Italy

Another Conspiracy "Theory" Admitted as Fact

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.

Despite the constant blather of how cheap European stocks are (they are not) and how Draghi's QE will create something positive (priced in?), the last 2 days have seen Italian, Spanish, and Portuguese bond risk explode higher. The 20%-plus surge in bond spreads is the biggest since the beginning of the EU crisis in 2011 as Grexit fears (and redenonimation risks) continue to spread.

This is why the Greek debt crisis continues without end. The minute Greek bondholders have to take a REAL haircut, the wheels come off the EU and the $100 trillion bond bubble finally blows up.

As Americans, we tend to be pretty full of ourselves, and this is especially true of our young people.  But do we really have reason for such pride?  According to a shocking new report from the Educational Testing Service, Americans between the ages of 20 and 34 are way behind young adults in other industrialized nations when it comes to literacy, mathematics and technological proficiency.  Even though more Americans than ever are going to college, we continue to fall farther and farther behind intellectually.  So what does this say about us?  Sadly, the truth is that Americans are stupid.

It appears the sea of de-dollarization has reached the shores of Europe. With Australia and UK having already moved in the direction of joining the China-led AIIB, The FT reports that France, Germany, and Italy have now all agreed to join the development bank as 'pivot to Asia' appears to be Plan B for Europe. As Greg Sheridan previously noted, "the saga of the China Bank is almost a textbook case of the failure of Obama’s foreign policy," but as The FT concludes, the European decisions represent a significant setback for the Obama administration, which has argued that western countries could have more influence over the workings of the new bank if they stayed together on the outside. As Forbes notes, this leaves Obama with 3 uncomfortable options...

• Israelis vote as 'King Bibi's' reign hangs in the balance (Reuters), Factbox: Main candidates in Israel's election (Reuters)
• Iran Can Add Million Barrels a Day of Oil If Sanctions Halt (BBG)
• Kremlin rules out handing back Crimea to Ukraine (Reuters)
• Saudi Arabia Needs More Oil to Feed Local Refinery Expansion (BBG)
• How Lafarge’s CEO Went From Holcim Merger Architect to Obstacle (BBG)
• When Yellen Gets Less Predictable She’s Getting Back to Normal (BBG)
• Iran nuclear talks intensify as sides face tough issues (Reuters)
• Debunking $1.4 Trillion Europe Debt Myth in Post-Heta Age (BBG)

Following yesterday's inexplicable ramp in stocks, which perhaps was driven by the collapse in oil (which sent energy companies higher because a 30x energy forward PE is cheap), and by the latest battery of disappointing economic data which made it less likely the Fed will proceed with a tightening move, overnight futures have given up a portion of the gains, and were trading down 0.3% at last check. And yet, if yesterday's weakness was driven by USD weakness, today's jump in the EURUSD above 1.06 (on absolutely disastrous German ZEW investor index print) is now somehow responsible for risk offness? And, adding confusion to insult, the 10 Y is down to 2.05% and in danger of re-entering a 1% handle. Sadly, nothing makes sense any more and today's conclave of central planners in the Marriner Eccles building ahead of tomorrow's 2pm FOMC "impatient" announcement isn't going to make it any better.

For the third largest issuer of sovereign bonds in the world, Italy - the country all eyes will focus on once Greece and/or Spain exit the Eurozone - when it comes to NPLs things are going from bad to worse because as Reuters reported earlier, citing ABI, gross bad loans at Italian lenders continued to rise, totalling 185.5 billion euros ($196.5 billion) in January from 183.7 billion euros a month earlier.As the chart below shows, Italy now has over 10% of its  GDP in the form of bad debt.  And just as bad, even as NPLs rose, total debt issuance contracted once more, lending to families and businesses decreased 1.4 percent year-on-year in February, the 33rd consecutive monthly fall.

This week's main event will be the FOMC announcement on Wednesday at 2:00 pm and the subsequent press conference, the conclusion of the March 2-day Fed meeting, in which it is widely expected that Yellen will announce the end of the Fed's "Patience" with an economy in which resurgent waiters and bartenders continue to skew the job market even if it means consistently declining wages for 80% of the US labor force. Here is a summary of what else to expect this week.

It started off as the perfect storm for futures: after Sunday night's latest plunge in WTI, which saw it drop to the lowest price since Lehman, the double whammy that has now forced Deutsche Bank to become the first major institution to forecast no growth for S&P500 EPS in 2015, namely the strong dollar, reared its ugly head and the EURUSD seemed dangerouly close to breaching the all important 1.04-1.05 support level we first noted last week. However, overnight parties tasked with preserving "financial stability" appear to have once again stepped in, and not only has the EURUSD rebounded off 1.05, but crude is now just barely down from the Friday close as all firepower is put to the same use, that sent the Shanghai Composite soaring by 2.3% overnight, and which sent the Dax over 12,000 for the first time ever.

I am not sure how long Mario Draghi can carry on this QE Charade, but it is quite obvious that there is nothing more to be gained from the program.

This anti-capitalistic mentality has brought about today’s essentially bankrupt “middle of the road” welfare state system, in which governments and big business are in a tight embrace that utterly deadens economic progress. The EU’s latest “Four Year Plan” is yet another in a long list of examples of this prototypical continental tradition (incidentally, Europe’s moribund banking system is one of the end results of these economic policies as well). What is really required is a return to free market principles, not yet another “government plan”.

There is no mystery anywhere to be found in the fact that US retail sales don’t follow the jobs trend. Not if you look at what kind of jobs they are, let alone at all the other made up and manipulated numbers that are being thrown around about the US economy. The only mystery is why everyone persists in talking about a recovery. That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer. There are many other factors, but that all by itself makes a recovery a mathematical mirage.

"I was shocked today by the absolute gaul of the Fed releasing a statement about Net Worth in America reaching record levels.  Now I get that they are under extreme pressure to sell the story that everything is rainbows and butterflies. The ugly reality is that the bottom 80% of Americans experienced none of that gain. And so when the Fed via its ass pamper boy, Steve Liesman, start banging on about the fact that some sliver of society is being handed extraordinary wealth while the working class has lost 40% of their net worth since 2007, well a big F### you right back at ya bub!...And for those of you that think I’m an ass for being so harsh on us, well stuff it.  Get up off your stool you lazy drunk, shut your damn mouth and start fighting these political parasites like a damn man, like a damn American."