Central Banks

One of the major factors in the Central Banks of the world having stepped up the pace of flushing the world with increasing amounts of freshly digitized cash is writ large in the contraction in credit availability to the real economy (even to shipbuilders). Anecdotal examples of this constrained credit are everywhere but much more clearly and unequivocally in tightening lending standards in all of the major economies. As Bank of America's credit team points out, bank lending standards to corporates have tightened globally in Q4 2011 and the picture is ubiquitously consistent across the US, Europe, and Emerging Markets. Whether it is deleveraging, derisking, or simple defending of their balance sheets, banks' credit availability is becoming more constrained. While the Fed's QE and Twist monetization and then most recently the ECB's LTRO has led (aside from self-reinforcing short-dated reach-arounds in BTPs and circular guarantees supposedly reducing tail risk) to nothing but massive increases in bank reserves (as opposed to flowing through to the real economy), we suspect it was designed to halt the significantly tighter corporate lending environment (most significantly in European and Emerging Markets). The critical corollary is that, as BAML confirms, the single best non-market based indicator of future defaults is tightening lending standards and given the velocity of shifts in Europe and EM (and very recent swing in the US), investors reaching for high-yield may be ill-timed at best and disastrous credit cycle timing at worst (bearing in mind the upgrade/downgrade ratio is also shifting dramatically). Liquidity band-aids are not a solution for insolvency cardiac arrests as the dual vicious cycles of bank and sovereign stress remain front-and-center in Europe (with EM a close second) and the hope for real economic growth via credit creation kick-started by an LTRO is the pipe-dream the market is surviving on currently.

Just a matter of when?

All in, with an opt out?

The Case Shillers are shilling that the market is still weakening. But that's just not the Case.

Back in January 2010, when in complete disgust of the farce that the market has become, and where fundamentals were completely trumped by central bank intervention, we said, that "Zero Hedge long ago gave up discussing corporate fundamentals due to our long-held tenet that currently the only relevant pieces of financial information are contained in the Fed's H.4.1, H.3 statements." This capitulation in light of the advent of the Central Planner of Last Resort juggernaut was predicated by our belief that ever since 2008, the only thing that would keep the world from keeling over and succumbing to the $20+ trillion in excess debt (excess to a global debt/GDP ratio of 180%, not like even that is sustainable!) would be relentless central bank dilution of monetary intermediaries, read, legacy currencies, all to the benefit of hard currencies such as gold. Needless to say gold back then was just over $1000. Slowly but surely, following several additional central bank intervention attempts, the world is once again starting to realize that everything else is noise, and the only thing that matters is what the Fed, the ECB, the BOE, the SNB, the PBOC and the BOJ will do. Which brings us to today's George Glynos, head of research at Tradition, who basically comes to the same conclusion that we reached 2 years ago, and which the market is slowly understand is the only way out today (not the relentless bid under financial names). The note's title? "If 2011 was the year of the eurozone crisis, 2012 will be the year of the central banks." George is spot on. And it is this why we are virtually certain that by the end of the year, gold will once again be if not the best performing assets, then certainly well north of $2000 as the 2009-2011 playbook is refreshed. Cutting to the chase, here are Glynos' conclusions.

...No, literally truckloads. Our friends at demonocracy.info have been kind enough to put together an infographic that explains the European bailout in simple, visual terms, that even the most innocent of FTL truckers can grasp without much exertion, for the simple reason that it shows all the bailouts amounts in terms of trucks of cash. And here is the kicker: one would need a 13 lane highway, filled with trucks bumper to bumper, stretching for about 3 kilometers to represent the €2.91 trillion in total amounts owed by the PIIGS and their citizens (whether voluntarily or not... actually make that involuntarily) to  Europe's largest banks. What is most frightening is what is not shown: just how it is that the world's central banks are keeping all of these banks propped up. Because sooner or later all this money will be discovered to have been fatally misallocated. Then the real bailout cost will become all too evident, and just like in the US, it will be in the double digit trillions. Which means the metaphorical highway of trucks full of cash will stretch on for kilometers and kilometers and so on (or miles, for the naive US-based truckers). But since that day is in the future, there is no reason to worry about it.

Sometimes it’s impossible to tell whether the financiers and politicians who carry water for the central banks are bad liars or just clueless dolts. A bureaucrat from the U.K. surfaced in the Wall Street Journal over the weekend, exhaling what seemed to us an ostentatious sigh of relief over the supposed success of the European Central Bank’s latest loan program: “[It provides] a very significant degree of breathing space to banks.” Yeah, sure. 

Xinhua, the official press agency of the government of the People's Republic of China reports that a "gold rush" swept through China during the week-long Lunar New Year holiday this year, with demand for precious metals and jewelry surging since the Year of the Dragon began. Data released by China's Beijing Municipal Commission of Commerce shows a 49.7% increase in sales volume for precious metals jewelry and bullion during the week-long holiday (over last year), which lasted from January 22 to 28 over that of last year's Spring Festival. One of Beijing's best-known gold retailers, Caibai, saw sales of gold and silver jewelry and bullion rose 57.6% during the week long New Years holiday  according to data released by the Ministry of Commerce (MOC) on Saturday, Other jewelry stores across the country also saw sales boom during the period, with customers favoring New Year themed gold bars and ingots and other types of Dragon themed jewelries. During the week-long holiday, which lasted from January 22 to 28, the sales volume in just one gold retailer, Caibaiand Guohua, another of Beijing's top gold retailers, reached about 600 million yuan (nearly $100 million). Caibai began selling gold bars as investment items during the 2008 Beijing Olympic Games, but the trend of buying gold or silver bars during the Spring Festival has taken off in the past two years.

Both the ECB and the Fed are accepting poorer and poorer sludge and collateral to back various liquidity schemes.

You've just crossed over...

On the three month bankruptcy anniversary of the company whose rehypothecation gimmicks will one day be seen as a harbinger of everything that is  broken with the multi-trillion ponzi system, but not just yet despite loud warnings otherwise, we are getting close to a final verdict of where the $1.2 billion (and possibly more as originally predicted by Zero Hedge - see below) in commingled client money may have gone. Note the use of the passive voice because using the active, as in money that MF Global executives stole from clients, is prohibited in a legal system in which nobody goes to jail for something as modest as $1.2 billion in theft. That verdict? "Vaporized." No really (and yes, in the passive voice of course). From the WSJ: "As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, said a person close to the investigation." Uh huh... Because money simply vaporizes. Which means one of two things: i) the "vaporization" is merely the phrase that so called investigators use to avoid the far more troubling sounding "stolen" as it would imply guilt, something which the former NJ governor and Goldman CEO (and not to mention JP Morgan which most likely was on the receiving end of the $1.2 billion + transaction) will, under guidance from counsel, sternly disagree with, or ii) the capital markets are such an unprecedented and manipulated fraud, that nobody has any clue at any moment, where any client money is, and that any residual capital still "invested" in mythical representations of "assets", which are likely rehypothecated so many times, that not even Bank of America's robosigning division would have a clue where to start unraveling, will promptly be converted into tangible manifestations of capital. So when someone asks what happened to stock market volume, and to investor confidence in the "stock market" feel free to use just that phrase: "it vaporized."

Because our political system is corrupted by corporate lobbyists, it leaves the people with few choices. Those who do not wish for a violent revolution are left with the one alternative of taking control of their own money. Money can be anything two parties in a transaction choose it to be. Precious metals is one good choice. Converting ones savings from Federal Reserve Notes into precious metals is not some kooky survivalist ploy. It is empowering a person to vote against the immoral monetary system. Hoarding food is not a kooky survivalist ploy, it is hedging against an immoral banker tax. We all have the moral obligation not to pay the banker tax. Refuse to deposit your funds into a money center bank. Support efforts to end the Federal Reserve System.

Merkel warned that Germany might be overwhelmed by its bailout efforts—a reluctance that turned Germany into a punching bag. Yet risks are staggering.

It is one thing for Tom Stolper to release precious tidbits about what is not going to happen in the future on a weekday - for those we are very grateful. But doing so on god's (or is that Goldman's) day is truly a first. In a note just blasted out, it would appear there is no rest for the Stolper, and according to the world's most admired FX strategist (remember: batting 0.000 is just as useful as batting 1.000), "Dollar downside forces on the rise" and that Goldman is positioned "short the USD again"... Just as Goldman was positioned long the Russell 2000 literally the minute the market topped on Thursday (no joke - check it). And to think it was only three weeks ago that the same strategist saw downside risks for the EURUSD to 1.20...

Following yesterday's frankly stunning news that the Troika politely requests that Greece hand over its first fiscal, then pretty much all other, sovereignty to "Europe", here is the Greek just as polite response to the Troika's foray into outright colonialism:

• GREEK GOVERNMENT SPOKESMAN DECLARES THAT THE BUDGET IS SOLELY ITS RESPONSIBILITY - DJ

What is interesting here is that unlike the highly irrelevant IIF negotiations which will end in a Greek default one way or another, the real plotline that should be followed is this one: because unless Germany, pardon the Troika, gets the one condition it demands, namely "absolute priority to debt service" and "transfer of national budgetary sovereignty", as well as a "constitutional amendment" thereto. there is no Troika funding deal. Furthermore, since as a reminder the PSI talks are just the beginning, the next step is ensuring compliance, as was noted yesterday ("[ceding sovereignty] will reassure public and private creditors that the Hellenic Republic will  honour its comittments after PSI and will positively influence market access"), any refusal to implement such demands is an automatic dealbreaker. Which means anything Dallara and the IIF say, as representatives of a steering committee that at this point probably constitutes of one bondholder, with the bulk having shifted to the ad hoc committee, is irrelevant. Germany just got its answer. And the next step is, as Zero Hedge first suggested, an epic LTRO in precisely one month, whose sole purpose will be to prefund European banks ahead of the Greek default with enough cash to withstand Europe's Bear Stearns. Although as a reminder, in the US, Bear Stearns only led to Lehman and the global "all in" gambit to preserve the financial system by shifting bank insolvency risk to the sovereigns (a chart showing bank assets as a percentage of host countries' GDP can be found here). But who will bailout the world's central banks which already collectively hold over 30% of global GDP in the form of "assets", or as this term is better known these days, debt?