Natural Gas

All major European bourses are trading lower with the exception of the DAX, which holds just above the open by a modest margin. Adidas ranks among the top performers in the German index, following the report of a strong set of sales figures, contributing to the positive trade. Spanish concerns continue to build up as Standard & Poor’s took ratings action on 16 of the country’s banks, downgrading the notable names of Banco Santander and BBVA. Although the move was not a surprise as this is the usual procedure following a sovereign downgrade, both Santander and BBVA, along with the IBEX are in negative territory.  The Bund is seen higher amid a generally risk-off theme to markets this morning. Volumes have been relatively light, however a slight pick-up has been observed in recent trade, grinding the security upwards in the last hour or so.  EUR/USD continues to experience weakness and now trades close to a touted option expiry of 1.3200, as traders seek the safety of the USD across a number of currency crosses.

Thoughts on last and next week.

While Greece has had its fair-share of EURs funneled to it and through it over the course of the last year or two, it appears they have now created their first 'internal' bailout as things go from bad to worse. As Athens News reports, Greece will provide EUR250mm in emergency funds to its ailing electricity providers to prevent a California-style energy crisis. This liquidity injection to the country's power utlities was yet another unintended consequence of government intervention action. An increasing number of consumers stopped paying their electricity bills following the TROIKA's Greek government's infliction of EUR1.7bn property taxation via the electricity providers. The main power utility PPC had a liquidity hole blown through it as non-payments mounted and while regulators claimed the system needed at least EUR350mm to stay afloat, the government has agreed to allow PPC to hold EUR250mm of the property tax it has collected on behalf of the state until June 30 - by which time, it is hoped the utility will have managed to secure other lending facilities. Quite an incredible move - to force the electricity provider to gather the property taxes - and while this attempt clearly failed we suspect the next move will be food-and-water-rationing without proof of tax payment.

Is the United States turning into a giant prison camp?

European equities are seen making modest gains at the midpoint of the European session; however underperformance is observed in the FTSE 100, with the UK economy falling back into a technical recession with an advanced Q1 GDP reading of -0.2%. Data from the ONS has shown that the UK’s weak construction sector weighed down upon the relative strength in services and manufacturing, pushing the economy into contraction during the first three months of the year. Following the UK GDP release, GBP/USD spiked lower by around 40 pips and the Gilt moved around 30 ticks higher, with GBP remaining weak as the US comes to market. Elsewhere, the Bundesbank held a technically uncovered 30-yr Bund auction, with the German Debt Agency commenting that the results reflect volatile and uncertain market conditions. Following the results, the Bund printed session lows and remains in negative territory. Looking ahead in the session, participants look forward to the FOMC rate decision, and the Fed’s projections release.

• China’s Biggest Banks Are Squeezed for Capital (NYT)
• Greeks detect hypocrisy as Dutch coalition stumbles (Reuters)
• Hollande Blames Europe’s Austerity Plan for Le Pen’s Rise (Bloomberg)
• In a Change, Mexico Reins In Its Oil Monopoly (NYT)
• China Tire Demand Slows as Economy Decelerates, Bridgestone Says (Bloomberg)
• Social Security’s financial forecast gets darker; Medicare’s outlook unchanged (WaPo)
• Fed’s 17 Rate Forecasts May Confuse More Than Clarify (Bloomberg)
• Senate to vote on array of Postal Service overhaul proposals (WaPo)
• Weidmann Says Bundesbank Is Preserving Euro Stability (Bloomberg)

It appears that when it comes to mocking consensus groupthink emanating from lazy career 'financiers' who seek protection from their lack of imagination and original thought, 'creation' of negative alpha and general underperformance (not to mention reliance on rating agencies, only to jump at the first opportunity to demonize the clueless raters), in the sheer herds of other D-grade asset "managers" (for much more read Jeremy Grantham explaining this and much more here), David Rosenberg enjoys even more linguistic flexibility than even us. Case in point, his just released trashing of the latest Barron's permabull groupthink effort titled "Outlook: Mostly Sunny." And just as it so often happens, no sooner did those words hit the cover of that particular rag, that it started raining, generously providing material for the latest "Roasting with Rosie."

All you need to read and some more.

Two months ago, we warned that while the world had decided to blissfully move on from last year's topic #1, the MENA revolutions, and specifically the massive power vacuum left in their wake, things in the region were far from fixed. Quite the contrary, and as we added back then "it is very likely that the Mediterranean region, flanked on one side by the broke European countries of Greece, Italy, Spain (and implicitly Portugal), and on the other by the unstable powder keg of post-revolutionary Libya and Egypt, will likely become quite active yet again. Only this time, in addition to social and economic upheavals, a religious flavor may also be added to the mix". Yet nobody cared as after a year of daily videos showing Molotov Cocktails dropping like flies, people had simply gotten habituated and needed some other source of excitement. Nobody cared also when a week ago Art Cashin warned that the hidden geopolitcal risk is not Spain but Egypt. Today, Egypt just reminded at least one country why perhaps caution about the instability caused by having a military in charge of the most populous Arabic country and the one boasting "the Canal", should have been heeded after Egypt just announced that it is cutting off its natural gas supplies to Israel, which just so happens relies on Egypt for 40% of its energy needs.

“Solidarity of the union has its limits,” said even soft-spoken Jens Weidmann, President of the Bundesbank

So far, 2012 has been a banner year for the stock market, which recently closed the books on its best first quarter in 14 years. But Casey Research Chairman Doug Casey insists that time is running out on the ticking time bombs. Next week when Casey Research's spring summit gets underway, Casey will open the first general session addressing the question of whether the inevitable is now imminent. In another exclusive interview with The Gold Report, Casey tells us that he foresees extreme volatility "as the titanic forces of inflation and deflation fight with each other" and a forced shift to speculation to either protect or build wealth.

• First Japan now... Australia Ready to Help IMF (WSJ)
• "Not if, but when" for Spanish bailout, experts believe (Reuters)
• Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup (Bloomberg)
• Spain weighs financing options (FT)
• Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer (Bloomberg)
• Spain and Italy Bank on Banks (WSJ)
• Chesapeake CEO took out $1.1 billion in unreported loans (Reuters)
• China preparing to roll out OTC equity market – regulator (Reuters)
• Angry North Korea threatens retaliation, nuclear test expected (Reuters)
• North Korea Breaks Off Nuclear Accord as Food Aid Halted (Bloomberg)

Recently I was asked by a high school teacher if I had any ideas about why students today seem so apathetic when it comes to engaging with the world around them. I waggishly responded, "Probably because they're smart." In my opinion, we're asking our young adults to step into a story that doesn't make any sense. Sure, we can grow the earth's population to 9 billion (and probably will), and sure, we can extract our natural gas and oil resources as fast as possible, and sure, we can continue to pile on official debts at a staggering pace -- but why are we doing all this? Even more troubling, what do we say to our youth when they ask what role they should play in this story -- a story with a plot line they didn't get to write? So far, the narrative we're asking them to step into sounds a lot like this: Study hard, go to college, maybe graduate school. And when you get out, not only will you be indebted to your education loans and your mortgage, but you'll be asked to help pay back trillions and trillions of debt to cover the decisions of those who came before you. All while operating within a crumbling, substandard infrastructure. Oh, and by the way, the government and corporate sector appear to have no real interest in your long-term future; you're on your own there. Yeah, I happen to think apathy is a perfectly sane response to that story. Thanks, but no thanks. To understand how our national narrative evolved (or, more accurately, devolved) to become so unappealing, we have to take an honest look at money.

European markets are seen trading higher as North America comes to market, with some momentum seen following the release of the forecast-beating German ZEW Survey. An economist from the institution commented that downside risks have decreased significantly over the past month, prompting some risk-appetite in Europe during the morning. Participants were also looking towards the Spanish T-Bill auction with particular focus, but it did not confirm the nation’s worst fears as the auction passed with strong bid/covers, selling to the top of the indicative range. Yields, however, did increase over both lines. As such, the Spanish 10-yr yield has fallen below the key 6% mark and remained below that level for most of the session. Peripheral 10-yr spreads against the German Bund are seen tighter throughout the day, amid some market talk early in the session of domestic accounts buying the paper, however this remains unconfirmed.

All you need to read and more.