"The economy is booming, according to recent data. GDP grew by 2.6% annualized in the last quarter. And yet oil prices have dropped faster than they did in the crisis of 2008. The US dollar is at record strength. And the gold price has spiked in many currencies ... Something’s not right here." So says Eric Sprott in his latest report observing what may lie in store for oil and gold in the near future.
Perhaps the world is beginning to realize that "it's the demand, stupid" as crude oil prices are collapsing this morning (not helped by "all out production" news from Oman). While 'markets' rallied peculiarly after last week's epic surge in inventories and production data, that has all been given back as one trader noted "the market got ahead of itself, even though the rig count has been falling it is not until mid-yr that we are going to see some impact on supply." WTI is back under $49. To complete the gloom, Copper is probing lower, breaking key support with projections to 222.50 if this move takes shape.
If you thought the Greek tragicomedy is over, you ain't seen nothing yet, because despite the so-called Friday agreement, the immediate next step is for Greece to submit its list of reform measures to the Troika, which will almost certainly result in an immediate revulsion in Germany's finance ministry, and lead to another protracted back and forth between the Troika and Greece, which may once again well end with a Grexit, especially if the Greek liquidity situation, where bash is bleeding from both the banks and the state at a record pace, remains unhalted. It is therefore not surprising that the ongoing decline in the EURUSD since the inking of the agreement, and the fact that the pair briefly dipped below 1.13 this morning - over 100 pips below the euphoric rip on Friday - is a clear indication that the market is starting to realize that absolutely nothing is either fixed, or set in stone.
Government mandated fiat currency simply does not work in the long run. We have empirical evidence galore – every fiat currency system in history has failed, except the current one, which has not failed yet. The modern fiat money system is more ingeniously designed than its historical predecessors and has a far greater amount of accumulated real wealth to draw sustenance from, so it seems likely that it will be relatively long-lived as far as fiat money systems go. In a truly free market, fiat money would never come into existence though. Greenspan was wrong – government bureaucrats cannot create something “as good as gold” by decree.
The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century. The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dotcom bust and $15 trillion during the 2008-2009 financial crisis. The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla - a crony capitalist con job that has long been insolvent, and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.
The real issue here is that economic weakness is likely much greater than headline statistics, and the vast majority of mainstream economists, actually suggest. Furthermore, as we have repeatedly stated in the past, the ability for the U.S. economy to withstand the global storm of deflation is vastly limited. It will be interesting to see what the Federal Reserve does next.
- Greece Should Not Give In to Germany’s Bullying (FP)
- Greece Can Pay Its Debts in Full, but It Won’t (WSJ)
- Early Friday humor: Euro Region Economy Strengthens Amid Wrangling on Greece (BBG)
- Euro zone may need extra summit to clinch Greek deal (Reuters)
- Oil-Drop Pain Spreads to Saudi Arabia’s Energy Behemoth (WSJ)
- Yellen Confronts Economists’ Ignorance (BBG) - where does one even start with this one
- ECB Plans to Push Greek Banks to Shed State Debt If Talks Fail (BBG)
With the new and revised (until it is re-revised again to some future date), Greek D-Day set for today's third in the past 2 weeks Eurogroup meeting, every favorable headline serves as a springboard for ES-buying algos, while every negative headline is promptly ignored. And since this is Europe's style trial ballooning, there have been many of both with just these two hitting in the last hour:
- GREECE, EURO ZONE NEAR DEAL ON PACKAGE, REUTERS CITES UNIDENTIFIED GREEK OFFICIAL
- GREECE DID NOT GO FAR ENOUGH IN THEIR LATEST PROPOSAL: GREEK GVOERNMENT SPOKESMAN
Guess which one pushed ES into the green?
After yesterday's FOMC Minutes, despite a huge dovish reversal by the Fed - one which increasingly puts its "credibility" and reputation at risk - stocks were unable to close green, or even above 2100, for one simple reason: uncertainty with the fate of Greece. Overnight there has not been much more clarity, when as previously reported Greece submitted a 6 month extension request to its master loan agreement but not to its bailout extension, a nuance lost in the annals of diplomacy. But is this the much-awaited Greek capitulation? Or will the Eurogroup reject this too? The answer may be available in a few hours after an emergency Eurogroup meeting due later today. However, as usual stocks are ready to "price in" yet another Greek conflict resolution, and after futures were lower by 7 points overnight, were up 4 points at last check: a rebound which will not correct if the latest Greek "compromise" fails to deliver.
There was much confusion yesterday when algos went into a buying frenzy on news that Greece would submit a request for a 6 month loan extension, believing this means Greece has caved and will agree to a bailout programme extension as well. Nothing could have been further from the truth as we explained first moments after the headline struck, and also as Reuters validated moments ago when it said that "Greece will submit a request to the euro zone on Wednesday to extend a "loan agreement" for up to six months but EU paymaster Germany says no such deal is on offer and Athens must stick to the terms of its existing international bailout." But since the political nuances of diplomacy are lost on the math Ph.Ds who program the market-moving algos, the S&P did manage to roar above 2100 on what was another headfake and then forgot to sell off on the reality.
The chances of Greece being forced out of the euro zone have risen but a compromise agreement between Athens and its European partners is still possible, Greek media and investment banks said on Tuesday.