Netherlands

Key take-aways from today were: The IMF is gloomy, so is Draghi. Banking Union is months away. ESM and OMT ready to go, but no one wants that first dance. Spain is analyzing.

Oh, and an iPhone is just that. A phone.

Nothing new, nowhere.

Didn't get fooled again yesterday, but still facing denial today...

We have lately noticed that there is an ongoing debate on whether (or not) the world can again embrace the gold standard. We join the debate today, with an historical as well as technical perspective. The gold standard will be the last option: If adopted, it will be out of necessity and in desperation. We are not historians. In our limited knowledge, we note however that historically, the experiment of adopting a gold standard –or a currency board system- was usually preceded by extremely trying moments, including the loss by a government of its legal tender amidst hyperinflation. The change to a commodity standard has often been then out of necessity. In summary, the Argentine case and the Dutch Golden Age suggest that the elimination of the credit multiplier (i.e. extinction of shadow banking) is more important than the asset backing a currency.

On the inaugural day of the much-awaited holy grail of Europe - the ESM - DutchNews.nl reports that Dutch diplomats in Athens have been secretly planning for an eventual Greek exit from the eurozone (along four themes - liquidity, energy, communications, and security). "We have deliberately strictly kept this behind closed doors", a Dutch diplomat told Volkskrant, adding "I do not know who has trumpeted." Among the Dutch companies doing business in Greece are Heineken, Unilever, and Philips as one business owner note that they "send cash back to the Netherlands as soon as possible - holding as little money in Greece as possible." While the foreign affairs ministry would not confirm, the paper cites a diplomat who commented: "we do not want to awaken any sleeping giants." We suspect you just did - sshh!

Europe just can't catch a break these days. While French Fitch naturally came out earlier with a AAA rating and a stable outlook, it is Moody's, which has yet to follow through in S&P's footsteps 14 months later and tell the truth about America's AAA rating, that moments ago spoiled the ESM "inauguration" party by branding it AAA, but with a Negative outlook. So much for the most 'supersecure' CDO on earth: looks like we are not the only ones to assign comical value to the ESM's €80 billion first loss "Paid-in" tranche. Because that 12% in buffered protection can disappear very quick if and when the central planners lose control.

Some correction of Friday’s Bull trap: European Risk Off, EGB credit torsion and weaker equities.

Doubtful whether any fireworks will come out of the ECOFIN meeting.

Seems to be more about maintaining the relative market quietness and status-quo.

What can be said? Rinse, repeat, rinse, repeat.

Everyone basking into the market truce provided by Super Mario. And taking some easy time off… 

Friday afternoon Periphery squeeze barn stomp

The Greeks only assume the mantle of serfdom to keep the pipeline of capital flowing. They have damaged their national psyche in the process and caused undue pain for their citizens but it must seem simpler, to the elite of Greece, to beg rather than go back to work. The problem for Europe now is that the amount of money is so large and the pain will be so great that they wince at the consequences of their misbegotten strategy. Europe provided money, demanded austerity, and kept the charade in play far longer than good sense would dictate. Now, however, I would assert; the tragedy is about to end and the farce about to begin.

On ECB Q&A: Yawn! Can’t always be a rainmaker and light fireworks every month. 

Quiero un iPhone para salvar el Mundo! Looks like Spain actually enjoys the sovereign-regions-banks negative loop with no wish to cut the Gordian knot.

No European data tomorrow: Mario D, the floor is all yours, after Mariano D’s bond sales.

One of the constant and consistent themes found in Europe is the lack of acknowledgement of what is there and not there. It is a pervasive infection that has gripped the Continent as this manner of doing business clouds the reality of what is at hand and pushes consequences out to some date in the future. After the first Greek bailout both the IMF and the EU informed us, in no uncertain terms, that the new measures would bring the debt to GDP ratio of Greece to 120% by 2020; today we hear a new, new number that the debt to GDP ratio for Greece is 190% and that the country will have a primary surplus in the next few years. These statements have all of the truth to them as Lithuania is part of the United States or that penguins can be found in the Amazon. The problem then, in believing this kind of nonsense is also exactly what we are facing now; Greece cannot pay her bills, the PSI card has already been played and someone is going to have to pay the piper and no one wants to pay him. Whatever remains of some coalition between the EU and the IMF is now in tatters as neither entity wants to take the hit. In fact, neither entity can afford the hit without devastating consequences and yet the hit is going to be taken, of that much I can assure you, because there is nothing left to do.

Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim.

Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.... We realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system.

Wow! Good equity swings in Europe: Down about 1% to the morning lows, up nearly 2% to noon highs and tanking back over 1.25% into the close.

 Core & Soft EGBs rather muted in volatility, closing by and large unchanged, with Periphery bonds running a separate path.

Again that decorrelation.

Jump, Jive & Wail…

Getting caught in end of day divergence between recovering Bunds / UST and equities readying up a pre-close squeeze out.Note a rather muted, in line, Credit performance.

No real data anywhere tomorrow, so either the good spirits of recovery keep up their heads up – or not…

Leading up to the American Financial Crisis. We all had the data, we all saw the sub-prime mess, we all saw the leverage, we all saw the money handed out for nothing and the non-disclosure documents, we all saw the lack of credible ratings supplied by the ratings agencies and yet we went on like it would all continue forever. We ignored it all. We turned our backs but then; we got scalped and so the prime questions must be asked: Are we wise men or are we fools? Did we learning anything from the last go round? Should we act now before we are scalped again considering we only have one head? Since the American Financial Crisis the world has lived off the largesse of the major central banks. It has been a slippery slope and each capital injection or “save the world” speech has been met by risk-on and higher markets as liquidity floods the system. It is a judgment call on our part but we think we are about done with the effectiveness of moves by the central banks.