Remember the running joke about Spain's constantly deteriorating budget? Or was that Greece's? No matter: there was a time when Spain was expected to hit a 5.3% budget deficit in 2012, and the Maastricht mandated 3.0% by 2013. So much for that. It turns out the Spanish economy has deteriorated so much in the last few months, that the EU had no choice but to grant Spain a 1 year extension, according to Europapress. In doing so, the EU has eased deficit targets for Spain by 1% in 2013, granting it a 6.3% deficit miss, a number which will be revised at least once more before the year is over, and the 2013 target is now widened by 1.5% to 4.5%. So much for serious deficit cutting. But let's blame "austerity" while we are at it. It would, however, be great if countries in Europe, or anywhere, were actually austere, and cut their deficits, instead of just blaming austerity for every economic problem while never actually enacting such policies (as we explained before). So while Spain gets an extension due to a "recession of rare violence", the trade off will be even greater supervision by the Eurogroup, or said otherwise, more people will watch how Spain does nothing to actually fix itself and then 6 months from now everyone will be shocked, shocked, when the 2013 deficit is over 8%. In other news, Spain 10 Year bond were trading at 7.08%, well wide for the day and about 20 bps shy of the all time record lows.
This scathing assessment of Obama’s economic policies is by no means an endorsement of Mitt Romney or his economic plan, since he has never provided a detailed economic plan. After four years of a Romney presidency, the national debt will also be $20 trillion as his war with Iran and handouts to his Wall Street brethren replace Obama’s food stamps and entitlement pork. There was only one presidential candidate whose proposals would have placed this country back on a sustainable path. The plutocracy controlled corporate mainstream media did their part in ignoring and then scorning Ron Paul during his truth telling campaign. The plutocracy wants to retain their wealth and power, while the willfully ignorant masses don’t want to think. The words of Ron Paul sum up what will occur over the coming years as the interchangeable pieces of this corporate fascist farce drive the country to ruin. The politicians, bankers and corporate titans running this country are too corrupt and cowardly to reverse the course on our path to destruction. The debt will continue to accumulate until our Minsky Moment. At that point the U.S. dollar will be rejected and chaos will reign. The Great American Empire will be no more. At that time sides will need to be chosen and blood will begin to spill. Decades of bad decisions, corruption, cowardice, ignorance, greed and sloth will come to a head.
The verdict of history will not be kind to the once great American Empire.
Attempts to manipulate free markets invariably end badly - after all, they are, supposedly, by their very nature, free. Over the past few weeks, the exposure of the Libor-rigging scandal has monopolized the headlines of the financial press. The rather obvious implication being that given almost half the reported inputs that help establish the Libor rate are discarded immediately, Barclays simply CANNOT have manipulated the Libor rate alone. Period. At best this is a cartel, at worst it’s outright fraud on a scale that is completely unprecedented. In Grant Williams' humble opinion, the Libor scandal will mark a fundamental change in the treatment of financial conspiracy theories in the media. The sheer amount of coverage it will undoubtedly receive will signal a shift in attitude towards the exposing of such scandals rather than the blind-eyes that have been regularly turned in recent years. Prime amongst conspiracy theories that may soon be finally proven to be either valid or the figments of overactive imaginations, are those alleged in the gold and silver markets. If the long-stated claims about government-sanctioned, bank-led manipulation of precious metals markets are eventually proven to have any validity whatsoever, the fallout from the Libor scandal will prove to be (to use the words of Jamie Dimon) just another “tempest in a tea pot” as the precious metals are the very underpinnings of the entire global financial system.
A preview of the key events in the coming week (which will see more Central Banks jumping on the loose bandwagon and ease, because well, that is the only ammo the academic econ Ph.D's who run the world have left) courtesy of Goldman Sachs whose Jan Hatzius is once again calling for GDP targetting, as he did back in 2011, just so Bill Dudley can at least let him have his $750 million MBS LSAP. But more on that tomorrow.
Japan's core machinery orders were expected to post a modest -2.6% drop. Instead they had a worse collapse than anything seen in the aftermath of the Fukushima disaster, plunging by a stunning 14.8% . And the kick in the groin cherry on top was the current account surplus plunged by 62.6%: consensus forecast: -14.5%. The Japanese economy has once again ground to a halt, only this time it has no earthquake or nuclear explosion to blame. This time it is the entire world's fault, where demand has collapsed proportionately. As a reminder the BOJ expanded its QE yet again on April 27. Must be time for another QE because this time will certainly be different after more than 30 years of failures. It is time for those brilliant central planners Ph.D's to do engage in more of the same insanity that Einstein warned about decades ago. And incidentally this is not a joke: on Thursday the BOJ is expected to ease yet again. As a reminder, the BOJ already buys ETFs, Corporate Bonds, and REITs. What's left: gold?
It should come as no surprise to anyone that major commercial banks manipulate Libor submissions for their own benefit. As Jefferies David Zervos writes this weekend, money-center commercial banks did not want the “truth” of market prices to determine their loan rates. Rather, they wanted an oligopolistically controlled subjective survey rate to be the basis for their lending businesses. When there are only 16 players – a “gentlemen’s agreement” is relatively easy to formulate. That is the way business has been transacted in the broader OTC lending markets for nearly 30 years. The most bizarre thing to come out of the Barclays scandal, Zervos goes on to say, is the attack on the Bank of England and Paul Tucker. Is it really a scandal that central bank officials tried to affect interest rates? Absolutely NOT! That’s what they do for a living. Central bankers try to influence rates directly and indirectly EVERY day. That is their job. Congresses and Parliaments have given central banks monopoly power in the printing of money and the management of interest rate policy. These same law makers did not endow 16 commercial banks with oligopoly power to collude on the rate setting process in their privately created, over the counter, publicly backstopped marketplaces.
All hope abandon, ye who enter here from an Italian or Spanish IP address.
Between Clinton's 'prices to be paid' and Obama's new trade-war, is it any wonder the Chinese have decided to escalate their 'more-than-rhetoric' from bartering away from the USD. After ignoring the sanctions and then receiving their exemption, PressTV reports tonight that China is to invest in developing north and south Iranian oil fields (which will produce 700,000 barrels per day of crude). One of the oil fields, Azadegan, has one of the world’s largest oil deposits, with in-place oil reserves estimated at 42 billion barrels - enough to tide China over a for a while - as Iran's Oil Minister Rostam Qasemi adds after 10-15 years of negotiations the decision has finally (and coincidentally very timely) been reached as "the Chinese side has started its activities by investing USD 20 billion in the oil fields".
In an extended interview with Bloomberg TV, Nouriel Roubini lives up to his doom-saying reputation and goes where few have as he opines on Lieborgate that: "bankers are greedy and have been for 1000 years" and "nothing is going to change" unless there are criminal sanctions; to which he follows up - briefly silencing the interviewer, "If some people end up in jail, maybe that will teach a lesson to somebody - or somebody will hang in the streets". The professor goes on to note that the EU "summit was a failure" since markets were expecting much more and warns that without full debt mutualization, debt monetization by the ECB, or a quadrupling of the EFSF/ESM 'bazooka'; Italian and Spanish spreads will continue to blow out day after day - leading to a crisis "not in six months but in two weeks". The only entity capable of stopping this is the ECB which needs to do outright unsterilized monetization in unlimited amounts which is 'politically incorrect' to talk about and claimed to be constitutionally illegal. 2013 will be a very difficult year to find shelter as policy-makers ability to kick-the-can runs out of steam as he sees the possibility of a 'Global Perfect Storm' of a euro-zone collapse, a US double-dip, a China & EM hard-landing, and a war in the Middle East. Dr. Doom is back.
While we have been surprised by the lack of public consternation within Germany at the real levels of servitude that an ungrateful Europe is trying to shove down the German taxpayer's throats; this week it appears the rubber is starting to meet the road. As Europe Online reports, German President Joachim Gauck called for Chancellor Angela Merkel to explain why Germany needs save the euro - at great expense to the country‘s taxpayers - and what will be necessary. In a TV interview, Gauck (having no doubt read our recent explanations of the TARGET2 ticking time-bomb and the real cost of GRExit) said that Merkel "has the duty to describe in great detail what it means [to stay in the Euro], including what it means for the budget". In a somewhat shockingly honest (for a European leader) comment he said that the political establishment has struggled to explain why it is vital for Germany to do its part to save Europe's currency union. Perhaps reflecting Juncker's Modus operandi, Gauck added that "sometimes it‘s hard to explain what this is all about. And, sometimes, there‘s a lack of effort to openly tell the populace what is actually happening."
We especially enjoy reading things that we disagree with, and that challenge my own beliefs. Strong ideas are made stronger, and weak ideas dissolve in the spotlight of scrutiny. People who are unhappy to read criticisms of their own ideas are opening the floodgates to ignorance and dogmatism. Yet sometimes our own open-minded contrarianism leads us to something unbelievably shitty.
The financial system is being regulated by clueless schmucks — many of whom would also castigate Zero Hedge as a “big fat hoax”, while ignoring grift and degeneracy within the financial establishment and the TBTF banks. In the face of such grotesque incompetence who can blame market participants for wanting a hedge against zero?
UPDATE: Disturbing video of the bloody reality on Saudi streets tonight
Remember Qatif - the "weakest" Saudi authoritarian link, whose daily protests, many of them violent, threatened to topple the government last spring when soaring global food inflation set the MENA region on fire and led to the overthrow of numerous regimes in the Mediterranean rim? It's back, only this time not based on food price concerns, but inflamed religious tensions, arising from the arrest, and shooting, of a senior religious opposition figure, Shia cleric Ayatollah Al-Neme. As of minutes ago, Redha Al-boori reports on Twitter, that there have been at least two casuualties as a result of confrontation between Saudi forces using live ammo and protesting Shiites.
When on Friday news broke that German regulator BAFIN (which is just like the SEC except that it also regulates, investigates and actually prosecutes, instead of just watching porn all day) was launching a probe of the biggest bank in Europe, and actually, make that the world, Germany's Deutsche Bank, the shares took a quick, brisk hit, sliding 5% with everyone anxiously expecting to find out just which bank will follow Barclays into the scapegoat abattoir (because nobody had any clue Liebor manipulation was going on until a week ago). Yet while external inquiry into banks is to be expected (everywhere but in the US of course, because in the US no banks manipulated anything. Ever) as a proactive act on behalf of regulators to cover their back, things get a little more tricky when the bank itself admits there was an obvious supervision problem. From Reuters: "Two Deutsche Bank employees have been suspended after it used external auditors to examine whether staff were involved in manipulating interbank lending rates, German magazine Der Spiegel reported, citing no sources." Now what can possibly go wrong if the biggest bank in the world, with just shy of $3 trillion in "assets", which just happens to have a 1.68% Core Tier 1 ratio, is suddenly thrust smack in the middle of the scandal that the Economist just aptly named the finance industry's "tobacco moment"?