European Union

UPDATE: Nigel Farage 'Must-See' rant on the' destruction of nation state democracy'

The need to convince any and all that will listen (and one's own self) that the Euro project must be preserved at all costs has never been so obviously politicized as the Nobel crony committee 'blessing' the European Union for bringing peace to a continent at war. While a laudable thing of itself, as JPMorgan's Michael Cembalest notes, by 1954, Germany had already become a stable, liberal, democratic society in one of the most amazing transformations in history given what preceded it ten years earlier. Whether the Marshall Plan helped this, it seems indisputable that conditions for a lasting peace in Europe were already in place by 1954. The notion that the Euro is needed to cement these gains appears to be more about the ambition of specific political movements in Europe/Brussels than anything else. The irony of the Nobel Peace Prize for Europe is that as shown below, it comes at a time of rising social stress, extremist politics, and a deterioration of trust in the very union that is supposed to be providing the social cement.

"The European Union is a horrible, stupid project. The idea that unification would create an economy that could compete with China and be more like the United States is pure garbage. What ruined China, throughout history, is the top-down state. What made Europe great was the diversity: political and economic. Having the same currency, the euro, was a terrible idea. It encouraged everyone to borrow to the hilt. The most stable country in the history of mankind, and probably the most boring, by the way, is Switzerland. It’s not even a city-state environment; it’s a municipal state. Most decisions are made at the local level, which allows for distributed errors that don’t adversely affect the wider system. Meanwhile, people want a united Europe, more alignment, and look at the problems. The solution is right in the middle of Europe — Switzerland. It’s not united! It doesn’t have a Brussels! It doesn’t need one."

From a "Europe in pieces" to a "Europe of peace" and back?

Stronger Periphery trapping European equities, with the latter dragged down by US apathy.

Risk adverseness factors (equities – Periphery - EUR) decoupling.

US equities seem utterly tired.

Somehow the last months’ rally ahead of QE has tired everyone and since delivery every step seems sooooo heavy.

We noted earlier the somewhat surrealistic decision to award the Nobel Peace Prize to the European Union (though entirely consistent it would seem given their previous 'Obama' decision) but now UKIP's Nigel Farage has weighed in with his 'boots on the ground' perspective of this farce. "You only have to open your eyes to see the increasing violence and division within the EU which is caused by the Euro project" he said, adding that "the awarding of this prize to the EU brings it into disrepute." We suspect that reputation is already 'diss'ed but analogizing the tragic imposition of a new flag on Yugoslavia, Farage concludes: "Rather than bring peace and harmony, the EU will cause insurgency and violence." We can only assume that Bin Laden's death forced the 'Nobel's to quick recount.

Ladies and gentlemen, we bring you EUtopia (and an early case of Friday humor). " The European Union has been awarded the 2012 Nobel Peace Prize in a nod to the 27-member bloc's "advancement of peace and reconciliation," and to applaud its solidarity as it continues to work to contain the debt crisis hanging over the euro zone. The head of the Norwegian committee, Thorbørn Jagland, said the committee gave the award in an effort to encourage Europe to back away from the "extremism and nationalism" that led to major conflict in years past. "This is, in a way, a message to Europe to secure everything we have achieved and move forward," he said while addressing a packed crowd at the Nobel Norwegian Institute in Oslo on Friday. "Mr. Jagland said it is "up to the European Union" to decide what to do with the approximately $1.2 million in prize money that comes with the award. He also said the EU should decide how the award is ceremonially received." Some other news: Bernard Madoff Investment Securities has not won the Nobel prize in economics yet.

This is the stuff that would never be aired in the US mainstream media, at least before a POTUS election!

• Global easing deluge resumes: Bank of Korea Slashes Policy Rate (WSJ)
• And Brazil: Brazil cuts Selic rate to new record low of 7.25 pct (Reuters)
• With Tapes, Authorities Build Criminal Cases Over JPMorgan Loss (NYT) Just don't hold your breath
• IMF snub reveals China’s political priorities (FT)
• Add a dash of trade wars: Revised Duties Imposed by U.S. on Chinese Solar Equipment (Bloomberg)
• IMF calls for action as euro zone crisis festers (Reuters)
• Dubai Losing Billions as Insecure Expats Send Money Abroad (BBG)
• Softbank in Advanced Talks to Acquire Sprint Nextel (WSJ)
• Lagarde calls for brake on austerity (FT)
• EU lambasts Turkey over freedoms (FT)
• Race Tightens in Two States (WSJ)

Economists, market analysts, journalists and investors alike are all talking about it quite openly, generally in a calm and reserved tone that suggests that -  to borrow a phrase from Bill Gross – it represents the 'new normal'. Something that simply needs to be acknowledged and analyzed in the same way we e.g. analyze the supply/demand balance of the copper market. It is the new buzzword du jour: 'Financial Repression'. The term certainly sounds ominous, but it is always mentioned in an off-hand manner that seems to say: 'yes, it is bad, but what can you do? We've got to live with it.' But what does it actually mean? The simplest, most encompassing explanation is this: it describes various insidious and underhanded methods by which the State intends to rob its citizens of their wealth and income over the coming  years (and perhaps even decades) above and beyond the already onerous burden of taxation and regulatory costs that is crushing them at present. One cannot possibly "print one's way to prosperity". The exact opposite is in fact true: the policy diminishes the economy's ability to generate true wealth. If anything, “we” are printing ourselves into the poorhouse.

A critical - and under-asked - question for investors and 'believers' in Europe is "in what way the new 'fiscal compact' is actually different from the Maastricht treaty when it comes to enforcing compliance". It turns out, there really isn't any difference, and it is for the very same reasons that stood in the way of countries respecting the Maastrich treaty's limits. If there are 'no constraints on public spending', then why negotiate another 'fiscal pact' at all? As Philip Bagus has shown, the euro area is a good example for the 'tragedy of the commons'. Evidently that is not going to change until the monetary union simply falls apart.

Recession drives contingent liabilities into present liabilities quickly and with force and the cattle are now out of control and the stampede has begun. For those of you perhaps wishing for and certainly waiting for some type of “Lehman Moment” to flee; you may find it soon. The danger has always been that Europe will believe its own stuff and then make judgments based upon it and if this turns out to be the case then the decisions will be wrong and the consequences horrific.

We have lately noticed that there is an ongoing debate on whether (or not) the world can again embrace the gold standard. We join the debate today, with an historical as well as technical perspective. The gold standard will be the last option: If adopted, it will be out of necessity and in desperation. We are not historians. In our limited knowledge, we note however that historically, the experiment of adopting a gold standard –or a currency board system- was usually preceded by extremely trying moments, including the loss by a government of its legal tender amidst hyperinflation. The change to a commodity standard has often been then out of necessity. In summary, the Argentine case and the Dutch Golden Age suggest that the elimination of the credit multiplier (i.e. extinction of shadow banking) is more important than the asset backing a currency.

On the inaugural day of the much-awaited holy grail of Europe - the ESM - DutchNews.nl reports that Dutch diplomats in Athens have been secretly planning for an eventual Greek exit from the eurozone (along four themes - liquidity, energy, communications, and security). "We have deliberately strictly kept this behind closed doors", a Dutch diplomat told Volkskrant, adding "I do not know who has trumpeted." Among the Dutch companies doing business in Greece are Heineken, Unilever, and Philips as one business owner note that they "send cash back to the Netherlands as soon as possible - holding as little money in Greece as possible." While the foreign affairs ministry would not confirm, the paper cites a diplomat who commented: "we do not want to awaken any sleeping giants." We suspect you just did - sshh!

The Wars in the Middle East and North Africa Are NOT Just About Oil ... They're Also About GAS

As we all await the next, next, next meeting of the European Finance Ministers and our eyes are turned to Spain and what machinations are going to be brought to our attention,  we wonder if actual decisions are going to actually be forthcoming. These people “applaud and hail and congratulate” each other on various non-accomplishments and they tap dance on the world’s stage as if each and every problem is not only solved but light years behind them while there are giant dificulties to their forefront that are largely ignored in the continuing attempt to obscure everyone’s field of vision. We remain skeptical however; we can see just fine thank you and it is not the poppy fields of Oz at which we stare.