Guest Post: Secrets And Lies

Goebbels noted, "it thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State." But Goebbels has been superceded. Repression is so last century. Why repress when you can simply drown it out. All it takes is for the media outlets to be owned by a few powerful and like-minded friends. A few media moguls and corporate giants, whose plastic pundits raise their voices while the dolly bird presenters flash their thighs. It’s all so full throttle and frantic, and charged with desire and greed. Anyone who disagrees is a conspiracy theorist. Anyone who breaks ranks is a whistleblower and whistleblowers are domestic terrorists, dysfunctional loners with personality problems and axes to grind. When the truth is vilified, hunted, gagged and goaled, then the State has chosen to go to war with the nation.

Can Southern Europe Keep The Show On The Road?

Three of the most important crisis hit countries in Southern Europe – Italy, Greece and Portugal – have been seeking to make progress under coalition Governments, representing a delicate balance of domestic political forces. In some ways they have been surprisingly successful; the pressure to avoid a more generalised crisis of confidence has pushed traditional opponents to cooperate in the interests of self-preservation. Recent events, as JPMorgan notes, have highlighted some of the existing fragilities however, and serve as a useful reminder that stability is far from guaranteed. In addition, the wounds inflicted by recent political battles may have a cumulative impact, weakening the commitment to cooperation in Government over the medium-term. This invites two questions; can they keep the show on the road, and for how long? The wear and tear of governing has created a series of cumulative pressures, which look a lot like the proverbial straws on the camels back. As JPMorgan concludes, at some point one of them is likely to cause a break (our instinct tells us risks are probably highest in Italy).

Guest Post: Europe's Precarious Banks Will Determine The Future

It is easy to get the impression that the naysayers are wrong on Europe. After all the predictions of Armageddon, ten-year government bond yields for Spain and Italy fell to the 4% level, France which is retreating into old-fashioned socialism was able to borrow at about 2%, and one of the best performing bond investments has been until recently – wait for it – Greek government bonds! Admittedly, bond yields have risen from those lows, but so have they everywhere. It is clear when one stands back from all the usual euro-rhetoric that as a threat to the global financial system it is a case of panic over. Well, no. Europe has not recapitalized its banking system the way the US has (at great taxpayer expense, of course). Therefore, it is much more vulnerable. Where European governments and regulators have failed to make their banks more secure it is because they tied their strategy to growth arising from an economic recovery that has failed to materialize. The reality is that the Eurozone GDP levels are only being supported at the moment by the consumption of savings; in orther words, the consumption of personal wealth. Wealth that is not infinite; and held by those not likely to tolerate footing the bill for much longer.

Italy Embroiled In Latest Derivative Loss Fiasco Through Another Mario Draghi-Headed Scandal

It was roughly four years ago when details surrounding such Goldman SPV deals as Titlos first emerged, that it became clear how for over a decade, using deliberately masking transactions such as currency swaps, Greece had managed to fool the Eurozone into believing its economy was doing far better, and its debt load was far lower than it actually was in order to comply with the Masstricht treaty's entrance requirements. As for the Pandora's Box that was opened following the disclosure of just how ugly the unvarnished truth in Europe is, following the Greek disclosure, leading to the general realization that the European experiment has failed and it is now only a matter of time before its final unwind, any comment here is unnecessary - ths has been widely discussed here and elsewhere over the past several years. Now it is Italy's turn. Overnight, the FT reported that "Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis."

The World's Most Vice-Prone Nations

In a world of surging youth unemployment, increasingly-wide wealth inequalities, and  generation of older citizens working longer implicitly impacting the youth, we thought it perhaps useful to see which nations in the world are the most prone to 'vice'. Bloomberg ranked countries on their propensity for vice, measured by alcohol and cigarette consumption, drug use and gambling levels and found that the Czech Republic and Slovenia top the charts while Zambia and El Salvador are the most virtuous (least vice-prone). The US sits at a 'healthy' 16th in the world overall (just above the UK) but Italy, Spain, and Greece are all more vice-prone; but have no fear as the USA is Number 1 in the world for the annual prevalence of all drug usage.

17 Signs That Most Americans Will Be Wiped Out By The Coming Economic Collapse

The vast majority of Americans are going to be absolutely blindsided by what is coming.  They don't understand how our financial system works, they don't understand how vulnerable it is, and most of them blindly trust that our leaders know exactly what they are doing and that they will be able to fix our problems.  As a result, most Americans are simply not prepared for the massive storm that is heading our way.  Most American families are living paycheck to paycheck, most of them are not storing up emergency food and supplies, and only a very small percentage of them are buying gold and silver for investment purposes. Right now we seem to be living in a "hope bubble" and people have become very complacent.  They seem to have forgotten what happened back in 2008... 

Collapsing European Imports Crush Current Account Recovery Cravings

Some among the cognoscenti of European elite still crow that the crisis is behind us and point to the closing of current account deficits in Spain, Italy Portugal, and Greece as some evidence of this. However, as JPMorgan's CIO David Cembalest notes, while, in prior cases, this development usually meant a broadening recovery was on the way; the collapse in imports has driven this move and dramatically flatters any overall improvement. Typically balance of payments crises are solved by rising exports and as Cembalest warns, Europe's ability to endure the current collapse remains a major question mark.

Market Update: Surveying The Damage So Far

UPDATE: The pre-open ramp has been totally flushed in stocks and VIX has exploded

Much as the world of business media would like the world to work in a 'great rotation' like way; in reality the markets - all of them - ebb and flow on the back of leverage, repo, and liquidity. At no time in the recent past has that been more evident than in the last few days as every asset class in almost every ragion of the world is rediced in price by a market of angry liquidity-addicted carry traders demanding moar as their dealer wonders off into retirement. Overnight saw an early rise in Japan (and China) evaporate into a collapse, that spilled over further into Europe, and now the US. Despite a sudden rampaplooza across FX and equity markets in the pre-open, things do not look pretty as the great rotation is replaced by the great unwind.

Guest Post: 5 Reasons Why Now Is The Time To Buy Bonds

The recent one month spike in interest rates, along with the mind numbing chatter about the end of the "bond bull market," has sent investors scurrying from from the bond market right into the waiting arms of a stock market correction. Will the "bond bull" market eventually come to an end?  Yes, it will, eventually.  However, the catalysts needed to create the type of economic growth required to drive interest rates substantially higher, as we saw previous to the 1980's, are simply not available currently.  This will likely be the case for many years to come as the Fed, and the administration, come to the inevitable conclusion that we are now in a "liquidity trap" along with the bulk of developed countries.  While there is certainly not a tremendous amount of downside left for interest rates to fall in the current environment - there is also not a tremendous amount of room for them to rise until they begin to negatively impact consumption, housing and investment.  It is likely that we will remain trapped within the current trading range for quite a while longer as the economy continues to "muddle" along.

The Toxic Feedback Loop: Emerging <-> Money <-> Developed Markets

Extreme Developed Market (DM) monetary policy (read The Fed) has floated more than just US equity boats in the last few years. Foreign non-bank investors poured $1.1 trillion into Emerging Market (EM) debt between 2010 and 2012 as free money enabled massive carry trades and rehypothecation (with emerging Europe and Latam receiving the most flows and thus most vulnerable). Supply of cheap USD beget demand of EM (yieldy) debt which created a supply pull for EM corporate debt which is now causing major indigestion as the demand has almost instantly dried up due to Bernanke's promise to take the punchbowl away. From massive dislocations in USD- versus Peso-denominated Chilean bonds to spiking money-market rates in EM funds, the impact (and abruptness) of these colossal outflows has already hit ETFs and now there are signs that the carnage is leaking back into money-market funds (and implicitly that EM credit creation will crunch hurting growth) as their reaching for yield as European stress 'abated' brings back memories of breaking-the-buck and Lehman and as Goldman notes below, potentially "poses systemic risk to the financial system."

Pivotfarm's picture

European DisasterZone

Europe is a disaster-zone. Here’s the round-up of what’s going wrong right now. The longest day? It would have been a long day, whatever happened, so you might as well enjoy it.

Guest Post: Everything Is Being Sold

Global financial markets are now in a very perilous state, and there is a much higher than normal chance of a crash. Bernanke's recent statement revealed just how large a role speculation had played in the prices of nearly everything, and now there is a mad dash for cash taking place all over the world. Collectively, the move away from commodities, bonds, and equities in all markets globally tells us that there's nowhere to hide and that this is a 2008-style dash for cash. Everything is being sold, as it must, to meet margin calls, pay down leverage, and get out of positions; all are signs of the end of a speculative phase.

Pivotfarm's picture

As if the Greeks don’t have enough to deal with right now with their country cut off from the benefits of a national television and radio station. What is it they say in the UK? Something like ‘when it rains it pours’.

European Stocks Plunge To Worst Week In 13 Months

European equity markets closed down for the fifth week in a row for the first time since Summer 2011's European crisis. The 3.75% loss on the week in the broad (S&P 500 equivalent) Bloomberg Europe index is the biggest drop in 13 months to close the week unchanged on the year. Italy and Spain were the worst performers - down around 4.5% to 5% on the week - even as sovereign spreads held in only 9bps wider on the week. Europe's VIX surged to 24% - its highest close in 4 months. Greece's problems are emerging once again - smashing the EUR down over 2% in the last 3 days - its worst drop in 11 months as GGBs (and Greek stocks) plunge.