- Greek Parliament Backs Austerity as Rioters Burn Buildings (Bloomberg)
- China CIC Wary of EU Government Bond Investments (Reuters)
- Spain Unions Decry New Labor Rules (WSJ)
- China Tells Banks to Roll Over Loans (FT)
- We're Not Greece: Italian Prime Minister Monti (CNBC)
- Bernanke’s Labor Pessimism at Odds With U.S. Growth (Bloomberg)
- Obama Budget Seeks Funding for Trade Unit (Bloomberg)
- Obama's Election-Year Budget to Target Rich (Reuters)
- China May Need to Fine-Tune Policy This Quarter, Wen Says (Bloomberg)
- China’s Xi Seeks Second Front for U.S. Ties in Return to Iowa (Bloomberg)
- Why Greece and Portugal Ought to go Bankrupt (FT)
Much has been made of today's Reuters story how "Iran turns to barter for food as sanctions cripple imports" in which we learn that "Iran is turning to barter - offering gold bullion in overseas vaults or tankerloads of oil - in return for food", and whose purpose no doubt is to demonstrate just how crippled the Iranian economy is as a result of the ongoing US embargo. Incidentally this story is 100% the opposite of the Debka-spun groundless disinformation from a few weeks ago that India was preparing to pay for Iran's oil in gold (they got the asset right, but the flow of funds direction hopelessly wrong). While there is certainly truth to the fact that the US is actively seeking to destabilize the local government, we wonder why? After all as the opportunity cost for the existing regime to do something drastic gets ever lower as the popular resentment rises, leaving the local administration with few options but to engage either the US or Israel. Unless of course, this is the ultimate goal. Yet going back to the Reuters story, it would be quite dramatic, if only it was not the case that Iran has been laying the groundwork for a barter economy for many months now, something which various other analysts perceive as the basis for the destruction of the petrodollar system. Perhaps regular readers will recall that back in July, we wrote an article titled "China And Iran To Bypass Dollar, Plan Oil Barter System." Specifically, we wrote that "according to the FT, China has decided to commence a barter system in which Iranian oil is exchanged directly for Chinese exports. The net result: not only a slap for the US Dollar, but implicitly for all fiat intermediaries, as Iran and China are about to prove that when it comes to exchanging hard resources for critical Chinese goods and services, the world's so called reserve currency is completely irrelevant." Seen in this light the fact that Iran is actually proceeding with a barter system, something that had been in the works for quite a while, actually puts the Reuters story in a totally different light: instead of one predicting the imminent demise of the Iranian economy, the conclusion is inverted, and underscores the culmination of what may have been an extended barter preparation period, has finally gone from beta to (pardon the pun) gold, and Iran is now successfully engaging in global trade without the use of the historical reserve currency.
The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water. As goes the rest of the world, so goes the US. When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning. This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people.
European stocks advanced today following reports that the ECB is said to be willing to exchange Greek bonds with EFSF. In addition to that, although a vast majority of officials remain adamant that no haircuts will be applied, WSJ report indicated that the concession by the ECB will contribute to the Greek debt reduction, and the concession depends on the overall debt agreement being set. However it remains to be seen what effect using the EFSF for such spurious purposes will have on the demand for EFSF issued bonds in the future. Still, the renewed sense of optimism that debt swap talks are nearing an end depressed investor appetite for fixed income securities, which in turn resulted in further tightening of peripheral bond yield spreads. The stand out was the 10-year Spanish bond, amid a syndicated issuance from the Treasury. Going forward, Greek PM is scheduled to meet party leaders on a loan deal at 1300GMT, while other reports have suggested that the Troika is keen on meeting Greek parties individually. There is little in terms of macro-economic data releases today, however the US Treasury is due to sell USD 24bln in 10y notes.
Ahead of the North American open, European Indices are trading in negative territory following further deliberations over a Greek settlement, with a tentative meeting between the Greek PM and his respective Party Leaders scheduled for some time after 1600GMT as well as an underperforming Basic Materials sector following caution over the upcoming Glencore/Xstrata merger. In foreign exchange news, the EUR/CHF currency pair has exhibited volatility following comments from the SNB’s acting Chair Jordan. Jordan has committed the Central Banks’ resources to preventing any further appreciation of the CHF adding that the SNB will buy unlimited amounts of Forex to defend the minimum level of 1.2000. Overnight, the AUD index has appreciated following an unexpected move by the RBA to hold its base rate at 4.25%, with many analysts expecting a drop in rates due to the global economic outlook and domestic job losses. In terms of European economic releases, German Industrial Production data fell below expectations for the month of December, posting a 2.9% fall while the figure was expected to stay flat at 0.0%.
The surge in the U.S. money supply in recent years has sent gold into a series of new record nominal highs. Money supply surged again in 2011 sending gold to new record nominal highs. Money supply has grown again, by more than 35% on an annualized basis, and this is contributing to gold’s consolidation and strong gains in January. The Federal Reserve's latest weekly money supply report from last Thursday shows seasonally adjusted M1 rose $13.2 billion to $2.233 trillion, while M2 rose $4.5 billion to $9.768 trillion.
Weekend talks between Greek government officials failed to reach a definitive conclusion and as such market sentiment has been risk averse across the asset classes. The equity market has been chiefly weighed upon by the banking sector and as such underpinned the rise in fixed income futures. However, recent trade has seen a slight pullback led by tightening of the French spreads on reports of good domestic buying noted in the belly of the French curve. Today marks the deadline for Greece to provide feedback as to the proposed bailout terms put forth by the Troika, but with continued disagreement on the fine print in the additional austerity proposals, market participants remain disappointed in the lack of progress. Of note a PASOK spokesman has said that Greece should not hold a general election after clinching an agreement on a second bailout package, suggesting instead an extension of Lucas Papademos' tenure. However, the two main unions of Greece have called for a 24hr strike on Tuesday. Looking ahead there is little in the way of major US economic data today so Greece will likely remain the dominant theme for the rest of the session.
Yesterday we presented why when it comes to Syria, the UN Security Council can forget any attempt at "overhauling" a regime that is a cornerstone for Russian naval presence in the Mediterranean and the middle east. Today, in the aftermath of the UN reminder that it is the world's biggest collection of post-facto hypocrites, not to mention, the world's most irrelevant and ineffectual organization, anger at the Russian and Chinese veto has already manifested itself, as protesters have attacked the Russian embassy in Tripoli and tore down the Russian flag, Al Jazeera reported on Sunday. As Itar-Tass reports, "According to Al Jazeera, the riots staged by the Syria opposition involved Libyans as well. No further details are available so far. None of the Russian diplomats has been hurt in an rally stage by the Syrian opposition in front of the Russian embassy in Tripoli on Sunday, an officer from the Russian embassy told Itar-Tass over the phone. “No one has managed to break into the territory of the Russian diplomatic mission, no one of the personnel has been hurt. All are safe and sound. Although the protesters have managed to tear down the Russian flag,” the diplomat said." Still, the wily occupiers of the Kremlin preempted what they perceived as potential 'displeasure' with Russian tactics to protect its own national interests. Because as Zero Hedge has been reminding readers on occasion, Russia has something that is far more valuable to Europe than the Goldman-alum controlled printing press: it has the world's largest natural gas reserves. Which for a continent gripped in one the coldest winters on record, whose heating infrastructure is based primarily on natgas, and where Russian imports account for 25% of total nat gas, Russia has the upper hand in, well, everything. Which it gladly reminded the world of yesterday. According to the AP: Russia's state-controlled Gazprom natural gas giant acknowledged for the first time Saturday that it "had briefly reduced gas supplies to Europe amid a spell of extreme cold." Oops... Just a fat finger there, nothing to worry about. Oh, and if anyone forgets that in the Eurasian continent it is Russia who increasingly holds all the cards, Gazprom may "briefly" cut all supplies to Europe, -40 C degree temperatures be damned. Briefly...
It seems like last Friday we were waiting for details of the latest Greek plan – PSI and Troika. We are still waiting. Details are starting to come out. We should know what the bonds investors are expected to exchange into will look like. The ECB sounds like it may use the interest they have earned on SMP to reduce the amount Greece has to pay back. The Jobs data gives us an additional twist to today’s Euro watching. How many of the courier jobs will disappear? My guess is the data will be okay, but nothing special, just like the rest of the data. The courier jobs are interesting, not just from what happens this month, but will they come back next year? Amazon has been beaten up over the Kindle, but one of the benefits of the Kindle is that Amazon doesn’t have to deliver e-books. I think we will all forget that by next December when everyone’s payroll estimate will include a bump for couriers, but maybe we won’t.
European Indices are sliding following comments from EU’s Juncker that Greek PSI talks remain “ultra-difficult”, despite earlier gains following comments from the Chinese Premier considering further contributions to the EFSF and the ESM. The Basic Materials sector is outperforming others amid news of a possible merger between Glencore and Xstrata, causing shares in both companies to trade in strong positive territory ahead of the North American open Oil & Gas are one of the worst performing sectors in Europe today, with Royal Dutch Shell shares showing the biggest losses following disappointing corporate earnings. Elsewhere, S&P released a report suggesting Eurozone recession could end in late 2012, forecasting 1% GDP growth for the Eurozone in 2013, however these comments were not followed by significant European index movements. In terms of fixed income securities, Spain held a well received bond auction earlier in the session, with all three lines showing falling yields and strong bid/cover ratios.
"Supercommittee That Runs America" Urges End To The "Zero Bound", Demands Issuance Of Negative Yield BondsSubmitted by Tyler Durden on 02/01/2012 09:40 -0500
One of the laments of the uberdoves in the world over the past several years has naturally been the fact that interest rates are bound by Zero on the lower side, and that the lowest possible rate on new paper is, by definition, 0.000%. Which is what led to the advent of QE in the first place: in lieu of negative rates, the Fed was forced to actively purchase securities to catch up to a negative Taylor implied rate. This may be about to change, because as the just released letter from the Treasury Borrowing Advisory Committee, or as we affectionately called the JPMorgan/ Goldman Sachs Chaired committee, the "Supercommittee That Runs America", simply because it alone makes up Tim Geithner's mind on what America needs to do funding wise, demand, "It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function. The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical." And what JP Morgan and Goldman Sachs want, JP Morgan and Goldman Sachs get. And once we get the green light on negative yields at auction, next up will be the push for the Fed to impose negative rates on all standing securities, which means that coming soon savers will be literally paying to hold cash. And that will be the final straw.
"Quirky canary-in-the-coal-mine indicator" indicating trouble.
Growth. It's what every economist and politician wants. If we get 'back to growth', servicing debts both private and sovereign become much easier. And life will return to normal (for a few more years). There is growing evidence that a major US policy shift is underway to boost growth. Growth that will create millions of new jobs and raise real GDP. While that's welcome news to just about everyone, the story is much less appealing when one understands the cost at which such growth comes. Are we better off if a near-term recovery comes at the expense of our future security? The prudent among us would disagree.
Remember that one keyword that oddly enough never made it's way into the president's largely recycled SOTU address - "Solyndra"? It is about to make a double or nothing repeat appearance, now that Ener1, another company that was backed by Obama, this time a electric car battery-maker, has filed for bankruptcy. Net result: taxpayers lose $118.5 million. The irony is that while Solyndra may have been missing from the SOTU, Ener1 made an indirect appearance: "In three years, our partnership with the private sector has already positioned America to be the world’s leading manufacturer of high-tech batteries." Uh, no. Actually, the correct phrasing is: "...positioned America to be the world's leading manufacturer of insolvent, bloated subsidized entities that are proof central planning at any level does not work but we can keep doing the same idiocy over and over hoping the final result will actually be different eventually." We can't wait to find out just which of Obama's handlers was may have been responsible for this latest gross capital misallocation. In the meantime, the 1,700 jobs "created" with the fake creation of Ener1, have just been lost. Yet nothing, nothing, compares to the irony from the statement issued by the CEO when the company proudly received taxpayer funding on its merry way to insolvency: " "These government incentives will provide a powerful stimulus to a vital industry and help ensure that the batteries eventually powering millions of cars around the world carry the stamp 'Made in the USA'." Brilliant - and no, they are laughing with us, not at us.