Gross Domestic Product

Once again pundits are claiming that housing is "finally recovering." But they're overlooking three peaks: Peak Housing, Peak Financial Fraud, and Peak Suburbia, all of which suggest years of stagnation and decline, not "recovery." Once the belief that housing is the bedrock of middle class wealth fades, so too will the motivation to risk homeownership in an economy that puts a premium on mobility and frequent changes of careers and jobs. Only one aspect of housing hasn't yet peaked: property taxes. If the risks of homeownership weren't apparent before, they certainly are now as local governments jack up property taxes to indenture homeowners into tax donkeys.

All you need to read.

All you need to read.

As reported first thing this morning when we discussed the perfect storm in Europe, the Dutch government was expected to resign en masse in the aftermath of this weekend's auterity fiasco. Sure enough, that resignation is now fact.

All you need to read and some more.

Here is a recap of today's European bond issuance as well as the Wall Street "instaview" response to each

Decades of manipulation by the Federal Reserve (through its creation of paper money) and by Congress (through its taxing and spending) have pushed the US economy into a circumstance that can't be sustained but from which there is no graceful exit. With few exceptions, all of the noble souls who chose a career in "public service" and who've advanced to be voting members of Congress are committed to chronic deficits, though they deny it. For political purposes, deficits work. The people whose wishes come true through the spending side of the deficit are happy and vote to reelect. The people on the borrowing side of the deficit aren't complaining, since they willingly buy the Treasury bonds and Treasury bills that fund the deficit. And taxpayers generally tolerate deficits as a lesser evil than a tax hike. So stay up as late as you like on election night to see who wins, but the deficits aren't going to stop anytime soon. The debt mountain will keep growing. The part of it the government acknowledges is now approaching $16 trillion, which is more than the country's gross domestic product for a year. Obviously, the debt can't keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things.

Maybe we can call today bad loan day: earlier today the Bank of Spain announced that Spanish bank loans, already rising in a rather disturbing diagonal fashion, have surpassed 8% of total for the first time since 1994. Now it is Italy's turn, where we find courtesy of ABI, that gross non-performing loans, aka bad-debt, has just reached €107.6 billion, or 6.3% of total, and the highest since 2000, not to mention a doubling of the 3.0% in June 2008. It gets worse: as Reuters reports, while domestic deposits in February rose by a heartening 1.6% in February, it is foreign deposits that confirm that not all is well with the country's financial system, declining a whopping 16% in February y/y, and the 8th consecutive monthly decline, a chart which resembles that of Greek deposit outflows. The reason why Italy, like all the other peripherals, is now a ward of the ECB? Simple: "Net funding from abroad stood at 182 billion euros, down 32.5 percent year-on-year." And if there is no external money, the Central Bank will need to save.

As reported last week, and as shown brilliantly by Artemis Capital, the end of every reliquification phase by the Fed, such as the imminent end of Operation Twist with nothing firmly set to replace it, is always accompanied by a surge in vol, which in turn leads to market days like the past week, when market summaries are simple: either it is all Risk On, or Risk Off. Expect many more of these until Twist finally ends in just over two months at which point much more liquidity will be needed to achieve the same "flow" results. It just so happens that today is a risk On day, driven by previously noted "catalyst." Yet what is great about such days is that they allow all the bad news to be packed into a tidy little package and disseminated without anyone noticing, or pretending to notice. Such as the just announced headline from Reuters, which on any other day would have crippled the mood, that "Italy will delay by a year its current plan to balance its budget in 2013, according to a draft forecasting document to be approved by the cabinet on Wednesday." And while we have seen this over and over in the past 2 years, first with Greece, then with all the other PIIGS, it merely exposes the fact that exuberant optimism never pans out in a world in which the real average debt/GDP is what Reinhart and Rogoff would simply call "unsustainable." And while this news will matter once Germany realizes that its precious fiscal pact is already been soundly rejected, first by Spain and now Italy, for now it is but a footnote in the otherwise lacking newsflow: after all Spain managed to issue €2 billion in Bills, which contrary to yesterday, provides that all is again well in Europe. Until Thursday at least when Spain has to issue 10 year bonds, which just happen to mature outside of the LTRO. The narrative then may be somewhat different.

As clearly indicated well over 2 yrs ago, Italy will first default on its over optimistic promises (check), then look to actually default on (restructure) its debt (next).

All you need to read and some more.

Last night it was uber-dove Janet Yellen, today it is uberer-dove, former Goldmanite (what is it about Goldman central bankers and easing: Dudley unleashing QE2 in 2010, Draghi unleashing QE LTRO in Europe?) Bill Dudley joining the fray and saying QE is pretty much on the table. Of course, the only one that matters is Benny, and he will complete the doves on parade tomorrow, when he shows that all the hawkish rhetoric recently has been for naught. Cutting straight to the chase from just released Dudley comments:"we cannot lose sight of the fact that the economy still faces significant headwinds and that there are some meaningful downside risks... To sum up, the incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established.  But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery.  On the inflation front, the year-over-year rate of consumer price inflation has slowed in recent months, and despite the recent rise of gasoline prices, we expect inflation to moderate further in 2012." Translate: NEW QE is but a CTRL-P keystroke away now that all the inflation the Fed usually ignores continues to be ignored.

Last week we had the Fed's hawks line up one after another telling us how no more QE would ever happen. We ignored them because they are simply the bad cops to the Fed's good cop doves. Sure enough, here comes Bernanke's right hand man, or in this case woman, hinting that one can forget everything the hawkish stance, and that ZIRP may last not until 2014 but 2015! Which, by the way, is to be expected: since ZIRP can never expire, it will always be rolled to T+3 years, as the short end will never be allowed to rise, until the Fed has enough FRNs in circulation to absorb the surge in rates without crushing the principal, as explained yesterday.

Four months ago we presented what was easily the clearest and most undiluted by media propaganda clue about the future of the European experiment, when we noted that even immigrants from places such as Afghanistan and Bangladesh, using Greece as a stepping stone onward to the gateway Shengen country of Italy, no longer have the urge to pursue their European dreams, and instead return home. As Art Cashin explained, "Over the decades, immigrants from Afghanistan, Bangladesh and other poor nations would work their way to Patras. They would stay for days or weeks awaiting a chance to smuggle themselves on to a freighter headed for Italy. Once there, they could make their way north into Europe to find hope and opportunity and maybe a job. Last week his relatives told him that things were changing. The immigrants still come to their way station of Patras (hope still blooms). But now, after a couple of weeks in Greece, they are trying to hop ships going the other way. They are going back home. Life was better, or at least no worse, where they came from and they had friends and family for support back there." It appears that the immigrant boycott is spreading, only this time instead of "discretionary" immigrants, or those that have not been fully assumed by society (think "cheap labor" along America's south, such as California, Texas and Arizona), it is starting to hit the core of the cheap PIIGS labor force: the migrant workforce, and in this case the Albanian diaspora working out of Greece at a fraction of the normal cost. And as one Albanian migrant worker, so critical to keeping the Greek construction sector supplied with cheap jobs puts it, "It looks like there's no money left," he said of Greece. "It all dried up." As a result even the Greek illegal-yet-symbiotic-aliens are giving up and going back home. Yes folks: the "indicators" on the ground are telling us that it is now easier to make money in Albania than in Greece.

We have been mis-lead first by the short term effects of the LTRO and then by the political commentary that everything had returned to normal. Hard data will show that things now are about as normal as 9/15/08, the day Lehman filed for bankruptcy... It is just not Greece and Ireland that are experiencing huge drop-offs in the M-1 money supply but Portugal -14.00%, -13.80% in Italy and Spain is quickly approaching double digit numbers.  Even in developed countries the signs are worsening as the Henderson Global Investors gauge, the Real Narrow Money Supply, peaked at 5.1% in November, then dropped to 3.6% in January and was 2.1% for February. This is comparable to the declines seen in mid-2008 and so I bring this to your attention. Equally as worrisome is M-2 in the United States which fell below 1.6% last month for the first time since records have been kept in 1959.