Dramatic Overnight Moves, out of the ordinary events

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Oil makes it's near 10% move.

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DALIAN - A key policymaker at China's central bank has let slip that Beijing aims to run down its portfolio of United States debt as soon as safely possible.

"Once the US Treasury market stabilises, we can liquidate more of our holdings of Treasuries," said Mr Li Daokui, a member of the People's Bank of China's monetary policy committee (MPC), at the World Economic Forum in Dalian.

"The incremental parts of our foreign reserve holdings should be invested in physical assets


http://www.todayonline.com/Business/EDC110...s--PBOC-adviser
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Overnight surprises dont come much better than this--especially as China lines up to bail out the world.

Where to put some of the cash realised from SELLING US Treasuries?----Physical Assets

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FastMarkets London have just sent this to all their subscribers of their free daily update bulletin, the last paragraph seems worth highlighting given we are now only 5 days away from the critical FOMC meeting:---- "In our opinion, the EU debt problem looks many times larger than the collapse of Lehman Brothers and therefore it is difficult to see the eventual outcome being any less painful"
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William Adams, Head of Research

The markets expect some positive news from the powers-that-be in Europe, it seems, judging by the performance of equities on European bourses this morning - they reversed pre-market losses with gains of one or two percent.

Quite what they think can be done to resolve the eurozone debt crisis remains a mystery - given all the comment on the subject, nobody has yet to come up with a workable solution. All roads forward seem to suggest pain, contagion or a path to a worsening of the problem, albeit down the road.

Today's reaction in the markets suggests the metals might have a better inclination of what lies ahead - base metals prices are down one percent - while equities seem to be expecting a miracle, with Germany's Dax up 2.7 percent and the FTSE up 1.4 percent.

The only potential miracle worker is China but the Asian powerhouse will probably not step in until a feasible plan to tackle the root of the issue is agreed. Given the political/central bank impasse in Europe, the market probably does not have time to wait for such a concerted action plan.

With spreads between Bund yields and Euribor (the rate banks charge each other to lend unsecured funds) expanding, it seems that banks are starting to fret about lending to each other. This is a similar scenario to one that developed in 2007, which led to the credits crisis.

With Moody's downgrading of the ratings of Credit Agricole and Société Générale today (French lenders are the most exposed to Greek creditors at $56.7 billion of private and public debt, according to a June report by the Bank for International Settlements), we can only conclude that this problem is merely starting to emerge. The danger is contagion, which it could bring matters to a head.

Given that the EU debt situation is so complicated and has so many implications, the markets seem to be partly frozen as they await their fate. Prices are generally trending lower - perhaps hope that the European equivalent of a Bernanke Put will be implemented is preventing a rush for the exits.

We expect politicians and central bankers to become more vocal is their effort to stop a crisis from unfolding, which might buy some more time and lead to rallies but, as we say above, a feasible solution to the issue is notable by its absence.

The markets have been toying with what to do for a long while; if a solution were obvious, surely it would have come to light by now. So the outlook is grim.

In our opinion, the EU debt problem looks many times larger than the collapse of Lehman Brothers and therefore it is difficult to see the eventual outcome being any less painful.

　







　

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Obama's rescue plan speech goes down like a lead balloon---US market down 2.6%----seems pretty clear what has to happen, once again dramatic overnight happenings----will more money printing wait yet another 10 days for the FOMC meeting?
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Monetary policies will maintain price stability and continue to support economic recovery. Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets. In this context we reaffirm our commitment to implement fully Basel III.

http://www.telegraph.co.uk/finance/financi...ue-in-full.html
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Chancellor Angela Merkel's government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.

The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece's bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government's bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.

http://www.bloomberg.com/news/2011-09-09/g...ce-default.html

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Back to the main game in town---the imminent printing of more MONEY.
Once again overnight a couple of things happened.
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http://www.businessweek.com/news/2011-09-0...nt-to-7-5-.html

Sept. 7 (Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans said the central bank should move "aggressively" to reduce unemployment, even at the cost of temporarily pushing inflation higher.

The Fed's current commitment to record-low interest rates should be made contingent on pushing the unemployment rate to around 7 percent or 7.5 percent, as long as inflation stays below 3 percent in the medium term, the 53-year-old regional bank chief said today in a speech in London.

"Given how truly badly we are doing in meeting our employment mandate, I argue that the Fed should seriously consider actions that would add very significant amounts of policy accommodation," he said. "Such further policy accommodation does increase the risk that inflation could rise temporarily above our long-term goal of 2 percent."
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http://www.bloomberg.com/news/2011-09-06/o...-s-economy.html

President Barack Obama plans to propose sparking job growth by injecting more than $300 billion into the economy next year, mostly through tax cuts, infrastructure spending and direct aid to state and local governments.

Obama will call on Congress to offset the cost of the short-term jobs measures by raising tax revenue in later years. This would be part of a long-term deficit reduction package, including spending and entitlement cuts as well as revenue increases, that he will present next week to the congressional panel charged with finding ways to reduce the nation's debt
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Which is why it is patently obvious that we are in for higher inflation, maybe in spades. Next 7 days now critical. Obama talks within the next 48 hours--FOMC meet next Tuesday/Wednesday.
Best to keep powder dry for just a bit longer?

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As the EURO continues to implode, and the US chokes on it's horrific debt situation, it is maybe worth looking at the 2 stabilising influences and the 'perceived" store of value of one--- the Swiss Franc, and then spot gold in USD.

Overnight the Swiss National Bank took the virtually unheard of step (for them) of capping the value of the SF against the EURO, and said it would buy unspecified foreign currency and take steps to weaken the SF.

Both Gold and the SF have been percieved "final stores of value"---however one might be forgiven for thinking that no longer applies to the Swiss Franc---on the other hand NOTHING has been detracted from Gold in USD--which itself had a very wild night as a consequence. Commentators now make the point that Gold is now the ONLY true very hard currency that CAN NOT be debased devalued etc.

One might also expect most other Central Banks, with the possible exception of our Reserve Bank to take similiar currency debasement steps as the EURO unwravels. Biggest next question IMO is what will the Chinese do about their peg to the USD?

Quite where this now heads is anybody's guess, but we must expect every powerfull leader/finance experts are going to have a lot to say about this quite extraordinary move by the Swiss and the obvious international consequences, especially if the next 14 days do not profer some tangible ways out of the overall financial shambles. (IMHO).

2 charts--first the Swiss Franc intraday and 2nd spot gold in USD intraday.

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