Germany keeps being told that it must pay up to save the euro. But how much can Germany pay? No-one seems to have thought about that, but there is already concern about the possible size of bill – German bond yields rose soon after news of the Spanish bail out, even before it was announced where the money was going to come from. (And it was of course a bail out for Spain, regardless of what Spain’s prime minister says. If I borrow money and then lend it to someone else I’ve still borrowed it.) There is though a more basic question. How much does it make sense for Germany to pay? What sort of bill would it be reasonable to present to them? In fact the best approximation one can arrive at is a bill of zero. Why zero? What about all these exports that have been produced because Germany has a currency whose value is determined not just by Germany but also by less productive, higher cost, economies? That link has artificially depressed the prices of German exports. These net exports resulting from Germany’s Eurozone membership are actually the problem.
In banking, what goes agound comes around - again.
European equities are seen modestly higher at the midpoint of the European session, with the utilities and financials sectors leading the way higher. As such, the Bund is seen lower by around 40 ticks at the North American crossover. The closely-watched Spanish 10-yr government bond yield is seen lower on the day, trading at 6.85% last, as such, the spread between the peripheral 10-yr yields and their German counterpart has been seen tighter throughout the European morning. Issuance of 6-month bills from the Italian treasury passed by smoothly, selling EUR 9bln with a higher yield, but not an increase comparable with yesterday’s auction from the Spanish treasury. The decent selling from Italy today may pave the way for tomorrow’s issuance of 5- and 10-year bonds, which will be closely watched across the asset classes. Data of note has come from Germany, with the state CPIs coming in slightly higher than the previous readings, proving supportive for the expectation of national CPI to come in flat at 0.0% over the last month.
While Europe is dominating headlines this week, UBS' Art Cashin suggests "mark your calendar and cross your fingers" as he notes the disproportionate prevalence of events that occur in September. Focusing on The Economist's Greg Ip's recent post on a possible seasonal pattern in banking crises, via this recent Reinhart & Rogoff extension paper by Laeven and Valencia, he notes: "The frequency with which the world goes to hell in September seems hardly random." Unfortunately the authors provide no explanation for this beyond observing, "An interesting pattern emerges: banking crises tend to start in the second half of the year, with large September and December effects." Ip and Cashin offer some thoughts on why this is so historically, and more importantly why this time is no different, as the avuncular Art concludes with: "try to enjoy your summer".
One of oil's most important characteristics is its fungibility, which means that a barrel of refined oil from Texas is equivalent to one from Saudi Arabia or Nigeria or anywhere else in the world. The global oil machine is built upon this premise – tankers take oil wherever it is needed, and one country pays almost the same as the next for this valuable commodity. Well, that's true aside from two factors that can render this equivalency void. In fact, crude oil prices range a fair bit according to the quality of the crude and the challenge of moving it from wellhead to refinery. Those factors are currently wreaking havoc on oil prices in North America: a range of oil qualities and a raft of infrastructure issues are creating record price differentials. And with no solution in sight, we think those differentials are here to stay.
Those hoping for supreme court to overturn socialism today will have to wait a few more days:
- HEALTH-CARE CASE ISN’T AMONG TODAY’S U.S. SUPREME COURT RULINGS
But SCOTUS did slap Obama in the face nonetheless:
- ARIZONA ILLEGAL-IMMIGRATION LAW GETS MIXED TOP COURT DECISION
- U.S. SUPREME COURT UPHOLDS KEY PART OF TOUGH ARIZONA IMMIGRATION LAW, IN DEFEAT FOR OBAMA - RTRS
"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.
- German court may delay ESM bailout fund ratification (Reuters)
- New dangers lurk for rudderless Spain (Reuters)
- SEC Said to Depose SAC’s Cohen in Insider-Trading Probe (Bloomberg)
- With Europe broke, Asia is Wall Street's new dumb money: Riskier Bets Pitched To Asia's Rising Rich (WSJ)
- Spain expected to request bank aid after debt test (Reuters)
- Lawmakers Push for Overhaul of IPO Process (WSJ)
- Israel: "all options" open after Iran talks fail (Reuters)
- Canadian housing boom to grind to a halt (Financial Post)
- Italians Dodge Property Tax in Test for Monti’s Austerity (Bloomberg)
- ORCL earnings must have been good: Oracle CEO Ellison to Buy Most of Hawaiian Island Lanai (Bloomberg)
Turns out, it wasn’t endless.
There has been much talk today about Obama's use of the "executive privilege" yet few are familiar with the details of this relatively unknown presidential option. The AP sheds much needed light on this practice: perhaps the most fitting, to the constitutional expert president, is that the "privilege" isn't in the Constitution nor has been clearly defined by the courts. In other words - just the kind of loophole that one needs to mask the fact that the very person tasked with imposing justice is himself guilty of performing just the opposite. Yet Obama has only used it once (so far) during his tenure as president. Dubya used it six times, Bush Sr used it once also. Slick Willie however takes the cake with 14 cases of executive privilege during his 8 years on top.
After earlier none other than Obama stepped up and invoked an executive privilege, hoping the next step would be avoided, Darrell Issa just called the president and the AG's bluff:
HOUSE PANEL VOTES TO HOLD ERIC HOLDER IN CONTEMPT - BBG
But wait, there's more:
HOLDER CALLS CONTEMPT VOTE `EXTRAORDINARY' AND UNNECESSARY
HOLDER CALLS CONTEMPT VOTE `ELECTION-YEAR TACTIC'
... And now to give some illegal immigrant voters pseudo-amnesty. So aside from this soaring acrimony between Republicans and Democrats, the "Fiscal cliff" issue will be promptly resolved. Promise.
They're all Blowtards....
Gold dipped today despite Wall Street hopes that the US Fed will embark on more QE. As we have said for some time QE3, or a new term for electronic and paper money creation, is a certainty and this will lead to inflation hedging and safe haven demand for gold.
There are those (such as the entire world) who have in recent months ganged up on Germany, see "In The Case Of The World Vs Merkel, The Broke Prosecution Proposes Eurobonds Lite", and are now openly demanding that the German population shoulder even more of the broke continent's bailout costs, and not only that but implicitly foot the lowering of the French retirement age from 62 to 60. Nowhere is there any discussion of how Germany should go about achieving this: by raising its own retirement age to 100 maybe? Nor is there any discussion that Germany is now very actively engaged in bailing out Europe one day at a time to the tune of €2 billion each 24 hours via TARGET 2. Well, it was only a matter of time before Germany, having long kept radio silence, lashed out at its accusers. Spiegel summarizes: "Merkel was certainly in the hot seat, once again, as many nations pressed her to do more for the euro -- at a time when many Germans feel their country has already done too much." And finally the instigator of it all, TurboTaxCheat Tim Geithner, gets exposed: "It is rather hypocritical when the Americans and the British, whose own mountains of debt have reached a high point, try to lecture the Europeans. One number is sufficient to reveal what a bad tactic this is. At a time when the budget deficits of the US and Great Britain are about 8 percent, the euro-zone members have almost managed to bring their deficits as a whole down to 3 percent." And they are spot on: Europe may be going through a painful time but at least it is doing something to address its problems. America continues to rely on one simple, and very much transitory thing: reserve status. Newsflash: reserve status ends. And when it does: run.