Yen

While all eyes are on Europe and its Greek farce, Japan is advancing at an inexorable pace...

• Germany FinMin: More Talks Needed On 2nd Greece Bailout Plan (MarketNews)
• You stand up to the bankers, you win - Icelandic Anger Bringing Record Debt Relief in Best Crisis Recovery Story (Bloomberg)
• Iranian ships reach Syria, China warns of civil war (Reuters)
• Men's suit bubble pops? Zegna CEO Says China Sales Slowing (WSJ)
• German presidency row shakes Merkel's coalition (Reuters)
• Greece must default if it wants democracy (FT)
• Decision day for second Greek bailout despite financing gaps (Reuters)
• So true fair value is a 30% discount to "market" price? Board of Wynn Resorts Forcibly Buys Out Founder (WSJ)
• Spain Sinks Deeper Into Periphery on Debt Rise (Bloomberg)
• Walmart raises stake in China e-commerce group (FT)
• Iron Lady Merkel Bucks German Street on Greek Aid (Bloomberg)

Previously we presented some alternative thoughts to the mainstream misperception of the Iranian "isolation" by some of its biggest oil trading partners. Unlike others, we simply believe that the gulf nation, together with the new axis of anti-USD (as confirmed once again earlier today) is simply preparing itself for a barter based economy, or alternatively, one with commoditized intermediates. However, this ignores the likelihood of geopolitical instability caused by intervening US and Israeli interest in the region. Below are some thoughts from Doug Casey of Casey Research on the likelihood of another full blown shooting war erupting in the Persian Gulf, as well as his thoughts on how one may prepare for such a contingency.

A certain flavor of econometric model dominates conventional portfolio management and financial analysis. This model can be paraphrased thusly: seasonally adjusted economic data such as the unemployment rate and financially derived data such as forward earnings and price-earnings ratios are reliable guides to future economic growth and future stock prices....If this model is so accurate and reliable, why did it fail so completely in 2008 when a visibly imploding debt-bubble brought down the entire global economy and crashed stock valuations? Of the tens of thousands of fund managers and financial analysts who made their living off various iterations of this econometric model, how many correctly called the implosion in the economy and stock prices? How many articles in Barrons, BusinessWeek, The Economist or the Wall Street Journal correctly predicted the rollover of stocks and how low they would fall? Of the tens of thousands of managers and analysts, perhaps a few dozen got it right (and that is a guess--it may have been more like a handful). In any event, the number who got it right using any econometric model was statistical noise, i.e. random flecks of accuracy. The entire econometric model of relying on P-E ratios, forward earnings, the unemployment rate, etc. to predict future economic trends and future stock valuations was proven catastrophically inadequate. The problem is these models are detached from the actual drivers of growth and stock valuations.

• Europe ushers in the recession: Euro-Area Economy Contracts for the First Time Since 2009 (Bloomberg)
• Greek conservative takes bailout pledge to the wire (Reuters)
• China Pledges to Invest in Europe Bailouts (Bloomberg) - as noted last night, the half life of this nonsense has come and gone
• Japan's Central Bank Joins Peers in Opening the Taps (WSJ)
• EU Moves on Greek Debt Swap (EU)
• EU Divisions Threaten Aid For Greece (FT)
• Athens Woman facing sacking threatening suicide (Athens News)
  
• King Says Euro Area Poses Biggest Risk to UK’s Slow Recovery (Bloomberg)
• Sarkozy to Seek Second Term, Banking on Debt Crisis to Boost Bid (Bloomberg)

While all the focus has been on Greece in recent days, the global nature of the debt crisis came to the fore yesterday and overnight. This was seen in the further desperate measures by the BOJ and Moodys warning that the UK could lose its AAA rating. Some of us have been saying for some years that this was inevitable but markets remain myopic of the risks posed by this. Possibly the greatest risk is that of the appalling US fiscal situation which continues to be downplayed and not analysed appropriately. President Obama unveiled a massive $3.8 trillion budget yesterday and he is to increase Federal spending by 53% to $5.820 trillion by 2022.  The US government is projected to spend over $6 trillion a year by 2022.  Still bizarrely unaccounted for is the ticking time bomb of unfunded entitlement liabilities - Social Security and Medicare, which Washington continues to deal with by completely ignoring them. While Washington and markets are for now ignoring the fiscal train wreck that is the US. This will change with inevitable and likely extremely negative consequences for markets – particularly US bond markets and for the dollar.

In a move that will surely shock, shock, the monetary purists out there, the Bank of Japan has just gone and done what we predicted back in May 2011, with the first of our "Hyprintspeed" series articles: "A Look At The BOJ's Current, And Future, Quantitative Easing" (the second one which discussed the imminent advent of the ¥1 quadrillion in total debt threshold was also fulfilled three weeks ago). So just what did the BOJ do? Why nothing short of join the ECB, the BOE, and the Fed (and don't get us started on those crack FX traders at the SNB) in electronically printing even more 1 and 0-based monetary equivalents (full statement here). From WSJ: "The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy. With interest rates already close to zero, the BOJ has relied in recent months on asset purchases to stimulate the economy. In Tuesday's meeting, the central bank expanded that plan by ¥10 trillion, or about $130 billion. The facility, which includes low-cost loans, is now worth about ¥65 trillion, or $844 billion." The rub however lies in the total Japanese GDP, which at last check was $6 trillion (give or take), and declining. Which means this announcement was the functional equivalent to a surprise $325 billion QE announced by the Fed. What is ironic is the market reaction: the BOJ expands its LSAP by 18% and the USDJPY moves by 30 pips. As for gold, not a peep: as if the market has now priced in that the world's central banks will dilute themselves to death. Unfortunately, it is only at death, and the failure of all status quo fiat paper, that the real value of the yellow metal, whose metallic nature continues to be suppressed via paper pathways, will truly shine.

Much has been made of today's Reuters story how "Iran turns to barter for food as sanctions cripple imports" in which we learn that "Iran is turning to barter - offering gold bullion in overseas vaults or tankerloads of oil - in return for food", and whose purpose no doubt is to demonstrate just how crippled the Iranian economy is as a result of the ongoing US embargo. Incidentally this story is 100% the opposite of the Debka-spun groundless disinformation from a few weeks ago that India was preparing to pay for Iran's oil in gold (they got the asset right, but the flow of funds direction hopelessly wrong). While there is certainly truth to the fact that the US is actively seeking to destabilize the local government, we wonder why? After all as the opportunity cost for the existing regime to do something drastic gets ever lower as the popular resentment rises, leaving the local administration with few options but to engage either the US or Israel. Unless of course, this is the ultimate goal. Yet going back to the Reuters story, it would be quite dramatic, if only it was not the case that Iran has been laying the groundwork for a barter economy for many months now, something which various other analysts perceive as the basis for the destruction of the petrodollar system. Perhaps regular readers will recall that back in July, we wrote an article titled "China And Iran To Bypass Dollar, Plan Oil Barter System." Specifically, we wrote that "according to the FT, China has decided to commence a barter system in which Iranian oil is exchanged directly for Chinese exports. The net result: not only a slap for the US Dollar, but implicitly for all fiat intermediaries, as Iran and China are about to prove that when it comes to exchanging hard resources for critical Chinese goods and services, the world's so called reserve currency is completely irrelevant." Seen in this light the fact that Iran is actually proceeding with a barter system, something that had been in the works for quite a while, actually puts the Reuters story in a totally different light: instead of one predicting the imminent demise of the Iranian economy, the conclusion is inverted, and underscores the culmination of what may have been an extended barter preparation period, has finally gone from beta to (pardon the pun) gold, and Iran is now successfully engaging in global trade without the use of the historical reserve currency.

• Please - we beg you, help us - IMF Urges Beijing to Prepare Stimulus (WSJ)
• Stalemate in talks on Greek austerity measures (Telegraph)
• U.S. Sets Money-Market Plan (WSJ)
• Forty States Sign On to Foreclosure ‘Robo’ Settlement (Diana Olick)
• Greece bail-out funds could be split (FT)
• Japan Adopts Stealth Intervention as Yen Gains Hurts Growth (Bloomberg)
• Papademos to Meet Greek Party Chiefs as ‘Great Sacrifices’ Loom (Bloomberg)
• Glencore-Xstrata deal meets shareholder opposition (Reuters)
• Romney campaign takes aim at rival Santorum (Reuters)

Just when Japan can least afford it....

Mind versus technicals. 

Daily news.

The vast majority of professional investors are unable to contemplate truly dark times for the markets. After all, the two worst items most of them have witnessed (the Tech Bust and 2008) were both remedied within about 18 months and were followed by massive market rallies.Because of this, the idea that the financial system might fail or that we might see any number of major catastrophes (Germany leaving the EU, a US debt default, hyperinflation, etc.) is on par with Bigfoot or Unicorns for 99% of those whose jobs are to manage investors' money or advise investors on how to allocate their capital. 

All you need to read.

Just a matter of when?