Capitalism can be subverted by either an Elite or the majority. Marx traced out how Capital (wealth) naturally consolidates into monopolies or cartels (shared monopolies). These concentrations of wealth then buy political influence via campaign contributions, armies of lobbyists and the full spectrum of cronyism: sweetheart deals, envelopes of cash, revolving doors between the cartels and their regulators, plum jobs for lazy nephews and so on. This base corruption of the Central State, which is now the dominant force in the economy, allows Elites to change the rules rather than accept failure (also known as losses). Thus we have Crony Capitalism: profits are private and yours to keep, losses are transferred to the taxpaying public. This mechanism is well known and catches most of the attention. But M.M. highlighted the way the democratic majority can subvert capitalism. This is generally ignored for the simple reason that most commentators are part of the majority subverting capitalism to benefit their own self-interest.
This leads to a terminal state of self-delusion and self-justification
Less than an hour ago Zero Hedge was happy to point out the glaringly obvious.
Bernanke speech will have nothing in it
— zerohedge (@zerohedge) June 7, 2012
Shortly thereafter, Bernanke confirmed it. Now it is Wall Street's turn to join in.
With Bernanke's speech dominated by the word 'Fiscal', is it any wonder that Fitch comes over-the-top with a warning, via Reuters and Bloomberg:
- *FITCH SAYS WOULD CUT US AAA RATING IF THERE IS NO CREDIBLE FISCAL CONSOLIDATION PLAN IN 2013
- *UK, FRANCE ,GERMANY, OTHER AAA NATIONS HAVE CREDIBLE PLANS:FITCH
Are the world's central bankers now checking back to the governments? Well we know how that will end. With the Fed's implicit tightening (as the balance sheet rolls down) and the fiscal cliff, it seems headwinds are mounting.
At the rate the market has soared in the past 3 days, one would think Bernanke has already formally announced QE. Instead we have had a rumor, a hint, and a headline. All of this was sufficient to push the DJIA up 500 points. Problem is there has been nothing official from the Fed. Which is why everyone will be looking for the Chairman to leak something at the 10am hearing before the Joint Economic Committee. Otherwise, if nothing comes now, and nothing comes on June 20, we may be looking at another deja vu event from 2011: namely the August 2011 market crash.
The pending three-day rally that has seen European and US markets soar smacks of a short-covering squeeze, notes UBS' Art Cashin, as some of the biggest percentage gains came in the most heavily shorted stocks. While this is hardly surprising in this increasingly schizophrenic economy market, it is the long-term consistency and prophetic consternation of Margaret Thatcher's view of the Euro as "perhaps the greatest folly of the modern era" that sits uncomfortably with the Merkel comment-driven rally of this morning (for now).
Update 2: In her own words - dispelling rumors of new instruments: "In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the euro zone, that Germany is ready to work with these instruments whenever that is necessary and that this is an expression of our firm desire to keep the euro area stable,”
Update: here is the counterrumor, just as expected courtesy of the summer and fall of 2011: Merkel willing to back use of EXISTING Euro-area instruments... Where Euro-Bonds just happen not to figure.
Just out from Bloomberg:
- MERKEL SAYS GERMANY READY TO BACK USE OF EURO-AREA INSTRUMENTS
Ignore that it is unclear what instrument is mentioned (not Euro Bonds as Merkel made very clear 48 hours ago), she probably just is referring to the Redemption Pact, which she would of course be in favor of, as noted before, and where Europe funds its loan-loss exposure with gold. We look forward to the PIIGS agreeing to hand over their gold to Das Deutsche Pawn Shop.
In preparation for what we are about to receive from the Charmain of the Fed, may we be truly grateful, Jim Grant offered CNBC's Maria B the forthright advice last night "prepare for platitudes but watch what they are doing not what they are saying". The ever outspoken Grant notes that the Fed's balance sheet has been contracting (unlike Maria's mainstream perspective); for the past three months the Fed's balance sheet has contracted at an annualized rate of 10% - even as Fed-head after Fed-head talk up QE and so on. So unless they continue buying securities - since the short-dated positions will continue to roll off - the Fed's balance sheet will continue to contract and therefore the stimulative effect will fall. Grant does expect QE3 since it is the fun-drug that we have been using for 4 or 5 years and that Bernanke will need little pushing to continue the Grand Manipulation. He ends on a rather interesting note that the Wisconsin win and the potential for an Obama loss in November may be more of a positive driver for stocks since markets begin to revert to a free market once again - we suspect this is not the case given the donors/beneficiaries under Romney's wing. But rest assured - the bespectacled bear ends on the chilling note that 'the long-term implications are bad' for the ongoing manipulation that is now the status quo.
Initial Claims Beat Expectations, With Prior Revised Higher, As Whopping 105 Thousand Lose Extended BenefitsSubmitted by Tyler Durden on 06/07/2012 - 08:49
While it is a number which nobody will care about today, especially if it is better than expected, initial claims printed at 377K on expectations of 378K, the first beat of expectations in 5 weeks. Of course, the claims number next week will be revised to over 380K. Why? Because, as now happens every single week, last week's initial claims number was revised higher from 383K to 389K. As a reminder, last week this number was expected to print at 370K. So only a 19K miss when all is said and done. But at least the mainstream media has its bullish for general consumption headline: "Initial Claims drop by 12,000" even as market participants realize this is still QE-promoting. Continuing claims printed at 3,293K, missing expectations of 3,250K, and down from an upward, of course, revised 3,259K. But the most disturbing observation is that in one week alone, a whopping 104,600 people hit the 99-week cliff, and stopped collecting extended unemployment benefits, the most since December 2011, as those on EUCs dropped by -45,808 while those on Extended benefits dropped by a astounding -58,829. As a reminder, Zero Hedge first noted that shortly 700,000 people will no longer be collecting any unemployment benefits. Here is to hoping those off the dole, are at least collecting disability in the USSA as otherwise these are tens of billions in lost purchasing power.
Central bank gold demand remains robust as central banks continue to diversify out of the euro and the dollar. Further central bank demand is confirmed in the news this morning that Kazakhstan plans to raise the share of gold in its international reserves from 12% to 15%. So announced central bank Deputy Chairman Bisengaly Tadzhiyakov to reporters today in the capital, Astana. “We’ve already signed contracts for 22 tons,” Tadzhiyakov said. Bloomberg report that immediate-delivery gold was little changed at $1.620.41 an ounce at 10:50 a.m. in Moscow, valuing 22 metric tons of gold at about $1.2 billion. “The bank is ready to buy when suppliers are ready to sell,” Tadzhiyakov said. Kazakhstan said yesterday it will cut its holdings in the euro by a sixth. It was reported in the Reuters Global Gold Forum that the central bank buys all the gold produced in Kazakhstan and owned 98.19T at the end of April, according to the IMF's most recent international finance statistics report. Meanwhile, supply issues remain and South African gold production continues to plummet. South African gold production fell 12.8% in April from a year earlier, Juan -Pierre Terblanche, a spokesman for Statistics South Africa, told Bloomberg.
Well, risk is on. Not so much because of the ECB, or BOE, both of which did nothing, but because everyone is hoping and praying that in two weeks the Princeton professor will unleash the 4th round of quantitative easing in the US (yes, Twist was a flow-shifting operation and thus QE3). And the reminder that China is not immune, and did its first rate cut since 2008 only validated the realization "that they have every idea just how bad it is", as Cramer would say. Sure enough, risk is ripping, although considering the world's 2nd largest economy just joined the monetary easing pants party, the 10 point ES response is oddly subdued. Where the reaction is yet to manifest itself is in gold: we expect the PBOC will take a little longer before it announces its meager 1000 tons of gold holdings have at least doubled following 100 ton/month gold imports as recently announced. But announce it will. In the meantime, China's aggressive step likely means that unless we get a global coordinated intervention at 9 am today, as was the case on November 30 after the last notable move by the PBOC, which was the first reserve cut also since 2008, there will be none this time around and Bernanke will be on his own. God save the markets if he does not deliver, either today at the JEC testimony at 10 am or at 2:15 pm on June 20, as the S&P has now priced in at least 75 points of NEW QE intervention.
- China Cuts Interest Rates for First Time Since 2008 (Bloomberg)
- New Risk to Europe's Growth: Banks Cut Lending to Cities (WSJ)
- Labor Faces New Challenge - Losses in Wisconsin, California Come as Ranks of Government Unions Decline (WSJ)
- Yellen argues for more Fed easing amid Europe risk (Reuters)
- Americans Cling to Jobs as U.S. Workforce Dynamism Fades (Bloomberg)
- Japan’s LDP Agrees to Talks With Noda’s DPJ on Sales Tax (Bloomberg)
- Korean Buying Spree Boosts Brent Price (FT)
- China Delays Bank Capital Rule Tightening as Economy Slows (Bloomberg)
- China CIC Chief Sees Rising Risk of Euro Breakup (WSJ)
Update: 9:00 am has come and gone... and no global bailout unlike November 30, 2011. Not a good sign for those expect a central-bank D-Day.
While minutes ago the Bank of England followed in the ECB's footsteps, it was the China central bank that stole England's thunder, announcing an unexpected rate cut moments before 7 am, and thus finally joining the global easing party: this was the first Chinese interest rate cut since 2008. As a reminder, hours before the global central bank intervention on November 30, China announced its first (50 bps) reserve requirement cut since 2008. Is today's PBOC move, which is the first cut of deposit and 1 year lending rates also since 2008, a harbinger of something much bigger to come any second now?
The video below is a great a preview of things to come in Greece. Per Bloomberg, Greek police on Thursday issued an arrest warrant for the spokesman of far-right party Golden Dawn for assaulting two left-wing politicians on live television. Ilias Kasidiaris was shown on a live morning show jumping out of his seat and slapping Communist Party member Liana Kanelli three times after throwing a glass of water at leftist SYRIZA party member Rena Dourou. Golden Dawn, which was elected for the first time to parliament in a May 6 election, is accused of carrying out violent attacks against immigrants. Surely, being captured on live national TV beating up women will do wonders for restoring the party's image as that encouraging pacifism and peaceful resolution of problems.
On the surface, the overnight Spanish bond auction, in which the country sold a tiny €2.1 billion of 2, 4 and 10 year bonds was a success, simply because it wasn't a failure. Anywhere below the surface and things get fishy. The Treasury sold €638 million of a 2-year bond, €825 million of a four-year bond and €611 million of a benchmark 10-year bond. And while the bid-to-cover ratios were higher than at recent auctions, with the 2012, 2014 and 2022 bonds covered 4.3, 2.6 and 3.3 times respectively, so were the yields: the 2014 bond was issued at a yield of 4.335 percent, the 2016 bond at 5.353 percent and the 2022 bond at 6.044 percent, a lower price than the 6.14 percent the same maturity bond trades at in the secondary market. In other words, Spain is back to using the same tricks it did back in the fall when bonds would magically price well over 10 bps inside of fair value. Just don't ask why. More notably, as Bloomberg reminds us, this was the lowest amount allotted to a 10 year note since 2004. In other words Spain sold the bare minimum of the longer-bond just to keep up with appearances: an amount likely recycled by its broke banks, which scrambled to get the last remaining LTRO cash and to show just how strong the demand for the country's debt is. In fact as Nicholas Spiro of Spiro Sovereign said, "If it wasn't for its banks' continued support at auctions, Spain would be unable to sell its debt. Right now confidence in Spain is at an all-time low." Either way, the good news is that according to Spain it has now covered 58% of its borrowing needs for 2012. the bad news: 42% remains uncovered. Especially in the aftermath of an EU announcement that not only has it not received an aid request from Spain, but that there is no EU rescue plan for Spanish banks. Europe has now completely lost the script and is making up day by day.