Archive - Feb 14, 2013 - Blog entry

Even Democrats Are Starting to Admit It

The game is called “Name That Insolvent Banking System.” The way you play the game is by trying to guess which the countries whose Bank Assets to GDP ratios are in the below chart. There are only seven countries and I’ll tell you that they’re all western economies in the developed world.

Because “there’s no difference in the taste”

The European Commission formally endorsed the financial transaction tax agreed to by eleven of the 27 members. The tax will be set at 0.1% for stocks and bonds and 0.01% for derivatives. The tax will go into effect at the start of 2014, by which time the participating countries will give it formal approval.

There seems to be two purposes of the tax. The first is to raise revenue. The EC projects the tax will raise 30-35 bln euros annually where ever and whenever an instrument from eleven is traded. This would seem to block the ability to avoid the tax by moving transactions out of the eleven countries. It reinforces the "residence principle". This essentially means that if some one is a resident of the eleven countries, or acting on behalf of a resident, the transaction will be taxed anywhere it takes place. The other purpose is to deter the high frequency trading, which some officials see as largely unnecessary and potentially destabilizing.

"Crony love is a smoke made with the fume of corruption and lies.--WilliamBanzai Shakespeare

Latest from my friend David Kotok.  I think both he and Meredith Whitney are too bullish on the banks

After trending gently higher for the first half of the week, the euro has been sold to new three week lows in response to the disappointing Q4 GDP figures. The GDP figures are of course backward looking and more recent data, such as the PMI figures and German factory orders suggest the regional economy is stabilizing here in early Q1.

There is a middle step to go from the GDP figures to the euro and that is the interest rate channel. There has been some speculation that the passive tightening of the euro area financial conditions (including the shrinking of the ECB's balance sheet) and the strength of the euro would prompt the ECB to cut the refi rate later in Q1. The poor GDP readings bolster such expectations and this can be seen in short-term interest rates. The March Euribor futures contract is now implying 0.24% rate, having matched the lowest rate since Jan 23, or before the early repayment of LTRO I was announced.

This is why before and during almost any major up move in markets traders go to the EUR/USD and USD/JPY funding crosses for the juice to propel the move. It all starts with the juice, that is what determines price in markets. 

In this candid discussion, precious metals experts Eric Sprott, John Embry and Rick Rule discuss a wide range of topics related to precious metals investing.