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We're Getting Closer
I couldn’t be more delighted than to see the DAX get tagged for 2.5% today. This is a consequence of the “Successful” vote yesterday in the German Parliament to throw more good money after bad. The hit (so far) to German investors comes to $40b. That should make them happy this weekend.
It’s not just investors that a giving the raspberry. According to this WSJ article yesterday, 75% of the folks in German are fed up with more bailouts.
A poll for national German broadcaster ZDF earlier this month shows three-quarters of Germans are against the expanded European rescue fund.
How can this happen? Politicians are doing what the voters don’t want. It can only mean that new politicians are coming and the bailouts will be curtailed.
Keep in mind that the expanded EFSF is still woefully inadequate to address the debt problem in the EU. There has to be a much bigger effort. In my view, anything less than Euro $2 Trillion is not going to work. A big bazooka is required, a popgun is being offered.
This brings us to the speculation this week about a Euro SPV. There was the “Leisman Plan” (I wanna puke) and the EURECA Plan. These are confusing to most people. Let me make it easy. What is being proposed are Euro Bonds in disguise. This is just financial engineering to cosmetically create a joint and several EU debt obligation.
This won’t work. The ratings agencies and investors will see through this. If something silly like this is going to come I would anticipate that Moody’s and S&P will downgrade both France and Germany within weeks. Everything that is being offered is just a half-assed effort to deal with a very big problem.
The conclusion for me is that the Euro has to continue to suffer on the crosses as a result.
I see the dollar as the backbone for the markets in general. In a “perfect” world an orderly depreciation of the dollar (5% a year) is a “good thing”. It supports US inflation (that makes debt look smaller). A weak dollar is beneficial for tourism, and encourages foreigners to buy real assets like real estate. It gives US manufacturers of big-ticket items (planes/construction equipment) a pricing advantage. It also provides a big boost to translated earnings for the S&P multinationals.
The very worst thing that could happen to the US economy in the 4th quarter is that the dollar gains 10% against the Euro. That looks like what is coming to me. Don’t buy the dips, sell the rallies.
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BLATANT BREACHES
On the subject of the EU and the banks, an interesting speech by Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB). He spoke at an investors conference in Boston (PDF) yesterday. I wasn’t there. He was quoted as saying:
European banks carried out "blatant breaches" of IFRS in valuing their holdings of Greek debt.
Mr. Hoogervorst’s comments were consistent with his letter (PDF) to the European Securities and Markets Authority. Some tidbits from that letter:
There have been indications in the market that some European companies are applying the accounting requirements for fair value measurement and impairment losses in a way that seems to differ from the objective of IAS 39 Financial Instruments: Recognition and Measurement.
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This is evident particularly in their accounting for distressed sovereign debt, including Greek government bonds.
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The bottom line from the chair of the International Standards Board is that the European banks are fudging their books. This is not the Blogs making this assertion. It’s coming from the highest authority that exists.
This conflict can’t be ignored much longer. It’s possible that the EU banks will try to wash this over one more time in their third quarter statements. I think it will be damn near impossible for them to issue annual reports for 2011 without full disclose. In other words, don’t load up on the EU banks just yet…
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Every year, approximately 25-hundred left-handed people are killed by an object or machinery that’s specifically designed for right-handed people.
That's why we need to find a left handed smoke shifter. I think those guys over there might have one.
doop
Bruce,
regarding: "It can only mean that new politicians are coming and the bailouts will be curtailed."
This the question asked twice above without a question mark: Why does it not mean "----that new politicians are coming and" they will do exactly the same as the old politicians because they will paid by the same dudes?
Since the line was singled out by three of us, it seems that it must be on the minds of many who read this piece. Would you comment on this, please?
Thank you om
It really doesn't take many offers of million dollar a year consulting jobs the get a bill passed. Look at Obamacare. Who knows, the banks may even get some value from their new consultants, if not there's always the old hotel maid trick.
US companies have done the same since 2008, as mark-to-market rules are suspended, what's new here?
"In a “perfect” world an orderly depreciation of the dollar (5% a year) is a “good thing”."
Currency debasment is a great idea. What a fucking idiot. It seems every posted other than Tyler Durden is a total moron on this site.
You may disagree with with Krasting, but keep it civil ok? Show him some some respect, the man is right 90%+ of the time, and he has the courage to use his proper name, unlike "all of the other posters on Zero Hedge." If you chase away old hands like him, we'll be left with Phoenix Capital missives and rumors from Belgium, and regurgitations of Goldman studies. Are you from Texas, perchance? You have the social graces of a Texan.
Smile when you say that pilgrim......
I'm talking about Corn1945 BTW-- lay off the Metamucil, okay? I agree w/you on currency debasement, but B. Krasting is one of the good guys. Flame on some of these Chinese & TBTF trolls pleeze....
Like yours?
Let me assure you of a few things:
A strong dollar is bad for the US economy.
A strong dollar is bad for US stocks.
A strong dollar is deflationary.
If the dollar get stronger than it is today it will increase the probability that the the US economy goes into recession.
You can take all that to the bank.
Yours Truly,
Fucking Idiot
A strong dollar is deflationary.
agree with you 100%, the dollar value should not be a pissing contest as to who has the biggest set of hanging dollars.
keep on truckin BK.
A stronger dollar would:
---Reward savers
---punish debtors (if it also brought deflation), thus diminishing moral hazard
---save billions per year in oil imports and an untold amount in other raw material import costs
---help non-China Asia
---possibly make funding USG debt easier
Two Asian economies (off the top of my head) have seen their currencies appreciate and their economies grow, at least until recently. Thailand's baht went from 40/$ to 30/$, yet Thai growth was high and unemployment low. Singapore's dollar went from 1.6/$ to (at its high) below 1.2/$, yet Singapore growth was strong and its unemployment low. This has reversed as China has slowed, but Y/Y still looks okay.
Germany and Japan ran trade surpluses with China, and with the entire world overall, even though the yen is below 80 and the Euro has spent most of its time above 1.4/$. The US also had a better current account in the late 1990's when the dollar soared.
In contrast, the US still ran a huge trade deficit even at 1.6 Euro, the stock market found a way to collapse when the dollar was at multi-year lows, and the US was still losing jobs to outsourcing. The weak dollar was no blessing.
With the entire world in a funk largely because no one has found a way to replace the consumer of last resort (the US debt-fueled consumer), making everybody's everything more expensive for the US consumer is unlikely to kick start the global economy or help cash-strapped US consumers. Even if the US became a low cost producer (highly unlikely), no country is in much of a position to buy anything now anyway. Also, since China will continue to peg to the dollar until it figures out how to create a domestic driven economy, a dollar decline would have little effect, except with an economic block that isn't going anywhere anytime soon (the EU).
If the S is really going to hit the global fan, the easiest way to get through the grim period will be to have a strong currency so that imported necessities (e.g., crude oil) will be most affordable.
its already in a depression. Not "a possible recession". Have fun with that
thanks 'doom. why in the fuck many others don't realize this FACT is beyond me. to hell with the fraudulent charts, histories, yadda, yadda, yadda. if you're in the mid/lower middle class(you know, THE ONES PAYING ALL OF THE FUCKING TAXES KEEPING THE GLOBAL PONZI CLUSTERFUCK GOING), you'd realize we have been in a DEPRESSION for two fucking years. AND, who gives a shit about deflation OR inflation at this point in time. PRETTY MUCH A MOOT FUCKING POINT. WE'RE GOING DOWN, one way or another, INFLATION=LEGALLY BANKRUPT USSA,aka fucking interest on the national DEBT! or DEFLATION=down the poverty abyss to Hell. SO JUST WHAT THE HELL IS THE ARGRUMENT ABOUT?and yes, I'M YELLING ASSHOLES.......
awesome response :)
Yeah !! Fight club in action. Love your articles Bruce, and love that you stick to logic, facts, and reason with the information at hand. I do not read all of the contributors anymore because a few of them have gone too political ( usually to the lefty whacko side ). The only leftist I miss is Leo, but that poor guy was getting creamed in the comment section. Go Bruce !!
Leo deserved to get whacked. In May he was pounding the table for LDK solar.
The stock was 12 at the time. It closed at 3 on Friday.
By that puppy on margin and lose all of your money....
I did consider some of the things Leo posted, but I often didn't buy into his line of thinking. I liked some of the things he said about pensions, which is a huge issue for a lot of people.
It's important to think about contrary ideas, even if they are rejected after consideration. Facts are facts after all, so its just opinion/interpretation that is up in the air.
Leo also pitched solars pretty hard from what I saw and with Solyndra and all ...
Regards,
Cooter
Leo was pretty much wrong on all counts re economics and investing, and to make things worse he continually spewed out big gov. progressive leftist bullshit. What i liked about him is that he was a likeable guy and told some good personal stories in some of his posts. I totally agree about exposing oneself to contrary ideas even if they are rejected after consideration, but one of the reasons I come to ZH is because the entire MSM is saturated with nonsense, pump and dump propaganda, and left leaning horseshit. At Zh at least I can get some of the truth and some of the behind the curtain info that is not found anywhere.. The Tylers do a kick ass job. Gotta say the learning curve was steep when I found this blog over a year ago.
how'd that annihilated dollar work for us in the Great Depression? That's what I thought. A strong EURO is a horrendous idea because it involves a currency union that really should never have been so in the first place. The fact of the matter is the only thing the Germans have done is attempt to bail out their own banks at the expense of Greece et. al. Now the countries fly apart. What about the pan-European institutions then like Eurpean Space Agency or the European nuclear authority?
The recession is here now. Depression is just a jump to the left.
And about going to the bank. Good idea! But it's time for withdraw-alls!
NO, you are not FI, but they do need to fail!
I see you shiver with antici...pation!
A Keynsian believes a strong dollar is bad for the domestic economy.
A Keynsian believes a strong dollar is bad for domestic stock prices.
A Keynsian believes a strong dollar is deflationary.
A Keynsian believes sound money causes recession (because he's prevented from fiscal & monetary intervention).
Hi Bruce, always a pleasure to read your stuff. You're no idiot.
I agree a strong dollar is bad for the US economy, right now. But isn't it inevitable?
With all the debt here, and worldwide, isn't deleveraging an absolute necessity going forward? Do really think we can grow our way out from under it?
Regards, a Schmuck.
I agree! Bruce's stuff is normally fantastic but it seems he can't see the forest for the trees. Deflation helps the middle class long term - inflation helps the government and big banks. Is Bruce viewing a "strong economy" through the lens of a bankster? Hmmmm....
Either way, the massive amounts of debt will need to be deleveraged which will ultimately lead to deflation - people keep saying we'll inflate our way out, but the Fed/government has already pumped in trillions and they barely moved the needle. We're back to where we started with a boatload more debt (which will now also need to be deleveraged)... This ain't rocket science and this is not the Weimar Republic or Zimbabwe. Deflation of debt is far more likely.
A strong dollar is already happening. Lower stock market, real estate, commodities, etc are already here. After deflation I would not be surprised to see massive inflation, but the debt must go first most likely via unprecedented level of defaults... The pin cometh!!
If I'm right and we see a stronger dollar and we do have deflation, the very first folks to be hit would be your middle class.
Who do you think are the 10% that are currently unemployed? It's the middle class. If unemplyment goes to 20% it would not be the the top 20% that feels the pain, It would be the middle class.
Want manufacturing jobs in America? Cheapen the dollar.
I' don't think it is possible to deflate away ones debt. Inflation salves the problem.
Why do you think Bernanke is trying so hard to goose up inflation?
Bruce, Do you think the fed should do qe 3 ,4 etc... to try and keep the dollar down? Keeping the dollar down thus far has only heped the banks and wall street. A weaker dollar hasn't workede thus far. There are structual problems, The economy needs to be allowed to cycle down without the tremendous amounts of stimulis that it has become addicted to. Nobody has the answers, but my view is let it all crash and start over. Deflation is inevitabkle consequence of over indebtedness for everyone. Dolars need to be destroyed through bankruptcies (countries, banks, individuals), and debt brought down to sustainable levels.
Wow, I was waiting for the /sarcasm off. Inflation by our government is nothing but simple theft, come on. For Fucks sake you are sick. There has to be pain and there will be either way we go. Its a called race to the bottom for a reason brucy boy, cause no country will allow deflation, so goose away there's plenty of competition.
Its all moot anyway, were done with growth.
Incomes will never keep pace with inflation and the middle and lower classes have very few assets that will inflate. I believe your scenario will lead to a very bad case of screwflation - rising prices and flat incomes. Incomes are already dropping as reported earlier today (and this after trillions in stimulus and printing!). I don't doubt the FED will try to inflate, but the casualty will be the middle class - we've already seen evidence of this.
I totally agree that Deflation equals severe short term pain. However it will draw a line in the sand, which will allow us to begin to dig out. Inflation equals decades of pain 10 times worse than Japan. Deflation is the worse case scenario for the wealthy, banksters, and government, hands down.
We can deflate away debt - it's called default. Short and painful and a far better solution than inflation. Neither solution is easy, but facing the facts right now and being decisive Is far better than providing a salve to the banksters while letting the middle and lower class twist in the wind and die a slow death... I'm just sayin'
Seems like the contributors at Zero Hedge are having a competition to see who can replace that idiot Leo. You are in the lead so far.
We import massive amounts of stuff including energy. What do you think a weaker dollar does to those imports? I'm sure $8 gas is great for an economy designed to function on unlimited amounts of cheap petroleum.
I'm sure the economy will come roaring back after we destroy all of our working capital (i.e. "savings"). You are a Krugman-esque simpleton. Bernanke would have to print 10s of trillions of dollars to make the debt go away, nevermind the fact that the debt is still growing.
Enough with your idiocy.
You're right. We import massive amounts of stuff (crap). It's killing us. We run a current account and trade deficit. That deficit MUST equal the amount of US assets owned outside the country. So places like China end up with our currency.
Now put your Economics 101 hat on. What's the solution to the problem? It's the price (FX) that needs to be adjusted to bring things back into balance.
If the dollar were weaker we would not import so damn much stuff. We would find ways to make that "stuff' here. That would be very helpful if you were looking for a job. We've outsourced millions of jobs because of an over valued dollar.
Yes, imported energy would get more expensive. I say "good". It would force us to find more sources on our shores and it would open gas (where we have a ton) to segments of of our transportation needs (buses and trucks).
It would also shift more energy production to alternative sources. I think that would be a very good thing to happen.
Fuck OPEC.
Yours Truly,
The Idiot
Definitely a fucking idiot. I don't give a flying fuck what is good for US stocks. There is nothing wrong with deflation. In fact, we need massive amounts of deflation so young people like me can afford to buy a home and live a half-decent life. The high cost of living needs to come down drastically.
A bad recession would be good long term for the United States. Maybe it would clear out the trillions in bogus paper wealth and propped up corporations bound for bankruptcy anyway.
Those who advocate destruction of the currency should be executed for treason. Maybe that boob from Texas was onto something.
Corn -- there are two types of deflation. Healthy deflation driven by productivity/technology. We want that. Bad deflation is when shop owners are dumping goods since they can't sell them. That leads to bankruptcies, reduced salaries, less workers etc. It is very important that the difference is noted and promoted. The Fed does not get this. To them any deflation is bad; that is a shame and a real problem for citizens
i always find it comical to hear the peanut gallery that contributes nothing substantial but ad hominem insults - let alone one fucking article - berating authors.
it's kind of a joke.
... and for the record home prices would have to come down much, much farther than is realistically possible for this clown to live his american dream.
I would guess that they are going to fall at least another 20% before 2014 with the backlog of foreclosures, the mark to fantasy waking up to reality, and the return to the mean for incomes/ to home prices
I like you! How about we go "all in" on a gold standard now that the price is plunging? Maybe silver as a "starter dollar"? With a good old fashioned deflation we can take all the gold at the IMF and have the World Bank start issuing gold backed dollars and "see who's really swimming naked."
Actually I concur. You generally are not a fucking idiot, but on this one point I think you are.
It all boils down to this, you will continue to punish the savers. The government needs to fucking cut, not tax us stealthily through inflation. If we had a constricted money supply then I wouldn't have to speculate to save for retirement. I could just SAVE, and deflation over time would increase the value of my savings instead of making it worthless.
This whole inflation is the grease of the economy bullshit just forces everyone to give their money to Wall Street so they can be taken advantage of instead of simply being able to SAVE.
Your points are valid, but short sighted. Anyone who is worried about the next quarter or next year is a fucking idiot. So yeah Bruce, might want to rethink this opinion. Because in the long run a strong dollar is better for everyone. Why should I have to subsidize the fucking tourist industry? Fuck you Bruce. Seriously. eat a fat dick for wanting to anihiliate my savings.
Edit:
Oh, and we'll have a depression ANYWAYS. You should fucking know this, Bruce. The whole reason we will never have a recovery is because they will not let prices fucking adjust. A depression is WHAT WE NEED BRUCE.
Saying that devaluing the dollar is good is no different than Krugman saying we should break windows to increase spending short term. You're destroying wealth. Short term thinking like this is exactly why we're in this mess to begin with yet you think more of the same is "a good thing". Seriously Bruce?
Damage:
You have very elementary and very incorrect view of how economies grow and are quite offensive. Please oh enlightened one, tell us how long term deflation creates jobs and grows economies? I am all ears.
So there were no jobs created during the latter half of the 19th century which saw stready deflation? I guess the industrial revolution isn't good enough for you? That happened during a long period of deflation. I fail to see how slow steady deflation in prices is a bad thing. It just means people can amass great savings and then spend it on investments which will in turn create more jobs than any dilution of the money supply would do.
In a few hours you get what you ask for. What are the odds the recession if not already here won't start by next month? Tomorrow wil be listed as the 'official' start of the recession most know never really went away.
It's a little known fact that smartest animal is a pig. Scientists say if pigs had thumbs and a language, they could be trained to do simple manual labor. They give you 20-30 years of loyal service and then at their retirement dinner you can eat them.
But, but, Max Headroom says we need to save King Dollar...
http://www.youtube.com/watch?v=jhFjkWxUHRY
I don't see no M-M-M-Max Headroom.
Question re: CDS on Euro sovereign debt...
Since these are mostly traded OTC & hence not regulated, presumably no one, wether the ECB or governments, knows the net exposure of the banks who are selling "protection" in case of Greek default.
It would seem to me that the first step to addressing this "crisis" is to identify & isolate those entities so exposed to those CDS, so they can't infect other banks/entities if/when Greece defaults.
To simply ask governments or more accurately voters, to plow their tax money blindly into a black hole with the hope of staving off default for a while longer is insane, yet it seems to have significant support from economists, media, analysts, blah, blah blah.
It makes me wonder how much of this is just scripted, how much is it Greece & the media leveraging the threat of contagion to keep the pressure on Germany & France to socialize & ultimately weaken their economies in favor of the bankers.
Its high time to expose the bankers for what they are - slimy parasites intent on destroying the real economy and then once in shambles, buying it up on the cheap afterwards.
Jamie dimon was at the forefront of not increasing the margin requiremnts or the transparancy of credit default swaps in 2008
Word is that the French banks have insured their risk on the Street.
But did they insure the ones who were insuring them?
kinda like an AIG thingy deja vu................