As the mainstream media shows endless scenes of celebration in Tahrir Square following last night's military ouster of democratically-elected President Morsi, the tensions with his supporters grows more widespread. Perhaps, what is more worrisome for the future of Egypt, which we noted last night was definitely on a path on instability, is the reaction of world governments - from "deeply concerned" America to Turkey's "unacceptable" perspective to Saudi Arabia's "congratulations" and Russia's "democracy is not a panacea"- it seems not everyone is behind the second coup in 3 years (but everyone is calling for calm as the middle-eastern turmoil ripples into their markets) but is a "setback for democracy."
For many European leaders, the eurozone crisis demonstrates the need for “more Europe,” the final aim being to create a full-fledged political union. Given the continent’s history of war and ideological division, and today’s challenges posed by globalization, a peaceful, prosperous, and united Europe that wields influence abroad is surely a desirable goal. But major disagreements about how to achieve that goal remain. In short, all of the measures that would implicitly support political union have turned out to be inconsistent and dangerous. They have involved huge financial risks for eurozone members. They have fueled tensions among member states. Perhaps most important, they have undermined the basis on which political union rests – namely, persuading European Union citizens to identify with the European idea. It is this sort of pretense of knowledge that the economist Friedrich von Hayek denounced as a recipe for constraining freedom and ensuring economic mediocrity.
This weekend's epic indignation by Francois Hollande at the NSA, coupled with his laughable ultimatum for Barack Obama to stop spying, was almost good enough to mask the fact that none other than France has its own version of the NSA happily intercepting and recording every form of electronic communication. Almost. Overnight French Le Monde reported that "France, like the United States with the Prism system, has a large-scale espionage telecommunications device. Le Monde is able to reveal that the General Directorate for External Security (DGSE, special services) has systematically collected and spied on the electromagnetic signals emitted by computers or phones in France, as well as flows between French and abroad all our communications. Politicians are aware of this, but secrecy about the Big Brother operation is the rule."
Following BoE Carney's earlier dovishness, and purely by "coincidence" according to Draghi, the ECB has "extended forward guidance" on rates for the first time - once again changing rules and clearly indicating (in spite of his explicit comments that he is not) the ECB's reaction to Fed and BoJ instability introduced into markets. The OMT remains a ghost - but he promises its there if they need it - and negative rates are still on the table. All this jawbone easing (for critically nothing was said apart from no withdrawal of liquidity anytime soon) has sent markets surging higher on a US-market-holiday-induced low liquidity background...
While it was not surprising that the BOE did nothing to change its rate or QE program, it was surprising (to some) that in the first official statement following the appointment of Goldman's Mark Carney as head of the Bank of England, the bank did mention that forward guidance and intermediate thresholds would likely be considered at the August assessment. Which, of course, is code for expect a major change in monetary policy. And now we also know the date, meaning that some time in August Goldman's latest central bank head will proceed doing what Goldman central bank heads do best: crush currencies in order to boost nominal, not real, returns and ensure another record Goldman bonus pool.
Despite media rumors that the Portuguese foreign minister Portas, who resigned on Tuesday precipitating a complete collapse in Portugual bond prices and ushering in the latest European political crisis, has agreed to stay in the government as a Deputy PM and economy minister (nothing like some title inflation-pro-quo), things in Portugal are rapidly turning from bad to worse. To wit:
PORTUGUESE 10-YEAR BONDS DECLINE; YIELD RISES 14 BPS TO 7.60%
PORTUGUESE TWO-YEAR NOTE YIELD RISES 60 BPS TO 5.64%
PORTUGUESE 2-YEAR YIELD REACHES 5.66%, HIGHEST SINCE NOV. 20
The main reason for the collapse appears to be the near consensus developing this morning that no matter what the government does at this point, a second bailout of the small country is inevitable.
As largely expected, the ECB just announced that all three of its key rates remain unchanged.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.50%, 1.00% and 0.00% respectively.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.Since the announcement itself is never that exciting, attention as usual shifts to the 8:30 EDT press conference by Mario Draghi in which he will indicate, once more, just how non-existent the OMT's legal term sheet is, and thus how the European deus ex machine, the OMT, continues to be merely a jawboning-inspired mirage (even though Portugal will need it quite soon).
Given the US holiday, markets are likely to be thin today but there are some big news stories floating around at the moment. If the fast and furious events from the past few days in a revolutionary Egypt bear a striking resemblance to what happened in the spring of 2011, it is because they are strikingly comparable. Only this time, following the ouster of yet another US-supported "leader" by the US-supported military, the country's CDS has normalized at a level that is roughly double where it was two years ago as the implicit backing of the US looks increasingly shaky, following what was yet another bungled foreign policy venture by the Obama administration. But for now, the people are celebrating, just as they did in 2011. One wonders what happens between now and the next coup, somewhere two years (or less) hence. For now focus merely on who controls the Suez - after all that is really all that matters for the US. The other major story of yesterday, Portugal, continues to be in limbo,
The Coup Is Complete: Egypt Military Tells Mursi He Is No Longer President - Tahrir Celebrates - Live FeedSubmitted by Tyler Durden on 07/03/2013 14:56 -0400
Well that was quick:
MORSI SPEECH YESTERDAY DIDN'T MEET PEOPLE'S DEMANDS
EARLY PRESIDENTIAL ELECTIONS TO BE HELD
EGYPT'S CONSTITUTION TO BE SUSPENDED UNDER PLAN
MILITARY AGREED GOVERNMENT OF TECHNOCRATS TO BE FORMED
US Official: Non-essential diplomats and embassy staff to leave Egypt
Egypt Muslim Brotherhood TV taken off air
Head of Egypt constitutional court to be sworn in as interim head of state on Thursday
*CLASHES IN EGYPT AFTER ARMY STATEMENT LEAVE 6 DEAD NATIONWIDE
*STATE DEPT TELLS U.S. CITIZENS IN EGYPT TO LEAVE COUNTRY
As central banks around the world conduct the greatest monetary experiment in human history in real-time around us, it's important to keep the Bullwhip Effect in mind. The mathematical odds that the world's many central planners, with their manifold partners in distributing fiat liquidity, are going to have the finesse to successfully steer their ships to safety through the shoals of inflation and deflation that threaten on either side, are very low. And that's before taking into account the unintended consequences of their more extreme measures. The bottom line is if another liquidity crisis hits (which Chris is warning may be at our doorstep), the one thing we can count on is that the response from our leaders will be ill fitting to the situation. To explain why, we connect the Fed and beer - very appropriate given the holiday tomorrow...
As southern Europe buckles under the weight of unserviceable debt and 60%+ youth unemployment rates, Germany is coasting along with an almost historically low unemployment rate; the disparity between Germany and its southern neighbors could not be more obvious. So it is ironic that Angela Merkel is leading the public pledge to ‘tackle’ the continent’s job crisis. Of course, European policy to deal with the jobs crisis is quite simple: print more money. Their latest initiative, a few billion more to fight the youth unemployment rate, was mercilessly eviscerated yesterday in the European Parliament by Nigel Farage... one of the few voices of reason left on the continent.
The price of gold fell last week to the $1,200 level. The lemming sentiment in capital markets is uniformly bearish, yet every price-drop brings forth hungry buyers for physical gold from all over the world. Even hard-bitten gold bugs in the West are shaken and frightened to call a bottom, yet it is these conditions that accompany a selling climax. This article concludes there is a high possibility that gold will go sharply higher from here. There are three loose ends to consider: valuation, economic and market fundamentals.
As I have said since the Egyptian revolution, the United States supports a set of core principles, including opposition to violence, protection of universal human rights, and reform that meets the legitimate aspirations of the people. The United States does not support particular individuals or political parties, but we are committed to the democratic process and respect for the rule of law. Since the current unrest in Egypt began, we have called on all parties to work together to address the legitimate grievances of the Egyptian people, in accordance with the democratic process, and without recourse to violence or the use of force....I now call on the Egyptian military to move quickly and responsibly to return full authority back to a democratically elected civilian government as soon as possible through an inclusive and transparent process, and to avoid any arbitrary arrests of President Morsy and his supporters. Given today’s developments, I have also directed the relevant departments and agencies to review the implications under U.S. law for our assistance to the government of Egypt.