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• Philippines Left Reeling in Wake of Storm (WSJ)
• Khamenei controls massive financial empire built on property seizures (RTRS)
• Race to Bottom Resumes as Central Bankers Ease Anew (BBG)
• U.S. Postal Service to deliver Amazon packages on Sundays  (LA Times)
• Obama Stocks Among Best After Re-Election as Rally Tested (BBG)
• Health-Law Rollout Weighs on Obama’s Ratings, Agenda (WSJ)
• Twitter in Celebrity Spat With Facebook as Rivalry Builds (BBG)
• Iran deputy industry minister shot dead (AFP)
• Financier of Taliban-linked group shot dead in Pakistan (RTRS)
• Obama: The Lonely Guy (Vanity Fair)
• Shire Buys ViroPharma for $4.2 Billion to Grow in Rare Diseases (BBG)
• Apple Finds Surprising Growth Market in Japan (WSJ)
• U.S. retailers tread tight path in shortened holiday race (Reuters)
• They Loved Your G.P.A. Then They Saw Your Tweets (NYT)
• Acer’s CEO Is Out, Another Victim of the iPad (BBG)
• Worry Over Inequality Occupies Wall Street (WSJ)
• IPhone App Wipes Out Population to Show Contagion Risks (BBG)

 

Overnight Media Digest

WSJ

* Johnson & Johnson and Amazon.com Inc are clashing over complaints that Amazon isn’t doing enough to prevent people from selling damaged or expired J&J products-Tylenol painkillers and Rogaine baldness treatments, among others-on its website.

* A political stalemate could persuade Office Depot to move more than 2,000 jobs out of Illinois as lawmakers grouse about the growing number of companies seeking special tax treatment.

* JPMorgan and Credit Suisse are considering blocking employees from computer chat rooms that have become pervasive tools of the modern trading floor, but which face mounting scrutiny from regulators.

* The second film in the God of Thunder franchise from Walt Disney’s Marvel Studios grossed $86.1 million in North America following a huge international haul.

* Sony and Microsoft are preparing for one of the biggest holiday battles in years, as the companies overhaul their videogame consoles. But software could be a decisive weapon this time.

* The EU and the United States open a second round of trade talks Monday. The biggest economic gains are expected to come from chipping away at trade barriers, but the two sides have different approaches to regulation.

* The Washington state legislature completed passage of key elements of an incentive package Saturday aimed at guaranteeing Boeing will locate manufacturing work for its 777X jetliner in Puget Sound.

* The U.S. government has been fighting to try to seize a Midtown Manhattan skyscraper it says is secretly owned by the Iranian government. After the U.S. won a ruling, a court monitor has signed a long-term lease for the retail space to a venture including one of the city’s top landlords.

* Luxury-car brand Mercedes-Benz, facing stagnant sales in Europe and troubles in China, is doubling down on expansion in the United States as part of its plan to overtake rivals BMW AG and Volkswagen AG’s Audi in global luxury sales.

* Cooper Tire & Rubber Co isn’t yet entitled to an order forcing India’s Apollo Tyres Ltd to close its takeover of the Ohio-based tire maker at the agreed-on $2.2 billion price, a Delaware judge said over the weekend.

 

FT

Renault-Nissan would miss its target for global sales of electric cars, chief executive Carlos Ghosn said in an interview, adding that the market is failing to live up to his expectations.

BP Plc for the first time challenged directly payments for losses not caused by its 2010 oil spill in the Gulf of Mexico basing its arguments on the issue of causation in a fresh attempt to limit the cost of its compensation settlement, according to court documents filed by the company late last week.

JPMorgan Chase & Co is one of several banks considering banning traders from electronic chat rooms, which face scrutiny from regulators as a platform exchange of market information, as part of a probe into the foreign exchange market, according to people familiar with the matter.

Co-operative Group said it would scrap dividend payments to its 7.6 million members as part of a review to help pay for a 1.5 billion pound ($2.4 billion) rescue of its banking division.

Analysts are forecasting a profit warning from Serco Group Plc this week as the outsourcing firm continues to grapple with problems with contracts for UK prisons and Australian asylum centres.

China Investment Corporation is set to buy Chiswick Park, a west-London office development, from U.S. private equity group Blackstone for about 800 million pounds ($1.3 billion), according to people familiar with the matter.

 

NYT

* The CBS news magazine issued a rare retraction and apology for its report on an attack on Americans in Libya, saying it was misled by a source.

* Start-ups are gathering data and analyzing it much faster than was possible even a couple of years ago, aiming to project economic trends from seemingly unconnected information.

* Labor leaders and businesses are closely watching a Supreme Court case to be argued this Wednesday that involves a popular strategy used by unions to successfully organize hundreds of thousands of workers.

* Twitter is counting on millions of websites to link to the service and encouraging legions of independent developers to find creative new uses for its platform, driving up activity and the number of advertisements that Twitter users see.

* In their efforts to attract children, television networks are starting to show programs online before they appear on old-fashioned TV.

* Vox Media, a company with three strong digital brands, including the technology site The Verge, is adding to its portfolio. The company plans t
o announce on Monday that it is buying Curbed.com LLC, which runs three web publications that deliver in-depth neighborhood coverage, with attitude, of real estate, dining and retailing.

* The Treasury’s schedule of financing this week includes the regular weekly auction of new three- and six-month bills on Tuesday, delayed for the Veterans Day holiday, and an auction of four-week bills on Wednesday.

* The saving of BlackBerry may represent a patriotic calling to Prem Watsa, but he is not used to dealing in as public an arena as the company does. ()

 

Canada

THE GLOBE AND MAIL

* Western Canadian farmers and grain handlers are struggling to move a record crop amid a shortage of railcars that some say is worsened by the surge in the energy industry’s oil shipments by rail.

* Negotiators at the United Nations climate summit are searching for broad agreement that will lead to a new treaty requiring deeper cuts to each country’s greenhouse gas emissions after 2020, even as Canada struggles to achieve its existing commitments.

Reports in the business section:

* As discounter Wal-Mart Canada Corp ramps up its food aisles and U.S. arch rival Target Corp expands in this country, conventional chains such as Loblaw Companies Ltd and Metro Inc feel the mounting pressure.

* Economists have been surprised by the degree to which Canada home sales have bounced back from the pounding they took in the summer of 2012, when Finance Minister Jim Flaherty tightened the mortgage insurance rules.

NATIONAL POST

* Officials have been sent to the Philippines to assess whether Canada should send a military team to provide medical care and water to typhoon victims, Canada’s foreign affairs minister said.

* Ontario Provincial Police are confirming five people have died in a plane crash in northwestern Ontario near the community of Red Lake. They have also confirmed there were two survivors.

 

China

PEOPLE’S DAILY

– A commentary by the mouthpiece of the ruling Communist Party of China (CPC) said the country’s new leadership has launched a slew of innovations aimed to building up a democratic political system since they came into power a year ago. The commentary was issued as the party is convening a crucial central commission plenum.

CHINA DAILY

– China will take major steps to reform its gigantic state-owned enterprises, allowing private capital to have easier access to invest in the state sector, after the four-day Third Plenum of the CPC’s 18th Central Committee, which started on Saturday, said Huang Shuhe, vice-chairman of the State-owned Assets Supervisions and Administration Commission.

SHANGHAI SECURITIES NEWS

– Chongqing Iron and Steel Co said the China Securities Regulatory Commission (CSRC) has approved its plans to issue new shares to its parent and other parties to raise money to buy new assets from its parent, a move expected to narrow its losses sharply next year.

– Oil giant Sinopec Corp said its parent on Friday bought back 39 million yuan-denominated A shares. The parent last week announced a plan to spend an estimated maximum of $17.7 billion to buy back a 2 percent stake in Sinopec’s Shanghai-listed entity over the next year, in a move to support the mainland’s sagging stock market.

CHINA SECURITIES JOURNAL

– China has quietly opened the second-batch tenders for high-speed trains this year worth an estimated 56-57 billion yuan ($9.18-$9.34 billion). The country in August lifted a suspension of tenders of high-speed trains imposed after a crash that killed dozens of passengers in 2011.

– A total of 757 companies are now on the waiting list to launch initial public offerings (IPOs) in the mainland’s stock exchanges, CSRC data shows. China quietly suspended IPOs one year ago to help check a slide in the domestic stock market .

SECURITIES TIMES

– The Shenzhen Stock Exchange will blacklist those companies that announce poorly conceived merger and acquisition plans aimed at boosting their own share prices.

CHINA DAILY

– An editorial by a senior editor criticized Hangzhou-based Alibaba Group’s IPO strategy in Hong Kong, saying Hong Kong was right to reject Alibaba’s proposal to list under a tiered share structure that would allow management and preferred shareholders to retain control after listing, in contravention of the Hong Kong Exchange’s rules.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Alon USA Energy (ALJ) upgraded to Neutral from Underperform at Credit Suisse
American Tower (AMT) upgraded to Buy from Neutral at Citigroup
BT Group (BT) upgraded to Overweight from Neutral at JPMorgan
Best Buy (BBY) upgraded to Buy from Neutral at UBS
Concho Resources (CXO) upgraded to Buy from Hold at Canaccord
LPL Financial (LPLA) upgraded to Neutral from Sell at UBS
Mueller Water (MWA) upgraded to Neutral from Sell at Goldman
Netgear (NTGR) upgraded to Sector Perform from Underperform at RBC Capital
Rocket Fuel (FUEL) upgraded to Outperform from Market Perform at BMO Capital
TD Ameritrade (AMTD) upgraded to Outperform from Market Perform at Raymond James
WEX Inc. (WEX) upgraded to Buy from Neutral at Janney Capital
Youku Tudou (YOKU) upgraded to Buy from Hold at Brean Capital

Downgrades

AGCO (AGCO) downgraded to Sell from Neutral at Goldman
Deutsche Telekom (DTEGY) downgraded to Sell from Neutral at Goldman
Diodes (DIOD) downgraded to Outperform from Strong Buy at Raymond James
Eli Lilly (LLY) downgraded to Sell from Neutral at Goldman
Hill-Rom (HRC) downgraded to Underweight from Equal Weight at Morgan Stanley
KLA-Tencor (KLAC) downgraded to Negative from Neutral at Susquehanna
Penn National (PENN) downgraded to Equal Weight from Overweight at Barclays
Range Resources (RRC) downgraded to Perform from Outperform at Oppenheimer
Teekay Offshore Partners (TOO) downgraded to Neutral from Buy at BofA/Merrill

Initiations

Ann Inc. (ANN) initiated with a Sell at Goldman
Antero Resources (AR) initiated with a Hold at Deutsche Bank
Burlington Stores (BURL) initiated with a Buy at SunTrust
Burlington Stores (BURL) initiated with a Neutral at Goldman
Burlington Stores (BURL) initiated with an Overweight at JPMorgan
Discovery Labs (DSCO) initiated with an Overweight at Piper Jaffray
Empire State Realty (ESRT) initiated with a Buy at KeyBanc
Empire State Realty (ESRT) initiated with a Neutral at Goldman
Express (EXPR) initiated with a Buy at Goldman
Franklin Resources (BEN) initiated with a Sector Perform at RBC Capital
Gaming and Leisure Properties (GLPI) initiated with an Equal Weight at Barclays
Gulfport Energy (GPOR) initiated with a Buy at Deutsche Bank
Mazor Robotics (MZOR) initiated with an Overweight at Barclays
Movado (MOV) initiated with a Hold at KeyBanc
Veeva Systems (VEEV) initiated with a Buy at Canaccord
Veeva Systems (VEEV) initiated with a Buy at Deutsche Bank

HOT STOCKS

Shire (SHPG) acquired ViroPharma (VPHM) for $50 per share or $4.2B
Mitel (MITL) to acquire Aastra for C$392M
IntercontinentalExchange (ICE) said NYSE Euronext (NYX) deal to close November 13
PepsiCo (PEP) announced targeted investment of $5.5B in India by 2020
State of Washington worked out incentives to keep Boeing 777X work, WSJ reports
Transocean (RIG) announced agreement with Carl Icahn (IEP)
Amazon.com (AMZN) announced USPS to deliver packages on Sunday
Suntech (STP) received approval for a provisional liquidation from Cayman Islands
Denbury (DNR) to initiate quarterly dividend, increased share repurchase authorization

EARNINGS

Companies that beat consensus earnin
gs expectations last night and today include:
Sterling Construction (STRL), CTI Industries (CTIB), Enzymotec (ENZY), Arkansas Best (ABFS)

Companies that missed consensus earnings expectations include:
RadNet (RDNT), Rexford Industrial (REXR), Ballantyne Strong (BTN), Nordic American Tanker (NAT), Tesoro Logistics (TLLP)

NEWSPAPERS/WEBSITES

Johnson & Johnson (JNJ) and Amazon.com (AMZN) are clashing over complaints that Amazon isn’t doing enough to prevent people from selling damaged or expired J&J products on its website, the Wall Street Journal reports
Big banks (JPM, CS, RBS, BCS, UBS, C) are considering blocking employees from computer chat rooms that have become pervasive tools of the modern trading floor, but which face mounting scrutiny from regulators as potential venues for collusion and market manipulation, the Wall Street Journal reports
U.S. retailers (AMZN, WMT, TGT, M) have little room for error in the fast-approaching and shortened holiday shopping season, a period that typically generates 30% of annual sales. Plus, a late Thanksgiving has cut six days off the gift-buying season, Reuters reports
Even with the flawed roll out of health-care reform and uproar over spying, President Obama is enjoying one of the best stock markets for a re-elected president. Signs are building that it might not last, Bloomberg reports
Cooper Tire & Rubber (CTB) isn’t yet entitled to an order that would force Apollo Tyres to pay a contractually agreed $35 a share for the company, a judge said in a weekend letter to lawyers. Cooper must prove it had satisfied all the conditions of the $2.5B buyout agreement, Bloomberg reports
Panasonic (PCRFY) said it can afford a deal worth $1B as the maker of electric-car batteries and solar panels looks to expand its automotive and housing businesses, Bloomberg reports

BARRON’S

GulfMark Offshore (GLF) could rally another 30%
International Paper (IP), Hanesbrands (HBI), Xerox (XRX), L-3 (LLL) are bargains
Devon Energy (DVN) is undervalued by 25%
Twitter’s (TWTR) prices indicates investors’ bet on advertising plan (GOOG)

SYNDICATE

Bright Horizons (BFAM) files to sell 7.5M shares for holders
CDW Corporation (CDW) files to sell 15M shares for holders
Hansen Medical (HNSN) files to sell 5.29M and 62.6M shares for holders
Wisdom Tree (WETF) files to sell 835,000 shares for holders

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/g8gc3E0vt54/story01.htm Tyler Durden

Bond markets may be closed today for Veterans’ Day, but equities and far more importantly, FX, are certainly open and thanks to yet another overnight ramp in the ES leading EURJPY, we have seen one more levitation session to start off the week, and an implied stock market open which will be another record high. There was little overnight developed market data to digest, with just Italian Industrial Production coming in line with expectations at 0.2%, while the bulk of the attention fell on China which over the weekend reported stronger Industrial Production and retail sales, while CPI was just below expectations and additionally China new loans of CNY 506 billion (below est. of CNY 580bn) even as M2 in line, should give the Chinese government the all clear to reform absolutely nothing. That all this goldilocks and goalseeked data is taking place just as the Third Plenum (just as theatrical and just as meaningless as any session of Congress, because everyone knows that China will not initiate reforms until it has to at which point it will be too late) picks up pace was not lost on anyone.

Breakdown of China M2 and CNY loans:

And China’s total social financing for October:

Today’s session will be quiet with nothing on the US docket which means much more low volume levitation especially with no bond selloff to keep equities in some sort of pseudo check, while this week’s key event will be Yellen’s confirmation hearing on Thursday before the Senate Banking Committee. She has not discussed monetary policy since April so there will be an immense amount of interest. As DB notes, it may be a politicised hearing and one where Yellen may have to be more balanced than her natural dovish tendencies to broaden her appeal to the members.

Market Recap

Stocks in Europe recovered following a lacklustre open and edged into positive territory, although telecommunications sector underperformed throughout the session, with BSkyB trading lower by almost 10% after BT Group announced that it will pay USD 1.4bln for exclusive live broadcast rights for the UEFA Champions League tournaments. Deutsche Telekom shares also fell sharply after analysts at Goldman Sachs downgrade co. to sell and also lowered price target by 14%. Overall, the price action was relatively muted across various asset classes today, with trade volumes declining, as market participants observed Armistice Day in Europe and Veteran’s Day in the US. Looking elsewhere, EUR gained ground across the board, as market participants used the heavy selling pressure observed last week as a buying opportunity. As a result, consequent pressure on the Greenback ensured that USD/JPY was able to recover losses made during the overnight session in Asia and in turn move into positive territory. Going forward, there are no major economic releases set for the second half of the session

 

Overnight news bulletin

Trade volumes fell as market participants observed Armistice Day in Europe and Veteran’s Day in the US.

ECB’s Coeure said ECB can trim interest rates further and provide the banking systems with liquidity.

Short-sterling strip steepened this morning as market participants positioned for the release of the Quarterly Inflation Report by the BoE this week.

 

Asian Headlines

Chinese CPI (Oct) Y/Y 3.2% vs. Exp. 3.3% (Prev. 3.1%)
– PPI (Oct) Y/Y -1.5% vs. Exp. -1.4% (Prev. -1.3%)
– Industrial Production YTD (Oct) Y/Y 9.7% vs. Exp. 9.6% (Prev. 9.6%)
– Industrial Production (Oct) Y/Y 10.3% vs. Exp. 10.0% (Prev. 10.2%)
– Retail Sales YTD (Oct) Y/Y 13.0% vs. Exp. 13.0% (Prev. 12.9%)
– Retail Sales (Oct) Y/Y 13.3% vs. Exp. 13.4% (Prev. 13.3%)

As China’s Third Plenum party meeting continues, comments remain few and far between before the end of the meeting on Tuesday, however a brief statement has been released, with the Communist Party stating China needs a new engine of growth and reduce its reliance on “crude investments”.

EU & UK Headlines

ECB split stokes German backlash fears. (FT-More) Sources said divisions between northern and southern representatives on the ECB board have been mounting since market pressures on the eurozone relaxed, with council members freed up to revert to national interests.

ECB’s Coeure said ECB can trim interest rates further and provide the banking systems with liquidity.

Short-sterling strip steepened this morning as market participants positioned for the release of the Quarterly Inflation Report by the BoE this week. The central bank is widely expected to upgrade its growth forecasts for the UK economy this week and pave the way for an earlier interest rate rise.

US Headlines

Fed’s Williams (non-voter, soft dove) said US monetary medicine is working and evidence is in jobs gains and jobless rate. Williams said that he sees unemployment declining in 2014 and 2015. 

Equities

Stocks recovered from a lower open and edged into positive territory, though telecommunications sector underperformed from the get-go, where BSkyB shares in London fell almost 10% after BT Group announced that it will pay USD 1.4bln for exclusive live broadcast rights for the UEFA Champions League tournaments. In addition to that, Deutsche Telekom shares also fell sharply after analysts at Goldman Sachs downgrade co. to sell and also lowered price target by 14%.

SocGen’s macro recap morning briefing

We finally have lift off. Or have we? Friday’s US employment report blew away many uncertainties and vindicated the Fed for not issuing a more dovish statement at it last meeting. The impact of the government shutdown on the economy has been trivial and we can now look forward to hopefully undistorted period data to form a judgement on underlying momentum and implications for the Fed. Although we still see the probability of Fed tapering as quite remote in December, the likelihood of the Fed reducing asset purchases has inevitably gone up sooner rather than later and that alone now means we should see some decent trends across markets until early December.

The strong US jobs data (overshadowed again by a lower participation rate) obviously puts the USD in a pole position to strengthen and US 10y yields to rise and the curve to steepen. It also argues for the US/EU 10y spread to keep widening towards 100bp given the contrasting picture for employment in the euro area and a dovish ECB. The rise in 10y US yields above 2.70% challenges our downward revised year-end forecast but adds support to our bearish EUR/USD call. A retest of last week‘s 1.3293 low is a distinct possibility as long EUR positions are chopped, but bears may not pause for breath until we reach 1.3200.

The focus in G10 for this week will be on eurozone Q3 GDP data from Thursday onwards. In the UK, the BoE inflation report is due this Wednesday. Upward revisions to near-term inflation and growth forecasts are highly likely and might result in the bank bringing forward a decline in the unemployment rate to 7% from late 2016. That will challenge the timing of a first rate hike and should boost GBP vs CHF, EUR and JPY.

Emerging markets were hit badly last week and the toxic combination of higher US 10y yields and a warning on Brazil’s credit rating by S&P
lifted USD/BRL above 2.3340. Investors will brace for a return to the summer highs above 2.40 if US data keep coming in strong. The focus this week is on the possible outcome of the 3rd Plenum of China and the guidelines for economic policy. Though expectations over announcements are limited, a focus

DB’s Jim Reid rounds out the overnight recap

The growth momentum in China appears to have improved over the past few months and the weekend’s October Chinese data provided further indication of this. Industrial production rose 10.3% YoY which was ahead of expectations of 10.0% and was slightly firmer than last month’s 10.2%. DB’s Jun Ma believes this adds some upside risk to Q4 GDP growth. Retail sales growth also accelerated in October (13.0% YoY vs 12.9% previous) which was in line with consensus, and fixed asset investments continued to grow at a 20%+ YoY rate. Jun describes the October CPI outcome of 3.2% YoY in October (3.3% expected) as remaining in the comfort zone, though it came in at an eight month high. PPI deflation widened to 1.5% YoY in October from 1.3%yoy in September but Jun expects that PPI inflation will recover to zero by the end Q1 next year.

Coming back to markets, the clear outperformer on Friday was DM equities where the S&P 500 (+1.3%) came back from early lows of 1747 following payrolls, before staging a remarkable recovery to close at a new all time high of 1770. The tone in emerging markets was in stark contrast, where it was a disappointing day across both equities and fixed income. The +15bp and 0.57% increase in UST yields and the Dollar index was clearly a problem. Brazilian and Mexican 10yr rates jumped by around 13bp and 7bp respectively, while the CDX EM index added 20bp in spread terms, in its weakest performance since June. The MSCI EM equity index (-1.5%) recorded its seventh straight loss which is the longest losing streak since March 2013. The weaker tone in EM on Friday is weighing on sentiment in Asia this morning including in Asian FX where a number of currencies are weaker including the KRW (-0.7%), THB (-0.7%) and IDR (-0.9%) against the USD. Asian EM sovereign credit has opened weaker particularly in Indonesia and Phillipines (both 5yr sovereign CDS are +5bp wider) but flows have been balanced in general. Despite the strong finish to DM equity markets last week, Asian equities are trading lower across most bourses with the exception of the TOPIX (+0.7%) following the payrolls-inspired gain in USDJPY. There is a fair bit of volatility in Chinese equities on the back of reports in domestic media including China Daily of potential reform plans filtering out from the Third Plenum meeting.

Across the rest of the week, there will be a lot of focus on the Fed’s thoughts on the latest payrolls data and its implications for Fed policy. Indeed, apart
from Yellen’s confirmation meeting on Thursday, we’ll get further clues to the Fed’s thinking when Bernanke speaks on Wednesday. We also have a number of other Fed speakers scattered throughout this week beginning with Kocherlakota and Lockhart tomorrow. Today is Veteran’s Day in the US, so things will probably be on the quiet side, especially on the fixed income side where a number of markets are shut (equity markets will stay open). Staying Stateside, we get our usual post-Payrolls lull in data flow. The key releases over the week will be jobless claims on Thursday together with industrial production and the NY Empire Fed manufacturing survey on Friday.

Across the Atlantic, the week gets off to a similarly slow start before we reach what will likely be the highlight for the week in the form of first estimates of Q3 GDP for the Eurozone as well as individual GDP reports for Germany, France and Italy (Thursday). Our European economists expect a growth number of around 0.2% QoQ. A two day Eurogroup/ECOFIN finance ministers’ meeting is scheduled to commence on Thursday, as will a three day Germany’s SPD party convention where we may hear more about the party’s intentions with respect to a coalition agreement with Merkel’s conservatives.

Italian industrial production (Sep) is due later today, followed by German/Italian/UK inflation on Tuesday. We get Eurozone industrial production and UK employment stats on Wednesday. The BoE publishes its quarterly inflation report on Wednesday.

In China, we’ll probably start to get further reports of various reforms being considered by the government following the conclusion of the country’s Third Plenum of the 18th Party Congress of the Communist Party on Tuesday. In Japan, money supply (Tues) and 3Q GDP (Thurs) are scheduled during the week. Japan’s economy minister Amari delivers a speech on the country’s growth strategy to parliament on today.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Fu1ZSq-fkAM/story01.htm Tyler Durden

When the US federal government was shutdown, China jumped in on the financial bandwagon and suggested that we build ‘a de-Americanized world’, which boils down to getting rid of the dollar as the international reserve currency. As the law-makers and the political parties were dragging their feet, the Chinese had their running shoes on to sneakily knock a dead man down again as he was trying to get up. Well, all is fair in love and war and we should expect nothing less.

The official Chinese state-run news agency (in mocking tone) stated: “As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world”. But, has that dream come true? Has the shutdown affected the reserve currency of the world and is the dollar on its way out?

South Korea

It may not be on its way out just yet, but if the South Koreans are anything to go by, they are prepared to do quite a lot of damage if they have to in order to prevent their own currency the won.

• Data released today by the Bank of Korea show that the country has been hording foreign exchange reserves (which currently stand at $343.23 billion at the end of October 2013).
• This means that there has been an increase of $6.3 billion compared to September 2013.
• You would have to go back at least two years to find that sort of figure.
• This is primarily due to the fact that the won has risen by more than 9% over the past 4 months.
• By buying up large quantities of dollars they have been able to preserve an even greater rise in their currency.
• The South-Korean economy is dependent on exports for its economic-growth prospects and any increase in its currency means they are going to slow down.
• South Korea’s growth (of Asia’s 4th largest economy) was lowered for 2014 from 4% to 3.8%.
• Growth this year stands at 2.8%.
• If and when stimulus stops, the South Koreans will have a huge stockpile of dollars to play with and to counterbalance an outflow of cash back to the US.

Reserves and the Fed

More than 60% of reserves at central banks around the world are in dollars today and that means that if those central banks need to (and they will!) protect their own currencies, then they will not hesitate for one moment about flooding the financial market when the time comes so that they don’t lose out on liquidity in tough times. But, flooding the market with dollars will be bad news for the US. International banks have roughly $850 billion in US dollars at the moment in their vaults and will be able to ride out a future storm.

Despite the pig debt oinking over the EU and the troika today meeting with the Greek Finance Minister over the bailout program (there is a fear over the return of the creditor into Greece due to differences regarding the Greek funding gap) there is one big difference today in comparison with the financial crisis of the subprimes.

• That difference is that the central banks were not prepared for it.
• Today, they have reserves of cash, largely due to buying up huge quantities of Quantitative Easing.
• The EU bought $74 billion in Q1 and $52 billion in Q2.
• In fact, the real beneficiary of Quantitative Easing is the financial system and the US Federal Reserve has been filling the coffers of central banks around the world, rather than giving it to its own economy.
• That’s another reason to criticize easy, loose monetary policies (at least from one side of the Atlantic).

Large reserves of the dollar around the world are just waiting there to be used when the economies need it. The central banks are stockpiling dollars in a bid to make their currencies go down against the dollar and at the same time make the dollar scarce so that it is in demand and rises. If it comes to the crunch, then they will have liquidity still even if their economies go downhill and it will be all thanks to Quantitative Easing and the Federal Reserve. The US stock market is on a high, the chapagne corks are popping and the fizz is being drunk down. But, the paradise is  fool’s one and nothing more. It’s an unreal one that will run into problems sooner or later. The fact that the USA is the biggets debotor in the history of the world right now means that it will have little recourse to counter any economic trouble lurking around the corner (except continue printing money?).

There have been slowdowns in the US economy on cycles of roughly six years. Each time they have got progressively bigger and stronger. The next one will hit then in about 2014-2015, just in time for Quantitative Easing to be a real problem.

But, it will have done one thing: allowed foreign central banks to artificially maintain their currencies lower than they should be and to therefore appear to be more competitive. It will also enable those same economies to have greater financial independence than the US when the trouble knocks on the door.

The US saved the world after all! Only trouble is: it forgot to save itself!

 

Originally posted: Record Levels of Currency Reserves Will Hit Hard

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Technical Analysis: Bear Expanding Triangle | Bull Expanding Triangle | Bull Falling Wedge | Bear Rising Wedge | High & Tight Flag

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YpqdUGLuZkM/story01.htm Pivotfarm

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RJO0pX9Ckzc/story01.htm williambanzai7

…because it’s always what’s not said that matters…

 

 

(via Sunday Funnies)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/P6B4CzuzrP8/story01.htm Tyler Durden

Back in 2011, in an exclusive analysis, Zero Hedge showed how virtually all the reserves created as a result of QE2 ended up as cash on the balance sheets of foreign (mostly European) banks operating in the US. Some suggested that this was due to a change in FDIC rules which was being arbed by foreign banks which were able to engage in a mini carry trade affecting the Fed’s excess reserves. We disagreed, and suggested that this was nothing short of yet another way in which foreign banks abused the Fed’s “Bernanke Put” to bail themselves out at a time when the Eurozone and its currency seemed like they would implode any second.

QE2 came and went, and was replaced by QE3. And, having lasted nearly a year now, it has allowed us to observe the main way in which the Fed’s open-ended QE3 has so far differed from the QE2 of 2011.

Recall that while the Fed’s Quantiative Easing programs are largely determined by what securities the Fed monetizes: i.e. the sources of funds, what is always left unspoken is where the Fed’s created reserves end up, or the “uses” of funds, or rather, reserves. Luckily, as the chart below shows and as tracked by the Fed’s H.8 statement, there is a perfect correlation, and causation, between the Fed’s newly created reserves parked at banks, and the corresponding change in cash held on the books of either domestic (large and small) and foreign commercial banks operating in the US.

 

What may not be quite visible in the chart above is that during QE 2, virtually all the newly created cash ended up at foreign banks. This is shown far more clearly in the chart below showing the change in cash balances at large domestic commercial banks and foreign banks between the start and end of QE 2.

 

So while the Fed was explicitly pumping the deposit base of foreign banks in 2011 – and thanks to JPM and the entire deposit collateral pathway we now know that this cash was used to satisfy collateral requirements needed when purchasing risk assets, even if the banks never explicitly used the Fed’s cash to buy up risk – what has it been doing so far in 2013? The answer is shown below.

 

Surprisingly – if only to all those who claimed our assertion that the Fed was bailing out Europe’s banks was bunk due to “regulatory arbitrage” – entirely unlike during QE 2, this time around, virtually every dollar newly created by the Fed has landed on an equal basis at both large domestic commercial banks, and foreign banks operating in the US. But… but… whatever happened to the regulatory arbitrage of QE2?

To those still confused, here is the best visualization of the cash change in domestic vs foreign banks under the two QE regimes:

 

Indeed – a pretty clear summary of what the Fed’s deisgnated bailout audiences was under QE 2 (European banks) and QE 3 (everyone on an equal, pro rata basis).

The above, far more importantly than what the Fed is monetizing in order to build up its reserves, gives us a clear snapshot of the other part of the equation – where the Fed’s reserves end up.

 

All of this should perhaps once again spark the debate over just why has the Fed parked a record $1.3 trillion in cash not with US-based banks, but foreign ones, and just for whose benefit – since by now it is quite clear that QE is solely for the benefit of the 0.1% of the population and, of course, the banks – was QE designed.

Because it is one thing to bail out the rich, at least they are America’s rich. But when more than half of the proceeds of QE to date… 

…have ended up at foreign banks, perhaps at least a theatrical congressional hearing is in order?

Source: H.8

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/eghr5qKKH-4/story01.htm Tyler Durden

“The Fed’s real dilemma is that its policy is creating a financial market bubble that is large relative to the pickup in the economy that it is producing,” Bridgewater notes as the relationship between US equity markets and the Fed’s balance sheet (here and here for example) and “disconcerting disconnects” (here and here) indicate how the Fed is “trapped.” However, as the incoming Yellen faces up to her ‘tough’ decisions to taper or not, Ray Dalio’s team is concerned about something else – “we’re not worried about whether the Fed is going to hit or release the gas pedal, we’re worried about whether there’s much gas left in the tank and what will happen if there isn’t.”

 

Via Bridgewater,

In the old days central banks moved interest rates to run monetary policy. By watching the flows, we could see how lowering interest rates stimulated the economy by 1) reducing debt service burdens which improved cash flows and spending, 2) making it easier to buy items marked on credit because the monthly payments declined, which raised demand (initially for interest rate sensitive items like durable goods and housing) and 3) producing a positive wealth effect because the lower interest rate would raise the present value of most investment assets (and we saw how raising interest rates has had the opposite effect).

All that changed when interest rates hit 0%; “printing money” (QE) replaced interest-rate changes. Because central banks can only buy financial assets, quantitative easing drove up the prices of financial assets and did not have as broad of an effect on the economy. The Fed’s ability to stimulate the economy became increasingly reliant on those who experience the increased wealth trickling it down to spending and incomes, which happened in decreasing degrees (for logical reasons, given who owned the assets and their decreasing marginal propensities to consume).

As shown in the charts below, the marginal effects of wealth increases on economic activity have been declining significantly. The Fed’s dilemma is that its policy is creating a financial market bubble that is large relative to the pickup in the economy that it is producing. If it were targeting asset prices, it would tighten monetary policy to curtail the emerging bubble, whereas if it were targeting economic conditions, it would have a slight easing bias. In other words, 1) the Fed is faced with a difficult choice, and 2) it is losing its effectiveness.

We expect this limit to worsen. As the Fed pushes asset prices higher and prospective asset returns lower, and cash yields can’t decline, the spread between the prospective returns of risky assets and those of safe assets (i.e. risk premia) will shrink at the same time as the riskiness of risky assets will not decline, changing the reward-to-risk ratio in a way that will make it more difficult to push asset prices higher and create a wealth effect.

Said differently, at higher prices and lower expected returns the compensation for taking risk will be too small to get investors to bid prices up and drive prospective returns down further. If that were to happen, it would become difficult for the Fed to produce much more of a wealth effect. If that were the case at the same time as the trickling down of the wealth effect to spending continues to diminish, which seems likely, the Fed’s power to affect the economy would be greatly reduced.

…

…we think that US monetary policy is nearing a new test that will require wisdom and creativity along the lines of that which was required to deal with those problems. 

The basic issue is that quantitative easing is a much less effective tool when asset prices are high and thus have low expected returns than it is for managing financial crises.  That’s because QE stimulates the economy by (1) offsetting a panic by providing cash to the financial system when there’s a need for cash, and (2) by raising asset prices, and driving money from the assets they buy into demand and investment, creating a higher level of future economic activity.  So, the policy was particularly wise and most effective (in the sense of impact per dollar) at the height of the financial crisis when there was both a desperate need for cash and when extremely depressed asset prices were heavily weighing on demand and investment. 

Now, there is a flood of liquidity and asset prices are high relative to underlying fundamentals.  So the impact of additional asset price increases on demand is much less (as high asset prices and low future returns make assets more interchangeable with cash). 

Quantitative easing today is driving asset prices to unsustainable levels, without stimulating much additional activity.  That leaves a much clearer tradeoff between driving up asset prices today and lowering future returns (the price of which will be paid in the future).  During the crisis period, that was much less the case, because pulling forward returns from the future (i.e.,  raising prices) was then also creating future earnings growth (by helping to normalize the economy). 

The dilemma the Fed faces now is that the tools currently at its disposal are pretty much used up, in that interest rates are at zero and US asset prices have been driven up to levels that imply very low levels of returns relative to the risk, so there is very little ability to stimulate from here if needed.  So the Fed will either need to accept that outcome, or come up with new ideas to stimulate conditions.

We think the question around the effectiveness of continued QE (and not the tapering, which gets all the headlines) is the big deal.  Given the way the Fed has said it will act, any tapering will be in response to changes in US conditions, and any deterioration that occurs because of the Fed pulling back would just be met by a reacceleration of that stimulation.  So the degree and pace of tapering will for the most part be a reflection and not a driver of conditions, and won’t matter that much.  What will matter much more is the efficacy of Fed stimulation going forward. 

In other words, we’re not worried about whether the Fed is going to hit or release the gas pedal, we’re worried about whether there’s much gas left in the tank and what will happen if there isn’t.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/pyI2qcz7Feo/story01.htm Tyler Durden