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Wednesday, October 12, 2011

Overnight

ECB's emergency lending program is seeing heavy use:
A total of 4.16 billion euros was borrowed from the ECB's instant-access overnight facility, which charges 2.25 percent interest as opposed to the 1.5 percent banks get money for at its mainstream operations.
This is hardly reassuring. Unless a lot of it went to the Dexia bailout, it implies that some big banks are cleaning out the vaults. ECB is extending pretty much unlimited liquidity, so the sky's the limit! I'm thinking numbers this big have to show up in French bank vaults somewhere! Ah, well, time to start reading ECB's site every day.

Harrisburg, PA filed for bankruptcy. In a controversial move, several ratings firms have put Harrisburg on negative outlook. (Just joking!!!!) What's really funny about this is that it probably isn't legal. They did it to prevent state takeover.

Bloomberg article:
Asian stocks rose, with a regional benchmark index posting its biggest five-day advance since March 2009, amid speculation that China will boost support for the equity market after valuations dropped to record-low levels.
...
Chinese stocks listed in Hong Kong advanced, with banks extending yesterday’s rally after Central Huijin Investment Ltd., a state-run investment arm, began buying shares of the top four financial institutions.
The classic warning about being careful of buying stocks with very strong institutional holdings probably applies. ...
Transport continues to be dicey. In other news, Japan's balance of trade continues to deteriorate. Income from foreign investments was all that kept August from being in deficit in its current accounts. The picture across most of greater Asia is not thrilling, and it is not going to bail either the US or Europe out of their current malaise. India.

Singapore advance Q3 GDP will be released on the 14th. Singstat.

A further cautionary note: When I see trading patterns like this (Brazil, BOVESPA), I am not happy. Brazil's CB cut rates in October, and August retail sales were released:
The Bovespa stock index climbed to a two-week high as homebuilders and consumer stocks gained after Brazil retail sales declined more than forecast, signaling the central bank may continue to cut interest rates.
Sigh. More detail. IP is down too. Inflation is running over 7%.

As I look around the world, I see that many ocean shippers are taking a loss, consuquently that industry has to consolidate and downsize to adapt to make money. I see that fundamental consumer costs have outrun consumer incomes in many of the large economies that have generated demand growth. I see that weaker outlooks and various factors, including the flood of money inserted into the global system as a result of 2008, prevent commodity prices from dropping meaningfully. And I see further baked-in inflation until trading conditions can adjust.

All these things point to the market being very unlikely to adjust in a smooth manner, which means that everything will be driven to its breaking point, and then, when enough damage has been done, prices will adjust and world trade will be able to pick up again. But we are a long way from resolution, and in some countries, this will mean revolution.

I cannot see where the ending point is this time, but getting there will not be pretty and the agonizing eternal focus on the Euro obscures the reality that conditions in many economies are degenerating pretty rapidly. This is important, because as underlying conditions in these economies slowly weaken, the likely global floor keeps falling. But money does not reflect this, so trade and pricing isn't adapting to reality, which is creating a weakness feedback loop that I don't like.


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