Just in case anyone is confused about how fixed Europe is, insolvent Spanish TBTF megabank, which F'ed last year and had to be bailed out by the government, will post earnings (and in this case we use the term very loosely) next week at which time it will report the biggest corporate loss in Spanish history. From Telegraph: "On Thursday Bankia will report full-year earnings, including a €12.6bn provision taken at the end of last year. The writedown is a result of the lender moving assets into Spain’s “bad bank” at heavy discounts. Bankia, which is seen as a symbol of Spain’s financial woes, was created through the merger of seven smaller savings banks before being listed on Madrid’s stock exchange. When the company failed, hundreds of thousands of people who had been sold shares saw their savings wiped out. The collapse forced Spain to ask Europe for a bailout for its banking sector, which has meant the lender is subject to tight controls. Bankia is trying to sell its 12pc stake in International Consolidated Airlines Group, the parent company of British Airways, which is valued at about £510m, and 5.3pc of the power company Iberdrola, which is worth about €1.24bn."
The sequester was supposed to be such a bad outcome that it would force a compromise. The across-the-board cuts were so rigid and hurt so many favored programs, BAML notes, the “Super Committee” was almost certain to come up with a more flexible alternative. And yet, not only did the Super Committee fail to even make a proposal, the negotiations have now devolved into a blame game – the two parties are trying to pin the blame, and the political cost, onto the other party. As we have expected for some time, the sequester will very likely hit on March 1. This well likely add further downward pressure to the economy in the second quarter, with job growth averaging less than 100,000 per month and GDP growth slowing to 1%.
For a country that laments the imposition of draconian "austerity" measures, now allegedly in their third year, which have so far seen government revenues slide, while spending rises, Spain sure has a problem with figuring out how it is supposed to work. Yet while the world was shocked back in December 2011 when Spain quietly announced its budget deficit would jump from 6% to 8.5%, before finally settling on 8.9% of GDP, today's announcement that the 2012 Spanish deficit was a whopping 10.2% of 2012 GDP hardly caused any commotion. Apologists will quickly say that this budget gap was boosted by the 3.2% increase due to setting up the bad bank, and rolling bank bailouts, and of course they will be right: just as all those economists were right to say that when one excludes all the negatives, US Q4 GDP was in fact positive. Or, indeed, as Goldman said to ignore this week's negative initial claims and new housing starts data: after all they too were negative. In fact, when one excludes all the negative trading days in 2013, the stock market has not had a down day yet. As for Spain, too bad the country can't have its broke bank cake and eat the budget surplus that would result "if only" things were different.
- Spain’s Deficit Widened to 10.2% on Bank-Rescue Cost (BBG) - or as Rajoy would say, when one excludes all negatives, it was a surplus
- Monti Austerity Pushes Italians Toward Parliament Upheaval (BBG)
- Russia accuses U.S. of double standards over Syria (Reuters)
- Euro Area to Shrink in 2013 as Unemployment Rises (BBG)
- UK, China central banks to discuss currency swap line (Reuters)
- Italy Court Rejects Challenge to Bailout of Monte Paschi (BBG)
- Japan's Abe to showcase alliance, get Obama to back Abenomics (Reuters)
- Russia’s missing billions revealed (FT)
- China Home-Price Gains May Presage Policy Tightening (BBG)
- Fed unlikely to curtail stimulus despite rising doubts (Reuters)
- Banks face fines up to 30 per cent of revenues (FT) - just as soon as Basel III is passed (i.e., never)
- J.C. Penney Can Raise Billions Under Revised Credit Line (BBG)
- Cost of Dropping Citizenship Keeps U.S. Earners From Exit (BBG)
A listless overnight session with just the previously noted first disappointing LTRO-2 repayment and the now traditional big beat out of the "other" German confidence indicator, IFO, which beat expectations of 104.9, rising to a 10 month high of 107.4 to attempt to push the economy out of the recessionary slump (just don't mention yesterday's PMI), and nothing on today's US calendar is a fitting way to end the week, and further shows that markets are once more completely oblivious to the risks of the Hung Parliament outcome that this weekend may bring in Italy should the Berlusconi juggernaut maintain its momentum. The EURUSD and the US futures have disconnected once more, with almost all of yesterday's market weakness filled in the overnight session as the good old low-volume levitation returns. Here are the few news items worth reporting.
A month ago, on January 25 when the window to commence LTRO repayments was opened, European banks, with much pomp and circumstance, announced that 278 banks repaid a greater than expected €137.16 billion of the €1+ trillion in LTRO funding disbursed in early 2012. This was taken as a sign of European bank stress dissipation and financial stability, and furthermore served to push the EUR much higher on expectations that the ECB balance sheet would rapidly contract even as every other central bank balance sheet was expanding. It also ignored the fact that ongoing broad economic weakness in Europe required and still requires a weaker currency, not a stronger one (however too weak, and you get "redenomination risk", etc, etc). As it turns out, like everything out of Europe, the "strength" indicated by the first LTRO2 repayment was merely a sham, and moments ago when the ECB announced the results of the second 3 year LTRO repayment option, the news was a big dud: instead of the €122.5 billion expected to be paid back, European banks repaid just under half of this amount or €61.1 billion, spread among 356 banks - an average of just €0.17 billion per bank.
It is perhaps time to look back at what once was. In Part 1 of the 4 part History Channel series, a new war begins as out of the turmoil of the Civil War, America enters an age of enlightenment that will change the landscape of the country forever. The growth is driven by five insightful men who will change the world forever. John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, Henry Ford and J.P. Morgan rose from obscurity and in the process built modern America. Their names hang on street signs, are etched into buildings and are a part of the fabric of history. These men created the American Dream and were the engine of capitalism as they transformed everything they touched in building the oil, rail, steel, shipping, automobile and finance industries. Their paths crossed repeatedly as they elected presidents, set economic policies and influenced major events of the 50 most formative years this country has ever known. From the Civil War to the Great Depression and World War I, for better or worse, they led the way.
The Obama drone program has been shrouded in secrecy, but after the leaking of the 'kill list' white papers, Russia Today notes, many critics are demanding transparency from the administration when it comes to the exact number of causalities. Due to the confidentiality of drone strikes abroad, it has proven difficult to get an accurate figure - until now. As Wired.com reports, US Sen. Lindsey Graham (R-SC) has estimated that 4,700 people have been killed. As of now it is unclear how he obtained that figure, but his 'approving' comments raise questions about the accuracy of these attacks: "Sometimes you hit innocent people, and I hate that, but we're at war, and we've taken out some very senior members of al-Qaida." Graham did not offer an estimate of how many innocent people the drones have killed. Given the 430 or so strikes known about, this would imply around 10 kills per strike - but judging from the context of his remarks, Wired.com suspects, he's not counting the strikes in Iraq and Afghanistan. It wouldn’t be the first time that a U.S. senator has offhandedly revealed specific and unacknowledged information about the drones, following Diane Feinstein's 2009 gaffe, but Graham’s disclosure underscores the extraordinary secrecy around the centerpiece of U.S. counterterrorism efforts - a military action in all but name, operated by an agency that need not explain to the public how it carries out the program.
The World Economic Forum (WEF), during its Davos jaunt, created an intriguing set of 50 'global risks'. Of course these are from the perspective of the elitest of the elite but with more than 1000 respondents, the results seem all-encompassing. The global risk that respondents rated most likely to manifest over the next 10 years is severe income disparity, while the risk rated as having the highest impact if it were to manifest is major systemic financial failure. There are also two risks appearing in the top five of both impact and likelihood – chronic fiscal imbalances and water supply crisis. The report covers five key categories of 'risk' - which we will be posting on in the next few days - Economic, Environmental, Societal, Geopolitical, and Technological. In this first post we expose the 50 risks by magnitude and probability, how they have evolved over the past few years, and the importance of their inter-connectivity.
Last October, among the various statements by Hugh Hendry at the annual Buttonwood gathering was this blurb by the man who is otherwise a big fan of physical gold: "I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity. The risk premium goes up when the gold price goes up. Societies are more envious of your gold at $3000 than at $300." Vivid imagery aside, he was spot on as the GDX tumbled 30% since then. Yet with the gold miners now universally abhorred and hated by virtually everyone, has the time come to take advantage of the capitulation? That is the question posed by John Goltermann of Obermeyer Asset Management, a firm better known for its deeply skeptical view toward Apple express as part of its April 2012 letter, and which also ended up being spot on. Goltermann says: "Whatever the reason, the underperformance of the mining shares in the last 18 months has been significant. At this point, because of the price divergence, the valuation disparity, and general capitulating sentiment, there doesn’t seem to be a case for selling mining shares. Given the valuations, we are evaluating whether it is appropriate to add to the position. The negative sentiment towards gold could continue for a time, but as economist Herbert Stein cautions, “If something cannot go on forever, it will stop.” When price divergences like this occur, they usually self-correct. In the interim, there is a strong case that gold mining stocks are cheap and that much bad news is priced in." Then again, as Hendry said, it may just as well be insanity.
Central banks are the devil. Hinde Capital explains that they are like drug dealers except they administer regular doses of supposedly legally prescribed barbiturates to their addicts. The 'easy money' or 'credit' they create is an opiate and like all addictions there is a payback for the addicts, one exacted only in loss of health, misery and death. The economic system is an addict, but that system is comprised of banks, corporations, non-profit organisations, small businesses all of which are communities. And what comprises communities, us, human beings - individuals. We are the addicts. It is Hinde's contention that central banks feel they need to maintain the balance of credit in the system as it currently stands by adjusting the money supply and monetary velocity (MV) but by doing so they merely circumvent the necessary adjustment in the economic system that comes about by market failure. If they don't allow this failure then any attempt to influence MV will only lead to higher prices (P) at the expense of output (T) in the famous monetary equation MV=PT. Sadly the desire of the State to control money and administer it like a drug has left our economies unproductive and incapable of standing on their own two feet. Full must read Hinde Insight below...
Regardless of whether a market is moving up or down, there is always someone making money somewhere. There are various examples every day – be it a billionaire selling a stock short (i.e., Herbalife) or a company selling a meal short on ingredients (i.e., horsemeat economics). Some methods are legitimate, and some are not. But one thing is for sure... energy markets are by no means immune to such collusion. The natural gas market is coming under increased scrutiny, as price movement ahead of the main event of the week – the weekly storage report – appears to be being manipulated by high-frequency trading (HFT). High-frequency trading is nothing new to financial markets, but it is new to the natural gas market. It has also spawned some wonderfully inventive names to describe the pre-storage report shenanigans. The best term by far has to be ‘banging the beehive’, which is where a flood of orders is sent to trigger a huge price swing immediately before the data is released. Regardless of how comical these names are, however, this creation of ‘synthetic momentum’ is market manipulation and is being investigated accordingly.
Since we first started discussing the new frontier of investment (or economic hitmen), Africa has been appearing more and more in the headlines - from labor conditions in the South to military action in the North. Natural resources and leverageable assets remain key as the infamous Zimbabwean 'dictator' Robert Mugabe, fighting for re-election at the age of 89, maintains that Zimbabwe's difficulties stem from a Western plot to re-colonize it. With more than 80% of the country unemployed but rampant inflation somewhat calmed, Reuters notes that Mugabe believes "It's God's choice" that he is running in this close election. Just like Goldman Sachs "doing God's work", Mugabe believes "this is a task the Lord might have wanted me to fulfill among my people...," regarding the liberation struggle for black economic empowerment. More than 4,000 out of an original 4,500 white-owned farms have been seized since 2000 under a program he says is aimed at correcting land ownership imbalances created by colonialism. The consensus is that a free and fair election will create a true democratic outcome, but as one local noted "with his record I just don't see how Mugabe can win a free and fair election." Indeed, though the jackals remain.
Stanley Druckenmiller: "We Have An Entitlement Problem" And One Day The Fed's Hamster Wheel Will StopSubmitted by Tyler Durden on 02/21/2013 - 18:04
Two and a half years ago, George Soros' former partner Stanley Druckenmiller closed shop when he shut down his iconic Duquesne Management, after generating 30% average annual returns since 1986. Some time later he raised many red flags by being one of the first "establishment" types to expose the Fed's take over of the market when he said in a rare May 2011 interview that "It's not a free market. It's not a clean market.... The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week." This was in the context of the constantly declining interest rates on an ever exploding US debt load. And while back then total debt was a "manageable" $14.3 trillion, as of today it is some $2.3 trillion higher moments ago printing at a fresh record high of $16.6 trillion, not surprisingly the phony buyer is still here only now he is buying not $19 billion by over $20 billion in total debt each week. But just like it was the relentless rise in the US debt that forced him out of his privacy in the public scene back then, so it was also the US debt that was also the topic of his rare CNBC appearance today (where he fiercely poked at all those other TV chatterbox pundits when he said "money managers should manage money and not go on shows like this") in the aftermath of his recent WSJ Op-Ed. There, he once again said what everyone knows but is scared to admit: "we have an entitlement problem."