Economists have adjusted their forecasts and it will be difficult for the US data to continue to surprise on the upside. Moreover, there are signs that the economy lost some momentum into the end of Q1 that will likely spill over in Q2. We look at the relatively subdued reaction to the losses that will be incurred by uninsured depositors in Cyprus and recognize that it is far from unprecedented. In the US, the last time uninsured depositors took a hit (50%) was in the IndyMac failure. We show a deterioration of the financial situation in Italy, on top of the political and economic challenges. Lastly, we bring to your attention the deteriorating technical tone for the dollar against the yen and Japanese shares.
The driver of today's episode of "make the futures levitate" is not so much a rise in the EURUSD as Europe reopens - a very unhappy Europe where Italy's Monte Paschi was already halted down once on news from this weekend it was the first peripheral bank to suffer a depositor "run" - but curiously the USDJPY which after tumbling to under 93 and pushing the Nikkei 225 down by another 1% to just over 12,000 has been ramping gradually all morning to end well above the start of Japanese trading and was back to 93.25 at last check. It certainly is not the European economic news which continue to be about depressionary and getting worse: fresh unemployment record at 12%, final manufacturing PMIs well into contraction and getting worse especially for the doomed PIIGS: Italian PMI dumping even more to 44.5 vs Flash 45.4 and down from 45.8 last, Spain PMI crashing to 44.2, vs flash 46.2 and 46.8 last, UK 48.3 vs Flash 48.7, Germany 49.0 vs Flash 48.9 down from 50.3; France 44.0 vs Flash 43.9 and so on, rumors that the Cypriot Finance Minister is about to be sacked, and most disturbingly, the Slovenia central bank vice-governor Fabijan said that "Slovenia must start credible measures to avoid aid." Where was the last place we heard this.... Oh, yes, Cyprus. The same Cyprus, which paradoxically, is presented by some as the reason for the overnight "rally", with pundits attributing the Troika's "easing" of MOU terms by pushing back the fiscal target from 2016 to 2017 as reported yesterday. How that is even remotely news is shocking since none of the actual austerity measures themselves have been eased. But any goal seeked narrative is fair in the central banks' intervention in the farce formerly known as the "market."
According to some economist PhDs, the end of the gold standard era marked by the arrival of the Federal Reserve one century ago ushered in the era of stability, prosperity and virtually unlimited growth (just ignore the two world wars and millions of casualties immediately following). While that is an amusing way of describing a financial system that is now daily on the brink of a financial apocalypse courtesy of a few good central banks propping up a $1 quadrillion house of derivatives cards, whose collapse would mean an immediate "game over", and where (rapidly evaporating) confidence in a failing status quo, must be preserved at all costs, the question of post-Fed induced stability is an interesting one, especially when measured in terms of intangible value (in this case the most basic of indicators - the Dow Jones), compared to thousands of years of a real tangible, store of wealth: gold. In the chart below, courtesy of Cambridge House, we ask readers: in which period was there a more stable relationship between tangible and intangible values, and a less exuberant irrationality vis-a-vis that which is purely based on confidence, if not so much reality.
David Stockman’s New York Times Op-Ed has ruffled a lot of feathers. Paul Krugman dislikes it, saying Stockman sounds like a cranky old man, and criticising Stockman for throwing out a load of meaningless numbers that sound kind of scary, but are less scary in context. What Krugman overlooks is Stockman’s excellent criticism of crony capitalism, financialisation, systemic rot and Wall Street corruption of Washington, something Stockman has seen from the inside as part of the Reagan administration. There are plenty of other writers who have pointed to this problem of propping up casino finance, including myself. But very few of them are doing so on the pages of the New York Times. In the long run, I think it will become patently clear that throwing liquidity at the financial system won’t solve anything other than immediate liquidity concerns. The rot was too deep. The financial sector needed real reform in 2008. It still needs it today.
This system distorts the market and turns appropriate risk-taking into recklessness. The result is a more concentrated and powerful financial sector — and a more fragile economy. The way to return the financial services industry to the free market is by separating trading from commercial banks and by reforming the so-called shadow banking sector. Government guarantees should be limited primarily to those commercial banking activities that need it to function: the payments system and the intermediation process between short-term lenders and long-term borrowers.... It is time to return our financial system to one in which success is no longer achieved through government protections but, rather, through innovation and competition. While trading and investment activities are vital parts of the financial services industry, there is no economic or social rationale for protecting and subsidizing them. Financial services firms are in the business of taking risks. Our country shouldn’t attempt to take the risk out of the system. But we should absolutely stop subsidizing it.
Human Action was published in 1949. The problems which von Mises so brilliantly dissected then are incomparably worse now. But the main failing remains the same. Those who refuse to gain the knowledge necessary to stand for something will fall for anything. The result in Cyprus is the latest in a long line of similar cases. To give one example, how many of the “Occupy Wall Street” crowd could give a cogent explanation of what they were protesting against? The specific instances may differ, but the reaction remains the same: “But ... BUT ... YOU TOLD US IT WAS ‘SAFE’!!” What makes it worse is that most knew that it was NOT ‘safe’ - but they refused to admit it to themselves.
Elon Musk - "megalomanical promoter". Ben Bernake - "befuddled academic". Janet Yellen - "career policy apparatchik". Paul Krugman - "fibber". Fred Mishkin - "preposterous".
The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out BanksSubmitted by Reggie Middleton on 03/30/2013 10:12 -0500
It's not just Cyprus, and no - it's not just Canada either. I'm preparing a list of specific banks that I have 1st hand knowledge that would prevent me from keeping my money in them. Get "Cyprus'd"!!!
There are two types of people in this world; those who worship the ideal of centralized command authority, and those who do not. Those who value freedom regardless of risk or pain, and those who value slavery in a desperate bid to avoid risk and pain. When I consider the ultimate folly of man, in the end I look to the meek and unquestioning masses who strive to avoid risk, because it is they who always end up feeding the machines of war, despair, and tyranny. The power thirsty halls of elitism surely instigate and manipulate the tides of this wretched ocean of quivering souls, but ultimately, the weak-hearted and weak minded make all terrible conquests possible. They live by the rule of fear, and their fear drives them to seek control; control of their environment, control of others, and by extension they believe, control of the future. They attempt to mitigate their overwhelming fear by containing the world and sterilizing it of everything wild, untamed, and unknown. They dream of a society of pure predictability, and zero responsibility. They are willing to sacrifice almost anything to attain this position of artificial comfort. The concept of “big government” appeals to such people for many reasons...
No, it wasn't Ben Bernanke or Alan Greenspan, it wasn't Jean-Claude Trichet or his successor Mario Draghi, nor was it Mervyn King, Carney, Shirakawa, or Hildebrand. The answer, as shocking as it may sound, was...
Synthetic securities based on putrid shipping loans
Gold rose 1.1% in March, its first monthly rise in six.
For the quarter, gold was 4.5% lower in dollar terms and 1.4% lower in euros. However, signalling that the demise of gold is greatly exaggerated, gold is 3.7% higher in Japanese yen and 2.6% higher in sterling.
As one astute financial journalist said to me “ ‘cash in the bank’ doesn’t have quite the same ring to it anymore.”
As the holiday weekend starts and quarter ends, what better time is there to go out on a new S&P 500 Index high? The new high was in the cards.
One thing bulls should worry about is a report that pension plans may rebalance as much as $29-35 billion out of stocks to bonds and other assets with the quarter end. We’ll see how that works this coming week.
The “Cyprus deal” as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s. The happy result will be that depositors, both insured and uninsured, in Europe and throughout the world will become much more cautious or even suspicious in dealing with fractional-reserve banks. They will be poised to grab their money and run at the slightest sign or rumor of instability. This will induce banks to radically alter the sources of the funds they raise to finance loans and investments, moving away from deposit and toward equity and bond financing.
- Lesson #1 Government agencies allocate capital better than the private sector
- Lesson #2 Central banks should control asset prices and prevent them from falling
- Lesson #3 Darwin & Schumpeter were wrong, creationists are right; there is such a thing as a free lunch
- Lesson #4 Towards a new orthopraxy
- Lesson #5 Wondrous tools used by the clergy to grow GDP
- Lesson #6 How to finance infinite needs