European financial markets are still "partying their heads off," notes Punk Economics' David McWilliams, as even countries like Italy, Spain, Greece, and Ireland "are issuing more and more IOUs at lower and lower interest rates, " as investors "drunk on years of easy profits, seem to think that risk has all but disappeared." They are wrong! Right now, McWilliams explains in this brief clip, "there is a massive signal failure between the reality of the European economy - which is low growth, aging population, and falling prices - and the financial markets which are telling us everything is rosy." This can't last... here's why.
Well, I am profitable on this latest move up in 10-year yields, and I expect yields to continue rising through the 10 and 30 year bond auctions later this week ...
Yesterday, former Fed Chairman Alan Greenspan was the keynote speaker at KPMG’s 2014 Insurance Industry Conference Tuesday, where he answered questions such as 1) where the economy is going, 2) why, and 3) when (if ever) is it likely to improve. The answers, as reported by Property Casualty 360, are: 1) nowhere fast, 2) because nobody is willing to invest, and 3) eventually, but nobody can tell when. He listed 9 specific reasons why the "economy stinks", although surprisingly, nowhere did he mention the fact that the current and future economic disaster is all a direct result of his ruinous reign at helm of the Fed where as a result of his "great moderation" and the Fed's catastrophic monetary policies conceived mostly under Greenspan himself, the economy is now perpetually stuck in a boom-bust cycle, and where every time a bubble bursts another has to replace it or else the entire western way of life will be gone in a heartbeat.
As reported ealier this morning, here, courtesy of Bloomberg, are the nominees for the next European Commission under the presidency of Jean-Claude "If Serioues Then lie" Juncker, with one from each of the European Union’s 28 countries. Job assignments were announced today by the incoming president, Jean-Claude Juncker of Luxembourg. What do these appointments mean for the European Union? The attached flash analysis from Open Europe should answer most initial questions.
Scottish voters are going to the polls in just over a week to decide if they should break away from the UK. And from the looks of things, the independence movement has a very strong chance of winning. Whenever major changes happen, this brings opportunities as well. For example, a newly independent Scotland would create its own tax and corporate laws, potentially providing a number of major incentives to attract foreign talent and productive companies. A Scottish passport would also be attainable for many people. Some basic guidance has already been issued...
Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity. They are wrong to do so. No matter how much central banks may wish to present the level of inflation as a mere technocratic decision, it is ultimately a social choice. And some of the very pressures that helped to contain inflation for the past two decades have been retreating. Modern central banking has worked wonders to bring down inflation. Ultimately, however, a central bank's anti-inflation policies can work only within the context of a macroeconomic and political framework that is consistent with price stability. Inflation may be dormant, but it is certainly not dead.
As Fighting Rages In Mariupol, Ukraine Soldiers Say President Would "Betray The Country" If He Backs PeaceSubmitted by Tyler Durden on 09/05/2014 07:04 -0500
"Our artillery has come and is being deployed against the rebels," said the mayor of Mariupol, Yuri Khotlubey. The commander of the Azov volunteer militia, Andriy Biletsky, said his men had regained territory from the rebels in a counter-offensive after they came within just five km (three miles) of Mariupol on Thursday. And while leaders meet in Minsk to discuss peace, "A ceasefire would be a disaster, we would lose everything. By fighting we can resist the invasion and send them back. With a ceasefire they will consolidate and carry on after a while," said Ukrainian soldier Taras. And an interesting undercurrent has emerged: now the Ukraine army is stronly against a ceasefire, with one possibly leading all the way to yet another presidental coup. To wit: Another Ukrainian soldier who gave his name as Mykola said Ukrainian President Petro Poroshenko - who was attending the second day of a NATO summit in Wales on Friday - would "betray the country" if he backed a peace plan at this time.
Zero inflation is like death penalty to debt-laden countries. It has been estimated that Italy would need a primary surplus of ~8% if it wanted to stabilize its debt/GDP at zero inflation, which means just stopping it from moving even higher. Spain would need a primary surplus of 2%+, instead of current negative 1.44%. Which means more austerity and more contractionary policies, to cause more internal devaluation than it is currently the case, more declines in unit labor costs, more salary cuts, more unemployment, less consumer spending, less corporate investments.... Incidentally, we have for European assets and the ECB the same feeling we have for Japan and the BoJ. Abenomics has a high chance of failure, in the long term. Nevertheless, on the road to perdition, chances are that efforts will be stepped up and more bullets shot in an attempt to avert the end game. As stakes are raised, financial assets will be supported and melt-up in bubble territory, doing so at the expenses of a more turbulent end-game in the years ahead.
The dismaying reality: the only purpose of central bank monetary policy is to keep the bloated, corrupt, inefficient and self-liquidating vested interests of the state-cartel crony capitalism from having to suffer the consequences of real reforms. Japan ably serves as Exhibit #1 of this core dynamic.
In Bankrupt Argentina CDS Auction, Barclays Buys Whatever JPM Has To Sell; Citi Goes For The Hail MarySubmitted by Tyler Durden on 09/03/2014 13:43 -0500
It has been a while since Creditex ran a CDS settlement auction of any note for two reasons: CDS no longer is a credible or legitimate method to hedge against default risk (see Greece, Banco Espirito Santo), thus making the stated purpose of CDS irrelevant, and when the default carries with it systematic risk ISDA will simply screw over CDS-holders and change terms whenever it sees fit following a few politically-connected phone calls, at which point good luck collecting on your "insurance." Which is why the just concluded Argentina CDS settlement auction following its bankruptcy last month, was a welcome reminder of what markets looked like in the BC (Before Central-planning) era.
In Citi's Steven Englander's latest note, he notes that every major FX trade in place right now is a carry trade in one form or another, differing only in their scope and in the risk they entail. This has 5 significant implications...
Overview of the ECB meeting and likely outcomes. More robust analysis than ideological fervor.
While yesterday everyone was focusing on the ongoing escalation in Ukraine, or BBQing, the real story was the sudden and quite dramatic collapse, or as we called it, "bloodbath" in global manufacturing as tracked by various PMI indices. Here is the summary.
Dispassionate look at the week ahead, without the hysterics of the sky is falling or the mother of all crises is around the corner.
Investors in European Bonds are running over each other all in an effort to front run what the Big Banks have been begging the ECB to begin a bond buying program. It is hilarious as European yields are already ridiculously low right now, how much lower do they think these yields can go?