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Last week, when we discussed the recent ominous gas deal cancellation between Egypt and Israel we warned that the May Egyptian presidential election is the one that nobody is concerned about, yet should be far more prominent on everyone's radar, especially in the aftermath of not only the recent deterioration of Egypt-Israel relations, but also the withdrawal of the Arabian ambassador from Cairo. Art Cashin is one person who has been following this underreported hotbed of geopolitical tensions and has just issued his third warning of what he calls another "nose to nose" in the middle east. Issue is this particular nose has all the leverage courtesy of a little canal that has a huge impact on the most important asset price in the world.

To give you an idea of how bad things are with the cajas, consider that in February 2011 the Spanish Government implemented legislation demanding all Spanish banks have equity equal to 8% of their “risk-weighted assets.” Those banks that failed to meet this requirement had to either merge with larger banks or face partial nationalization. The deadline for meeting this capital request was September 2011. Between February 2011 and September 2011, the number of cajas has in Spain has dropped from 45 to 17.

Over the weekend, just because apparently someone really needed content at any cost (in this case zero), we got a new intellectual stillborn from none other than the man who more than anyone is responsible for the global economic collapse the world has been in for the past 4 years, and from which it is nowhere even close in escaping. The man of course is Larry Summers, who first crushed global finance, then Harvard, and finally Obama's economic platform, whom the FT saw fit to give the chance to pontificate on such concepts at growth and austerity, because apparently, growth through austerity, whereby banking sector debt is written down in parallel is not growth, but there is some subsegment of "growth", heretofore unknown, that Europe has not tried before, and will instead focus on that going forward. To paraphrase Lewis Black: don't think about that sentence too hard, or blood will shoot out of your nose.

Once upon a time when Nigel Farage got up to speak you often wondered whether he was the full ticket, but today when he gives the European parliament the benefit of his opinion he is the only one making any sense and that includes most of our other politicos back home. Instead of planning to get out of the EU madhouse we have confirmed that £10 billion of our money, yours and mine, has been re-pledged to the IMF “pour encourager les autres” as I am sure was the phrase Christine Lagarde used as she sidled up alongside an impressionable young chancellor, who is totally out of his depth in such company – Lagarde’s youthful pastime of synchronised swimming for the French national team is now paying dividends. It is only a promise at this stage, but it already has parliamentary approval – slid through in a dark period rather like TARP in the States – without any proper scrutiny and an absence of opprobrium from the main stream media the supposed guardians of free speech. If only…

Two weeks ago we reported the somewhat surprising news that according to the FT, current Bank of Canada head, and former co-head of sovereign risk at Goldman Sachs had been "informally" approached by the Bank of England to be Mervyn King's replacement when the latter's contract runs out in June 2013. Once the news broke, the tenuous arrangement to have a former-Goldmanite at virtually every single developed world central bank seemed to have hit a snag as both the Bank of Canada and Carney himself were forced to deny that any interest by the BOE had been expressed. Of course, what was missing from the public discourse is that this was likely one of those "reverse inquiry" type of career moves, whereby the candidate himself, or rather the employing firm - in this case Goldman Sachs, makes the decision whether or not the candidate would be suitable to head the Goldman subsidiary known as the Bank of England. Which is why it is with even less surprise that we now learn that it is none other than the firm's most permabullish strategist Jim O'Neill, who after coining the globalist wet-dream term "BRIC" was sent in exile to chair the firm's worst performing division, GS Asset Management, that is rumored to be the latest replacement for Mervyn King.

Krugmann fails to address even a single one of the arguments forwarded by Spitznagel. This is no surprise, as he has often demonstrated he does not even understand the arguments of the Austrians and moreover has frequently shown that his style of debate consists largely of attempts to knock down straw men.  After appraising us of his economic ignorance (see the idea that time preferences can actually 'go negative' implied by his argument on the natural interest rate above), he finally closes a truly Orwellian screed by claiming that everybody who is critical of the Fed and the financial elite is guilty of being 'Orwellian'. As we often say, you really couldn't make this up.

The good days are over, at least according to Goldman's Jan Hatzius. Now that "Cash For Coolers", aka April in February or the record hot winter, has ended, aka pulling summer demand 3-6 months forward, and payback is coming with a bang, starting with what Goldman believes will be a 125,000 NFP print in April, just barely higher than the disastrous March 120,000 NFP print which launched a thousand NEW QE rumors. But before you pray for a truly horrible number which will surely price in the cremation of the USD once CTRL+P types in the launch codes, be careful: from Hatzius - "Despite the weaker numbers, we have on net become more, not less, worried about the risks to our forecast of another round of monetary easing at the June 19-20 FOMC meeting. It is still our forecast, but it depends on our expectation of a meaningful amount of weakness in the economic indicators over the next 6-8 weeks. In other words, our sense of the Fed’s reaction function to economic growth has become more hawkish than it looked after the January 25 FOMC press conference, when Chairman Bernanke saw a “very strong case” for additional accommodation under the FOMC’s forecasts. This shift is a headwind from the perspective of the risk asset markets....So the case for a successor program to Operation Twist still looks solid to us, and the FOMC’s apparent reluctance to deliver it is a concern."

Is the United States turning into a giant prison camp?

Better late than never. All you need to read. 

Whatever one thinks of the practical implications of the Kalecki equation (and as we pointed out a month ago, GMO's James Montier sure doesn't think much particularly when one accounts for the ever critical issue of asset depreciation), it intuitively has one important implication: every incremental dollar of debt created at the public level during a time of stagnant growth (such as Q1 2012 as already shown earlier) should offset one dollar of deleveraging in the private sector. In turn, this should facilitate the growth of private America so it can eventually take back the reins of debt creation back from the public sector (and ostensibly help it delever, although that would mean running a surplus - something America has done only once in the post-war period). This growth would manifest itself directly by the hiring of Americans by US corporations, small, medium and large, who in turn, courtesy of their newly found job safety, would proceed to spend, and slowly but surely restart the frozen velocity of money which would then spur inflation, growth, public sector deleveraging, and all those other things we learn about in Econ 101. All of the above works... in theory. In practice, not so much. Because as the WSJ demonstrates, in the period 2009-2011, America's largest multinational companies: those who benefit the most from the public sector increasing its debt/GDP to the most since WWII, or just over 100% and rapidly rising, and thus those who should return the favor by hiring American workers, have instead hired three times as many foreigners as they have hired US workers. Those among us cynically inclined could say, correctly, that the US is incurring record levels of leverage to fund foreign leverage, foreign employment, and, most importantly, foreign leverage.

... but not from us: after all we are known for being biased, which in the mainstream media parlance means calling it like it is. No - instead we leave it to none other than Bloomberg's Jonathan Weil who does as good a job of being "biased" as we ever could: "Egan-Jones, which has been in business since 1992, could have continued operating as an independent publisher of ratings and analysis, not subject to government oversight or control. Instead it chose to play within the Big Three’s system, exposing itself to regulation and the whims of the SEC in exchange for the government’s imprimatur. Now it’s paying the price." And not only that: as the most recent example of Spain just shows, where Egan Jones downgraded Spain 9 days ago and was ignored, but well ahead of everyone else, only to be piggybacked by S&P, and the whole world flipping out, it has become clear: calling out reality, and the fools that populate it, is becoming not only a dangerous game, but increasingly more illegal. Then again - this is not the first time we have seen just this happen in broad daylight, with nobody daring to say anything about it. In fact, this phenomenon tends to be a rather traditional side-effect of every declining superpower. Such as the case is right now...

PIMCO's Bill Gross spent a longer-than-soundbite period discussing QE3, the chance of a US double-dip, and Europe's ongoing dysfunction with Trish Regan on Bloomberg Television this afternoon. Given more than his typically limited-to-ten-second thoughts some other media outlets appear to prefer, the old-new-normal-bond-king believes the Fed will resist another round of quantitative easing in the short-term but "if unemployment begins to rise for two-to-three months then QE3 is back on". Noting that investors should focus on nominal GDP growth tomorrow, he goes on to dismiss the idea that the US can decouple from a troubled Europe pointing the political dysfunction between the Germans and the rest as greater than the polarity between Democrats and Republicans here at home. Preferring to play a slightly levered long bet on low rates holding for a longer-period, he like MBS (as we have discussed in the past) but does not see the 10Y yield dropping precipitously from here though he does echo our thoughts entirely in his view of the 'flow' being more critical than the 'stock' when it comes to the Fed's balance sheet and hence the June end-of-Twist may be a volatile period for all asset classes.

I do not believe that China or Russia are in any position to dump the US dollar, at least not in the near-term. The US Dollar may one day no longer be the reserve currency of the world. But that day is years and possibly decades out. But the notion that China or Russia could just dump the Dollar and move around the US in terms of trade is unbelievably naïve and greatly underestimates the importance of the US to the global economy.

Why America is extremely vulnerable to BSE. At a steep cost to the beef industry.

We start today's story of the day by pointing out that Deutsche Bank - easily Europe's most critical financial institution - reported results that were far worse than expected, following a decline in equity and debt trading revenues of 23% and 8%, but primarily due to Europe simply "not being fixed yet" despite what its various politicians tell us. And if DB is still impaired, then something else will have to give. Next, we go to none other than Deutsche Bank strategist Jim Reid, who in his daily Morning Reid piece, reminds the world that with austerity still the primary driver in a double dipping Europe (luckily... at least for now, because no matter how many economists repeat the dogmatic mantra, more debt will never fix an excess debt problem, and in reality austerity is the wrong word - the right one is deleveraging) to wit: "an unconditional ECB is probably what Europe needs now given the austerity drive." However, as German taxpayers who will never fall for unconditional money printing by the ECB (at least someone remembers the Weimar case), the ECB will likely have to keep coming up with creative solutions. Which bring us to the story du jour brought by Suddeutsche Zeitung, according to which the ECB and countries that use the euro are working on an initiative to allow cash-strapped banks direct access to funding from the European Stability Mechanism. As a reminder, both Germany and the ECB have been against this kind of direct uncollateralized, unsterilized injections, so this move is likely a precursor to even more pervasive easing by the European central bank, with the only question being how many headlines of denials by Schauble will hit the tape before this plan is approved. And if all eyes are again back on the ECB, does it mean that the recent distraction face by the IMF can now be forgotten, and more importantly, if the ECB is once again prepping to reliquify, just how bad are things again in Europe? And what happens if this time around the plan to fix a solvency problem with more electronic 1s and 0s does not work?