No one believes in their positions (other than people that hold hard assets like precious metals outside of the banking system and will not sell until the system is reset), rather investors and traders are forced to be involved in positions as a function of their mandates. Their decisions are no longer driven by economic or business prospects but rather by some view on what the Central Planners of the world will do next. The markets seem calm but there is a storm brewing beneath them and the pressure will be released one way or the other. We are now in the crucial six week period between Fed meetings. The reason I think this is such an important time is because not only will investors come to grips with the reality on the ground (recession) but it is also earnings season. As I pointed out during the last earnings period, stocks that had even a whiff of weakness in their numbers or outlook were decimated. Even names that had good results did not break out. This sent a clear signal that too much goodness is priced into many shares out there.
In a move not too surprising to those who have followed the Egyptian presidential election, the candidate who is now president of the country one year after its "liberation" is the Muslim Brotherhood-backed Mohammed Mursi (for an extended interview with Mursi delineating his views read this ), who has won with over 13 million, or 51.73% of the votes. This means that at least superficially the Egyptian military is being pulled back from power, and instead the Islamist forces will be in control. How this ultimately impacts the region, and especially Egyptian neighbor Israel, remains to be seen, although a major Islamist power ascending in control of a formerly secular nation will hardly be very beneficial to Israel, especially in the long-run even if the just elected president has pro-western beliefs.
Dr. Michael "The Big Short" Burry's "Brutal Hangover Is Inevitable" State-Of-The-World UCLA Commencement SpeechSubmitted by Tyler Durden on 06/22/2012 22:01 -0400
Infamous for his prediction of the great recession, Europe's demise, and the collapse of the US financial system (as well as profiting extremely handsomely from said predictions), so well captured in Michael Lewis' book "The Big Short", UCLA's Dr. Michael Burry undertakes UCLA's Economics Department's commencement speech with much aplomb. In this "age of infinite distraction", the astounding truthiness of this 15 minute speech is stunning from single-sentence summation of Europe's convulsions that "when the entitled elect themselves, the party accelerates, and the brutal hangover is inevitable" he reminds us that Californians, and indeed all Americans, should take note. A quarter-of-an-hour well spent from a self-described 'chicken-little' who was "just trying to figure it all out".
Ask 10 people in New York who won the Greek election, and chances are 8 will respond correctly. Yet among all the manic-depressive euphoria surrounding Europe, most will likely have missed the following. Not that there's nothing wrong with that: as Goldman's David Kostin explains, even Goldman clients were caught unaware.
The Euro 2012 football competition has entered its elimination stages. According to Citi's Matt King - one of the few respectable strategists out there - the elimination round has also arrived for the other EURo. There is still hope, but it is rapidly fading, and every additional half-baked, semi-efficient "resolution" only confirms the skepticism of the ever-increasing crowd of naysayers: summits, summits, and more summits, all the while nothing changes, and the German population: the only source of any European stability, is becoming increasingly belligerent toward the entire European experiment. The other problem: we are now in the first session of extra time. So even as Germany inches ever closer to winning it all in the European football arena, will the tradeoff be a loss for everyone else who now relies exclusively on German benevolence? A few days ago, David Marsh, writing "Don’t count on Germany’s economic surrender" in the FT, made just this point. And he is right. Yet the capital markets, after nearly throwing in the towel on Spain last week, have rebounded strongly giving some hope that this time something may be different. It won't be. King explains.
I have to say that this event, which is being labeled a "training exercise", makes very little sense to me. U.S. Army troops all the way from Maryland running open exercises in armored personnel carriers on the busy streets of St. Louis? I know Maryland is a small state, but is there really not enough room at Ft. Detrick to accommodate a tank column and some troops? Are there not entire fake neighborhood and town complexes built with taxpayer dollars on military bases across the country meant to facilitate a realistic urban environment for troops to train in? And why travel hundreds of miles to Missouri? At the very least, this is a massive waste of funds.
Over the past week, various entities controlled by bailed out UK-bank RBS, focusing primarily on NatWest, have seen clients unable to access virtually any of their funds, perform any financial transactions, or even get an accurate reading of their assets. The official reason: "system outage"... yet as the outage drags on inexplicably for the 5th consecutive day, the anger grows, as does speculation that there may be more sinister reasons involved for the cash hold up than a mere computer bug.
"I could go on and on with other examples, but let’s just get to the point: one cannot operate a capitalist system if the state can borrow at a negative cost. Years of irresponsibly loose monetary policy in the US has led to cheap funding for the US (and other) governments, but difficult credit conditions for the private sector all around the world. As I underlined in How The World Works, negative real rates leads to misallocation of capital which ends in asset deflation, while simultaneously limiting the capacity for recovery by driving out the private sector.... The Fed has been managed by a bunch of Keynesians who care nothing about the role of the dollar as a reserve currency and who probably believed they were managing the central bank of Belorussia or Zimbabwe!"
It seems pretty clear that the Syrians know the consequences of their actions. NATO (including deluded US hawks who are happy to ignore the disastrous consequences of the drug war on the US border while talking up more intervention in the middle east) and the NATO-backed Syrian opposition has been looking for any excuse to get stuck into a new interventionist mission. We know that the NATO-backed opposition were prepared to try and get a British journalist killed in a false flag operation in order to trigger a Western intervention. So why did Russia-armed Syria do it? And why (given the age of F-4 aircraft, it could easily have crashed of its own accord giving the Syrians a lot of plausible deniability) are they not at least denying that they shot it down? Is it possible that the wider Eurasian anti-American coalition led by the Russians and the Chinese are confident that NATO will not intervene out of fear of triggering a wider war? After all the Russian naval base has been a great obstacle to NATO intervention. Libya didn’t have any Russian bases, and it took far less internal violence for NATO to intervene there.
In what may come as a shocking surprise to exactly nobody, the next great discovery as more and more layers of the global ponzi onion are exposed, is that China was, in fact, lying about everything. Yes, we know, stunning.
There are two significant events that will be decided in the forthcoming days. Each will change the face of the European Union. The first is Greece; a little country with a total debt of $1.3 trillion and likely to default. The calculations in Athens are how to get more money out of Germany and the calculations in Berlin is whether a default is less costly, both politically and economically, than giving Greece more money. Debt forgiveness has never even been mentioned so I think we can rule out this possibility as it would have been floated by the German public for review and reaction. The Troika shows up Monday in Athens, they will find all targets missed, all promises unkempt and all hopes for salvation dashed upon the Greek floor along with the plates. The Greeks will beg and plead and threaten and the Germans will decide. In the end I think Greece will be allowed to stay in the EU to preserve the dream, that they will default, that they will return to the Drachma and that they will receive some kind of debtor in possession financing so that the country does not collapse. That is my best guess. Cheaper tourism and cheaper ships will help with their competiveness but it will be years before Greece is allowed back into the Eurozone as a voting member. The second item on the docket is Spain. They need a total of around $350-400 billion dollars to straighten out their banking system and their regional debt. Money lent to the banks in some fashion, not currently allowable under the various policies but you never know, or money lent to the sovereign to be lent to the banks will be just the first tranche of funding. It will be followed by more money lent to the regions of Spain which may take another novel approach but no matter. Spain is about to be run out of Germany no matter how all of the trivialities play out and so the impositions of the Men in Black are about to be put in place. So long to the importance of Madrid and thanks for all of the entertainment. You have been caught and are about to be hung out to dry and enjoy the ice wine that Germany will provide for your congratulatory dinner. Rajoy was right, a “Great Victory for Europe;” serving ice wine in Madrid.
We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There's no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.
The "Syrianna" story from this afternoon, which many were quick to label as merely a lot of diplomatic hot air and rhetoric, just turned uglier, after Syria not only did not officially apologize as Turkey PM Erdogan implied had happened previously for the shot down Turkish F-4 fighter jet, but instead turned the tables on Turkey, and gave itself an out for what is now a definitive military action. From Reuters:
The Syrian military said it shot down a Turkish military aircraft "over Syrian territorial waters" on Friday.
"Our air defences confronted a target that penetrated our air space over our territorial waters pre-afternoon on Friday and shot it down. It turned out to be a Turkish military plane," a statement by the military circulated on state media said.
The only question remains whether Syria's act was offensive or defensive. Naturally, its version is one of self-defense. Turkey obviously will claim it was in its right to be wherever the plane may be, and will say this was an act of provocation. Then NATO, read Hillary Clinton, will promptly step in, and make this a case in which Turkey was in its right and that Syria committed an act of aggression. From there, things will just escalate, and can potentially deteriorate to a far more troubling scale, because as we reminded earlier, Syria has recently become a major symbol for NATO vs the Russia-China axis.