Today, we are in the midst of a financial debacle which is more truly global than any world war. There are no lines of trenches, no shattered towns and cities, no casualty lists in the papers and no “we regret to inform you” telegrams being delivered. The carnage is real but it is invisible. No lives have been lost. All that has happened is that the living of life has become more difficult and the ability to rely on the fruits of past efforts for future comfort and “security” has been all but extinguished. The vast majority of the people are cannon fodder in this financial debacle. Like the real thing in the trenches of the Western Front, they have long since realised the futility of the efforts of their “generals”. They know that the “recession” is not over. They are starting to realise that it will never be over as long as the same methods which produced it are being used to get out from under it. But most see no escape, having become used to looking to those same “generals” to tell them what to do.
Wolfgang Schäuble: Ask Not What Germany Can Do For You, Ask How Many Government Workers You Can FireSubmitted by Tyler Durden on 06/24/2012 - 17:12
And it seemed like the most innocent case of detached retina ever. On Friday, newly elected Greek PM Samaras had to be rushed to the hospital due to the rather peculiar ocular complication, only to be followed promptly by the new Finance Minister Vassilis Rapanos fainting and also being given urgent medical care. Both are procedures that require a few hours of inpatient treatment. Yet judging by the implications these two freak occurrences have had, one would image that both patients are comatose and on the same ventilator that kept former Egyptian president Hosni Mubarak half alive, half dead a week ago. The punchline, however, is that this may be the only case of detached retina in modern history that costs a country €5 billion.... Tying it all together, however, and making sure that Samaras' cabinet is doomed before the ink of its formation documents is even dry, is everyone's favorite Schrodinger finance minister: Germany's Wolfgang Schauble who just told Greece for the final time: no mas.
They may not be doing much of anything else lately (except for now proudly accepting Spiderman towels are collateral of course), but the European Central Bank sure is a fan of football, and the fact that three of the four teams in the Semi-finals come from countries officially funded by the ECB. We do have the feeling that letting Germany slip into the congratulatory tweet below was a mistake that will cost someone their taxpayer funded job.
Congratulations to Germany, Spain, Portugal and Italy #euro2012
— Eur. Central Bank (@ecb_europa_eu) June 24, 2012
And so it will continue; as society evolves and progresses, the free market — so long as there is a free market — will naturally reallocate resources and labour based on society’s preferences. Without a free market — and since 2008 when the banks were bailed out and markets became junkiefied intervention-loving zombies, it is highly dubious that there is such a thing as a free market in the West — planners will just end up guessing at how to allocate resources, labour and capital, and producing monstrous misallocations of capital. The political nature of such reallocation is irrelevant; whether the centralists call themselves communists or socialists or environmentalists, their modus operandi is always the same: ignore society’s true economic preferences, and reallocate resources based on their own ideological imperatives (often for their own enrichment). The command economies of the 20th Century — particularly Maoist China and Soviet Russia — produced much greater pollution than the free markets. Under a free market, polluters who damage citizens or their property can be held to account in the market place, and through the court system.There is no such mechanism through the kind of command of economy that the centralists seem to wish to implement.
The answer is not central planning and government control. The answer is the free market.
Back on May 10, when JPMorgan announced its massive CIO trading loss (which may or may not have been unwound courtesy of a risk offboarding to another hedge fund which may or may not be backstopped by the Fed as the massive IG9 position was not novated but merely transferred) JPM also disclosed something else which may have bigger implications for the broader, and just downgraded, banking sector. As a reminder, in the 10-Q filing, the bank reported a VaR of $170 million for the three months ending March 31, 2012. This compared to a tiny $88 million for the previous year. According to the company, “the increase in average VaR was primarily driven by an increase in CIO VaR and a decrease in diversification benefit across the Firm.” What JPM really meant is that after being exposed in the media for having a monster derivative-based prop bet on its books, it had no choice, as it was no longer possible to use manipulated and meaningless risk "models" according to which the $2 billion loss, roughly 23 sigma based on the old VaR number, was impossible (ignoring that VaR is an absolutely meaningless and irrelevant statistical contraption). Turns out it is very much possible. Which brings us to the latest quarterly Office of the Comptroller of the Currency report, and particularly the chart on page 7. More than anything it shows what happens when a big bank is caught red-handed lying about its risk exposure. We urge readers to spot the odd one out.
Update 2: CLINTON: SYRIAN DOWNING OF TURKISH JET 'BRAZEN, UNACCEPTABLE. Just as we expected.
Update: All 28 NATO Allies will meet Tuesday following Turkey's request under article 4 of the Washington Treaty
And so the escalation-cum-provocation-cum false flag is complete. There was a time when shooting down a foreign jet over one's territory was considered self-defense. But not when the one doing the defending is perpetual media bogeyman Syria, which "unnamed sources say" kills hundreds, nay thousands of its own people daily, usually in round, soundbitey numbers. Of course, the other side to the story is irrelevant: the Western-led media is never known to fabricate stories that suit the status quo's power and military industrial complex interests. All that is relevant is for the west, aka NATO, aka Hillary Clinton to get an angle to push for provocation. She just got it. As we suspected on Friday, there was much more than met the eye with the Syrian take down of a Turkey F-4 jet. Remember what we said on Friday: "The only question remains whether Syria's act was offensive or defensive. Naturally, its version is one of self-defense. Turkey obviously will claim it was in its right to be wherever the plane may be, and will say this was an act of provocation. Then NATO, read Hillary Clinton, will promptly step in, and make this a case in which Turkey was in its right and that Syria committed an act of aggression. From there, things will just escalate, and can potentially deteriorate to a far more troubling scale, because as we reminded earlier, Syria has recently become a major symbol for NATO vs the Russia-China axis." And sure enough, just out from CNN: "Turkey declares jet shoot-down a 'hostile' act."
No one believes in their positions (other than people that hold hard assets like precious metals outside of the banking system and will not sell until the system is reset), rather investors and traders are forced to be involved in positions as a function of their mandates. Their decisions are no longer driven by economic or business prospects but rather by some view on what the Central Planners of the world will do next. The markets seem calm but there is a storm brewing beneath them and the pressure will be released one way or the other. We are now in the crucial six week period between Fed meetings. The reason I think this is such an important time is because not only will investors come to grips with the reality on the ground (recession) but it is also earnings season. As I pointed out during the last earnings period, stocks that had even a whiff of weakness in their numbers or outlook were decimated. Even names that had good results did not break out. This sent a clear signal that too much goodness is priced into many shares out there.
In a move not too surprising to those who have followed the Egyptian presidential election, the candidate who is now president of the country one year after its "liberation" is the Muslim Brotherhood-backed Mohammed Mursi (for an extended interview with Mursi delineating his views read this ), who has won with over 13 million, or 51.73% of the votes. This means that at least superficially the Egyptian military is being pulled back from power, and instead the Islamist forces will be in control. How this ultimately impacts the region, and especially Egyptian neighbor Israel, remains to be seen, although a major Islamist power ascending in control of a formerly secular nation will hardly be very beneficial to Israel, especially in the long-run even if the just elected president has pro-western beliefs.
Ask 10 people in New York who won the Greek election, and chances are 8 will respond correctly. Yet among all the manic-depressive euphoria surrounding Europe, most will likely have missed the following. Not that there's nothing wrong with that: as Goldman's David Kostin explains, even Goldman clients were caught unaware.
The Euro 2012 football competition has entered its elimination stages. According to Citi's Matt King - one of the few respectable strategists out there - the elimination round has also arrived for the other EURo. There is still hope, but it is rapidly fading, and every additional half-baked, semi-efficient "resolution" only confirms the skepticism of the ever-increasing crowd of naysayers: summits, summits, and more summits, all the while nothing changes, and the German population: the only source of any European stability, is becoming increasingly belligerent toward the entire European experiment. The other problem: we are now in the first session of extra time. So even as Germany inches ever closer to winning it all in the European football arena, will the tradeoff be a loss for everyone else who now relies exclusively on German benevolence? A few days ago, David Marsh, writing "Don’t count on Germany’s economic surrender" in the FT, made just this point. And he is right. Yet the capital markets, after nearly throwing in the towel on Spain last week, have rebounded strongly giving some hope that this time something may be different. It won't be. King explains.
I have to say that this event, which is being labeled a "training exercise", makes very little sense to me. U.S. Army troops all the way from Maryland running open exercises in armored personnel carriers on the busy streets of St. Louis? I know Maryland is a small state, but is there really not enough room at Ft. Detrick to accommodate a tank column and some troops? Are there not entire fake neighborhood and town complexes built with taxpayer dollars on military bases across the country meant to facilitate a realistic urban environment for troops to train in? And why travel hundreds of miles to Missouri? At the very least, this is a massive waste of funds.
Over the past week, various entities controlled by bailed out UK-bank RBS, focusing primarily on NatWest, have seen clients unable to access virtually any of their funds, perform any financial transactions, or even get an accurate reading of their assets. The official reason: "system outage"... yet as the outage drags on inexplicably for the 5th consecutive day, the anger grows, as does speculation that there may be more sinister reasons involved for the cash hold up than a mere computer bug.
"I could go on and on with other examples, but let’s just get to the point: one cannot operate a capitalist system if the state can borrow at a negative cost. Years of irresponsibly loose monetary policy in the US has led to cheap funding for the US (and other) governments, but difficult credit conditions for the private sector all around the world. As I underlined in How The World Works, negative real rates leads to misallocation of capital which ends in asset deflation, while simultaneously limiting the capacity for recovery by driving out the private sector.... The Fed has been managed by a bunch of Keynesians who care nothing about the role of the dollar as a reserve currency and who probably believed they were managing the central bank of Belorussia or Zimbabwe!"
It seems pretty clear that the Syrians know the consequences of their actions. NATO (including deluded US hawks who are happy to ignore the disastrous consequences of the drug war on the US border while talking up more intervention in the middle east) and the NATO-backed Syrian opposition has been looking for any excuse to get stuck into a new interventionist mission. We know that the NATO-backed opposition were prepared to try and get a British journalist killed in a false flag operation in order to trigger a Western intervention. So why did Russia-armed Syria do it? And why (given the age of F-4 aircraft, it could easily have crashed of its own accord giving the Syrians a lot of plausible deniability) are they not at least denying that they shot it down? Is it possible that the wider Eurasian anti-American coalition led by the Russians and the Chinese are confident that NATO will not intervene out of fear of triggering a wider war? After all the Russian naval base has been a great obstacle to NATO intervention. Libya didn’t have any Russian bases, and it took far less internal violence for NATO to intervene there.
In what may come as a shocking surprise to exactly nobody, the next great discovery as more and more layers of the global ponzi onion are exposed, is that China was, in fact, lying about everything. Yes, we know, stunning.