Let’s be very clear here: this is what the euro has wrought. This destruction of the non-German industrial bases has taken place with the active complicity of the European technocrats. They did not even realize that France, the EMU’s second largest economy, for example was becoming hopelessly uncompetitive. This is a zero sum game if there ever was one, with Germany being the main winner and the other three economies massive losers. Instead of leading to convergence in euroland economies, the euro project has led to massive divergences, with the strong getting stronger, and the weak getting weaker... The ECB has thrown enough money at the market to, for now, reduce borrowing costs and allow equity prices to rise (unfortunately so is the euro, threatening exports). This buys time—but these actions are not enough to solve the structural problems created by the euro. The private sector has shriveled in Southern Europe, as government spending and debt has soared. If we have France, Italy and Spain together enter a debt deflation/debt trap, the crisis will be far too big for Germany to handle: and if this happens before German federal elections are held (no later than October) we could see the European political crisis revive in full force.
Typically, we humans will anchor on the most recent patterns - especially if they conform to our anchored inherently optimistic bias. It seems, once again, that just as in previous euphoric stages of equity market cycles, we are doing the same again. There are plenty of market movements that remove any hope for the 'who could have seen it coming?' herd: European stock and bond markets 'breaking' their positive contagion trends (core and periphery); US credit markets seeing very disturbing trends of selling pressure and technical outflows; and US equity valuations reaching multi-month highs in the face of declining earning, declining macro fundamentals, and declining GDP expectations. With US stocks at highs against a plunging US macro background and EU stocks slumping against a rising EU macro background, it appears good is bad and bad is good and while we do not know what catalyst stalls the can-kicking hope in the short-term, the longer the divergence from reality lasts, the bigger the fall to come.
U.S. exports and imports last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s total trade in 2012 amounted to $3.87 trillion. China had a $231.1 billion annual trade surplus while the U.S. had a trade deficit of $727.9 billion. For those who are still not aware of why this is such a big deal, it is essentially a turning point moment in global trade. There is no doubt that China will now be inducted into the SDR, and that their importance as a trade and consumption center will quickly lead to a move away from the dollar. To put it simply, the dollar is going to lose its world reserve status VERY soon. Many will cheer this change as necessary progress towards a more “globally conscious” economic system. However, it’s not that simple. Total centralization is first and foremost the dream of idiots, and in any mutation (or amputation) there is always considerable pain involved. The proponents of this “New World Order” (their words, not mine) seem to have placed the U.S. squarely in their crosshairs as the primary recipient of this fiscal pain.
The Fed's Bailout Of Europe Continues With Record $237 Billion Injected Into Foreign Banks In Past MonthSubmitted by Tyler Durden on 02/09/2013 16:20 -0400
Last weekend Zero Hedge once again broke the news that just like back in June 2011, when as part of the launch of QE2 we demonstrated that all the incremental cash resulting form the $600 billion surge in the Fed's excess reserves, had gone not to domestically-chartered US banks, but to subsidiaries of foreign banks operating on US soil. To be sure, various other secondary outlets picked up on the story without proper attribution, most notably the WSJ, which cited a Stone McCarthy report adding the caveat that "interpreting the data released by the Federal Reserve is a bit challenging" and also adding the usual incorrect attempts at interpretation for why this is happening. To the contrary: interpreting the data is quite simple, which is why we made an explicit prediction: 'We urge readers to check the weekly status of the H.8 when it comes out every Friday night, and specifically line item 25 on page 18, as we have a sinking feeling that as the Fed creates $85 billion in reserves every month... it will do just one thing: hand the cash right over straight to still hopelessly insolvent European banks." So with Friday having come and gone, we did just the check we suggested. As the chart below shows, we were right.
Goodbye Fourth Amendment: Homeland Security Affirms "Suspicionless" Confiscation Of Devices Along BorderSubmitted by Tyler Durden on 02/09/2013 22:20 -0400
Slowly but surely the administration is making sure that both the US constitution, and its various amendments, become a thing of the past. In the name of national security, of course. And while until now it was the First and Second amendments that were the target of the administration's ongoing efforts to eavesdrop on anyone, all the time, in order to decide who may be a domestic terrorist and thus fit for 'droning', coupled with an aggressive push to disarm and curtail the propagation of weapons in what some perceive is nothing more than an attempt to take away a population's one recourse to defend itself against a tyrannical government, the time may be coming to say goodbye to the Fourth amendment - the right to be free from unreasonable searches and seizures - next. But only in close proximity to the border at first. According to Wired, "the Department of Homeland Security’s civil rights watchdog has concluded that travelers along the nation’s borders may have their electronics seized and the contents of those devices examined for any reason whatsoever — all in the name of national security."
How A Previously Secret Collateral Transformation With The Bank Of Italy Prevented Monte Paschi's NationalizationSubmitted by Tyler Durden on 02/09/2013 20:47 -0400
The endless Italian bailout story that keeps on giving, has just given some more. It turns out Italy's insolvent Banca dei Monte Paschi, which has been in the headlines for the past month due to its role as political leverage against the frontrunning Bersani bloc, and which has been bailed out openly so many times in the past 4 years we have lost track, and whose cesspool of a balance sheet disclose one after another previously secret derivative deal on an almost daily basis, can now add a previously unannounced bailout by the Bank of Italy to its list of recent historical escapades.
We now live in an entirely fabricated fiscal environment. Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats. The metaphor may be overused, but our economic system has become an absolute “matrix”. All that we see and hear has been homogenized and all truth has been sterilized away. There is nothing to investigate anymore. It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm. In the end, trying to make sense of the illusion is a waste of time. All we can do is look for the exits…
The below article, recreated in its grotesque entirety, is a real, serious Op-Ed written by a supposedly real, non page-view trolling, Nobel-prize winning economist, in a serious paper, the New York Times. It can be classified with one word: jaw-dropping:"We’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts. So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do."
Over the past few weeks, virtually all of the empty chatterboxes on financial comedy TV have been repeating ad infinitum just how much cheaper the market now is compared to its prior peak in 2007 because, get this, it trades at "only" a 15x multiple compared to the 18x or so reached at its peak in 2007. By doing so these same hollow pundits simply confirm just how painfully clueless their cheerleading is, as the market, or what's left of it in the "new Bernanke centrally-planned abnormal", never trades on current earnings but always future discounted EPS, or in other words, forward P/E, or any other valuation, multiples. And it is when one looks at the future on an apples to apples basis, that the market now is more expensive than it was back in 2007!
"We are from the government and we are here to help you"
- Anonymous government worker
A week after Argentina resorted to every failing authoritarian government's last ditch measure to (briefly) control inflation before runaway prices flood the nation and result in political and social upheaval, namely freezing retail prices - a decision which never has a happy ending, the country is pressing on through the rabbit hole and in the latest stunner of a government decree (which like Venezuela yesterday is merely a harbinger of what is coming everywhere else), has banned advertising in the Argentina's newspapers in an attempt to weaken what's left of a private, independent media, and to punish those who don't comply with the government's propaganda.
Six years ago today, with the S&P 500 around 1460 - having risen 20% without a correction for seven months - a handful of Wall Street's best and brightest joined CNBC's Larry Kudlow and Bob Pisani to discuss the Goldilocks economy, why the bears are wrong, and where the market is going next. Sometimes, we just need a reminder to snap us out of that recency bias... for example, Bob Pisani: "We have got a global rally going on... and the important thing is... there's a floor to the market - every time, for the last seven months, they sell the market down for 2 days, it comes right back... When you are in a global expansion like this, to sell...is foolish."
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
The NDAA lawsuit is one of the key topics we have written about over the past year or so. For those of you that aren’t up to speed, one of the most popular posts we ever wrote was NDAA: The Most Important Lawsuit in American History that No One is Talking About. Basically, Section 1021 of the NDAA allows for the indefinite detention of American citizens without charges or a trial. Journalist Chris Hedges and several others sued Obama on the grounds of it being unconstitutional. Judge Katherine Forrest agreed and issued an injunction on it. This was immediately appealed by the Obama Administration to a higher court, which promptly issued a temporary stay on the injunction. Yesterday, oral arguments began in front of this aforementioned higher court; the 2nd Circuit. As Chris Hedges states in the interview below, if they win the case then it will likely be brought in front of the Supreme Court within weeks. On the other hand, if the Obama Administration wins and the Supreme Court refuses to hear the appeal, Hedges states: “at that point we’ve just become a military dictatorship.”
Excess cash on corporate balance sheets has been a hot topic the better part of the last decade, but ConvergEx's Nick Colas believes it's about to become even more important to capital markets. U.S. companies have, after all, regained all the profitability they collectively enjoyed prior to the Financial Crisis. Moreover, they've accomplished that by rationalizing their business models to succeed in a period of distinctly sub-par growth. Combine that with markets that will likely offer only average returns, and activist investing seems like a worthwhile approach to alpha generation. Sometimes, however, it pays to look at the world through the eyes of the fox rather than the hounds. As the Einhorn-Cook battle commences, we graciously offer up a few kernels of advice for other companies who get the "Where’s my money at?" call from an activist. E.g. #1 – The country’s central bank doesn’t think we are really out of the crisis – why do you?