When a note by a Citi FX strategist begins with the following proclamation endorsing outright fascist despotism, you know it's going to be good: "This is the first European election in which voters didn't do the right thing." Perhaps if Citi would be so kind to overrule the democratic vote, in which 55% or the majority of the people voted against the "right thing", and impose its own unelected Italian dictator, just like Goldman did in November 2011, that long EURUSD call would be happier? Then it only gets better: "Elections are more problematic than market scares or sentiment shifts as they can't be undone by printing monry" (sic). True: some things outright money debasement by central banks can't buy - for everything else there are Siberian Gulags. And the absolute punchline: "Still the outcome does not seem so dire that a bit of growth and ECB flexibility could not turn it around." Why yes, all Europe needs is a "little growth" obviously in lieu of lots of growth, but frankly it will settle for any growth - something it has been unable to do under the wise tutelage of the banker-dominated oligarchy for the past four years, as for that little "ECB flexibility" - wink wink: just where would you like those Euro Stoxx Steve?
Whenever I endeavor to explain America’s current economic situation to a person who likely receives most of his information from skewed mainstream news sources, I try to use two comparisons; the Great Depression, and Weimar Germany, because what we are experiencing is actually a combination of elements from both events. In the end, the madness of debt spending is going to annihilate this country anyway. Fiat printing and infinite QE will eventually result in the dumping of our currency as the world reserve, causing devaluation and hyperstagflation. Stimulus and the monetization of government liabilities are crippling us. The problem is, this nation is irrevocably dependent on such measures. Cuts will result in almost similar catastrophe, but on a faster time frame and perhaps a slightly shorter duration (depending on who runs the show in the aftermath). I’ve been saying it since 2008 – there is no easy way out of this situation. There is no silver bullet solution. There will be struggle, and there will be consequence. It is unavoidable. All we have to decide now is how we will respond when the inevitable disaster comes.
While today's attention was focused on the austerity-crushing defeat of Monti in Italy and the pre-supposition that the ECB being able to use its OMT promise against an ill-disciplined nation fades; there is another super-cell of destruction wending its way towards Berlin (and Brussels). At the perfect time for such things, Reuters reports that the man at the center of Spanish PM Rajoy's political scandal, Luis Barcenas, has been banned from leaving Spain, had his passport revoked, and ordered to report to court twice a month. The millions of dollars in Swiss bank accounts that investigators found that he had deposited and the linkages to Spain's royalty in the so-called 'graft' case are not playing well with the population as unemployment surges above 26%. Judged as a serious flight risk, the high court judge ordered the steps after finding out he was skiing in Canada two weeks ago (where they suspect funds were also transferred). One protester complained, "They are lying to us, and worse than that, scorning us... Enough is enough, we need some accountability."
Equities suffer their biggest single day loss on the year with financials performing the worst. Treasuries rallied sharply on the day in line with the broader risk off move. 10s rallied nearly 10bp on the day though flows were skewed towards better selling – hedge funds selling in the belly in both cash and swaps as accounts looked to fade the rally. Later in the day flows shifted as tactical shorts looked to cover. Gold finished up $11.60 to 1593.50 on a day characterized by broad based liquidation in the macro markets.
JPY saw a massive correction today - gaining 3% against the USD - its biggest single-day gain since May 2010 - dragging all the carry traders with it. S&P 500 futures volume exploded to its highest since the rally began in November as it broke its uptrend and slumped 40 points from its intraday highs. VIX's term structure collapsed to its flattest in 18 months as spot surged above 19% (no - everyone wasn't hedged). The Dow, S&P, and Nasdaq are all red for the month and even the Trannies are almost unch. Treasuries soared with 10Y ending -10bps (after being +4bps at its worst of the day). Gold and Silver surged (with the latter testing near $1600 again) as WTI dropped 1%. Homebuilders (not helped by lumber's price collapse) dropped 3.5% but every sector was ugly today and closed at its lows. Risk assets led this downswing all day long and cross-asset-class correlation surged as the slump accelerated.
It may come as a surprise to some, but the largest single party in the Italian Chamber as a result of today's elections, when stripping away all alliance partners, is none other than Beppe Grillo's Movimento 5 Stelle. With 25.53% of the votes (96.44% of the vote counted), the comedian/blogger/counterestablishmentarian/contrarian received more votes than either Bersani's Democratic Party which got 25.51%, and Berlusconi's Popolo Della Liberta, which got 21.44%. Congratulations to both him, and to the Italian people who made the most symbolic vote of all: that they are done with a broken statist status quo, and that despite engrained beliefs to the contrary, there is a third alternative to the fake Party A-Party B paradigm.
There is one certainty for now within the Italian elections - Goldman's unelected technocrat, Mario Monti, did not win and appears entirely irrelevant. In his first post-election speech - streamed below - the Goldman technocrat addresses the same people that did not elect him the first time, and certainly did not do so now, when they actually had a choice to do so.
From the "Bear Stearns is fine" man himself, circa 7 hours ago: "It is a monster move. A lot of people being left behind. A lot of shorts. This thing won't die. There is a show, again, very good ratings, The walking dead. You know, you can't shoot this thing. Shoot it in the head and nobody's been able to do it. This thing has legs.... Can't talk enough about it"
While it appears the Speaker has decided to hold his comments until after the cash markets close at 4pm ET, we suspect futures will get a kick out of his always-reassuring tone. Following the President's earlier demands for no sequester and more spending, we suspect Boehner will fully acquiesce and agree to a pony in everyone's stocking too... or not. Full webcast below.
The prevalence of counter-factuals or 'coulda-shoulda-woulda's in mainstream economics is stunningly biased to explaining "why we're still in the doldrums outside of course of the stock market." As CNBC's Rick Santelli exclaims, we are told at every turn that if we just do more - more stimulus, more monetization, more bailouts - then the recovery would have been better by now and will be in the future. In his typically calm and stoic fashion, the igneous Illinoisan asks, rhetorically, "What if the Fed had done less?" His answer - rather obviously - is that everything would have been different (but not necessarily worse). In a little under 3 minutes, Rick explains why "the Federal Reserve has done nothing but keep politicians from having to do anything."
I really need to stop being so pessimistic. I’m getting richer by the day. My home value is rising at a rate of 1% per month according to the National Association of Realtors. At that rate, my house will be worth $1 million in less than 10 years. Every mainstream media newspaper, magazine, and news channel is telling me the “strong” housing recovery is propelling the economy and creating millions of new jobs. Keynesian economists, Wall Street bankers, government apparatchiks and housing trade organizations are all in agreement that the wealth effect from rising home prices will be the jumpstart our economy needs to get back to the glory days of 2005. Who am I to argue with such honorable men with degrees from Ivy League schools and a track record of unquestioned accuracy as we can see in the chart below? These are the facts. But why trust facts when you can believe Baghdad Ben and the NAR? It’s always the best time to buy.
The biggest market in the world - foreign exchange - is having some issues here. Wherever you look, trends are snapping hard and levels are gapping. EURUSD is down 1% from Friday back below 1.31 (a 240 pip swing from pre-Italy levels); EURJPY has collapsed to one-month lows; EURCHF is heading the wrong way for the SNB; and carry trades are lifting in rip your face off mode. "That escalated quickly..."
If bond yields are higher, according to the endless talking head chatter on financial comedy channels, due to a "stronger economy" and the 'any second now' exit of Fed monetization, we wonder: what do sliding bond yield indicate? (10Y 1.87 handle now -13bps from earlier highs)