THESIS 2011: Beggar-Thy Neighbor -(Open Access- 37 Pages of 217)

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NOVEMBER 2011: MONTHLY MARKET COMMENTARY -(Subscription Plan II - 28 Pages)
The just completed series of 4 Summit Meetings to address the EU Sovereign Debt and Banking Crisis were an abject failure. Statements and actions coming out of the meetings were de-stabilizing to an already tenuous situation and increasingly impatient financial market. Like a rudderless ship at sea in a violent storm, the EU peripherals have unknowingly been placed in a life raft and jettisoned. The core countries of Italy and France, though still onboard find themselves now vulnerable and unprotected.   MORE>>

DECEMBER 2011: GLOBAL MACRO TIPPING POINTS -(Subscription Plan III - 140 Pages)
The global slowdown we have been warning about has now become clearly evident. Liquidity is quickly evaporating across Europe. The initial EU bailouts are now being found to insufficent because of slow austerity implementatiosn and rapidly de-accelerating economic conditions. Despite rumors of dramatic increases in the firepower of the EFSF and the IMF, nothing yet has happened. The markets will now call the politicos bluff - The end of 'kicking-the-can-down the-road' is fast approaching. Expect a coordinated global response by Central Bankers and G20 finance ministers. Do not be fooled. It will not be a solution but simply one last desperate attemtp to 'kick the can' again. The best we can expect is a year end rally that will fail miserably in the new year.    MORE>> EXPANDED COVERAGE INCLUDING AUDIO & MONTHLY UPDATE SUMMARY

MARKET ANALYTICS & TECHNO-FUNDAMENTAL ANALYSIS

NOVEMBER 2011: MARKET ANALYTICS & TECHNICAL ANALYSIS - (Subscription Plan IV - 153 Pages)
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. MORE>> EXPANDED COVERAGE INCLUDING AUDIO & EXECUTIVE BRIEF

NOVEMBER 2011: TRIGGER$ (AVAILABLE FOR SUBSCRIBERS - Plan V - 36 Pages)

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>> LONGWave >> BEWARE OF EURO WEAKNESS October 25th, 2011

>> Under The Lens >> US ECONOMIC UPDATE October 22nd, 2011

>> Under The Lens >> EU FRENCH-GERMAN DISAGREEMENT October 21st, 2011

CURRENCY WARS:  EU: A FLAWED FOUNDATION, BUT A BRILLIANT STRATEGY Released May 31st, 2011
It was the perception of getting something of value without any meaningful sacrifice that initially fostered the EU Monetary Union. Though the countries of Europe were fiercely nationalistic they were willing to surrender minor sovereign powers  only if it was going to prove advantageous to them.  They were certainly  unwilling to relinquish sufficient sovereignty to create the requisite political union required for its success. After a decade long trial period it is now time to pay the price for Monetary Union.  I suspect that the EU membership is unwilling to do so. Though they likely will see the price as too high to do so, the price to not do so has become even greater.  They have unwittingly been trapped by a well crafted strategy. MORE>>

CURRENCY WARS:  The Economic Death Spiral Has Been Triggered Released May 27th, 2011
For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended.  It is now in the process of reversing and becoming a vicious downward economic spiral. One of the strategies is the Asian Mercantile Strategy.  The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end. MORE>>

CURRENCY WARS:  Debt Saturation & Money Illusion Released April 27th, 2011
Most of the clearly evident financial problems that surround us today stem from one cause - Debt Saturation. Most, intuitively, sense this to be a correct assessment but few can either prove it or articulate it to the less sophisticated. Let me arm you to be the "Nostradamus" amongst your friends and colleagues in explaining the problem and what the future therefore foretells. However, let me make it very clear, this will not make you popular. Smart maybe, but highly likely to make you unwanted at the social gatherings of the genteel. MORE>>

KYLE BASS: Japan Is A Giant Madoff-Like Ponzi Scheme That Will Blow Up Starting In The Next Few Months

• Madoff's scheme collapsed for one primary reason -- he had more investors exiting his scheme than entering. As soon as this happened it was over. According to this most recent census, the Japanese population peaked within the last few years at 127.9 million and has since lost 3 million. Japan has one of the most homogeneous -- and some might even call it xenophobic -- soceities of any developed nation in the world. It is no secret that there is no love lost between the Japanese and their neighbors, and therefore, immigration is an unlikely answer to a dwindling poulace. ....
• It is indisputable that Japan has the worst on balance sheet debt burden in the world (roughly 229% of GDP). ...
• The European debt crisis will simply act as an accelerant to the Japanese situation as it will most likely change the qualitative thoughts of JGB investors. We believe that the sequence of events is set to begin in the new few months.
• We look for a couple of warning signs. We move a nation out of risk free category as soon as they spend more than 10% of their central government revenues on interest alone. We also worry about debt loads that represent more than 5x the revenue of the responsible government. When these and other characteristics are met or exceeded, it can quickly move the country into checkmate."

Coordinated central bank action to address pressures in global money markets All the world's central banks have just announced a big coordinated intervention to lower swap rates. In other words, it's been made easier for banks all around the world to borrow dollars.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. 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.

As Final EFSF Details Emerge, German FinMin Says Bail Out Fund Won't Halt Crisis Full EFSF Statement

EFSF CEO Regling stated that various approaches will be used simultaneously, providing the entity with more funding flexibility, which is odd since in the next breath he notes the decision to tap the short-dated debt markets in December (seems with all that flexibility you might want to go a little further out). The current lending capacity is EUR 440bn, and they expect a 20-30% partial protection approach meaning they could theoretically leverage around EUR 250bn by around 3-4x. What is most ironic is German FinMin Schaeuble's comments, via The Telegraph, that "although Europe desperately needed a fund "capable of action", plans for the EFSF were too "intricate and complex" for investors to understand", further noting that the fund won't stem the debt crisis.

But maybe the most damning statement comes from the architects of the fund themselves, Regling and Juncker, who said that it is "not possible to give one number on EFSF leveraging" and that the "EFSF firepower will be less than EUR1 trillion ". Case closed.

EFSF 10Y yields are around 4% currently - almost 150bps wide of the mid-September levels. Perhaps this helps explain the need for short-term funding.

So, in summary, after extensive discussions with probably every sucker sovereign wealth fund in the world, the highly complex structure credit product and its various entities will only be able to find private funds via short-term debt markets? And that is what will save us all? Forgive our incredulity as we tend to agree with Wolfgang that this won't work.

For a bank that everyone is bashing for "doing nothing" the ECB sure continues not only to be active in the open market but monetize well more than the Fed: in the past week the ECB's SMP program announced it purchased €8.581 billion in PIIGS bonds in the open market, which brings total notional purchases to €209.1 billion over the life of the program since inception on May 14, 2010. However, due to interim maturities, about €5.5 billion have matured from the total holdings, which means that on a net basis, total purchases have only now passed €200 billion for the first time, and are now at EUR 203.5 billion. More importantly, since the resumption of the SMP program in August, the ECB has bought €131 billion in PIIGS bonds, or about $176 billion. This works out to just under $60 billion per month (and no, it is not sterilized when the sterilizing banks exist solely courtesy to ECB funding as noted before) and is just modestly less than what the Fed monetized on a monthly basis at its peak QE, and about 30% more than what the Fed does now during Operation Twist! ($45 billion monthly at last check) So... Who was it that said the ECB needs to print more?

Financial system creaks as loan lubricant dries up $5,000bn of collateral drains from financial system "Chains of Collateral" shortened. Reduced Collateral reuse by $4-5T. From $10T in 2007 to $5.8T in 2010. Turns from 3 to 2.4

• Velocity of Pledged Collateral: Analysis and Implications IMF
• Collateral Transformation
• Liquidity Swaps
• Central Bank Liquidity Sink

Charting The Cash Supply-Demand Crunch In Europe - "This Is The Problem"As Europe prepares to set off on a historic, if very divisive round of Treaty changes in an attempt to set the framework to be followed by all countries in advance of the controversial European federalist experiment and even more divisive issuance of "stability" bonds, we need to revisit just what the very simple math behind the entire spectacle is, which Europe tries so hard to ignore with each passing day.

• At the end of the day it is a very simple tension: there is massive demand for fresh cash in the form of 1.7 EUR trillion in maturing debt (ignoring interest payments).
• "Policy makers and investors have consistently underestimated the bank funding roll as a transmission mechanism of sovereign fears into the banks and real economy." This is 100% correct: courtesy of 30 years of great moderation everyone assumed that the funding markets would operate for ever and that interim rollovers would never be an issues.
• While the first chart shows cash demand needs, the second one shows that when it comes to cash 'supply', or said otherwise issuance of unsecured debt, the market is now completely and totally dead.
• November issuance is just laughable as the red-boxed region so vividly demonstrates. And that, in two charts is that - everything else is hype, rhetoric, smoke and mirrors.

Chart 1 - European funding needs:

Chart 2 - European debt issuance:

• Even as soaring debt and interest rollover and redemption demands mean huge amounts of debt have to be raised, what is happening is the following: "Term bank funding issuance has dried up. We are concerned there has been a step change in the availability and pricing of senior unsecured funding given such elevated euro-zone uncertainty and the knock-on to assets supported by unsecured funding."
• In other words: there is no more debt available which is "guaranteed" simply by promises of future cash flow: investors demand asset collateralization for the simple reason that fewer and fewer believe that assets are able to generate the amount of cash represented by a conflicted underwriter syndicate.
• Unfortunately, there is nowhere near enough hard assets to fund secured assets at even modest LTVs, and it will only get worse and worse as less and less cash actually goes to regenerating a rapidly depreciating and amortizing asset base.

IMF UNVEILS HUGE LIQUIDITY PROGRAM TO STEM CONTAGION

• The IMF will offer a new credit line program to allow sovereigns to "break the chain of contagion."
• A new "Precautionary Credit Line" would allow governments with sound financials who have made prior agreements with the IMF to access liquidity of 1000% of a member's quota for 1-2 years. It would also allow them to access up to 500% of their quota in liquidity on a 6-month basis.
• The funds would be offered to sovereigns suffering from "exogenous shocks."
• Markets and the euro spiked immediately on the news. There are, however, a few big problems with this new proposal.
• First, it is unclear whether the IMF actually has access to the amount of funds that would be necessary to bail out a sovereign like Italy.
• Italy currently has $2.2 trillion in gross external debt, far exceeding the IMF's current available resources of about $540 billion. While that would significantly add to the resources the eurozone bailout fund—the European Financial Stability Facility—has available, this still falls short of the estimates for funding necessary to truly stem the crisis. Citi's Willem Buiter recently suggested about €3 trillion ($4 trillion).
• This suggests that the IMF might have to rapidly expand its funding resources to act as an effective bulwark against contagion. But that's not likely to happen either.
• The United States—which provides the largest percentage (17.7%) of IMF funds of any individual country—will also have to approve the plan. Previous bids to expand the IMF's funding have hit a wall with U.S. opposition, primarily led by the GOP. >>> OFFICIAL PRESS RELEASE

Europe Bank Woes Felt Around Globe Companies in Emerging Markets Feel Pinch as Lenders From Euro-Zone Countries Retreat to Shore Up Their Finances.

• "The main issue is the complete withdrawal from French banks in the market," said John Corrin, the Hong Kong-based head of loan syndications at Australia & New Zealand Banking Group Ltd. "They were reasonable-sized players accounting for 10% of the Asia-Pacific market."
• European banks in recent years dramatically boosted lending to emerging markets and were among the biggest cross-border lenders in these countries.
• Euro-zone banks embarked a massive lending spree to emerging markets in recent years, seeking to diversify away from their sluggish home markets. From 2005 to the middle of 2011, lending by euro-zone banks to emerging-markets countries increased four times to $2.4 trillion, according to the Royal Bank of Canada and the Bank for International Settlements. The amount of overall lending slipped nearly 20% after the Lehman crisis, but began recovering in 2010.
• Because Europe has a large financial sector that does business all over the world, the euro zone's problems are having "bigger, disproportionate effects, particularly on emerging economies," Treasury Secretary Timothy Geithner said last week at the WSJ CEO Council.
• Adding pressure to the loan market are efforts by some European banks to sell loans they hold on their books
• European banks' share of the syndicated loan market to U.S. companies in the third quarter this year slipped to 20% from 25% in the year-earlier period, according to Dealogic.
• Deals are still being done via stepped-up lending from export credit agencies and leasing companies

European Black Swan Sighted - EIB (European Investment Bank) 5Y Euro-denominated AAA-rated EIB bond spreads crashed wider, blowing past the 2009 record highs and clearly indicating that European capital flight is in full swing.

Old Debts Dog Europe's Banks Lenders Slower Than Their U.S. Counterparts to Shed Risky Mortgage Assets Toxic Debt:

• CDO (Collateralized Debt Obligations)
• CMBS (Commercial Mortgage Backed Securities)
• MBS (Sub-Prime)

Banks in the U.K., France and Germany are the biggest holders of such assets, even after chipping away at their exposures. The four biggest British banks reduced their holdings by more than half since 2007, while four French banks trimmed theirs by less than 30%. "European banks, on average, have roughly halved their stockpiles of the legacy assets since 2007, the Credit Suisse analysts found. Meanwhile, the top three U.S. banks—Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co.—have slashed such assets by well over 80% over a similar period.

• "It's a very cultural difference," said Mr. Abouhossein, the J.P. Morgan analyst. "In the U.S., you take the hits, raise equity, and move on…In Europe, it's more, 'Let's see more normalized pricing and then let's get rid of it.'
• "There's been very much a pattern of just holding them," said Carla Antunes-Silva, head of European banks research at Credit Suisse. "It will be another drag" on the banks' capital and returns on equity.

Euro Zone Weighs Plan to Speed Fiscal Integration Euro-zone countries are weighing a new plan to accelerate the integration of their fiscal policies. Under the proposed plan, national governments would seal bilateral agreements that wouldn't take as long as a cumbersome change to European Union treaties. The plan, which hasn't been finalized, would allow the euro zone to announce a speedy change to its governance. European authorities would gain tough new powers to enforce fiscal discipline in the 17 countries that make up the euro zone. EU treaty changes could then follow at a later stage. The precedent that euro-zone governments are considering is the Schengen agreement, under which a subset of EU countries scrapped passport controls at their mutual borders. The EU treaty allows countries to engage in "enhanced cooperation" if at least nine countries agree, circumventing the need for a unanimous treaty change among all 27 EU members. The pact that euro members are considering could be announced before the EU summit on Dec. 9th.

ECB - EUROBONDS

• It IS NOT clear that stricter enforcement of budget rules would be enough, at this late stage, to stem the crisis of confidence in the euro zone.
• Some euro-zone officials hope that the announcement of a new fiscal regime would encourage the European Central Bank to step up its intervention in government bond markets, which are suffering from a spreading investor exodus. But it's unclear whether the ECB, which has so far resisted such calls, would acquiesce. Some members of the ECB's governing council worry that deeper intervention by the central bank would amount to a breach of its charter and do irreparable harm to its credibility.
• The need for greater budget discipline and enacting growth-friendly structural reforms is only one of investors' concerns about the euro zone. Another big problem is the lack of ECB support for government bond prices, which makes bond markets vulnerable to a vicious circle of investor flight.
• While the ECB has so far said that it won't beef up its limited bond buying, a growing number of governments are lobbying it to change its stance. A green light from Berlin for a bigger ECB role is seen by many euro-zone policy makers as a political necessity if the ECB is to act. Although the bank is politically independent, it has also paid close attention to the debate in Germany, where the government has so far rejected a bigger role for the central bank.
• A new, binding fiscal regime would not be enough to justify the creation of collective euro-zone bonds, German officials say. But it might be enough to justify ECB action to stabilize bond markets that policy makers view as increasingly dysfunctional, some in Berlin say.
• Other German officials remain skeptical about a greater ECB role—including Bundesbank President Jens Weidmann, who sits on the ECB's governing council. Germany's central bankers have been outvoted by the ECB majority before, however, including this August, when Mr. Weidmann opposed the decision to make limited purchases of Italian and Spanish bonds.

German Chancellor Angela Merkel said last week that she wants EU treaty changes to make the bloc's fiscal rules legally enforceable by European authorities, in the same way that EU antitrust rules are.

Asian powers spurn German debt on EMU chaos Asian investors and central banks have begun to sell German bonds and pull out of the eurozone altogether for the first time since the debt crisis began, deeming EU leaders incapable of agreeing on any coherent policy. "The question on everybody's mind in the debt markets is whether it is time to get out Germany. The European Central Bank has a €2 trillion balance sheet and if the eurozone slides into the abyss, Germany is going to be left holding the baby. We are very close to the point where markets take a close look at this, though we are there yet," he said.

• Jean-Claude Juncker, Eurogroup chief, fueled the fire by warning that Germany is no longer a sound credit with debt of 82pc of GDP. "I think the level of German debt is worrying. Germany has higher debts than Spain," he said.
• Bunds clearly still enjoy safe-haven status. Yields are just 1.86pc, but a pattern has begun to emerge over the last week where they no longer strengthen as much with each fresh sell-off in Italy, Spain, or France. "Bunds are no longer reacting the same way," said Hans Redeker, currency chief at Morgan Stanley. "Until recently, if investors were selling Italian bonds, they would tend to rebalance within the eurozone by buying Bunds. But now they seem to be taking their money out of EMU altogether.
• US Treasury (TICS) data shows that the money is going into US Treasury bonds as the ultimate safe-haven."
• Simon Derrick from the BNY Mellon said flow data show a switch by foreign investors away from Bunds and into German paper of one-year maturity or less. "It is a dramatic shift in behaviour. Although investors continue to see Germany as a safe haven, they certainly do not view it in the same way as they did even six months ago."
• Germany's exposure to the crisis is already huge, and the strains can only get worse as the eurozone tips back into recession. The Bundesbank is so far liable for €465bn in "Target2" payments to the central banks of Club Med and Ireland for bank support. Hans Werner Sinn from the IFO Institute said this is a form of back-door eurobonds that leaves German taxpayers on the hook. "The current system is dangerous. It is prone to a gigantic build-up of external debts," he said.
• The Bundesbank is final guarantor behind €180bn in bond purchases by the European Central Bank, a figure still rising fast as the ECB buys Italian and Spanish debt. On top of this, Germany is liable for its €211bn share of Europe's EFSF rescue fund, as well the original Greek loan package. If the eurozone broke up in acrimony with a clutch of sovereign defaults and a 1930s-style slump – already a "non-negligeable risk" – the losses could push German debt towards 120pc of GDP.

France, Germany clash over ECB role in crisis ECB policymakers continue to reject international calls to intervene decisively as Europe's lender of last resort...many analysts believe such a move now represents the only way to stem the contagion.

GERMANY: "The way we see the treaties, the ECB doesn't have the possibility of solving these problems," Merkel said after talks with visiting Irish Prime Minister Enda Kenny. The only way to recover markets' confidence was to implement agreed economic reforms and build a closer European political union by changing the EU treaty, Merkel said

FRANCE: French Finance Minister Francois Baroin repeated Paris's view that the euro zone's EFSF bailout fund should have a banking license, something Berlin opposes. Such a move would allow the fund to borrow from the ECB, giving it extra firepower to fight the spreading crisis. "The position of France ... is that the way to prevent contagion is for the EFSF to have a banking license," Baroin said

Europe must not allow Rome to burn

• Merkel's "Just Enough, Just In Time" Strategy
• Italian default may set POPULIST governments on EXIT road
• Italy may have to tighten budgets by more than 5% of GDP
• Italy needs an export led recovery = Labor Competitiveness = Labor Shredding + Falling Nominal Wages.
• This will lead to: 1 Unemploymen 2 Social Unrest 3 Creditor Issues
• Expect Berlusconi's media to call Monti's government a tool of foreign interests
• Monti will need:

          - €1T Roll-Over backstop
          - Profitable and Dynamic External Markets
          - Strengthening of political underpinnings of EU

• Europe has fiddled while Rome Burned

Turmoil Spreads in Europe - Bond Market Selloff Hits Nations Seen as Healthy, Raising Specter of Contagion

Tuesday's plunge began in Asia and the Middle East, where there was heavy selling of European bonds- much of that was coming from long-term investors such as pension funds and mutual funds, rather than hedge funds.

Even prices of bonds issued by fiscally upright Northern European triple-A nations such as Finland and the Netherlands fell.

Among the cash-strapped periphery, Italian bonds again rose above 7% and Spanish yields surged to 6.358%, according to Tradeweb.

El-Erian On Europe: 'Unfortunately It's A Mess', And Now Things Are Worse Than Before The Last Bailout 

The Italian Job Monti's Challenge:

1. Stabilization of Public Debt
2. Availability of Short Term Debt
3. Improve Long Term Competitiveness

Europe pushes Italy into the abyss The strange feature of the crisis is that Italy is not fundamentally insolvent.

• Public debt has been stable for several years at about 120pc of GDP.
• The country has a primary budget surplus.
• Household debt is low at 42pc of GDP.
• Net household wealth is €2.3 trillion, higher in per capita terms than in Germany.
• Combined public and private debt is under 260pc, lower than in Holland, France, Britain, the US and Japan.

The core problem is not Italy's debts but the 40pc loss of labour competitiveness against Germany over the past 15 years. This has left the country trapped inside EMU with misaligned currency, choking growth.

LCH Clearnet Boosts Deposit Required for Trading Italian Government BondsThe so-called deposit factor charged for Italian bonds due in seven-to-10 years will be raised to 11.65 percent, LCH Clearnet SA said in a document on its website dated yesterday. That compares with a charge of 6.65 percent announced in an Oct. 7 document. The additional charges will be applied from close- of-day positions today, LCH said.

Major investment banks calculate the “margin call” to be around 4-5 billion EUR as of tomorrow.

Italian Borrowing Costs Rise Again

The 10-year Italian government bond hit a new record high of 6.66%, up 0.08 percentage point in early trade, while the 5-year bond touched 6.7%, up 0.09 percentage point.

Increased European Central Bank buying of Italian government debt has not stopped yields from reaching new highs.

Data from the Securities Market Program (SMP) Monday showed that it bought €9.52 billion ($13.12 billion) of bonds, settling last week, with Gary Jenkins at Evolution Securities pointing out that "during that buying spree (10-year) yields still rose [0.28 percentage point] and since then have risen another [0.48 percentage point]."

The Italian parliament will use Tuesday's parliamentary vote on the 2010 budget to show whether Mr. Berlusconi still has the confidence of the house. A failure to pass last year's budget would open the way for a vote of no-confidence in the beleaguered prime minister. The Italian budget vote takes place at 1430 GMT.

Europe's rescue fiasco leaves Italy defenceless The European Central Bank has so far bought time by holding a series of retreating lines but either it has reached its intervention limits after accumulating nearly €80bn of Italian debt, or it is holding fire to force Silvio Berlusconi to resign.

Mario Draghi toed the German line obediently in his debut as ECB chief last week – whatever this MIT-trained student of Robert Solow really thinks -- saying bond purchases could be justified only if “temporary”, "limited in amount", and undertaken to restore “monetary transmission". It would be “pointless” for the ECB to try to bring down yields for any length of time. He could hardly say otherwise, especially as an Italian trying to seduce an army of German critics. German lawmakers had days earlier stipulated that the ECB must withdraw from its existing purchases of bonds as a condition for Bundestag approval of the revamped bail-out fund EFSF.

Europe’s fiscal rescue machinery remains a fiction, a fund designed for Greece, Ireland, and Portugal that is now being stretched by every disreputable artifice of structured credit to shore up the whole EMU edifice on the cheap.

The market has already cast its verdict on plans to leverage the EFSF (version III) to €1 trillion as a “first loss” insurer of Italian and Spanish bonds, seeing at once that the scheme concentrates risks in lethal fashion for creditor states, dooms France’s AAA rating, and is likely to contaminate the core very fast.

EFSF IN TROUBLE

The spreads on EFSF 5-year bonds have already tripled to 151 above German debt, leaving Japan and other early buyers nursing a big loss. The fund suffered a failed auction last week, cutting the issue from €5bn to €3bn on lack of demand.

Gary Jenkins from Evolution Securities said the “frightening” development is that the EFSF is itself being shut out of the capital markets. “If it continues to perform like that then the bailout fund might need a bail out,” he said.

Europe’s attempt to widen the creditor net by drawing in the world’s reserve states evoked near universal scorn in Cannes and a damning put-down by Brazil’s Dilma Rousseff. “I have not the slightest intention of contributing directly to the EFSF; if they are not willing to do it, why should I?”

We can argue over details, but the necessary formula – if they wish to save EMU -- undoubtedly entails some form of eurobonds, debt-pooling, fiscal transfers, and of course the constitutional revolution that goes with all of this. That would at least buy them time, though I doubt that even fiscal union can ever bridge the North-South gap.

Italian Finance Minister Warns Berlusconi: If You Don't Resign, There's Going To Be A Bloodbath In The Markets On Monday “I am saying that on Monday there will be a disaster on the markets if you, Silvio, stay at your post and do not go. Because the problem for Europe and the markets, correct or not as it may be, is in fact you.” The relationship between Tremonti and Berlusconi has long been testy, but this appears to be a serious escalation of the tension between them. Berlusconi is rapidly losing political clout as his coalition majority vanishes. A squabble with IMF chief Christine Lagarde isn't helping matters, either.

Italian borrowing costs stoke crisis fears

"They call it democracy, but it's not," Spanish chanted "The message of the people gathered here, to whoever controls the government, is that you don't represent us," said Julio Garrido, a 49-year-old job-training specialist at the Spanish Labor Ministry. "We're not in agreement with your politics, your economic policies or your social policies." As the polls closed, hundreds of demonstrators gathered in Madrid's Puerta del Sol to protest what they call an unjust domination of the country's electoral politics by the two major parties and to warn of continued agitation against government austerity measures.

• With evidence mounting that the Spanish economy could tip back into recession in coming months and that the country will fail to meet its deficit target of 6% of gross domestic product this year, the new government will face a mammoth challenge to meet the 4.4%-of-GDP target Spain committed itself to with EU authorities for 2012.
• If this year's deficit comes in at around 7%, as many analysts predict, that would require nearly €30 billion ($40.6 billion) of cuts. In comparison, the public-sector wage cuts, pension freeze and other measures Mr. Zapatero took in 2009 saved the Spanish state around €15 billion.
• Mr. Rajoy has vowed to meet Spain's deficit-reduction commitments if he wins, but hasn't specified what budget cuts he will make.
• He hasn't given much detail on economic overhauls, either, though he has promised to overhaul labor laws to, among other things, allow companies to more easily adapt national or sector-wide wage deals with unions to their own needs.
• He also wants to accelerate the cleanup of a banking sector laboring under a load of around €180 billion of souring real-estate assets.

Spain Credit Crunch Deepens Lending by Spanish banks contracted by 2.64% on the year in September, the sharpest annual decline on record, pointing to a deepening credit crunch in Europe's fourth-largest economy. Data released Friday by the Bank of Spain showed that some €48.4 billion in credit was removed from the Spanish economy over the past year through September. The decline was the biggest on record in the country since the central bank began to track lending growth in 1962.

• Some 7.16% of loans held by banks were more than three months overdue for repayment in September, up from 7.14% in August and 5.5% in September 2010.Bad debts have grown steadily ever since the decade-long housing bubble burst in late 2007.
• Overall, €128.08 billion in loans were non-performing in September, a record high, and slightly more than the €127.79 billion recorded in August. Bad debts had been rising at a clip of roughly €3 billion a month in the previous five months.
• Spain's banks have a total of €1.79 trillion in loans outstanding.

Election Is Unlikely to Cure Spain's Pain

Mr. Rajoy's Partido Popular plans are a little vague. His party wants to improve labor-market flexibility, cut business taxes and rein in regional government spending. But it has pledged not to raise taxes while offering few details on public-spending cuts. Yet cuts will be needed if Mr. Rajoy is to achieve his aim of reducing Spain's budget deficit to 3% of GDP in 2013, from 9.2% in 2010. With growth likely to be around 0.7% and regional governments already over budget, the deficit could reach 8.1% of GDP this year. Unemployment is 20%. Banks need 26B recapitalization

Markets rise but contagion fears spread to Spain - Fears were growing over the health of the Spanish economy after GDP data showed the country grinding to a halt in the third quarter. Economists are increasingly sceptical that the eurozone's fourth largest economy will be able to meet deficit reduction targets.

• "The economic recovery in Spain has ground to a complete halt," said analysts at ING. "We fear that the Spanish economy might slip into recession soon – perhaps as soon as the current fourth quarter. Our base case scenario envisages no economic growth in 2012." Spain's deficit plans are predicated on the economy growing 1.3pc this year and by 2.3pc in 2012, targets seen as increasingly optimistic.
• With the country set to hold elections on November 20, a new government would likely have to push through further austerity measures, potentially leading to political infighting or popular opposition.
• Spain's bond yields have moved higher in recent days, ending yesterday at 5.9pc.
• Fears have also been raised over the country's banking system with analysts pointing to an alarming outflow in retail deposits this year. About half the 2012 funding requirements of Spanish banks are planned to be met through deposits. Analysts at Barclays Capital argue this means the country's banks will need to see 4pc growth in deposits, but so far in 2011 there has been 2pc shrinkage.
• Weighing on the banks further is the prospect of property write-downs. French broker Cheuvreux estimates that 50pc of Spanish construction companies have either already defaulted on their loans or are likely to do so.
• Speculation is growing that much of the land held on the books of Spanish banks will have to be marked down significantly before year-end.

Bank of Greece Warns of Euro Exit

• Greece's central bank warned Wednesday that the country faced a disorderly exit from the euro and called on the country's new coalition government to step up the pace of reforms.
• In its starkly worded interim monetary policy report for 2011, the Bank of Greece said the latest European Union-led €130 billion ($175.57 billion) bailout package for Greece represented a last chance for the country to make good its reform program.
• Failure to do so would lead to "an uncontrolled downward trajectory that would undermine many of the achievements that have been attained in recent decades, drive the country out of the euro area and set Greece's economy, standard of living, society and international standing back many decades."
• The report also painted a bleak picture for Greece's economy—now entering its fifth year of recession—forecasting that gross domestic product would shrink by 5.5% or more this year and that growth wouldn't return until 2013, with only an anemic recovery of less than 1%.
• It said that Greece's government should adopt as a "national objective" the goal of generating primary budget surpluses over and above those already envisioned in budget plans, and take steps to boost economic recovery.

European leaders are 'lifting the lid on Pandora's box' George Papandreou, Greece's prime minister, cleared the way for his resignation by scheduling a meeting with opposition leader Antonis Samaras and the president to overcome sticking points over the leadership and the duration of a unity government. A seven point plan for the new government was thrashed out at a cabinet meeting, including a deadline for parliament to ratify the eurozone bail-out before the end of December. Greece's finance minister, Evangelos Venizelos, will lead the Greek delegation to Brussels, where he is expected to outline the national consensus platform on implementing the bail-out deal. Olli Rehn, the EU Economic and Monetary Affairs Commissioner, told Reuters that they needed a "convincing" report from Mr Venizelos. Calling on Greece to establish a national unity government, he added that Athens' European partners "faced last week a breach of confidence by Greece which meant that Greece took itself on a course that would lead it outside the euro zone. "We do not want that but we must be prepared for every scenario, including that one, for the sake of safeguarding financial stability and saving the euro," he said.

Government Loses Majority, Emergency Cabinet Meeting Called the PASOK majority in parliament is toast, as more MPs resign, or give up their party affiliation. In light of that, it's hard to imagine Papandreou winning his big confidence vote tomorrow, and in light of that, the future of the referendum is quite unclear.

• The Letter That The Greek Finance Minister Sent Opposing The Referendum
• Athens in turmoil as cabinet splits Finance minister Venizelos opposed to December 4 referendum FT
• High-Stakes Move by Greek Leader - WSJ

Call for Greek Vote Unsettles Europe Euro Slides - Government Leaders, en Route to Cannes Summit Try to Contain Fallout From New Twist.Caught off-guard by Mr. Papandreou's announcement, euro-zone leaders on Tuesday sent a clear message to the Greek prime minister: Calling a referendum risks a cutoff of international funding for Greece.

"The announcement has surprised the whole of Europe," said French President Nicolas Sarkozy. "Giving the people a way to express themselves is always legitimate, but the solidarity of all the euro-zone countries cannot be exercised unless everyone agrees to make the necessary efforts." "France wants to stress that the plan agreed last Thursday unanimously by the 17 states of the euro zone is the only possible path to solve the Greek debt problem."

European leaders intended to convey a message that their 11th-hour agreement last week to avoid a messy Greek default, boost their bailout fund and stabilize the region's banks had kept catastrophe at bay. The focus for Cannes was to discuss what the rest of the world could now do to stimulate global growth

Greek Vote Threatens Bailout in Europe - Greek Prime Minister George Papandreou stunned Europe by announcing a referendum on his country's latest bailout—a high-stakes gamble that could undermine the international effort to preserve the euro. A binding voter rejection of Europe's terms for a bailout would leave euro-zone leaders such as German Chancellor Angela Merkel and French President Nicolas Sarkozy with a bitter choice. Either they let Greece default on its €355 billion of public debt, risking panic throughout Europe's government-bond markets and banking sectors; or they cave in and offer Greece more generous bailout terms. The result of the vote could reverberate around the euro zone, putting pressure on governments in other European countries that are enacting austerity measures to stem the debt crisis to ask for their voters' consent.

A survey published at the weekend showed that 58.9% of Greeks oppose last week's European deal; there are fears that the planned debt restructuring will bring further pain while yielding few benefits for the country. The poll, the first since last week's bailout deal was struck, showed that some 54.2% of Greeks thought a national referendum should be called to approve the new aid deal, while only 40% thought Parliament should decide.

France is No Germany The 30-year German bond yield is close to a record low, around 2.48 per cent at pixel time. France might be able to borrow for 30 years at just 4.4 per cent (i.e. hardly a distressed credit)… but the days of convergence are long gone.

BofA Warned to Get Stronger Bank of America Corp.'s board has been told that the company could face a public enforcement action if regulators aren't satisfied with recent steps taken to strengthen the bank, said people familiar with the situation.

• The nation's second-largest lender has been operating under a memorandum of understanding since May 2009, following repeated tussles with regulators over the purchase of securities firm Merrill Lynch & Co. and a downgrade of the company's confidential supervisory rating. The memorandum, which isn't public, identified governance, risk and liquidity management as problems that had to be fixed, according to people familiar with the document.
• There are 1,042 banks and thrifts currently operating under formal enforcement actions issued since 2007, according to SNL Financial, which includes cease-and-desist orders, prompt corrective-action notices, capital directives and formal agreement or consent orders in its tally.

U.S. Banks Face Europe Contagion Risk: Fitch U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most-troubled nations, Fitch Ratings said. “Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said yesterday in a statement. Even as U.S. banks have “manageable” exposure to stressed European markets, “further contagion poses a serious risk,” The six biggest U.S. banks had $50 billion in risk tied to the GIIPS on Sept. 30

U.S. Firms Keen to Add Foreign Jobs

• U.S.-based multinational corporations added 1.5 million workers to their payrolls in Asia and the Pacific region during the 2000s, and 477,500 workers in Latin America, while cutting payrolls at home by 864,000, the Commerce Department reported.
• "the goal of the U.S. multinational corporations' expanded production was to primarily sell to local customers rather than to reduce their labor costs for goods and services destined for sale in the U.S., Western Europe and other high-income countries."
• Multinational companies reduced capital-investment spending in the U.S. at an annual rate of 0.2% in the 2000s and increased it at a 4.0% annual rate abroad. They allocated $2.40 in capital spending in the U.S. for every $1 spent abroad.
• Among companies in industries outside of finance, 57% of overseas hiring between 1999 and 2009 took place in Asia. The firms added 683,000 workers in China, a 172% increase over the decade, and 392,000 workers in India, a 542% increase. Another 18% of the overseas hiring occurred in Latin America.
• Overseas, U.S.-based corporations still employ more people in Europe than in any other part of the world. Most of the hiring during the 2000s took place in lower-wage countries in Eastern Europe.
• The U.S.-based multinational companies employed 23.1 million workers in the U.S. in 2009 and 10.8 million in majority-owned affiliates in other countries, a total that doesn't reflect millions more employees at unaffiliated overseas companies from which U.S. companies make large purchases.
• Between 1989 and 1999, U.S. -based multinationals, both financial and nonfinancial, added 4.4 million workers in the U.S. and 2.7 million workers overseas. In the 2000s the firms cut their work forces in the U.S. as they expanded them abroad. The latest data show that the firms cut 864,600 workers in the U.S. between 1999 and 2009 and added 2.9 million workers abroad.
• Among U.S. multinational firms in manufacturing, about 60% of employment is still in the U.S. But the manufacturers cut their U.S. payrolls by 2.1 million in the 2000s and added 230,000 workers overseas. In all, U.S. multinational manufacturers employed 6.9 million workers in the U.S. in 2009 and 4.6 million abroad.

*SUPERCOMMITTEE SAID TO ANNOUNCE NO AGREEMENT REACHED

*U.S. DEBT SUPERCOMMITTEE ANNOUNCEMENT SAID LIKELY ON MONDAY

While not immediate, it would seem obvious that a ratings downgrade can't be far behind this event given the reasoning for the last downgrade and the clear indication by this lack of agreement that nothing-has-changed.

S&P recently said that a 'watered down' package from the Super Committee would put downward pressure on the rating. Moody’s said the outcome of the Super Committee would be informative but not decisive for its rating analysis.

Deficit Effort Nears Failure The deficit-reduction supercommittee faces an almost certain collapse—raising the threat of disruptive military spending cuts and a resurgent public anger at Congress.

• The deadlock leaves unresolved a host of issues lawmakers hoped the panel would address, including whether to continue a temporary payroll tax cut and extended unemployment benefits beyond Dec. 31.
• The White House said in a statement that "avoiding accountability and kicking the can down the road is how Washington got into this deficit problem in the first place, so Congress needs to do its job here and make the kind of tough choices to live within its means that American families make every day."
• "Whether we like it or not, this debt and deficit debate has become in effect a proxy for whether our democratic institutions are up to the job in the 21st Century," said Sen. Mark Warner (D., Va.). He was one of a group of lawmakers who urged the 12-member committee to look past Democrats' aversion to cutting safety-net programs and Republicans' distaste for tax increases to craft a sweeping deal that would re-instill confidence in the government.

SocGen On The Super Committee: No Deal By Nov. 23 Could Lead To An S&P Credit Downgrade And Recession In 2012

• "Stimulus is necessary, at the minimum to offset expiring provisions from the current year’s stimulus package. If we do not see the extension of the payroll tax cuts and the unemployment insurance benefits the drag to GDP could be in the rate of 1 to 1.5%. Given our forecast for 1.4% in 2012, it means the US would likely fall into recession."
• "We still assume that the committee will be able to agree on a bare minimum, i.e. $1.2tn of future deficit reduction phased in more gradually than the automatic cuts. This would reduce the drag on growth in 2013, but it would almost certainly not be enough to satisfy S&P. The credit rating agency warned that in the absence of a much larger deal, it would likely downgrade the US credit rating further before the end of the year."

Hungary's Medicine Worsens Its European Cold

• Hungary's currency, the forint, has fallen 16% against the euro since early September amid concerns over its exposure to European banks and export markets.
• Ratings companies are poised to downgrade Hungary's debt to "junk" status.
• Many of Hungary's challenges are beyond its control. But better policy making from the government led by Prime Minister Viktor Orban is also needed to stem the forint's slide.
• Hungary's banking sector is the key source of contagion. Foreign banks—primarily Austrian, German and Italian—own 85% of Hungary's banking assets. These euro-zone banks provide their Hungarian subsidiaries with funding equivalent to 13.5% of Hungary's GDP, Capital Economics estimates, the highest proportion among Eastern European countries.
• Hungary vulnerable to efforts by foreign banks looking to de-leverage and reallocate capital domestically.
• Hungary is hardly encouraging banks to stay. With 70% of home mortgages denominated in foreign currency, the government has sought to ease householders' pain by capping the exchange rates at which they pay back their mortgages. But that only shifts the pain of foreign-exchange losses onto the banks' books.
• Any bank-lending pullback will add to Hungary's economic difficulties. Trade, the primary growth driver in the first half of 2011, is threatened by weaker European demand.
• The government's structural-reform program has stalled after one of its leading architects resigned due to frustration over slow progress.
• Growth could drop to 0.5% next year from 1.5% in 2011, UBS forecasts, the slowest pace among Hungary's Eastern European peers.
• Hungary's central bank is mulling interest-rate rises to halt the forint's fall. But that might damp growth further.
• WSJ EDITORIAL COMMENT: "The government needs to restore confidence, by reining in its punitive mortgage policy and committing to long-term reform. If necessary, Mr. Orban has the option to seek funding from the International Monetary Fund, something he has always ruled out. But a government U-turn is better than a forint free-fall".

• Markets hit by G20 failure to tackle crisis - Pressure increases on Berlusconi after summit
• G-20 Ends With Little to Show WSJ

Because Central Banks Just Aren't Enough: G-20 Will Ask IMF To Print Reserve Currency World leaders may mandate the International Monetary Policy to print more of its special currency to help solve the euro zone crisis, according to several people familiar with the matter. Asking the IMF to print more of its Special Drawing Rights, essentially an IOU that countries can exchange for cash, is one of the ways the Group of 20 industrialized and developing countries is considering supplementing European efforts to stem a debt crisis threatening to spark a global financial meltdown and another recession. The ECB itself has said the scope of its own rescue efforts through a bond buying program would be limited both in time and volume. But under the idea currently being considered by officials, the IMF would be the lender of last resort. Two people familiar with the matter said the SDR issue could total $250 billion. One option under discussion is to use some of that money to beef up the European Financial Stability Facility, the euro zone's bailout fund.

• Top Republican Calls On Obama To Prevent U.S. Funds From Being Used In Greek Bailout BI
• Either Berlusconi Or Lagarde Is Lying About What Happened Between The IMF And Italy BI
• BERLUSCONI: The IMF Offered To Give Us Money But We Turned Them Down BI
• No G-20 Agreement On IMF Aid For Europe, Reports That US Is Still Standing In The Way BI
• Here's Why Obama Couldn't Help Bail Out Greece, Even If He Wanted BI From Occupy Wall Street to steadfast Republican opposition, President Barack Obama would be hard-pressed to gain authorization to send more U.S. aid to help stem the Eurozone crisis — and the political downside for him would be extreme. Rep. Cathy McMorris Rodgers, the Vice Chair of the House Republican Conference, is leading voice on Capitol Hill against the initial transfer of $100 billion to the IMF — and she has pledged to stop any more U.S. funds from going to help Europe. She will speak to reporters today to reiterate her opposition to new aid for "Euro-TARP," as she calls it. To put it simply, the United States can't give the IMF more funding — there simply isn't the political will for it in the White House, in Congress, or on Main Street.

NFP Less +103K Birth Death Adjustment = -23K; 530K Jobs Created In 2011 "Statistically" The Birth Death adjustment has now "added" 530 jobs in 2011, or 42% of the total 1,256K jobs added in 2011, and the October number of 102K is 31K greater than a year earlier. Truly business formation in the current recession is soaring...Furthermore, the October Birth-Ddeath adjustment is the largest of the last 10 years - after September's was the lowest of the last 10 years - nothing to see here...

A Month to Remember for Markets - Buyers Creep Off Sidelines, Renew Appetite for Risk - The Dow soared 9.5% last month, its best month since October 2002. Measured by points, the 1,041.63-point rise was its biggest ever. The gains came after five tumultuous months that saw the Dow shed 16%, swing in a range of more than 2,000 points and teeter on the verge of a bear market. Speculators using S&P 500 futures contracts to make short bets on the stock market have cut their positions by roughly 70% since they peaked in August, according to weekly data from the Commodities Futures Trading Commission. Many investors say they don't really see justification for such a big rally and are wary of how long the gains will last. Still, they say they can't afford to stay out of the market. In the week ended Oct. 26, investors poured a record $4.25 billion into high-yield mutual funds and exchange traded funds, according to Lipper. That came after big inflows the previous week. The recent sharp tumble in U.S. Treasurys bonds also suggests investors are looking to take more risk. The yield on 10-year Treasurys, which moves in the opposite direction of price, is up some 0.25 percentage points in October.

Questions Swirl Around Jefferies"They claim it's beautifully hedged," he said. "Our view is that we're skeptical until we see complete proof of that. We don't know how those shorts are set up and whether they completely offset their $2.7 billion" exposure, he said.

MF Global's Collapse Draws FBI Interest

1. CME "has determined that MF Global is not in compliance with [CFTC] and CME customer segregation requirements.“
2. The Commodity Futures Trading Commission voted to issue subpoenas to the securities firm
3. The Federal Bureau of Investigation planned to examine whether client funds are missing.

A lawyer for MF Global said: "To the best knowledge of management, there is no shortfall." He said the discrepancy largely is the result of money stranded by banks and clearinghouses. - MF Global admitted to federal regulators early Monday that money was missing from customer accounts. MF Global acknowledged a shortfall in a phone call amid mounting questions from regulators as they went through the firm's books

When the Budget Calls for a Move Back Home

Over 50 million Americans lived in multigenerational homes in 2009, up 11% since 2007, according to Census Bureau data.

One in four adults between the ages of 18 and 24 moved back in with their parents during the recession, according to a 2010 Pew Research survey.