European 10 yr rates - free chart service from Bloomberg

Some practical links these days......

Spain:

http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND

Portugal:

http://www.bloomberg.com/apps/quote?ticker=GSPT10YR:IND

Italy:

http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND

Germany:

http://www.bloomberg.com/apps/quote?ticker=GDBR10:IND

Spain may be on the edge of bankruptcy...but.... BARCELONA!

This morning blog will be a tribute to Barcelona - I watched the best 90 min of soccer EVER last night - Barcelona was humiliating one of the best teams in the world: Real Madrid - enjoy this.........may the spreads be with them :-)   Barcelona vs Real Madrid the goals and if there is/was a football God, then Messi would be the football -jesus!!!



--

EU with its life on the line needs to do debt-swap or in our version: debt-swap for EU survival.....

A key premise for all our predictions in Limus Capital is to look at reaction functions for present consensus:

This is my partner Jesper Christiansen and I discussion from this morning - we do not claim to know or have inside knowledge, but the reaction function will dictate whether EU survives both in the short-and long-term.

The EU is facing it's biggest test in its history and so much so that an inability to secure a 'deal' up to or at the coming summit in December will mean major consequences....

There is vested interest by EU, lobbyist, and bureaucrats around Europe to maintain status quo - who does not want tax-free, high paid simple jobs, so there will be move to save the EU certainly, but increasingly the simple truth is dawning on investors:

There are now several countries in the EU for whom being outside EU would be a benefit. When the PIIGS lose their "cheap funding" by proxy of Germany it also loses its ability to maintain excess spending - next step becomes the market gets saturated for bond issuance for this smaller Quasi-Germany's(PIIGS), and here lies central premise to our thinking: You can continue to print money only to the point by which the marginal cost of capital increases above and beyond the FAIR PRICE as seen by the individual countries....We see 5.00% nominal rates as this point....Printing money is fun while it lasts but ultimately the bill arrives.....

The reaction function of the EU in the time ahead of December 15/16 Council Meeting.....

Clearly the EU and policy makers have continued to underestimate the reaction function of both investors and market in general. QE2 rates are continuing up despite theory would dictate differently...

Game Theory dictates that Germany will need to not only move on its stance but also provide debt relief, but how will they be "paid".....

Germany debt to GDP is a reasonable 75% to GDP, it's current account 7% of GDP, and its size of the GDP 3,3 trl. USD vs EU's total of 17 trillion (19%)

We think the ONLY real solution to this issue is to GIVE money from Germany to the PIIGS - a debt swap (A debt for Euro existence swap :-)) - and before you fall of your chair laughing...hang on...:


ECB is running out of capital (Cap. reserves: 78 bln. EUR -balance sheet 1.9 bln hence leverage 1-to-27 in ECB already)... to buy and support the PIIGS bond market. They are now long 70 bln. EURO plus and about 50 bln. EURO covered debt...hence ECB needs new-buyer of last resort. 

This could be EFSF, but if EFSF in the present situation starts buying PIIGS bonds it will deplete its ability to be a stand-by emergency fund... so there will be a need for further contributions to EFSF. We do not think this is likely. Germany and more to the point the Constitutional Court in Karlsruhe will come into play...

Turning EFSF into the European version of TARP is relatively elegant short-term solution as it will safe-guard and be an offer to Merkel (German banks owns the biggest chunk of PIIGS debt) to 'save' the EU but also get capital injections to the overall bank sector. It will fly best politically in our estimation but...it will not solve the solvency issue of governments - and here we come full circle as ONLY forgiveness of debt will help. It's not use to pay for your 'cousins overdraft' for the next year or two years, if he is unemployed, faces higher and higher charges from the bank, and is down with stress!

A debt swap from PIIGS to Germany would increase solvency in PIIGS and slightly deteriorate Germany solvency - however we estimate a swap for the 250 bln. EUR worth of debt in PIIGS system would take Germany's debt to GDP from 73 pc to 85 ish.... still inside range of overall G-7 but clearly at a point where credit rating and forward looking growth would be impaired.

Whether the Germans feels this is unjust or not is not really the point. The EU is now in its worse crisis and SOMEONE needs to save it - the only person in the room is GERMANY.......what German does next will tell us where EU goes...

  We remain with our scenario of the EU disintegrating before 2013 - as the most likely solution and reaction function will be a mini-max solution where EFSF gets more funding, gets expanded mandate but will fail to secure solvency both at the bank and a sovereign levels, and do not forget we are probably on a riot-point for many citizens around Europe.... so 2011 will be final test of EU, social tensions, and with increase likelihood a move towards the dramatic Crisis 2.0

Nice week-end despite all

The window on historic low rates may be closing

The move which seems to hurt the most people is the ever higher yield across all markets. Unlike the crisis in 2008 when yields collapsed in expectations of accommodative policy the rates are now testing top side recent range seen.

What is behind this?  As always there are several factors in play but here a few:

• The main driver to me has been the 'failed' QE2 - where all the benefits  (lower rates) was created ahead of the actual event - and by moving to a panic QE2 (at least relative to stable macro picture) meant market lost faith in FOMC.
• Add to this the impossible political stalemate in Congress (with no incentive for anyone to structurally change the US economy) and market is getting feeling the next two years are LOST in terms of addressing crisis
• Reaction function: By going ahead with QE2 the US, almost as per usual, decided to operate without any consideration to its partners. Bottom line: QE2 will force China to hike rates even more due to commodity prices exploding......
• Euro Debt crisis: EU is again at it, Germany trying to maintain its AAA status with credit market, but ultimately by bailing out country after country even Germany will have to pay higher rates on their debt as they dilute themselves....
• Market positioning - clearly everyone and his dog was long 10 years US awaiting the 'free gift' from FED and Treasury.

I'm concerned as the fixed income does not seem to back down, even the North Korea skirmish only managed to move bonds up to technical correction levels, which to me indicate, like it or not, we are on the edge on Crisis 2.0 - many will claim I'm an idiot but market never lies....

We need two or three confirmation for this:

1. USDJPY needs to break recent range - and break to downside (82.80 my level)
2. S&P needs to break 1150.00 (1195 now)
3. 10 years breaking the tough resistance 3.00/3.03

Stock market is benefiting from exit in fixed income as investor reverse out of bonds into stocks, but if rates break the resistance levels in the charts above we need to get prepared for November having been the macro turning event for this move post March 2009 - but it's still early days and the resistance in rates is formidable with no less than three key levels around here 2.90 to 3.15, so maybe yet again we will do nothing except for delaying the ultimate pain.

Happy Thanks Giving to all my friends in the US.

Steen

Crisis 2.0 coming ? US$ funding hard to get...

Bank of England today offered unlimited US$ funding:

24-nov-2010

BOE: The Bank Of England said Wednesday it was offering an unlimited
supply of U.S. dollars in a 6-day repo operation, settlement date 26
 November maturing Dec 2 2010. The Bank said the repo would be at a
fixed-rate, with the rate to be set at 1.19%.

• This is key as... it indicates serious issues getting funding in US dollar similar to 2008.
• The interbank market is B+S EUR vs USD to create US dollar funding .....in 9-12 month tenor.... 1y up 8-10 basis point last two days
• The coming IMM DEC roll can also create funding issue... plus ..
• MRO will also be under pressure..(ECB Monetary policy instruments)
• ECB continues to talk exit strategy
• Year-end Funding...

In other words keep keen eye on FX fwds - banking going into the FX FWDS to create US funding is serious risk indicator...

Excellent paper on funding crisis and fx fwds: Financial crisis, global conditions, and regime changes

What good is Wall Street? The New Yorker..& FOMC Minutes (another PR disaster by FED)

Say and mean what you like but this is an issue for the politics of banking and regulation. These types of stories are growing and growing - part of reason irrational but a lot of it is true - there is only one God in Wall Street and its green! (sorry if offending anyone of any religion) ----- 

http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy

Also Fed Minutes - which an exercise in show-casing how lost FOMC is internally, externally and how they managed their communication. I offer my service for almost free to help them out:  Hint: Shut up for the next 3 years, and start abolishing yourself: FOMC Minutes

Annals of Economics

What Good Is Wall Street?

Much of what investment bankers do is socially worthless.

by John Cassidy November 29, 2010

For years, the most profitable industry in America has been one that doesn't design, build, or sell a single tangible thing.

A few months ago, I came across an announcement that Citigroup, the parent company of Citibank, was to be honored, along with its chief executive, Vikram Pandit, for "Advancing the Field of Asset Building in America." This seemed akin to, say, saluting BP for services to the environment or praising Facebook for its commitment to privacy. During the past decade, Citi has become synonymous with financial misjudgment, reckless lending, and gargantuan losses: what might be termed asset denuding rather than asset building. In late 2008, the sprawling firm might well have collapsed but for a government bailout. Even today the U.S. taxpayer is Citigroup's largest shareholder.

The award ceremony took place on September 23rd in Washington, D.C., where the Corporation for Enterprise Development, a not-for-profit organization dedicated to expanding economic opportunities for low-income families and communities, was holding its biennial conference. A ballroom at the Marriott Wardman Park was full of government officials, lawyers, tax experts, and community workers, two of whom were busy at my table lamenting the impact of budget cuts on financial-education programs in Vermont.

Read more http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy#ixzz168hD8isQ

BOK's Kim Calls for Moves to Counter U.S. Quantitative Easing

Read my lips: there are NO currency war.......   :-)

BOK's Kim Calls for Moves to Counter U.S. Quantitative Easing

By Eunkyung Seo

   Nov. 22 (Bloomberg) -- Bank of Korea Governor Kim Choong Soo will
tomorrow call on central banks to act to counter the impact of the
U.S.'s expanded monetary stimulus.

   "The changes in global macroeconomic conditions after the U.S.
Federal Reserve's recent additional quantitative easing are looming as
new challenges for central banks' monetary policy,"

Kim will tell central bank officials from Asia and Europe in a speech in
Seoul, according to prepared remarks. "We will need to devise necessary
countermeasures to deal with the possible changes in the monetary policy
transmission channels and the limitations on policy effectiveness."

   South Korea raised interest rates last week and plans to revive a
bond tax on foreign investors to curb fund inflows driving up its
currency. The finance ministry said it will back legislation reinstating
a 14 percent tax on interest income from treasury and central bank bonds
and a 20 percent capital gains levy on their sale.

   The leaders of the Group of 20 on Nov. 12 gave emerging- market
economies more room to counter funds surging into their higher-yielding
markets due to weaker growth in developed countries and the U.S. Federal
Reserve's plan to buy $600 billion of Treasuries. Countries from Latin
America to Asia have already taken steps to slow inflows and restrain
their currencies to protect exporters and prevent asset bubbles.

   Kim will also urge governments and central banks around the world
to enhance "policy coordination" to prevent another crisis or deal with
its aftermath, according to comments from his speech released by the
central bank today.

   The Bank of Korea raised the seven-day repurchase rate by

0.25 percentage point to 2.5 percent on Nov. 16 after inflation surged
past the bank's ceiling. The won, which has appreciated 3 percent this
year, was up 0.6 percent at 1,126.80 per dollar as of 11:26 a.m. local
time.

   The Bank of Korea is hosting a four-day seminar starting tomorrow
to discuss the role and policies of central banks in maintaining
financial stability. Central bank officials are attending from Japan,
China, Indonesia, Malaysia, India, Thailand, Australia, Belgium, Russia,
Poland, Denmark, Finland, Spain, Saudi Arabia, Israel, and South Africa.

Breaking News: Ireland will make press conference now on deal...

http://www.ft.com/cms/s/0/9338047c-f5a0-11df-99d6-00144feab49a.html#axzz15wvo712c

Looks like very weak "deal" - clearly as per usual market is trying to buy time and hide the disagreement while wanting to give the markets something - IF this is true I think EURO issue will escelate as markets is looking for answer to debt-crisis from more than Ireland.. (portugal, spain, belgium, latvia...)

Friday Macro update on major markets.

Going into the week-end long RISK-OFF optionality. Model is only involved in two major themes right now:

1. Short Fixed Income - but like this for a while... market is too long QE2 risk, banks loaded w. POMO and liquidity is starting to lose on the core positions - Stop/loss city close by? I do not know, but if 3.00 pct goes in 10 yr we will see fast and furious move to 3.50. Bottom line: 60 year down cycle(60 yrs rates cycle) in rates is coming to an end in 2010 and maybe early 2011, but prepare yourselfs for higher rates now!
2. Short JPY  - Model is short JPY vs both USD and EUR. We remain with USD long vs JPY due to the first macro view.......the risk being the weaker JPY is counterintuitive to our main scenario which is a slow move towards crisis 2.0

Then we have a sell signals in other major markets:  Gold, model sells 1330-00 close on daily and Crude, model sell at 80.00 on daily close. 

Chart update speaks for themselves:

S&P: Warning signal triggered last week. 1150.00 line in the sand. Close tonight also of importance, post the Bernanke speech et al. Failure to take out 1200.00 on close very disappointing, and overall as long as below 1220.00 we can not be long

10 yr rates: Break of channel. Next level is 3.00 pc - critical. Market very long FI here.....

Gold: Sell signal as stated. Meaning: Out of gold and neutral - break will take us further down.

Nice weekend

Andy Kessler:What's Really Behind Bernanke's Easing?

One of favourite people Andy Kessler (Andy Kessler website) written nice piece - he is one the smartest people around - READ HIM  (and his books)

Wiki Andy Kessler: WIKI Andy Kessler

Nice weekend

Steen

EMG getting hurt by expected price controls...

Chinese authorities is stepping up the fight against inflation: China pricecontrol and more balanced reporting: China downplays price control

Meanwhile in EMG-land things are bleak:  EMG Bonds: EMG Chart & EMG Stock: EMG Stock

Pretty much all markets are now at "infliction point" - the sound advice is to scale down short or neutralize, but for now models dictates one destinct theme:  SHORT FIXED INCOME!  As long as this plays I remain with some downside risk on all markets.

Meanwhile our back-stop Beta- model still long (Beta Model), so..... market needs to decide and soon..... watch Ireland's resolution and it's impact or lack of impact as catalyst for next leg.

Volatility is bid (VIX) and should be so: Volatility is the uncertainty of path - and never in mytrading life has the path been more difficult to predict.

The definition of insanity is doing the same thing over and over again and expecting different results - EU fails once again....

 NEWS ALERT :  LCH CLAERNET RAISES MARGIN REQUIREMENTS 4 IRISH BONDS TO 30%

Irish bond market come to a full stop - Rates now @ 850 bps (585 over Germany)

EU failed to come up with ANYTHING but empty rhetoric (see attached)

Ireland resisting the bail-out (They do not want to abolish corporate tax)

Game theory:  There are NO LONGER any montary reason for Ireland to ask for bail-out - under the clauses of EFSF et al, they will end up paying 700-ish rates which it too high - also they have very high foreign debt, meaning walking away or not paying has no domestic implications

We are entering end game on Europe - if EU fails to deal with Irish hurdle then we will see escalating rates and social tension..........9th inning, but the most likely still Germany caving in - and the German Constitutional Court getting involved as specific help for Irish bank must be defined as SUBSIDIES.

Took of 60% of my down-risk yesterday, but remain with RISK OFF as long as model and chart indicates it..... This week-end becomes crucial in Irish-saga and for risk on or of.

W

USDJPY & Silver updates

Noting yet, but need to be observed.........

10 years yield broke upside channel - and FOMC member keeps talking rubbish..

This break, if confirmed, is big becaise:

•  It has caught market off-guard. Money & Fixed Income funds getting hammered.
•  It's against FED's intention.
•  The public outrage with QE2 has a the very least the impact it lowers the "feel good" factor - the indirect effect of marginally lower rates... despite this FOMC Dudley made these comments, which to me, is the least convincing support for QE2 I have seen so far...: FED's Dudley in weak support for QE2
• Greece Finance again in quesiton: Greece gets yet another visit from IMF and EU

Today is all about Ireland bail-out - we think the most like outcome being: Singled out emergency help to Irish banks - the EFSF then effectively become the European TARP!  This raises major political issue: Bailing-out banks again! - Wait and see we are close to Europe's voters saying enough is enough  - social tension is rising and rising fast.

Ciao,

WSJ: Fresh Attack on Fed Move

It seems FED is under fire? Will it change their action ?  Very, very likely....  Steen

Fresh Attack on Fed Move

GOP Economists, Lawmakers Call for Abandoning $600 Billion Bond Purchase

By PETER WALLSTEN

WASHINGTON-The Federal Reserve's latest attempt to boost the U.S.
economy is coming under fire from Republican economists and politicians,
threatening to yank the central bank deeper into partisan politics.

A group of prominent Republican-leaning economists, coordinating with
Republican lawmakers and political strategists, is launching a campaign
this week calling on Fed Chairman Ben Bernanke to drop his plan to buy
$600 billion in additional U.S. Treasury bonds.

"The planned asset purchases risk currency debasement and inflation, and
we do not think they will achieve the Fed's objective of promoting
employment," they say in an open letter to be published as ads this week
in The Wall Street Journal and the New York Times.

The economists have been consulting Republican lawmakers, including
incoming House Budget Committee Chairman Paul Ryan of Wisconsin, and
began discussions with potential GOP presidential candidates over the
weekend, according to a person involved.

The increasingly loud criticism of the Fed comes as some economic
officials outside the U.S. are criticizing the central bank's move to
effectively print money, which has the side effect of pushing down the
dollar on world currency markets. President Barack Obama last week
defended the Fed. The move to buy more bonds, known as quantitative
easing, "was designed to grow the economy," not cheapen the dollar, he
said.

The Fed, despite frequent criticism from both parties, has enjoyed
considerable independence from politicians on monetary policy for the
past three decades. Organizers of the new campaign predicted the Fed
will increasingly find itself caught in the political crosshairs,
though. A tea party-infused GOP is eager to heed voters' rejection of
big-government programs, and conservatives say a new move by the Fed to
essentially print more money make it ripe for scrutiny by the incoming
Republican House majority and potentially an issue in Mr. Obama's 2012
re-election campaign.

"Printing money is no substitute for pro-growth fiscal policy," said
Rep. Mike Pence, an Indiana Republican who has been privy to early
discussions with the group of conservatives rallying opposition to the
Fed plan.

He said the signatories to the letter "represent a growing
chorus of Americans who know that we should be seeking to stimulate our
economy with tax relief, spending restraint and regulatory reform rather
than masking our fundamental problems by artificially creating
inflation."

The Fed faces potential pressure of a different sort from the left as
well. Some prominent Democratic congressmen, including the current
chairman of the House Financial Services Committee, have endorsed the
quantitative-easing move.

But if the economy continues to disappoint as November 2012 approaches,
the White House and Democrats in Congress may be pressing the Fed to do
more to sustain the recovery as well.

Some prominent liberal economists, including Nobel laureates Joseph
Stiglitz and Paul Krugman, already have challenged the efficacy of
quantitative easing, arguing that more fiscal stimulus is needed to
restore the economy to health.

Signers of the new manifesto criticizing the Fed include: Stanford
University economists Michael Boskin, who was chairman of President
George H. W. Bush's Council of Economic Advisers and John Taylor, a
monetary-policy scholar who served in both Bush administrations; Kevin
Hassett of the conservative American Enterprise Institute; Douglas
Holtz-Eakin, former Congressional Budget Office director and adviser to
John McCain's presidential campaign; David Malpass, a former Bear
Stearns and Reagan Treasury economist who made an unsuccessful run for a
U.S. Senate seat from New York; and William Kristol, editor of the
Weekly Standard and a board member of e21, a new conservative think tank
seeking a more unified conservative view on economic policy.

A spokeswoman for the Fed said Sunday, "The Federal Reserve...will take
all measures to keep inflation low and stable as well as promote growth
in employment." She noted that the Fed "is prepared to make adjustments
as necessary" to its bond-buying and "is confident that it has the tools
to unwind these policies at the appropriate time."

"The Chairman has also noted that the Federal Reserve does not believe
it can solve the economy's problems on its own," she added. "That will
take time and the combined efforts of many parties, including the
central bank, Congress, the administration, regulators, and the private
sector."

Criticism of the Fed broke out amid the unpopular bailout of Wall Street
and the Senate fight over Mr. Bernanke's second term early this year.

The critiques had ebbed until its new move to buy bonds. But last week,
potential GOP presidential candidate Sarah Palin delivered a stinging
speech on the move and then, in a Facebook post, criticized Mr. Obama
for defending the Fed.

Last Tuesday evening, about 20 economists and others met over sea bass
at the University of Pennsylvania Club in Manhattan and hashed out a
broad strategy. Mr. Ryan, who has gained notice for a plan to balance
the federal budget through deep spending cuts, joined the group as they
discussed ways to encourage the GOP's new House majority to unite behind
what they describe as a "sound money policy."

"We talked about the importance of the right being outspoken and unified
on this," said a participant. Mr. Ryan couldn't be reached Sunday.

Over the weekend, organizers began discussions with possible GOP
presidential candidates, including former Massachusetts Gov. Mitt Romney
and former House Speaker Newt Gingrich. On Tuesday, Mr. Boskin and
another signer, Paul Singer, head of hedge fund Elliott Management, will
brief GOP governors at a conference in San Diego.

"It is unfortunate that economists are over-hyping this and trying to
politicize it," said Bob McTeer, former president of the Federal Reserve
Bank of Dallas and a backer of the Fed's latest step. Mr. McTeer, a
fellow at the National Center for Policy Analysis, a right-leaning think
tank, added: "What populists on the right and the left have in common is
a distrust of the establishment, and to them the Fed personifies the
establishment."

To fight a deep recession provoked by a global financial crisis, the Fed
has been keeping its target for overnight interest rates near zero since
December 2008, and bought $1.7 trillion in U.S. Treasury debt and
mortgage securities to push down long-term interest rates, hoping to
spur borrowing and spending.

That program ended in the spring.

With unemployment at 9.6%, well above its mandate of "maximum sustainable
employment," and inflation running under its target of a bit below 2%,
the Fed policy committee voted to resume bond-buying to try to move
inflation up a bit and unemployment down.

Signatories to the letter criticizing the Fed insisted they aren't
trying to undercut the central bank's independence.

"It's fair to have a public debate about what the right monetary policy
is," Mr. Holtz-Eakin said. "I'm a long way away from being comfortable
with the idea of the Congress running monetary policy."

Confirmation that China is now the world leading monetary power! Sunday Macro

• Quick run through on this Sunday, but the most important chart being this one: China leads SPX - clearly...and every time!
• Nasty momentum close for SPX:  SPX momentum
• Yields since QE2 - not good for FED: Yields since QE2 Yields
• The Secret of Oz: Excellent crisis history piece which has won several tv prizes: TV documentary
• Ireland: Follow the news from Irish Times: Irish Times
  

Strategy:

Still playing it flexible - long put on commodities, spx, and long US dollar, but still small deltas despite Fridays move  - remain extremely sceptical and on the alert for November being the BIG TURNAROUND MACRO MONTH for the year, but all market held where they should; Gold 1360 - EUR and 10 yr yield - VIX is just shy of break-up but not confirmed - now everything hinges on the Ireland to use EFSF or not for the next 48 hours,

The risk being; and this is something I firmly believe in, due to cognitive behaviour, that using EFSF will be postive for less than 24 hrs.

 If rates are now higher than pre deal in May, why should deal in November help ? Europe, like the FOMC is running out of options and fast. A Break-up of Europe into two divisions are on the cards.

Reflexitivity is at work. The trend led to credit bust in 2008, then the loop-feeding led to today' new bubble in credit/bonds, now we could face the unwinding of 30 years cycle - the ever lower rates will not work, and finally as someone said this week:'When in history has higher inflation led to lower rates?' - Indeed, indeed.

Steen

A few good bites below:

http://www.cnbc.com/id/40152003

Fed Governor Issues Warning on Bank Dividends and Mortgage Put-Backs

If you were counting on the big U.S. banks to restore or increase dividends that were pared back or ended during the financial crisis, you might want to think again.

Getty Images

The final portions of a prepared speech by a top Federal Reserve official seemed aimed at pulling-back market expectations that the central bank would soon authorize a resumption of dividends.
The Fed has been preparing guidelines on how banks will be able to change their dividend policies in the first quarter of next year. When that news was reported last week—the Wall Street Journal's headline was "Fed to Let Banks Increase Dividend" — the stocks of several banks rose.
But Fed governor Daniel Tarullo appeared to be trying to tamper the exuberance over the new Fed guidelines.
"Although the details of these guidelines are still being finalized, I can say that our approach to considering such requests will be a conservative one," Tarullo said at a George Washington University Law School Conference on the Dodd-Frank regulatory reforms. (You can read the full speech here.)
Tarullo said that banks will need to show that they can handle risks not captured in the government's stress tests—including the risk of put-back exposure.
"We will expect firms to submit convincing capital plans that demonstrate their ability to absorb losses over the next two years under an adverse economic scenario that we will specify, and still remain amply capitalized," Tarullo said. "We also expect that firms will have a sound estimate of any significant risks that may not be captured by the stress testing, such as potential mortgage put-back exposures, and the capacity to absorb any consequent losses."
The talk about dividends seems to be directly aimed at resetting—that is, lowering—expectations when it comes to dividends. Most of the speech was about Basel III capital requirements—making the dividend discussion stand out all the more. It appears to have been tacked on with the purpose of sending the market a message that many banks may not qualify for dividend hikes.

James Grant on the US dollar: http://www.nytimes.com/2010/11/14/opinion/14grant.html?_r=1&pagewanted=print

10 years Yield still in channel(click on chart for larger version)... but...

Final chart of the days.... (This is new Friday event - I will post these on close on Fridays if at work otherwise over the weekend)

Comment:

• Clear sideways channel which needs to be respected for now
• 50 SMA has now turned from down-to-up in cycle terms (see chart)
• 282/85 bps is key, key level.. 270 today
• This is major surprise - QE2 (POMO) is in full mode today and yields continues higher ??  I'm really surprised

Gold

Gold still solidly inside bullish channel - two levels important 1360 ish 23.6% and long-term trend support at 1340. I do not think any of those two wil be violated but US rates going higher clearly a bad sign - plus the fact that Gold is lower POST POMO / and with EURUSD rallying is not good sign for Gold and metals overall.

 

Nice week-end

 

 

Quick medium term S&P update..

The chart shows some issues, but we are far from being confirmed in negative view.

 

The overall strategic view should be:  Long RISK as long as S&P holds above 1190/1180 - two day close below 1180.00 could indicate MAJOR TOP in place, but

we got POMO POMO article from Zerohedge.

 

The best advice: Keep the trading tight-and-flexbile - we have had a few warning  signal this week, but whether POMO helps or not, and if or/not the bail-out of Ireland wil be in place for EU Summit on Teuesday the key event risk.

 

The market itself - technical- is pointing to offset risk but not to go short, yet.

 

Nice week-end

 

 

Risk of - major moves in China - our new Global Leader...

Playing the QE2 card Bernanke et al confirmed that we now need to look at China for ALL future directions. The US has no further tools to use but are at the mercy of the international lenders and capital markets.

The reaction post QE2 must be major disappointment for FOMC and Obama, but the importance now is the "reaction" function of firstly China, then Europe(Euro crisis) and then back to the US.....We know the reaction function of policy makers:  1. It's not what they say but what the do which is important 2. They will always delay any decision to last minute 3. The response is ALWAYS creating more debt and mini-max solutions.

In this lights the REACTION FUNCTION should theoretically be:

1. QE2 ==> China and EMG will hike rates aggressively - it has already started note these comments from Goldman Sach this morning on RISK OFF: Chart on QE2 reaction

KRW: Renewed speculation that concrete capital controls will be announced on Monday (1mnth high 1129.5)
PBOC asking more local banks to hike RRR.
Chatter of Chinese state-entity selling commodity futures in Shanghai (Bloomberg reporting that China sold almost all zinc on offer from state reserves at below-market prices in the latest auctions, although this was out a few days ago)
Onshore Chinese traders and brokers speculating about another interest rate hike tonight.
Lack of concrete resolutions from G20 meeting in Korea

                                                                             
2. Euro-debt story gets back into the headlines

Germany will use their VETO leverage to negosiate even tougher hair-cut rules effectively setting up the division of EUROPE into to a two-tier system by 2013/14. The ones who wants to live by the stability rules, and the 2. division for those who needs time to get their finances in order.....

Expect Ireland to tap EFSF very shortly - the risk being there is contagion spread to other PIIGS - so maybe a longer than expected delay in using EFST but more countries than Ireland tapping EFSF from the start.

3. G-20  Communique or the Ministry of Propaganda - what is farce!

In other new the G-20 communique is a total joke! The old Polit-bureau in Russia would have been proud to issue this statement: It's all BS - big time BS... using words like: comprehensive, commitment, unprecedented coooperation, concrete steps - but... there is not a single modus operandi except for including the ever useless IMF in all things possible. There are now more working groups under G-20 than there are sand in Sahara! G-20 communique - by the Ministry of Propaganda for the Politbureau of G20


Strategy:

Seems yesterday chart-book has played out for now, but remember there is now POMO for a full month - the risk will be if POMO does not help the market then we have a real issue on the downside - watch the US action tonigt if 1190-00 breaks on close, then we have top in place - and more importantly the QE2 was REAL MACRO TREND event....

Nice week-end

Important Chart update... Click on chart for larger version

QE2 did't... so far give the CLEAN markets results one should expect - below is my daily chart packages with comments. I'm no chartist but the next 24 hours could dictate if this market will continue or not higher..

Post FOMC conclusions?

Click on chart for larger version

Click on chart for larger version

Click on chart for larger version

Click on chart for larger version

It was a classic Bernanke trick - delivered slightly less in terms of per month buying (75 vs 100 bln) but extended the period from six to eight month in total 600 bln. USD - actually smaller than the GS market consensus of 1.000 but big enough to "confirm" the game of currency war, inflating of commodities, and support for the stockmarket.

Bernanke then wrote terrible op-ed in Wash Post defending his line of thinking - let me make one prediction: His Wash Post op-ed will be hybris similar to his comments on "no spill-over effect from housing" back in 2007!  (Link to Bernanke Op-ed)

This is very dangerous game - and if anyone believes Fed and the FOMC will be able to take their hands of the printing press in due time to stop the incoming inflation they know zero about history, zero about policy functions!

This is GUARANTEE for high inflation in Q2 2011 - it's also GUARANTEE that their will be major social tension not only in the US but also btw major industrial nations. (notice: how Russia fights Japan over small island, and China fights Japan over another set of islands) - this is the next step towards TARIFFS and imperfect markets but for now we need to accept there is one major buyers of all assets: FED - and that the NOMINAL DEVALUATION(the US consumer is left with impression his asset rises but their purchasing power disappear as it buys less commodities, gold, houses, travels etc) continues ...........we are now in the 8th inning... enjoy it while it last.

Stategic note:

As can be seen from the four major asset classes - my model is now long ALL ASSETS... ALL, the one risk being with QE2 out of the way we could again focus on Europe - the HISTORIC high spreads in Ireland, Portugal and how Europe with weaker US dollar is falling apart - slowly..

Major event risk: Local election in Greece this coming Sunday...

The Greek government has made this Sundays local election an issue of:  pro or con the EU plan - it's very likely PASOK - the ruling party will loose big - and then the Premierminister will can a general election stirring the whole IMF/EU plan back-up again.

 

Also note the package and "terrror threath" in Greece seems related to the extreme left-wing domestically - (hence: the package to Merkel)...... playing a role........something to watch a few links:

 

http://www.guardian.co.uk/business/2010/oct/27/greek-bonds-hit-by-election-jitters

 

http://www.athensnews.gr/category/8    Excellent english newssite on Greece