Russian Ruble Plunges To New Record Low As Central Bank Hints At Gold Sales

The Ruble collapsed another 2% today breaking above 45 for the first time ever as Bank of Russia’s Deputy Governor Ksenia Yudaeva suggested their policy was “quite close” to free floating the currency and desperately tried to jawbone the currency. She suggested that further rate increases were possible, that interventions were part of the “policy package” when repo tool ramps up and, most notably, Moscow could use some of its national foreign currency or even gold bullion reserves – now the world’s fifth largest hoard – to pay for buying imports if Western sanctions over Ukraine continue.

  • *BANK OF RUSSIA WILL MEET 2016-2017 INFLATION TARGET: YUDAEVA
  • *YUDAEVA: RUBLE SEEN STABILIZING BY YEAR END
  • *BANK OF RUSSIA’S POLICY QUITE CLOSE TO FREE FLOAT: YUDAEVA
  • *YUDAEVA: WE ARE GRADUALLY MOVING AWAY FROM USING CORRIDOR
  • *YUDAEVA: WE ARE GRADUALLY MOVING AWAY FROM USING CORRIDOR
  • *RUBLE INTERVENTIONS CHANGE PART OF POLICY `PACKAGE’: YUDAEVA
  • *BANK OF RUSSIA DOESN’T EXCLUDE FURTHER RATE INCREASES: YUDAEVA

 

USDRUB just broke above 45 for first time ever

 

which makes you wonder

 

Charts: Bloomberg




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US Services Sector Slumps As Business Outlook Nears 2-Year Lows

US Services dropped modestly from the 58.9 in September to a final print at 57.1 in October – the lowest since April. This should be no surprise as for the last 5 years, H2 has seen a notable decline in the soft-survey-based data. Despite the plunge, employment remained solid even as the business outlook neared 2-year lows. As Markit notes, the survey “warns of a slowdown as move towards the end of the year,” which is odd because the world and his pet rabbit said US was decoupling. For a change ISM Services actually agreed with Markit and printed 57.1, missing by the most since Feb 2014 with New Orders and Prices Paid down.

5 in a row, and lowest since April.

 

Markit notes:

“The October survey data running at a level consistent with GDP rising at an annualized rate of 2.5% at the start of the fourth quarter.”

 

“Meanwhile, a solid increase in payroll numbers was maintained during the latest survey period, but service providers’ confidence towards the business outlook was the least positive since July and close to its lowest for two years.”

*  *  *

And then came ISM Services, missing by the most in 8 months…

 

But catching down to Markit

 

The breakdown:

What the cherry-picked respondents are saying:

  • “Business is steady with new product launches.” (Information)
  • “The general business outlook is favorable. Approaching 2015 with cautious optimism.” (Finance & Insurance)
  • “Healthcare market continues to see challenges and uncertainty.” (Health Care & Social Assistance)
  • “Economy appears to be slowing. Fears of ISIS, Ebola, etc.” (Professional, Scientific & Technical Services)
  • “It appears that customers are beginning to engage which is producing sales. Not where we want to be, but continuing to see improvement.” (Retail Trade)
  • “Sales very sporadic. It’s up and down weekly.” (Accommodation & Food Services)
  • “Business activity remains robust here.” (Utilities)
  • “The past few months have been record months for us in terms of sales, but we are seeing margin pressure.” (Wholesale Trade)

And keep in mind: all of the above is then “seasonally-adjusted” – here is what the key “New Orders” data looks like unadjusted.

 

It is at the unadjusted level that we find that the number of respondents seeing “worse” conditions is at the highest since March, offset by those seeing “better”, which in turn is lowest sincethe Polar Vortex.

*  *  *

Finally… this makes one wonder…




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The “ECB Matrix”: Here Are The Best “Disappointment ” And “Delivery” Trades Ahead Of Tomorrow’s ECB Meeting

With the BOJ having stolen the limelight in the past week with its unprecedented, and unexpected, QE expansion it is easy to forget that following the Fed’s halt to QE3, there is still a substantial gap of flow that must be filled to keep the markets comfortably levitating (as Citi explained recently). Enter the ECB, which tomorrow will conduct its November meeting together with the traditional post-meeting press conference. But while all eyes will be on Draghi to see just how bad the mood in the room is surrounding the text-messaging central banker, who as Reuters reported yesterday, is now facing a full blown mutiny from anywhere between 7 and 10 regional central bank peers, the bigger question is what will the ECB do and how to trade it.

Not unexpectedly, in the aftermath of the BOJ’s Banzainomic, the consensus is for a major dovish announcement from Draghi. A case in point comes from the bank that first, one year ago, floated the idea of European QE: BNP (see “Next From The ECB: Here Comes QE, According To BNP” from November, 2013). The same BNP now says:

We maintain a short EURUSD recommendation (target 1.18) and on Monday published a near-term bearish FX option recommendation covering the ECB event. Like the JPY, there is a strong probability that the EUR weakens sharply following the meeting as we do not believe the market is sufficiently positioned for a dovish ECB. EUR positioning is at -14 vs JPY at -28 (on our scale of -50 to +50). Below we discuss five possible scenarios for tomorrow’s ECB meeting from an FX perspective.

And here is the full matrix of possible actions that the ECB can undertake, from adjusting the TLTRO, to shifting the deflation inflation message, to revising its balance sheet target, and finally, to launching a broader QE, and how these could impact the EURUSD based on how Draghi frames them.

 

But is the EURUSD the only trade? Not at all. In the table below, Deutsche Bank compares the developments in some key variables since the last ECB meeting on 2-October to determine the best risk-reward trades ahead of the ECB. Here are its preferred trades based on whether the ECB will “disappoint” or “deliver”

Disappointment trades

  • On this simplistic risk-reward perspective iTraxx Main spread wideners, long euro/usd and Bund ASW wideners offer the best risk-reward for ECB disappointment trades.

Delivery trades

  • The conclusion regarding ECB delivery is a bit more complicated. If we ignore 10Y Bunds which could rally if the ECB announces a broad based QE including government bonds we are left with 2Y Euribor-OIS spread tighteners, long 2Y1Y inflation swaps (which might remain under pressure due to the decline in oil prices) and paid positions on the long-end of the EUR curve.




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A. Barton Hinkle on How the Government Wastes Money

You think the federal government
wastes taxpayer dollars? You don’t know the half of it. During the
past year alone, observes A. Barton Hinkle, Washington has shelled
out billions to give bureaucrats paid vacations in lieu of
discipline; to ship coal to Germany for no reason; to design better
golf clubs; to help farmers market manure; and to give bunny
rabbits massages—among many other things.

View this article.

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San Diego Very Close to Electing First Openly Gay (and Libertarian) Republican Congressman

Carl DeMaioThis morning
less than 800 votes
separate Republican Carl DeMaio from
incumbent Democrat Scott Peters in San Diego. With late mail and
provisional ballots uncounted, this means it’s too soon yet for
DeMaio to grab a surfboard and join to Republican wave.

If the numbers hold up, Carl DeMaio will become the first openly
gay man elected to Congress as a Republican (retired Jim Kolbe of
Arizona is the actual first gay Republican congressman, but he came
out while in office). DeMaio is also a libertarian pension reformer
(full disclosure: DeMaio is an independent contractor for the
Reason Foundation research division’s pension reform project). I
profiled DeMaio back in
July
, and he’s featured in my preview
of the midterms in the December issue of Reason on stands
now.

According to the San Diego Union-Tribune, there could
be as many as 50,000 provisional and late mail-in ballots to count,
so this may take a while. We won’t see another tally until
Thursday
.

The race also turned nasty and personal toward the end. DeMaio
ended up mired in scandals. A former campaign worker accused DeMaio
of sexual harassment. DeMaio’s camp, though, said the man was
retaliating because he was fired for his alleged role in
plagiarizing some content for the campaign’s website. DeMaio also
accused him of responsibility for a
break-in
at their campaign office earlier in the year, but the
city’s district attorney determined there wasn’t enough evidence to
file charges. Then another former staffer came forward just

days before the election
with similar sexual harassment
accusations. DeMaio’s camp has again denied the claims.


Polls
had barely put DeMaio ahead back in October so the
closeness of the race should not come as a surprise, and it’s not
clear whether the late scandal affected the vote in any way. DeMaio
dismissed the scandals again last night. From the
Union-Tribune
:

“I’ve also, particularly in the past several weeks, received
such amazing support and love from San Diegans who reject the
politics of personal destruction. They don’t want smears, they want
solutions.”

Unfortunately, should he win, DeMaio will not be joined by
Richard Tisei of Massachusetts in the House of Representatives.
Tisei, also an openly gay, libertarian-leaning Republican, lost to
Democrat newcomer Seth Moulton. Moulton was one of the few
challengers to
toss out an incumbent
in the primaries, as voters handed
scandal-tainted John Tierney his walking papers. Moulton ended up
trouncing Tisei 54 percent to 41 percent, despite late
polls
showing Tisei ahead. Looks like earlier polls in
September proved more accurate. He conceded
last night
, saying he has “no regrets.”

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Obama and Dems Rebuked by Electorate on Climate and Energy Policy

Sad ObamaPresident Barack Obama had hoped to make
addressing climate change and the transformation of the U.S. energy
generation system one of the chief legacies of his administration.
The Republican takeover in the Senate and the increased Republican
majority in the House of Representatives will likely stymie the
president’s efforts to impose various forms of energy
rationing.

Keystone Pipeline: No less than three
environmental reviews have found that this pipeline that would
transport nearly 1 million barrels per day of Canadian oilsands
crude to the Gulf Coast for refining is adequately safe. In a
perfect example of cowardly political calculation, the president
has been afraid to nix the project because it would alienate the
crucial union voting bloc. Now both the House and the Senate will
pass legislation approving the pipeline which the president may
well veto. Who’s causing gridlock now?

U.N. Climate Change negotiations: The nations
of the world are supposed to adopt a binding treaty limiting the
emissions of greenhouse gases at the 2015 U.N. climate change
conference in Paris. The president has long recognized that there
was no way that such a treaty would obtain the required two-thirds
vote of the Senate for ratification. Instead, the president has
devised a plan in which a U.S. pledge to cut its greenhouse gas
emissions by 17 percent from 2005 levels by 2020, and 83 percent by
2050 would be tacked onto the existing U.N. Framework Convention on
Climate Change. The president argues that such pledges do not need
further ratification by the U.S. Senate. The new Republican
majority will beg to differ.

EPA’s Plan to Cut Electric Power Carbon Dioxide
emissions
: In June, the Obama administration proposed
regulations that aim to cut carbon dioxide emissions from the
nation’s power plants 30 percent from 2005 levels by 2030. The
Republicans denounced this as Obama’s War on Coal. The election of
Shelley Moore Capito as the first Republican senator from West
Virginia in nearly 55 years suggests that the war is not going so
well for the president; not to mention the re-election of Mitch
McConnell from Kentucky.

Environmentalist PAC Spending: Billionaire Tom
Steyer’s NextGen Climate PAC reportedly spent $74 million attacking
Republicans he regards as climate change “deniers.” The
National Journal succinctly notes, “He
Didn’t Get Much to Show For It
.” The New Republic
grouses that the voters have made “climate change denier” Sen.
James Inhofe “the
most powerful senator on the environment
.”

The day before the mid-term elections, The Hill

reported
:

Nearly half of voters in the midterm election want the federal
government to adopt more policies to fight climate change,
according to a new poll.

The Huffington Post/YouGov
survey
concluded that 49 percent of people likely to vote in
Tuesday’s election want stricter climate policies. Thirty-five
percent opposed climate rules.

Well, maybe. But it’s pretty clear that as worried as Americans
might be about future climate change, they regard other issues as
more pressing.

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The Trouble With Mass Delusions

Excerpted from Paul Singer’s Elliott Management letter to investors,

MASS DELUSIONS

The trouble with mass delusions is that they are recognized as such only when they are over – when the dazzling absurdity of certain widely held beliefs is unmasked by subsequent events. Interestingly, many delusions relate to war. At the beginning of World War I, there was a widespread misconception that the war would be over in months. In hindsight, this delusion was fueled by a deep misunderstanding, among citizens and military experts alike, of the impact that evolving technology would have on modern warfare. Parenthetically, we would argue that the current drawdown of military capability throughout the developed world is based on a delusion that ignores thousands of years of immutable, or at least always repeating, human history of almost continuous (in the grand scheme of things) warfare.

Economics also provides its share of delusions, including the debt-fueled bubbles of both the 1920s stock market and the first dotcom boom. The real estate boom of the 2000s was another one, as excess demand was fueled by the combination of near-free money, the most marginal financial products ever invented, and the frenetic selling of houses to people who could not afford them and did not actually own them in any meaningful sense of the word.

These examples are easy, because they were mass beliefs that were unreasonable in the extreme at the time they were held. Of course, at the time not everyone held the same deluded views, but the disbelievers were (and always are) discredited, demoralized and ignored while the delusions were alive. The problem is that while the delusions remain intact there is no proof available to convince the believers of their folly. Simply repeating that a mass belief is crazy does not make it so (nor convince anyone else that it is nuts). Furthermore, the amount of time necessary to reveal the truth is sometimes too long for nonbelievers to bear, so they just stop trying.

There is a current set of delusions that is powerful and dangerous:

that monetary debasement can be infinitely pursued without negative consequences; that the financial system is now solid and sound; that the low volatility and high prices of stocks, high-end real estate and bonds are real; that bonds are a safe haven; and that large financial institutions which get into trouble in the future can be unwound in a much safer way than they could be in 2008.

We have discussed each of these elements in the pages of this report and previous ones in an attempt to reveal the fallacy and unsustainability of such beliefs. But, as stated above, they will only enter the history books as mass delusions if they are unmasked in the future as unjustifiable and erroneous beliefs at the time they were held.

We think that test will be met, perhaps soon.




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Huge Win for Gun Rights in Alabama Election

Alabama voters on Tuesday overwhelmingly
favored a revision to the state constitution which will provide
greater legal protections for the right to keep and bear arms. By a
vote of
73 percent to 27 percent
, voters amended the state constitution
to include the following provision:

(a) Every citizen has a fundamental right to bear arms in
defense of himself or herself and the state. Any restriction on
this right shall be subject to strict scrutiny.

(b) No citizen shall be compelled by any international treaty or
international law to take an action that prohibits, limits, or
otherwise interferes with his or her fundamental right to keep and
bear arms in defense of himself or herself and the state, if such
treaty or law, or its adoption, violates the United States
Constitution.

Strict scrutiny is the most exacting level of judicial review
employed by the courts. For a gun control law to survive strict
scrutiny, the state must prove that it has a compelling interest
that both justifies and necessitates the regulation in question.
Among lawyers, strict scrutiny is frequently characterized as
“strict in theory, fatal in fact.” Lawmakers receive no deference
from the courts under this approach.

Put differently, this new constitutional provision is a huge win
for gun rights and a major defeat for gun control advocates in
Alabama.

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Anti-GMO Initiatives in Oregon and Colorado: Science Wins in Centennial State – Outcome Uncertain in Beaver State

Killer TomatoVoters in the Oregon and
Colorado were asked to vote on ballot initiatives that would
require many foods made with ingredients derived from modern
biotech crops to be labeled as such. Science won in Colorado with
voters
rejecting
the mandatory labeling requirement by 68 to 32
percent. The Oregon vote is still too close to call, but the vote
was
51 percent against
labeling and 49 percent in favor. The final
results in Oregon may not be known until Friday.

Both initiatives are egregiously unscientific, but the Oregon
Measure 92 is particularly dishonest. Measure 92
misleadingly asserts
that the U.S. Food and Drug
Administration…

…does not require or conduct safety studies of genetically
engineered foods. Instead, any safety consultations are voluntary,
and genetically engineered food developers may decide what
information to provide to the agency. Market approval of
genetically engineered food is based on industry research
alone.

Of course, this is precisely the way in which new
pharmaceuticals are regulated and approved. Companies keep
providing information about each new crop variety to the FDA
regulators until they have no more questions. In any case, this
process is unnecessary. If a trait (pest resistance or herbicide
resistance) is safe in one crop it is safe in all crops. There
should be no need for approval for each new variety.

Another false Measure 92 finding and declaration is …

The genetic engineering of plants and animals often causes
unintended consequences. Manipulating genes via genetic engineering
and inserting them into organisms is an imprecise process. The
results are not always predictable or controllable. Mixing plant,
animal, bacterial and viral genes through genetic engineering in
combinations that cannot occur in nature may produce results that
lead to adverse health or environmental consequences.

The proponents of Measure 92 offer no examples of “adverse
health or environmental consequences.” Why? Because none have been
reported. As I have
noted
elsewhere:

The World Health Organization
flatly states
, “No effects on human health have been shown as a
result of the consumption of such foods by the general population
in the countries where they have been approved.”

In 2010, a European Commission review
of 50 studies on the safety of biotech crops found “no scientific
evidence associating GMOs with higher risks for the environment or
for food and feed safety than conventional plants and
organisms.”

At its annual meeting in June, 2013 the American Medical
Association endorsed a report on the
labeling of bioengineered foods
from its Council on Science and
Public Health. The report concluded that “Bioengineered foods have
been consumed for close to 20 years, and during that time, no overt
consequences on human health have been reported and/or
substantiated in the peer-reviewed literature.”

And one other bit of misinformation is the claim that …

The cultivation of genetically engineered crops can have serious
effects on the environment. For example, in 2013, 93 percent of all
soy grown in the U.S. was engineered to be herbicide resistance. In
fact, the vast majority of genetically engineered crops are
designed to withstand herbicides, and therefore promote
indiscriminate herbicide use. As a result, genetically engineered,
herbicide resistant crops have caused 527 million pounds of
additional herbicides to be applied to the nation’s farmland.

Actually, the USDA released in May, 2014 its report, Pesticide
Use in U.S. Agriculture: 21 Selected Crops, 1960-2008
, in
which it analyzed the trends in herbicide and pesticide use. The
study found that herbicide applications peaked at 478 million
pounds in 1981 and since drifted down to 394 million pounds in
2008, the latest year for which the agency has figures.
Interestingly, Measure 92 fails to mention that pesticide
applications peaked in 1972 at 158 million pounds and has now
fallen to 29 million pounds. Why? Because of crops genetically
engineered to resist insect and other pests.

Colorado’s
Proposition 105
is more succinct in its misleading
assertions:

(3) U.S. FEDERAL LAW DOES NOT PROVIDE FOR THE REGULATION ON THE
SAFETY AND LABELING OF GENETICALLY MODIFIED FOOD;

(4) THE LONG TERM HEALTH, SAFETY AND ENVIRONMENTAL CONSEQUENCES
OF GROWING AND CONSUMING GENETICALLY MODIFIED FOOD ARE NOT YET
FULLY RESEARCHED AND ARE NOT YET WELL UNDERSTOOD BY SCIENCE
….

Measure 92 would require that “Genetically Engineered” clearly
and conspicuously appear on the front or back of the package of
foods using ingredients from biotech crops by January, 2016.
Similarly, Proposition 105 would mandate “PRODUCED WITH GENETIC
ENGINEERING” APPEAR IN A CLEAR AND CONSPICUOUS MANNER ON ITS LABEL”
by July, 2016.

Addendum: A referendnum in Maui County in Hawaii passed 50 to 48
percent to
ban the growing of biotech crops
in the jurisdiction. For more
background on the scientifically idiotic campaign against biotech
crops in Hawaii see my article, “The
Fable of Hawaiian Frankencorn
.”

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