were weak with New Orders and New Export Orders falling significantly as the latter remains below 50 and Inventories rose significantly. Notably New Export Orders have now fallen the most over two months since Dec 2008.




Agriculture Probably The Best, Silver And Gold Perhaps Second Best

Admin at Jim Rogers Blog - 2 hours ago
"I suspect agriculture products would give better protection during the next several years although gold and silver will be good too – perhaps second best." - *in CNBC`s Investor Clinic* *Tickers, SPDR Gold Trust ETF (GLD), iShares Silver Trust ETF (SLV), ELEMENTS Rogers Intl Commodity Index - Agriculture Total Return ETN (RJA) * *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 a... more » 



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Peter Schiff Explains What Today's Global Fed-Funded Bailout Means For The Future

If anyone is still confused by what has transpired today, here is Peter Schiff explaining in simple words, why what happened "may be one of the most important economic events of the year" and what to do next: "Today’s unprecedented announcement by the world’s most powerful central banks was a loud and clear bell ringing to buy precious metals. The move, disguised as an attempt to help the fragile state of the global economy, is in reality a move to prop up failing banks in Europe and the US. By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation. The result? The dollar will weaken, inflation will rise, and gold will soar. Gold was up more than $30 today, and the dollar got crushed. I urge you to take 7 minutes to watch the video I recorded exclusively for my subscribers a few hours ago. It explains, in plain language, what happened today – and what is the likely outcome for your portfolio. This may be one of the most important economic events of the year." And pardon Schiff's self-promotional piece at the end, but the truth is that he is essentially correct about what the actions means from a big picture perspective. Furthermore, as Goldman made all too clear, this is merely the beginning as more and more inflationary actions have to be undertaken by central banks to save banks from being crushed by untenable debt loads. Whether they succeed in overturning the deflationary tsunami is unknown. What is certain is that they will bring fiat currencies to the verge of viability (and beyond) in trying.




Fed supplies Massive Liquidity to the World/Massive Gold delivery notices and huge gold oz. standing, large silver oz standing

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 13 minutes ago

Good evening Ladies and Gentlemen:I guess you all heard that the Fed (backstopped by the USA taxpayer) supplied massive liquidity to the world today by entering into swap arrangements with various central banks. As I have mentioned to you on previous occasions, we do not have a liquidity problem but a solvency problem. This only kicks the can down the road for another couple of months. The




Goldman On Today's Coordinated Central Bank Bailout: "It Isn’t Enough To Save Anyone Or Solve Averything" And "Why Now?"

Naturally, if there was one party that would be disappointed by today's action, it would be Goldman Sachs: on one hand because it is nowhere near enough to actually fix anything, and on the other because it delayed the moment when the 2-3 European banks which we have been saying for over a week would keel over and die leaving a power vacuum for Goldman to fill, has just been delayed. As a result, Goldman dissatisfied note makes more than enough sense: "Up, up, and away for stocks after the coordinated ease this morning. USD funding just got cheaper, which is of course a good thing. But the difference between OIS + 50 and OIS + 100 isn’t enough to save anyone or solve everything. It’s the symbolism of policy-makers again acting in concert that I find most encouraging." But, and there is always a but: "Although there is the obvious counter: why act now – is there something lurking around the corner? Those are worries for tomorrow though." Indeed, and when the worries resurface, as they will, especially following the resumption in European record yielding auctions, which incidentally the Fed's action does nothing to fix, following France and Spain bond auctions. And who knows what else. Oh yes, Goldman just cut its GDP forecast for Europe from +0.1% to -0.8%: hello, recession, the very same catalyst which S&P said a month ago will be sufficient for it to downgrade France. As usual, Egan-Jones was way ahead of the crowd.




The Punch Line: "Crash Test - Bracing For Breakup"

And now it is time for our favorite monthly chart-only newsletter, The PunchLine by Abe Gulkowitz, who unlike the momentum chasing crowd which has an attention span measured in inverse significant digits, and has a brokerage account (but endless monopoly money) that is even smaller courtesy of always being on the receiving end of a market which actually needs commission payments on both sides of those candle charts, sees well behind the headlines designed to sucker in the feeble minded twitter-traders, and presents it all with gorgeous, chartific clarity. And the only thing better than the insight of his hand-picked charts is the focus of his narrative, which speaks volumes without actually speaking volumes: "European banks are dumping government debt, deposits are draining from south European banks and a looming recession is aggravating the pain, fuelling doubts about the survival of the single currency in the European zone. Between the bookends of economic data points, rating agency actions, and political developments - - market gyrations are seriously affected by policy directions. A key consideration for any 2012 forecast is the impact of public policy on risk premiums and business confidence. Persistent fears of major policy missteps could come to a head at any time regarding the U.S. fiscal nightmare and Europe’s responses to the sovereign and banking crisis. One now needs to believe that the policy environment – both in the US and Europe – could serve as significant headwinds to growth in 2012."




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No Major Clearing House Can Fail


My Dear Friends,

I have not written much about the recent failure of a major clearing house out of respect for my friends who are caught in that situation.
A clearing house of note is the mechanism of the marketplace without which trading simply does not occur. This is a situation where "Too Vital to Fail” trumps “Too Big to Fail."
You want to know why the Fed organized the do nothing European leaders in concerted action along with China? The answer is no major clearing house can be allowed to fail because then the market mechanism is broken.
The reason that sovereign debt cannot fail is the five largest US banks hold trillions of dollars of credit default swap OTC derivatives guaranteeing that garbage against failure.
If euro debt fails, the Western financial world implodes, so it will not now.
"QE to Infinity" and gold at $4500 is coming as sure as death and taxes. Good call, Alf!
What a head fake gold gave last week, turning almost everyone, even some big guys, gold bearish. They should have known better.
Regards,
Jim




In The News Today


Dear CIGAs,

This is called united system ease. It increases liquidity. It scratches the surface of QE, but is not QE.
QE is inevitable. It is the only tool that can stop a run on a bank, be it sovereign, investment or commercial.
Alf Fields is right when he says "Once this correction has been completed, Intermediate Wave III of Major Three will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way."
Click here to read the full speech from Alf Fields…

Six Central Banks Take Joint Action to Enhance Global Liquidity The New York Times
Wednesday, November 30, 2011 — 8:52 AM EST

The Federal Reserve, the European Central Bank and four other big central banks took coordinated action on Wednesday to ease the strain of the European debt crisis on the world economy.
The Fed, the E.C.B., the Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank agreed to reduce the interest rate on so-called dollar liquidity swap lines by 50 basis points, among other measures.
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the Fed said in a statement.
More…





Jim Sinclair’s Commentary

You asked yesterday who would be the lender of last resort and today got your answer.

Fed bails out Europe while ECB dithers
Commentary: Making dollars more accessible won’t solve crisis
By MarketWatch
WASHINGTON (MarketWatch) — On one level, it’s almost funny to call offering dollars at a cheaper rate to foreign banks “coordinated” action.
It’s only coordinated in the sense that the Federal Reserve is printing the dollars and the European Central Bank and other central banks put the greenbacks in the virtual vaults of mangled commercial banks that are drowning in European debt.
But it’s not coordinated in the sense that the ECB taking any bold action of its own to stem the euro-zone debt crisis.
The ECB on Tuesday accidentally wandered into quantitative easing, basically when banks didn’t want to commit to lending money to the Frankfurt-based central bank, which effectively meant that a tiny sliver of the purchases of Spanish and Italian debt it made were funded from money printed out of thin air.
That money printing, called quantitative easing, is old hat at the Fed, as well as at the Bank of England and the Bank of Japan. The results are admittedly debatable, but in ECB circles it’s unthinkable to contemplate, as the ghost of the Weimar Republic continues to haunt German policy makers.
More…





Monty Guild’s Commentary

Here is a Bloomberg London article. We could not agree more that gold stocks are cheap, especially juniors with quality assets.

Cold Shares Cheapest Since 2002 Are ‘Coiled Spring’ for Rally: Commodities By Thomas Biesheuvel – Nov 30, 2011
Gold mining stocks are trading at their cheapest level in at least nine years even as the industry’s profits are estimated to almost double this year and bullion trades close to its historic high.
The benchmark NYSE Arca Gold BUGS Index (HUI) that includesBarrick Gold Corp. (ABX), Newmont Mining Corp. (NEM) and AngloGold AshantiLtd. ended last week at 17 times earnings, the lowest since at least November 2002 and below a five-year average of 37 times.
Investors sold equities across the board as Europe’s debt crisis soured the corporate profit outlook, and they’re ignoring analyst projections for bullion and gold producers. The gold index’s 16 members will increase combined per-share earnings 94 percent this year, according to estimates compiled by Bloomberg.
“When you look back in history, you will say this was a buying opportunity,” said John Wong, a portfolio manager at CQS Group’s New City Investment Managers in London and lead manager of the $200 million Golden Prospect Precious Metals Ltd., a fund holding gold and silver stocks. “It’s like a coiled spring.”
Gold equities have fallen 4.7 percent this year, heading for the first annual decline since 2008. Gold reached a record $1,921.15 on Sept. 6 and is set for an 11th annual gain.
“The market doesn’t trust big spikes,” said Jon Bergtheil, an analyst at Citigroup. “People will wait to see if gold holds above $1,600 for a while.”
More…




Market Commentary From Monty Guild


Central Bankers Hold A Conference Call…Very bullish
We imagine that a significant phone call occurred on 11/29/11 between the central bankers from the U.S., Switzerland, U.K., Japan, Canada, and Europe.  The first five are going to provide needed liquidity to help the sixth, and send a message to the world.  The short-term financing market that banks rely on had dried up for European banks. The first five of these central banks agreed as a group to provide low cost liquidity; sending a message that it is safe to fund European banks.  These five national central banks are the same ones who have been supportive of Quantitative Easing (QE) as a tool to spur economic growth worldwide. 
This coordinated effort to strengthen the banking system of Europe when it runs into a funding problem is essential for markets to regain confidence.  Is it hard to imagine that they will do the same thing should Quantitative Easing be needed in the future?  No.  It is obvious to us that this will be the choice of the world’s central bankers should the banking system run into trouble again. 
Remember that the U.S. Federal Reserve alone provided over $7 trillion of liquidity during the U.S. banking crisis of 2008.  It has been reported that on one day alone the Fed provided $1.7 trillion.  Clearly, the entire Euro zone needs less than $7 trillion in support, so there is little doubt that all these central banks in coordination can do similar things if needed.

China Also Sends A Message To The Markets
Earlier today, China lowered its reserve requirements for the first time in three years, signaling their renewed focus on strong economic growth.  We view this as a clear sign that China wants to provide liquidity to its economy, and is satisfied that the real estate bubble that was forming has been stopped or substantially delayed. 
Growth will continue in China and that it will soon return to the strong levels that the world has been used to.  We have always believed in a soft landing for China, and this action shows that the governmental economic powers want to continue to see annual growth of 8% plus.

More Is Needed For A Final Resolution To Europe’s Banking System Problems

The following three things will have to happen before we can call the problems ‘solved’:

1.    Banks must have sufficient liquidity to fund their day to day needs.

2. Banks need to write down bad paper on their balance sheets so investors will trust the balance sheets to be accurate representations of the banks’ condition.  They must have sufficient capital to fulfill their purpose, which is to lend new money to companies who need financing to operate, to employ people, and to expand.  This is what creates economic activity and economic growth.  Note: The clean-up of bad bonds on bank balance sheets during the U.S. crisis took place through the Troubled Asset Relief Program [TARP] and other similar programs.  Eventually, European governments will work together to create a program similar to TARP for Europe.

3. Banks need to raise capital from investors to improve the quality of their capital base.  This is necessary to create confidence in the long term viability of any banking organization.  This will happen after the European banking system gets initial capital infusions from the European nations themselves. Once European nations have shown a commitment to the banks, the banks will be better able to convince investors to buy their stock offerings.

Additionally, We Saw Some Things In Europe Late Last Week That Changed Our View On The U.S. Market To Positive
After the ECB announced late last week that they had bought bonds to create demand for the bond auctions of this week, they further stated that they had not sterilized all of those purchases.  Some viewed this as a bearish event, but it made us become more bullish and we began to buy stocks on Monday 11/28.  Europe’s bond buying without sterilization is QE, or money creation.
New data came out yesterday saying that the ECB and Euro zone’s 17 national central bank’s balance sheets have grown to an all-time high of 2.4 trillion Euros [about 3.3 trillion dollars].  Some see this as a bad thing…we disagree…we see this as proof that central banks have provided and will provide liquidity when necessary.
Readers will recall that we have been arguing that this would happen in Europe and now it has begun to happen.  It was not a lot, but it is a start.  As a result of this signal we bought some stocks on Monday and yesterday.  It is now Wednesday, and the markets are up a lot these past three days, so we might take some profits: the tone of the markets has improved.

Recommendation
Investors should buy partial position in U.S. stocks to benefit from a trading opportunity during the current short squeeze, and add to these positions when the inevitable periodic stock market declines take place.  As we have continually said, QE will be the last resort, and when major European QE takes place world markets will rally vigorously.
S&P 500 Index 1 year chart.
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Shanghai Composite 1 year chart.
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***graphs: courtesy of Bloomberg
Recommendations

  Date
Date
Appreciation/Depreciation
Investment
Recommended
Closed
in U.S. Dollars
       
Commodity Market Recommendations
     
       
Gold
6/25/2002
Open
+427.2%
Wheat
10/24/2011
Open
-5.9%
Oil
10/24/2011
11/17/2011
+16.4%
Corn
4/20/2011
8/3/201
-6.3%
Oil
2/11/2009
8/3/2011
+157.1%
Corn
12/31/2008
3/3/2011
+81.0%
Soybeans
12/31/2008
3/3/2011
+44.1%
Wheat
12/31/2008
3/3/2011
+35.0%
Currency
Recommendations
     
Long
     
Canadian Dollar
10/24/2011
Open
-2.5%
Long
     
Singapore Dollar
10/24/2011
Open
-1.9%
Long
     
Canadian Dollar
9/13/2010
9/21/2011
+2.2%
Long
     
Chinese Yuan
9/13/2010
9/21/2011
+5.8%
Long
     
Swiss Franc
9/13/2010
9/21/2011
+12.1%
Long
     
Brazilian Real
9/13/2010
9/1/2011
+6.4%
Long
     
Singapore Dollar
9/13/2010
8/3/2011
+10.9%
Long
     
Australian Dollar
9/13/2010
6/29/2011
+14.1%
Long
     
Thai Baht
9/13/2010
6/22/2011
+6.5%
Short
     
Japanese Yen
4/6/2011
7/27/2011
-9.7%
Short
     
Japanese Yen
9/14/2010
10/20/2010
-3.3%
Equity Market
Recommendations
     
U.S.
11/30/2011
NEW
0.0%
IShares MSCI Emerging Market Index
10/24/2011
11/21/2011
-0.8%
U.S.
10/24/2011
11/21/2011
-1.6%
U.S.
9/14/2011
9/21/2011
-2.3%
India
4/6/2011
9/21/2011
-21.6%
Malaysia
6/29/2011
8/3/2011
+0.1%
U.S.
6/29/2011
8/3/2011
-4.6%
Japan
2/15/2011
8/3/2011
-9.5%
Australia
2/15/2011
6/22/2011
-0.9%
Canada
3/24/2011
6/22/2011
-7.1%
Colombia
9/13/2010
6/22/2011
+2.6%
Malaysia
4/6/2011
6/22/2011
+0.8%
Canada
12/16/2010
3/11/2011
+7.9%
U.S.
9/9/2010
3/11/2011
+18.1%
South Korea
1/6/2011
3/3/2011
-2.9%
Colombia
9/13/2010
2/2/2011
+3.9%
China
9/13/2010
1/27/2011
+5.0%
India
9/13/2010
1/6/2011
+7.9%
Chile
9/13/2010
12/16/2010
+8.9%
Indonesia
9/13/2010
12/16/2010
+9.5%
Malaysia
9/13/2010
12/16/2010
+1.3%
Peru
9/13/2010
12/16/2010
+32.2%
Singapore
9/13/2010
12/16/2010
+4.8%
Thailand
9/13/2010
12/16/2010
+11.9%
       
Bond Market
Recommendations
     
       
30 YR Long Term
     
U.S. Treasury Bond 
8/27/2010
10/20/2010
0.0%
More…




Jim’s Mailbox


Liquidity Is the Only Easy Solution  
CIGA Eric

Central bankers despite their best efforts are not in control of the markets. The futures might be soaring today, but infinite liquidity cannot turn distribution into accumulation in global equities or unemployment into employment for the US workforce.
Gross aptly suggests that Europe won’t escape its debt straightjacket for years. This is why the central banks have become increasing reliant on coordinated liquidity injections to maintain confidence within a crumbling monetary system.

Headline: Stock futures soar after central banks act globally
(Reuters) – Stock index futures soared on Wednesday as investors welcomed a coordinated action by major central banks to provide liquidity to the global financial system.
The Federal Reserve, the European Central Bank as well as the central banks of Canada, Britain, Japan and Switzerland agreed to lower the cost of existing dollar swap lines by 50 basis points starting from December 5.
The actions came as China unexpectedly cut its banks’ reserve requirements in hopes of boosting an economy running at its weakest pace since 2009.
S&P 500 futures jumped 33.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 269 points, and Nasdaq 100 futures added 58 points.
Source: reuters.com

Headline: Gross Says Europe Won’t Escape Debt ‘Straitjacket’ for Years
Investors should recognize that Europe’s problems are global and it will be years before nations in the region can escape from their “straitjacket” of debt, Pacific Investment Management Co.’s Bill Gross said.
With global growth likely stunted for years and interest rates kept artificially low, investors should consider risk assets in emerging economies such as Brazil and countries in Asia, Gross, manager for the world’s biggest bond fund, wrote in a monthly commentary posted today in the Newport Beach, California-based company’s website.
“Consider Brazil with its agricultural breadbasket and its oil. Consider Asia with its underdeveloped consumer sector but be mindful of credit bubbles,” Gross wrote in the note.
Source: bloomberg.com
More…

 

 

Holding the EU together by Money Printing and Force

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The European Union is frantically trying to come up with a plan to fix the debt crisis that is threatening to cause a worldwide financial calamity.  It seems every day there’s a new idea to save the union.  The latest is some sort of backdoor bailout through the International Monetary Fund (IMF).  Why doesn’t the European Central Bank (ECB) just take care of the bailout by itself?  It legally can’t according to the treaty that formed the European Union.  That hasn’t stopped the central bank from bailing out countries anyway.  But now, debt levels are reaching a critical stage as in a possible default, and the biggest problem is Italy.  Todayonline.com is reporting, “If Italy defaults on its debt of 1.9 trillion euros, the fallout could spell ruin for the euro zone and send shockwaves throughout the rest of the world. Yesterday, Italy’s borrowing rates skyrocketed to record highs in a 7.5 billion euro bond auction. The yield on its 3-year bonds surged to 7.89 per cent, 2.96 percentage points higher than last month, while yields on 10-year bonds spiked to 7.56 per cent, up 1.5 percentage points.”  (Click here for the complete Todayonline.com report.)
The key to saving the euro is Germany because it is the richest of the EU countries and can use its industrial might to help support a bailout fund.  But, Germany has been reluctant to bail out deeply indebted countries.  Now, calls to bend to pressure to save the day and keep the union together are reaching a fevered pitch.  The Guardian UK reported earlier this week, “The Polish foreign minister, Radoslaw Sikorski, urged Germany to save the EU from “a crisis of apocalyptic proportions.”  The Moody’s ratings agency predicted that a euro exit by any country would trigger a cascade of sovereign defaults across the eurozone. Jean Pisani-Ferry, director of the influential Bruegel think-tank in Brussels, said that “real businesses” as well as the financial markets were now “pricing in a break-up scenario … If disaster expectations build up and a growing number of players start positioning themselves to protect themselves from it, the consequences could become overwhelming.”  (Click here for the complete Guardian UK story.)
So, “any country” that stops using the euro “would trigger a cascade of sovereign defaults across the eurozone.”  This reminds me of the verse from the song “Hotel California” that goes “You can check out anytime you like, but you can never leave.”  The EU sounded so good when it started, but now it has turned into a nightmare where democracy is smothered by bankers.  Defaults would, no doubt, cause the bankers to lose power and lots of money.  That is not going to happen without a knockdown, drag out fight.  Paul Craig Roberts, former Assistant Treasury Secretary in the Reagan Administration, wrote last week, “The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.”
More…





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China Iran Fast forward to 2:08: "It is puzzling to some that Major General Zhang Zhaozhong, a professor from the Chinese National Defense University, said China will not hesitate to protect Iran even with a third World War... Professor Xia Ming: "Zhang Zhaozhong said that not hesitating to fight a third world war would be entirely for domestic political needs...." And don't forget Russia, which recently said it is preparing to retaliate against NATO and has put radar stations on combat alert: "Russia is another ally of Iran, with similar policy to that of China. Toward Iran." Watch, and please forward the entire video, for an explanation of how China is approaching the situation not only in Iran, but a perspective of how they view the western "threat", as well as what tensions they face domestically.

 

 

For The First Time In History, Fed Will Buy AND Sell Treasurys At The Same Time On Friday

Following today's unprecedented POMO failure due to "system difficulties" (one would hope the Fed's POMO machine does not start and stop every time someone pulls the plug from the socket), Brian Sack's team (not to be confused with the PWG team of Eric Mindich) had to reschedule the literally failed auction. As it turns out, the first opportunity to sell $8-$8.75 billion in 2013 bonds is on December 2. And unlike the December 21 "reverse" POMO which is due to take place at 1:15pm, the rescheduled bond sale will instead occur at its usual time of 10:15-11:00am. Ironically, this is also the time when the Fed will be buying $2.25-$2.75 billion in 2036-2041 bonds. In other words, for the first time ever on Friday the Fed will be literally selling and buying bonds (although selling 4 times more than buying) at the same time. If this is not the pinnacle of deranged monetary policy which does not even attempt to offset monetization by a few hours, then nothing ever can be.





14th Consecutive Week Of Stock Outflows: Retail Refuses To Go Back Into Stocks No Matter What Market Does

So much for engineered stock market "rallies" and global "bailouts" - per the latest ICI update, we can now confirm that no matter how or what the market does, retail investors have firmly decided that the ridiculous market volatility is simply too much for most, and have withdrawn another $3.7 billion from domestic equity funds, and have now taken out money for 14 straight weeks ($44 billion) since the US debt downgrade (but, but, the S&P barely lower), or 31 weeks ($130 billion) if one ignores the statistically irrelevant blip of a $715mm inflow on August 17. Perhaps instead of trying to fabricate a makeshift price for the SPX which nobody believes any more, the Fed should focus on moderating the insane volatility which is the primary reason preventing any normal investors from putting cash into stocks. And yes, $6.2 billion went into bonds, despite the record low yields. Said otherwise, retail investors have withdrawn $214 billion from domestic equity mutual funds since the beginning of 2010. Put a fork in stocks: America's infatuation with the stock market is officially over.




Market "Inverse-Plunges" But Not Everyone Happy

Today's tremendous rally in equities was well supported by broad risk assets initially, but as financials took off this afternoon to end the month down only 4.8%, CONTEXT remained less exuberant. The 6.2% rally in financial stocks today was not so evident in corporate bond-land where we saw net-selling overall. Copper slipped well off its highs of the day but ended very well as Oil was only able to match USD weakness on the day while Gold and Silver outperformed (with the former touching $1750). VIX was a popular topic as it dropped below 30% but we note that implied correlation did not drop from the open suggesting macro-hedges remained more bid than underlying sentiment might suggest. IG credit outperformed (relatively speaking) which seemed more a squeeze move into the month-end close but HY's move was impressive as an early afternoon fade in HYG reverted to end at its highs. Equities and Credit ended back at 11/14-15 levels with IG and HY ahead of equity.





Ron Paul Statement On The Fed's Bailout Of Europe

Rather than calming markets, these arrangements should indicate just how frightened governments around the world are about the European financial crisis.  Central banks are grasping at straws, hoping that flooding the world with money created out of thin air will somehow resolve a crisis caused by uncontrolled government spending and irresponsible debt issuance.  Congress should not permit this type of open-ended commitment on the part of the Fed, a commitment which could easily run into the trillions of dollars.  These dollar swaps are purely inflationary and will harm American consumers as much as any form of quantitative easing.




Nigel Farage Slams Supposedly-Austere EU For Bribing Croatia To Join The 'Bent, Corrupt, And Distorted' Part

As the central bankers and political leaders of the 'supposedly-developed' world sit back in their chaise-longues sipping mojitos at a job-well-done for today's mindless rally on the back of a slightly lower cost of funds in a facility that already existed but was hardly utilized, perhaps they will cough a little at Nigel Farage's  (the cantankerously correct MEP from The UK) comments today. Describing the process of 'bribing' Croatia to join the EU as a 'bent, corrupt, and distorted' effort, he remarks that he has never seen this kind of pressure. It is remarkable, he notes in an undeniably intelligent-sounding English accent,  that after only 20 years out of the former Yugoslavia, after such a long period of seeking independence, they are now voting to rejoin a 'new Yugoslavia' - a failing political experiment. Perhaps, Van Rompuy and friends would be better spending the money on more mojitos for their friends at the Fed and PBOC?



Monthly Gold Chart - Closing Price Only

Trader Dan at Trader Dan's Market Views - 2 hours ago
I still marvel when looking at these charts at those who continue to denigrate gold and particularly those who deny it is a safe haven. While we all know that the official government CPI numbers are a fantasy, it is still rather interesting to see where gold has run into overhead resistance based on this inflation adjusted chart. 
 
 
 

You Know How You Get To Carnegie Hall?

Dave in Denver at The Golden Truth - 2 hours ago
Practice. After practicing short term gold and silver forecasting for10 years, I tend to shy away from posting my short term views on here because it only leads to readers busting my balls when my calls are wrong. It's safe to assume that - in general - my longer term outlook (3-5 years) is for at least $200-300/oz. silver. Likely higher but that's what I'll go on record publicly with. Having said that, I do believe that the silver market - after the vicious manipulated take down that took silver from $50 in April to a recent intra-day low of $26 and change on Sept 26, I am conf... more » 
 
 
 
 

Crude Oil prices - Collateral Damage

Trader Dan at Trader Dan's Market Views - 3 hours ago
Once again the WTI crude oil market is testing the psychological $100 level. After mounting a huge rally over the last two months that took price from down near $75/bbl to over $100/bbl, crude prices retreated as fears surfaced concerning the ongoing crisis in Europe. While tensions with Iran have kept prices from tanking, it is a given that crude oil was not exempt from risk aversion trades and fears of an overall global financial slowdown. However, as traders have begun anticipating action by the Central Banks to deal with this crisis, crude has floated back up again. Today's spik... more » 
 
 
 
 

 

Fundamental Spark for Silver and for Gold?

Trader Dan at Trader Dan's Market Views - 4 hours ago
Today's actions by the Fed, in concert with 5 other Central Banks, plus the move by China to lower bank reserve requirements 50 basis points, the first time they have done so in three years, has provided today's fireworks across the commodity and equity marks. It is RISK ON time once again for the hedgies. I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this ... more » 
 
 
 
 

Investors Clinic: Jim Rogers on Metals and Other Commodities

Admin at Jim Rogers Blog - 5 hours ago

Investors Clinic: Jim Rogers on Metals and Other Commodities, CNBC video. *Related: ELEMENTS Rogers Intl Commodity Index - Agriculture Total Return ETN (RJA), United States Oil Fund LP ETF (USO), iShares Silver Trust (ETF) (SLV), SPDR Gold Trust ETF (GLD) * *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.* 




Euro Basis Swap Perspectives

We noted early the lackluster improvement in the EUR-USD cross-currency basis swap, especialy compared to its trend and previous crisis scenarios. Peter Tchir, of TF Market Advisors, puts today's central bank actions into context relative to the underlying problems being faced in Europe and covers the implications of some of the headlines that may have slipped past in the middle of the rally-fest. We were down over 1% on futures overnight specifically because the EFSF was a failure and banks were downgraded (belatedly) by S&P.  No one is talking about EFSF right now.  The IMF denial and now the Italian 'deal' is also off the table.  Back on the table is "treaty changes".The swap line announcement seems largely symbolic in that changing the rate to 50 bps instead of 100 bps is not a game changer, and the basis-swap's previous bailout reaction offers less hope this time around.




Iran To Take 'Necessary Measures' In Reaction To UK Embassy

Just headlines via Bloomberg from the Iran Foreign Minster Mehr:
*IRAN SAYS U.K. DECISION TO CLOSE EMBASSY IS `HASTY'
*IRAN WILL TAKE `NECESSARY MEASURES' IN REACTION, MEHR SAYS
This as Germany, Italy, and now France also call back their Ambassador from Iran.




MBIA Soars Following BTIG Initiation With $22.50 Target

It is no secret that MBIA has long been one of our favorite longs (and by longs it is really a contrarian bet on various bad things happening - our latest piece can be found here). Today, we are happy to see that BTIG has come out with an initiating coverage report on the name following virtually all the same logic we presented two months ago, only with a price target that makes even us blush: $22.50. To wit: "We are initiating coverage of MBIA with a BUY rating and a $22.50 price target which equates to a 1.0x multiple of 2012E year-end stand-alone adjusted per share book value of National ($26.26) less the holding company net debt per share ($3.73). Our valuation is based on our view that if MBIA is able to resolve the fraudulent conveyance and Article 78 cases challenging its transformation either through a settlement or a court judgment, the value of National will flow up to the holding company and to shareholders.... Given our view that the challenges to MBIA?s transformation will be resolved through a settlement and that its shares could nearly triple in a post-announcement short squeeze, we believe MBIA offers one of the market's most compelling risk-reward propositions. Following almost four years of uncertainty during which its status as a viable entity has been in question, MBIA appears closer to resolving the various challenges it faces, unlocking the value of National Public Finance Guaranty Corporation – the company?s public finance unit – to the benefit of shareholders, and resuming its role as one of the last remaining players within that industry." and the kicker: "We would note that the large short interest in the stock relative to its float - 28.5 mm shares short versus a float of 140.4mm shares – combined with highly concentrated institutional ownership could set the stage for a dramatic short squeeze as short sellers might have to scramble to find shares to cover." Remember: "Is MBIA A Volkswagen-Like Short Squeeze Candidate?"  Mmhmm.





JPM Explains The Novel Feature In Today's Fed Liquidity Swap Line Expansion

As JPM's Michael Feroli, he move to cut the Fed's swap lines rate from OIS+100 to OIS+50 should not come as a surprise: it was already in the works, the only question is when it would be enacted. As it so happens it was decided on Monday, and was announced today after unfounded rumors of a potential bank failure in Europe became apparent. There was however a twist: "The new foreign liquidity swaps, whereby the Fed can offer euros, yen, loonies, pounds or swiss francs to US banks, is a novel step and a curious feature of today's announcement. The Fed's official statement is that these are being implemented as a "contingency measure." There are no plans to make these operational in the near term, but are apparently being set up as a backup plan in the event of a worsening in global financial conditions." What this means remains unclear but the Fed never changes policy without reason. Which then begs the question: while everyone is focusing on foreign bank lack of USD liquidity, should the real focus be on US bank lack of foreign currency liquidity?




Egan Jones Downgrades France From AA- To A; Negative Watch, Sees Debt/GDP Rising From 91% to 117% By 2013

Only the first of many French downgrades, this time by the rating agency which is always ahead of the pack. "Disastrous trend and the worst has yet to come. Over the past two fiscal years, the Republic of France's debt has grown by 21% from EUR1.32 trillion to EUR1.59 trillion. Meanwhile, FYE GDP declined slightly from EUR2.13 trillion as of 2008 to EUR1.93 trillion as of 2010...For the most part, over the past 18 months France has been exempted from the rise in funding costs. However, as the crisis evolves, we expect that France will be pressured. The deterioration in France's credit metrics combined with the needed supported for France's banks are likely to pressure the country. A major catalyst is likely to be the year end financials for France's banks; watch for a significant support program to be announced over the next couple of weeks."




Is The Risk-On Rally Real?

Whether its non-confirming volumeless rallies in stocks, hard-to-find collateral, sovereign risk, counterparty risk, USD funding stress, GDP growth dislocations, EM credit dispersion, or equity market outperformance, Nomura's EEMEA FX and Fixed Income team has a little for everyone in today's '10 Things We Did Not Know'. Today's obvious risk-on knee-jerk-response rally is perhaps not so broadly supported even as Ben's promise trumps a totally failed Grand Plan.





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Goldman Turns Bearish: Squid Releases Top Trades For 2012... And It's Not Pretty

The much anticipated Goldman Sachs list of "Top Trades Recommendations for 2012" is out... And the squid is very, very bearish. Let's dig in.







Market Snapshot: European Close

Equity and Credit markets rallied significantly on the day with credit catching up to equity's recent strength in an unusually biased move. The higher beta XOver (high yield European credit) and Subordinated financial credit outperformed close to close but lags overall relative to equity and investment grade credit, suggesting less than stellar demand to lay out new risk and more likely shorts covering in a hurry. Seniors underperformed Subs in financials - again suggesting some covering on the SEN-SUB decompression trade on the back of the ratings actions this week. Sovereign spread moves were actually largely unimpressive with spread curves flattening, some decompressing, and the fulcrum security BTPs, not exactly ripping across the curve.




Fed Cancels POMO Due To "System Difficulties"

Ok, what the hell is going on? This is the first POMO ever cancelled in QE/Lite/Twist history. As a reminder, today the Fed was supposed to sell $8 billion in 2013 bonds: a liquidity withdrawing operation. Just how little liquidity is there in the "system"?




Did The Fed Leak The European Bailout Decision On Monday Morning? A Visual Exhibit

We talked about the total disconnect between US equities and the rest of the global financial market on Monday morning. At the time, many market participants commented that they had not seen this kind of disconnect so broadly and how strange it was - and with reasonable volume (unusual for an upswing). Well, now we have some details on what exactly was said and done on Monday with the Fed decision, perhaps it is clear that someone somewhere was tipped off that this was coming as the rest of the world's risk assets leaked inexorably lower and US equities hugely outperformed.




Fed Made Decision To Bail Out Europe On Monday

It appears that the Fed decision to bail out Europe was not made this morning, or yesterday, but on Monday as per the following two headlines:
  • LACKER DISSENTED AGAINST FOMC SWAP DECISION ON NOV. 28
  • LACKER VOTED INSTEAD OF PLOSSER, WHO WAS UNAVAILABLE
It also means that the decision was leaked on Monday, and explains the relentless surge in stocks since then despite progressively worse news out of Europe. Q.E.D. - a plan so good Hank Paulson could have leaked it to his hedge fund buddies.




RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 30/11/11

ETC RANSquawk




Did A Large European Bank Almost Fail Last Night?

Need a reason to explain the massive central bank intervention from China, to Japan, Switzerland, the ECB, England and all the way to the US? Forbes may have one explanation: "It appears that a big European bank got close to failure last night.  European banks, especially French banks, rely heavily on funding in the wholesale money markets.  It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue." Granted the post is rather weak on factual backing and is mostly  speculative, but it would certainly make sense. That said, it harkens back to our original question: just how bad was the situation if the global central banking cabal had to intervene all over again, and just what was not being told to the general public? Lastly, and most important, slapping liquidity bandaids on solvency gangrenes does nothing but buy a few days at most. Furthermore, we now expect the stigmata associated with borrowing from the Fed to haunt each and every European bank as vigilantes will now use the weekly ECB update on borrowings from the Fed as a signal to hone in on this and that weak Italian and French, pardon, European bank.




Anti Tilson Once Again Best Performing Investment As It Trades At Lifetime High

While being caught short stocks in the face of the global Bernanke Put, or long Chinese IPOs this year, it seems relative-value trades remain preferential from a risk-reward perspective. That is of course unless you are our old friend Whitney Tilson. The Anti-Tilson ETF (Long GMCR / Short NFLX) is up 8% today and stands at an impressive +43% (lifetime highs) in the 20 days since we recommended it. NFLX weakness this morning attributed to Wedbush's 30% downside target downgrade.






Video: Fox Business News Interview

Admin at Marc Faber Blog - 5 minutes ago
Latest Fox Business video interview. *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 
 
 
 

Central Bankers Are Pushing On A String

Eric De Groot at Eric De Groot - 10 minutes ago
The message of the market says distribution in the financial sector. This, in turn, implies that central bankers are pushing on a string despite their ability to “beat the grass to startle the snakes” – sell the hype. A quick review of trend energy in the financial sector reveals distribution and increasing downside force. The negative divergence in trend energy relative to price, lower highs in... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 
 
 
 

Europe Will Monetize, It Will Postpone The Problem

Admin at Marc Faber Blog - 35 minutes ago
The big picture endgame in Europe is that they will also monetize like in the US and that will postpone the problem, but it will not solve it. - *in Fox Business News* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 
 
 
 

Bloomberg Video Interview: November 29

Admin at Jim Rogers Blog - 1 hour ago

Latest Bloomberg video interview, November 29. *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.*