France

Crude oil spiked to nine-month high primarily on investors fear of potential conflict over the escalating tensions between the US, Europe, Israel, and Iran.  Right now, it seems Iran could be the one blinks first (war or peace).

• Obama Administration Said Set to Release Corporate Tax-Rate Plan Today (Bloomberg, WSJ)
• Greece races to meet bail-out demands (FT)
• IAEA ‘disappointed’ in Iran nuclear talks (FT)
• Hilsenrath: Fed Writes Sweeping Rules From Behind Closed Doors (WSJ)
• Fannie-Freddie Plan, Sweden FSA, Trader Suspects, CDO Lawsuit: Compliance (Bloomberg)
• Bank of England’s Bean Says Greek Deal Doesn’t End Disorderly Outcome Risk (Bloomberg)
• Greece Second Bailout Plan an ‘Important Step,’ Treasury’s Brainard Says (Bloomberg)
• Shanghai Eases Home Purchase Restrictions (Bloomberg)

January's hopium catchphrase of the month was that Europe's recession would be "technical" which is simply a euphemism for our Fed's beloved word - "transitory." Based on the just released Euroarea PMI, we can scratch this Euro-accented "transitory" addition to the lexicon, because contrary to expectations that the Euroarea composite PMI would show expansion at 50.5, instead it came out at 49.7 - the manufacturing PMI was 49.0 on Exp of 49.4, while the Services PMI was 49.4, on hopes of expansion at 50.6, which as Reuters notes suggests that firms are still cutting prices to drum up business and reducing workforces to cut costs. This was accompanied by a overnight contraction in China, where the flash manufacturing PMI rose modestly from 48.8, but was again in contraction at 49.7. We would not be surprised if this is merely the sacrifice the weakest lamb in the pack in an attempt to get crude prices lower. So far this has failed to dent WTI much if at all following rapidly escalating Iran tensions. What is curious is that Germany and France continue to do far better than the rest of the Eurozone - just as America has decoupled from Europe, so apparently have Germany and France. This too is surely "sustainable."

The new Crony Crapitalist Utopia...

After reading this all should be quite confident of a Grecian Implosion. Instead of focusing on Greece, the actual debt explosion (implosion) path is what the media should be harping, not the color of the match that set it off.

Depending on what yield you apply to the new Greek bonds, then the package is worth 21.5% to 26.25%. Since bonds are trading with accrued and accrued will be paid in 6 months, the real question comes down to what you believe is the value of these new bonds. If there is an amortization schedule, that would change the valuation positively... We still haven’t seen retroactive CAC clauses implemented, but assuming that they are, I’m not sure why the Troika would accept a 95% rate and not trigger, but it seems worth taking the risk. The ECB swap may be illegal. The retroactive CAC may be illegal. The Troika seems like it wants to pretend there is no default if at all possible, in spite of the write-down of more than 50% of the debt.

There is nothing new in this interview of Spiegel magazine with Ken Rogoff, but it is refreshing to listen to a person who has at least some standing in the arena of grand self-delusion (i.e., economics and capital markets), telling it like it is. While he rehashes all the old points, these bear reminding as the key one is what happens to Germany as the can kicking becomes a new default exercise in preserving bank "solvency" at the expense of the last stable economy: when asked if in 2015 the Eurozone will be the same, his response: "It may well be the case that all current members remain in the euro zone, and that Germany keeps on shouldering the ever-increasing debts of other countries. But the price of such a scenario is very high for all involved: southern Europe would become embroiled in permanent stagnation and the German economy would eventually be dragged down to a slower growth trajectory." So even though everyone knows that Europe is doomed in its current configuration, let's all just pretend things shall be well, and keep the even more doomed banks alive for a few more quarters? Is the loss of a banker bonus truly such a great catastrophe to society that countries have to remain in a state of perpetual misery until it all finally unwinds? Judging by today's market action the answer is yes.

Let’s be honest, quite a few Americans love a good war, especially those Americans who have never had to bear witness to one first hand.  War is the ultimate tribally vicarious experience.  Anyone, even pudgy armchair generals with deep-seated feelings of personal inadequacy, can revel in the victories and actions of armies a half a world away as if they themselves stood on the front lines risking possible annihilation at the hands of dastardly cartoon-land “evil doers”.  They may have never done a single worthwhile thing in their lives, but at least they can bask in the perceived glory of their country’s military might.   This attitude of swollen ego through proxy is not limited to the “Right” side of the political spectrum as some might expect.  In fact, if the terrifyingly demented presidency of Barack Obama has proven anything so far, it is that elements of the “Left” are just as bloodthirsty as any NeoCon, and just as ready to blindly support the political supremacy of their “side” regardless of any broken promises, abandoned principles, or openly flaunted hypocrisies.  No matter how reasonable or irrefutable the arguments against a particular conflict are, there will ALWAYS be a certain percentage of the populace which ignores all logic and barrels forward to cheerlead violent actions which ultimately only benefit a select and elite few.

The week ahead is fairly light on big ticket data releases, but what is released will provide more evidence of the strength of global activity. The most important of these will be the flash PMIs for China and the Euro area and the German IFO reading . There is no consensus expectation for the China print, however the Euro area indices are both expected to rise slightly, as is the German IFO. In terms of cyclical hard data, Taiwan export orders and IP for Singapore and Taiwan, Euro area industrial orders and trade data from Japan and Thailand will be notable. Admittedly the data from Asia is likely to be complicated by Chinese New Year which fell in the third week of January, and presumably this is why the consensus expects such a sharp drop in Taiwan IP, however the data are still worth watching for indications of the strength in global activity. Generally, consensus expectations for these prints are not particularly encouraging and any 'beats' would be a positive surprise. It goes without saying that ongoing negotiations towards signing off on Greece's second package will also remain on the radar screen. As we write, Reuters has posted suggestions that the debt swap will be open by March 8 and complete by March 11.

A lesson to be learnt from the individuals who continue to buy European Debt

Between the Chinese 'surprise' RRR and the Iran export halt to UK and France (and escalating tensions), Oil prices are off to the races this evening. WTI front-month futures have just broken $105 (now up more than 10% in the last two weeks), the highest levels in over nine months and just 8% shy of the 5/2/11 post-recession peak just under $115. Brent (priced in EUR) remains off last week's intraday highs (as EUR strengthens) but still above the pre-recession peak but in USD it traded just shy of $121 - well above last week's peak. Of course, this will be heralded as a sign of demand pressure from a 'growing' global economy rather than the margin-compressing, implicit-taxation, consumer-spending-crushing supply constraint for Europe and the US that it will become in the not too distant future. As we post, The Guardian is noting that US officials are commenting that "Sanctions are all we've got to throw at the problem. If they fail then it's hard to see how we don't move to the 'in extremis' option." The impact of any escalation from here is gravely concerning with PIMCO's $140 minimum and SocGen's $150-and-beyond Brent prices rapidly coming into focus - and for those pinning their hopes on the Saudis coming to the rescue (and fill the Iranian output gap), perhaps the news that our Middle-East 'allies' cut both production and exports in December will stymie any euphoria.

The European Central Bank, in a very misguided attempt to protect itself, has now opened Pandora’s Box. I doubt if they even realize what they have done; but they will, most assuredly they will. The consequences of their horrendous mistake will soon be upon them as institutions not coerced or forced into buying European sovereign debt will be leaving the playing field en masse as the realization dawns upon investors of just what has taken place. You cannot fool all of the people all of the time and the people that manage money for a living are not a forgiving group when governments try to supersede their lawful rights.

Open Europe has published a briefing note outlining the ten questions and issues that still need to be resolved in the coming weeks in order for Greece to avoid a full and disorderly default on March 20. The briefing argues that, realistically, only a few of these issues are likely to be fully resolved before the deadline meaning that Greece’s future in the euro will come down to one question: whether Germany and other Triple A countries will deem this to be enough political cover to approve the second Greek bailout package. In particular, the briefing argues that recent analyses of Greece’s woes have underplayed the importance of the problems posed by the large amount of funding which needs to be released to ensure the voluntary Greek restructuring can work – almost €94bn – as well as the massive time constraints presented by issues such as getting parliamentary approval for the bailout deal in Germany and Finland. While the eurozone also continues to ignore or side-line questions over the whether a 120% debt-to-GDP ratio in 2020 would be sustainable and if, given the recent riots, Greece has come close to the social and political level of austerity which it can credibly enforce.

At least, Premier Wen Jiabao didn’t kick out the conniving scoundrels.

Now everybody's bank bashing, of course the reason to bash the banks is 4 years old, despite Bove-like analysis to the contrary. I will discuss this on CNBC for a FULL HOUR tomorrow from 12 pm to 1pm.