International Monetary Fund

When the head of the IMF "thinks there is some good news," and applauds Japan for its "innovation," it is clear that Christine Lagarde is struggling for positives in this interview with Bloomberg TV. Though she says all the right things, dots-the-i's-and-crosses-the-t's off as a confidence-inspiring global elite should do, the lack of enthusiasm is clear. "I'm deliberately, decisively, desperately optimistic," she exclaims even as she admits that they just downgraded global growth expectations and somewhat slams the US for "blind and blunt" fiscal consolidation, preferring instead "austerity... but not front-loaded." All-in-all, "a bit of work needs to be done," is as good as it gets for now.

In the six months since the IMF last provided its economic forecasts, the situation in Spain has gone from bad (but sustainable) to worse (and unsustainable). Their current forecasts show no 'peak' in debt-to-gdp ratios at least as far as 2018 with the budget deficit primarily to blame. As Bloomberg Briefs notes, general government primary borrowing, a measure that excludes the cost of paying interest on government debt, was revised up to 7.9% of GDP from 4.5% for 2012. The inability to narrow the budget deficit, surprise surprise, appears partially due to lower real GDP growth forecasts and even then a recent study has found that World Economic Outlook real GDP growth forecasts showed a tendency to systematically exceed outcomes. This phenomenon was particularly prevalent in countries with an IMF-supported program. The IMF warns Spain "will need to undertake unprecedented fiscal efforts to bring their debt ratios to traditional norms," as most countries have never experienced debt levels similar to current ones; and seemed to think a debt restructuring is more likely and will "entail substantial and long-lasting economic and social costs."

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Following yesterday's most recent Europe-led rout, the market is attempting a modest rebound, driven by the usual carry funding currency pair (EURUSD and USDJPY) levitation, although so far succeeding only modestly with not nearly enough overnight ramp to offset the bulk of yesterday's losses. In a centrally-planned, currency war-waging world, it is sad that only two key FX pairs matter in setting risk levels. But it is beyond hypocritical and highly ironic that according to a draft, the G-20 will affirm a commitment to "avoid weakening their currencies to gain an advantage for their exports." So the G-20 issues a statement saying nobody is doing it, when everyone is, thus making it ok to cheapen your exports into "competitiveness"? In other words, if everyone lies, nobody lies. Of course, also when everyone eases, nobody eases, and the world is back to square one. But that will only become clear eventually.

When the final "bailout" structure of the Cypriot deposit-confiscatory bail-in was revealed in late March, the implied victory for the Troika (which has since notched up its demands for the insolvent country to now sell its 14 tons of gold) was that instead of the deposit haircut passing as a tax, and thus needing a parliament ratification, it would come in the form of a bank resolution, with Laiki bank liquidating and being subsumed by the remaining Bank of Cyprus, and with uninsured depositors in both banks ending up crushed. However, as previously reported, in the interim period deposit outflows have continued and accelerated despite the assorted ineffective "capital controls" which has led to additional underfunding for the local banks, and to a second bailout of Cyprus, this one rising to €23 billion or a 35% increase from the original, as part of which the Troika has demanded that Cyprus sell their gold in the open market. Now, a month later, it appears that the Troika's initial victory may have been a Pyrrhic one, as yesterday the Cypriot attorney general announced, and today the government's spokesman confirmed, that the parliament will have to ratify the €23 billion bailout of the tiny island nation after all, thereby refocusing the popular anger from some ephemeral technocrat in Europe to the country's own elected representatives, thereby changing the calculus of the Cypriot decision by 180 degrees.

Every scheme in Europe than can be rigged has been or is being rigged and, in the end, it will only be the fools that are left in this game. It is not the greater fools either but the mandated fools who take directions from Brussels who takes their directions from Berlin. We cannot emphasize enough the great risk that anyone takes now by investing in anything in Europe. You can ignore liabilities, you can play pretend and not count liabilities but in the end they are still there and the losses must be finally acknowledged. Gold gave you a head's up.

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That the IMF is the most unwavering optimist despite fundamentals, facts and reality has been well-documented over the years. For those who still haven't seen the agency's perpetual upward bias in forecasting world growth, a quick scan of the charts below will cement the understanding that all the Washington-based serial bail-outer of insolvent countries is, is a dispenser of optimism and whose agenda is simply to preserve confidence that all is still well. The charts show how just over the past year's six outlook revisions, the IMF has been forced to downgrade, with quarterly precision, its overly optimistic forecast for virtually every part of the world, from the US, to the Euroarea, to China, and of course, the entire world: the black line is the most recent revision set - it also happens to be the lowest one. However, one chart which deserves particular attention not because it is accurate, but because the rate of deterioration is truly troublesome, is the IMF's view on global trade volume of goods and services. It is here that one can clearly see the disastrous impact of global central bank micro-mismanagement, capital misallocation and central planning. In short: global trade is collapsing - even from the point of view of one of the staunchest macro optimists - at a rate unseen since the Great Financial Crisis, and the Great Depression before it.

In 1996 it was Alan Greenspan with his "irrational exuberance" call, is Janet Yellen sending the same message, as she warns...

• *YELLEN SEES SIGNS `SOME PARTIES ARE REACHING FOR YIELD'
• *YELLEN SAYS LOW INTEREST RATES MAY PROMPT `TOO MUCH LEVERAGE'

Did the Fed's most dovish member, and likely next chairperson just suggest that, while 'lower for longer' rates will continue, that stocks and high-yield credit look a little more than frothy.

While a week ago, when gold was $1600/ounce the self-funded component (read gold sale) of the Cypriot bailout amounted to just over 10 tons of gold, as of today's price and EURUSD rate, Cyprus would now have to sell 12 tons of gold to cover the gap, if it were to hit the sell button today (assuming a price of $1385/ounce and a 1.315 EURUSD exchange rate). As far as we know, Cyprus hasn't sold one ounce yet. But what if gold keeps tumbling as it has in the past three days? Well, the problem as most know, is that as of March based on IMF data, Cyprus only has 13.9 metric tons of "excess" (as the EC defined it) gold. This means one can extrapolate below what price Cyrpus is out of luck and the proposed European Commission bailout fails as one of the key self-funded elements simply will not have enough cash to fill the €400 MM hold.  That price for gold, once again assuming a 1.315 EURUSD, is roughly $1175/ounce. So if the coordinated selling (straight to Goldman's traders) were to continue, and gold did plunge to the threshold price, or even drop into triple digit territory, and Cyprus simply did not have enough gold to sell, what then?

While We’re Waiting to Learn Who the Boston Terrorists Were … Let’s Review How Stupid Our Anti-Terrorism Policies Have Been

While expectations for global GDP growth are now expected to be +3.3% for 2013 against +3.2% for 2012, the IMF has just slashed the previously rosy 3.6% expectation as the global economy stalls. The US and Europe had significant cuts to their 2013 GDP growth expectations (though of course, this dip recovers hockey-stick-like in 2014). It will perhaps be surprising to learn that Japan had its growth expectation raised the most of all the major advanced and emerging nations. World Trade volume growth has also been cut notably - driven by a fall in the previously supposed driver of growth - emerging markets. The IMF's less sanguine forecasts, however, are caveated with hope-driven perspective such as expectations that Debt-to-GDP will drop for all nations from 2013 to 2018 and while energy remains a major downside risk to global growth, we were stunned to read that they cite S&P 500 option prices as an indicator of upside potential. It seems, even at the IMF, that the market is all that matters (oh and the Japanese printing press).

Yes, there was economic news overnight, such as a Eurozone and UK CPI, both of which came in line with expectations (1.7% and 0.4% respectively), and a German ZEW which confirmed Europe's accelerating deterioration, tumbling from 48.5 to 36.3, far below expectations of a 41.0 print (somehow the huge miss has managed to push the EURUSD up by 60 pips to an overnight high of 1.31 but this is merely the pre-US open manipulation to ramp US equities higher), just as there was news that Angela Merkel's support for a Cyprus bailout is growing (was there an alternative?), and that as part of their ongoing investigation into Italy's repeatedly insolvent Monte Paschi, investigators had seized €1.8 billion worth of assets from Nomura Holdings, and that Spain as usual sold more Bills than expected, driven by oversize Japanese and Pension Fund purchases, but what everyone has been looking for is whether the relentless and record rout in gold is over. For now, it appears that is the case, with gold printing an overnight low of just over $1320 and ramping higher ever since, up 3% so far and rising.

While China's trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).

A high level overview of the drivers of the capital markets.