Now that the world is focused on the ongoing turbulence in the Middle East, Europe gets a rest from the financial hit men. While Europe ain’t the Middle East, there are lots of connections between the two continents. Many countries within the European Union have citizens with Arabic roots and backgrounds, and the Islam is a second largest religion. And lets face it, a few hours in a jet airplane and most Europeans can enjoy the tropical climate of the Middle East region. But there’s more, like the large trade and financial pacts between different Arabic and European nations. Take for instance the in ‘state-of-turmoil’ Libya, who holds large stakes in Italian blue-chip companies like banking giant UniCredit or defence company Finmeccanica. That makes Italy, already a EU member in financial chaos, a first potential victim of the unrest in the Middle East. But if we dig deeper in the EU/Middle East web, then we see more potential trouble ahead. The immense trading hub between Morocco and France, or the Turkish ‘gateway’ for Eastern Europe. No wonder few pundits are sounding the alarm bells. But hey, that’s the world we live in nowadays, with everyday a potential to chaos. If we take a step back, away from the heat, and have a look at the bigger picture for Europe, then the real problem and threat for Europe lies within Europe, namely Spain. Spain is for Europe what Florida is for the US: one gigantic foreclosure mess! And guess what, prices of Spanish homes are still dropping, just like oversees.
Something funny transpired over the the past two years in the Fed's interpretation of the critical Taylor rule, which Bernanke refers to in every testimony before Congress or the Senate: John Taylor, the creator of the rule, and Zero Hedge's nomination for Fed chairman (inasmuch as we need a Federal Reserve) said Bernanke is wrong in his interpretation of the rule, and if he had a proper interpretation the Fed Chairman should already be hiking rate. Yet leave it to Bernanke to believe he knows better what the rule is supposed to mean....than even its creator. From the WSJ: "Stanford University professor John Taylor, an outspoken critic of the Federal Reserve in recent years, has a new complaint: He says Fed Chairman Ben Bernanke is misrepresenting Mr. Taylor’s eponymous rule on interest rates." A brief reminder on the Taylor rule, which has been presented numerous times on Zero Hedge before: "The Taylor Rule offers a simple formula that economists often use as a
guide for the appropriate level of the federal funds rate. The formula
provides changes in interest rates depending on the level of inflation
and the output gap, which is the difference between actual gross
domestic product and the economy’s potential output. Depending on how
you define the rule (for instance if you give the output gap a lot of
weight in the formula or just a little, or if you use a projected
inflation rate or actual inflation) you can come up with different
interpretations of whether interest rates should be high, low or even
negative in a theoretical world." And an odd dilemma appears when one uses the original version of the Taylor rule as presented in 1993 or its 1999 revision: they provide totally different results: the first one says the Fed is wrong, the second one validates QE. Yet here is Taylor himself: "I did not propose or prefer an alternative rule in that 1999 paper, and it is hard to see how one could interpret the paper that way." So is the entire US monetary policy based on a rule derivative that is not even endorsed by its creator? The answer is a resounding yes.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 03/03/11
Investors who truly believe in the protective qualities of physical precious metals in a portfolio can own a variety of both bullion and investment collectible coins. Aside from the collectible coins' one-time exemption from confiscation and the belief they would again be exempt if such event recurred, other attributes of collectible coins are strong attractants to those who wish to hedge the metals market with a collectible coin in the same metal. A keen eye for changing trends in the values at which collectible coins trade, can bring to light some very appealing strategies.
You can go back through thousands of years of economic history and realize one fact: No country has ever printed their way to prosperity, all who have tried have wound up in hyperinflation, war or demise. How a guy can teach himself calculis, get into Harvard, become a professor at Princeton and NOT understand that - well it totally defies logic. The idiot was asked about the one time in our history that we had no debt. (Please don't think we balanced the budget during the Clinton years - for you can't debt (apply IOU's in the Social Security Trust Fund) as income.) Andrew Jackson balanced the budget and wiped away our debt by using non debt based money. Bernanke was asked about this during a recent hearing and he scoffed at it - his merit? Because it happened before the Civil War.
The chart below confirms what we have all grown to love and expect from the robotic algo stock trading bias, on days when volume does not exist. The trade here is obviously tomorrow's NFP, which is at a critical junction: should Bernanke wish to proceed with QE3 this may be his last opportunity to doctor the employment data to start a smooth transition toward further monetization expectation. Should NFP be a blow out, the next NFP report will be in April and it will have to be truly abysmal for anyone in Congress to buy that further monetary intervention is required just two months ahead of the end of QE2 in June. On the other hand, Bernanke wants stock prices to be as high as possible at the point when the transition to a QE-free environment occurs, assuming of course, anyone at the Fed believes the economy can ever exist without a daily dump of $5-7 billion.
That government projections are not worth the price of the paper (especially not in today's dis-disinflationary environment) they are printed on is no secret. As Zero Hedge recently demonstrated the margin of error in the most recent budgetary prediction can only be classified as insane. We wrote: "On February 28, 2001 George Bush said this about his 2002 Budget: “It
will retire nearly $1 trillion in debt over the next four years.”
Instead, US debt, which at that point was $5.7 trillion, rose to $7.7
trillion. $3 trillion rounding error? Also in the same budget, Bush
predicted a $5.6 trillion surplus over the next ten years, which would
wipe out all of America's debt by 2011. The latest debt figure was $14.1
trillion. A $14.1 trillion rounding error, or a nearly five fold
increase in "rounding errors" in a decade." So that's debt, what about budget surplus and/or deficit projections? It's not any prettier. And courtesy of the NYT we can now see this in an easy to comprehend animation. Following the jump readers can see just how endlessly upward biased projections tend to almost without fail deviate with reality (and unemployment rates as well). The best indication: the 2012 projection to the 2008 budget forecast callsed for a surplus. Now we are expecting a massive deficit. So why do we listen to these monkeys with typewriters again?
Portugal, Which Has €20 Billion In Bond Maturity And Deficit Outflows In 2011, Has Only €4 Billion In CashSubmitted by Tyler Durden on 03/03/2011 16:01 -0400
It seems there is just one market which the Fed is either unable, or unwilling to manipulate: that of Portuguese (and generally peripheral European) debt. And for good reason. As the WSJ reports, Portugal started the year with about €4 billion in cash: "Fresh borrowing and other public transactions suggest Portugal has this
year likely increased that number to around €4 billion. The official
said in an email that the figure had risen but didn't elaborate." There is one small problem: the country has a €4 billion outflow on April 15... and has to pay down €20 billion worth of debt maturities and budget deficits through the end of this year! Where the country will get this money... nobody knows. Just BTFD. But not in Portuguese bonds. As the charts below show that is still the only asset that can't find a greater idiot.
With everyone focused on municipal developments following the recent muni scare (although with muni outflows dropping to the lowest in months per the latest ICI data, it seems the panic may be over... of course this is at the expense of equity inflows as we had speculated some months ago) the latest news out of the Lucio Report are likely to be carefully scrutinized by the municipal investment community. According to Reuters: "Fewer U.S. states in February hit the mark on forecasting receipts from withholding taxes compared to January, a sign that a recent rebound in revenues may be slowing down, an economic newsletter said on Thursday." The summary from the report: "Around the country results were mixed," said the Liscio Report, which takes monthly surveys of states' tax receipts." Will this add more fuel to the Whitney fire? Look for inflection points in the MUB to find out.
Obama Approves Military Planes In Libya For Evacuation Purposes As Gaddafi Son Says "Bombs Used Only To Frighten Protesters"Submitted by Tyler Durden on 03/03/2011 14:45 -0400
President Obama appeared on TV to give his update statement over Libya: there was little new in it - he repeated his calls for Gaddafi to leave or something to that nature (which Gaddafi already responded to preemptively by saying that "he is not a president so he can not step down"), but most importantly said that he has now approved the use of military jets (thank you Enterprise) for evacuation purposes. Of course, the question of how provocation would be responded to considering there is still no "no fly zone" instituted is merely tempting the hand of fate to immediately retaliate to any provocation. In the meantime, Reuters reports that the Pentagon is now actively monitoring Libyan airspace. Which is to be expected: with the CVN65 Enterprise a day or so away from Tripoli, they would certainly have an active monitoring interest. But the FTW line today belongs to Gaddafi's son Saif al-Islam who justified recent bombing raids as follows: "First of all the bombs (were) just to frighten them to go away." It only makes sense that the whole world is now one big tragicomedy.
Everyone wants to know how the Central State can "help" small businesses so they will start hiring again. The answer is simple: fix the structural imbalances in the U.S. economy and start favoring real production over financial speculation. Please note the question at hand is "what should be done," not "what can be done politically." Politically, everything I propose here is impossible. The Status Quo's stupendous power and share of the national wealth is based on preserving those structural imbalances. The last thing the toadies and parasites in Washington want is to upend the structural imbalances which feed their Masters, the Financial Power Elites and crony-Capitalist cartels.
John Taylor, a long-time outspoken critic of flawed monetary policy appeared on Bloomberg TV in the aftermath of Trichet's press conference which had an extremely hawkish tone to it, implying that the ECB may hike rates as soon as April (indicatively, those who play the lottery have a better chance of winning than an ECB hiking any time soon). When asked about his opinion where the Euro is going, the manager of the world's biggest FX hedge fund said "Higher." Although not for long: he believes that the slowing of the global growth is "slowing more in Europe than anywhere else" and logically any attempt to cut off inflation will result in an even further slow down in the European economy. Specifically, Taylor believes the Euro will peak at 1.45 by June, at which point it will start drifting lower as the market realizes the European (read German) export miracle is over. As for the US, Taylor has nothing good to say there either: "We are going into a recession, damn it" - this will be due to the Fed hiking rates at the end of Q3 should the current phase of artificial expansion continue. Taylor predicts a 4,3,2,1% rate of annualized GDP growth by quarter: "by the time the fourth comes, everyone will be screaming - 'Jeez we are going into a recession'." As for the US stock market, Taylor predicts stocks will continue rising for another few months, at which point the "coming recession" will take over. Of course, Taylor's premise is based on the assumption QE does not continue into the end of 2011 and further. Which is a very aggressive assumption. After all, we have trillions in debt to be monetized by some central bank. Alas, it will have to be our own, as everyone will be busy doing the same to their own debt.
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 03/03/11
Bernanke's plan to recreate Libya in our own back yard is continuing to work magnificently. It is no surprise that on Charles Ponzi day, the update to food stamp usage indicates that in December those receiving an average of $134 per month has just hit 44.1 million people. These lucky people will soon be able to buy an inflation adjusted 2.3 crumbs of notional bread with this generous handout from the Chairsatan. In other words, America is now the land of the free, home of the brave, of whom 14.3% can't afford to eat, even with all the new jobs created by both the old QE1, Lite and 2, and soon to be 3. Don't forget that according to the Bernank, QE2 has already created 250,000 new jobs... all at the a modest cost of $1.3 million per job.
Update: Libyan Rebel group rejects Venezuela peace proposal according to a report, as the Pentagon announces it remains cautious but not against Libya no-fly zone
Just headlines from AFP for now. Hpefully this should end the most embarrassing 12 hour period ever in which the dumbest news possible actually impacted the commodities market.