House Passes Legislation To Somehow Revalue Chinese Yuan
by Zero Hedge - September 29th, 2010 6:25 pm
Courtesy of Tyler Durden
Just because somehow it is the Yuan’s fault that America has exported its entire manufacturing industry over the past 30 years to lower cost countries, our idiot leaders have decided to take the next big step toward an all out trade war. The House of Idiot Representatives has approved legislation designed to combat the manipulation of currency by China that results in unfavorable trade conditions for the United States. As CNN reports, the legislation, which authorizes the Commerce Department to impose duties on imports from countries with undervalued currencies, passed by a vote of 348 to 79. Somehow, because it was framed as a “jobs issue”, everyone in Congress went full retard and confirmed they have not the first clue about how Economics actually works. But yes, please revalue the Yuan: the next thing will be exploding prices at Wal Mart, which have so far successfully masked the fact that the US has been exporting staple product inflation. We wonder how those same “workers” on whose behalf this law was allegedly passed will feel when their bill anywhere is double what it used to be… Not to mention that their currently unemployed status will certainly not have changed.
More from CNN:
“We can talk, or we can act. International trade is a high stakes, cut-throat business, and every time we simply talk, the other side acts, and every time they act, an American loses a job,” said Rep. Xavier Becerra, D-California.
China said this year it would allow its currency, the renminbi, to trade in a wider range against the dollar. But the currency, also known as the yuan, has scarcely appreciated since then, inflaming critics who charge the undervalued renminbi helps steal U.S. manufacturing jobs.
The House vote caps years of frustration for lawmakers as the United States has continued to shed manufacturing jobs, and promises of reform from the Chinese have failed to result in policy changes.
The legislation now moves to the Senate. Sen. Charles Schumer, a New York Democrat, says the body will act quickly to move the bill to the president’s desk.
“We must take decisive action against China’s currency manipulation and other economically injurious behavior,” Schumer said on Tuesday, noting that the Senate will take up the issue when it reconvenes later this year.
“China is merely pretending
…
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DiggContrarian Player Plants Bull Call Spread on Seed Maker Monsanto Co.
by Option Review - September 29th, 2010 6:23 pm
Today’s tickers: MON, EWZ, XLB, HPQ, V, BCSI & SLB
MON - Monsanto Co. – Shares of the maker of genetically modified seeds seemed to be recovering at the start of the current session following Tuesday’s horrendous performance wherein the stock fell as much as 9.80% from an intraday high of $52.64 to a low of $47.50. MON’s shares managed to rebound 4.50% off Tuesday’s low of $47.50 to briefly touch an intraday high of $49.62, although the rally proved to be short-lived and shares are down 1.00% at $48.25 as of 3:15 pm ET. Though MON was unable to keep hold of earlier gains, one contrarian player is optimistic that Monsanto’s shares will reverse course and head back up by November expiration. The investor purchased a call spread, buying 5,000 calls at the November $55 strike at a premium of $0.85 each, and selling the same number of calls at the higher November $60 strike for a premium of $0.27 apiece. Net premium paid to establish the transaction amounts to $0.58 per contract. Thus, the investor is ready to make money should Monsanto’s shares surge 15.20% over the current price of $48.25 to surpass the effective breakeven point on the spread at $55.58 by November expiration. Maximum potential profits of $4.42 per contract are available to the bullish player if MON’s shares jump 24.35% to trade above $60.00 by expiration day.
EWZ - iShares MSCI Brazil Index ETF – Investors are placing near-term bearish bets on the Brazil fund this afternoon by selling calls to finance the purchase of put spreads in the October contract. The large pessimistic plays could be the work of traders hedging long positions or the mark of outright bearish bettors expecting the price of the underlying fund to slip lower ahead of expiration next month. Shares of the EWZ, an exchange-traded fund designed to replicate the price and yield performance of publicly traded securities in the aggregate in the Brazilian market – as measured by the MSCI Brazil Index, rallied…
Summers Skews the Playing Field for the Big Boys, then Blames Skyrocketing Inequality on a “Ruthless Economy”
by Zero Hedge - September 29th, 2010 6:03 pm
Courtesy of George Washington
Dan Froomkin notes:
Asked about new Census data showing that the income gap between the richest and poorest Americans grew last year to its widest amount on record, Summers said one factor is that “we have a more ruthless economy. There’s breaking down in social norms by people in a position to take.”
Skyrocketing income disparity is something I’ve repeatedly written about.
But increasing income disparity hasn’t just happened like some unforeseen natural disaster which is difficult to forecast, such as an earthquake. It has been the result of certain efforts by the wealthy and their lackeys in government.
As Warren Buffet said in 2006:
There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.
Indeed, as I pointed out last year, Summers is more responsible for our economic problems than just about anyone else (Greenspan and Rubin also played their parts):
Summers is the guy responsible for:
- Allowing the banks to carry extraordinary levels of debt, thirty-to-one fractional reserve banking margins
- Ensuring that derivatives were not regulated, and that AIG could operate as a giant hedge fund
- Repealing New Deal era legislation which separated investment banks from commercial banks, insurers and stock brokers, and which kept companies from becoming “too big to fail”
As a 1999 New York Times article entitled “Congress Passes Wide-Ranging Bill Easing Bank Laws” quotes Summers as saying:
”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”
As I pointed out in April:
On Friday, Summers basically said we should continue to do the exact same things which got us into this mess because:
All crises must end. The “self-equilibrating” nature of the economy will ultimately prevail,
…
Summers Loots the Country for the Big Boys, then Blames Skyrocketing Inequality on a “Breaking Down In Social Norms By People In A Position To Take”
by Zero Hedge - September 29th, 2010 6:03 pm
Courtesy of George Washington
Dan Froomkin notes:
Asked about new Census data showing that the income gap between the richest and poorest Americans grew last year to its widest amount on record, Summers said one factor is that “we have a more ruthless economy. There’s breaking down in social norms by people in a position to take.”
Skyrocketing income disparity is something I’ve repeatedly written about.
But increasing income disparity hasn’t just happened like some unforeseen natural disaster which is difficult to forecast, such as an earthquake. It has been the result of certain efforts by the wealthy and their lackeys in government.
As Warren Buffet said in 2006:
There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.
Indeed, as I pointed out last year, Summers is more responsible for our economic problems than just about anyone else (Greenspan and Rubin also played their parts):
Summers is the guy responsible for:
- Allowing the banks to carry extraordinary levels of debt, thirty-to-one fractional reserve banking margins
- Ensuring that derivatives were not regulated, and that AIG could operate as a giant hedge fund
- Repealing New Deal era legislation which separated investment banks from commercial banks, insurers and stock brokers, and which kept companies from becoming “too big to fail”
As a 1999 New York Times article entitled “Congress Passes Wide-Ranging Bill Easing Bank Laws” quotes Summers as saying:
”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”
As I pointed out in April:
On Friday, Summers basically said we should continue to do the exact same things which got us into this mess because:
All crises must end. The “self-equilibrating” nature of the economy will ultimately prevail,
…
Nic Lenoir Turns Bearish With Conviction
by Zero Hedge - September 29th, 2010 5:35 pm
Courtesy of Tyler Durden
From Nic Lenoir of ICAP
Bearish with conviction
All forward looking indicators point to severe economic weakness, I am talking recession here, not just a sub-par 1.5% growth. Most economists like my friends Julian Brigden and Jonas Thulin who do cycle analysis using leading indicators have highlighted this much more eloquently than I could quantify my bearishness which in economical terms is the summation of a lot of observations but lacks the timing and numerical dimension they can provide. The following link I found very interesting in that perspective:
http://theautomaticearth.blogspot.com/2010/09/september-28-2010-graphic-peek-into-our.html
Where my timing leaves less to be desired is in terms of technicals. 3 weeks ago now I recommended buying VIX calls, specifically I like the 37.5 November expiry calls. We had a signal in VIX to sell stocks with a reversal outside the bollinger band, which historically precedes the highs in stocks. The lag has recently been 7 to 10 business days, but I was definitely open to a longer lag this time around since there are many people trying to get involved from the short side and the specter of the Fed and the plunge protection team looming. That is mainly why I suggested buying November expiry and wait before getting outright short.
After observing the price action a bit more and reflecting on the patterns, I have come to the conclusion that the market will top between 1,155 and 1,164. In that zone we have in order the top of the channel (120-minute chart) guiding the consolidation since July, the 61.8% retracement of the sell-off since April’s highs, the resistance joining the 2007 tops and the 2010 tops, and the C=A of the correction start in July (daily chart). I add to that relatively convincing divergence and the incapacity of daily 21-RSI to bypass 60 which is an excellent confirmation of a correction in bear market and not a new bullish impulse. Gathering all that and adding to it the VIX signal we had early in September, the economic mix which is turning very sour, the start of trade wars, the ever present sovereign default crisis in Europe, the common knowledge that bank balance sheets are marked to solvency and the housing double dip, and I think it’s fair to say the pricing for the major equity indices is rather generous. I did say yesterday that it all starts…
Sometimes It’s Just a Black Duck
by ilene - September 29th, 2010 5:16 pm
So if it looks like a duck, quacks like a duck, and walks like a duck, there’s a good chance it’s not a black swan no matter how much you’d like it to be one. – Ilene
Sometimes It’s Just a Black Duck
Courtesy of Joshua M. Brown, The Reformed Broker
Death Crosses, the Hindenburg Omen, the Black Swan of all Black Swans, the AIDS Doji, the Devil’s Ladder, the Europocalypse, the plagues of pestilence and locusts, the Tony Robbins Alert, the Hitler Harami formation, etc.
Here a Swan, there a Swan, everywhere a Black Swan.
Except 18 months since the bottom of the market and 13 months since the NBER-recognized economic trough, none of these "Prophecies have been fulfilled". Sleeping Beauty hasn’t pricked her finger on the spindle and that cabin in Upstate New York I stocked with guns and SpaghettiO’s lies empty still.
The trouble with the Recency Effect is that everyone all of a sudden thought they were Nassim Taleb, orinthological experts on the spotting of Black Swans. Every blip on the screen or blurb in the newspaper was fresh evidence of the next hundred years’ storm. Forget being fooled by randomness, people have become obsessed with randomness.
But as we’ve learned, not every aberration is a Black Swan in the making. Sometimes, it’s just an ordinary Black Duck. A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.
This is not to say that warning signs of future crises should be dismissed out of hand. In fact, my argument is the opposite; the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.
Iranian nukes and the Straight of Hormuz, Al-Quaeda’s next terrorism attempts, the Pension Fund Time Bomb, the Chinese Real Estate Bubble, the Treasury Bond Bubble, the disappearance of non-program trading volume in the stock market, hyper-inflation, hyper-deflation, the commercial real estate shoe-to-drop, the Municipal Bond Minefield, etc. All ugly problems, but all Black Swans?
Or just Black Ducks that will be unpleasant to deal with but dealt with regardless?
MORE BUBBLE TALK
by ilene - September 29th, 2010 5:12 pm
MORE BUBBLE TALK
Courtesy of The Pragmatic Capitalist
It’s becoming increasingly popular to describe the U.S. government bond market as a “bubble.” As I’ve previously explained, this strikes me as totally nonsensical for several reasons – the primary reason being that the term simply is not applicable to an asset in which you receive your entire principle back at maturity. The term “bubble” implies a grossly mispriced asset that is susceptible to substantial losses. If the instrument is used as intended there should be little to no risk of principal loss in a U.S. government bond. And given the weak economy and constant need for government intervention it is no surprise that investors are seeking a safe haven such as
Aside from all that, Credit Suisse recently published an interesting piece of research arguing the same point – that the U.S. bond market is not a bubble. They noted that the price action in government bonds is very different from historical bubbles:
“We note that the price action of bonds it is very different from the bubbles in other asset classes we have seen over the last 30 years. The six-month US bond return is 1.9 standard deviations above norm, compared to an average of 5.9 standard deviations during previous bubbles.”
So you can see the price action is not even remotely similar to the great bubbles in history. If investors continue to use government bonds as they are intended (for instance, don’t make a 10 year loan with the intention of demanding your money back in 10 minutes), diversify across bond markets and generally allocate bonds as they are intended (as a hedge against other higher risk assets) then there should be very little risk of you ever experiencing a catastrophic loss such as those seen after many of the great bubbles of the last 30 years.
Why the Statistical “Recovery” Feels Bad
by ilene - September 29th, 2010 4:54 pm
Why the Statistical "Recovery" Feels Bad
Courtesy of Mish
Inquiring minds might be interested in charts of GDP minus the effect of increased government spending. The charts are from reader Tim Wallace who writes …
Dear Mish -
Take a look at the following spreadsheets of GDP from 2001 to 2010, in chained 2005 dollars to account for [price] inflation.
U.S. GDP and Net GDP (subtracting government spending)
click on chart for sharper image
The above chart clearly demonstrates that there really is no recovery, just increased federal spending and debt.
Here are the GDP numbers chained to 2005 dollars (Millions):
| Year | GDP | Gov’t Spending | Net GDP |
| 2001 | 11,371.3 | 2,056.4 | 9,314.9 |
| 2002 | 11,538.8 | 2,188.6 | 9,350.2 |
| 2003 | 11,738.7 | 2,303.3 | 9,435.4 |
| 2004 | 12,213.8 | 2,377.7 | 9,836.1 |
| 2005 | 12,587.5 | 2,486.0 | 10,101.5 |
| 2006 | 12,962.5 | 2,578.5 | 10,384.0 |
| 2007 | 13,194.1 | 2,570.1 | 10,624.0 |
| 2008 | 13,359.0 | 2,753.3 | 10,605.7 |
| 2009 | 12,810.0 | 3,210.8 | 9,599.2 |
| 2010 | 13,191.5 | 3,470.0 | 9,721.5 |
Note that the chained GDP number less the federal spending nets out to a number less than the GDP of 2004. So basically, our economy is back where it was seven years ago.
Private Sector GDP
click on chart for sharper image
Private sector GDP continues to shrink as the above chart and following table shows.
| Year | Private GDP% |
| 2001 | 81.9% |
| 2002 | 81.0% |
| 2003 | 80.4% |
| 2004 | 80.5% |
| 2005 | 80.3% |
| 2006 | 80.1% |
| 2007 | 80.5% |
| 2008 | 79.4% |
| 2009 | 74.9% |
| 2010 | 73.7% |
Moreover, over 40% of government spending is deficit spending. That increase in deficit spending accounts for the alleged rebound in GDP. Clearly that deficit spending is unsustainable.
How much of that increased government spending made it into your pocket or benefited you in any way? While your are pondering that, remember that all government spending adds to GDP whether or not anything is actually produced.
The "Feels Bad" Recovery
These charts help explain Good News: The Great Recession is Over; Bad News: It Doesn’t Feel Like It.
So far, we do not even have an admission by the President, by
…
Mark Pittman Wins: Fed To Disclose Emergency Lending Details By December 1
by Zero Hedge - September 29th, 2010 4:49 pm
Courtesy of Tyler Durden
Mark Pittman’s last valiant effort to bring some transparency to the most destructive organization in the history of mankind has succeeded. According to testimony to be delivered to the House tomorrow, “under a framework established by the act, the Federal Reserve will, by December 1, provide detailed information regarding individual transactions conducted across a range of credit and liquidity programs over the period from December 1, 2007, to July 20, 2010. This information will include the names of counterparties, the date and dollar value of individual transactions, the terms of repayment, and other relevant information. On an ongoing basis, subject to lags specified by the Congress to protect the efficacy of the programs, the Federal Reserve also will routinely provide information regarding the identities of counterparties, amounts financed or purchased and collateral pledged for transactions under the discount window, open market operations, and emergency lending facilities.” Luckily this action by Bernanke will prevent the rioting that would have followed an appeal to the Supreme court, which would have certainly sided with the secretive group of Keynesian priests. If nothing else, the plethora of data will keep the blogosphere preoccupied for days upon days, rummaging through millions of pages of explicit corruption.
Let’s see now if December 2nd leads to the end of the world destruction that the Clearing House Association threatened would happen should the Fed disclose these details, as we reported a year ago. To wit:
The Clearing House submits this declaration because the Court’s Order threatens to impair the ability of our members to access emergency funds through the New York Fed’s Discount Window without suffering the severe competitive harm that public disclosure of their identity will cause.
Our members have accessed the New York Fed’s Discount Window with the understanding that the Fed will not publicly disclose information about their borrowing, especially their identity. Industry experience, including very recent and searing experience, has shown that negative rumors about a bank’s financial condition – even completely unfounded rumors – have caused competitive harm, including bank runs and failures.
If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank’s customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls – which would
…
GOLD & SILVER VERSUS HISTORICAL BUBBLES
by Chart School - September 29th, 2010 4:46 pm
GOLD & SILVER VERSUS HISTORICAL BUBBLES
Courtesy of The Pragmatic Capitalist
The following chart from sharelynx (via Jordan Roy-Byrne at Daily Gold) gives some excellent perspective on the current “frothy” situation in gold and silver prices:
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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