Long-term growth conditions in Spain, Italy and France are as weak as they have been (other than during wartime) in over a century. The chart below tells the story. As JPMorgan's Michael Cembalest notes, while European sovereign debt spreads have rallied across the board, European bank lending to households and businesses is still declining, and the cost of small business loans in Italy and Spain is higher than both real and nominal growth. With ECB policy now clearly useless given Europe's fragmentation, and with Germany's forward expectations rolling over, it is hard to see how, absent wholesale devaluation and/or inflation (or as Cembalest notes destruction & rebuilding), Europe will recover from this.
The 'relative' innocence of the depositors in Cyprus who saw their savings crushed by the hammer-blow of Germany's reality last week is, it seems, not the only hardship that the European people are suffering. In Spain, thanks to their FROB restructuring, shareholders and bondholders (including hundreds of thousands of unsophisticated 'retail' investors who were sold 'fail-safe' and 'high-return' investments) face losses (haircuts) from 96% (equity) to 36% (subordinated debt) and 61% (preference shares) following the 'bailout' of Spain's dodgiest cajas (or savings banks). As The Economist notes, clients infamously included Alzheimer’s sufferers and at least one customer who signed by dipping a finger in ink; shareholders should know the risks but the vast number of Spaniards who bought preference shares and complex subordinated debt from their cajas often did not. While these investor losses pave the way for bank recapitalizations; they confirm the old adage that there is no such thing as a free 'yield' lunch (especially in the new normal ZIRP world in which we live).
David Stockman’s New York Times Op-Ed has ruffled a lot of feathers. Paul Krugman dislikes it, saying Stockman sounds like a cranky old man, and criticising Stockman for throwing out a load of meaningless numbers that sound kind of scary, but are less scary in context. What Krugman overlooks is Stockman’s excellent criticism of crony capitalism, financialisation, systemic rot and Wall Street corruption of Washington, something Stockman has seen from the inside as part of the Reagan administration. There are plenty of other writers who have pointed to this problem of propping up casino finance, including myself. But very few of them are doing so on the pages of the New York Times. In the long run, I think it will become patently clear that throwing liquidity at the financial system won’t solve anything other than immediate liquidity concerns. The rot was too deep. The financial sector needed real reform in 2008. It still needs it today.
From a January 2nd price of $13.16, the price of a Bitcoin in USD had risen to $46 on March 16th - right before the Cyprus 'solution' was announced. Since then, in two short weeks, the price of a Bitcoin has more than doubled, reaching $101 today. This 'exuberance' in non-fiat currency, should perhaps warrant caution as we noted here, the US is now not only actively monitoring but has commenced regulating the Bitcoin market and those who participate should be well aware that when uncle Sam is involved, things tend to have an unhappy ending.
Typically, when the ISM-leading Chicago PMI has a horrible print as it did last week, the subsequent ISM response in a "baffle with BS" centrally planned regime is one of a stunning beat just to make sure all vacuum tubes are kept on their binary toes, and the bad news is good news, good news is better news meme continues propagating. Not this time: moments ago, the March ISM printed at 51.3, the biggest miss to expectations (of 54.0) in 13 months, in fact below the lowest estimate, driven by a collapse in New Orders which tumbled from 57.8 to 51.4, as the rapid deceleration in the US economy is confirmed in virtually every recent metric. The good news, and what will be used to spin the market back into green following its epic 0.2% selloff on the news, is that the Employment Index rose from 52.6 to 54.2, the highest since June 2012. Elsewhere, the 1.2% increase in construction spending came in better than estimated... on a seasonally adjusted basis. Unadjusted it had its biggest drop since July 2011 but who cares: we all live in a seasonally-adjusted "reality" in which only the daily record S&P prints matter. And now, with yet another economic miss in tow, we resume your regularly scheduled no-volume Federal Reserve mandated "stock market" levitation.
Our April Fool's wish: someone in the inner circle of power would finally tell the truth. In an unprecedented abandonment of his carefully scripted responses to Congressional questions, Federal Reserve Chairman Ben Bernanke unleashed what appeared to be a heart-felt and spontaneous disavowal of the financial and political systems of the United States.
According to the updated NYSE Q2 circuit breaker levels, it will take a 4,350 point drop in the NYSE for an all day trading halt. Of course, if the DJIA tumbles by 30% intraday, whether to close the several hundred shares trading on the NYSE will be the last thing on people's minds.
The head of Greece's National Confederation of Greek Commerce has slammed the Troika and the European leaders for their treatment of Cyprus as the first wave of contagion begins. "The tragic situation.. will have immediate effects on the Greek market," he noted as at least 1600 Greek businesses will suffer from the Cyprus deal - with the haircuts and capital controls expected to dramatically impact the EUR1bn of Greek exports to Cyprus. The so-called "German Plan" will "cripple" Cyprus, he added, and "sentences" Cyprus to a long period of recession and debt.
We showed this chart over the weekend, but it bears repeating simply because in this case, one chart does indeed speak a thousand words. Presenting: unemployment in Iceland and Greece - pick the "just say no to the status quo" winner out.
- Goldman's Mario Draghi convinced Italy president Napolitano not to resign (Reuters)
- David Stockman Warns of Crash Of Fed-Fueled Bubble Economy (BBG)
- Cyprian archbishop calls on Central Bank's head, Finance Minister to resign (Voice of Russia)
- Cyprus Parliament President Says Country Should Exit Eurozone (Zero Hedge)
- Cyprus seeks to find people behind bank crisis (FT)
- Argentina sticks to its guns over holdout creditor payments (FT)
- 40% of all trading is now done in dark pools and off exchanges (NYT)
- Sequester Impact Remains Elusive (WSJ)
- China’s Home Prices Increase Most in 26 Months, SouFun Says (BBG)
- Beijing, Shanghai Add to Home Curbs as China Acts to Cool Market (BBG)
- Two men die in Shanghai in first human cases of bird flu strain (SCMP)
- Economics will catch up with the euro (FT)
- How much gold is there in the world? (BBC)
- Fannie Mae Regulator Sets No-Doc Modifications for Borrowers (BBG)
With Europe and the UK closed today, it was unclear if the traditional overnight futures levitation would take place as scheduled. To nobody's big surprise, it did, driven as usual by the EURUSD, which rose from an overnight low in the mid 1.27s following news that the Cypriot parliament head wanted to pull his country out of the Eurozone as reported here, but more importantly as that second ramp funding carry pair of choice, the USDJPY fell to the lowest in a month following yet another miss in the Japan Tankan big manufacturer index, touching under 93.30 for the first time since March 6, pushing the Nikkei 225 lower by over 2% - has the magic of Japanese rhetoric finally worn off and is the market finally demanding action instead of hollow promises, threats and simply, words? In China we got a miss in the official PMI data setting up yet another Schrodinger PMI split in Chinese economic growth indicators where the official details once again deteriorating while those tracked by HSBC/Markit are mysteriously improving. Also in Asia, rumblings out of South Korea, which continues to miss on key export and economic growth indicators, that it should cut rates mean the export-driven country is on the verge of joining the global currency warfare at which point the free Japanese lunch is over.
After being told that the Cypriot business model was broken, the ever-resilient people of this 'storm in a teacup' island have, by all appearances, taken up their entrepreneurial sickles to make hay while the Troika sun shines. As the FT reports, the hunt is on for many Cypriot bank account holders to find ways to circumnavigate the new Draconian capital controls - and get their money off the island. It seems that this 'need' is being addressed by friendly 'unidentified' locals who are willing to help transfer money across the border (since there is a EUR3,000 limit) for a mere 20% upfront fee. "There are some dubious capital outflows out of Cyprus as we speak," one senior Eurozone official noted, "and... not only Russians." At least three people have been stopped attempting to cross the border with more than EUR 200,000 in cash on their person - their money was confiscated.
While being distracted by the developments of this insolvent European sovereign or that, coupled with increasingly prevalent episodes of deposit confiscation, is all the rage these days, the fundamental problems summarized by these three simple words, too much debt, remain. And as has been explained over and over, while confiscation of wealth merely shuffles the various dollar (and euro) signs on the table with the spoils going to the wealthiest, there is no resolution of the underlying problems plaguing a world that has tens of trillions of excess debt. As is by now is well-known, there are two ways out of such a conundrum: default, or inflating the debt away. What is also well-known is that as long as the US preserves legacy reserve currency status even by the tiniest of threads, inflation through debt deluge-funded money creation will always be chosen outcome. Just as was the case in Germany in the 1920s. In fact, as the following video shows, the parallels between where the US is now, and where Weimar Germany were just before everything took a turn for the parabolic, are a few too many for comfort. The only major difference so far is that in Weimar, the creation of massive rampant inflation was what economists would call, "successful."
"All this money printing, massive debt, and reckless deficit spending – and we have 2% inflation? I'm beginning to believe that either the deflationists are right, or the Fed's interventions are working." While a low CPI may be puzzling in the midst of massive, global currency abuse, there are three realities about inflation that convince us it's not only coming, but will catch an unsuspecting citizenry off guard. Let's take a look at why we're convinced inflation will be one of the next big catalysts for the gold price...