It’s Not a Tax or Spending Problem … It’s a Devolution Into Lawlessness
Yes, it is the holiday season. Yes, you are unlikely to be taking action with your investments. Yes, the morphing of what is into what will be continues uninterrupted.
There were several developments over the weekend that will influence the direction of the the markets in the days ahead, with the usual caution about the impact of the thinness of conditions.
First, the major focus remains the US fiscal cliff. One of the most important ways in which the US fiscal crisis differs from those seen in Iceland, Greece, Portugal, Ireland is that it has not been triggered by a capital strike. Investors have not fled the US. Interest rates have not trended higher. It is not a fiscal crisis. It is a political crisis
- Obama Concessions Signal Potential Bipartisan Budget Deal (BBG)
- Cerberus to sell gunmaker after massacre (CNN)
- With New Offers, Fiscal-Cliff Talks Narrow (WSJ)
- Judge rejects Apple injunction bid vs. Samsung (Reuters)
- U.S. policy gridlock holding back economy? Maybe not (Reuters)
- President fears for Italy’s credibility (FT)
- Struggles Mount for Greeks as Economy Faces Winter (WSJ)
- Abe leans on BoJ in post-election meeting (FT)
- Bank of Japan to mull 2 percent inflation target as Abe turns up heat (Reuters)
- EU exit is ‘imaginable’, says Cameron (FT)
- Mortgage Risk Under Fire in Nordics as Bubbles Fought (BBG)
- Sweden cuts interest rates to 1% (FT)
- External risks impede China recovery, more easing seen (Reuters)
"There’s a problem with kicking the can down the road" - Ben Bernanke, (December 12 2012)... We’ve taken this quote out of context - Bernanke was actually talking about the fiscal cliff, and not monetary policy; but kicking the can down the road is exactly what Bernanke is doing in his domain. Instead of letting the shadow banking bubble burst and liquidate in 2008, Bernanke has allowed it to slowly deflate, all the while pumping up the traditional banking sector with heavy, heavy liquidity. The reduction in shadow liabilities remains a massive deflationary and depressionary force (and probably the main reason why a tripling of the monetary base has not resulted in very severe inflation). Trillions and trillions of liquidity later, Bernanke is barely keeping the system afloat. We chose the path of Japan (which has spent the last twenty years depressed) not the path of Iceland (which is emerging from its depression). We chose to kick the can down the road. The system is rotten, and the debt load is unsustainable.
- Fed Seen Pumping Up Assets to $4 Trillion in New Buying (BBG)
- China New Loans Trail Forecasts in Sign of Slower Growth (BBG)
- U.S. "fiscal cliff" talks picking up pace (Reuters)
- Insider-Trading Probe Widens (WSJ)
- U.K.'s Top Banker Sees Currency Risk (Hilsenrath)
- Three Arrested in Libor Probe (WSJ)
- Nine hurt as gunmen fire at Cairo protesters (Reuters)
- Egyptian President Gives Army Police Powers Ahead of Vote (BBG)
- Pax Americana ‘winding down’, says US report (FT)
- Japan Polls Show LDP, Ally Set for Big Majority (DJ)
- HSBC to pay record $1.9 billion U.S. fine in money laundering case (Reuters)
Iceland went after the people who caused the crisis — the bankers who created and sold the junk products — and tried to shield the general population. But what Iceland did is not just emotionally satisfying. Iceland is recovering, while the rest of the Western world — which bailed out the bankers and left the general population to pay for the bankers’ excess — is not. Iceland’s approach is very much akin to what I have been advocating — write down the unsustainable debt, liquidate the junk corporations and banks that failed, disincentivise the behaviour that caused the crisis, and provide help to the ordinary individuals in the real economy (as opposed to phoney “stimulus” cash to campaign donors and big finance). And Iceland has snapped out of its depression. The rest of the West, where banks continue to behave exactly as they did prior to the crisis, not so much.
To think it took a really ugly economic number, such as the Services PMI reported last night, to stir the Chinese stock market out of a hypnotic drift lower, and push it up by 2.7%. Why? Because in the New Normal bad economic news means hope that central banks get involved, and as we have explained the ongoing SHCOMP collapse is purely a function of the PBOC remaining on the sidelines. Last night, rumors (very unfounded and very incorrect) that the central bank would intervene put a stop to the drop. Sadly, as the PBOC has no intention of ending its ultra-short term reverse-repo driven market support strategy, the bounce will be very short lived. However, that coupled with more jawboning out of the BOJ that it would act, if it has to (whether under Abe or Noda), sent the JPY even weaker, and futures ramping on tiny overnight volume which wiped out all the previous day's losses.
You've probably noticed the cookie-cutter format of most financial media "news": a few key "buzz words" (fiscal cliff, Bush tax cuts, etc.) are inserted into conventional contexts, and this is passed off as either "reporting" or "commentary" depending on the number of pundits sourced. Correspondent Frank M. kindly passed along a template that is "officially deny its existence" secret within the mainstream media. With this template, you could launch your own financial media channel, ready to compete with the big boys. Heck, you could hire some cheap overseas labor to make a few Skype calls to "the usual suspects," for-hire academics, hedge fund gurus, etc. and actually attribute the fluff to a real person.
There was one, just one, country that escaped the bankster Mutually Assured Destruction singularity force field in 2009 and after destroying the financial overhang and starting from scratch, has become a paragon of growth in the New Global Depressionary Normal. Iceland (profiled most recently here). As such, what Iceland says is signal, and what the legacy masters of the abovementioned New Normal repeat day after day, is recurring noise. Here is the signal: when Icelanders were asked if they should join the EU, this is what they responded:
- YES - 27.3%
- NO - 57.6%
If you often wonder why ‘free market capitalism’ feels like it is failing despite universal assurances from economists and political pundits that it is working as intended, your intuition is correct. Free market capitalism has become a thing of the past. In truth free market capitalism has been replaced by something that is truly anti-free market and anti-capitalistic. The diversion operates in plain sight. Beginning sometime around 1970 the U.S. and most of the ‘free world’ have diverged from traditional “free market capitalism” to something different. Today the U.S. and much of the world’s economies are operating under what I call Monetary Fascism: a system where financial interests control the State for the advancement of the financial class. This is markedly different from traditional Fascism: a system where State and industry work together for the advancement of the State. Monetary Fascism was created and propagated through the Chicago School of Economics. Milton Friedman’s collective works constitute the foundation of Monetary Fascism. Today the financial and banking class enforces this ideology through the media and government with the same ruthlessness of the Church during the Dark Ages: to question is to be a heretic. When asked in an interview what humanities’ future looked like, Eric Blair, better known as George Orwell, said “Imagine a boot smashing a human face forever.”
As we noted last week, the US, long considered the standard bearer for economic freedom among large industrial nations, has experienced a rather remarkable plunge in economic freedom over the last decade. This excellent infographic summarizes what factors drove us here, which countries are on the rise, and why we are more like Venezuela, Argentina, and Iceland than many would like to believe.
There have been a few nations in the world over the last decade or so that have garnered somewhat mind-blowingly negative attention and have been forced to restructure, take losses, or default (semantics) on their debt (or financial system). Three of the best known are Argentina, Iceland, and most recently Greece. The following chart of GDP growth may have a lesson for every investor around the world (especially those in sovereign bonds) - and maybe more importantly for the Greek (and European) leadership. Is there something different about the post-restructuring growth in Greece that did not occur in the other two nations? Perhaps taking your medicine is indeed the right way to go - and enables growth to once again re-emerge - and the constant use of the M.A.D. argument is pure bluff.
This Time Is Different As Icarus Blows Up & Burns The Birds Along The Way - Greece Is About To Default AGAIN!Submitted by Reggie Middleton on 09/26/2012 10:29 -0500
Greece is about to default on the investors that funded the bonds that replace the first set of investors that they defaulted on just a few months ago. Get it? Every dollar thrown into Greek bonds at par is akin to flushing money down the toilet.
According to data released by ACEA (European Automobile Manufacturers’ Association) new passenger car registrations fell 8.9% in August after a decline of 7.8% in July. In 2011, Germany produced 5.8 million passenger cars, of which 77% (4.5m) were exported, making cars and parts the most valuable export good (EUR 185bn). A heavily export-dependent German automotive industry looks vulnerable to setbacks in important markets.
- Jobs Gauge Carries Election Clout (WSJ)
- Draghi Lured by Fractious EU Leaders to Build Euro 2.0 (Blooomberg)
- Rajoy stance sets stage for EU stand-off (FT)
- China Approves Plan to Build New Roads to Boost Economy (Bloomberg)
- Hollande faces questions on tax pledge (FT)
- Putin Looks East for Growth as Debt-Ridden Europe Loses Sheen (Bloomberg)
- Strike Grounds Half of Lufthansa's Flights (Spiegel)
- The weakest will win in the euro battle (FT)
- Hilsenrath: Fed Economic, Interest Rate Forecasts Will Include 2015 Outlook (WSJ) - because he just figured that out
- Obama Presses Plan for U.S. Resurgence (WSJ)
- Hong Kong to Restrict Sales of Homes at Two Sites to Locals (Bloomberg)
- Drought Curbs Midwest Farm-Income Outlook, St. Louis Fed Says (Bloomberg)