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I really need to stop being so pessimistic. I’m getting richer by the day. My home value is rising at a rate of 1% per month according to the National Association of Realtors. At that rate, my house will be worth $1 million in less than 10 years. Every mainstream media newspaper, magazine, and news channel is telling me the “strong” housing recovery is propelling the economy and creating millions of new jobs. Keynesian economists, Wall Street bankers, government apparatchiks and housing trade organizations are all in agreement that the wealth effect from rising home prices will be the jumpstart our economy needs to get back to the glory days of 2005. Who am I to argue with such honorable men with degrees from Ivy League schools and a track record of unquestioned accuracy as we can see in the chart below? These are the facts. But why trust facts when you can believe Baghdad Ben and the NAR? It’s always the best time to buy.

Following last night's very disappointing China HSBC PMI numbers, one would think that the traditional EURUSD, and thus ES, overnight ramp would be missing or at least delayed, especially ahead of a very possible risk off day such as Italian election day. One would be wrong. Because some time after midnight eastern, in what can only be seen as a celebration of Argo's choice as a best picture, the EURUSD resumed its upward ramp on absolutely no news, pushing the pair higher by nearly 100 pips in a smooth diagonal line, and dragging US futures up with it as usual. The catalyst apparently is that with Italian exit polls mere hours away (due out at 2pm GMT), market talk is that Berlusconi's resurgent chances have been hobbled due to a low turnout in the pro-Berlusconi northern states (recall that Lombardia is the key state for the elections) following a quick read of a Reuters recap article. What is ignored is that the referenced Reuters article also notes the "surge in protests votes being cast" in the first day of voting, which means less votes on an absolute and relative basis for Bersani and Monti, even if Berlusconi ends up getting less of the Northern vote. Of course, nobody actually has any clue what the exit polls look like. In fact, with a hung parliament a distinct possibility even assuming a Bersani-Monti coalition, both Goldman and JPM have said a 50-100 pip widening across the Italian curve is possible should a Hung Parliament develop (for more read here). But for now hope dominates and is both squeezing the shorts and causing yet another algorithmic stop hunt in FX, and thus every other asset class. Don't be surprised all of overnight's gains, and much more to be wiped out minutes after 9 am eastern when the first Italian exit polls emerge.

In our prediction two weeks ago of who the next Bank of Japan governor was likely to be, we said that "the tussle lies between a slightly less dovish bureaucrat in Toshiro Muto (favored by the opposition) and a banker, Haruhiko Kuroda, who is a front-runner in Abe's camp.... we suspect Abe will err on the side of uber-dovish to fight the currency wars alongside him." Sure enough, the uber-dove Kuroda, not to be confused with the Yankees pitcher, is now set to become BOJ governor. From Reuters, "Japan's government is likely to nominate Asian Development Bank President Haruhiko Kuroda, who has called for pumping more money into the economy, as its next central bank governor, the Nikkei newspaper reported on Monday. Kuroda, formerly Japan's top currency diplomat, has already been offered the post unofficially by the government, which plans to submit its nominees for three BOJ leadership posts to parliament this week, the paper said. Kikuo Iwata, an academic known as one of the most vocal advocates of aggressive monetary expansion, is likely to be nominated as deputy BOJ governor, the Nikkei said without citing sources."

• China drains cash to curb liquidity (FT) - no longer just a New Year issue...
• Hilesnrath speaks (but nobody cares anymore) - Fed Split Over How Long To Keep Cash Spigot Open (WSJ)
• Chasm opening between weak French and strong German economies (Reuters)
• JPMorgan Said to Seek First Sale of Mortgage Bonds Since Crisis (BBG)
• China's Bo Xilai not cooperating on probe, been on hunger strike (Reuters)
• Fed minutes send warning on durability of bond buying (Reuters)
• Sony Seeks an Extra Life in New PlayStation 4 (BBG)
• Rajoy pledges fresh round of reforms (FT) - and by reforms he means kickbacks?
• Doubts loom over eurozone recovery (BBG)
• China Extending Zhou Stay Seen as Aid to Financial Overhaul (BBG)
• King Pulls Out Stops to Energize Economy in Carney Handover (BBG)
• Central Banks Discussed Nominal GDP Targets at G-20 (Businessweek)
• Grand Central Owner Opposes IPO of Empire State Building (BBG)

Look around the investing world and biases are pervasive, from clustering estimates around company guidance (anchoring) to avoiding a stock that has already outperformed (mental accounts). And these biases make a difference. To provide an example, buying Stoxx 600 companies on low P/E multiples (and selling high) would have generated ~25% annual alpha over the last decade using 12-month forward actual reported earnings, but would have lost ~3% per annum using consensus estimates. Interestingly, you would lose less money applying historical earnings (-2% alpha p.a.) than by using consensus estimates! Simply put, biases make consensus estimates worthless.

The great trade, capital flow and debt imbalances that were built up over the preceding two decades must reverse themselves. Michael Pettis notes, however, that these imbalances can continue for many years, but at some point they become unsustainable and the world must adjust by reversing those imbalances. One way or the other, in other words, the world will rebalance. But there are worse ways and better ways it can do so. Pettis adds that, any policy that does not clearly result in a reversal of the deep debt, trade and capital imbalances of the past decade is a policy that cannot be sustained. It is likely to be political considerations that determine how quickly the rebalancing processes take place and whether they do so in ways that set the stages for future growth or future stagnation. Pettis' guess is that we have ended the first stage of the global crisis, and most of the deepest problems have been identified. In 2013 we will begin to see how policymakers respond and what the future outlook is likely to be. The following 10 themes are what he will be watching this year in order to figure out where we are likely to end up.

Just like for Alice, Spain's farcical kickback and bribery scandal's rabbit hole just keeps getting deeper. This morning El Pais reports that the alleged providers of payments to the government (via the kickback fraud) - known as 'Gurtel' - received an unprecedented EUR115mm in government contracts. With more than 70 people facing charges ranging from money laundering to bribing a public official, Rajoy's efforts at coming clean have fallen on deaf ears as 79% of Spaniards are dissatisfied with the explanations. This follows a weekend of disclosures including the fact that Rajoy gave himself a 32% pay rise up to 2011 as he push austerity down the throats of his people. As El Pais notes, "...The only thing that is clear is that most of the recipients of payments on the former treasurer’s list have admitted that they accepted money in cash...." The sad political truth is, as Deutsche notes, the likeliest course of action at this stage, in our view, is that on the basis of the internal investigation, Rajoy may go as far as letting go some members of his cabinet, but we think that he will protect the “hard nucleus” of his administration and will not resign. It appears, as they note, that the Spanish government's room for maneuver (over further austerity) is significantly diminished.

• Pope steps down, citing frailty (Reuters)
• Japan’s economic minister wants Nikkei to surge 17% to 13,000 by March (Japan Times)
• Venezuelan devaluation sparks panic (FT)
• Rajoy releases tax returns, but fails to clear up doubts over Aznar years (El Pais)
• Companies Fret Over Uncertain Outlook (WSJ)
• Home Depot Dumps BlackBerry for iPhone (ATD)
• Kuroda favors Abe's inflation target, mum about BOJ role (Kyodo)
• A Cliff Congress May Go Over (WSJ)
• U.S., Europe Seek to Cool Currency Jitters (WSJ)
• Radical rescue proposed for Cyprus (FT)
• Franc Is Still Overvalued, SNB’s Zurbruegg Tells Aargauer (BBG)
• Northeast Crawls Back to Life After Crippling Blizzard (WSJ)

In what has been a quiet start to week dominated by the G-20 meeting whose only purpose is to put Japan and its upstart currency destruction in its place, many are expecting a formal G-7 statement on currencies and what is and isn't allowed in currency warfare according to the "New Normal" non-Geneva convention. Because while there may not have been much overnight news, both the EURUSD and USDJPY just waited for Europe to open, to surge right out of the gates, and while the former has been somewhat subdued in the aftermath of the ECB's surprising entry into currency wars last week, it was the latter that was helped by statements from Haruhiko Kuroda (not to be confused with a Yankee's pitcher) who many believe will be the next head of the BOJ, who said that additional BOJ easing can be justified for 2013. He didn't add if that would happen only if he is elected. Expect much more volatility in various FX pairs as the topic of global thermonuclear currency war dominates the airwaves in the coming days.

"We are from the government and we are here to help you"

- Anonymous government worker

A week after Argentina resorted to every failing authoritarian government's last ditch measure to (briefly) control inflation before runaway prices flood the nation and result in political and social upheaval, namely freezing retail prices - a decision which never has a happy ending, the country is pressing on through the rabbit hole and in the latest stunner of a government decree (which like Venezuela yesterday is merely a harbinger of what is coming everywhere else), has banned advertising in the Argentina's newspapers in an attempt to weaken what's left of a private, independent media, and to punish those who don't comply with the government's propaganda.

In a surprise announcement, BoJ Governor Shirakawa announced that he will step down on 3/19 (a month ahead of schedule) and while Barclays notes that there had been talk at one point that Mr Shirakawa might step down in a bid to protect the BoJ’s independence in response to Mr Abe’s threats to revise the BoJ Act; the decision, however, appears to have been motivated by policy considerations (the desire to have the governor and deputies start together). At a time when Japan’s stockmarkets are celebrating JPY weakness, Mr Shirakawa’s move provided yet more bounce as the new BoJ leader is expected to be even more dovish. Abe's push for a new governor, however, is meeting resistance from his own cabinet and financial bureaucrats, who fear extreme measures from the central bank may trigger a damaging rise in bond yields. The tussle, which Reuters notes, is testing Abe's resolve, but lies between a slightly less dovish bureaucrat in Toshiro Muto (favored by the opposition) and a banker, Haruhiko Kuroda, who is a front-runner in Abe's camp. With Draghi's comments today, we suspect Abe will err on the side of uber-dovish to fight the currency wars alongside him.

An equivalent amount for the US would be if it were discovered that members of Congress fled the US last year taking $300 BILLION them. Bear in mind, if you added up the total net worth of every politician in Washington you wouldn’t come even close to $300 billion.

Bush and Obama Have Set Us Back 800 Years

The financial world is used to bubbles. We like to speak about them, point to them, bet upon their comings and goings and wave facts and figures about them like wild men when we appear in the media. It is the way of the markets. We have had bubbles in Real Estate, dot.com, bonds, stock markets and all kinds of other singular spaces. What we are faced with now is also a bubble but one unlike we have ever seen before because all of the major central banks have acted in concert which pumped money in from everywhere while, at the same time, limited what could be done with our new found small bits of paper because they playing field was leveled by distortion en masse. I would say that the entire financial system, every market, every space is in a bubble as a result of what they central banks have done.

A week ago we described the sad tale of one Mahmoud Bahmani, who until recently supervised the unilateral destruction of the Iranian Rial, which on Friday just hit an all time low against the dollar down 21% in two weeks, as head of the Iranian central bank. While his currency-crushing performance would have been enough to get Mahmoud the "congressional medal of inflating away the debt" (not to mention a lifetime corner office at a TBTF bank of his choosing) at any self-respecting "developed world" banana republic, all of which have just one goal - to crush their currencies as Iran just did, in Iran it had precisely the opposite effect and let to his prompt termination. Yet this story is merely a trifle compared to the recent developments surrounding his predecessor, Tahmasb Mazaheri's, who led the Iranian central bank for just one year until September 2008, at which point Ahmadinejad fired him to make way for the recently laid off Bahmani. It is this same Mazaheri, who had been off the world's radar for over 4 years, until he trimumphantly resurfaced yesterday, when German Bild reported that he was caught last month trying to enter Germany with a check for 300 million Venezuelan Bolivars (some $70 million USD) issued by the Venezuelan Central Bank.