Unlike Bernanke, Europe Can't Just Throw Money From Helicopters

In a clear allusion and rebuttal to what Ben Bernanke is doing in the U.S., German Economy Minister Rainer Bruderle said that "The EU cannot throw money from helicopters", and "You can't just throw money from helicopters ... You have to create confidence in institutions, in the state, in public authorities,"

Bruderle added on the Irish situation: "It's up to the Irish government to ask for assistance from the International Monetary Fund or from European funds." and said the eurozone economies like Greece and Ireland should engage in deficit-reducing reforms in order not to require assistance any more.

"The European community as a whole has an interest in finding a way to have guarantees of a solution when there are difficulties,"  He added that "The situation in Italy is different, with no tension."

Underlying the severity of the crisis, EU's President Herman Van Rompuy warned that the 27-nation bloc's very future could be at stake:

"If we don't survive with the eurozone we will not survive with the European Union," he said.

Euro Zone A Terrible Mess, Falling Apart At The Seams; Austria Says No To Greek Bailout

The U.K.'s Telegraph describes the current situation in Europe as a mess and falling apart at the seams. No wonder currencies are so wild.

Above chart from our Tracking Live site of currency ETFs.

"Europe’s hastily assembled bailout fund already seems to be coming apart at the seams, and that’s before Ireland has even tapped into it. Austria is refusing to contribute to the next tranche of bailout money for Greece, citing the country’s failure to meet conditions".

"The way things are going, the facility will fail even before its wider fault lines have been fully exposed. Europe is making things up as it goes along, and a pretty desperate job it is making of it too. The extraordinary thing to outsiders trying to analyse these events is just how poorly prepared Europe was to cope with sovereign debt crises within its midst. Indeed the no bailout clause contained in the Maastricht Treaty seemed to deny the possibility of there ever being one".
[...]

"It’s all a terrible mess, or as Terry Smith, chief executive of Tullett Prebon, puts it, “that’s what happens when some botched repair starts to come apart in a hurricane”. Quite so".

Wild Volatile Movements in Currencies and Gold: Very Profitable Straddles

As expected, currencies continue to be very volatile, and has gold. below is an update of our straddles from the first days of November.

The only loser above is the Aussie dollar, but on average the gains are +30%.

Yen's Huge Drop Allows for Big Profits On The FXY ETF

With the rise of the US dollar and the corresponding drop on the Yen, we have exited the 2nd posuiton on FXY today. Expiration is this Friday, there is no need to risk the profits. As posted on November 10, adding today's trade

Bernanke's Dream: U.K. Inflation Jumps to 3.2%

Bernanke would be happy with bad news like this. The U.K's. inflation rate unexpectedly climbed to 3.2% in October, exceeding the government’s 3% limit.

Forecasts for the near future are not good either. According to Bloomberg, Martin Weale  Bank of England's policy maker, said yesterday that inflation “may well rise further” in the next few months. King presented economic forecasts last week showing it may exceed the bank’s 2%  goal through 2011.

The major components that cause inflation to accelerate were:

• gasoline and diesel,
• overdraft charges and mortgage arrangement fees,
• computer games'

“Inflation over the next few months may well rise further, even if a subsequent decline is expected,” “I certainly worry about the effect on inflationary expectations of introducing additional monetary stimulus.”

Boeing, Airbus, Embraer in Trouble: End of Major Aircarft Sales to China; $480B by 2029

Boeing, Airbus, and Embraer had been successfully selling aircraft to China for decades.

At the Zhubai air show today, Commercial Aircraft Corporation of China Ltd announced its first 100 orders for its new C919 168-seat aircraft, a model that competes wit the most popular planes, the Boeing 737 and the Airbus 320.

According to the AP, The announcement shows "China's ambitions to create Asia's first successful commercial airplane business in a challenge to Airbus and Boeing's long-standing domination of the industry".


They are also offering VIP flights on itsARJ21 jet (70- to 110-seats), for which it has 240 orders.

"China launched its modern commercial aviation industry less than a decade back and two years ago reorganized it to create Comac to build the ARJ21 and develop the C919. That was part of an overall campaign to create Chinese industries able to compete at the global level, and also stands to give China bragging rights as the only Asian country to successfully produce commercial aircraft after attempts by Japan, South Korea and Indonesia failed to get off the ground".

While the adoption of these new aircraft outside China will no doubt face many hurdles, the world's biggest market for new aircraft is precisely China. According to Boeing itself, China may need $480 billion worth of aircraft by 2029. Obviously that was too good to pass for the Chinese.

Boeing and Airbus have  a grace period as Comac will complete the design this year, with the finer details worked out by 2012. The first test flight is planned for 2014, with the first planes delivered in 2016.

Yen Dropping Hard, Touched 82.985

Those who are short the Yen will be happy to know that the Yen touched 82.985 at 7AM ET.

Disclamer: FXY 120 puts.

Ireland in Talks With ECB For 60B to 80B Euros Bailout

The BBC has just reported Ireland is in indeed talks with the ECB to tap the European Financial Stability Fund (EFSF) for a bailout. The provisional estimate of the loans is believed to lie between 60bn and 80bn euros ($82-110B USD).

"Irish officials have not denied they are in talks about accessing the EFSF but instead say "it makes no sense".

"Eurozone officials told the Reuters news agency on Friday that discussions were under way, with one saying that it was "very likely" Ireland would receive financial assistance".

QE2: Bonds Are Acting Wild

Consider the bond yields in the middle of the curve, around 5-7 year timeframes:

It's a bizarre curve. Both of those inched higher yesterday.

Nassim Taleb Blasts Bernanke, Says The Fed's Business is Price Instability

Nassim Taleb, distinguised professor at NYU and author of The Black Swan, was on Bloomberg TV today blasting Bernanke for not understanding the risks he is taking by doing QE2.

He says QE2 is like being short on an out of money option on hyperinflation, meaning, you are in very deep trouble if it happens.

Who will bear this risk? Retirees.

The Feds' business seems to be "price instability".

Watch interview:



This is his latest book. The title is a reference to Procrustes, a Greek who given a bed for his guests, would cut the guests's legs if they were too big, or stretch them if they were too short, an allusion to what the Fed is doing, as opposed to fixing what is really wrong:

Great Deal on Yuan 2011 Options Through CYB ETF

The CYB ETF tracks the Chinese Yuan:

These are the April 2011 24 calls:

The 24 calls are in the money by $1.50. They cost is $1.65, therefore the extra premium is only $0.15, for over 6 months of wait. That's a 0.78% rise over the current value to make them profitable. If you think the Yuan will gain over 0.78% in 6 months, these are a very good deal.

Somebody obviously does given the volume above. The 25s have actually a "large" ope interest (for CYB):

Given the curreny chaos in currencies anything can happen. Please do your due diligence. Options are dangerous and may cause 100% loss.

G20: Victory for Emerging Countries, Green Light to Control Currencies

The G-20 gave the green light to emerging economies to adopt capital controls for those countries which are feeling the weight of excessive exchange rate appreciation, such as Brazil and many others. This is the interpretation made by many analysts.

The final declaration says that emerging economies with adequate reserves and overvalued exchange rates may take "careful macro measures." This point had not been covered in the earlier text set by the finance ministers of the group two weeks ago.

Capital controls are no longer taboo


"I believe the G-20 is giving approval for any capital controls, now seen as an effective way to limit the negative effect of investment portfolios," said Marco Annunziata, Unicredit's chief economist,  "Capital controls are no longer taboo."

Jane Foley, Chief strategist exchange at Rabobank, says he G-20 recognizes that is currently not in a position to prevent actions such as Brazil's, which raised the tax on foreign capital. She said this would only be possible if there were international penalties that would require much political commitment of the authorities. "Preventing these measures would also bring more criticism about the Federal Reserve policy,".

The determination of the G-20 is particularly important for Brazil, which recently adopted a series of actions to stem the heavy flow of foreign funds and the Real appreciation. The Brazilian government blames the ultra-accommodative strategy of the United States for the inflow of ollars. There are significant worries about bubbles in emerging markets.

Chris Turner, chief strategist of foreign exchange at ING, also interprets the phrase the G-20 as a liberation for the capital controls.

Shocking Victory

This section of the statement was also welcomed by South Korea and has generated expectations that the country may take initiatives to curb the appreciation of its currency. Rhee Chang-yong, a member of the committee preparing the meeting of Korea, said the possibility of imposing measures is a "shocking" victory that will allow the authorities of some countries to intervene in the exchange..

Lee Myung-bak , South Korea's president, also said his country will act against excessive flow of capital and reiterated that it will consider further steps to limit the inflow of funds.

With news from O Estado de Sao Paulo.

The Yen Collapsing - Again

The Yen is havig anothef fit today. These wild currencies have been consistently the most profitable trades.

What you see rising on the chart is the US dollar. That's a collapse after a huge rise of course.

ECB On Path To Force Ireland and Portugal Bailout: Euro To Weaken

The financial crisis in Europe has escalated again, as if on cue. Last week we mentioned that the US dollar was too weak, in other words the Euro was too strong, and would thus cause some kind of bad news coming to of Europe to weaken the Euro.

Ireland, Greece, Portugal and Spain are all over the news again all of  a sudden. The premium investors charge to hold Irish and Portuguese debt over German bunds reached records yesterday ad today.

Says James Nixon, co-chief European economist at Societe Generale SA in London: “It is only a matter of time before the ECB is privately advising Portugal and Ireland to accept a bailout,” “The alternative appears to be either an interest rate that is too low for Germany or an appreciation of the euro that will condemn the euro’s peripheral economy to a long, slow death.”

Bloomberg: "Trichet may ultimately lobby Ireland and Portugal to tap the EU rescue fund for fear volatile markets will derail the ECB’s plan to keep withdrawing liquidity, or even impinge on its ability to set monetary policy for 16 nations,"


The losers in all this (besides all the hundreds of millions affected by the above mess): the Japanese, whose Yen refuses to weaken. So that will be the next shoe to drop.

ETFs: FXE for the Euro, FXY for the Yen

Beware The Weekly Options: CSCO Options Expire Today.

Investors poured into CSCO options today, including yours truly. However, I ended up buying options that expire today, and not next Friday as is normal. They are called weeklies.

The above is from Google options chain. Note the date! Those options would expire or be exercised after the close today.

If they don't sell today, a lot of investors would end up owning CSCO shares, and having to fork out significant sums.

Pay attention to the date on the symbol. Cirrect symbol for November is CSCO 112010 20 , not CSCO 111210 20

Many thanks to miadhach for saving my skin on these.

China's Inflation Jumps to A 25-Month High; Food Inflation Is 10.1%

China's inflation jumped to a 25-month high in October as food costs soared.

Inflation was 4.4%, with 10.1% increase for food, far above the official target of 3%, and also much higher than September's 3.6%
Business Week says this occurred "despite government efforts to cool living costs, raising the possibility it might impose new controls that could further slow economic growth". [...] "Beijing wants to cool inflation and guide China's rapid expansion to a more sustainable level after its stimulus-fueled rebound from the global crisis. It raised interest rates last month and ordered banks on Wednesday to increase reserves in a move to curb lending".

"Inflation is especially sensitive in a society where poor families spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but inflation erodes the value of savings and undercuts economic gains that help support the ruling Communist Party's claim to power".

China's food price inflation has risen steadily this year, increasing from 5.7%in June to 8% in September.

G20 Summit: Brazil Defends Use of New Commercial Currency Instead of U.S. Dollar

At the G20 summit in South Korea President Luiz Inacio Lula da Silva proposed discussing alternatives to the dollar as the currency used in commercial transactions.


Upon arriving in Seoul to the G20, which will address issues of global economy, the president again criticized what he called "currency war", waged primarily by the United States and China.

"Our main quarrel is with the United States and China. We cannot continue the way it is with this exchange war" the president said, according to the Agency Brazil.

By advocating the resumption of the debate on alternatives to the dollar in global trade, Lula said that the countries that make up the BRIC nations - Brazil, Russia, India and China - have already been addressing the issue.

"Since last year, we are calling the BRICs to replace the dollar in transactions. It is a work of persuasion," he said.

Lula also advised the government of his successor Rousseff, who takes on Jan. 1, to seek to increase the country's foreign trade and said the government must act as "backpackers."

"We will not sell, if you stay in Brasilia crying". :We must put our products as if they were in a backpack," the president said.

G20 Summit: China Flatly Rejects Proposals and Accuses U.S. Of Devaluing the Dollar

A major Brazilian newspaper reports that today at the G20 summit today Chinese authorities have rejected an attempt to set limits for external imbalances, defended the firm control of the yuan, and accused the U.S. of provoking a destabilizing flows of short-term capital to developing countries.


Chinese President Hu Jintao said China is determined to continue with the reform of the exchange rate system, but the change is gradual and requires "a healthy external environment,".

Speaking at the same press conference during the two-day summit of the G-20, in Seoul, South Korea, an official of the Ministry of Foreign Affairs, Chen Xu, said numerical targets to control the current account balances would be inappropriate.

The current account balances are just indicators of deeper imbalances and are difficult to control due to the different conditions of various countries," .

At the same time, Yu Jianhua, Department of International Trade and Economic Affairs of Chinese Ministry of Commerce, said China is not seeking a "confrontation" with the U.S. on trade issues and exchange. Jianhua also said to be optimistic about the development of economic relations between the two countries.

The group of Chinese officials addressed crucial issues facing the G-20, which is trying to avoid a "currency war" global, seeking a more balanced global growth and a "competitive devaluation" of currencies..

China says that the policy of the Federal Reserve (Fed, the U.S. central bank) to inject $ 600 billion in cash into the economy helps reduce the dollar value

Now Geithner Says Greenspan is Wrong

Tim Geithner today:

“I have enormous respect for Greenspan, had the privilege of working with him for a long period of years but that’s not an accurate description of either the Fed’s policies or our policies,”

“We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy.”

Greenspan had just said like it is, and like the rest of the world sees it.

Greenspan yesterday:

"America is also pursuing a policy of currency weakening. The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world to, as they see it, the rest of the world’s competitive disadvantage. Something has to give in this arena of zero-consolidated current account balances".

Latest Report: There are Five Unemployed For Every Job Opening in The U.S.

The U.S. Labor Department released a report on job openings and labor turnover (JOLTS). It shows that there were five unemployed workers per every available job in September.

This is actually not as a bad as the record a few months ago.

Historical chart: