Norway

"In less than two years, we are now up to a total of seven European leaders or ruling parties that have been forced out of office, courtesy of the spreading government debt crisis — tack on France now to Ireland, Portugal, Greece, Italy, Spain and the Netherlands. Even Germany's coalition is looking shaky in the aftermath of the faltering state election results for the CDU's (Christian Democratic Union) Free Democrat coalition partner. This is quite a potent brew — financial insolvency, economic fragility and political instability."

About two years ago the Norwegian sovereign wealth fund did something truly remarkable: it invested for infinity: "Norway, which has amassed the world’s second-biggest sovereign wealth fund, says Greece won’t default on its debts. The Nordic nation’s $450 billion Government Pension Fund Global has stocked up on Greek debt, as well as bonds of Spain, Italy and Portugal. Finance Minister Sigbjoern Johnsen says he backs the strategy, which contributed to a 3.4 percent loss on European fixed income in the second quarter, compared with gains on bonds in Asia and the Americas. Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said." Well, we all know how the experiment ended: "Norway Sovereign Wealth Fund Purges All Insolvent Eurozone Debt Holdings." So much for infinity. But that has not stopped others to boldly catch falling knives where so many other have tried to catch falling knives before, and failed. Enter Greylock Capital and various other hedge funds who are positive they have rediscovered the wheel.

The Greek elections culminated with the worst possible outcome: 2 votes short of a majority for the pro-bailout New Democracy and Pasok parties. So what happens next? Well - two things: expect to see random stop hunting ramps in the EURUSD and ES on false rumors that despite the math, a pro-bailout coalition government is being formed. It isn't, but it will take out all FX and ES stops to the upside first as skittish shorts get burned as usual on planted fake headlines. More importantly, and as predicted last week, we will likely see yet another Greek election as the political vacuum in Athens is likely too big to be circumvented in a few days. Below we present a summary of immediate next steps as summarized by the WSJ. Yet one thing we want to bring attention to is that as we pointed out first on Saturday, a key even over the next two weeks, during a time when Greece will most likely not have an active government in place is the May 15th maturity of €430 million in international-law bonds whose holders have not agreed to the terms of the PSI and thus demand full payment... of money that Greece does not have. Finally we already know that Norway is the biggest non-PSI compliant entity out there. So will we finally see the first Greek PSI-related lawsuit on May 16 if and when Greece fails to make a payment? We will know in 9 days whether the European soap opera gets even more exciting than usual as various European countries start suing each other in international court, especially when one of the countries will have no government for the foreseeable future.

One month later the purge is over: "Norway’s sovereign wealth fund sold all its Irish and Portuguese government bonds after rejecting the Greek debt swap and warned that Europe faces considerable challenges." Wait, what's that? The Eurozone's political strongarming (think Steve Rattner and GM) was unable to force the world's most powerful sovereign wealth fund into agreeing to what was essentially extortion when bank after bank noted how delighted they are to be bent over and take an 80% writedown on their Greek holdings. Stunning. But at least we now know who will be suing Greece shortly in an attempt to recoup par value of their strong law bonds: grab the popcorn - Norway vs Greece will be quite a spectacle. As for their dump of Irish and Portuguese bonds, no surprise there: fool me once (in perpetuity) shame on me, fool me twice, shame on Dan Loeb... who was buying everything Norway was selling. We wonder who ends up right.

If Munch's Scream was a public company, its stock would be limit up now, because contrary to expectations of it selling at a just concluded auction in Sotheby's for $80 million, the painting just slammed all expectations (except LaVorgna's we are told), selling at a record $119,922,500 (that's $119.9 million... for a made in 1895, 36" x 28.9" painting). This makes it the highest amount of money ever spent for an artwork, with only Picasso's "Boy With a Pipe" and Giacometti's "Walking Man I" selling for more than $100 million in the past. That said, in real terms and assuming 2% annual inflation, the Picasso painting which sold for $104 million in 2004, would now be worth over $120 Million in nominal terms so once again we get into the whole nominal, real debate. It is unknown if some high freak algo went berserk and kept lifting the offer, confused that this is the travesty formerly known as the stock market (although certainly keep an eye out for strange screaming artwork in the GETCO offices) nor is the buyer, but one thing that is certain: it would take the average American 4,548.9 years, earning the 2010 Median Salary of $26,363.55 to be able to purchase the painting. And some wonder why there is a bit of a social divide in the world... As to whether a painting will be considered money by the Charmin' Chairman, well, we will have to wait and see.

No need for much commentary here, suffice to say that those who thought Italy's massive drop in PMI from 47.9 to 43.9 in April was bad, apparently have not seen Hungary, Australia, Norway or Switzerland. The good news? Turkey is doing well to quite well... which likely explains why they are trying to confiscate the people's gold.

9 Torture Myths DeBUNKED

• Hollande Says Germany Can’t Make Europe’s Decisions Alone (BBG)
• Monti Hits at Eurozone Austerity Push (FT)
• Firm that made loans to Chesapeake CEO defends them (Reuters)
• Bo Xilai's Son Doesn't Drive a Ferrari. He drives a Porsche (WSJ)
• Geithner Urges China to Loosen Hold on Finance System (BBG)
• and yet... Son of Bo Xilai Says Father’s Ouster ‘Destroyed My Life’ (BBG)
• U.S. growth slows as inventory accumulation wanes (Reuters)
• S&P 500 Dividend Payers Climb to Highest in 12 Years (BBG)
• Lacker Sees Fed May Need to Raise Rates in Mid-2013 (BBG)
• Ireland Passes Latest Bailout Review (WSJ)

• Fed Holds Rates Steady, But Outlooks Shift (Hilsenrath)
• Has Obama Stacked the Fed? Not Really (Hilsenrath)
• High Court Skeptical of Obama’s Use of Power as Campaign Starts (Bloomberg)
• Europe Seen Adding Growth Terms to Budget Rules as Focus Shifts (Bloomberg)
• China Reaches Out to Its Adversaries Over Rare Earths (WSJ)
• Iran Says It May Halt Nuclear Program Over Sanctions (Bloomberg)
• Europe Shifts Crisis Focus to Growth as Merkel Backs Draghi Call (Bloomberg)
• Merkel Wants Rules for Raw Material Derivative Trade (Reuters)
• Evercore Profit Falls 62% as Investment Banking Expenses Rise (Bloomberg)

While Germans work longer hours and retire later....

"What Bernanke is to the Treasury market, Iksil is to the derivatives market"

• Subprime bubble is back: Lenders Again Dealing Credit to Risky Clients (NYT)
• Housing bubble is also back: AIG Is Planning a Return to U.S. Property Investing (WSJ)
• Spain and EU Reject Talk of Bailout (FT)
• Coeure Suggests ECB Could Restart Bond Purchases for Spain (Bloomberg)
• IMF Set to Recognise Shrinking Chinese Surplus (FT)
• Government to Propose New Mortgage Servicing Rules (AP)
• Japan Currency Chief Warns Against Delay Over Finances (Bloomberg)
• The 'Michael Corleone' of Libya (Reuters)
• North Korea Says Fuel Being Injected Into Rocket (Reuters)
• SNB Reaffirms Vow to Cap Swiss Franc (FT)

• With a 2 Year delay, both FT and WSJ start covering the shadow banking system. For our ongoing coverage for the past 2.5 years see here.
• Trouble in shipping turns ocean into scrapheap (Telegraph)
• First-Quarter Home Prices Down 20.7% in Capital (China Daily)
• Bernanke Says Banks Need Bigger Capital Buffer (Reuters)
• Monti’s Overhaul Can’t Stop Pain From Spain: Euro Credit (Bloomberg)
• Spain Confronts Crisis Threat as Rajoy Seeks Deficit Cuts (Bloomberg)
• Japan’s Noda Announces Anti-Deflation Talks as BOJ Sets Policy (Bloomberg)
• White House makes case for Buffett Rule (CNN)
• Cameron to Make Historic Myanmar Trip (FT)
• 'Time for Closer Ties' With India (China Daily)

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

Remember this from September 2010? "Norway, which has amassed the world’s second-biggest sovereign wealth fund, says Greece won’t default on its debts. “The point is, do you expect these guys to default?” said Harvinder Sian, senior fixed-income strategist at Royal Bank of Scotland Group Plc, in an interview. “Norway has taken the view that they will not. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default.” Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity."... Uhm, Big Oops. Needless to say, this stupidity was roundly mocked by Zero Hedge at the time. Yet we can only applaud the fact that unlike other European investors (read primarily Italian banks) which are merely sinking ever deeper into the quicksand by dodecatupling down on pyramid scheme assets, the Norwegian SWF finally "plans to sharply reduce its European exposure while raising investments in emerging markets and Asia-Pacific, the finance ministry said on Friday." While we ridiculed their stupidity in 2010, we applaud Norway's prudence in this case, as unlike other insolvent European entities, the crude-rich country is not falling for the latest round of central planning bullshit, and is finally acting as a fiduciary agent. "We're reducing our European exposure because we see that economic development in the global economy is changing and this should also be reflected in our investment strategy," Johnsen said. "Most likely we'll have to sell some assets in Europe." Remember: in game theory he who defects first, defects best. We expect to see many more funds openly declaring they will commence dumping European assets, all of which are buoyed 100% artificially by the ECB, and US taxpayers, shortly.