You don't even realize there's a game. (And any contest, market, project or engagement is at some level a game).
You start getting involved and it feels like a matter of life or death. Every slight cuts deeply, every win feels permanent. "This is the most important meeting of my life..."
You realize that it's a game and you play it with strategy. There's enough remove for you to realize that winning is important but that continuing to play is more important than that. And playing well is most important.
You get bored with the game, because you've seen it before. Sometimes people at this stage quit, other times they sabotage their work merely to make the game feel the way it used to.
Equity markets soared on central bank manipulations and various rumors the past few days. However, neither rumors nor trivial actions (which is all that happened) can save the global economy.
However, the reason Chinese central bank reacted is hugely deteriorating conditions in China. The reason the Fed reacted is hugely deteriorating conditions in Europe.
Equities have rallied on reported "good news". However the first irony is the global economic picture outside the US is horrendous. The second irony is bottoms are formed on bad news (and tops on good news), but central banks intervention is really bad news widely recognized as good news.
November data showed Chinese manufacturing sector operating conditions deteriorating at the sharpest rate since March 2009. Behind the renewed contraction of the sector were marked reductions in both production and incoming new business. The latest survey findings also showed a marked easing in price pressures, with average input costs falling for the first time in 16 months. In response, manufacturers reduced their output charges at a marked rate.
After adjusting for seasonal variation, the HSBC Purchasing Managers' Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – dropped from 51.0 to a 32-month low of 47.7 in November, signalling a solid deterioration in manufacturing sector performance. Additionally, the month-on-month decline in the index was the largest in three years.
Manufacturing production in China fell for the first time in four months during November, with the rate of decline the fastest since March 2009. Panelists generally attributed reduced output to falling new business. The latest decline in new orders was marked, and the steepest in 32 months. Moreover, the month-on-month decline in the respective index was among the greatest since data collection began in April 2004.
China Manufacturing PMI
Stocks ignoring bad news is normally a very good sign. Stocks rallying on government intervention as bad news is presented as good is a different story indeed.
Does the US have the right to defend itself? If so why doesn't any nation have the right to defend itself? What is the best way for the US to deal with Iran?
Here is a video in Chinese, with English subtitles, in which China says it will defend Iran.
Here are a few panels about 2 minutes 15 seconds into the video in which China states an intent to protect Iran, if Iran is attacked, even if it means World War III.
I support the position (a few moments later and shown in the screen shot below) that suggests the Iranian people have little trust in their leaders and the best way to deal with Iran is to let the people rise up against the government as happened in Egypt and Libya.
With the US threatening Iran at every turn, and with the needless war in which the US destroyed Iraq killing or ruining the lives of hundreds-of-thousands of Iraqis, it is no wonder Iran wants to protect itself. Any country would want to do the same.
The US has no business instigating another war, yet that is exactly what economic sanctions are. The downright scary policies of Mitt Romney and Newt Gingrich go even further, and would have the US marching off to World War III before we know it.
The best way for the US to deal with Iran is to support the Iranian people (not the leaders). Nearly all the private citizens of Iran would have no grudge against the US if we would simply stop our policies of aggression in the region.
We do not need another war and certainly cannot afford one. Ron Paul offers the best hope of stopping yet another disastrous, and needless march to war.
Our theme for Q4 was 'Maximum Intervention' and today was a new high for this exact concept. The day after the European Union Finance Ministers (ECO-FIN) meeting (which once again failed to produce any progress on the EU debt crisis) the Chinese cut the RRR-ratio - the minimum reserves each commercial bank must hold of customer deposits and notes - from 21.5 percent to 21.0 percent. (The RRR started the year in 18.5 percent and this is the first cut since 2008. Back in 2006 the RRR ratio was just below 8.0 percent for a number of years.) This is an indication that China's help to the growing outlook of a 'Perfect Storm' will be monetary easing despite relatively stubborn inflation numbers.
Coup-de-grace Then in coup-de-grace style the Federal Reserve and five other major central banks cut the dollar funding rate for overnight swaps by 50 basis points, down from 100 basis points, and at the same time made this programme run through to February 2013.
This immediately raises the hope for further cuts in policy rates in the US and Europe. Right now, foreign banks can fund themselves cheaper in US Dollars than US banks. This will almost certainly mean the discount rate will be cut by 25 bps and before the weekend.
Mounting pressure on Monti The market loves liquidity and this action shows the true determination of policymakers to address the growing funding crisis, but its ultimate success will depend on progress in the EU debt crisis, and whether this will again merely be a stand-alone action of throwing liquidity at a problem which remains one of solvency. In other words, the lack of structural changes in Europe – are the same both before and after this coordinated intervention. Alas, technocrat Monti remains more important to the future of this risk-on move than the move itself.
However, it should not be ignored that the market is looking for excuses to take the S&P 500 index higher, and there is no denial that the underlying economic data from the US has continuously surprised to the upside over the past month. Fundamentals are improving in the US, and the ADM report this morning gave indications that Non-Farm Pay-Rolls data on Friday could yet be another positive news story.
'Monster Santa' rally Earlier this week I described this week as likely to be one of consolidation and potential for a rest at 1215/1220 – we have now clearly overshot this on the upside and the target 1240/50 might well be in full view. The market also likes the "seasonal play" of buying into year-end, and I am getting plenty of ammunition from tech-based analysts that the price action reminds them of September/October 2010 – the post Jackson Hole rally - making this the start of a 'monster Santa' rally.
I will remain sidelined with a negative bias, if only because, my generic models are short, and from a tactical point of view, I feel that to get a real solution to solvency, unlike liquidity, we need to see stock markets in mini-crash mode before politicians and policymakers truly understand the necessity to make a long-term commitment to austerity and growth. The signal today was: We are prepared to buy more time, and feel confident enough to float the market with cheap liquidity and an indication of further easing to come. The market will love that, but investors should also remember to stay sober when drinking from the cool-aid name: cheap money.
Go Santa,
Safe travels!
Discount Rate Discussion
The Federal Reserve website has this discussion of the Discount Rate.
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured.
Under the primary credit program, loans are extended for a very short term (usually overnight) to depository institutions in generally sound financial condition. Depository institutions that are not eligible for primary credit may apply for secondary credit to meet short-term liquidity needs or to resolve severe financial difficulties. Seasonal credit is extended to relatively small depository institutions that have recurring intra-year fluctuations in funding needs, such as banks in agricultural or seasonal resort communities.
The discount rate charged for primary credit (the primary credit rate) is set above the usual level of short-term market interest rates. (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve at times uses the term "discount rate" to mean the primary credit rate.) The discount rate on secondary credit is above the rate on primary credit. The discount rate for seasonal credit is an average of selected market rates. Discount rates are established by each Reserve Bank's board of directors, subject to the review and determination of the Board of Governors of the Federal Reserve System. The discount rates for the three lending programs are the same across all Reserve Banks except on days around a change in the rate.
Further information on the discount window, including interest rates, is available from the Federal Reserve System's discount window web site.
Equity futures sharply reversed an overnight pullback on a pair of central bank actions, one in China, the other an agreement between the US and Europe.
China Cuts Bank Reserve Ratios by .5 Percentage Points
The People's Bank of China, China's central bank, said Wednesday it will cut the reserve-requirement ratio for banks by half of a percentage point, the first such cut since December 2008. The cut essentially frees up banks to lend additional money.
The cut late Wednesday in Beijing cheered European markets, with the benchmark Stoxx Europe 600 index up 0.8% midday, while London's FTSE was up 0.8%.
"The data for the last few weeks has been bad," said Mark Williams, China economist at Capital Economics. "There's zero growth in property starts, electricity output growth has slowed, the export numbers for November will be awful and they may have had a sneak preview of that. All of these things could have triggered a shift in policy."
Wednesday's move will take the reserve-requirement rate to 21% for major banks. It will free up around 390 billion yuan (about $61 billion) in funds for the banks to lend, according to calculations by The Wall Street Journal based on data for bank deposits in October.
The cut in reserve ratio "is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation," said Stephen Green, regional head of research in Greater China for Standard Chartered, in a note following the PBOC's move. Mr. Green predicts that China will reduce the reserve ratio again in January due to a potential liquidity crunch coming up before Chinese New Year.
The PBOC has raised the reserve requirement ratio six times so far this year, and has raised benchmark lending and deposit rates five times since October last year to combat stubbornly high inflation. The previous reserve ratio increase took effect June 20, and the last interest rate hike was effective July 7.
There will likely be more such reserve ratio cuts, with one more cut of 0.5 percentage point coming as soon as the beginning of next year, said Yao Wei, China economist with Société Générale, adding that she doesn't expect any interest rate cut in the next six months.
European stocks rallied for their longest stretch of gains in seven weeks as the Federal Reserve and five other central banks lowered the cost of dollar funding and China cut its reserve ratio for banks.
The Fed, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank agreed to reduce the interest rate on dollar liquidity swap lines by 50 basis points and extend their authorization through Feb. 1, 2013.
Finance ministers of the 27-nation European Union are meeting in Brussels today to seek agreement on how to temporarily guarantee banks' bond issuance in order to improve funding conditions for lending. EU leaders agreed last month to provide the guarantees to restore investor confidence in banks.
The yield on 1-year German bunds turned negative today for the first time ever, according to Bloomberg data, as the European Central Bank looks set to ramp up measures to fight the debt crisis.
The yield on the 1-year note fell 13 basis points to -0.05% by midday. This is the first time it has seen a negative yield since Bloomberg began compiling data on the asset class in 1995.
Yields on the 6-month bunds, known as Bubills, turned negative last week, dropping to -0.05% on Friday. It was the first time 6-month bunds have offered a negative yield since the creation of the euro.
S&P Equity Futures are up another 3 Percent, Bond Market Yawns
Global equities are sharply higher with this global coordinated action. S&P 500 futures are up another 3 percent and will gap higher.
Meanwhile Spanish 10-year bonds rallied (yields fell) a mere 7 basis points to 6.32%, Spanish 2-year bonds rallied a mere 8 basis points to 5.51%, Italian 10-year bonds rallied 10 basis points to 7.13%, and Italian 10-year bonds rallied 9 basis points to 7.00%.
Whatever the equity markets see, the bond market doesn't. A flight to safety of German bonds is back on, that China needs to cut reserve requirements is a huge sign of weakness (and no it will not stop a hard Chinese landing).
Also bear in mind that on September 15, there was coordinated swap-line action that did nothing.
The Frankfurt-based ECB said today that it will coordinate with the Federal Reserve and other central banks to conduct three dollar liquidity-providing operations with a maturity of approximately three months. The loans are in addition to the bank's regular seven-day dollar offerings and will be conducted as fixed-rate tenders with full allotment, the bank said. It will offer the loans on Oct. 12, Nov. 9 and Dec. 7.
"The dollar funding situation has caused headaches for some banks," said David Schnautz, a fixed-income strategist at Commerzbank AG based in London. "The ECB's measures help ease those problems. It will be interesting to see if there is more to come."
Basis swaps allow banks to borrow in one currency, while simultaneously lending in another.
The ECB's measure is a "really big deal," according to Dartmouth College Professor David Blanchflower. "The fact that these central banks have acted together and said we'll backstop banks is really big news," Blanchflower, a former member of the Bank of England's Monetary Policy Committee, said today at the Bloomberg Markets 50 Summit in New York.
Here is an interesting chart on ZeroHedge that shows what happened the last time there was coordinated swap-line action.
What's Changed?
Nothing much that I can see. China cut the reserve-requirement rate to 21% from 21.5% and the Fed and ECB renewed swap lines at a slightly lower rate.
Yields on Italian bonds are still at or above 7%, and nothing has been done to solve any long-term structural issues.
Nonetheless it's party time for equities, crude, and metals, particularly gold and copper.
Europe's "big bazooka" bail-out fund is not ready and won't stem the debt crisis that on Tuesday pounded Italy and the European Central Bank (ECB), admitted Wolfgang Schauble, Germany's finance minister.
Mr Schauble said eurozone finance ministers, who are meeting in Brussels, could not agree on the terms of the European Financial Stability Facility (EFSF). He told Germany's Handelsblatt that although Europe needed a fund "capable of action", plans for the EFSF were too "intricate and complex" for investors to understand.
The finance ministers, who were meeting ahead of a full Ecofin summit today, acknowledged the €440bn (£376bn) fund would not win support to leverage it up to €1 trillion. Its capacity would be between €500bn and €700bn instead – a total that is unlikely to be big enough to rescue Spain and Italy.
However, the ministers concurred that the €8bn of international aid to Greece should be disbursed before Athens runs out of cash in two weeks. Evangelos Venizelos, Greece's finance minister, said: "In Greece we have all the necessary conditions in order to go ahead with the next disbursement."
Necessary Conditions Met?!
The only way "necessary conditions" can possibly have been met is if "necessary conditions" have changed.
Germany, the Netherlands, and the IMF have all insisted that all Greek coalition leaders sign off on agreement to IMF and EU demands.
Almost 500 million Chinese citizens are online and a quarter of all social network users in the world are Chinese. However, because government policies in the country block many western social networking sites such as Facebook and Twitter, a vibrant domestic ecosystem of similar online platforms has emerged. Here we take a look at the different players in the space and background.
Mall Santa Musical, the latest mission by Improv Everywhere, features a musical that breaks out in a New Jersey shopping mall when "a man is suddenly compelled to express his desire to sit on Santa's lap via song". This is IE's fifth installment in their series of Spontaneous Musical projects.
Located near the Swedish village of Harads, this UFO Treehotel is one of a kind. So far there are five unique tree rooms available and twenty-four planned to be built. The five tree rooms that are currently available for booking are the Cabin, the Mirrorcube, the Bird's Nest, the Blue Cone and the UFO. It ain't cheap at $600 a night, but isolation, a luxury treehouse, and UFOs should never come cheap.
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