Norway

The most important event of the "coming" week was unexpected, and did not even take place during the week, but the weekend. So with Summers unexpectedly, and uncharacteristically out, here is what else is in store.

"I estimate the US fiscal gap at US$200 tn, 17 times the reported US$12 tn in official debt in the hands of the public.... Our country is broke. It’s not broke in 50 years or 30 years or 10 years. It’s broke today. Six decades of take as you go has led us to a precipice. That’s why almost the entire economics profession is talking as one at www.theinformact.org. Economists from all political persuasions are collectively sending our government a warning about what is, effectively, a nuclear economic bomb. I’ve been around economics for a long time. I’ve never seen such a strong response to a proposed Congressional bill. This is the profession sending a statement to the President and Congress that’s not unlike the warning physicists sent via Einstein to Roosevelt about the bomb." Larry Kotlikoff

For the last few days we have been bombarded with words that appear 'peaceful' and problem-solving from Russia with love. Of course, 'no change' benefits mother Russia the most as his government's gas revenues (and political power) will continue to flow from Europe (a quarter of Russian government income comes from being Europe's gas supplier). So it will come as no surprise that amid the Mother Theresa acts, The Telegraph reports that Putin is readying delivery of more S-300 air-defense missile systems to Iran and will continue to discuss "working together in the nuclear energy spehere." Combine that with experts' views that Russia's plan to dismantle Syria's stockpiles of mustard gas, sarin, VX nerve agents is a long shot; initially "sounding attractive, but very quickly, operational problems could derail obtaining international control, much less actually destroying the arsenal." It would appear, despite all the chatter, that Putin is increasing his power-base in the region.

• Obama Holds Fire on Syria, Waits on Russia Plan (WSJ)
• China Shadow Banking Returns as Growth Rebound Adds Risk (Reuters)
• Not one but two: Greece May Need Two More Aid Packages Says ECB’s Coene (WSJ)
• BoJ insider warns of need for wage rises (FT) ... as we have been warning since November, and as has not been happening
• California city backs plan to seize negative equity mortgages (Reuters)
• Home Depot Is Accused of Shaking Down Suspected Shoplifters (BBG)
• Most-Connected Man at Deutsche Bank Favors Lightest Touch (BBG)
• Norway Pledges to Limit Oil Spending (BBG)
• China Shadow Banking Returns as Growth Rebound Adds Risk (BBG)
• Gundlach Says Fed Is Mistaken in How It's Ending Easing (BBG)

San Francisco Fed head John Williams - known for his extremely dovish views on monetary policy (and support of record accomodation)  - appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous "froth" discussions and "irrational exuberance" admissions, Williams explained:

• *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
• *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES 'ARE HERE TO STAY'
• *WILLIAMS: ASSET-PRICE BUBBLES ARE 'CONSEQUENCE OF HUMAN NATURE'

His words appear to reflect heavily on the Fed's Advisory Letter (from the banks) from 3 months ago - warning of exactly this "unintended consequence." This, on the heels of Plosser's recent admission that the Fed was responsible for the last housing bubble, suggests with the black-out period before September's FOMC about to begin, the Fed is sending us a message that Taper is coming - as we know they are cornered for four reasons (sentiment, deficits, technicals, and international resentment).

A dispassionate discussion of the weekend events and a look at the week ahead.  

Wealth has besotted people since time immemorial. It’s accrued, amassed, hidden, stolen and we would even die sometimes for it, or at least knock someone off more than likely to get what they have.

Next weeks events placed within the larger context.  

Stolper strikes again:  "Trade Update: Close Short GBP/NOK tactical trade recommendation for a potential loss. On June 27 we recommended going short GBP/NOK after the NOK weakened sharply following the Norges Bank meeting on June 20. At the time, even though Norges Bank showed some concern over the weaker pace of activity in Norway, we thought the weakening in the NOK was an overshoot. However, weaker-than-expected data out of Norway – especially the weak Q2 GDP reading earlier this week – have pushed the NOK weaker, while the recent run of better-than-expected UK data have also pushed the GBP stronger. This Wednesday (August 21) we went through our stop on this recommendation of 9.46 and close it for a potential loss of 3.4%."

The week ahead will be relatively quiet with few major data releases. The main focus will be on the Flash PMIs in the Eurozone and China as well as the FOMC minutes and Jackson Hole. In the US the relatively new Preliminary PMI has been found useful by our US team in forecasting the ISM. Existing and new home sales are additional data points of interest in the US.  The key focus this week will be on central bank action. Minutes from the FOMC and the RBA will be followed by rate decisions in Thailand and Turkey. Finally, on Thursday starts the annual Jackson Hole conference with lots of Fed speakers, including Yellen next weekend. Chairman Bernanke, whose term ends in January, will not attend.

• Egypt, U.S. on Collision Course (WSJ), Gunmen kill 24 Egyptian police in Sinai ambush (Reuters)
• India’s efforts fail to prevent new rupee low (FT)
• More bad news for AAPL: Steve Jobs Biopic Crashes on Opening Weekend (WSJ)
• "Sustainable" - U.S. Stocks Beat BRICs by Most Ever Amid Market Flight (BBG)
• Merkel cancels election rally after hostage taking (Reuters)
• Some day, Abenomics might work... Not today though: Japan Exports Rise Most Since ’10 as Deficit Swells (BBG)
• China July Home Prices Rise as Nation Seeks Long-Term Policy (BBG)
• Spanish Bank’s Bad Loan Ratio Rises to Record in June (Reuters)
• Recovery... for some - Ferrari NART Spyder Sets $27.5 Million Auction Record (BBG)
• Bund yields hit 17-month high, rupee slumps (Reuters)
• Regulatory Headaches Worsen for J.P. Morgan (WSJ)

The ancient question: how do you extract some moolah while you still can?

Today’s bizarre confluence of negative real interest rates, money printing, eurozone sovereign default, aberrant asset prices, high unemployment, political polarization, growing distrust… none of it was supposed to happen. It is the unintended consequence of past crisis-fighting campaigns, like a troupe of comedy firemen leaving behind them a bigger fire than the one they came to extinguish. What will be the unintended consequences of today’s firefighting? We shudder to think.

Is there such a thing as a ‘safe’ fiat currency? The term itself is as intellectually disingenuous as terms like ‘fair tax’ or ‘government innovation’. But as we’ve been exploring recently why modern central banking is completely dysfunctional, it does beg the question – is any currency ‘safe’? Let’s look at the numbers for some data-driven analysis. But which is the safest major currency?

Scientists and economic analysts say that the thawing of the Arctic will set off what they have termed an “economic time bomb” in years to come