Silvio Berlusconi

While suicides out of desperation had long been a tragic, if recurring, staple in depressionary Europe, so far popular anger had been directed at within, with few if any murderous outbursts targeted at other people, and certainly not at politicians (or financiers). This obviously has been a critical aspect of the current economic collapse in Europe - one needs but recall that it was a political assassination that sparked World War I in Sarajevo, and indirectly, via the Weimar collapse of Germany, set the stage for World War II, leading to the death of tens of millions around the globe. Today we came close. As the AP reports, during today's swearing in ceremony of Italy's new pseudo-technocrat yet anti-austerity government which has the blessings of Berlusconi, an "unemployed Italian gunman shot and seriously wounded two policemen Sunday in a square outside the premier's office in Rome, but he "wanted to shoot politicians," Rome prosecutor Pierfilippo Laviani said.

After reading the Spiegel article below, which reveals so much about German thinking, it becomes very clear that not only is Cyprus the "benchmark", but that the second some other PIIG country runs into trouble again, and its soaring non-performing loans inevitably demand a liability "resolution" a la Cyprus, it will be Germany once again at the helm, demanding more of the same equity, unsecured debt and ultimately depositor impairment. As the following punchline from Spiegel summarizes, "It would be more sensible -- and fairer -- for the crisis-ridden countries to exercise their own power to reduce their debts, namely by reaching for the assets of their citizens more than they have so far. As the most recent ECB study shows, there is certainly enough money available to do this." And that is the crux of the wealth-disparity demand of the European Disunion.

With no macro data on the docket (the NAR's self promotional "existing home sales" advertising brochure is anything but data), the market will be chasing the usual carry currency pair suspects for hints how to trade. Alas, with even more ominous economics news out of Europe, and an apparently inability of Mrs Watanabe to breach 100 on the USDJPY (hitting 99.98 for the second time in two weeks before rolling over once more), we may be rangebound, or downward boung if CAT shocks everyone with just how bad the Chinese (and global) heavy construction (and thus growth) reality truly is. One asset, however, that has outperformed and is up by well over 2% is gold, trading at $1435 at last check, over $100 from the lows posted a week ago, and rising rapidly on no particular news as the sell off appears to be over and now the snapback comes and the realization that Goldman was happily buying everything its clients were selling all along.

Update: 87 year old Giorgio Napolitano has been reelected as president of Italy during the 6th consecutive vote. He becomes the first Italian president to serve two terms.

Earlier today the fifth consecutive round of presidential voting in Italy failed to produce the sufficient majority for the country to elect a president courtesy of its fractured political system, especially following the announcement last night from the PD's leader Pier Luigi Bersani that he would quit his post after a president is elected.  More than 440 blank ballots were cast in the fifth ballot today, with the leading vote-getter Stefano Rodota -- the candidate of Beppe Grillo’s 5 Star Movement -- at 210. Shortly thereafter an ingenious solution has emerged: reelect the current figurehead president Giorgio Napolitano for a second consecutive 7 year term so if not a prime minister, Italy, which has devolved into total political chaos since the February 25th inconclusive elections, would at least has a president. There is one problem: Napolitano is 87 years old.

At this point, there is literally not one single reason to invest a cent in Europe. Banks are lying about their balance sheets. Politicians are lying about citizen’s rights. The Central Bank is lying about everything…

“Time has come"

Since the second half of 2012, financial markets have recovered strongly worldwide. But this financial market buoyancy is at odds with political events and real economic indicators. In short, we are witnessing a rapid decoupling between financial markets and inclusive social and economic well-being. As a result, the income of the global elite is growing both rapidly and independently of what is happening in terms of overall output and employment growth. Demand for luxury goods is booming, alongside weak demand for goods and services consumed by lower-income groups. All of this is happening in the midst of extremely expansionary monetary policies and near-zero interest rates, except in the countries facing immediate crisis. Structural concentration of incomes at the top is combining with easy money and a chase for yield, driving equity prices upward. And yet, despite widespread concern and anxiety about poverty, unemployment, inequality, and extreme concentration of incomes and wealth, no alternative growth model has emerged.

Warning from the German Bankers Association: central-bank save-the-euro policies cause bubbles, capital misallocation, currency wars, and another financial crisis.

It is no secret that one of the main reasons why Italy's former PM, and resurgent soon to be member of government, Silvio Berlusconi, is so adamant to be in parliament, is simply to obtain the immunity he would need to stay out of prison as a result of countless lawsuits which he has valiantly fought, and lost. As of this morning, a rather convenient time for sure just as Italy is preparing to create a coalition government, Silvio has one more lawsuit he will need to appeal, and evade in Parliament, following news that he was convicted in a 2006 wiretapping scandal, and will have to serve a one year prison sentence. Will he serve even one day? Of course not - the appeals process alone will take at least several years, and when that runs out, well, the 76 year old Silvio is a billionaire, and will have ample opportunity to spend his money to buy himself enough freedom to last him until the end of his life.

Kitchen-table reality polluted the scene

Earlier we reviewed the overnight plunge in China stocks, especially those related to the real-estate market in the aftermath of the latest move by the State Council to be far more hawkish than expected, in its effort to curb property inflation. The economic and market weakness that resulted has followed through to overnight US and European futures, even as peripheral bonds are trading roughly unchanged, surprising many who thought this weekend's Beppe Grillo statement on the future of Italian debt and presence in the Eurozone would be market moving: it wasn't as Grillo said nothing that he had not already made quite clear. In other, more recent economic news, UK construction PMI imploded to recession levels, plunging to 46.8 from 49.0, far below expectations and the lowest print since October 2009, setting the stage for much more Goldman-led reflation by the BOE. Also negative was the drop in the Eurozone Sentix Investor Confidence index which tumbled to -10.6 from -3.9 on expectations of -4.3, sending the EURUSD deep into 1.29 territory. It appears the Sentix excludes the soaring German confidence, which two weeks ago was the sole driver of all upside, not once but twice in one week. Today we get the first day of the sequester being digested by the market - this togetger with an empty macro calendar in the US means rumors and headlines will determine how far GETCO's algo push the stop hunts during the first and last 30 minutes of trading.

“The country is more important than democracy”

From “I’m appalled that two clowns have won” in Italy to fear

It has been yet another quiet overnight session, devoid of the usual EURUSD ramp, and thus ES, at the Europe open (although it is never too late), which has seen the Shangai Composite finally post a meaningful rise up 2.26%, followed by some unremarkable European macro data as Eurozone CPI came as expected at 2.0%, and German unemployment just a tad better, at -3K, with consensus looking for 0K. Italy continues to be the wildcard, with little clarity on just who the now expected grand coalition will consist of. According to Newedge's Jamal Meliani, a base case scenario of Bersani/Berlusconi coalition may see a relief rally, tightening 10Y BTP/bund spread toward 300bps. A coalition would maintain current fiscal agenda and won’t implement any major reforms with fresh elections being     called within a year. A Bersani/Grillo coalition is least likely, may slow reforms which would see 10Y BTP/bund spreads widening to 375bps. Of course, everything is speculation now, with Grillo saying no to any coalition, and moments ago a PD official saying against a broad coalition. But at least the market has it all priced in already - for more see Italy gridlock deepens as Europe watches nervously.