Monday, December 6, 2010

Morning Update/ Market Thread 12/6

Good Morning,

Equity prices are slightly lower just prior to the open this morning. The dollar is substantially higher, bonds are higher, oil is down slightly, and gold is up slightly. Just don’t forget that it is a Monday morning in December, thus we can expect low volume and the algos to kick into POMO high gear at some point after the open.

The Euro is solidly lower following comments by Merkel in Germany that they are not in favor of either increasing the size of the bailout pool, nor in introducing phony joint EU bonds:

Germany Snubs Pleas to Increase Aid Fund, Introduce Joint Bonds

Dec. 6 (Bloomberg) -- Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund or introduce joint bond sales, signaling its refusal to bear extra costs to stamp out the debt crisis.

With EU finance ministers gathering in Brussels today for their monthly meeting, German Chancellor Angela Merkel rebuffed pleas from Belgium and central bankers to boost the emergency fund to save countries such as Portugal and Spain from falling prey to speculation.

“Right now I see no need to expand the fund,” Merkel told reporters in Berlin today. She said EU treaties bar joint bond sales, which might force up Germany’s borrowing costs, the lowest in Europe.

European political discord pushed down bonds in Spain and Portugal today, reversing gains made last week after purchases by the European Central Bank briefly eased concern about the spreading crisis.
The yield on Spain’s 10-year notes climbed 14 basis points to 5.13 percent as of 1:35 p.m. in London. Portugal’s 10-year yield increased 2 basis points to 5.73 percent. The euro halted a three-session rally, dipping 1.2 percent to $1.3253.

Countries including Greece are “in denial” in saying they’ll be able to repay their full borrowing bills, Kenneth Rogoff, a Harvard University professor and former International Monetary Fund chief economist, told Bloomberg Television today. “We’d be very lucky to avoid restructuring.”

Merkel’s Role
Under pressure to shield taxpayers in Europe’s largest economy, Merkel is drifting back into the role she played in the early stages of the crisis, when Germany held out against an aid package for Greece.

The political standoff may saddle the ECB with more of the crisis-management burden, said Citigroup Inc. economists including Juergen Michels and Michael Saunders in London in a Dec. 3 e-mailed note.

“Eventually the ECB will be forced to increase its contribution to the rescue packages substantially,” the economists wrote. “We expect that after another round of market tensions, the European fiscal policy makers will eventually come up with additional measures to fight the crisis.”


Of course doing the reasonable thing should earn the euro some love, but quite the opposite in this time of drug induced infusions to infinity and beyond. Of course the central banks will come up with more phony money, if they don’t the game is over for them… and of course if they do the game is also over for them, so the outcome is known, it’s only the timing and events along the way that are open to question. That’s what happens when you let the math of debt get away from you. Just as it has in most places around the globe, China included, and that’s why China is now enforcing price controls in order to keep inflation in check:
Wal-Mart Among Companies Facing China Price Controls

Dec. 4 (Bloomberg) -- The southwestern Chinese city of Kunming, where Wal-Mart Stores Inc. and Carrefour SA have operations, has imposed temporary price ceilings on daily necessities to counter inflation.

Kunming’s government asked five retailers -- three non- Chinese, one Chinese and one based in Hong Kong -- to report any price adjustments and give reasons for the changes two days in advance of making any alterations, the National Development and Reform Commission’s local branch said on its website yesterday.

Besides the five companies, other food, cooking-oil and beverage producers are requested to apply for government approval 10 working days before making price changes, the statement said.

The city government also imposed temporary price ceilings on daily necessities in major parts of the city starting from yesterday to the end of February, according to the statement. Prices of grain, cooking oil, meat, eggs, milk and noodles are to be kept at levels before Nov. 17, the statement said.

The city limited retail prices of vegetables, depending on type, to 40 percent to 100 percent higher than wholesale prices, the statement said.

“The city’s consumer prices in the first 10 months rose 4.4 percent, the highest among China’s 36 large- and medium-size cities,” the Kunming government said in the statement, adding that the new regulations aim at keeping prices stable and promoting a “harmonious” society amid “strengthening inflation expectations.”

China’s own policies have added to the hot money being pumped by the U.S., Europe, and Japan. They are a control government who is fighting against human nature. Price controls NEVER work, history proves that they will always ultimately fail in the long run. Having to implement them is a sign from a historical perspective that those pesky “other events” are coming.

There is no economic data here in the U.S. today, this week will be a fairly light week for data with low market volumes expected.

Scorpions – Winds of Change: