While the distraction that is the stock market continues to enthrall most Americans, the big shots in the global monetary which for now are taking place behind the scenes, are getting ever louder. One person who is paying attention to the failure of the US to grasp that the unipolar world of the 1980s is long gone, is Russia's Vladimir Putin, who earlier today proposed creating a "Eurasian" currency union which would have Belarus and Kazakhstan as its first members, which already are Russia's partners in a political and economic union made up of former Soviet republics.
In the aftermath of the ECB's QE announcement one topic has received far less attention than it should: the unexpected collapse of risk-sharing across the Eurosystem as a precursor to QE. This is what prompted "gold-expert" Willem Buiter of Citigroup to pen an analysis titled "The Euro Area: Monetary Union or System of Currency Boards", in which he answers two simple yet suddenly very critical for the Eurozone questions: which "currency boards", aka national central banks, are suddenly most at risk of going insolvent, and should the worst case scenario take place, and one or more NCBs go insolvent what happens then?
The inverted relationship between gold and the dollar broke down in November 2011. The dollar soared from July to the present, spiking 21% against the other major currencies. Most of the negative commentary regarding gold in recent months misses the rather bigger point that the gold price has held up remarkably well given the extent of dollar’s move.
"Perhaps the central bankers and economists from all over the world should take a break from the theory and their focus on economic models and instead have a look at the real world and spend some time talking to Volcker in order to remember that deflation is not the disaster they imagine it to be."
Quad-witching days are volatile on normal days, so in an environment of virtually zero liquidity, in which the market careens from one extreme to another simply based on whether the Fed utters one single word, in which volatility across asset classes is soaring, and in which it is all about igniting algo momentum, today's quadruple withicng should be memorable, which is good since there is virtually no macro data today to speak of.
Debt saturation and debt fatigue = diminishing returns on central bank tricks. The diminishing returns manifest in three ways: the gains from each round of central-bank tricks are declining, the periods of stability following the latest “save” are shrinking and the amplitude of each episode of debt crisis is expanding.
That the unraveling is speeding up is not just perception - it’s reality.
After Pillaging Pensions, Greece Raids Utilities To Repay Troika; Bonds Plunge As Bank Run AcceleratesSubmitted by Tyler Durden on 03/19/2015 11:40 -0400
The new Greek government, instead of seriously contemplating a Plan B outside of the Eurozone, was busy thinking of new ways to raid its own population just to repay the "loathed" Troika. In the latest sad indication of just how truly insolvent Greece is, Reuters also reported that days after raiding its own Pension funds to repay the IMF (which in turn lent the cash to Ukraine so it could repay Ukraine's obligations to Gazprom and thus Putin), the Syriza government is now raiding the major state utility firms to lend the government cash through short-term repo transactions as it scrambles to avoid running out of cash.
If it was the Fed's intention to slow down the relentless surge in the dollar with yesterday's "impatient" removal which blamed the dollar strength on the "strength" in the US economy, it promptly failed after algos and a few carbon-based traders looked at the Atlanta Fed and realized that a 0.3% Q1 GDP print is anything but "strong." As a result the EURUSD, after soaring by nearly 400 pips yesterday in a market reminiscent of a third-world FX pair's liquidity especially following the previously noted USD flash crash, the dollar has recoupped nearly all losses, and the DXY is once again on the way up and eyeing the resistance area of 100.
Even as a Graccident becomes more likely by the day, there are still plenty of signs that EMU members are prepared to present a unified front in the face of uncertainty.
With Greek bank bonds collapsing, stocks near record lows, Greek default risk at post-crisis record highs, and Greek government bond yields spiking, it has been surprisng that we have not seen the ATM lines and generalized 'panic' of a population in fear of being "Cyprus'd." Well, now as ekathimerini reports, that appears to escalating and rapidly as credit sector officials estimated that the flight of deposits yesterday alone amounted to 350-400 million euros, which was some five times higher than the daily average in previous days.
Where is the Greek government going with its approach? Four scenarios present themselves and hold the possible answer...
What can strike a balance between the opposing forces operating on the euro-dollar exchange rate? No one can say for sure, but one thing is certain: Whereas the profits from playing transatlantic interest-rate differentials may run to 1% or 2% per year, investors can easily lose that amount in a single day – or even an hour – by buying the wrong currency when the trend turns. As we know from decades of Japanese and Swiss experience, selling a low-interest-rate currency simply to chase higher US yields is often a costly mistake.
Draghi, we have a problem. Despite the omnipotent buying power of the all-knowing ECB, peripheral European bond spreads are blowing out again (and stocks dropping) as Grexit fears start to spread contagiously across the continent. As Greece's cash crunch looms ever closer (with capital controls looming) and bulls "throw in the towel" on the "nuts" Greeks, the IMF has come out and rubbed Mediterranean salt into that wound by telling the Eurogroup that Greece is the most unhelpful country the organization has dealt with in its 70-year history. As Bloomberg reports, in a short and bad-tempered conference call on Tuesday, officials from the 'Troika' complained that Greek officials aren’t adhering to a bailout extension deal leaving Dijsselbloem hinting at Cypriot templates for Greece.
Is Greece truly on the verge of capital controls, especially the kind that has the blessing of the very man who created the Cyprus "blueprint"? For the answer we go to ISI, which discussed just that in a flash note issued earlier today:
The increasing ugliness of the ‘negotiations’ between the Greek Syriza government and the rest of the eurozone, which is ruled by the German government, needs to be halted and put in reverse. There is an urgent need for a detente, for cooler heads and for trust. And there is only one person who can act to create these things: Angela Merkel. But Merkel is nowhere to be found or seen. Merkel has been sorely lacking and missing, and if she doesn’t get her act together very quickly, she will be known as the person who let Europe slip into war, for no good reason whatsoever.