Since a government austerity plan intended to reduce the risk of a debt crisis and ensure the backing of the ECB took hold last year, Italy's economy has tumbled into one of worst recessions of any euro zone country, and as NY Times reports, among Italy’s estimated six million companies, businesses of all sizes have been going belly up at the rate of 1,000 a day over the last year, especially among the small and midsize companies that represent the backbone of Italy's shrinking economy. With policy "paralysis" now more likely following the recent inconclusive elections, Ken Rogoff warns, "this underscores the likelihood of Italy having a Japan-like decade with phenomenally slow growth," and adds that this raises concerns over "the long-run stability of growth in the euro zone over all." Italy’s longstanding problems have grown worse in the last year as tax increases and spending cuts were pressed by Mr. Monti. 50% of small companies - ones with fewer than 50 workers, which constitute the vast majority of Italy’s economy and long provided much of its vitality, that are buckling as banks halt lending and taxes rise - unable to pay their employees on time. With the European Union standing as America's largest trading partner, problems that plague Europe's economy will be felt across the Atlantic.
The UK government appears to be contemplating changing the BOE's mandate so it can be freer tolerate greater near-term price pressures. The Tory-led government is commented to fiscal consolidation--austerity--the same kind of policies many want to see the US adopt, and needs greater monetary stimulus to avoid a deeper contraction in the UK economy.
- Cardinals head to conclave to elect pope for troubled Church (Reuters)
- Hyperinflation 'Unthinkable' Even With Bold Easing: Abe (Nikkei)
- Ryan Plan Revives '12 Election Issues (WSJ)
- Italy 1-yr debt costs highest since Dec after downgrade (Reuters)
- Republicans to unveil $4.6tn of cuts (FT) - Obama set to dismiss Ryan plan to balance budget within decade
- CIA Ramps Up Role in Iraq (WSJ)
- Hollande Hostility Fuels Charm Offensive to Show He’s No Sarkozy (BBG)
- SEC testing customized punishments (Reuters)
- Judge Cans Soda Ban (WSJ)
- Hungary Lawmakers Rebuff EU, U.S. (WSJ)
- Even Berlusconi Can’t Slow Bulls Boosting Euro View (BBG) - luckily the consensus is never wrong
- Funding for Lending ‘put on steroids’ (FT)
- Investigators Narrow Focus in Dreamliner Probe (WSJ)
- With new group, Obama team seeks answer to Karl Rove (Reuters)
- Firms Send Record Cash Back to Investors (WSJ)
- And in totally opposite news, from the same source: Firms Race to Raise Cash (WSJ)
- China warns over fresh currency tensions (FT)
- Hollande faces pressure over jobs pledge (FT)
- Obama efforts renew ‘grand bargain’ hopes (FT)
- Shirakawa BOJ Expansion Gets No Respect as Stocks Cheer Exit (BBG)
- Japan’s Nakao Defends Easing as China’s Chen Expresses Concern (BBG)
- Boeing Had Considered Battery Fire Nearly Impossible, Report Says (WSJ)
- ECB Chief Plays Down Italy Fears (WSJ)
- China moves to make its markets credible (FT)
- Euro Group head says UK at risk of 'sterling crisis' (Telegraph)
- French unemployment rises again to highest since 1999 (Reuters)
- BoJ rejects call for monetary easing (FT)
- North Korea threatens pre-emptive nuclear strike against US (Guardian)
- Firms Race to Raise Cash (WSJ)
- Time Warner Will Split From Magazine Unit in Third Spinoff (BBG) - slideshows, kittens, "all you need to knows" coming to Time
- U.S. economy, world's engine, remains in "neutral": Fed's Fisher (Reuters)
- BOE Keeps QE on Hold as Officials Weigh More Radical Measures (BBG)
- Jobs start to go as US sequestration cuts in (FT)
- BofA Times an Options Trade Well (WSJ)
- Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook (BBG)
- Dell’s Crafted LBO Pitch Gets Messy as Investors Circle (BBG)
- Dell says Icahn opposes go-private deal (Reuters)
- Portugal Rating Outlook Raised to Stable by S&P on Budget Plan (BBG)
- China’s Richer-Than-Romney Lawmakers Reveal Reform Challenge (BBG)
GBPUSD (Cable) just cracked back below 1.50 and is trading at its lowest since July 2010 as The FT reports that it appears George Osborne (British Chancellor) is paving the way for Mark Carney (Bank of England governor) to follow the so-called 'Merkel-Draghi wager' that Europe is dangerously betting on. Instead of following business secretary Vince Cable's proposal of a new program of spending on schools, roads and housing – funded by extra borrowing - Osborne will use his Budget on March 20 to reinforce his message of “fiscal conservatism and monetary activism” by clarifying how the government intends to use monetary policy to get the economy growing again. Treasury officials are discussing proposals to change the remit of the bank - which could include giving the monetary policy committee greater time to bring inflation back to the 2 per cent target, giving the BoE a Federal Reserve-style dual mandate to target both employment and inflation, and even targeting cash spending in the economy rather than inflation. It would appear our short Cable trade continues to do well as Carney's arrival heralds more aggression in the global currency wars.
- As ZH has been saying for months... Draghi Will Need to Push the Euro Down Some More (WSJ) ... but careful with "redenomination risk"
- Senate Report Said to Fault JPMorgan (NYT)
- EU Opens Way for Easier Budgets After Backlash (BBG)
- China Moves to Temper Growth - Property Bubble Is a Key Concern (WSJ)
- China bets on consumer-led growth to cure social ills (Reuters)
- Italian president mulls new technocrat government (Reuters)
- Grillo says MPS won't back technocrats (ANSA)
- The Russians will be angry: Euro Chiefs Won’t Rule Out Cyprus Depositor Losses (BBG)
- China Bankers Earn Less Than New York Peers as Pay Dives (BBG)
- Investors click out of Apple into Google (FT)
- Community colleges' cash crunch threatens Obama's retraining plan (Reuters)
- Alwaleed challenges Forbes over his billions - Calculation of $20bn net worth is flawed, says Saudi prince (FT)
- Guy Hands Dips Into Own Pockets to Fund Bonuses at Terra Firma (BBG)
- North Korea to scrap armistice if South and U.S. continue drills (Reuters)
Are we running out of time? For the last several years, we have been living in a false bubble of hope that has been fueled by massive amounts of debt and bailout money. This illusion of economic stability has convinced most people that the great economic crisis of 2008 was just an "aberration" and that now things are back to normal. Unfortunately, that is not the case at all. The truth is that the financial crash of 2008 was just the first wave of our economic troubles. We have not even come close to recovering from that wave, and the next wave of the economic collapse is rapidly approaching. Our economy is like a giant sand castle that has been built on a foundation of debt and toilet paper currency. As each wave of the crisis hits us, the solutions that our leaders will present to us will involve even more debt and even more money printing. And each time, those "solutions" will only make our problems even worse. Right now, events are unfolding in Europe and in the United States that are pushing us toward the next major crisis moment. I sincerely hope that we have some more time before the next crisis overwhelms us, but as you will see, time is rapidly running out. The following are 12 things that just happened that show the next wave of the economic collapse is almost here...
For several long months now, the market has been treated to an unadulterated diet of such gross monetary irresponsibility, both concrete and conceptual, from what seems like the four corners of the globe and it has reacted accordingly by putting Other People's Money where the relevant central banker's mouth is. Sadly, it seems we are not only past the point where what was formerly viewed as a slightly risqué "unorthodoxy" has become almost trite in its application, but that like the nerdy kid who happens to have done something cool for once in his life, your average central banker has begun to revel in what he supposes to be his new-found daring – a behaviour in whose prosecution he is largely free from any vestige outside control or accountability. Indeed, this attitude has become so widespread that he and his speck-eyed peers now appear to be engaged in some kind of juvenile, mine's-bigger-than-yours contest to push the boundaries of what both historical record and theoretical understanding tell us to be advisable.
While today's lower than expected LTRO repayment news was largely a strawman set by misguided expectations set under the impression that Europe is fixed (it isn't), and that the ECB is willing to witdraw excess liquidity (it isn't as the result was a spike in the EURUSD so high it got quite a few political officials talking the EUR down to prevent an export-sector crunch), there is a bigger issue facing Europe in the context of liquidity, and that is a maturity cliff of some €1.7 trillion over the next 3 years. As the chart below from Goldman shows, the excess LTRO cash remaining after today is a modest €807 billion, meaning that not even half the required prepayment capital can be funded outright. It is even worse when calculating the closed European Excess System cash in the second chart below, which also according to Goldman has declined to just under €400 billion. This means that while rolling the maturing debt is certainly an option, the incremental pick up in interest rates will mean far more cash leaves Europe's banks, which at a time when virtually not a single European bank can generate any positive cash from operations bank liquidity shortages will once again return.
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...
Throughout history, citizen disarmament generally leads to one of two inevitable outcomes: Government tyranny and genocide, or, revolution and civil war. Anti-gun statists would, of course, argue that countries like the UK and Australia have not suffered such a result. My response would be – just give them time. You may believe that gun control efforts are part and parcel of a totalitarian agenda (as they usually are), or, you may believe that gun registration and confiscation are a natural extension of the government’s concern for our “safety and well-being”. Either way, the temptation of power that comes after a populace is made defenseless is almost always too great for any political entity to dismiss. One way or another, for one reason or another, they WILL take advantage of the fact that the people have no leverage to determine their own cultural future beyond a twisted system of law and governance which is, in the end, easily corrupted. The unawake and the unaware among us will also argue that revolution or extreme dissent against the establishment is not practical or necessary, because the government “is made of regular people like us, who can be elected or removed at any time”. This is the way a Republic is supposed to function, yes. However, the system we have today has strayed far from the methods of a Free Republic and towards the machinations of a single party system. Our government does NOT represent the common American anymore. It has become a centralized and Sovietized monstrosity. A seething hydra with two poisonous heads; one Democrat in name, one Republican in name. Both heads feed the same bottomless stomach; the predatory and cannibalistic pit of socialized oligarchy.
We noted yesterday the apparent perfect (ill)-market-timing of increases in corporate buybacks and nowhere is this more evident than across Europe. The following chart might just make all those activist shareholder mom-and-pops, demanding CEOs 'use' their cash hordes, think twice... it appears the CEOs really don't have better crystal balls than the rest of us...
- G20 struggles over forex, at odds over debts (Reuters)
- Alwaleed Sells Airbus A380 to Invest in Middle East Firms (BBG)
- GOP Stalls Vote on Pick for Pentagon (WSJ)
- ECB officials rebuff currency targeting as G20 meets (Reuters)
- Not good for the reflation effort: Muto leads as Japan PM close to choosing nominee for Bank of Japan chief (Reuters)
- M&A Surges as Confidence Spurs Deals in Computers to Consumer (BBG)
- JPMorgan’s head of equity prop trading Gulati to launch own fund (FT)
- Tiffany & Co. sues Costco over engagement rings labeled ‘Tiffany' (WaPo)
- JPMorgan Said to Fire Traders, Realign Pay Amid Slump (BBG)
- Broker draws Tullett into Libor scandal (FT)
- Airbus drops Lithium-Ion batteries for A350 (Reuters)