A busy week, with a bevy of significant data releases, starting with the already reported PMIs out of China and Europe (as well as unemployment and inflation numbers from the Old World), the US Manufacturing and Services PMI, another Bill Dudley speech on Tuesday, US factory orders, statements by the ECB and BOE, where Goldman's new head Mark Carney will preside over his first meeting, and much more in a holiday shortened US week.
It's almost as if the manic-depressive market has gotten exhausted with the script of surging overnight volatility, and following a week of breathless global "taper tantrumed" trading, tonight's gentle ramp seems modest by comparison to recent violent swings. With no incremental news out of China, the Shanghai composite ended just modestly lower, the Nikkei rushed higher to catch up to the USDJPY implied value, Europe has been largely muted despite better than expected news out of Germany on the unemployment front. This however was offset by a decline in Europe's May M3 (from 3.2% to 2.9%) while bank lending to NFCs and households simply imploded, confirming that there is no hope for a Keynesian, insolvent Europe in which there isn't any credit creation either by commercial banks or by the central bank (and in fact there is ongoing deleveraging across the board). US futures are rangebound with ES just shy of 1,500. We will need some truly ugly data in today's economic docket which includes claims, personal income/spending and pending home sales to push stocks that next leg higher. To think the S&P could have been higher by triple digits yesterday if the final Q1 GDP has just printed red. Failing that, the Fed's doves jawboning may be sufficient for a 100+ DJIA points today with Dudley, Lockhart and Powell all set to speak later today.
If oil and gas is a profoundly dynamic phenomenon, then so too must be environmental risk and conflicts over natural resources - and we are not getting the full picture from the mainstream media, according to Michael T. Klare, professor of peace and world security studies at Hampshire College. As risks multiply, conventional sources evaporate and we are left with “extreme” energy, renewables may be the only way to avoid war and disaster.
On March 10, 1975, a group of US diplomatic and national security officials gathered at the office of the Turkish foreign minister’s office in Ankara. Henry Kissinger was among them. The discussion turned to foreign aid and supply of parts for military equipment, at which point Kissinger (Secretary of State at the time) suggested something that violated the law. William Macomber, the US Ambassador to Turkey, said, “That is illegal.” Kissinger didn’t miss a beat, replying, "Before the Freedom of Information Act, I used to say at meetings, 'The illegal we do immediately; the unconstitutional takes a little longer.'" Then, in an almost cartoon-like reaction, the room filled with laughter. You can practically see the rising cigar smoke and fatcats slapping each other on the back as they stick it to the little guy. But that one quote, probably more than anything else, sums up the US government’s attitude: they will do whatever they want, legal or not, Constitutional or not.
The adjustments in core rates markets driven by repeated Fed commentary about its QE policy led to widespread selloffs in EM assets - and as we explained yesterday, this has potential vicious circle implications for developed markets. The significance of the EM selloffs has raised concerns about whether investors could abandon the asset class and trigger 'sudden stop' scenarios as they prepare for a post-QE world. Barclays believes we have likely entered a 'bumpy transition' towards a normalization of core market interest rates, and while they agree with us that the fundamental vulnerability to an end of QE may still reside with many DMs (eg, euro area periphery), rather than EMs, the large capital inflows into EM economies makes them extremely vulnerable to a rapid outflow of external capital.
Europe is a disaster-zone. Here’s the round-up of what’s going wrong right now. The longest day? It would have been a long day, whatever happened, so you might as well enjoy it.
"If you believe that [Bernanke] means what he says," explains Gloom, Boom, and Doom's Marc Faber to a spell-bound Trish Regan on Bloomberg TV, "then you believe in Father Christmas." Simply out, Faber adds, "we are going to see QE99," and while he notes that equities, bonds, and gold are "very oversold," he would "rather buy bonds and gold than equities." From his views on Laszlo Birinyi to inflation, the 'taper', US housing, and China, Faber calmly warns that "the S&P could drop 20-30% from the recent highs - easily."
"The only thing that I know is that I want to own some physical gold because I don't want all of my assets in financial assets."
"I am not a prophet, I don't know exactly where the price will be on a month by month basis, but I want to have some wealth, some of my assets in physical gold. I can see a lot of problems coming into the world including expropriation through taxation or through regulation or even through revolution and social strife."
If the Brazilian government thought that caving yesterday to popular demands against a $0.10 bus and subway fare hike would be enough to placate the millions and see a peaceful dissolution to the protests that had gripped the country in the past two weeks, it found out in less than 24 hours that ceding to the angry mob only emboldens the public to demand more (and with a list a grievances including corruption, violence, police repression and failed politicians the list of demands is sure to escalate). Sure enough, the very next day, the public emerged with newfound energy and momentum, as 300,000 people took to the streets of Rio de Janeiro and hundreds of thousands more flooded other cities in the largest protests yet.
As noted yesterday, and perhspa even more prescient now Anastasiades is back with the begging bowl, the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis may provide a template for future resolutions of other banking/debt crises. It also matters for another reason: not only is the bail-in a direct theft of depositors' money, the entire bailout is essentially a wholesale theft of national assets. This is the inevitable result of political Elites swearing allegiance to the European Monetary Union.
It started off a simple protest in Sao Paulo as a demonstration by students against an increase in bus fares from R$3 to R$3.20, and then quickly morphed into general demonstration of discontent with the nation’s political classes on both sides of the spectrum involving over 200,000 across the country, with those marching on Monday holding placards decrying everything from the enormous sums spent on the World Cup to the treatment by police of protesters last week. It got to the point where protesters invaded and occupied, peacefully, the roof of the national Congress complex in Brasilia. Then things turned less peaceful when a breakaway group from the main rally in Rio de Janeiro attacked the state legislative assembly building and attempted to set it on fire.
There has been considerable throughput of gold in western capital markets, with substantial buying from all round the world following the April price crash. The supply can only have come from two sources: the general public, or one or more governments. It really is that simple. Two months later the gold price has only partially recovered, so physical supplies have continued to be made available. Physical demand cannot have been entirely satisfied by ETF liquidations, confirming governments are involved. This article looks at the dynamics of the gold market around this event and the implications.
Why do the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter? They matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis--the "bail-in" confiscation of 60% of bank depositors' cash in an involuntary exchange for shares in the bank (which are unlikely to have any future value)--may provide a template for future official resolutions of other banking/debt crises. In other words, since the banking/debt crisis in Cyprus is hardly unique, we can anticipate the resolution (confiscation of deposits) may be applied elsewhere.
- Obama prepares for chilly talks with Putin over Syria (Reuters)
- G8 opens amid dispute on Syria arms (FT)
- Economists Blame Fed for Higher Bond Yields (WSJ) - wait... what? Isn't the "stronger economy" to blame?
- What a novel concept - In the Czech Republic, a spying scandal has forced the PM to resign (BBG)
- Rigged-Benchmark Probes Proliferate From Singapore to UK (BBG)
- Economists Wary as Fed's Next Forecast Looms (Hilsenleak)
- Banks Balk at New Rules for Small Loans (WSJ)
- Sporadic clashes in Turkey as Erdogan asserts authority (Reuters)
Two weeks after the break out of protests in Turkey, often times violent, the local discontent is nowhere closer to resolution. In fact, it is getting worse, and is on its way to converge with the "resolutions" adopted in its neighbor Greece following news that two Turkish union federations said on Sunday they would stage a one-day nationwide strike on Monday in protest at the forced eviction by riot police of hundreds of anti-government demonstrators from an Istanbul park. From Reuters: "The Confederation of Public Workers' Unions (KESK), which has some 240,000 members in 11 unions, and the Confederation of Revolutionary Trade Unions (DISK) announced the strike in a joint statement. Three other groups representing doctors, engineers and dentists will also join the action, it said."
The espionage scandal that keeps on giving has released its latest installment, once more courtesy of the Guardian, which on the eve of tomorrow's starting G-8 meeting reveals that foreign politicians and officials who took part in two G-20 summit meetings in London in 2009 had their computers monitored, their phone calls intercepted, and fake internet cafes were set up on the instructions of the British Government Communications Headquarters (GCHQ), the sister organization to the US NSA. Naturally, it wasn't just the GCHQ - according to the Guardian, during the 2009 G-20 meeting there was an NSA attempt to eavesdrop on then-Russian leader, Dmitry Medvedev, as his phone calls passed through satellite links to Moscow. And while broad espionage allegations can be deflected by pretending by the rhetoric-endowed and teleprompter-aided that only terrorist threats were targeted, it will be very difficult to explain why the national information super spooks used every trick of the trade to spy on the so-called leaders of the developed world.