Archive - Mar 22, 2013

The developed world has now become a fully operational Something-for-Nothing society. Once a Something-for-Nothing psychology has been fully implemented the majority of its citizens have become the functional equivalent of LOCUSTS! 

Unable and unwilling (they no longer have the skills to make the wages they believe they are entitled to) to produce more than they consume and support themselves they set off the consume those that do to FEED on and SUPPORT themselves. The TAKERS or WEALTH EAT the MAKERS of WEALTH, Cannibalism of the worst sort.

Behold a lesson in magical "value creation":

• SPAIN'S BANK RESCUE FUND TO VALUE BANKIA SHARES AT EUR 0.01 - As a reminder, Bankia is the recently broke bank that was created when it subsumed a bunch of other formerly broke banks.
• SPAIN BANK FUND AIMS FOR NOMINAL BANKIA SHARE VALUE OF EUR 1.00
• SPAIN'S BANK RESCUE FUND TO DO REVERSE STOCK SPLIT OF BANKIA STOCK
• SPAIN BANK RESCUE FUND SAYS BANKIA SHARES WILL BE WORTH EUR 1.00 AFTER 100-TO-1 REVERSE STOCK SPLIT

To explain for those confused: you start with a broke, literally, bank. You value the "equity" at the lowest possible increment in existence. Then you apply a reverse stock split. And finally, you end up with a perfectly solvent bank whose stock trades at EUR 1.00/share.

Based on the the budget, Fitch has placed the United Kingdom's AAA taing on Watch Negative (for future downgrade): The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch. GBPUSD snapped 50 pips lower but is reverting a little now - US equities shrug (just another piece of AAA collateral nearer biting the dust).

And how pessimistic he has become not only about Europe but China.

With the Fed now fully engaged, and few if any policy tools left, the effectiveness of continued artificial stimulation is clearly waning.  Lower mortgages rates, interest rates and excess liquidity served well in priming the pumps of the real estate and financial markets when valuations were extremely depressed.  However, four years and four programs later, stock valuations are no longer low, earnings are no longer depressed and the majority of real estate related activity has likely been completed. It is for this reason that the returns from each subsequent program have diminished.  The reality is that Fed may have finally found the limits of their effectiveness as earnings growth slows, economic data weakens and real unemployment remains high.  Reminiscent of the choices of Goldilocks - it is likely the Fed's estimates for economic growth in 2013 are too hot, employment is too cold and inflation estimates may be just about right.  The real unspoken concern is the continued threat of deflation and the next recession.

Just when you thought you knew the rules, the Troika has changed them... (via MNI)

• TROIKA SAID CONDITIONS WORSENED, WANTS BILL TO REFLECT
• TROIKA HIKED CYPRUS CONTRIBUTION TO E6.7 BN VS E5.8 BN: SOURCE

Now that many are convinced we've moved into totally unjustifiable extremes of complacency in risky assets, we are having a look at some historic stock market breaks and how they have unfolded. In that light, the current setup is rather ominous. Saxo Bank's John Hardy likes to look at historic patterns, particularly when the past might provide a historic parallel for the present situation. In this case, we're interested in what many historic major equity chart tops look like in a technical sense now that if feels like we've entered into a blow-off territory technically. Somewhat to our surprise, we found that many major market tops had remarkably similar traits as the one we have just posted.

Pardon this brief tangent from the hypnotic, sclerotic, quixotic, Cypriotic situation which will get no resolution today, or tomorrow, and may at best be resolved on Sunday night following yet another coordinated global bailout, (although our money is on a last, last minute resolution some time on Monday when Cyprus is closed but the European markets are widely open), but as it highlights a key follow up to our article from two days ago, "Dr. Copper's Deja Vu" it is worth being aware of a rather particular problem in Asia right now. A rather well-known problem for those who have tracked the warehousing woes of assorted industrial medals in China as an indication of the true state of the Chinese economy: as of right now, the stocks of copper in Asia (as determined by deliverable LME CLS and Shanghai copper) are at an all time high and up 90% from the previous three year average.

Rather than sitting nervously and passively and awaiting the coming financial dislocations and expropriations, investors and savers need to be prepared for the uncertain financial scenarios that seem increasingly likely.

Hoping for the best, but preparing for less benign scenarios remains prudent.

Moments after the last Hopium and Optimism driven surge in the EURUSD, we asked a simple question:

So what happens when Cyprus is not fixed "within hours"

— zerohedge (@zerohedge) March 22, 2013

...we just got our answer, courtesy of the perfectly expected ECB rejection, which this time waited a whopping 40 minutes before showing Cyprus who's boss

EURUSD (and implicitly the algo-connected S&P 500 futures market) is surging on the basis of optimism (for the new 'deposit tax plan') from the head of the party that abstained from the previous 'deposit haircut vote':

*CYPRUS'S NEOFYTOU SAYS SITUATION IS DIFFICULT;  EXPRESSES CAUTIOUS OPTIMISM

It seems 'cautious optimism' is contagious but the irony of this politician's two-faced hypocrisy driving any market reaction is mind-numbing. EUR has broken above 1.30, Italian and Spanish bonds are rallying, and Italian stocks are now green for the week.

German Chancellor Angela Merkel has walked a tightrope over the last few years of keeping the EU together without infuriating the German populace to the point of having to abandon ship.

It seems that the Cypriot government is going full circle on its plans to save its nation and its people. As UK Think Tank Open Europe notes, "it now seems we have come all the way back round to the deposit levy as a solution in Cyprus. Overnight, the EU/IMF/ECB Troika rejected the plans for a Cypriot solidarity fund, particularly one based on pension assets and gas reserve revenues (which German Chancellor Angela Merkel specifically spoke out against)." The new - Plan 'D' - (Plan A - Haircuts; Plan B - Beg Russia for Bailout; Plan C - Solidarity Fund) appears to be moar haircuts and double-dip on the large depositors (seemingly what Brussels wants anyway). Plan 'D' - a restructuring and bigger deposit levy (a 12.2% tax on deposits above €500,000 or a 9.46% deposit on deposits above €100,000 would yield the necessary €3.5bn) - "may amount to trying to burn the larger depositors twice," as the plan to shift bad assets to a bad bank (along with the large uninsured depositors) and wound down (meaning 20-40% losses) and still face the initial large-deposit-tax - leaving the Russians large depositors with 50%-plus losses. As the FT notes, "that may make sense in the medium term, but in itself does not create new money"

Europe's paymaster - that would be Germany for those who have not paid attention to events over the past four years - is not used to being snubbed. It certainly is not used to being snubbed by what every empty chatterbox and their kitchen sink will tell you is a "small and irrelevant" country (all the more so in the aftermath of last summer's embarrassing defeat in its head on confrontation with the ECB, in which the Bundesbank showed that sometimes the best offense is a gracious retreat). It most certainly is not used to not being invited to discussions involving the future of its precious mercantilist European union, especially when said union may no longer exist as we know it in 48 short hours. And Germany is angry.

Sometimes a picture paints a thousand words and with markets treading water ahead of any news out of Cyprus, Russia, or Brussels, we thought some brief levity (if not irony) was in order. Here are a number of excellent cartoons on the Cyprus situation from how we got here to where we are going...