This is EK today, off 60%. Bloomberg report Kodak Said to Weigh Bankruptcy Filing:
These are the straddles from our post here 4 days ago:
Now the stock has been halted, so we can't yet trade it. Wait and see.
Here is a preliminary update:
Shocked that companies and mutual funds would invest OPM (Other People's Money) in high-risk investments, the Shocked Investor was originally on a mission to find out if our money ended up in these dubious instruments. This blog now also discusses other financial topics, such as straddles, options, gold, natural gas, agri/food stocks, and the collapse of the US Dollar.
This is EK today, off 60%. Bloomberg report Kodak Said to Weigh Bankruptcy Filing:
From the BBC folks. If the eurozone crisis were a movie how would it end?
"From the people who brought you the collapse of Lehman Brothers, the global financial crisis and the credit crunch, comes Debt Again. This takes financial disaster into a whole new low."
While consumers embraced Android devices, the OS provided for free by Google, did you know that from pretty much every Android device sold a bew bucks go to Microsoft?
Whle the many companies that get Android software free from Google Inc., more and more of them are forking over millions to Microsoft Corp. as an 'Android tax.'
Microsoft has just signed a deal with Google's largest manufacturing partner, Samsung Electronics Corp, this after signing patent licensing agreements with seven other large Android makers in the past three months, including Acer Inc. and HTC Corp.
Brad Smith, Microsoft general counsel: "our most important Android patent licence to date," said on Twitter.
Twitter does not pay royalties to Microsoft, yet
RBC Capital Markets estimates the royalties to be between US$5 and US$15 per device sold.
If only half of the 19 million smartphones Samsung sold during its most recent quarter were running Android, Microsoft would have made between US$50-million and US$150million..
Not bad for MSFT. Very bad for eevryone else.
Motorola Mobility Holdings Inc. is the only U.S.-based Android maker without a Microsoft licence. Microsoft just won a motion last month to have an ongoing patent lawsuit moved to its home turf in Seattle
Excellenet commentary from Ambrose Evans-Pritchard today on the misundersdanding of yesterday's approval in Germany.
"The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.
Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go "this far, and no further".
There can be no question of beefing up the EFSF to €2 trillion or any other sum, whether by leverage or other forms of structured trickery. "The financial markets are beginning to ask whether Germans can afford all this help. We must not risk the creditworthiness of the German state," he said.
The best-read story in today’s Handelsblatt is the mounting rebellion against the EFSF in the Bundesrat, the German senate representing the interests of the regions. While this chamber does not have the power to block budget deals, it has begun to express deep alarm about the drift of events.
Marcel Huber, Bavaria’s Staatskanzleichef, gave an explicit warning that the Free State of Bavaria will not take one step further towards an EMU fiscal union or debt pool.
“A collectivisation of debts will under no circumstances be accepted. We oppose credit lines for the EFSF or leveraging through the ECB. Our message is simple and clear.”
Profound Changes Have occurred in Germany
"In a sense, the Bundestag vote was much like the ruling by the Constitutional Court earlier this month. It too said "Yes" to the bail-out machinery, but that was not relevant fact. What mattered was the Court’s implicit warning that Germany had reached the outer boundaries of EU integration, that German democracy is under threat, and its explicit warning that the Bundestag’s fiscal powers could not be alienated to Brussels.
Something profound has changed. Germans have begun to sense that the preservation of their own democracy and rule of law is in conflict with demands from Europe. They must choose one or the other."
Bad news for those countries wishing to print more money. Eurozone inflation has risen sharply and unexpectedly to 3%, a three-year high of 3 per cent.
In addition, it will be very difficult for the ECB to cut interest rates now.
In England, Economist Spencer Dale, one of the more hawkish members of the Bank of England’s interest rate setting Monetary Policy Committee, told the Daily Mail that he expects inflation to rise to 5% from its current level of 4.5%.
The Bank’s target was 2%.
The surprise rise in annual inflation strengthened the case against an ECB interest rate cut at its meeting next week, although the euro’s monetary guardian is expected to press ahead with measures to provide extra liquidity to the eurozone banking system.
Its is quite stunning that what would have been Spain's biggest ever IPO was cancelled due to bank pressures as they were afraid people would take money away from their coffers to buy the IPO shaes..
The ruling Socialists abruptly cancelled plans to boost public coffers by selling part of the state lottery for up to 9 billion euros (US$12 billion), "under pressure from the centre-right opposition party and banks fearing they would be choked of funds, market sources said" (Reuters) .
The IPO was fiercely opposed by Spanish banks involved in the sale, Santander and BBVA , which saw Loterias as a "direct rival to their need to bolster capital, by attracting would-be investors away from their deposits".
"I know for a fact that pressure from the banks involved is the reason behind this decision. The banks need capital to shore up their balance sheets and Loterias was direct competition. It would have attracted investors who would otherwise have opened deposits which the banks badly need," said a fund manager at one of Spain's largest institutions".
The Dallas' Fed's President Fisher said in a speech today in Dallas that he voted againt operation Twist “a strategic decision where I did not feel the benefits outweighed what I perceived to be the costs,” in particular, being conterproductve to job creation. Well, this would be a major effect indeed.
Presidents Charles Plosser of Philadelphia and Narayana Kocherlakota from Minneapolis also dissented
“My fundamental concern is about the efficacy of these initiatives,” “nothing more than pushing on a string”
Atlanta's Fed's President Dennis Lockhart said Operation Twist will probably "give no more than a slight boost to the U.S. economy". “The transmission mechanism for monetary policy remains somewhat impaired, and for this reason I am not expecting large gains from the Fed’s most recent action,” “It’s realistic to expect modest positive impact from this program.”
Fisher also commented about the U.S. economy “it’s weak. Businesses are on pause. Customers and consumers are on pause. Uncertainty about the future is rampant and uncertainty undermines confidence.”
“There’s lots of liquidity,” “You cannot rely on the Federal Reserve to do it all.”
Fisher also discussed conversations with business people who told him that a plan like Operation Twist would signal the FOMC’s concerns about a worsening economy and give people incentives to hoard savings, and that would complicate the Fed’s future decisions, as well as suppress bank earnings.
“There is a significant risk that the policies recently undertaken by the FOMC are likely to prove ineffective and might well work against job creation,”
Referring to long-term unemployment is a "national crisis", Federal Reserve Chairman Ben Bernanke said Wednesday suggested once again that Congress should take further action to combat it as well as lawmakers provide more help to the battered housing industry.
Bernanke noted that 45 percent of the unemployed have been out of work for at least six months.
"This is unheard of," "This has never happened in the post-war period in the United States. They are losing the skills they had, they are losing their connections, their attachment to the labor force."
In that he is absolutely right, and that is a huge crisis, which unfortunately has been going on for too long, and for way too many it's too late to fix.
That is a calamity.
In his speech, Bernanke also said the United States and other rich nations could re-learn a few lessons from fast-growing developing nations: successful emerging economies such as China had adopted disciplined budget policies, embraced freed trade, made public investments and supported education.
"Advanced economies like the United States would do well to re-learn some of the lessons from the experiences of the emerging market economies, such as the importance of disciplined fiscal policies,"
France "proudly" presented next year's budget as "the first to cut spending since World War II".
However, economists balked at the claim and said the cuts in the 2012 budget are not substantial enough to meet deficit targets laid out by the government -- or to reduce the country's debt load.
The Budget Ministry said that "Public debt reduction is a priority. It happens by first reducing the public deficit,"
Facing elections soon, skepticism abouds that they will really cut spending.
Budget Minister Valerie Pecresse: "It's a historic moment: For the first time since 1945, public expenditures year-on-year will go down,".
France hasn't balanced its budget in three decades and has for years flouted EU rules that require members to keep their deficits under 3 percent of GDP.
France's own bond yields -- the interest rate investors demand to lend a country money -- rose this summer amid fears its debts were too high.
"In response, the government unveiled a series of measures -- mostly new taxes -- that were reiterated in Wednesday's budget. Among other measures, it plans to increase taxes on the wealthy, levy a tax on sugary drinks and close loopholes.
It also promised to cut around 30,400 public jobs next year by not replacing one in two posts vacated by people retiring.
Budget Minister Valerie Pecresse told her colleagues Wednesday that -- including the austerity measures -- next year's deficit should fall to 80.8 billion euros ($109 billion) -- that's nearly 15 billion euros ($20.4 billion) smaller than this year's. (Business Week)
Amazon's Fire may well signal the Playbooks' demise. However, RIM still releasing many new products this fall ans still makes a lot of money on its Blackberry, with many loyal users, corporate and otherwise.
Which way will it be for RIM?
Below are straddles (strangles) for October, November, December, and January, which allow an investor to profit either way if the stock moves the indicated amount. The longer term versions are purposedsely way OTM (high risk, high gain).
Brittish Foreign Secretary William Hague says he has been proved right by the debt crisis after calling the eurozone a "burning building with no exits" in 1998 (while Conservative leader).
He also says the Euro is a "burning building with no exits". From Daily Mail:
You can have burning buildings where they manage to put out the fire or control it or get more room or something.
'I might take the analogy too far but it’s not built with exits so it is physically a difficult thing to leave a currency without any plan to do so I don't think we can advocate that but they are on very unpalatable choices and it clearly means that being in the Euro that Greeks, or Italians or Portuguese have to accept some very big changes in what happens in their country, even bigger than if they weren’t in the Euro.
'And Germans will have to accept that they are going to subsidise those countries for a long time to come really, for the rest of their lifetimes.'
Mr. Sprott wrote an open letter to The Globe and Mail backing Mr. Carney.
I wish to express my firm support for Mark Carney’s recent financial regulation speech in Washington. Despite Mr. Dimon’s alleged criticism of Mr. Carney’s remarks, the fact remains that we would not be in the present situation today were it not for the excessive overleverage and flagrant misappropriation of capital undertaken by the world’s largest banking corporations.
It has been our view for many years that the world’s largest banks are operating with leverage ratios of over 20-to-1. We are now in an environment where all financial assets, including currencies, can change 5-10% in a single week (many change by that percentage in a single day – see the Swiss Franc’s 9.5% depreciation against the US dollar on September 6th, 2011). With volatility of that magnitude, the practice of maintaining such leverage is not only imprudent, it is irresponsible.
We have long maintained that all banks should make stronger efforts to bolster their capital reserves. It should not be the responsibility of government to rescue these corporations if they continue to make the same mistakes, and engage in the same risks, year after year. In that vein, we must also question why banks were allowed to reinstate their dividends so quickly after the 2008 crisis. In France, for example, where French banks are currently experiencing deposit withdrawals, one wonders how much stronger they would be today had they initiated a more prudent recapitalization policy.
In our opinion, the current economic crisis is still, at its heart, a banking crisis. Mr. Dimon’s alleged criticism reflects his inability to acknowledge this. Banking regulation is a wholly crucial issue and we stand behind Mr. Carney’s attempts to address it.
Eric Sprott, FCA
Sprott Asset Management LP "
The answer of course with regards to fiscal austerity, is no.
Throwing yet another wrench at any new bailout plan, spcially the leveage kind, German 10-year bonds dropped for a fourth day after inflation in five states accelerated in September.
The annual inflation rate jumped to 2.8 percent from 2.3 percent in North Rhine-Westphalia, and rose to 2.3 percent from 1.9 percent in Hesse.
Inflation in the in Saxony, Bavaria and Brandenburg also rose.
Bloomberg: "The annual inflation rate quickened to 2.8 percent from 2.3 percent in North Rhine-Westphalia, and to 2.3 percent from 1.9 percent in Hesse, the states’ statistics offices said today. The rates in Saxony, Bavaria and Brandenburg also climbed.
Five-year notes fell as investors bid for fewer securities than were available at an auction of the debt today. Quickening inflation makes it less likely the European Central Bank will cut interest rates at its policy meeting next week. Greek two- year notes dropped as German Chancellor Angela Merkel signaled policy makers may review the terms of the Mediterranean nation’s second bailout.
“The market could see today’s inflation numbers as a good reason for the ECB to explain that a rate cut is not needed in the short term,” said Annalisa Piazza, a fixed-income strategist at Newedge Group SA in London. “German paper is quite expensive relative to other European countries, so demand is not as strong as it used to be.”
The 10-year German yield rose three basis points to 2 percent at 11:44 a.m. in London, the first time it has breached that level since Sept. 15. The 2.25 percent security due September 2021 lost 0.310, or 3.10 euros per 1,000-euro ($1,368) face amount, to 102.265".
From the EIB site:
From David Rosenberg today: "No doubt the market wants a solution. And it wants massive amounts of money thrown at the problem, regardless of who pays (so long as it's not the banks holding the debt!). But a proposal, as we have seen, is one thing — getting it in place and approved is another. How big is it? How flexible is it? What will it buy? What are the dilution risks for the recipient banks? Is it legal, specifically under the German Constitution? These are all important questions.
Not only that, but it is surreal actually that the markets could rally on a leak to a CNBC economics reporter on a plan that is still bereft of details (classic shoot first, ask questions later ... like the ballyhooed rumour of China stepping into the fray with a bailout package for Europe). So if this leak is true, Europe is going all in with leveraged bets that will water down the credit quality of both France and Germany. So what this means is that there will be no strong fiscal credits left (the euro has to be a gigantic short here) in the region".
"If my reading of history is accurate, the experience with SPVs hasn't been so successful. The blown opportunity to let Greece default, ring fence it, and have individual countries support their banks I think would yield much more desirable results, even if painful over the near-term. And there are more complications. So the EIB will take the beaten-up PIIGS bonds off the banks' balance sheets? But at what price? Par? Market? Somewhere in between? The banks don't take a haircut at all on this? And if this is all an attempt to prevent banks from taking a hit, I just can't see how German taxpayers are ever going to be willing to bailout Spanish banks. This all smacks of desperation to me and I think there would be a taxpayer revolt in both Germany and France over it".
Or will it rise from the ashes?
With memories of Lehman and Bear Stearns, here are straddles (strangles) for BAC for October, November, and December. Computed with StraddlesCalc Tool, which shows the required move for each position to achieve profitability.
Gold has rebounded sharply today, taking the goldminers up with it. Investors used the last few days to load up on physical gold, to very hefty profits today.
Reuters reports today that physical gold buying has been "xceptional"
"...Holdings of the largest, New York's SPDR Gold Trust, declined some 5-1/2 tonnes but are still up 1.2 percent so far this month.
Most major funds are still in positive territory for September in percentage terms, with the iShares Gold Trust and ETFS' Swiss Gold fund up 0.5 percent.
Meanwhile, heavy buying of physical gold stocks -- often a price-sensitive area of demand -- suggested that Monday's price fall had whetted investors' appetite for the metal.
Swiss bank UBS said it had seen very strong physical buying in Asia, particularly number one bullion consumer India, on Monday. "To be clear, physical demand right now is not just decent, it is exceptionally strong," the bank said.
Other precious metals also bounced back after Monday's hefty losses. Silver, which slid as much as 16 percent to a 10-month low of $26.04 an ounce on Monday, rose more than 9 percent to a high of $33.48 an ounce.
Spot platinum was up 1.3 percent at $1,575.50 an ounce, while spot palladium was up 3.7 percent at $650.22 an ounce.
Gold's premium over platinum stood at around $90 on Wednesday, with a ratio of 1.06, its highest in 20 years".
A study by the International Labour Organization and Organisation for Cooperation and Development (OECD) presented on Monday in Paris says that the risks of prolonged unemployment are growing in the G-20. The study indicates that the G-20 lost 20 million jobs with the financial crisis of 2008 and risk losing more than 20 million by the end of 2012.
"We are very concerned about what we are seeing in the numbers," said Stefano Scarpetta, chief analyst jobs in the OECD, just before a two-day meeting to be held in the French capital with the labor ministers of 20 countries. "Employment and social policies should be the focus of a policy to combat the current situation."
The recent expansion of employment in the G-20 is insufficient to offset the 20 million jobs lost in the 2008 economic crisis, said Scarpetta. Employment grew 1%, but it requires an annual expansion of at least 1.3% to fill the gap of 20 million jobs in the G-20 2015. Scarpetta said the situation tends to worsen with the current economic slowdown.
"If the employment rate grows by 0.8% by the end of 2012, now a possibility in mind, then the lack of jobs will grow by another 20 million jobs for a total of 40 million in the G-20" , said the ILO and OECD.
The study says that 200M are currently unemployed, at levels very close to the great depression.
The performance of labor markets was very different from country to country. While some countries such as Brazil, Germany and Indonesia had a strong growth in employment and significant falls in unemployment, others such as Argentina, Australia and Russia showed little or no growth in employment, and another group of countries and regions still have persistent high unemployment such as Spain, the United States, United Kingdom, South Africa and the European Union.
The Telegraph reports that Andreas Vosskuhle, head of the German constitutional court, said "politicians do not have the legal authority to sign away the birthright of the German people without their explicit consent".
"The sovereignty of the German state is inviolate and anchored in perpetuity by basic law. It may not be abandoned by the legislature (even with its powers to amend the constitution),".
"There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit – which might be politically legitimate and desirable – then Germany must give itself a new constitution. A referendum would be necessary. This cannot be done without the people,".
The extraordinary interview comes just days before the Bundestag votes on a bill to revamp the EU's €440bn bail-out fund (EFSF), enabling it to purchase EMU bonds pre-emptively and recapitalise banks.
Tensions are running high after it emerged over the weekend that officials are working on plans sketched by the US Treasury and the European Commission to "leverage" the firepower of the EFSF to €2 trillion, in conjunction with lending from the European Central Bank.
Germany's politicians are suspicious of all the current talk about new bailout plans, whatever name they might be given. Carsten Schneider, finance spokesman for the Social Democrats, demanded that Chancellor Angela Merkel and finance minister Wolfgang Schäuble clarify their "true intentions " before the vote on Thursday.
"A new multi-trillion programme is being cooked up in Washington and Brussels, while the wool is being pulled over the eyes of Bundestag and German public. This is unacceptable,".
"Our judgment makes clear that the Bundestag cannot abdicate its fiscal responsibilities to other actors. And no permanent mechanism may be created that entails taking over the liabilities of other states,"
Eastman Kodak's stock price has plunged today on news it needed to access a credit line.
Straddles allow an investor to profit either way. Here are both ITM and OTM versions:
That is the view from Alessio Rastani interviewed by BBC, who puts it quite simply in terms everyone can understand. He says markets are ruled by fear, institutions do not buy ths plan, market is toast, will crash, Euro latest plan, with 50% haircut on Greece or not, will not work.
He says the governments do not rule the world, the Goldman Sachs et al. do".
"Be prepared, act now to protect your assets"
However, there is also opportunity to make money, hedging, investing in bonds. "Anybody can make money from it".
The FT says it was a tirade against well-respected Marc Carney. According to The Globe and Mail's it appears that to have been more a full-on assault this weekend meeting in Washington.
Mr. Dimon's "tirade: occurred in a room filled with bankers and finance officials.
Mr. Carney was highly critical of bankers in a speech Sunday morning to the International Institute of Finance. “In no other aspect of human endeavour do men and women not strive to learn and improve,” “The sad experience of the past few years shows that there is ample scope to improve the efficiency and resilience of the global financial system.”
Now a troglodyte is a "member of a prehistoric race of people that lived in caves, holes and dens. Has also been a term used to describe a person who is a recluse, a brute, ill-mannered or simply out-of-date".
Carney: “It is difficult to believe that prolonging this implementation phase even further would have material impact on real economic outcomes,” Mr. Carney said. “If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, to soon.”
BNN had a great interview from George Gero this morning on the reasons on the recent gold and silver plunge: Gold has had many many headwinds, margin increases on both gold and silver, and institutions selling gold to stem losses. The ECB annual 500 tons of gold sales each September end this week, plus options expirations. Well, that was a very good time to take profits.
Brazilian newspaper O Estado de Sao Paulo reports today that The Greek finance minister, Evangelos Venizelos, told lawmakers of his party that the country faces the risk of a disorderly default, according to the Friday edition of a Greek newspaper. The publication adds that the minister has suggested a possible 50% discount on the debt. According to the newspaper Ta Nea, Venizelos presented to parliamentarians from the Socialist Party three possible scenarios for Greece.
In the first scenario, Europe would follow through with the commitments made at a summit July 21, extending a bailout plan to the Greeks, worth € 109 billion, but the offer including the country's creditors for a voluntary program exchange of debt.
In the second scenario, Greece could not reach an agreement with its international creditors in the coming days, what would the Greek government to run out of money in the middle of October and would require a disorderly default.
Without citing sources, Ta Nea reported that Venizelos also said a third option for the country, which would include an orderly restructuring of the Greek debt, but with lenders facing a loss of 50%. Such a scenario would be agreed with the creditors and allow the permanence of Greece in the euro area, the newspaper said. Ta Nea adds that this scenario seems to be gaining ground elsewhere in Europe.
The Finance Minister said, however, that it is counterproductive for the media to distribute information suggesting that the country set a default rating, with 50% losses to creditors. Although it has not directly denied it, Evangelos Venizelos reiterated Greece's commitment to achieve the deficit targets and to continue with an ambitious agenda of reform, as promised its European partners.
Bernanke did it, but he actually did not do much, other tha na whole lot of damage to stocks and gold.
This is the current update on the straddles we posted yesterday, as of 12:30PM.
The FOMS will release its latest decision at 2:15PM. Will it be operation twist (and shout), or QE3, or a major disappointment?
Below are straddles for gold and general market stocks, computed with the StraddlesCalc tool.
Nouriel Roubini was quoted by CNBC and FT today stating the obvious that everyone knows: Greece to default and exit the euro.
"The recent debt exchange deal Europe offered Greece was a rip-off," "If you take into account the large sweeteners the plan gave to creditors, the true debt relief is close to zero."
According to him, the major problem is a lack of growth and competitiveness, which can only be overcome by currency depreciation - something that cannot hapen if they remain with the Euro
"A return to a national currency and a sharp depreciation would quickly restore growth and competitiveness, as it did in Argentina and many other emerging markets that abandoned their currency pegs,"
"Overnight, the foreign liabilities of Greece's government, banks, and companies would surge,". "Yet these problems can be overcome. Argentina did so in 2001, when it converted its dollar debts into pesos. The U.S. did something similar in 1933, when it depreciated the dollar and repealed the gold clause."
"Euro zone financial institutions would need recapitalizing and draconian measures would need to be imposed on the Greek banking system to avoid its implosion, according to Roubini, who believes the short-term and long-term benefits for Greece are better than the current path that Athens finds itself on".
"Via nominal and real depreciation, the exit path will restore growth right away, avoiding a decade-long depression," said Roubini who warns that contagion for countries such as Italy and Spain is already a reality, and requires liquidity support from the European Central Bank or the European Financial Stability Fund.
"Like a broken marriage that requires a break-up, it is better to have rules that make separation less costly to both sides".
How things change. Brazil will propose to the other BRIC countries that they provide billions of dollars in resources to the International Monetary Fund (IMF) as a way to alleviate the crisis in the euro area.
Brazil's finance minister, Guido Mantega, will present the proposal this week during a meeting in Washington of the BRICs, the source said on condition of anonymity.
"Giving more resources to the IMF seems one of the most attractive options that we have to help Europe," the source said.
Brazil could provide up to $ 10 billion of its own resources to help Europe through various channels, including the IMF or the purchase of sovereign debt, the source added.
Brazil's contribution alone would certainly be too small to make a difference. But a coordinated effort that includes China and Russia in particular, could have a major impact at the time that investors look to the international reserves of emerging economies such hope of help.
A consensus on a coordinated action seemed to gain ground on Monday. The Russian Finance Minister Alexei Kudrin told reporters that countries with substantial reserves could help bail out the euro zone nations under "certain conditions."
The BRIC countries of Europe were already buying bonds issued by the European Financial Stabilisation Mechanism, the Valor Economico newspaper reported on Monday.
Mantega had earlier proposed that the BRICs make coordinated purchases of European bonds, but the idea met with resistance in other group members, who fear the purchase of risky assets or doubt to be able to help. The IMF would be a vehicle "safer" for coordinated action, the source said.
The proposal would meet the desires of two Brazil. The aid could alleviate the impact of the crisis on the eurozone economies in trouble - especially Portugal and Spain, which have large investments in the country.
Greater participation in the IMF could also increase Brazil's power within the institution. Members of the government of President Rousseff have said they see the crisis in Europe and the United States as an opportunity for Brazil and the BRIC countries gain greater importance in global affairs.
One way for the BRIC countries provide more resources for the IMF could be through "New Arrangements to Borrow" - kind of crisis fund currently has about 591 billion dollars available, the IMF said.
Brazil received direct consultation of European countries regarding the purchase of sovereign bonds, the source said, but international reserves can only be used for the purchase of securities with investment grade
Brazilian newspaper O Estado de Sao Paulo reports today that, concerned about the effects of the exchange wars on its economy, Brazil will propose the adoption of a barrier to offset currency devaluations. The mechanism is provisionally named "exchange antidumping" and will be presented at the World Trade Organization (WTO).
Led by the Ministry of Development and the Foreign Ministry, the measure proposes an acceptable band of fluctuation of currencies - which would be determined by such organizations as the International Monetary Fund (IMF). If the band is exceeded, the countries would be allowed to charge an extra import duty to offset the damage caused by the exchange.
"This discussion is ripe for this moment. All countries face the same problem, which is the devaluation of the dollar," said the State Development Minister, Fernando Pimentel. He cited as an example the recent decision of the Central Bank of Switzerland to ensure a high limit for its currency.
The government believes that import taxes in Brazil, which can reach a maximum of 35%, are no longer sufficient to offset the foreign exchange crisis in the post-2008 crisis. The understanding is that countries committed themselves to the current levels of tariffs in 1994, a time of relatively fixed exchange rates.
The ministry has stepped up measures to protect trade, but has noticed that the current rules for antidumping and safeguards only solve specific problems in some sectors. If all antidumpings measures demanded by the private sector were adopted today, only 4% of the import tariff would be achieved.
The initiative to propose an "exchange dumping" occurs at a time when the real currency reached its highest against the dollar depreciation in the year. For Brazil, this is not a discussion of short-term, but rather strategic. It is another example of the shift in trade policy Dilma, considered to be more protectionist than in previous administrations.
To try to slow the strengthening of the real, the government adopted an aggressive policy of buying stocks and raised the tax on Financial Operations (IOF). Last week, it raised the Industrialized Product Tax (IPI) by 30 percentage points for imported cars or those with less than 65% of Brazilian pieces.
Support. Brazilian diplomats have informally sounded the U.S. and China over its support for the mechanism of "exchange dumping" and, at least at this stage, they have not found strong resistance. In practice, the Chinese would be the hardest hit, but they argue that its currency merely followed the devaluation of the dollar.
The Brazilian CB very unxpectedly dropped interest rates earlier this month, at the apparent pressure of the government. The move was hghly criticized as politial as it rusn the risk f unleashing inflations.
The critics got more ammunition today as a measure of inflation jumped to 7.12%. The risk of inflation exceeding the target ceiling in 2011 of 6.5%, is "relevant" in the words of the Coordinator of Economic Analysis of the Getulio Vargas Foundation (FGV) Solomon Frames. He made the comment noting that retail inflation in 12 months, as measured by the family of IGPs is still above 7%. The CPI-10 is up 7.12% in 12 months to September.
Until and including August, the IPCA, calculated by IBGE and used as a reference to the inflation target, is up 7.23% in 12 months. "It is not impossible, mathematically for inflation to drop to 6.5%. But it is very difficult. I think it is an increasingly strong case that it is above target," he said.
Moody's has just downgraded the credit ratings of French banks Societe Generale and Credit Agricole
The agency had put them as well as BNP Paribas on review for downgrade in mid-June.
The rating on Societe Generale's long-term debt rating was cut to Aa3 and Credit Agricole's to Aa1, Moody's warned that both could have their ratings downgraded by a further notch as it assesses "the implications of the persistent fragility in the bank financing markets."
The agency said that BNP's rating also remains under review.
Rumours that China was about to help European troubles countries were put to rest yesterday after the Chinese premier said economies “must put their own houses in order” and "not rely on bailouts from China".
“Countries must first put their own houses in order,” Wen said at the World Economic Forum in Dalian, China. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”
What is funny is that more "reports" are today coming about about some other Chinese official saying China want to diversisy its $2T in reserves, from some organization that has no power to dictate so.
All the unsurprising news anf rewewed talks that time Greece will default (!), there is an astonishing chart for the Euro in Yens:
Nouriel Roubini is making public comments again, this time saying that the risk of a global recession is greater than 50%.
In addition, he says that the next two to three months are crucial.
“This is not the time to be in risky assets,”. Cash is the place to be
WSJ interview Simon Constable:
The Brazilian Central Bank unexpectedly cut interest rates by a rather alrge 0.50%. The move is officially due to "global slowdown". '"the committee saw a substantial deterioration in the international outlook as the U.S. and Europe struggle with debt and anemic economic growth."
However, Brazilians are highly suspicious of the move and are worried about government pressure (i.e, interference on the CB).
Moreover, new president Dilma Rousseff, wants real interest rates (nominal less inflation) to be 2-3% by the end of 2014. This seems like crazy talk as the currently stands at 6.5% with high inflation risks. For the rates to drop that much it means lowerin the inflation rate, at a time when the WC 2014 and Olympics 2016 is generating a construction boom.
This just seems like crazy politicians, really crazy.
Does this look like inflation is slowing down?