Corruption

Press conference from hell, slugfest about corruption, even in Germany

The financial world is used to bubbles. We like to speak about them, point to them, bet upon their comings and goings and wave facts and figures about them like wild men when we appear in the media. It is the way of the markets. We have had bubbles in Real Estate, dot.com, bonds, stock markets and all kinds of other singular spaces. What we are faced with now is also a bubble but one unlike we have ever seen before because all of the major central banks have acted in concert which pumped money in from everywhere while, at the same time, limited what could be done with our new found small bits of paper because they playing field was leveled by distortion en masse. I would say that the entire financial system, every market, every space is in a bubble as a result of what they central banks have done.

In case there was any doubt that the European circus could get any more ridiculous, here comes Spain's uber-unpopular Prime Minister Mariano Rajoy, already embroiled in a massive kickback political scandal, with a quote that just blows everyone away: "I repeat what I said Saturday: everything that has been said about me and my colleagues in the party is untrue, except for some things that have been published by some media outlets." And scene as your frontal lobe explodes.

Just when one thought the old overnight futures levitation on a surging EURUSD regime was over, and was replaced by some semblance of normalcy, here comes Europe, sending the EURUSD screeching higher by some 100 pips from a support threatening 1.3460 on no news, with absolutely nothing changed, and pushing US futures to virtually unchanged from yesterday morning wiping out the entire day's losses in 3 short hours of near-zero volume overnight trading.

Back to square one. Spain is in the spotlight once again with data unsettling enough to shatter the Euro’s 4 month rally against the dollar. Record unemployment coupled with depressing growth data and political woes paint Spain to look like a sinking ship.

The magnitude of the euro's slide on Monday is typically not asscoiated with one-day events.  The market may be cautious ahead of the ECB meeting on Thursday, but we expect this pullback in the euro will prove to be a new buying opportunity.  We anticiapte the euro holds above $1.34.  We note that Spanish yields have been rising in aboslute terms and relative to Germany for the better part of three weeks.  This has been happening as the euro rose.  The main driver of the fx market is the portfolio shift associated with the realization that EMU will be here tomorrow and the next day and the passibe tightening of euro area monetary conditions.  At the same time the Federal Reserve has renewed its commitment to buy $85 bln of long-term assets for months to come.  

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.

• Euro Tremors Risk Market Respite on Spain-Italy, Banks (Bloomberg)
• Obama Says U.S. Needs Revenue Along With Spending Cuts (Bloomberg) 
• China Regulators Moved to Restrain Lending (WSJ)
• Low Rates Force Companies to Pour Cash Into Pensions (WSJ)
• JAL wants to discuss 787 grounding compensation with Boeing (Reuters)
• Abe Shortens List for BOJ Chief as Japan Faces Monetary Overhaul (Bloomberg)
• Monte Paschi probe to widen as Italian election nears (Reuters)
• Hedge funds up bets against Italy's Monte Paschi (Reuters)
• Spain's opposition Socialists tell Rajoy to resign (Reuters)
• Electric cars head toward another dead end (Reuters)
• BlackRock Sued by Funds Over Securities Lending Fees (Bloomberg)

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."

I argue that Abe is lucky, but now needs to be smart. I made a proposal a few years ago that Japan should return a quarter of its reserves to the Japanese people. The proposal is more compelling now than then. The objections by BOJ officials can be overcome by the Abe government. Reserves are for a rainy day and it is continuing to rain in Tokyo.

Government Prosecutes and Harasses those Who Expose Criminal Wrongdoing

Do the "deciders" in the globe want to enrich those that are now parking hot money in gold? "No" is the answer.

Events are rapidly unfolding in Europe which may bring something more than the “blink, wink and nod” of the famous children’s poem to the forefront of everyone’s thinking. There is great wisdom in Pinocchio actually beyond what is generally known. At one point the puppet heads into the “Field of Miracles” where he plants his gold and waits for it to grow. Pinocchio then heads off to “Catch-fools” which is a place where everyone has done something exceedingly foolish and suffers as a result. The world presently believes that there is no “event risk” and upon this foothold and the money poured into the streets by the central banks the markets rest in peace. Roads do not go on forever, the day eventually fades into the night and the peace of the morning is often shattered by the shrill cry of the dove being attacked by the falcon. The Great Game is not “Toyland” and great care is now called for before we awaken to find that we have turned into donkeys, or worse, ourselves.

Food stamps are just a payoff to the poor. It keeps them off the streets.  It’s an unspoken bribe plain and simple.  The oligarchs do not want angry, roving, hungry masses on the streets while they strip mine what’s left of the economy. However, the oligarchs have another problem to deal with - the huge group of people that resides in between them and the poor. The average person can feel themselves getting poorer despite the nonsense spewed by the mainstream media; and this is where the stock market comes into play. More than any other group, the 1% has been convinced that the stock market represents some sort of leading indicator of wealth and prosperity. A rising stock market today is actually a leading indicator of the destruction of the middle class, cultural destitution and a society in collapse. The stock market is like slop in a pigpen.  It is a key instrument used to keep the 1% from getting antsy.  Unlike the middle class (a group that isn’t falling for any of the tricks), many of the 1% work on Wall Street or related industries and own stocks. They must be kept quiet as the coup that started in 2008 is brought to fruition. So as the 1% sits around analyzing a casino, the poor collect food stamps and the middle class dies.

It appears the Spanish, not to be outdone by the Italians - with their growing BMPS debacle, have found their own epic political SNAFU. For decades, El Pais reports, the ruling Popular Party (PP) leaders were paid regular sums of money aside from their official salaries, via donations from companies (especially construction firms). Prime Minister Mariano Rajoy is at the top of the secret files list (kept by former PP Treasurer Barcenas) having started to receive these extra 'kickbacks' in 1997. Of course, the establishment is not responding to any questions on the matter - until exhaustive internal and external audits are undertaken - but this appears to be payback by the former PP Treasurer who was 'busted' earlier in the year (by Rajoy) for keeping millions of Euros in a Swiss bank account. If this wasn't so uncomfortably believable in a Europe that has proved itself capable of gross negligence and untruths, it would make for a great mafia-based movie transcript - unfortunately, it is all too real. Meanwhile, Spanish youth unemployment approaches 60%...