Czech

Here's My Argument for Fighting the Good Fight Even Against Seemingly Overwhelming Odds ... The Counter-Argument Is that We Should Unplug from the Martrix, and that Will Suck Away Its Power. What Do You Think, Savvy Reader?

No one likes paying taxes. You’d think.

We have discussed the probability (around 50%) and possibility of a Greek exit from the Euro ad nauseum; how the post-election anti-austerity rage is bringing the world to a new realization that this is probable not possible and the widespread risk aversion of this event is much more of a global event than local - no matter how many times you are told how small Greece is. Critically, as BofAML notes, it is the systemic threat of an untamed banking and sovereign crisis in Europe which makes multiple-sigma events less 'tail' and more 'normal'. With money due to run out at the latest by July, new elections mid-June (that show massive support for the anti-bailout party), and the impacts on the real economy, exchange rate and inflation fears, and default and ECB balance sheet implications; it seems there are also strong incentives to keep Greece in. However, there is a political line of compromise and austerity that will be hard to cross for both parties which, if it failed - and it doesn't have much time - would mean a very fast 'ring-fencing' would need to occur for this not to thermonuclear with the three main channels of volatility transmission to the rest of the world being: banking and finance, trade, and confidence - all three of which are active already with Asian trade (and banking exposure) seemingly under-appreciated in our view with Singapore dramatically exposed with a stunning 60%-plus of GDP tied up in European bank claims.

• As ZH warned last week, JPMorgan’s Trading Loss Is Said to Rise at Least 50% (NYT)
• Spanish recession bites, may be prolonged (Reuters)
• Obama Lunch With Boehner Ends With Standoff Over Budget (Bloomberg)
• Hilsenrath: Fed Minutes Reflect Wariness About Recovery's Strength (WSJ)
• N. Korea Ship Seizes Chinese Boats for Ransom, Global Times Says (Bloomberg)
• Greece Plans for June 17 Vote Under Caretake Government (Bloomberg)
• Hollande turns to experience to fill French posts (FT)
• ECB Stops Loans to Some Greek Banks as Draghi Talks Exit (Bloomberg)
• Spain Urges EU to Provide More Support (WSJ)
• North Korea resumes work on nuclear reactor: report (Reuters)
• Fed’s Bullard Says Labor Policy Is Key to Cut Joblessness (Bloomberg)
• China Expands Scope for Short Selling, Securities Journal Says (Bloomberg)

• Facebook's selling shareholders can't wait to get out of company, increase offering by 25% (Bloomberg)
• Boehner Draws Line in Sand on Debt (WSJ)
• Romney Attacks Obama Over Recovery Citing U.S. Debt Load (Bloomberg)
• BHP chairman says commodity markets to cool further (Reuters)
• Merkel’s First Hollande Meeting Yields Growth Signal for Greece (Bloomberg)
• Greek President Told Banks Anxious as Deposits Pulled (Bloomberg)
• EU to push for binding investor pay votes (FT)
• Martin Wolf: Era of a diminished superpower (FT)
• China’s Hong Kong Home-Buying Influx Wanes, Midland Says (Bloomberg)
• U.N. and Iran agree to keep talking on nuclear  (Reuters)
• US nears deal to reopen Afghan supply route (FT)

Last week the hedgies were dumping, as the "momo whale" dumb money was chasing things higher on low volume intraday levitation. Today, idiot money (which is known thus for a reason) joins the dump fest. And according to Goldman, "the selling pressure is still muted." And unless the Politburo of the Developed World comes up with a Deus ex Printerium fast, muted may soon go to Max Volume.

Now that Europe is all the rage again, below we again summarize the key Euro-centric events through the end of the month, as well as all the sovereign bond auctions to look forward to (we use the term loosely). Finally, the squid summarizes the key events in the past week as well as the expected global catalysts in the next several days. Somehow we get the impression it will be all about the unexpected developments in the next 168 hours, especially with Spain, Italy, France and Germany coming front and center with a boatload of bond issuance as soon as 9 hours from now...

As noted earlier, and in the aftermath of both the UK and Spain officially double dipping, very soon a majority of Europe will be submerged under the latest recessionary tide which has already engulfed Spain, UK, Greece, Italy,  Portugal, Ireland, Belgium, Denmark,  Holland, Czech Republic, and  Slovenia. The primary wildcard remains Germany, although there is a more than 50% chance that following some very weak PMI data, the country will follow up its already negative Q4 GDP print with another decline, officially pushing the European growth dynamo into recession as well (as for France which reps and warrants that everything is great, it is not as if anyone actually believes those numbers, especially after Hollande becomes president in one week). For everyone who wants to track the European double dip tsunami in real time, the following interactive chart from Reuters is just for you.

Goldman summarizes what to look forward to in the next few days, when once again fundamental will be ignored and all attention will be on the ECB. "The Week ahead will be dominated by global PMI and US labour market data as the two key releases. A few central banks meetings are on schedule, but market consensus suggests clearly that that ECB will not change its policy, while the RBA will likely cut interest rates by 25bp. There are also central bank meetings in Columbia, Thailand and the Czech Republic.  The impact of these events on the FX markets, in particular the key activity data, will mainly be driven by the usual risk-on/risk-off mechanics. Moreover, with cyclical data generally weakening, chances are that risk-off currencies could perform relatively better this week. Some additional Yen strength is therefore possible, as well some under-performance of pro-cyclical currencies. The AUD may be worth some particular attention with the RBA meeting this week and the Chinese PMI - both key drivers of the currency."

The good news: Spanish Q1 GDP printed -0.3% on expectations of a -0.4% Q/Q decline. Unfortunately this is hardly encouraging for the nearly 25% of the labor force which is unemployed, and for consumers whose purchasing habits imploded following record plunges in retail sales as observed last week. The bad news: Spain now joins at least 10 other Western countries which have (re) entered a recession. Per DB: "Spain will today likely join a growing list of Western Developed world countries in recession. Last week the UK was added to a recession roll call that includes Greece, Italy, Portugal, Ireland, Belgium, Denmark, Holland, Czech Republic, and Slovenia. Debt ladened countries with interest rates close to zero have limited flexibility to fight the business cycle and this impotency will continue for many years." Alas, the abovementioned good news won't last: from Evelyn Hermman, economist at BNP - "The Pace of Spain’s economic contraction may increase in coming quarters as austerity measures bite more sharply." Of course, it is the "good news" that sets the pace each and every day, as the bad news is merely a further catalyst to buy, buy, buy as the ECB will allegedly have no choice but to do just that when the time comes. And something quite surprising from DB's morning comment: "If it were us in charge we would allow more defaults which would speed up the cleansing out of the system thus encouraging a more efficient resource allocation in the economy at an earlier stage." Wait, this is Deustche Bank, with assets which are nearly on par with German GDP, saying this? Wow...

9 Torture Myths DeBUNKED

Following this week's ongoing battery of abysmal economic news out of Europe it will hardly come as a surprise that yet another indicator has been released and is pointing to a multi-year low in the deleveraging (elsewhere called incorrectly austere) continent, namely the Euro-area wide confidence index which just slide to the lowest leve since 2009, missing every single estimate and declining sequentially across the board... And with the UK, Greece, Italy, Portugal, Ireland, Belgium, Denmark, Holland, Czech Republic, and Slovenia now in re-recession, and Spain a definitive shoo in next week, the kicker is that German GDP will almost certainly now report a second consecutive GDP print in a few days, thus pushing the entire European continent in a double dip.

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?

While gold demand from the western investors and store of wealth buyers has fallen in recent months, central bank demand continues to be very robust and this is providing strong support to gold above the $1,600/oz level. IMF data released overnight shows that Mexico added 16.8 metric tons of gold valued at about $906.4 million to its reserves in March. Russia continued to diversify its foreign exchange reserves and increased its gold reserves by about 16.5 tons according to a statement by its central bank on April 20. Other creditor nations with large foreign exchange reserves and exposure to the dollar and the euro including Turkey and Kazakhstan also increased their holdings of gold according to the International Monetary Fund data.Mexico raised its reserves to 122.6 tons last month when gold averaged $1,676.67 an ounce.Turkey added 11.5 tons, Kazakhstan 4.3 tons, Ukraine 1.2 tons, Tajikistan 0.4 ton, and Belarus 0.1 tonnes, according to the IMF. Ukraine, Czech Republic and Belarus also had modest increases in their gold reserves. Central banks are expanding reserves due to concerns about the dollar, euro, sterling and all fiat currencies.

But they forgot to check with the Germans.