All of the time wasted on firewalls and great deceptions worked in the short term but the height of a fence does nothing to help a horse or a nation which is sick inside them. Europe has vastly overspent and tried their best to whitewash the financials of the countries and the European banks and now, and each quarter out for some time; we are going to see a worsening financial landscape for the European nations and their banks. This will not be Armageddon or the end of the world but it is going to be quite painful and have a decided impact on the United States and perhaps the scaring may be deep. In Europe that have mouthed so much nonsense for such a long period of time that they have come to believe in what they have manufactured. This is not uncommon historically but the depth and breadth of it is without comparison. Germany says one thing to placate France and Italy believes the drivel that is touted by the Netherlands and now Greece wants the ECB to forgive their $238 billion in Greek debts on the basis of a united Europe, which would bankrupt the ECB, and then it becomes clear that someone has to pay for all of this and countries start banging on the doors of the asylum to get out. Listen carefully; the banging has begun and will grow loader and more raucous during the balance of the year.
Last week it was the Fairness Distributor In Chief threatening China with WTO action over its unfair duties on US car imports. Before that it was Europe trying to protect its crumbling trade at all costs with its primary trade partner. Now, it is China's turn to retort to the world's beggars, and all those who just happen to ravenously import its iWares with the reckless abandon of a gadget junkie. FT reports: "Beijing has threatened swift retaliation against a range of European Union industries if Brussels presses ahead with an investigation into government subsidies granted to two Chinese telecoms equipment companies. The Chinese threat was delivered at a meeting with EU trade officials in Beijing late last month that was arranged at the behest of Chen Deming, China’s commerce minister, to try to defuse a brewing trade dispute that is straining commercial relations between the two sides. Instead, it collapsed into acrimony, with the Chinese warning their EU visitors that they would respond to any investigation of Huawei and ZTE Corp by probing subsidies granted to European agriculture, automotive, renewable energy and telecoms companies. “Put it this way: it’s not like they went for a beer after and watched football,” one person briefed on the meeting said." None of this is new: recall China Lays Out Conditions Under Which It Will Bail Out Europe; Does Not Want To Be Seen As "Source Of Dumb Money" in which Li Daokui "added that Beijing might also ask European leaders to refrain from criticising China’s currency policy, a frequent source of tension with trade partners." Looks like we can scrap those "China bails out Europe" (ignore the fact that the Chinese economy itself is imploding for a second) rumor in perpetuity.
European equities have been grinding lower throughout the European morning, with basic materials seen underperforming following the release of a multi-month low Chinese CPI figure, coming in at 2.2%, below the expected 2.3% reading. The focus in Europe remains on the Mediterranean periphery, as weekend reports from Spanish press suggest that the heavily weighted Valencia region may be pressed into default unless it receives assistance from the central government. The sentiment is reflected in the Spanish debt market today, with the long-end of the curve showing record high yields, and the 10-yr bond yield remaining elevated above the 7% mark. News from an EU council draft, showing that Spain is to be given extra time to meet its deficit targets did bring the borrowing costs off their session highs, but they do remain stubbornly high at the North American crossover. The gap between the core European nations and their flagging partners continues to widen, as Germany sell 6-month bills at a record low of -0.0344%. As such, the 10-yr government bond yield spread between the Mediterranean and Germany is seen markedly wider on the day.
- Euro zone fragmenting faster than EU can act (Reuters)
- Wall Streeters Lose $2 Billion in 401(k) Bet on Own Firms (Bloomberg)
- Eurozone crisis will last for 20 years (FT)
- Chuckie Evans: "Please suh, can I have some moah" (Reuters)
- Quote stuffing and book sales: Amazon ‘robo-pricing’ sparks fears (FT)
- Situation in Egypt getting worse by the minute: Egypt parliament set to meet, defying army (Reuters)
- Chinese goalseek-o-tron speaks: China’s inflation eased to a 29-month low (Bloomberg)
- A contrarian view: "Barclays and the BoE have probably saved the financial system" (FT)
- Flawed analysis: Dealers Declining Bernanke Twist Invitation (BBG) - Actually as shown here, ST Bond holdings have soared as dealers buy what Fed sells: more here
- Obama team targets Romney over taxes, Republicans cry foul (Reuters)
- And all shall be well: Brussels to act over Libor scandal (FT)
- Bank of England's Tucker to testify on rate rigging row (Reuters)
Those following the EURUSD may be surprised by the rather violent spike higher in the past few minutes. Don't be: it is just the same old European unfounded speculation repackaged and regurgitated as headlines, in this case the following:
- EU SAYS NO SOVEREIGN GUARANTEE NEEDED FOR DIRECT ESM BANK FUNDS
Or, for those whose event memory has a one week cutoff, the exact same thing that the Euro summit from June 28 "concluded" sending the EURUSD higher by 200 pips, only to see it crash to 2 year lows in the week following after Germany made it clear this was not really the case. Turns out it is not really the case this time either:
- Details of how the future system will work remain to be negotiated: Commission spokesman Simon O’Connor
Cue responses from Finland, Holland, Slovakia and maybe, just maybe Germany, all of whom agree to disagree, and some of whom even demand collateral even for just EFSF borrowings.
Remember the running joke about Spain's constantly deteriorating budget? Or was that Greece's? No matter: there was a time when Spain was expected to hit a 5.3% budget deficit in 2012, and the Maastricht mandated 3.0% by 2013. So much for that. It turns out the Spanish economy has deteriorated so much in the last few months, that the EU had no choice but to grant Spain a 1 year extension, according to Europapress. In doing so, the EU has eased deficit targets for Spain by 1% in 2013, granting it a 6.3% deficit miss, a number which will be revised at least once more before the year is over, and the 2013 target is now widened by 1.5% to 4.5%. So much for serious deficit cutting. But let's blame "austerity" while we are at it. It would, however, be great if countries in Europe, or anywhere, were actually austere, and cut their deficits, instead of just blaming austerity for every economic problem while never actually enacting such policies (as we explained before). So while Spain gets an extension due to a "recession of rare violence", the trade off will be even greater supervision by the Eurogroup, or said otherwise, more people will watch how Spain does nothing to actually fix itself and then 6 months from now everyone will be shocked, shocked, when the 2013 deficit is over 8%. In other news, Spain 10 Year bond were trading at 7.08%, well wide for the day and about 20 bps shy of the all time record lows.
This scathing assessment of Obama’s economic policies is by no means an endorsement of Mitt Romney or his economic plan, since he has never provided a detailed economic plan. After four years of a Romney presidency, the national debt will also be $20 trillion as his war with Iran and handouts to his Wall Street brethren replace Obama’s food stamps and entitlement pork. There was only one presidential candidate whose proposals would have placed this country back on a sustainable path. The plutocracy controlled corporate mainstream media did their part in ignoring and then scorning Ron Paul during his truth telling campaign. The plutocracy wants to retain their wealth and power, while the willfully ignorant masses don’t want to think. The words of Ron Paul sum up what will occur over the coming years as the interchangeable pieces of this corporate fascist farce drive the country to ruin. The politicians, bankers and corporate titans running this country are too corrupt and cowardly to reverse the course on our path to destruction. The debt will continue to accumulate until our Minsky Moment. At that point the U.S. dollar will be rejected and chaos will reign. The Great American Empire will be no more. At that time sides will need to be chosen and blood will begin to spill. Decades of bad decisions, corruption, cowardice, ignorance, greed and sloth will come to a head.
The verdict of history will not be kind to the once great American Empire.
Attempts to manipulate free markets invariably end badly - after all, they are, supposedly, by their very nature, free. Over the past few weeks, the exposure of the Libor-rigging scandal has monopolized the headlines of the financial press. The rather obvious implication being that given almost half the reported inputs that help establish the Libor rate are discarded immediately, Barclays simply CANNOT have manipulated the Libor rate alone. Period. At best this is a cartel, at worst it’s outright fraud on a scale that is completely unprecedented. In Grant Williams' humble opinion, the Libor scandal will mark a fundamental change in the treatment of financial conspiracy theories in the media. The sheer amount of coverage it will undoubtedly receive will signal a shift in attitude towards the exposing of such scandals rather than the blind-eyes that have been regularly turned in recent years. Prime amongst conspiracy theories that may soon be finally proven to be either valid or the figments of overactive imaginations, are those alleged in the gold and silver markets. If the long-stated claims about government-sanctioned, bank-led manipulation of precious metals markets are eventually proven to have any validity whatsoever, the fallout from the Libor scandal will prove to be (to use the words of Jamie Dimon) just another “tempest in a tea pot” as the precious metals are the very underpinnings of the entire global financial system.
A preview of the key events in the coming week (which will see more Central Banks jumping on the loose bandwagon and ease, because well, that is the only ammo the academic econ Ph.D's who run the world have left) courtesy of Goldman Sachs whose Jan Hatzius is once again calling for GDP targetting, as he did back in 2011, just so Bill Dudley can at least let him have his $750 million MBS LSAP. But more on that tomorrow.
Japan's core machinery orders were expected to post a modest -2.6% drop. Instead they had a worse collapse than anything seen in the aftermath of the Fukushima disaster, plunging by a stunning 14.8% . And the kick in the groin cherry on top was the current account surplus plunged by 62.6%: consensus forecast: -14.5%. The Japanese economy has once again ground to a halt, only this time it has no earthquake or nuclear explosion to blame. This time it is the entire world's fault, where demand has collapsed proportionately. As a reminder the BOJ expanded its QE yet again on April 27. Must be time for another QE because this time will certainly be different after more than 30 years of failures. It is time for those brilliant central planners Ph.D's to do engage in more of the same insanity that Einstein warned about decades ago. And incidentally this is not a joke: on Thursday the BOJ is expected to ease yet again. As a reminder, the BOJ already buys ETFs, Corporate Bonds, and REITs. What's left: gold?
It should come as no surprise to anyone that major commercial banks manipulate Libor submissions for their own benefit. As Jefferies David Zervos writes this weekend, money-center commercial banks did not want the “truth” of market prices to determine their loan rates. Rather, they wanted an oligopolistically controlled subjective survey rate to be the basis for their lending businesses. When there are only 16 players – a “gentlemen’s agreement” is relatively easy to formulate. That is the way business has been transacted in the broader OTC lending markets for nearly 30 years. The most bizarre thing to come out of the Barclays scandal, Zervos goes on to say, is the attack on the Bank of England and Paul Tucker. Is it really a scandal that central bank officials tried to affect interest rates? Absolutely NOT! That’s what they do for a living. Central bankers try to influence rates directly and indirectly EVERY day. That is their job. Congresses and Parliaments have given central banks monopoly power in the printing of money and the management of interest rate policy. These same law makers did not endow 16 commercial banks with oligopoly power to collude on the rate setting process in their privately created, over the counter, publicly backstopped marketplaces.
All hope abandon, ye who enter here from an Italian or Spanish IP address.