The other half of the reason for today's Italian stock market collapse is the well-known to our readers scandal involving Italian bank Monte Paschi, which also refuses to go away due to its massive political implications three weeks ahead of the Italian elections. Yet the reason why little if anything has been mentioned about what may soon be a nationalization of the third largest (and just as insolvent) Italian bank in the mainstream US press is the resulting humiliation for the current ECB head, ex-Goldmanite Mario Draghi, who has been aggressively pushing to become a bank supervisor of all European banks as ECB head, yet with every day new revelations emerge about how epically he failed to supervise a major Italian bank right under his nose as head of the Bank of Italy. The latest in this developing scnadal which not even the market can ignore any more comes once more from the Bank of Italy, which has once more changed its story. Recall that as recently as January 23 Mario Monti vowed to Davos that nobody knew nothing: BANK OF ITALY SAYS MONTE PASCHI HID DOCUMENTS ON TRANSACTIONS. This was a sentiment that was vouched by the Bank of Italy itself, which pled complete ignorance and accused then BMPS management of everything. Turns out Monti and the Bank of Italy both lied.
It is not the United States of Europe but the other way around; the Europization of the United States. It is not a new game but a very old game and not played with such fervor in America since Franklin Delano Roosevelt stirred the pot which was done in an attempt to end the consequences of the Great Depression. This bouncing ball is not too tough to follow. The people with money pay higher taxes and then have less money to spend on goods and services. The corporations pay higher taxes and then have less money to spend on acquisitions, dividends or growing their business. The money flows to the people who are not in the middle class but are poorer and it gets spent on the basics of life and not on consumer durables. The rich are poorer, the middle class is poorer, the poor become better off at first and then less well off in the second instance as taxes bleed the entire economy of excess capital.
Slowly things in Europe are starting to go bump in the night again, with the EURUSD down some 150 pips from Friday's multi-year 1.37 high, Spanish bond yields spiking 20 bps to over 5.41%, back over the declining 50 DMA, Italian BTPs getting slammed up some 10 bps to 4.42%, as both Spanish and Italian stocks are sharply down on the day, by 1.2% and 1.9% respectively, following yet another Monte Paschi halt lower earlier in trading. The reason goalseeked by the media for today's weakness is signs of upcoming "political turmoil", namely the escalating Monte Paschi incident out of Italy, which we have been following closely, as well as the Spanish graft scandal, in which the ruling PP party and Mariano Rajoy have been implicated in massive kickbacks, and which may cost Rajoy his leadership at this pace. Of course, none of the data above is new, and neither is France's Moscivi repeating for the second time in a week that the EUR has risen far too high, and to call it catalytic is very naive, but it merely goes to show how the manipulated market decides when and if to actually follow the newsflow. As a result, US futures are pointing to a mildly lower opening, which however may reverse quickly once today's $2.75-$3.5 billion POMO kicks in. Of course, if the Italian political turmoil drags Draghi further into the mud, all bets are suddenly off about Europe being "fixed."
As everyone gets caught up in the euphoria of an ever rising S&P, remember that once upon a time, in a land far, far away, the economy was driven by goods produced and services provided instead of the amount of excess reserves banks can use to bid up market prices with.
When Europe's politicians boldly said a few weeks ago what they have been repeatedly saying every year for the past three, namely that "Europe is fixed" usually just before it breaks all over again, what they meant was that the various stock markets were up. Because if they were actually referring to the European economies, Europe just broke (no pun intended) once more, with the Greek economy once again back to its "new normal" baseline state: a near complete halt as the cold of winter dissipates, and protests and strikes return. In this case, the biggest losers are the thousands of people living on various Greek islands who have now been cut off from the mainland for the 6th consecutive day. And everyone else, of course, reliant on the Greek economy actually posting an uptick one of these centuries.
A week ago we described the sad tale of one Mahmoud Bahmani, who until recently supervised the unilateral destruction of the Iranian Rial, which on Friday just hit an all time low against the dollar down 21% in two weeks, as head of the Iranian central bank. While his currency-crushing performance would have been enough to get Mahmoud the "congressional medal of inflating away the debt" (not to mention a lifetime corner office at a TBTF bank of his choosing) at any self-respecting "developed world" banana republic, all of which have just one goal - to crush their currencies as Iran just did, in Iran it had precisely the opposite effect and let to his prompt termination. Yet this story is merely a trifle compared to the recent developments surrounding his predecessor, Tahmasb Mazaheri's, who led the Iranian central bank for just one year until September 2008, at which point Ahmadinejad fired him to make way for the recently laid off Bahmani. It is this same Mazaheri, who had been off the world's radar for over 4 years, until he trimumphantly resurfaced yesterday, when German Bild reported that he was caught last month trying to enter Germany with a check for 300 million Venezuelan Bolivars (some $70 million USD) issued by the Venezuelan Central Bank.
Back in June 2011 Zero Hedge broke a very troubling story: virtually all the reserves that had been created as a result of the Fed's QE2, some $600 billion (which two years ago seemed like a lot of money) which was supposed to force banks to create loans and stimulate the US (not European) economy, ended up becoming cash at what the Fed classifies as "foreign-related institutions in the US" (or "foreign banks" as used in this article) on its weekly update of commercial banks operating in the US, or said simply, European banks..... With the Fed's open-ended QE in place for over 3 months now, or long enough for the nearly $200 billion in MBS already purchased to begin settling on Bernanke's balance sheet, we decided to check if, just like during QE2, the Fed was merely funding European banks' US-based subsidiaries with massive cash, which would then proceed to use said fungible cash to indicate an "all clear" courtesy of Bernanke's easy money. Just like in 2011.
The answer, to our complete lack of surprise, is a resounding yes.
Amid the euphoria of today's crossing of the Dow's Maginot Line at 14,000, Kyle Bass provided a few minutes of sanity this morning in an interview with CNBC's Gary Kaminsky. Bass starts by reflecting on the ongoing (and escalating) money-printing (or balance sheet expansion as we noted here) as the driver of stock movements currently and would not be surprised to see them move higher still (given the ongoing printing expected). However, he caveats that nominally bullish statement with a critical point, "Zimbabwe's stock market was the best performer this decade - but your entire portfolio now buys you 3 eggs" as purchasing power is crushed. Investors, he says, are "too focused on nominal prices" as the rate of growth of the monetary base is destroying true wealth. Bass is convinced that cost-push inflation is coming (as the velocity of money will move once psychology shifts) and investors must not take their eye off the insidious nature of underlying inflation - no matter what we are told by the government (as they will always lie when its critical). Own 'productive assets', finance them at low fixed rates (thank you Ben), and finally, on HLF, don't bet against Dan Loeb.
There are no limits on Central State and financial Aristocracy exploitation, but there are limits on what debt-serfs can pay. Since we can't print money, there are limits for us debt-serfs. There are also limits on how much we can extract from a neocolonial/neofeudal system as wages. This neocolonial/neofeudal financialization model will implode under its own weight, and that will be the crisis.
Before today's NFP number, the biggest news of the day was the substantial slowdown in European LTRO repayments, which ground to a halt from last week's repayment of €137 billion, to only €3 billion. Whether this is because banks decided that there is no more need to telegraph their health by keeping "excess liquidity", or because they actually did need to €878 billion in additional LTRO funding is unclear for now, although the overnight nationalization of a Dutch bank coupled with a return of Italian bank problems where Monte Paschi is next on the nationalization conveyer indicates that as always, nothing has been fixed in Europe. A full post-mortem of today's second LTRO repayment comes from Goldman, which concludes that as of the two repayments, the excess cash in the European financial sector is now in tune with the open market operations' reduction. When the next scramble for liquidity hits, it means that banks in the continent will once again start crawling to the ECB for incremental cash.
To teach Chevron an excruciatingly painful lesson for its “serious willful” violations that caused 15,000 people to seek medical treatment. But a rounding error?
Remember all those soaring German confidence indices that said ignore the negative GDP print and focus on a future so bright, ze Germans've got to wear Zeiss? Appears the confidence may have been a tad massaged upwards because following a spate of weak corporate results out of Europe's growth dynamo, the German HDE retail association said Christmas sales for November and December were down some 0.7% from the prior year. Specifically German retail sales plunged -1.7% from November on expectations of a modest -0.1% decline, while on a year over year basis December imploded a whopping -4.7% vs expectations of -1.5%. Did the Germans blame the weather of lack of government spending, or maybe say to only focus on the positive aspects of the report (if any)? No. They were not girlie men about it. In now traditional news, Greek retail sales in November followed suit and plunged just a tad more than in Germany imploding by some -16.8% in November. Remember: once they hit 0 they can only go up. But the biggest news certainly was Germany, whose economy continues to deteriorate and is probably what spurred Buba president Jens Weidmann to say that ongoing bailouts could threaten the strongest members.
In a slight surprise, the FOMC appears to have seen the recent weakness in macro data as supportive of its ongoing pumpathon even suggesting more is possible:
- *FED SAYS GLOBAL MARKET STRAINS EASED
- *FED SAYS ECONOMY PAUSED DUE TO WEATHER, TRANSITORY ISSUES
- *FED SAYS ECONOMIC ACTIVITY `PAUSED IN RECENT MONTHS'
- *GEORGE DISSENTS FROM FOMC DECISION
Pre-FOMC: ES 1502.5, 10Y 2.025%, Crude $97.75, Gold $1678, EUR 1.3570
As soon as the much-weaker-than-expected GDP print hit the tape this morning, precious metals began to rise. Led by Silver, it appears the physical demand of recent weeks is creeping into the reality of prices (suppressed or otherwise) as bad is good enough for moar help from Ben and his buddies. The upward move in the PMs is as good a predictor of what to expect (i.e., not even a hint of tightening) as the sell-side crew, which is expecting merely another boring FOMC statement - as Goldman notes, following the substantial policy changes announced in December - including the shift to outcome-based forward guidance and the introduction of open-ended Treasury purchases - Goldman expects the January meeting will likely be relatively uneventful with few changes to the economic assessment.
The removal of “event risk” is the bottom line which defines the markets currently and which is why there is such a large disparity between economic fundamentals and the markets’ collective reaction. Short and sweet; risk has subsided or at least that is the common perception. This does not mean that the collective thinking is correct or even that it will be the “collective thinking” for long. The lack of a “fear factor” will push “relative valuations” in new directions which will impact the Dollar/Euro ratio causing even greater financial issues for Europe and higher Treasury yields will impact not just bonds with credit risk but equities as a matter of comparison. Yields in Europe, which went down because of the Draghi promise coupled with our great slosh of capital and the “delay, defer and postpone” mindset of the Europeans may begin to rise again because of other factors which primarily would be their “relative valuations” against their American counterparts. The lack of “event risk” has two sides and two sets of consequences.