The Put
Is the Bernanke put gone?
Biderman and Bianco discuss the Bernanke put, the market, and who is buying stocks?
Video below.
Spain is back
If you thought “all” is fixed in Spain, you are wrong. Expect the Spanish mess to once again start dominating the news. Just a reminder of the delicate situation in Spain. Via EL Pais.
The independent audit carried out by consultant Oliver Wyman estimates the Spanish banking sector needs additional capital of 53.745 billion euros to shore up balance sheets because of its exposure to the ailing real estate sector if the consolidation currently taking place among lenders is taken into account, the Bank of Spain said Friday.
The central bank says that without taking into account merger and acquisition processes that are under way and deferred taxes, the figure amounts to 59.3 billion euros, very close to the initial estimate in June by Oliver Wyman of 60 billion euros.
The government has been granted a loan of up to 100 billion euros from its European partners to bail out the sector. The administration is hopeful that some of the banks that need more capital will be able to raise funds privately, reducing the final amount required to 40 billion euros. The consultant carried out stress tests on the country’s 14 main lenders that account for 90 percent of the Spanish banking sector’s assets under different adverse scenarios. (Full article here. )
But that’s not all, remember, the Catalans are furious.
HFT and SEC
Remember the (good) old days when everybody had the same information about where stock prices trade. Let’s see what happens going forward. We doubt the regulators understand what actually goes on every day, but with the multiple glitches over the past weeks, at least a few regulators are waking up. From Reuters.
The U.S. Securities and Exchange Commission on Friday published a list of computer specialists and scientists mostly tied to big Wall Street firms who will give presentations at the roundtable next week on technology issues in the U.S. stock market.
The SEC scheduled the Tuesday discussion after a wayward trading event on August 1, when a software glitch led stock market maker Knight Capital Group into an erroneous buying frenzy. Knight’s activity moved markets and nearly brought down the firm, ultimately costing it $440 million.
Technological problems have also been blamed for events like the May 6, 2010 flash crash and the botched initial public offerings of Facebook and the BATS Exchange.
Negative Returns on Money Market Funds
With Gold taking out new levels in Euro terms, here are a few thoughts by Jessie.
Gold and silver had sharp rallies today as the selling going in to the end of quarter and the gold option expiry dissipated and a sharp short squeeze ensued.
Gold hit a new high in euros today on the back of fresh uncertainties in Europe, particularly in Spain.
As you know money market funds are savings vehicles with a fixed unit price that pay dividends, like a savings account. They arose as alternatives to bank deposit accounts because they were able to present higher returns than the regulated banks.
The Banks, and their regulatory friends who have been mostly among the Republicans want the money markets to have a floating price like a stock, opening the possibility for negative returns on savings. Turbo Timmy G. came out today calling for reforms in the money market funds, and a ‘floating price’ for the money market fund.
Et tu Timmy? All day long. The young man is getting ready to leave Washington after the election and take a lucrative trip through the crony capitalist revolving door, and probably into the banking sector.
The increased uncertainty, the chance of negative returns on your savings if the funds are allowed to fluctuate below one dollar per unit, is sure to drive quite a bit of risk adverse money out of the money market funds. And it opens the door to price manipulation and fraud, doing nothing to help promote transparency and confidence.
Eurobowl Crisis Weekend XXVIII
Guest post by Peter Tchir.
The Bull Case
I had turned bearish on the situation in Europe last week, which had worked well until yesterday. I remain bearish, but there is an obvious and possibly realistic path for the bulls.
1) Spain, followed by Italy ask for and receive OMT and ESM support. The terms of which are generous.
2) Spanish bank recap goes ahead.
3) Budgets work, economies show signs of rebounding and markets reach new highs.
That is the bull case in a nutshell, and I had believed in it for awhile, but don’t see anything working out quite smoothly.
Stagflation?
We have been told there is no inflation in Europe, only an imploding economy. Back in the Econ 101 class, we learnt that falling economy with inflation, creates stagflation. With inflation “suddenly” on the rise, let’s see if we need reviewing those Econ 101 books. From Bloomberg.
Euro-area inflation unexpectedly accelerated in September as energy prices rose, even as the single-currency bloc’s economy edged toward a recession. Consumer prices in the 17-nationeuro region increased 2.7 percent from a year earlier after a 2.6 percent gain in August, the European Union’s statistics office in Luxembourg said in a flash estimate today. The median forecast of 40 economists in a Bloomberg News survey was for the rate to fall to 2.4 percent.
Inflation has stayed above the European Central Bank’s target of slightly less than 2 percent for almost two years even as the economy has faltered. Surveys last week showed services and manufacturing output fell to a 39-month low in September. ECB Governing Council member Ewald Nowotny and Executive Board member Benoit Coeure have suggested the Frankfurt-based central bank probably won’t lower interest rates at its next meeting on Oct. 4. (full article here.)
Netanyahu’s Red Line
Guest post by Azizonomics.
Netanyahu wants a red line on nuclear proliferation in the Middle East:
Where exactly should we draw it?
As Justin Raimondo notes:
Here is a nation which refuses to even admit it acquired nukes long ago, and which disdains the Nonproliferation Treaty, making the case for war against a neighbor that has indeed signed the NPT and is abiding by its requirements.
That treaty gives Tehran the right to develop nuclear power. Furthermore, there is zero evidence Iran is embarked on a nuclear weapons program: our own intelligence community tells us they gave that up in 2003 and show no signs of resuming it. Their own religious and political leaders have denounced the possession of nuclear weapons as sinful: the Israelis, on the other hand, haven’t bothered reassuring us they would never use the nuke they won’t admit they have.
In a rational world, Israel would be in the dock, answering for its unwillingness to come out of the nuclear closet and admit what the whole world knows by now.
The West has sent out a message that the only way for unpopular regimes to avoid invasion is to obtain nuclear weapons. North Korea sought and obtained nuclear weapons and their vicious and economically-failed regime has stayed in power. Qaddafi gave up his nuclear ambitions, and was soon deposed by British, French and American airpower. If Iran is seeking a nuclear weapon — and the CIA and Mossad, as well as the IAEA agree they that they are not currently doing so — perhaps the fact that nuclear-armed Israel and the nuclear-armed United States keep threatening non-nuclear Iran with attack has something to do with it?
Fed Easing Only Helped Stocks, Not Economy
A few thoughts on the Fed easing, the market, and the economy. By Biderman.
Is the Bernanke Put dead or at least dying? I think so. Over the past seven trading days, the market value of all stocks is down half a trillion dollars, meaning that a quarter of the $2 trillion gain from the current easing has been given back.
At the recent Monday, September 17 market top, the market cap of all stocks was up about $2 trillion from the June 5 low and the S&P 500 was up 15% over that same time frame. What happened on June 5 was that Fed’s unofficial PR guy, Wall Street Journal reporter John Hilsenrath preannounced the current Fed easing. Stocks then kept climbing from early June until Monday, September 17 two days after the Fed made the current easing official. Since then stocks have been selling off, although still at a modest rate.
Video below.
QE+ Projections: Where does it End?
Guest post by Marc Chandler of Marc to Market.
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