Japan

Central banks are printing money all over the world. New names have been given to what is really an age old phenomenon. Desperate governments have traditionally debased their currencies when they have no other way of financing their deficits. So far the world’s central banks have been “lucky”. Thanks to the prior global bubble ending in 2008 and the realization that the so-called advanced countries are reaching the end of their borrowing capacity, the world is in a massive deleveraging mode which tends to be deflationary. For the moment the central banks can get away with printing all the money they want without massive increases in consumer price indexes. The public doesn’t connect increases in prices of commodities like gold or oil with the current bout of money printing. But if history is any guide, this money printing will matter and the age of deflation and deleveraging will be followed by an age of inflation.The coming battles over solving the problems of the bankrupt American government will not be pretty. It will be a bit more difficult for an American president to preach patriotism to the affluent in these circumstances. Although, if there is a war with Iran, he might try.

Having spent this money, your next concern becomes avoiding popular outrage as sooner or later folks will find out that this money was practically given away and that everyone else got a raw deal. Let’s say that you just spent a large sum, to the tune of several trillion Dollars, bailing out various businesses that were literally run into insolvency by shortsighted and greedy business practices. 

While everyone was busy ruminating on how little impact a Greek default would have on the global economy, the IIF - the syndicate of banks dedicated to the perpetuation of the status quo - was busy doing precisely the opposite. In a Confidential Staff Note that was making the rounds in the past 2 weeks titled "Implications of a Disorderly Greek Default and Euro Exit" the IIF was doing its best Hank Paulson imitation in an attempt to scare the Bejeezus out of potential hold outs everywhere, by "quantifying" the impact form a Greek failure. The end result: "It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed €1 trillion."  In other words, hold out at your own peril. Of course, what the IIF does not understand, is that for hedge funds it is precisely this kind of systemic nuisance value that makes holding out that much more valuable, as they understand all too well that they have all the cards on the table. And while a Greek default could be delayed even if full PSI was not attained by Thursday, it would simply make paying off the holdouts the cheapest cost strategy for the IIF, for Europe and for the world's banks. Unless of course, the IIF is bluffing, in which case the memorandum is not worth its weight in 2020 US Treasurys.

European equity indices are exhibiting signs of risk averse behaviour, with financials and basic materials performing particularly poorly. This follows weekend reports from ECB sources that the central bank does not believe voluntary participation in the Greek debt swap deal will be sufficient, and the CACs will have to be invoked. Markets are also reacting to the weekend press from Germany, claiming the Troika believe Greece will require a third bailout of around EUR 50bln by 2020, however these reports were denied by a German spokesman earlier in the session. European Services PMI data released earlier in the session fell below expectations, compounding the already cautious market behaviour. European Banks have parked a fresh record EUR 820bln with the ECB overnight, showing further evidence that the LTRO has loosened liquidity constrictions in the continent. Commodities are making losses ahead of the North American open following overnight news that China have made a downward revision to their GDP target for 2012. Spot gold is trading down around 0.9% and WTI and Brent crude futures have been making a loss for most of the session so far, however oil has made positive movements in recent trade. These negative movements in commodities are also weighing down upon the commodity-linked currencies, with AUD particularly making losses on the session.

Citigroup have said that they believe that gold will rise to $2,400/oz in 2012 and by $3,400/oz in “the coming years”. However, Citi’s Tom Fitzpatrick warned of price weakness in the short term and said there is a “real danger” that there may be a correction to $1,600/oz which would provide an even better buying opportunity. Citi are also cautious near term on oil and silver. Production of gold in Australia slid again last year, despite gold fetching higher nominal prices than ever before. According to gold experts, Surbiton Associates, 264 tonnes of gold were produced last year, two tonnes less than in 2010. The 264 tonnes equated to about 8.5 million ounces and ensures that Australia remains a major player in gold, with only China producing more last year. The United States was the world's third-biggest producer with 240 tonnes. Australia's gold production was well below the nation's production peak in the late 1990s.  This further suggests the possibility of peak gold production. Of the world’s four biggest gold producers (China, Australia, the U.S. and South Africa), only China has managed to increase gold production in recent years and this Chinese gold is used in China to meet the rapidly growing demand for gold jewellery and coins and bars as stores of value in China.

All you need to read.

What is one sure thing sure to set triggerhappy warmonger fingers in the US and Israel on Defcon 1 more than the word Iran? The words Iran and North Korea. How about three nouns that will send crude soaring by at least $10 the second a CL trading algo sees them fly across Bloomberg? Try "Iran" "North Korea" and "Nukes." And if the following report just released by the Wiener Zeitung is even remotely correct, then Israel, the military industrial complex, and crude are all about to go ballistic, not necessarily in that order.

In his latest piece on popular delusions, SocGen's Dylan Grice conducts a much needed advance thought experiment looking at two specific things: on one hand he isolates the next inevitable social tension: that between "everyone" and the central bankers. Because if there is one specific reason why OccupyX never truly got off the ground is that deep down, the population knows that while bankers are to be despised for their "contributions" to society, they would never have the opportunity to do what they do absent the enabling stance of the "democratically" elected politicians, and more importantly, the deeds of those few academics stuck in a dark room, who daily decide the nominal fate of the world courtesy of money printing. Which means that in the inevitable progression of "marginalizing-then-brutalizing", when society finally cuts through all the noise and focuses on the one source of all that is wrong in the world, it will not be those residing at 200 West, but the tenants at the Marriner Eccles building: "Politicians can and will take back what they have previously given if and when it is deemed in their interests to do so. One way they do this is by using the time-tested political strategy known as “marginalise-then-brutalise”. Politicians start by identifying the obstacle to their objectives. For a government short of funds the objective is to raise more funds, and the obstacle is any group/sector which has them." Thus Mugabe “marginalised then brutalised” white farmers, while Hugo Chavez set his sights on private sector “profiteers” … for Hitler it was the Jews, for Philip IV of France it was the Knights Templar, for Diocletian it was the Christians, etc. How long before it is the central banks?" How long indeed? And whether it is with or without political prodding, once the central planning experiment fails, as it will, we would certainly not want to be in Bernanke's shoes...

Natural gas prices are depressed and expected to remain so for the short to medium term, so investing in natural gas options or a natural gas exchange-traded fund is not likely to bring home the big bucks anytime soon. Domestic natural gas equities are an even riskier idea - most producers are scaling back production and selling assets as they hunker down in preparation for a tough few years. In this case, the way to profit is by understanding how natural gas' changing role is impacting North America's energy machine as a whole. Cheap natural gas is prompting utilities to switch from coal to gas where possible. The confluence of cheap natural gas and a risky global economy has droves of investors turning their backs on green energy, the sector that was such a market darling only a few years ago. Farther down the road, North Americans are debating - and in places implementing - a range of strategies to take advantage of the continent's newfound abundance of natural gas, from natural-gas-powered transport trucks to exportation of liquefied natural gas (LNG). Isaac Newton showed us that for every action there is an equal and opposite reaction. That is why every downside force in the energy sector creates upside opportunities elsewhere. The challenge is finding them. It takes an understanding of the entire global energy machine to figure out what areas are benefitting from the changing landscape.

We are in “The Lull” which has been caused by the injection of capital by the Fed and by the ECB. This is exactly, exactly, what took place I remind you during the weeks after the subprime mess exploded. Massive injections of capital, run-ups in equities, compression in bonds, higher prices for commodities and then the reversal of course took place. When easing ends then the course back tracks and I predict a re-do of this in the coming months. It will not take some trigger event, though there may well be one, to cause this; just the easy money being placed and no more manufactured money to follow.

“As the well runs dry the throat parches and dehydration begins.”

-The Wizard

Just the kind of scandal that the ballooning retirement-age population needs.

American investor (and longtime CM.com member) Erik Townsend has spent the past several years living internationally, with an eye to which countries may be good alternatives if economic crisis and/or Peak Oil start to materially impact life in the US.  His main observation as an expat? Through its misguided policies, the US has been exporting inflation to the rest of the world, raising prices all over the globe (as an example, he cites a $57 chicken pot pie from the menu at a 'working class' restaurant in Australia).  This inflation is affecting the rest of the world harshly, but is not yet being felt in the US due to our ability to export it as the issuer of the world's reserve currency. Our immunity will not last forever though, and when it ends, a massive upwards spike in prices is going to hit US markets.

Back on May 25 2010, just as the Greek fiesta was starting to unravel, we wrote the following: "Total US debt per today's Daily Treasury Statement was $12,989,095 million. Also today, the US Treasury auctioned off $42 billion in 2 Year debt. This means that as of this moment, assuming the new debt were to settle today, the US has $13,031,095 billion in debt: congratulation America - you have now passed lucky $13 trillion in total debt. But don't worry, we won't stay here for long. At the current rate of issuance, $14 trillion will be passed in 8 months, and $15 trillion in another 7. By the end of 2011, we estimate total US sovereign debt to be about $15.5 trillion. For some recent vivid examples of prosperity courtesy of runaway debt issuance, please see Argentina, Japan and Greece."  We apologize profusely, as we were off by two months.

Yesterday, when we reported about Goldman not one, but two GDP Q1 forecast cuts in one day, we said to "watch for the Wall Street lemming brigade to quickly follow in Goldman's footsteps." Sure enough, here is Bank of America, rushing first into the bandwagon, trimming its Q1 forecast from 2.2% to 1.8%. This is perfectly expected: recall that from day 1 of 2012, most banks had been pushing for QE3, ignorant of the massive liquidity tsunami that was going on behind the scenes. Well, the impact of that has now come and gone, with no more easing from the ECB on the horizon for a long time. Which means that the focus can again shift to how "bad" the US economy is in preparation for the inevitable Bernanke gambit. Needless to say this will make the pre-election economy appear like a total farce in the months before the re-election: soaring employment and plunging everything else. Good luck explaining that away. Incidentally explains why the EURUSD has resumed its slide: the market is now pushing Bernanke to halt the appreciation of the USD against the EUR, and thus the implicit benefit of German's economy over that of the US, which can only happen with further promises of easing. That said, we can't wait for the statement as the vaudeville Trio of Bianco, Chadha and of course LaVorgna to follow suit and slash their now comically hyperbolic expectations.

European indices are trading in minor positive territory ahead of the North American open with tentative risk appetite. This follows news that the EU leaders have signed off on the EU fiscal pact, with German Chancellor Merkel commenting that 25 out of 27 countries have signed the agreement. The effects of the ECB’s LTRO continue to trickle through as the ECB announce they received record overnight deposits of EUR 777bln from European Banks. Little in the way of data today, however UK construction PMI released earlier in the session recorded the highest rate of increase in new orders for 21 months. In the energy complex, Brent futures have come down below USD 125.00 from yesterday’s highs with WTI echoing the movements, following market reaction to the confirmation that there were no acts of sabotage on Saudi pipelines yesterday, according to Saudi officials. EUR-led currency pairs are trading down on the session, and USD/JPY continues to climb, hitting a 9 month high earlier today at 81.72.