EurAnalysis

Thanks josechu

Very informative and interesting comparisons. Welcome to the thread.

http://www.cbsnews.com/stories/2011/...20120937.shtml

"In discussing the requested list of tools, Lagarde said the IMF's efforts would focus on "short-term liquidity instruments available to what we call the 'non-consenting' victims of the economic crisis."

She gave the example of precautionary credit lines the IMF offered to several countries after the collapse of U.S. investment bank Lehman Brothers in 2008, and said the new tools could go in a similar direction.

Precautionary credit lines are linked to fewer conditions than traditional IMF rescue loans that come only in return for radical economic reforms and painful budget cuts. That's why they would be aimed at countries that are fundamentally in decent health, but suffering from increased risk-adversity among investors.

Such flexible short-term loans could help Italy and Spain if they had to come up with billions of euros to recapitalize their banks, also reassuring private investors that they will get their money back..."


Short-term liquidity? Who ya gonna call...?

It's pretty clear that the plan is to extend Fed's backdoor QE3. It's a win-win for the headbankers. The Fed gets to pump up the markets and avoid a recession and the spooked eurozone banking sector keeps its USD intravenous supply running fresh 'n full and so doesn't lapse into a coma.

Gap up, 1.4's coming next week.

I like your thinking Blobik. Longs certainly are not out of the question and reading several of the other members posts, the analogies seem to agree that this current rally may not be over, BUT....with the weekly chart sitting only a few pips off of the confluent 50 ema and 50% fib, I am very cautious to take a long unless there is a decent sized dip.(as you mentioned) Now with that thought in mind, we have to conclude that the possibility of a dip becoming MORE than a dip and possibly a sell off (due to economic situations), is a definite possibility also and this recent rally "could" just be a "lets get the price up a little higher so we can sell it off" scenario,just as another member mentioned earlier. Summing it up, I believe we are at some crucial levels and this is a week where we need to be very cautious and precise when placing trades. And let me say one more time this thread is one of the best as we are all able to analyze, converse and compare ideas in order that we ALL do well in our trading Special thanks goes to all of those who give out their in depth fundamental analysis.

Hey PT, I went back and read post #2 again. You were spot on with your analysis there It is definitely long term but I also like to keep the whole picture in mind when trading on a daily basis. These longer term levels do come into play and are played over and over again.

Morning guys, its 4:22 am on my side

You have already been to bed and now you are up as it starts to get dark here. I am waiting for a report that should be out by now so I can share my thoughts here.

I have followed what happened in Europe today and there are many important events ahead of us. There is the October 23, 2011 EU get together concerning the problems in the Euro zone. There are many central bank meeting in late October and early November including a two day FED meeting with results on November 2, 2011 at 2:15 PM

The BIG one or not will be November 3RD and 4TH in Cannes, France where the G-20 meet. There are many surprises ahead of us to be sure.

For those of you who really want to understand what is happening in the world we live in as relates to the current financial situation, I just read a piece by the highly respected Doug Noland. It came from the report of October 7, 2011 and it contains other items so I am taking the liberty of posting the part only that I read in full a few minutes ago. I will post the link in case anyone wants to read the other items on the report. It is a pleasure to learn from economists that really understand and tell it just like it really is.

http://prudentbear.com/index.php/cre...w?art_id=10581

Credit Bubble Bulletin
Tuesday:

Tuesday morning was the type of market moment that leaves a sick feeling. Ten-year U.S. Treasury yields were collapsing below 1.75% (ended today at 2.07%). The “developing” currencies, notably the Brazilian real and Mexican peso, were under heavy selling pressure. The Dollar index was surging higher, trading to the highest level since early January. Crude had sunk below $76 and commodities in general were under liquidation. Italian Credit default swap (CDS) prices had jumped back to almost 500 bps. At 206 bps, France’s CDS had returned to recent near-record highs. CDS in Brazil and Mexico were trading up at almost 230 bps, while China jumped above 200 bps. U.S. corporate CDS index prices were surging to levels not seen in more than two years, with high-yield CDS prices almost reaching 900 basis points.

Even more dramatic, financial company risk premiums were blowing out to levels last experienced during the fall of 2008’s “Lehman Moment.” European banking stocks were, after last week’s rally attempt, again getting hammered, as French banking goliaths Societe Generale (738 bps) and BNP Paribas (592 bps) saw their CDS prices in virtual melt-up. Goldman Sachs CDS traded to 410 bps, up 80 bps in two sessions (ended July at 150 bps). And after capturing the market’s attention with Monday’s big spread widening, an alarming headline went across the tape: “Morgan Stanley Swaps Add 62.6 Basis Points…” Perhaps the most market troubling headline came out of Europe: “Dexia Shares Now Down 24%.” The wheels were coming off.

The S&P 500 rallied from 1,080 to 1,125, or almost 4.2%, in the final hour of Tuesday’s trading session. Market commentators generally credited the announcement of Belgian and French government support (and the creation of a “bad bank”) for (top-25 European bank) Dexia as the spark for the dramatic market reversal. From its intraday low of $11.58, Morgan Stanley’s stock rallied 21% to close above $14 – most of the gain coming in the last hour. The Bank stock index rallied 8% intraday to end the day up 4.5%.

From the Wall Street Journal’s Wednesday “Heard on the Street” column (Matthew Curtin): “It’s deja vu all over again for Dexia. Just like in 2008, Franco-Belgian municipal lender Dexia is in need of a bailout. Except this time, the support looks like a stop-gap to allow an orderly wind up. The question becomes whether this means taxpayers will be called on to take losses so that bondholders can be spared. The French and Belgian governments, both part-owners of Dexia thanks to the previous bailout, committed Tuesday to safeguarding the bank's depositors and creditors.”

The markets have been trained over the years to recognize “market low” when risk asset prices are flashing “financial meltdown now in progress…” The buy signal, I suppose, is when the highly-intertwined global markets turn sufficiently disorderly to ensure immediate and undivided policymaker attention. Tuesday fit the bill. The move towards French and Belgian government support for Dexia was taken as a signal that European governments were indeed moving aggressively to support their rapidly faltering banking sector. Markets were also heartened by the prospect of more powerful responses from worried central bankers.

After surprising the markets with the announcement of another round ($116bn) of quantitative easing, Bank of England (BOE) governor Mervyn King commented: “This is the most serious financial crisis we’ve seen - at least since the 1930s if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.” Meanwhile, in testimony before Congress’s Joint Economic Committee, chairman Bernanke signaled that the Fed was also on the case: Pricing pressures “have begun to moderate” and the Federal Reserve “is prepared to take further action as appropriate.”

From the degree of tumult apparent in the markets on Tuesday, de-leveraging and de-risking dynamics were in full force. And from the markets’ perspective, QE3 had rather quickly moved from appropriate to necessary - and it better be big. Markets were relieved to know policymakers have gotten the message.

The ECB further heartened markets with its move to purchase $53bn of bank (“covered”/backed by assets) loans and to re-open long-term bank funding facilities. An analyst was quoted by the Wall Street Journal: “They’ve opened the floodgates with liquidity…” With central bankers in full crisis management mode and European policymakers said to be working diligently on a plan to recapitalize euro zone financial institutions, markets were in the mood to hope that there was finally sufficient resolve to contain the crisis.

I was struck by a further comment from the BOE’s Mervyn King: “We’re creating money because there’s not enough money in the economy.” Dr. Bernanke has over the years used similar analysis in describing a central cause of the Great Depression. He is convinced that the Fed during that period was derelict in its responsibilities for failing to expand the money supply. It is his view that had the Fed only “printed” sufficient money and recapitalized the banking system much of the pain of the depression would have been avoided. The markets will now watch anxiously as participants try to gauge the efficacy of money printing and bank recapitalizations in arresting the global sovereign debt crisis.

I have posited that conventional analysis has it wrong: a paucity of “money” during the Great Depression was not a cause - but only a consequence. The Fed was not so much derelict in its duties in the early-thirties as much as it was from accommodating the “Roaring Twenties” Bubble episode. Yes, the Fed could have “cut a check” and recapitalized the banking system in the early-thirties, but it would have made little difference. A fateful post-WWI Credit inflation had inflated price levels throughout what had become a badly maladjusted “Bubble Economy” structure. The U.S. and global economies had been so distorted by Credit and speculative excess – and through the Bubble process had become hooked on ongoing Credit expansion and speculative leveraging. When the speculative Bubble burst, fragile systems could not withstand de-leveraging dynamics. The financial apparatus buckled and dragged economies down with it. The critical issue was not a lack of money, but a collapse in confidence in Credit instruments and faith in financial intermediaries and policymaking.

Bernanke and others have over the years argued that bank recapitalization in the early-thirties would have had a profound systemic impact. Some have argued that an operation by the Federal Reserve to create $4bn of additional capital would have been sufficient to stem collapse. These days, analysts make estimates of the amount of additional capital required to stabilize the European banking system.

It’s been my long-held view that, in the grand scheme of major Credit busts, calculations of necessary additions to depleted bank capital basically become meaningless. The critical issue is not some quantifiable (and “plugable”) hole in banking system capital but, instead, the overall Credit needs of maladjusted Bubble economic structures and inflated system-wide prices levels and spending patterns. This is a critical distinction. In the U.S., for example, I have argued that a period of prolonged Credit excess created a financial and economic structure requiring in the neighborhood of $2.0 TN annual net non-financial Credit growth - to keep the economic wheels rotating and (speculative) asset markets levitating. Post-2008 crisis bailouts threw hundreds of billions (Trillions?) at the financial sector, although this changed little with respect to the economy’s requirement for massive Credit creation on an ongoing annual basis. This is an enormous festering problem that goes unnoticed with attention fixated on European carnage.

From the European experience, we now appreciate that the little, almost inconsequential Greek economy is quite an impressive financial black hole. And as things have progressed, critical Credit Bubble Dynamics have been illuminated for all who want to see. The market has witnessed how the “money” from Greek Bailout One was soon vaporized. Dexia’s 2008 bailout: vaporized. Greek Bailout II, when it arrives, will be similarly vaporized. European bank capital: poof. The potential amount of “money” to be vaporized if Italy succumbs to the highly contagious path of Greece, Portugal and Ireland: Unfathomable Black Hole. Well, everyone knows this is not an option. So incredible effort will be exerted to present the European crisis in terms of some quantifiable, manageable, solvable problem – some quantifiable cost that might, with the euro at risk, be tolerable to, say, the German voter.

The markets are somewhat relieved to see policymakers now completely engaged. Yet I don’t foresee an increasingly enlightened marketplace really buying into any notion that policymakers are getting their arms, minds or pocketbooks around the problem. Seeming at times in lonely isolation (and I’m not referring to either their AAA debt rating or manufacturing-based economy), the Germans appreciate the unfolding “financial black hole” and monetary “slippery slope” nature of how things are progressing. Meanwhile, on a more daily and hourly basis, market focus seems to be whether policy pronouncements are sufficient to engender another “rip your face off” short squeeze.

Despite stringent austerity measures, Greece will run a deficit this year of at least 8.5% of GDP. Without a massive and open-ended commitment from a rapidly depleting European “core,” the situation is utterly hopeless. In a microcosm of the predicament shared by other developed economies, Greece for too long depended on the creation of new financial claims (Credit) and consumption at the expense of investment in real wealth creation (is this type of analysis sounding any less archaic these days?). As much as policymakers will never admit it, impaired economic structures are at the heart of an unquantifiable global Credit crisis of confidence. And as de-risking and de-leveraging empowers contagion effects worldwide, the scope of the unquantifiable grows only more unfathomable. Perhaps this is what Sir Mervyn King, from the BOE, had in mind.

And it all seems to boil down to this: Credit cannot be stable within a backdrop of such extraordinary uncertainty. And, I would argue, no amount of central bank liquidity (“money”) and bank capital is going to engender sufficient certainty to stabilize global Credit, financial flows and asset markets. Not with the large number of dangerously maladjusted economies; not with such well-entrenched global economic and financial imbalances; and not with today’s unbelievable Credit, derivatives, and speculative leverage overhang. The issue is certainly not a lack of “money” - but rather a lack of confidence and trust – the bedrock of Credit.

A Real Masterpiece by a Master and that is not "I"

http://www.firstprinciplesjournal.co...x?article=1792

I was fortunate to find this article and be able to share it here on our thread. If you read nothing else this weekend please read this.

I am off for a few hours now to get some well deserved rest.

Snippet:


RSS

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The Dollar Problem and Its Solution
Lewis Lehrman (from IR 46:2)

This article appears in the Fall 2011 edition of the Intercollegiate Review. See the issue’s Table of Contents here.
There is little new in this latest cycle of economic boom, panic, and bust. All of these cycles are linked to the life and death of the unstable post–World War II Bretton Woods monetary system. First came the crisis-ridden gold-dollar system from 1944 to 1971. Then came the rise of floating exchange rates and the world paper dollar standard from 1971 to the present—associated with regular booms, panics, and busts—bringing us down to this very day.
Between 2009 and 2011, the world experienced a major emerging market equity and economic boom—but at the very same time, sluggish growth in the United States. Foreign authorities now react to inflation by raising interest rates. Why such a sluggish sequence in the U.S.? Because the Federal Reserve's vast credit creation of 2008–2010 could not be fully absorbed by the U.S. economy, coming as it did after a wild panic and a deep recession. The unprecedented Fed credit expansion flooded into U.S. stocks, bonds, and commodities. Excess Federal Reserve credit and money also went abroad, causing not only a fall in the dollar but also the emerging market financial boom. What is the mechanism which links Fed credit expansion to the emerging market boom? It is simply this: financial authorities abroad purchase the incoming flood of excess dollars against the creation of their local currencies. There, the new local money is put to work promptly, creating a boom in all financial assets, and then a boom in the local economy as well.
In truth, the Federal Reserve is the de facto central bank of the world monetary system, because the paper dollar is the monetary standard of the world banking system. Expansive Fed credit policy—especially Federal Reserve and foreign financing of the U.S. balance of payments deficit and the government budget deficit—has been behind almost every boom and bust cycle since 1914. The cycle is engineered by the purchase of dollar-denominated securities by the Fed and foreign central banks, a process enabled by the opaque workings of the official world reserve currency system, based on the dollar.
For example, after World War II the dollar-based Bretton Woods gold-exchange system, followed by the disorder of floating-pegged exchange rates, led to an overvalued dollar and to the diminution of our dominant manufacturing sector. Floating exchange rates cause huge upward and downward currency moves, which abruptly reprice the entire productive machinery of nations subject to floating currencies. Thus, whole national economic sectors become unprofitable, making steady long-term investment and output very difficult. Subsequent underinvestment leads unavoidably to scarcity booms, fueled from cycle to cycle by Fed-subsidized credit to the banking system and to the deficit-ridden Treasury. Thus, the natural business cycle is intensified rather than moderated. To mitigate the perverse effects of floating exchange rates, many countries have pegged their undervalued currencies to an overvalued dollar in order to subsidize and sustain their export production machines. This is an ancient practice of predatory mercantilism.
It is obvious that the current Fed credit cycle, coming out of the 2008 economic bust, did finance a major equity and commodity boom from 2009 to 2011. The ultimate source of the equity and commodity inflation was the Fed's monetization of insolvent U.S. mortgage-backed securities and the Treasury deficit. But this outpouring of Federal Reserve credit to bail out the banks at home then leaks abroad. There it is to be absorbed by foreign governments, and monetized by central banks in the form of official foreign exchange reserves. Invisible to the general population, these foreign official dollar reserves are then recycled back into the market for U.S. Treasury securities, whereby they finance both the perennial U.S. balance of payments deficit and the rising budget deficit. Abroad, the United States is, in effect, enabled to buy without paying. So is the U.S. Treasury.

How does your version of QT work? Do the feds sell their bonds? Take zeros off their balance sheets? Raise interest rates? (serious question )

Qe3 was inevitable,i think everyone allready knew that, They were gonna find a way to print more money regardless... Operation twist=operation print more money.

Kno,

It might be a bit better if you just posted a link to an article rather than the whole article. It is a bit easier on the other readers of this forum.

thanks,

I usually only post a snippet however on that long one most of the rest of the link was probably not helpful for non fundamental trader's.

How about like this ?


http://howestreet.com/wp-content/upl...ter-V28-I1.pdf

Kno,

Great. I found them an interesting read.

I look at the banking problem from a different perspective -- brain drain. Today our brightest are all lining up for a job at a bank. What a waste.

Nationalizing banks creates a number of problems. I like the idea of treating them as a utility, tightening the regulatory straight jacket until all excess profit and fun is squeezed out of them. I want guys of medium intelligence with a strong risk avoidance bias in our banks. Instead we have super smart fellows that see risk as cocaine. It allows them to keep their edge.

could'nt agree more.. we need need more fartsy less artsy,to quote homer simpson. more common sense and field experience then over achievers with a keep it for myself agenda. all these nerds that got shoved into lockers in school have taken the helm and are winning the war with a pencil. we need some grit put back in the system.

https://marketforceanalysis.com/arti...le_040111.html

Snippet:

This is not made up and it is real

CHAIRMAN GREENSPAN. Were it an embezzlement, prior to what period would it have occurred?

MR. FISHER. We only know that the difference existed prior to December 1994.

CHAIRMAN GREENSPAN. It could have been any time prior to that? Is there a beginning point, other than 1914?

MR. FISHER. The details certainly don’t exist for pre-December1994 records, so I don’t know how we could determine the beginning point--in 1973 or 1963 or where. Prior to 1994, the only interest income we were receiving in that account was coming from the BIS, the Bundesbank, and the Bank of Japan. So the source of the income was official institutions. It was really a very simple accounting process to bring that income in at that point; the complexities have been introduced since that time. So, as I say, Pricewaterhouse-Coopers and our audit function are confident in looking over the control procedures we have had in place that it’s implausible that a diversion could have occurred. But we cannot rule it out.
END

What is the solution to this accounting problem? Just fudge the accounts! They reduced reported income to make the 31.6 million dollar problem go away. Here is a repeat of the relevant section:

QUOTE
The Board’s staff and our accounting function at the New York Fed have worked out an accounting treatment to correct for both the $5 million and the $26.6 million errors. That involves reducing the accrued interest asset account by the entire $31.6 million, with an offsetting reduction in interest income on foreign currency investments. We will make that adjustment before the end of the year and spread it among all the Reserve Banks. Of course, for all of us with responsibilities for SOMA this is an embarrassing, indeed humbling, event. As a technical matter, though, I understand that PricewaterhouseCoopers is comfortable with the conclusion of both our accounting and audit function and the Board staff that this is not a material event for purposes of disclosure for any Reserve Bank.
END

sorry bout the tigers, Mo'Phil. Michael Young hits another double in this inning could be some kind of record...

Its all good bud.Still have the red wings too look forward too

interesting chart here

http://www.zerohedge.com/news/long-o...ng-bearishness

One more chart

thanks aaron do they have sillver 'xag'?