QE: The More The Merrier

Many market participants expect the European Central Bank to renew its 1Y LTOR liquidity operation maturing in June to calm the markets. However I would argue at this point that while it will help liquidity, it won't solve all the problems. Europe has allowed the situation to deteriorate so badly that right now short of printing money and buying local sovereign debt, the ECB won't really provide much of a fix to the crisis. Whether it is desired or they should cut their losses and disband the Euro is another topic of conversation. Since an entire generation of European politicians view the Eurozone as their baby they are unlikely to give up that quickly. By the same token Weber who is simply a raging maniac and Trichet (he did run a bank into the ground already, can he do it with a central bank???) are VERY VERY reluctant to the idea of quantitative easing. We should therefore expect more drama until they finally pull the trigger. The markets are geared up for some announcements tomorrow: let's see if European politicians have learned the lessons of bailout voted down in Congress or the refusal to bail Lehman against market expectations. - Nic Lenoir

Guest Post: Doug Casey On The Russian Bear

L: Doug, I'm in Belarus this week, a pit stop to help
some of my students with their various business ideas. I'm struggling
with my Russian, but getting along. And that has me thinking about
Russia's role on the global economic stage. I know this is something
you've given some thought to… What do you think? Is Putin out to take
over the world? What do investors need to keep in mind?

Doug: Well, the first thing to keep in mind is that
any time you're talking about a large group of people, I think it's
about 150 million in Russia's case, it's hard to generalize. Russia
makes headlines, being one of the BRIC countries (Brazil, Russia,
India, China), which are "emerging" economies seen as a sort of wave of
the future. But I have to say that Russia doesn't really belong in this
group. We may lose some Russian readers by my saying this, but while
Russia has a lot of resources and should have a bright future, I don't
think it will.

How Europe's Solvency Crisis Is Morphing Into A Liquidity Crisis: Spread Between Overnight And 3M ECB Repo Blows Out

From a reader: In the last week I have been hearing things from pals regarding funding crises in money markets and among banks, both within europe and across us/europe (fits with Fed relaunching EU swap lines). Attached chart will scare you guys.  This is a little more subtle but look at the second chart, the one on the right... EU libor vs repo is widening (pink line) in last 2 days, and also dollar libor is rising faster than euribor (decline in blue line in right chart), ie dollars are harder to come by vs euros in the eu interbank market.  expected.  but most strikingly, the spread between 3m and o/n repo in europe is skyrocketing (yellow line), which means it is getting harder to secure funding on a 3 month basis using ECB collateral vs going to the window overnight.  bad bad bad.  means players are less inclined to lend collateralized money out at 3mths.  We are watching an insolvency crisis become a liquidity crisis in real-time. 

Bill Gross' Latest Investment Outlook

There’s a surfeit of instructionals on the secret to investing, ranging from Investing for Dummies to The Intelligent Investor. My bookshelves at home are full of them, and I’ve learned or at least absorbed something from many. Experience is a great teacher, but the foundation of civilization, and too investing, is also dependent upon the capsulization of the experiences of others and that is where books have played a formative part in my own career. Still, there’s never been a book called “Common Sense for Dummies,” which would be required reading in my investment class if either existed. That’s an oxymoron to begin with, though, which points to the obvious – that common sense cannot be taught. It’s like sex appeal – you either have it or you don’t, although both are subject to relative judgments of the observer. What is commonsensical to one investor may seem ludicrous to someone else. And even in cases where history has validated the irrationality of one investment idea or another – the subprime frenzy being perhaps the most recent – there are questions of timing. Michael Lewis’s book The Big Short is not only a tale of the validation of common sense, but of its delicate shelf life. Most of Lewis’s heroes were almost all closed out by their own clients before their logic blossomed and their profits multiplied. - Bill Gross

...And The NYSE Breaks

We are shocked the "Red Alert" is happening a full day after the exchange allowed the biggest selloff in many months to occur.

Update: here is where readers can dial in to hear about the NYSE meltdown first hand

Bridge Line- 888-669-2803

Access # - 7956260

Albert Edwards: Don't Buy This Dip

Albert Edwards is back to discussing the now conventionally accepted schism between the European core and its periphery, which he now sees as having passed the point of no return: "My own view of developments, for what it is worth, is that any ?help? given to Greece merely delays the inevitable break-up of the eurozone." What is more troubling is his insight into the psychology of Europeans, which unlike apathetic Japanese or US citizens, actually know when to say enough, and how to manifest their displeasure: "Unlike Japan or the US, Europe has an unfortunate tendency towards civil unrest when subjected to extreme economic pain. Consigning the PIGS to a prolonged period of deflation is most likely to impose too severe a test on these nations. And the political "consensus" within the PIGS to remain in the eurozone could falter in the face of another of Europe's unfortunate tendencies - the emergence of small extreme parties to take advantage of any unrest. My own view is that there is little "help" that can be offered by the other eurozone nations other than temporary confidence-giving "sticking plasters" before the ultimate denouement: the break-up of the eurozone." We are not sure if the emergency of another Hitler for Gen Z is more concerning than the imminent end of the euro, so we'll leave it at that for now. However, for immediate trading purposes, daytraders may want to take warning in the following A.E. words of caution: "Investors should therefore be far more wary of buying on the dip this time."

Futures Break 1,160 On Euro Freefall

At last check the ES was just at 1,160 after briefly dropping lower. The primary factor for the market drop is the complete panic that is gripping Europe. And here we were one month ago with supposedly intelligent people saying get Greece off the front-page because it is now "boring" news. When Greece restructures its debt in a few weeks, the euro hits parity, European banks are forced to recognize $150 billion in GGB losses, Portugal, Spain and Italy CDS are all at 400, major re/insurance companies are facing liquidity crunches, our insistence on keeping Greece front and center may prove to have been the correct one after all.