In 1729, that Jonathan Swift (of Gulliver's Travels fame) penned a famous satirical essay from England entitled "A Modest Proposal." It's still famous to this day as mandatory reading in many a high school literature class. As you may recall, Swift addresses the problem of the ultra-depressed Irish economy and mockingly advocates that the Irish should sell their children for rich Englishmen to eat. Lovely thought. I thought about the essay this morning when one of our Liberty Alert Service researchers alerted me to a new bill just introduced in the Land of the Free, HR 1160. The bill aims "to set the retirement benefits age for today's six-year-olds at age 70." Maybe Swift wasn't so far-fetched. Screw the kids. No doubt, governments are adroit at finding ways to steal from people.
One key, and very important, thing to note per the statement below, is that nowhere in the statement does the Eurogroup say that no levy will be taxed on those with €100,000 and less in deposits. What is said is the following: "The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below EUR 100.000. The Cypriot authorities will introduce more progressivity in the one-off levy compared to what was agreed on 16 March, provided that it continues yielding the targeted reduction of the financing envelope and, hence, not impact the overall amount of financial assistance up to EUR 10bn."
Bottom line: it is absoutely not clear what the levy on small "insured" deposits will be, if any, and it will be up to the Cyprus government to define it: a decision which will make or break the parliamentary vote, whose passage this statement will hardly make any easier.
Prior to yesterday, if you were trying to handicap how the unelected leaders of the Eurozone were going to react to a tough situation, you only had to refer to the quote "When it becomes serious, you have to lie" from Mr. Junker to understand their mindset. But so long as someone at the ECB was willing to flood the world with free EURs (with significant backup provided the US Federal Reserve) the market closed its eyes, held its breath and took the leap of faith that all was well. However, post the Cyprus decision, the curtain has been pulled back and wizard revealed with all his faults and warts. It would be hard to over-emphasize how significant the Cyprus situation is. The damage done here is not related to the size of the haircut - currently discussed between 3 and 13% - but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite.
Europe Does It Again: Cyprus Depositor Haircut "Bailout" Turns Into Saver "Panic", Frozen Assets, Bank Runs, Broken ATMsSubmitted by Tyler Durden on 03/16/2013 10:33 -0400
Late last night, after markets closed for the weekend, following an extended discussion the European finance ministers announced their "bailout" solution for Russian oligarch depositor-haven Cyprus: a €13 billion bailout (Europe's fifth) with a huge twist: the implementation of what has been the biggest taboo in European bailouts to date - the impairment of depositors, and a fresh, full blown escalation in the status quo's war against savers everywhere. Specifically, Cyprus will impose a levy of 6.75% on deposits of less than €100,000 - the ceiling for European Union account insurance, which is now effectively gone following this case study - and 9.9% above that. The measures will raise €5.8 billion, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, said. But it doesn't stop there: a partial "bail-in" of junior bondholders is also possible, as for the first time ever the entire liability structure of a European bank - even if it is a Cypriot bank - is open season for impairments. The logical question: why here, and why now? And what happens when the Cypriot bank run that has taken the country by storm this morning spreads everywhere else, now that the scab over Europe's biggest festering wound is torn throughout the periphery as all the other PIIGS realize they too are expendable on the altar of mollifying voters and investors in the other countries that make up Europe's disunion.
Excuse me for asking, but what in the name of Jesus H. Christ is wrong with us? Oh, I forgot. If you're rich, you can do anything you want. If you're poor, you have the be the apotheosis of rectitude. And talk about swift justice! This incident took place not even two weeks ago! And yet Blankfein, a man who torture is too good for, smirks and leers his way to mega-riches.
Not even the Fed pre-monetizing yesterday of today's 30 Year reopening auction could do much to improve demand for today's $13 billion sale in long-dated paper. Because if yesterday's 10 Year auction was a testament to demand from Direct and Indirect buyers, today's final auction of the week was anything but. Moments ago the Treasury sold $13 billion in 30 year paper, in a 29 year, 11 month reopening, of the infamous 912810QZ4 Cusip, and which priced at a high yield of 3.248%, the highest yield since last March's 3.381%, and more importantly 1.5 bps higher than the When Issued 3.233%. The internals explained why the demand in the primary market was just not there: Indirects got 42%, Dealer take down was 51.2%, which mean Direct bidders were allotted just 4.9% of the total. This was the lowest Direct allocation since September of 2009, and in stark contrast to yesterday's surge in 10 Year Direct bidders. Finally, the Bid to Cover came at 2.43, the lowest since August of 2012.
Following yesterday's Beige Book extravaganza of mediocrity, ConvergEx's Nick Colas decided to do what the kids today call a “Mashup” – mixing different sources to create a new experience. Instead of mixing popular songs, he compared the Beige Book with Google “Trend” analysis for a variety of search phrases. Take, for example, the message from the Fed that the housing market is recovering. Google searches for “Get a mortgage” are, in fact, very near record highs and over 100% higher than 2007. On the Fed’s claim that leisure travel is picking up, the Google data is less supportive. On auto demand – an important factor in this recovery – the Google “Buy a car” trend data does look solidly higher. Finally, the job picture is still mixed. Google says that if you are unemployed in Chicago, drive to Dallas. The Fed’s Beige Book seems to concur. The question is not whether the Fed could engineer this nascent recovery. The question is “Can it last?” For that, we’ll need some new songs. And some fresh data in the coming months.
The dark ages were an awful time. Considering the brightest days delivered constant warfare, the burning of books, and the fear of barbarians, no one ever looked forward to the darkest days. Fast forward 1,600 years, and the darkest days of the European debt crisis are finally over - not because the bad debt has been written off or due to the consolidation of all debt, but simply because everyone has said so. Exactly who is telling lies and who is telling the truth will only be determined in due course. Without a doubt, global economic growth remains stagnate, yet stock markets are booming. Our message on financial markets remains very consistent – do not confuse strong financial markets with a strong underlying economy. While this may sound like hogwash to many investors and investment professionals, it is the extreme, unorthodox, and never-before-tried policies by the World’s central banks that is the reason for the march higher for stocks. Regardless, for those who honestly believe in the recovery, ask yourself the following questions...
- Spain’s Deficit Widened to 10.2% on Bank-Rescue Cost (BBG) - or as Rajoy would say, when one excludes all negatives, it was a surplus
- Monti Austerity Pushes Italians Toward Parliament Upheaval (BBG)
- Russia accuses U.S. of double standards over Syria (Reuters)
- Euro Area to Shrink in 2013 as Unemployment Rises (BBG)
- UK, China central banks to discuss currency swap line (Reuters)
- Italy Court Rejects Challenge to Bailout of Monte Paschi (BBG)
- Japan's Abe to showcase alliance, get Obama to back Abenomics (Reuters)
- Russia’s missing billions revealed (FT)
- China Home-Price Gains May Presage Policy Tightening (BBG)
- Fed unlikely to curtail stimulus despite rising doubts (Reuters)
- Banks face fines up to 30 per cent of revenues (FT) - just as soon as Basel III is passed (i.e., never)
- J.C. Penney Can Raise Billions Under Revised Credit Line (BBG)
- Cost of Dropping Citizenship Keeps U.S. Earners From Exit (BBG)
Central banks are the devil. Hinde Capital explains that they are like drug dealers except they administer regular doses of supposedly legally prescribed barbiturates to their addicts. The 'easy money' or 'credit' they create is an opiate and like all addictions there is a payback for the addicts, one exacted only in loss of health, misery and death. The economic system is an addict, but that system is comprised of banks, corporations, non-profit organisations, small businesses all of which are communities. And what comprises communities, us, human beings - individuals. We are the addicts. It is Hinde's contention that central banks feel they need to maintain the balance of credit in the system as it currently stands by adjusting the money supply and monetary velocity (MV) but by doing so they merely circumvent the necessary adjustment in the economic system that comes about by market failure. If they don't allow this failure then any attempt to influence MV will only lead to higher prices (P) at the expense of output (T) in the famous monetary equation MV=PT. Sadly the desire of the State to control money and administer it like a drug has left our economies unproductive and incapable of standing on their own two feet. Full must read Hinde Insight below...
- 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)
As the markets once again approach historic highs - the overly exuberant tone, extreme complacency and weakness in the economic data, bring to mind Bob Farrell's 10 investment rules. These rules should be a staple for any long term successful investor. These rules are often quoted yet rarely heeded - just as they are now. Farrell became a pioneer in sentiment studies and market psychology. His 10 rules on investing stem from personal experience with dull markets, bull markets, bear markets, crashes and bubbles. In short, Farrell has seen it all and lived to tell about it. Despite endless warnings, repeated suggestions and outright recommendations - getting investors to sell, take profits and manage your portfolio risks is nearly a lost cause as long as the markets are rising. Unfortunately, by the time the fear, desperation or panic stages are reached it is far too late to act and we will only be able to say that we warned you.
Over ten years ago, when Europe was a bright and shining example of experimental monetarist "brilliance", and when the money was flowing, the continent decided to do the ethical thing and actively promote the pursuit and development of renewable energy through countless government subsidies. As a result, Germany and Spain became the undisputed leaders in the race for a green future, and both created similar laws to encourage the development of renewable energy. There were two problems: i) green energy, while noble in theory, is about the worst idea possible when it comes to profitability and capital self-sustainability and constantly needs governmental subsidies, and ii) it was the end consumers who would pay for the government's generosity, in the form of a surcharge on electric bills. In Germany, for example, as the industry grew (in size, and thus in losses) demand for the subsidy increased, driving the surcharge higher. In January, the surcharge, which amounts to about 14% of electricity prices, nearly doubled to 5.28 euro cents per kilowatt hour. And here is where a third problem comes into play, because while German and Spanish consumers were happy to pay a surcharge in the golden days of a Dr. Jekyll Europe when everything was great, soon Europe become a doomed Mr. Hyde-ian Frankenstein monster, with imploding economies, 60%+ youth unemployment and resurgent neo-nazi powers. In short: the German and Spanish consumers have had it with funding an infinite money drain (even bigger than Greece), when cash flow is scarce and getting worse, and have just said "Basta" and "Nein", respectively.
- 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)
My colleague and erstwhile nemesis Gonzalo Lira posed the question above in a recent essay, and it is indeed a most puzzling one. Given that the world’s central banks — joined most recently by a shockingly reckless Switzerland — are waging all-out economic war by inflating their currencies, shouldn’t gold be soaring?