From Mark Grant author of Out of the Box and onto Wall Street
Sobering Up
“Now I know I'm not normally a praying man, but if you're up there, please save me, Superman!”
-Homer Simpson
We have been mis-lead first by the short term effects of the LTRO and then by the political commentary that everything had returned to normal. Hard data will show that things now are about as normal as 9/15/08, the day Lehman filed for bankruptcy. Let’s start with our old favorite Greece. Aside from their share of the balance sheet of the ECB, now at four trillion dollars, or $57 billion for Greece, the Greek Central Bank now has its own debt which has reached a staggering $262 billion and represents 65% of the nation’s Gross Domestic Product and is up 50% year-over-year. The decline in Greek M-1 hit -16% for 6 months or -32% annualized according to the most recent data while M-3 fell almost -20% or -40% annualized. These numbers, in my opinion, are not just frightening and not just Recessionary but Depressionary and a leading indicator of things to come.
“You can spend an entire year talking to honest politicians in Europe; or you can do it before breakfast on Easter Sunday.”
-The Wizard
The Irish Shenanigans
The government of Ireland owed the Irish Bank Resolution Corporation $4 billion in a promissory note that was due on March 31, 2012. Instead of paying it, as demanded by the contract, they offered up a long term government bond as payment due in 2025 which then allowed the central bank of Ireland to use it as collateral at the ECB and borrow even more money. In other circumstances this would be considered a “Default” and while it took place almost completely under the radar it indicates the tremendous weakness in the Irish finances and the shady deals that are taking place with the ECB. If you think Ireland is improving, think again, as the M-1 money supply number is now down -15.7% for the year. Watch out for Ireland now; they are just printing new government bonds, shuffling funds from one Leprechaun to the next and using it all to borrow more money from the pot of gold at the end of the rainbow known as the European Central Bank.
“We have not the reverent feeling for the rainbow that a savage has, because we know how it is made. We have lost as much as we gained by prying into that matter.”
-Mark Twain
Other signs of Danger
It is just not Greece and Ireland that are experiencing huge drop-offs in the M-1 money supply but Portugal -14.00%, -13.80% in Italy and Spain is quickly approaching double digit numbers. Even in developed countries the signs are worsening as the Henderson Global Investors gauge, the Real Narrow Money Supply, peaked at 5.1% in November, then dropped to 3.6% in January and was 2.1% for February. This is comparable to the declines seen in mid-2008 and so I bring this to your attention. Equally as worrisome is M-2 in the United States which fell below 1.6% last month for the first time since records have been kept in 1959.
“I was in my thirteenth year when I heard a voice from God to help me govern my conduct. And the first time I was very much afraid.”
-Joan of Arc