World Trade

All you need to read.

George Orwell was right. He was just 30 years early.

In its April cover story, Wired has an exclusive report on the NSA's Utah Data Center, which is a must read for anyone who believes any privacy is still a possibility in the United States: "A project of immense secrecy, it is the final piece in a complex puzzle assembled over the past decade. Its purpose: to intercept, decipher, analyze, and store vast swaths of the world’s communications as they zap down from satellites and zip through the underground and undersea cables of international, foreign, and domestic networks.... Flowing through its servers and routers and stored in near-bottomless databases will be all forms of communication, including the complete contents of private emails, cell phone calls, and Google searches, as well as all sorts of personal data trails—parking receipts, travel itineraries, bookstore purchases, and other digital “pocket litter.”... The heavily fortified $2 billion center should be up and running in September 2013." In other words, in just over 1 year, virtually anything one communicates through any traceable medium, or any record of one's existence in the electronic medium, which these days is everything, will unofficially be property of the US government to deal with as it sees fit... As former NSA operative William Binney who was a senior NSA crypto-mathematician, and is the basis for the Wired article (which we guess makes him merely the latest whistleblower to step up: is America suddenly experiencing an ethical revulsion?), and quit his job only after he realized that the NSA is now openly trampling the constitution, says as he holds his thumb and forefinger close together. "We are, like, that far from a turnkey totalitarian state."

Last month, the world's biggest hedge fund, Bridgewater, issued a fascinating analysis of deleveraging case studies through the history of the world, grouped by final outcome (good, bad and ugly). As Dalio's analysts note: "the differences between deleveragings depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots, and 4) debt  monetization. Each one of these four paths reduces debt/income ratios, but they have different effects on inflation and growth. Debt reduction (i.e., defaults and restructurings) and austerity are both deflationary and depressing while debt monetization is inflationary and stimulative. Ugly deleveragings get these out of balance while beautiful ones properly balance them. In other words, the key is in getting the mix right." Of these the most interesting one always has been that of the Weimar republic, as it certainly got the mix wrong.

• Tainted Libor Guessing Games Face Replacement by Real Trades (Bloomberg) - so circular, self-reported data is "tainted" - but consumer confidence is great for pumping a stock market?
• Japan Sets up $12 Billion Program for Dollar Loans, Increases Growth Fund (Bloomberg)
• China Hints at Halt to Renminbi Rise (FT)
• Spain Pressed to Cut More From Its Budget (FT)
• Bailout can make Greek debt sustainable, but risks remain: EU/IMF (Reuters)
• Banks to Face Tough Reviews, Details of Mortgage Deal Show (NYT)
• U.S. and Europe Move on China Minerals (WSJ)
• Use of Homeless as Internet Hot Spots Backfires on Marketer (NYT)
• Obama administration seeks to pressure China on exports with new trade case (AP)

While 'good is good, and bad is better'-market continues to price a higher and higher strike price for Ben, Mario, and Xiaouchuan, the twin (d)evils of energy and food price inflation could be tamping their enthusiasm for their new-found experiment. Critically, for all those 'hoping' for the pump to be primed and a self-sustaining recovery to take hold, we present three charts to rain on that parade. Whether the world's central bankers come back to the table is unclear, given their clear concerns at what they have done recently, but we suspect this is much more a 'when' than 'if' question and given the performance of asset and volatility markets, it seems this is more than priced in.

While hardly expecting anything quite as dramatic as the default of a Eurozone member, an epic collapse in world trade, or a central banker telling the world that "he has no Plan B as having a Plan B means admitting failure" in the next several days, there are quite a few events in the coming week. Here is Goldman's summary of what to expect in the next 168 hours.

Yum!

All you need to read.

While everyone was busy ruminating on how little impact a Greek default would have on the global economy, the IIF - the syndicate of banks dedicated to the perpetuation of the status quo - was busy doing precisely the opposite. In a Confidential Staff Note that was making the rounds in the past 2 weeks titled "Implications of a Disorderly Greek Default and Euro Exit" the IIF was doing its best Hank Paulson imitation in an attempt to scare the Bejeezus out of potential hold outs everywhere, by "quantifying" the impact form a Greek failure. The end result: "It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed €1 trillion."  In other words, hold out at your own peril. Of course, what the IIF does not understand, is that for hedge funds it is precisely this kind of systemic nuisance value that makes holding out that much more valuable, as they understand all too well that they have all the cards on the table. And while a Greek default could be delayed even if full PSI was not attained by Thursday, it would simply make paying off the holdouts the cheapest cost strategy for the IIF, for Europe and for the world's banks. Unless of course, the IIF is bluffing, in which case the memorandum is not worth its weight in 2020 US Treasurys.

Two Senators with Access to Classified Information Say Saudi Government Backed 9/11 Attack

And it was brutal. No more diplomatic niceties.

History is replete with the carcasses of failed currencies destroyed through misguided intentional debasement by governments looking for an easy escape from piling up too much debt. James Rickards, author of the recent bestseller Currency Wars: The Making of the Next Global Crisis, sees history repeating itself today - and warns we are in the escalating stage of a global currency war of the grandest scale. Whether it ends in hyperinflation, in the return to some form of gold standard, or in chaos - history is telling us we can have confidence it will end painfully.

With the IMF cutting its global growth forecasts and signs of slowing evident in the dramatic contraction in World Trade Volume in the last few months, it is perhaps no surprise that the central banks of the world have embarked upon what Goldman Sachs calls an 'Unprecedented Alignment of Monetary Policy Across Countries'. Our earlier discussion of the European event risk vs global growth expectations dilemma along with last night's comments on the impact of tightening lending standards around the world also confirms that this policy globalization is still going strong and is likely to continue as gaming out the situation (as Goldman has done) left optimal CB strategy as one-in-all-in with no benefit to any from migrating away from the equilibrium of 'we all print together'. Perhaps gold (and silver's) move today (and for the last few months) reflects this sad reality that all your fiat money are belong to us, as nominal prices rise (but underperform PMs) in equities (and risky sovereigns and financials).

All you need to read.

Because the last time the administration got involved in the car space the results were so positive (for the unions if not so much for creditors), it appears we may be approaching another episode where central planning will make the decisions in the US auto space. Only this time instead of creditors, the impaired party will be China. Reuters reports: "Midwestern U.S. lawmakers and union groups on Tuesday urged President Barack Obama to restrict imports of auto parts from China that they said benefited from massive illegal subsidies and threatened hundreds of thousands of American jobs. "We need to stand up to the bully on the block," U.S. Senator Debbie Stabenow, a Michigan Democrat, said, referring to Beijing. "The bully on the block continues to take our lunch money and we need to stop that," she said." Odd - China was not complaining when the Obama administration was providing massive subsidies (whether or not illegal remains to be seen  - surely Holder is all over it) to the solar and other "green" industries. In other words, just like Solyndra and Ener1, who are merely the first of many artificially subsidized entities, provided such great if highly transitory results for US employment, let's recreate the experiment at the wholesale level, by implicit subsidies and while also angering America's biggest creditor. Something tells us this proposal has a definite probability of passing. In the meantime, central planning for everyone.