European Union

As noted yesterday, and perhspa even more prescient now Anastasiades is back with the begging bowl, the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis may provide a template for future resolutions of other banking/debt crises. It also matters for another reason: not only is the bail-in a direct theft of depositors' money, the entire bailout is essentially a wholesale theft of national assets. This is the inevitable result of political Elites swearing allegiance to the European Monetary Union.

A mixed picture is starting to emerge from the Middle East in terms of oil production. Several members of the 12-member OPEC oil cartel are embroiled in turmoil or struggling to ensure post-war political gains. Oil production from the Middle East declined by 1.5 million barrels per day in 2009. Production from most Middle East countries has slowed down or leveled off, though gains from Iraq have offset some of those declines. With economic recovery seemingly on the horizon, a new OPEC may be developing from the ashes of the recession.

When the S&P, always so conveniently ahead of the curve, yesterday revised its forecast for Europe from growth in the second half of 2013 to 2014 one couldn't help but golf clap, as well as wonder if they finally started looking at the fundamental depressionary reality on the ground instead of the rating agency's infamous "models." A depressionary reality confirmed by the latest car sales number for May which just hit a fresh 20 year low.

• Obama Says Bernanke Fed Term Lasting ‘Longer Than He Wanted’ (Bloomberg)
• Merkel Critical Of Japan's Credit Policy In Meeting With Abe (Nikkei)
• China Wrestles With Banks' Pleas for Cash (WSJ)
• Biggest protests in 20 years sweep Brazil (Brazil)
• Pena Nieto Confident 75-Year Pemex Oil Monopoly to End This Year (Bloomberg)
• G8 leaders seek common ground on tax (FT)
• Putin faces isolation over Syria as G8 ratchets up pressure (Reuters)
• Former Trader Is Charged in U.K. Libor Probe (WSJ) - yup: it was all one 33 year old trader's fault
• Draghi Says ECB Has ‘Open Mind’ on Non-Standard Measures (BBG)
• Loeb Raises His Sony Stake, Drive for Entertainment IPO (WSJ)

Why do the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter? They matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis--the "bail-in" confiscation of 60% of bank depositors' cash in an involuntary exchange for shares in the bank (which are unlikely to have any future value)--may provide a template for future official resolutions of other banking/debt crises. In other words, since the banking/debt crisis in Cyprus is hardly unique, we can anticipate the resolution (confiscation of deposits) may be applied elsewhere.

• Global shares pummeled, dollar slumps as rout gathers pace (Reuters)
• Hong Kong to Handle NSA Leaker Extradition Based on Law (BBG)
• Lululemon chairman sold $50 million in stock before CEO's surprise departure (Reuters)
• Companies scramble for consumer data (FT)
• Traders Pay for an Early Peek at Key Data (WSJ)
• When innovation dies: Apple looking at bigger iPhone screens, multiple colors (Reuters)
• Washington pushed EU to dilute data protection (FT)
• Japan-U.S. drill to retake remote island kicks off (Japan Times)
• EM economies in danger of overheating, World Bank says (FT)
• Don't forget the Indian crisis: Chidambaram seeks to quell concerns over rupee (FT)

Dare 'Ye Test the Analysis To Ascertain It's Virility? Madness, I say! Sheer, Utter Madness! In other words - SYSTEMIC RISK is here, NOW!

Five Eurozone countries now have loans for half a trillion Euros. These members of the Euro currency union are receiving loans from the one of two bailout funds which are financed by the other 12 Eurozone members. Eurozone members receiving assistance from the two European rescue funds do not pay into it. That means the higher the assistance, the higher the obligations of the healthier countries. Germany already guarantees 27 percent of the loans, France 20 percent and Italy 18 percent. The rescue funds borrow capital, guaranteed by nations of the European Union, in the financial markets and then hand the money to the indebted countries. In doing this they engage in a kind of Quantitative Easing where money is printed based upon the various guarantees. None of these guarantees are counted against the liabilities of any country when the debt to GDP ratios are made public. There is a new scheme underway where bondholders would have to pay for the vast amount of any losses with the money of depositors also in question. There is no agreement yet on this plan. What can be said is that the playing field is being tilted with much more risk now placed in the hands of bond owners and depositors.

One look at the airplane traffic map below should be enough to convey which socialist European country has a just started a 3-day air traffic controller strike. Sure enough, as a result of the French ATC union demands for 'fairness', i.e., an elimination in the "unprecedented" cost-cutting plan, the eastern air border of France now looks like the 405 Freeway during rush hour.

Just one month after we discussed ArcelorMittal's 'demand' that Europe seek sanctions against China's steel tariffs (following unfair 'tit-for-tat-wine' Chinese trade practices, after EU solar panel tariffs), Reuters reports that the EU is indeed to press the WTO to rule against Chinese duties on imported steel. While history never repeats, it merely rhymes, this episodic collapse in economies, markets, and trade is now showing signs of the same desperation as during the Great Depression as intervention, devaluation, and now protectionism are brought to bear to save the domestic economy at all costs. The EU joins Japan in this rapidly escalating trade war with Beijing as they believe "retaliation by the Chinese is now recognized," something not allowed under WTO rules, "and so they have a good chance to win." This will not help either trade relations with the world's 'growth' engine or the credit-crunched nation's massive glut of commodities (and commodity-backed credit lines).

The short but profitable tale of how 483,000 private individual have "top secret" access to the nation's most non-public information begins in 2001. "After 9/11, intelligence budgets were increased, new people needed to be hired, it was a lot easier to go to the private sector and get people off the shelf," and sure enough firms like Booz Allen Hamilton - still two-thirds owned by the deeply-tied-to-international-governments investment firm The Carlyle Group - took full advantage of Congress' desire to shrink federal agencies and their budgets by enabling outside consultants (already primed with their $4,000 cost 'security clearances') to fulfill the needs of an ever-more-encroaching-on-privacy administration.

"It all began with Greece," and as Mark Grant notes today, "somebody, somewhere is going to take a hit." It appears the 'news' is piling up thick and fast in the 'islands' nation. As Reuters reports, Greece did not receive any binding bids for natural gas producer DEPA. This was part of the asset-sale program demanded by the TROIKA, with Hellenic Petroleum's sale later in the year now potentially on hold. The sad truth is that the country cannot pay their bills, cannot pay their pension obligations, cannot fund social services and is just about out of money to even run their government. The reality is; they are bankrupt again and there is no way out without some form of debt forgiveness and more money. Debt forgiveness, alone, will not cut the mustard now by itself and some kind of end game may well be near. That is increasingly reflected in 2012's no-brainer trade as GGBs are now back below 60 and down over 10% from their highs and the Athens Stock Index just entered bear market territory, down 20% from its highs.

The topic of the IMF's idiocy - unquestioned here following years and years and years of absolutely horrific forecasts, not to mention charts like this one courtesy of the Troika, of whom the IMF is a proud member  has been widely covered in the past. However, while in the past we have attributed to stupidity all the faults of the Angela Mozilla Christine Lagarde-headed organization, we never had the factual backing to also invoke malice, lies and manipulation. Now, we can.

We reported yesterday that Europe, in a surprising escalation of global trade wars, announced it would impose solar-panel duties against China in one week, with the terms rapidly deteriorating over the next three months. It took China less than one day to retaliate. What's worse the retaliation is aimed at Europe's already weakest - the PIIGS - by targeting not hard German machinery exports but something far more prosaic: French, Spanish and Italian wine.

Recent price action amid the heavily shorted solar stocks has seemingly been predicated on hope that late May chatter of negotiated settlements in the industry would occur and everyone could go happily about their business. While hope remains for a settlement - and tariffs have been delayed 2 months, as the WSJ reports - the EU is set to announce drastic anti-dumping levies on Chinese solar panels in a move that could trigger a trade war between two of the world's largest economies:

• *EU SAYS SOLAR-PANEL DUTY TO START AT 11% ON JUNE 6
• *EU SAYS SOLAR-PANEL DUTY TO RISE TO 47.6% IN AUGUST
• *EU'S DE GUCHT SAYS NOT CLOSE TO SOLAR-PANEL PACT WITH CHINA

Sadly this is playing out very similarly to the Great Depression period as tariffs and protectionism replaced domestic focused fiscal and monetary policy and escalated problems rapidly. China rejects the EU's price-dumping allegations, but the problem is not new for Beijing. The U.S. last year imposed punitive tariffs on solar panel imports after finding that China's government was subsidizing companies that were flooding the U.S. market.