We are in “The Lull” which has been caused by the injection of capital by the Fed and by the ECB. This is exactly, exactly, what took place I remind you during the weeks after the subprime mess exploded. Massive injections of capital, run-ups in equities, compression in bonds, higher prices for commodities and then the reversal of course took place. When easing ends then the course back tracks and I predict a re-do of this in the coming months. It will not take some trigger event, though there may well be one, to cause this; just the easy money being placed and no more manufactured money to follow.
“As the well runs dry the throat parches and dehydration begins.”
American investor (and longtime CM.com member) Erik Townsend has spent the past several years living internationally, with an eye to which countries may be good alternatives if economic crisis and/or Peak Oil start to materially impact life in the US. His main observation as an expat? Through its misguided policies, the US has been exporting inflation to the rest of the world, raising prices all over the globe (as an example, he cites a $57 chicken pot pie from the menu at a 'working class' restaurant in Australia). This inflation is affecting the rest of the world harshly, but is not yet being felt in the US due to our ability to export it as the issuer of the world's reserve currency. Our immunity will not last forever though, and when it ends, a massive upwards spike in prices is going to hit US markets.
In the neverending saga that is the Greek exchange offer we have a new and very important player: the head of the Greek debt management agency, Petros Christodoulou, who is now actively threatening any Greek hold out hedge funds against doing what is in their LPs' best interests (suing Greece and the EU and holding out for par recoveries - as discussed here), by using not only the now trite and idiotic Mutual Assured Destruction clause which only those stuck in 2008 believe is remotely credible, but by advising hedge funds (which are actively forming ad hoc hold out committees as we speak, just as we predicted 6 weeks ago) that "there is just no money for holdouts...We are prepared for legal challenges but the risk here is that people are trying to be too smart." Oh, so now if one does what is in their interest, and dare hold out against collectivist fascist interests, they are "trying to be smart." We wonder if Mr. Christodoulou learned such brute force negotiating tactics at one of his former employers: JP Morgan or Goldman That's right - as we wrote over two years ago, the man who is now negotiating for Greece's and Europe's life (because a failed PSI will not only trigger CDS, more importantly it will result in an out of control default of Greece and likely its exist from the Euro and the Eurozone - two things that Germany would be delighted to see) is a former employee of the two companies that just so happens are the co-chairmen of the US Treasury Borriwng Advisory Committee, or as we have also called it before, "The Supercommittee That Really Runs America." Is the pattern finally emerging?
Back on May 25 2010, just as the Greek fiesta was starting to unravel, we wrote the following: "Total US debt per today's Daily Treasury Statement was $12,989,095 million. Also today, the US Treasury auctioned off $42 billion in 2 Year debt. This means that as of this moment, assuming the new debt were to settle today, the US has $13,031,095 billion in debt: congratulation America - you have now passed lucky $13 trillion in total debt. But don't worry, we won't stay here for long. At the current rate of issuance, $14 trillion will be passed in 8 months, and $15 trillion in another 7. By the end of 2011, we estimate total US sovereign debt to be about $15.5 trillion. For some recent vivid examples of prosperity courtesy of runaway debt issuance, please see Argentina, Japan and Greece." We apologize profusely, as we were off by two months.
Back in October, when Greece was rewarded with further bond haircuts for progressively missing its economic targets, even after having gotten caught on at least one occasion making its economy appear worse than it was, we said that it is only a matter of time before "Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." In the aftermath of this statement, we got the Irish and the Portuguese proceeding to slowly but surely do just that. Today, it was Spain's turn to make it 3 out of 4 after as Reuters noted so appropriately, "Spain defies Brussels on deficit target" clarifying that "Spain set itself a softer budget target for 2012 on Friday than originally agreed under the euro zone's austerity drive, putting a question mark over the credibility of the European Union's new fiscal pact. Prime Minister Mariano Rajoy insisted he was acting within EU guidelines because the plan was still to hit the European Union public deficit goal of 3 percent of gross domestic product (GDP) in 2013." That Italy is sure to follow is absolutely guaranteed, however just because the ECB is now indirectly monetizing BTPs the true impact will be delayed far more, and instead of taking prompt steps to remedy the situation, the European complacency will be accentuated by the fact that bond yields are very low, and supposedly indicates the true state of the economy. No. All it indicates is the conversion of future inflation (courtesy of €1 trillion in new money in the past 3 months) for a very temporary respite before all hell ultimately breaks loose as countries pretend everything is ok as bond yields are pushed artificially low. And in doing nothing, the fundamentals in the economy only get worse and worse. Germany knows this very well, and the Economist explains the reaction to Spain's surprising statement today perfectly...
"How Did You Not Notice 24-Year-Olds Were Being Paid $2 Million A Year Who Clearly Didn’t Know Anything?”Submitted by Tyler Durden on 03/02/2012 - 16:09
Michael Lewis' scathing, aphoristic, uber-sarcastic style need no introduction. As such we will leave this brief clip from Slate, in which The Big Short author is asked how to avoid a new financial crisis, without much commentary (the answer is that under the current status quo system it is impossible to guarantee no more financial collapses, even if Glass-Steagall were to be unwound, but that is the topic for another story), suffice to point out the punchline: "future generations will wonder, “How did you not notice 24-year-olds were being paid $2 million a year who clearly didn’t know anything?” That pretty much sums it up right there.
Not the US Dollar of course: why would the only country to successfully overthrow the chains of banker tyranny and default in their face want to ever have anything to do with the USD, the source of all the world's problems. No, the dollar in question is that of Canada. According to the Globe and Mail tiny Iceland, "is looking longingly to the loonie as the salvation from wild economic gyrations and suffocating capital controls...And for the first time, the Canadian government says it’s open to discussing idea. There’s a compelling economic case why Iceland would want to adopt the Canadian dollar. It offers the tantalizing prospect of a stable, liquid currency that roughly tracks global commodity prices, nicely matching Iceland’s own economy, which is dependent on fish and aluminum exports." Yes, yes, there are all the fundamental reasons, but more importantly, it is a huge slap in the face of those statists (and the United States of course) who keep repeating no matter the facts that the USD will never lose its reserve status. Here's a hint: it can and it will. And so much for the thought experiment of printing endless amounts of currency in non-reserve format and getting away with everything unpunished. Finally, there is this startling dose of reality from an earlier and calmer time, when S&P, back in 2006, released its long-term baseline scenario of sovereign debt ratings. This oddly prescient table speaks for itself.
While 9/11 was far more traumatic for many Americans than for myself, it really messed me up emotionally for a while. I thought about joining the armed forces or the newly created Department of Homeland Security. I almost quit my job to get a graduate degree in something I could do to help fight the “war on terror.” The city of my birth was attacked and two great symbols I had seen repeatedly growing up had suddenly vanished. I never once questioned anything about 9/11 for many, many years. I was emotionally reprogrammed. I now realize that was the intent and I am not happy about it. Look, I will be the first to say I have no idea what really happened on that day, but I can tell you one thing. I am 100% convinced that it wasn’t 19 cave dwelling Al Qaeda members who hate us for our “freedoms.” I can also tell you that two planes didn’t take down three buildings. The real reason I am writing this piece today is because of a very, very important article from the NY Times, parts of which I have quoted at the top. The article shows how two former Senators have said in sworn statements that they believe the government of Saudi Arabia was directly involved in the attacks. Now, such speculation is not new; however, let’s not forget the very close relationships that many of the elite in the U.S. have with the Saudi government. Furthermore, let’s analyze some of the passages in the article in a little more detail.
Remember Greece, where everything is supposedly fixed, except that nothing is until Greek bondholders all agree to get nothing for something? Or in other words, where Germany is hoping it can assign blame to hedge funds for not allowing the 75% PSI trigger threshold to be reached so there is a faceless monster that can be accused to achieving Germany's political goals? No? As the following reminder from Germany's Economy Minister Roseler shows, whose report has been acquired by Bloomberg, if not German anger then certainly confusion, is seething: "For the Greek government, the programs “obviously have no priority,” the ministry said. “This is unacceptable from the German standpoint." Wait, you mean a record February collapse in the Greek economy is inadmissable? Sure enough, Greek CDS, contrary to expectations for a no trigger event, just hit an all time high earlier at 76 points up front (i.e., more buyers than sellers), as basis player are loading up on protection and preparing for the March 8 PSI deadline.
Think Apple is the only thing allowed to hit new records every month? Think again: presenting iFoodstamps - the number of Americans living in poverty (or at least doing a damn good job of fooling the government in pretending they do). As of December, per SNAP this number just hit another record high of 46.5 million, an increase of 384,000 in one month (and ending the trend of declines from October and November), 2.4 million in 2011 (about as many as have dropped out of the Labor force, hmmmm), and 14.3 million since Obama took office.
One way to gauge the real economy is to look at charts of the GDP, wages, household debt and the price of oil; another way is to correlate all of these on one chart. The following chart (courtesy of frequent contributor B.C.) plots these four metrics thusly: GDP/(wages/household debt)/price of oil. What pops out of the chart is what happens when oil spikes higher or declines. In 1973, the first oil shock sent the economy off a cliff. Conversely, when oil fell to $12/barrel in the late 1990s while wages were rising strongly, the plotline peaked, reflecting a strong economy. In 2008, oil spiked to $140/barrel in 2008, household debt reached record heights and wages began stagnating, and the economy fell into a sharp recession. When oil plummeted back to $40/barrel in early 2009, the plotline spiked up. When oil prices and household debt are high while wages stagnate or decline, the economy sinks to recessionary levels....The current plotline is hovering just above the recessionary levels of late 2008. Does this reflect a strong economy, or one that is weak? If oil keeps climbing, what will that do to a visibly weak economy?
The key focus of Cashin's daily letter today has to do with the steadfast resilience of the ECRI's Lakshman Achuthan, who called for a recession back in September, and when asked yesterday if he reaffirms his call, he says "Consider it reaffirmed." He then proceeds to list out the "key, hard facts" summarizing the litany of truth as follows: "The economy is weaker today than it has been in 21 months." And scene.
While last winter every downtick in corporate earnings was promptly "explained away" by executives using the harsh weather excuse, one has heard not a peep from companies on the topic of an abnormally accommodative climate over the past 4 months. And why would they - after all it would mean that any gains, not that there have been many as most companies have reported below average results, have been artificially boosted by one-time events. Needless to say, the mainstream media would rather not touch this topic with a ten foot pole: there is an election to be won and the public can not be disturbed with facts (heaven forbid someone should mention seasonal adjustments - that's a death sentence). Which is why ironically we have to go to Goldman, which as noted recently, has once again turned bearish on the economy for one reason or another, to quantify the impact of the balmy winter. "Reported growth in the CAI is 2.8% for December and 2.9% for January. The estimates here imply that excluding the effect of warm weather, growth would have been 2.5% in December and 2.5-2.7% in January. Note that although January was very warm relative to seasonal norms, this followed a gradual warming in temperatures in October through December. We think our estimates of the weather impact may be on the low side, given that snowfall was also below seasonal norms this year. Lower precipitation can raise activity in some sectors. Our estimates imply that a normalization in temperatures could be a modest headwind to growth over the next few months. The extent of the drag depends on the specification, but a plausible range would be 10-40bp in March if temperatures return to seasonal norms by that month." Looks like Newton was right after all, despite all attempts by central planners to deny reality.