Archive - Feb 18, 2013

As the European parliament attempts to create a budget and Draghi repeats how the temporary lull in European growth is merely a prelude to a growth renaissance in the second half of the year (not to be confused with the verbatim lie rehashed by European dignitaries in 2012, 2011, 2010 and 2009), it appears a few leaks of truthiness are seeing daylight in the disunion. In a shockingly frank interview, the CEO of Saxo Bank describes the Euro's recent rally as illusory and that "the whole thing is doomed," as the continent is not supported by a fiscal union. As Bloomberg reports, Lars Seier Christensen says he would be a "seller of the EUR at anything near 1.40," noting that "right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all." Confirming that the only thing holding the farce together is political not economic efforts, he sums the situation up perfectly: "people have been dramatically underestimating the problems."

There are just too many variables, too much information, and even unknown variables that play into market dynamics. 

I meet people that still believe that the world is fine. They believe things like:

• The US government has plenty of money.
• Government cares for its citizens.
• The economy cannot crash.
• We are not in a recession (Depression).
• The lives of their children will be better than their own.
• The government can continue to print money to fund promises they cannot afford.

Despite these untenable beliefs, these are not stupid people.

2012 Q4 GDP has been weak in G3 and indeed Europe more broadly, (however it has generally surprised to the upside in Asia), consequently, the momentum of business sentiment will be key to watch. The Euro area flash PMI, German Ifo and the Philadelphia Fed survey are released this week (the China flash PMI will be released on Feb 25). The consensus expects a further small rise in the Euro area services and manufacturing readings. The week also brings a batch of central bank commentary, where the focus will be on references to currency strength; these include the RBA minutes followed by testimony, a speech by RBNZ governor Wheeler, Bank of Thailand policy decision and Bank of England minutes. The Federal Reserve will release the minutes from the last meeting and they may contain important clues on the bias of the Committee with respect to how long it expects the current QE program to last. Additionally, the Committee may have discussed the potential merits of outcome-based guidance for balance sheet policy, which may be reflected in the minutes.

Here come da judge...

The tender (and doomed to fail) truce obtained several months ago between miners and platinum mining companies is formally over, following reports from Johanesburg that at least five workers have been shot outside of the the Rusetenberg mine by security officials during a standoff between rival unions. Reuters adds: "Johannesburg - At least five workers were shot on Monday after security guards at an Anglo American Platinum mine in Rustenburg opened fire following clashes between rival union factions, eNCA television said. The station said it believed one worker at the Siphumelele shaft had been killed."

While the recent move in gold lower, attributed primarily to the fickle rotations of assorted hedge funds who have gotten crushed on their AAPL holdings and thus forced to liquidate profitable positions mostly in ETFs and other paper gold representations (as demand for physical precious metals has never been greater), has seen many pundits scream (as they do every year) that the move higher in gold and precious metals is over, what everyone as usual forgets is that the big move up in gold in 2011 was not driven by Soros or Paulson or Einhorn buying (or selling) laughable amounts of the yellow metal but by relentless end consumer demand out of China and India, when inflation was surging. And with the entire world now openly reflating the one country that has the lowest buffer to hot external money - China - is about to see prices for all products go parabolic once more. It's just a matter of time. Of course, last week's Lunar New Year and closed exchanges bought some time for the bearish gold thesis, but that is now over, quite literally with a bang as demand out of both China and India explodes out of the gates, proving that the sensible money is merely waiting for every dip in the PM complex to buy.

Beleaguered Prime Minister Mariano Rajoy just broke another record. As if a plague of corruption scandals was not enough, Spain's debt-to-GDP has now reached levels not seen in over 100 years. As El Pais reports, Spanish debt levels rose at an alarming EUR 400 million per day in 2012 making for the largest annual increase in debt in the nation's history - all the while proclaiming austerity. The EUR 146 billion increase in debt in 2012 is the equivalent of more than 14 percentage points of GDP leading to a staggering EUR 882.3 billion or 84% of GDP overall - far exceeding the government's own budget forecast of 79% and expected to rise significantly further in 2013. The last time levels of debt were this high relative to GDP Spain was recovering from war and the loss of its colonies. At EUR 38.7 billion, Spain has never spent so much money to pay only the interest on its debt, 33% more than budgeted for last year. Still think Europe's crisis is over?

• G-20 Signals Support for Japan Easing Without Yen Talk (BBG) - but how will Mrs Watanabe know to sell the JPY without nightly proddings?
• Obama Faces Risks in Pipeline Decision (NYT)
• White House Immigration Plan Leaked (WSJ)
• Reader’s Digest Is Bankrupt as Iconic Magazine Falters (BBG)
• Venezuela's Chavez in surprise return from Cuba (Reuters)
• German Recovery Hinges on Euro Zone (WSJ)
• Hong Kong’s Bankruptcy Requests Climb to Almost Two-Year High (BBG)
• China New Year Retail Sales Growth Slows on Frugal Drive (BBG)
• Debt Bubble Born of Easy Cash Prompts Swedish Rule Review (BBG)
• In Europe's tax race, it's the base, not the rate, that counts (Reuters)
• Ugliest Danish Banks Find No Buyers in Toxic Asset Trap (Bloomberg)
• Italian Undecided Voters Targeted in Campaign’s Last Week (BBG)

With the US closed today, the Shanghai Composite red after a week of partying not helped by news from China’s Ministry of Commerce showed that spending during the week-long Lunar New Year break grew at the slowest pace since 2009, and the Nikkei merely a tick-for-tick proxy of whatever the USDJPY does which in turn is a mood indicator for how any given G-7/20 statement is interpreted, the only relevant news in today's thinly traded market would come from Europe, where the EUR is once again modestly higher in overnight trading, even as Spain and Italy bonds are selling off.