Hungary

The upcoming week comes less loaded with policy events. The only major one is the Eurogroup meeting on Monday, however EU officials have already confirmed that no decision on the next Greek aid tranche will be made before the Troika’s next report on Greece’s adherence to the bailout conditions. Greece has scheduled an auction for Tuesday in order to roll over €3.1 bn in T-bills expiring by the end of the week. Additionally, in the US, the President has invited leadership of both parties for a first round of talks on the fiscal cliff. The data calendars also look lighter, with the publication of the FOMC minutes on Wednesday, and US Philly Fed on Thursday.

It is cloudy out there as Sandy enters the mid-Atlantic region, although for all the pre-apocalypse preparations in New York, the Frankenstorm may just be yet another dud now that its landfall is expected to come sufficiently south of NYC to make the latest round of Zone 1 evacuations about overblown as last year's Irene hysteria (of course it will be a gift from god for each and every S&P company as it will provide a perfect excuse for everyone to miss revenues and earnings in Q4). That said, Wall Street is effectively closed today for carbon-based lifeforms if not for electron ones, and a quick look at the futures bottom line, which will be open until 9:15 am Eastern, shows a lot of red, with ES down nearly 10 ticks (Shanghai down again as the same old realization seeps day after day - no major easing from the PBOC means Bernanke and company is on their own) as the Friday overnight summary is back on again: Johnny 5 must defend 1400 in ES and 1.2900 in EURUSD at all costs for just two more hours.

• Debt Fuels a Dividend Boom - Firms Collect Payouts, and Investors Get Yield; 'Reminiscent of the Bubble Era' (WSJ)
• Black Monday Echoes With Computers Failing to Restore Confidence (BBG)
• Poll: Obama Leads in Wisconsin, Iowa (WSJ)
• Gold Imports by India Seen Climbing First Time in Six Quarters (BBG)
• Europe pushes ahead towards ECB bank supervision (Reuters)
• ... And fails: Summit fails to agree timetable for aid to failing lenders (FT)
• Toyota Prius Dominates California as State’s No. 1 Model (BBG)
• Italy raises €18bn in huge bond sale (FT)
• Diplomacy inbox fills up as U.N. awaits U.S. presidential vote (Reuters)
• Goldman braced for more revelations (FT)
• China power brokers agree preferred leadership team (Reuters)
• EU, Japan Warn Against New US Swaps Rules (WSJ)
• Why VaR is the most meaningless contraption ever: Morgan Stanley shows the ‘flaky’ side of model (FT)
• Made in France Trumps Consumer Choice in Hollande Jobs Quest (BBG)
• North Korea threatens South over propaganda balloons (Reuters)

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.

Europe, and its apparent Union, is rapidly fragmenting as tensions mount on large and small scales across all of its regions and nations. From Scotland's independence referendum to Flanders' autonomy and now Catalonian separatism on the rise once more, this is no longer a north-south divide, but a rich/poor, debt/no-debt divide. As the NY Times notes, this seems to emerge from the ebbing of the concept of shared sovereignty (richer - or less debt-saturated - nations increasing anger at having to bail out their poorer neighbors), or as Stratfor describes it - the paradox of integration - as 'more Europe' means vastly different things depending on which side of the fence you sit on. Now, as Russia Today reports, Venice is pushing for independence from Rome and there is increasing independence movements in Sicily and Sardinia. As old battles and historical grievance come back to the fore, "when it comes to the crunch, while money may be the catalyst (who commits what to central budgets); it is, as the NY Times puts it, "the meta-narrative and emotions of 'do we feel oppressed?... as the ghosts of history return." From Bannockburn to WWII, "Europe seems shakier; some of the taboo questions are coming out again!"

• RBA Cuts Rate to 3.25% as Mining-Driven Growth Wanes (Reuters)
• Republicans Not Buying Bernanke’s QE3 Defense (WSJ)
• Spain ready for bailout, Germany signals "wait" (Reuters)
• EU says prop trading and investment banking should be separated from deposit taking (Reuters)
• Call for bank bonuses to be paid in debt (FT)
• Spanish Banks Need More Capital Than Tests Find, Moody’s Says (Bloomberg) ... as we explained on Friday
• "Fiscal cliff" to hit 90% of US families (FT)
• The casualties of Chesapeake's "land grab" across America (Reuters)
• U.K. Government Needs to Do More to Boost Weak Economy, BCC Says (Bloomberg)
• World Bank Sees Long Crisis Effect (WSJ)
• UBS Co-Worker Says He Used Adoboli’s Umbrella Account (Bloomberg)
• And more easing: South Korea central bank switches tack to encourage growth (Reuters)

• Trade Slows Around World (WSJ)
• Debt limit lurks in fiscal cliff talks (FT)
• Welcome back to the eurozone crisis (FT, Wolfgang Munchau)
• Euro Leaders Face October of Unrest After September Rally (Bloomberg)
• Dad, you were right (FT)
• 25% unemployment, 25% bad loans, 5% drop in Industrial Production, and IMF finally lowers its 2013 Greek GDP forecast (WSJ)
• Global IPOs Slump to Second-Lowest Level Since Financial Crisis (Bloomberg)
• France's Hollande faces street protest over EU fiscal pact (Reuters)
• EU Working to Resolve Difference on Bank Plan, Rehn Says (Bloomberg)
• China manufacturing remains sluggish (FT)
• Samaras vows to fight Greek corruption (FT) ... and one of these days he just may do it
• Leap of Faith (Hssman)
• Germany told to 'come clean’ over Greece (AEP)

• World on track for record food prices 'within a year' due to US drought (Telegraph)
• Foxconn halts production at plant after mass brawl (BBC)
• Germany Losing Patience With Spain as EU Warns on Crisis Effort (Bloomberg)
• Fed Recovery Doubts Spur Investor Bid for Treasuries (Bloomberg)
• Japan protests as Chinese ships enter disputed waters (Reuters)
• In Shark-Infested Waters, Resolve of Two Giants Is Tested (NYT)
• China jails Wang Lijun for 15 years (FT)
• China closes in on Bo Xilai after jailing ex-police chief (Reuters)
• European Leaders Struggle to Overcome Crisis Stalemate (Bloomberg)
• Politicians 1: Austerity 0 - Portugal Gives Ground on Worker Contributions (WSJ)
• Obama Controls Most of His Money as Republicans Have More (Bloomberg)
• Coeure Says Not Clear That Further ECB Interest-Rate Cut Needed (Bloomberg)
• France Seeks Labour Overhaul (WSJ)

According to data released by ACEA (European Automobile Manufacturers’ Association) new passenger car registrations fell 8.9% in August after a decline of 7.8% in July. In 2011, Germany produced 5.8 million passenger cars, of which 77% (4.5m) were exported, making cars and parts the most valuable export good (EUR 185bn). A heavily export-dependent German automotive industry looks vulnerable to setbacks in important markets.

Gazprom has Europe’s natural gas market in a stranglehold and Europe is attempting to fight back, first with a raid last year on the Russian giant’s offices and then with a probe launched earlier this week against its allegedly illicit efforts to control the EU’s natural gas supplies. The bottom line is that the same natural gas revolution in the US, which was enabled by hydraulic fracturing (fracking), is now threatening to loosen Gazprom’s noose on the EU, and Gazprom simply won’t have it. Let’s not pretend that energy companies are clean and that governments aren’t using them to forward nefarious geopolitical objectives (US multinationals in Northern Iraq, for instance). The point is not to paint Gazprom as the ultimate evil in energy. This is about Europe, and the EU’s “Mommy Dearest” struggle with Gazprom, which is undoubtedly playing an underhanded energy-politics game worthy of the most sinister of accolades.

Suddenly the delicate balancing of variables is once again an art and not a science, ahead of a week packed with binary outcomes in which the market is already priced in for absolute perfection. Per DB: We have another blockbuster week ahead of us so let's jump straight into previewing it. One of the main highlights is the German Constitutional Court's ruling on the ESM and fiscal compact on Wednesday. On the same day we will also see the Dutch go to the polls for the Lower House elections. Thursday then sees a big FOMC meeting where the probabilities of QE3 will have increased after the weak payrolls last Friday. The G20 Finance Ministers and Central Bank Governors will meet on Thursday in Mexico before the ECOFIN/Eurogroup meeting in Cyprus rounds out the week on Friday. These are also several other meetings/events taking place outside of these main ones. In Greece, PM Samaras is set to meet with representatives of the troika today, before flying to Frankfurt for a meeting with Draghi on Tuesday. The EC will also present proposals on a single banking supervision mechanism for the Euro area on Tuesday. If these weren't enough to look forward to, Apple is expected to release details of its new iPhone on Wednesday. In summary, it will be a good week to test the theory that algos buy stocks on any flashing red headlines, no longer even pretending to care about the content. Think of the cash savings on the algo "reading" software: in a fumes-driven market in which even the HFTs no longer can make money frontrunning and subpennyiong order flow, they need it.

Even as Goldman's representative to the ECB continues to drone, a few hundred miles east of Frankfurt, one country has rebelled against the new world world:

• HUNGARY REJECTS IMF AID CONDITIONS, PREMIER ORBAN SAYS

What is wrong with them? Don't they know that the globalist central-planning dictators always know what is best for them? Needless to say the Hungaria Forint tanks, just as intended.

We won't waste our readers' time with the details of all the 56 documented instances of hyperinflation in the modern, and not so modern, world. They can do so on their own by reading the attached CATO working paper by Hanke and Krus titled simply enough "World Hyperinflations." Those who do read it will discover the details of how it happened to be that in post World War 2 Hungary the equivalent daily inflation rate of 207%, the highest ever recorded, led to a price doubling every 15 hours, certainly one upping such well-known instance of CTRL-P abandon as Zimbabwe (24.7 hours) and Weimar Germany (a tortoise-like 3.70 days). This and much more. What we will point is that at no time in recorded history did a monetary regime end in "hyperdeflation." In fact there is not one hyperdeflationary episode of note. Although, we are quite certain, that virtually all of the 56 and counting hyperinflations in the world, were at one point borderline hyperdeflationary. All it took was central planner stupidity to get the table below, and a paper with the abovementioned title instead of "World Hyperdeflations." 

It may come as a surprise to some of our younger readers, that the Eurozone, and its associated currency, is merely the latest in a long series of failed attempts to create a European currency union and a common currency. Three of the most notable predecessors to the EUR include the Hapsburg Empire, the Soviet Union, and Yugoslavia. Obviously, these no longer exist. Just as obvious, all of these unions, having spent time, energy, money, and effort to change the culture and traditions of member countries and to perpetuate said unions, had no desire, just like Brussels nowadays, to see these unions implode. The question then is: what happened after these multi-nation currency unions fails. VOX kindly answers: "they all ended with disastrous hyperinflation."

Last week was a scratch in terms of events, if not in terms of multiple expansion, as 2012 forward EPS continued contraction even as the market continued rising and is on the verge of taking out 2012 highs - surely an immediate catalyst for the New QE it is pricing in. This week promises to be just as boring with few events on the global docket as Europe continues to bask in mid-August vacation, and prepare for the September event crunch. Via DB, In Europe, apart from GDP tomorrow we will also get inflation data from the UK, Spain and France as well as the German ZEW survey. Greece will also auction EU3.125bn in 12-week T-bills to help repay a EU3.2bn bond due 20 August held by the ECB. Elsewhere will get Spanish trade balance and euroland inflation data on Thursday, German PPI and the Euroland trade balance on Friday. In the US we will get PPI, retail sales and business inventories tomorrow. On Wednesday we get US CPI, industrial production, NY Fed manufacturing, and the NAHB  housing index. Building permits/Housing starts and Philly Fed survey are the highlights for Thursday before the preliminary UofM consumer sentiment survey on Friday.