The European Central Bank's (ECB) unprecedented use of a three year, low cost LTRO (Long Term Repurchase Agreement) policy initiative may have removed some of the short term pressures from the EU Banking crisis, but like the Greenspan PUT, the unintended consequences are not yet fully understood. One is the moral hazard which is fostering financial "games" to be played with reckless abandon. Some of the mischievous and cunning games are frankly questionably as being even legal! But then, nothing is illegal if the regulators and those organizations charged with surveillance are not bothering to investigate. Extend > Pretend > Bend is the new approach. MORE>>
The World Economic Forum's 2012 Risks Report, the IMF's Global Financial Stability Report and our proprietary Aggregated Global Risk Level Index (AGRLI) all suggest global macroeconomic risks are increasing. The consensus findings are that the center of gravity of Global Macro issues are a combination of Chronic Fiscal Imbalances and a Global Governance Failure. MORE>> EXPANDED COVERAGE INCLUDING AUDIO & MONTHLY UPDATE SUMMARY
The market action since March 2009 is a bear market counter rally that has completed a classic ending diagonal pattern. The Bear Market which started in 2000 will resume in full force when the current "ROUNDED TOP" is completed. We presently are in the midst of of a "ROLLING TOP" across all Global Markets. We are seeing broad based weakening analytics and cascading warning signals. This behavior is typically seen during major tops. This is all part of a final topping formation and a long term right shoulder technical construction pattern.
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EURO EXPERIMENT : ECB's LTRO Won't Stop Collateral Contagion! Released December 27th, 2011
I would argue that the problem short term is a shortage of real collateral and that US dollar cash, versus 'encumbered' cash flow, is now king. It is clear that the rampant advancing Collateral Contagion will quickly eat the futile LTRO attempt like ravenous wolves. A well circulated Tweet from PIMCO bond king Bill Gross said it all: " What does LTRO stand for? 1- A shell game; 2-Cash for trash; 3 Three-card Monti; or 4. All of the above." Here is the stark reality of what forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can". MORE>>
02/16/2012 4:39 AM
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CHINA TO SUPPORT EU
China Bolsters Rhetorical Support for Europe 02/15/12 WSJ China's central bank pledged to increase its holdings of euro-denominated assets, bolstering Beijing's rhetorical support but stopping short of a specific investment plan.
Unadjusted January Retail Sales Post Biggest Sequential Plunge In History 02/15/12 Zero Hedge - The plunge from $459.8 billion in December to $361.4 billion in January, or -$98.5 billion in one month, was the biggest one month drop in retail sales in history. Now we won't say much on this topic, suffice to say that it would be far more useful if the BLS and Census Bureaus were to open up their models and explain in nuanced detail just what "old normal" adjustments they still incorporate into data sets. Because as many have already noted, seasonal adjustments used for data from 1980 to 2008 when "up" was the only allowed direction for everything, are completely irrelevant and misleading in the New Deleveraging Normal.
Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased 0.47% from December and increased 4.86% above the level seen in January 2011 while, adjusting for inflation, “real” discretionary retail sales increased 2.23% over the same period.
SF Fed President John Williams spells it out nicely: What does this tell us about where monetary policy should be now? Inflation in 2012 and 2013 is likely to come in around 1½ percent, below the FOMC’s 2 percent target. And clearly, with unemployment at 8.3 percent, we are very far from maximum employment. At the San Francisco Fed, our forecast is that the unemployment rate will remain well over 7 percent for several more years. This is a situation in which there’s no conflict between maximum employment and price stability. With regard to both of the Fed’s mandates, it’s vital that we keep the monetary policy throttle wide open. This will help lower unemployment and raise inflation back toward levels consistent with our mandates. And we want to do so quickly to minimize total economic damage. The longer we miss our objectives, the larger the cumulative loss to the economy.
Bank of Japan Sprays World With Surprising ¥10 Trillion ($130B) Gift In Valentine's Day Liquidity 02/14/12 Zero Hedge - The Janapese central bank expanded their existing plan by ¥10 trillion, or about $130 billion. The facility, which includes low-cost loans, is now worth about ¥65 trillion, or $844 billion." The rub however lies in the total Japanese GDP, which at last check was $6 trillion (give or take), and declining. Which means this announcement was the functional equivalent to a surprise $325 billion QE announced by the Fed. What is ironic is the market reaction: the BOJ expands its LSAP by 18% and the USDJPY moves by 30 pips.
Market Volume Hits Fresh Non-Holiday Decade Lows 02/14/12 Zero Hedge - Today's NYSE volume (16% below the year's average volume) is the lowest on Bloomberg data for a non-Holiday day in over a decade. ES (the e-mini S&P futures contract) also had a dismal day with the day's total just beating February 6th previous multi-year low (non-holiday) volume and 30% below the 50-day average volume.
Shifting Landscape in Presidential Race Subtly but significantly, two forces—an improving economy and the emergence of social issues as a prime topic—are converging to shift the ground beneath the 2012 campaign.
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