The losers in elections often take the loss badly. Just as some Gore supporters in 2000 shouted about moving to Canada, some Romney supporters have taken the loss particularly badly too. All the Republican rage made me think about the origins of America. For those who want to strike out into the unknown in the pursuit of self-governance, such options don’t exist anymore. There is no great sparsely inhabited continent spread out (except perhaps Antarctica which is already claimed-for). Where is the next America? Where is the next land that people seeking self-governance can emigrate to? The hunger for self-governance led to the birth of America. It seems highly likely, in the very long run, that the hunger for self-governance will be the force that leads not only to local space colonisation. Powerful central government drives nonconformists to find ways to escape it. If the only road to self-governance left is up into space, then that is the road that will be taken.
We know two things about the future: 1) Borrowing 35% of Federal expenditures every year is unsustainable; and 2) The Baby Boom generation of 75+ million may be working longer, but they are also retiring en masse, joining the ranks of Social Security and Medicare beneficiaries at the rate of 10,000 per day, a flood that will not ebb until the late 2020s. This raises the obvious question: if Federal spending must decline, then where is the money going to come from to fund 75 million retirees? Calling the Central Bank of Mars: Greetings, Martian friends.
Everyone is aware of a multitude of problems that besets our world, however the nature of these problems and why they exist is distorted by the media and by governments all over the world. Our leaders, corporate heads, military top-brass etc. all have a fairly good idea of what is really happening, they just don’t want us – the ignorant masses known as the general public to know what they know. The multiple crises on this planet are caused by our insane mode of living – one that seems to be dominated by economics. Our way of life (unfortunately now for most of the world) depends on an ever-expanding economic system, for if it is not expanding it is contracting. This system was all well and good while there was plenty of capacity for continued expansion, but unfortunately for all of us the limits of expansion are not far off.
Obama may want to throw this one in the unsolicited communist dictator endorsement pile. From CNN: "President Barack Obama received one endorsement he definitely did not ask for Monday: Venezuelan President Hugo Chavez. The leftist leader and strong man, who has used strong anti-United States language in his political rallies and official speeches, told state-owned VTV, "In the point of view of his politics, if I were voting, I would vote for Obama and I believe that if Obama was from Caracas, he would vote for Chavez." Whatever one says or thinks about the Caracas head guy who recently is quoted as saying that "perhaps Mars had life at one time but then evil capitalism showed up and finished the planet off" (and Mars didn't build that life he forgot to add) or his foray into US elections, where he now shares the view of socialist Europe, he sure knows a gold bar in the local safe is worth two in the LBMA vaults in London.
- The bankers are coming: Banker Plan Would Fund Super-PACs to Sway U.S. Senate Elections (Bloomberg)
- Risk Increases of Prolonged World Slowdown, BOJ’s Miyao Says (Bloomberg)
- Spain Seeks to Stem Its Banking Crisis (WSJ)
- Deadly shooting mars new Quebec premier's victory rally (NBC)
- Democrats Keep Tax-Raising Focus On Top 2% Of Households (Bloomberg)
- Merkel Swings Into 2013 Election Mode Evoking Crisis, China (Bloomberg)
- Europe’s money market funds future in focus (FT)
- Pressure Mounts on ECB to Bring Down Bond Yields (Reuters)
- Swiss bank vows to hold franc down (FT)
- Australia economy still solid in Q2 despite GDP miss, but threats mount (Reuters)
- Clinton Brings to Beijing Plea for Maritime Solution (Bloomberg)
- The End of a 1,400-Year-Old Business (BusinessWeek)
Otherwise… No titbits…
Nada. Rien. Nichts. Nothing.
ECB to EU governments: “Guys, we won’t fly solo…”
Bond Market to ECB “Show me the money!”
Equity market “Someone said Money? Buy!”
To be correct, it is a series of games of chicken, as next to the different sovereigns, the ESM/ESFS, the ECB, and why not the IMF, below the sovereigns there are the regions, be it in Spain or, as it stands, in Germany.
- Standard Chartered Falls Most in 24 Years on U.S. Iran Probe (Bloomberg)
- Iran accusations wipe $15 billion off StanChart shares (Reuters)
- Hilsenrath tells us that Fed Official Calls for Open-Ended Bond Buying (WSJ) - shocking indeed
- German opposition backs fiscal union, demands constitutional change and referendum (FT)
- Gary Gensler speaks: Libor, Naked and Exposed (NYT)
- IMF Pushes Europe to Ease Greek Burden (WSJ)
- Second TSE System Error in Seven Months Halts Derivatives (Bloomberg)
- Rice Hoard Offers World Respite as Food Costs Surge (Bloomberg)
- UK coalition in crisis over parliamentary reform (Reuters)
- Ethics probe could deal losing hand to Nevada Democrat (Reuters)
As it dawns upon the world that Ms. Merkel means exactly what she says and is not going to back down you may expect a quite negative reaction in the equity markets and a widening of spreads for some risk assets along with a strengthening of the Dollar. I am talking about the “Trend” here and not some trading strategy for today’s business. Germany is not going to flinch and cannot both due to local politics and to the now obvious fact that Germany has just about reached the limits of what she is financially able to do with a $3.2 trillion economy. To put it quite simply; they have run out of excess cash and more European contributions are only going to weaken the balance sheet of the nation and seriously imperil Germany’s financial condition. I say, one more time, Germany is not going to roll over and all of the pan European schemes brought forward by the bureaucrats and the poorer nations are not going to go anywhere. There is one novel possibility here and that is that the Germans, like the British, may opt out. Germany, Austria, the Netherlands, Finland et al may just say, “Fine, go ahead if you wish to have Eurobonds and the like but we will not guarantee them.” All plans do not need to have an either/or solution and this may well be Germany’s position in the end which would place the periphery nations and France in quite an interesting, if unenviable, place.
While men are from Mars, and women from Venus, it would appear Europe's major political leaders are on totally different orbits when it comes to the future of the European experiment. Though there are come commonalities there is one glaring divide - the speed of deficit reduction - as Mont-and-oy differ from Merkel quite vehemently.
As Many Have Predicted for Years
While details are largely missing in the aftermath of yesterday's historic announcement from Spain, the one thing that we did catch inbetween the various conferences and announcements, and probably the most important thing, is that the ESM/EFSF funded bailout loan, whose use of proceeds will go to fund the FROB, not one which will rank pari passu with the FROB, will have "terms better than market" - always a code word for priming and cramdown of other debt classes. Today, we learn that this is precisely the case, and the worst case outcome from Spain's pre-primed sovereign creditors.
"Risk on, risk off" might be the most essential hallmark of the current market, but just focusing on the day-to-day whims of capital markets ignores longer term changes to investor risk preferences. Nic Colas, of ConvergEx looks at the topic from the vantage point of gender-specific investment choices. For example, more women are participating in deferred compensation (DC) plans, and the data from millions of 401(k) accounts tells a useful story. Their retirement accounts still lag those of their male counterparts in total value and they remain a bit more risk-averse. But for the first time in at least a decade they are more likely than men to contribute to a retirement account and are contributing a greater percentage of their earnings. You’ll never see pink or blue dots on the “Efficient Frontier” of academic models, to be sure. However, both empirical data and psychological studies do point to subtle – but notable – differences in how men and women consider the classic risk-reward tradeoff inherent in the challenge of investing. Nick suggests it may make sense to reconsider the notion that continued money flows into bonds and other safe haven investments are really "Risk off" market behavior. At least a piece of it may well be "Risk shifting," driven by the demographic and psychological factors as assets controlled by women are clearly increasing. "Risk off" may well be "risk shift."
We start today's story of the day by pointing out that Deutsche Bank - easily Europe's most critical financial institution - reported results that were far worse than expected, following a decline in equity and debt trading revenues of 23% and 8%, but primarily due to Europe simply "not being fixed yet" despite what its various politicians tell us. And if DB is still impaired, then something else will have to give. Next, we go to none other than Deutsche Bank strategist Jim Reid, who in his daily Morning Reid piece, reminds the world that with austerity still the primary driver in a double dipping Europe (luckily... at least for now, because no matter how many economists repeat the dogmatic mantra, more debt will never fix an excess debt problem, and in reality austerity is the wrong word - the right one is deleveraging) to wit: "an unconditional ECB is probably what Europe needs now given the austerity drive." However, as German taxpayers who will never fall for unconditional money printing by the ECB (at least someone remembers the Weimar case), the ECB will likely have to keep coming up with creative solutions. Which bring us to the story du jour brought by Suddeutsche Zeitung, according to which the ECB and countries that use the euro are working on an initiative to allow cash-strapped banks direct access to funding from the European Stability Mechanism. As a reminder, both Germany and the ECB have been against this kind of direct uncollateralized, unsterilized injections, so this move is likely a precursor to even more pervasive easing by the European central bank, with the only question being how many headlines of denials by Schauble will hit the tape before this plan is approved. And if all eyes are again back on the ECB, does it mean that the recent distraction face by the IMF can now be forgotten, and more importantly, if the ECB is once again prepping to reliquify, just how bad are things again in Europe? And what happens if this time around the plan to fix a solvency problem with more electronic 1s and 0s does not work?