Archive - Apr 23, 2012

It's not as if this should come as a major surprise to ZeroHedge readers, but to hear officials from the Bank of England pointing out the sub-optimal nature of the financial system's information asymmetries is refreshing. Be it via any one of Andrew Haldane's three so-called arms-races (Returns - the past, Speed - the present, and Safety - the future), analogizing to the winner-takes-all 'sex-fest' blubberiest-optima of elephant seals and their 'extinction' implications, these socially 'bad' financial system outcomes (Leverage, HFT, and collateral and encumbrance) are channeled superbly by the comedic Brit. A must-watch to reassure one's self that some central bankers really get it as, unlike before, when nobody would touch on topics covered by ZeroHedge with a ten-foot-pole, at least they do now, if with a one-year delay.

All you need to read and some more.

According to Mark Grant, it's over: "There are only two ways out of the current dilemma and that is growth which is not possible as the European economies contract and fare worse as the result of the austerity measures or Inflation; which Germany can’t stomach. The “at the very bottom of the barrel” answer then is not an economic response at all but a question of politics. The answer is actually when some nation cannot take it anymore; either the funding and the increase in national debt and the resultant credit downgrades or in receiving and the pain inflicted upon the populace. From the funding perspective it will be when the debts of the givers begin to match the debts of the borrowers. From the recipients it will be when the core nations decide that no more money will be given and so they will leave the funding nations and their banks with the debts and return to their own currencies and devalue. Which one comes first can only be answered by Divine Providence but I do not believe the train wreck can be stopped. I do not believe, any longer, that the catastrophe can be avoided and I would begin to immediately plan for an event that will eclipse the American financial crisis of 2007-2009 because this one will be far worse."

Has the case really gone cold? Or, are those who are in charge of the investigation, the "regulators" and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions?

Is the "rest of the world" finally discovering the Exter inverted pyramid?

No wonder one third of Americans are obese. The crap we are shoveling into our bodies is on par with the misinformation, propaganda and lies that are being programmed into our minds by government bureaucrats, corrupt politicians, corporate media gurus, and central banker puppets. Chief Clinton propaganda mouthpiece, James Carville, famously remarked during the 1992 presidential campaign that, “It’s the economy, stupid”. Clinton was able to successfully convince the American voters that George Bush’s handling of the economy caused the 1991 recession. In retrospect, it was revealed the economy had been recovering for months prior to the election. No one could ever accuse the American people of being perceptive, realistic or critical thinking when it comes to economics, math, history or distinguishing between truth or lies. Our government controlled public school system has successfully dumbed down the populace to a level where they enjoy their slavery and prefer conscious ignorance to critical thought.

European bond markets appear poised on the edge of the latest precipice as economic data this morning has confirmed once again that all the ECB's $1.3 trillion liquidity injection did was mask the underlying solvency issues for less than 4 months. Net result: more liquidity injections imminent (and with $2.5 trillion in asset sales and deleveraging still pending, we should probably bold and underling more). Yet what some are forgetting is that European banks would want nothing more than getting Spanish bonds back to 7.50%, the bogey which JPM defined as the level at which the NEW LTRO will be unleashed, standards of living be damned. The junkies need their fix and will do anything to get it, even crashing sovereign bond markets in the process. They may get their wish sooner than most expect: after all, this week is chock full of bond auctions in the core and periphery, where just one failure will make every forced buyer into a forced seller, as creative destruction will be the only thing to force the ECB's hand into injecting another several hundred billion in stock steroids, now that the Fed is still in its pre-presidential election quiet period. 

In Canada, the Parti Quebecois always did better in tough economic times. When times are good, people like to hang out, talk about vacations, what they bought, which was the best Habs team of all time, and why the current version of Les Canadiens is underachieving. In tough times, people are eager to hear why the problems are someone else’s fault. Good times are always a direct result of one’s own actions; whereas, bad times tend to be blamed on someone or something else. Now they can talk a bit about how things would be better if those someone’s or something’s would change, before moving on to the best Habs player of all time, and what the current team should change to be like the old teams. Away from the election results, more economic data came out of Europe, and it is all bad. PMI missed. Spain is clearly in a recession. Bank stocks are getting hammered. The S&P futures are sitting just above 1,360. We tested the 1,358 level last week and had a strong bounce. The week before saw one sell-off get as low as 1,355 before bouncing. I think the combination of weak data, strange votes, and the realization that the firewall has no immediate impact will weigh on the market and we will break through and trade below 1,350 before we see another round of support.

European stocks are trading lower as North America enters the market with participants coming to terms with the political events of the weekend. The collapse of the Dutch government has clouded the future for fiscal harmonisation in the Eurozone and the outperformance of the far-right in the French Presidential elections has highlighted the discontent of the populous with mainstream politics. As such, all European bourses are trading significantly lower, with the Bund seen trading higher by around 70 ticks. European government bond yield spreads against the German 10-yr reflect the caution, with the Dutch/German spread widening by over 10BPS and the Spanish yield holding above 6% for most of the session.

The IMF meeting ended yesterday and leading world economies agreed to more than double the lending power of the IMF in an effort to protect the global economy from the euro zone contagion. This was still short of Lagarde’s $600 billion goal. The Netherlands  was drawn into the spotlight over the weekend when the government failed to agree on budget cuts, making elections nearly unavoidable and casting doubt on its support from future euro zone aid.  Investors will watch the China HSBC manufacturing survey at 1430 GMT as a measure of the conditions of the world’s 2nd largest economy.  The Federal Reserve meets on Tuesday and Wednesday, and its statement on monetary policy is given on April 25th.  The Bank of Japan meets on Friday and is expected to ease again. Trading is sluggish as the market waits for clues.

• A Forecast of What the Fed Will Do: Stand Pat (Hilsenrath) - they finally realized that they have to leak the opposite...
• Draghi's ECB Rejects Geithner-IMF Push for More Crisis-Fighting (Bloomberg)
• Wal-Mart's Mexico probe could lead to departures at the top (Reuters)
• The Sadly Unpalatable Solution for the Eurozone (FT)
• US Regulators Look to Ease Swaps Rules (FT)
• Yuan, Interest Rate Reform to be Gradual: China Central Bank Chief (Reuters)
• Run, Don't Walk (Hussman)
• Hollande Steals Poll March on Sarkozy (FT)

Our equity Bloomberg screens are bright red, as equity markets sell off across the globe. Several reasons are contributing to the market selloff: 1) several firms in Asia posted weaker-than-expected earnings, 2) worries that Europe's debt crisis still threatens global growth, 3) the French elections, and 4) a breakdown of budget talks in the Netherlands.

If last week was Europe's days of hope, even as the continent was again breaking, predicated by the utterly ridiculous such as a successful Bill auction, a weak Spanish Bond issue, somehow spun by the propaganda crew as good despite pricing at an utterly unsustainable interest rate, and various German confidence indicators which soared to multi-year highs, today is the bitter hangover. Where to start...

These are interesting times in the Netherlands. I'm glad things are shaking up personally. Things have been going nowhere fast, with no indications from the elites of any real solutions to the euro crisis. Dutch politicians generally say they'd still like to send a budget to Brussels by the end of the month, and hold elections.