Video: German Failed Bond Auction, 6 Billion Offered, 3.6 Billion Takers; Contagion Spreads From Periphery to Outer Core, Then from Outer Core to Inner Core

No doubt emergency meets are underway in numerous countries right now following a failed German bond auction. Bond auctions have failed before, but not in Germany (at least by this much), and never at a worse time.

Link if above video does not play: German Bond Auction Disaster

Key Ideas Expressed in Video

"What people are saying is Germany is going to have to pay the bill. ... Just possibly, today is the day people may have decided German bonds are not the safe haven they thought they were. ... It's all about confidence isn't it?"

It's actually about solvency, not liquidity, not confidence. Solvency issues in Greece, Spain, and Portugal have now affected the core.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Morning Update/ Market Thread 11/23 - Tales Grow Taller on Down the Line Edition...

Good Morning,

Equity futures continue to tumble this morning, with the dollar rising sharply, bonds rising but then reversing, oil lower, gold & silver lower, and food commodities moving lower with wheat breaking a key support level that is the neckline of a very large head & shoulder’s pattern.

The morally crusted Mortgage Banker’s Association reports that Purchase Applications rose by a completely not believable 8.2% in one week last week, while the Refinancing Index fell by 4.0%. Sorry not one utterance out of their lips or off their computer is believable – 100% guarantee you that true statistics don’t move 8%, 20%, or 30% in one week. Again, this outfit is 100% hypocritical and they should not be allowed to produce self-interest driven economic statistics that are disseminated to the world. Here’s Econoplicit:
Veteran's Day did blur mortgage application data with the subsequent week showing a strong rebound that puts the purchase index back on trend. The volume of purchase applications rose 8.2 percent in the November 18 week, back on an upward path but still, at about minus five percent, below the year-ago level. Refinance volume wasn't able to rebound, down 4.0 percent in the latest week though applications for government loans did rise with the government share of activity, at 12.3 percent, the highest of the year. Rates were steady in the week, averaging 4.23 percent for conforming balances ($417,500 or less) and 4.59 percent for jumbo loans ($417,500 or more). Next data on the housing sector will be Monday with new home sales.


Weekly Jobless Claims rose to 393,000 – remember, it takes numbers below 350k to show any real job growth:
Initial jobless claims are below 400,000 for a third straight week in what is a hopeful sign that the jobs market is improving. Claims in the November 19 week came in at 393,000 vs a revised 391,000 in the prior week and 393,000 before that. The four-week average of 394,250, down four weeks in a row, is below 400,000 for a second week in a row.

Continuing claims in data for the November 12 week rose 68,000 to 3.691 million with the four-week average down slightly to 3.672 million. Changes in continuing claims are hard to read given that declines are a mix of benefit expiration and hiring. The unemployment rate for insured workers is unchanged at 2.9 percent for a fifth straight week.

The Labor Department describes today's report as straight forward and without special factors. But the ongoing financial trouble in Europe is a major special factor that continues to unfold, raising the risk that weakened European demand may begin to drag on US growth and in turn job growth.

Really, you mean that a debt saturated Europe is a “special factor?” LOL, how about a debt saturated globe ruled by narcissistic psychos who were wrongly given the power to coin money with no one regulating the value thereof?

U.S. Constitution - Article 1, Section 8: The Congress (your representative) shall have the power “Clause 5: To coin Money, regulate the Value thereof…”
This is not occurring. Nowhere does the Constitution give Congress the right to subjugate this power or to give it to a few private individuals. This is THE MOST IMPORTANT CLAUSE IN THE CONSTITUTION. It clearly spells out WHO it is that is supposed to be in charge of the production and regulation of money. It is the correct rule of law and it makes the private “Fed” a completely illegal group. This is critical because transferring that power to a few individuals gives them the ability to make money from nothing and then to corrupt ALL the other provisions of our rule of law. This is the one point that the people need to get focused on – it is here where all answers are found – I’m talking about our problems with morality, ethics, war, entitlements, work ethic, everything!

You name the ailment, and I’ll tell you how it relates to WHO it is that controls the production of money. A common currency MUST come into being without benefiting the few, it must come into being without favoring anyone. Truly sovereign money does this, it does not come into being as someone’s debt burden.

Regarding Jobless Claims, remember to keep the longer term perspective in mind – everything above the red line is losing jobs:

Initial Claims:

Durable Goods Orders continued to decline in October, falling .7%. Points to consider… We make almost nothing in America anymore, the production situation is so pathetic that a few aircraft orders one way or the other causes this measurement to swing wildly – that is a national embarrassment, Ross Perot was right about that giant sucking sound you hear. Another point is that they measure Durable Goods in DOLLARS, not widgets, and thus they are way overstated. Here’s Econoday consenting to the lies:
Durables orders in October were pulled down by a drop in civilian aircraft orders. Otherwise, durables orders were moderately positive net. New factory orders for durables fell 0.7 percent, following a decline of 1.5 percent the prior month (previous estimate, down 0.6 percent). The October decline was less negative than the consensus forecast for a 1.0 percent fall. Excluding transportation, durables advanced 0.7 percent after a 0.6 percent rebound in September. The October increase topped the consensus forecast for no change in durables excluding transportation.

Weakness in October was led transportation which fell 4.8 percent after dropping 7.6 percent in September. Within transportation, weakness was in nondefense aircraft which declined 16.4 percent after a 26.8 percent fall in September. These are essentially swings in orders for Boeing aircraft. Defense aircraft rebounded 10.2 percent, following a 34.8 percent drop in September. Motor vehicles rebounded 6.2 percent after a 2.4 percent dip the month before.

Outside of transportation, orders were mixed but net positive. Increases were seen in primary metals, up 3.0 percent; machinery, up 1.6 percent; and "other" durables, up 1.2 percent. On the downside were fabricated metals, down 0.3 percent; computers & electronics, down 0.1 percent; and electrical equipment, down 5.2 percent.

Turning to private investment numbers, nondefense capital goods orders excluding aircraft declined 1.8 percent, but followed increases of 0.9 percent in both August and September. Shipments for this series decreased 1.1 percent in October, following a 3.1 percent boost in August and a 1.0 percent dip in September. While volatile, nondefense capital spending appears to remain on a mild uptrend.

Despite monthly volatility, forward momentum continues for the manufacturing sector. Given the fact that Boeing recently announced sizeable new orders and that auto sales remain healthy, the underlying trend for manufacturing looks moderately healthy and should help the recovery gain strength, albeit gradually.

Healthy? Really?

Okay, let’s zoom out and look at the Durable Goods chart back as far as it will go, about 1992. We know that total employees in Manufacturing is at the same level as 1942, so let’s put them together on the same chart from about 1980:

Durable Goods with Employees in Manufacturing:

Note on the chart above how Durable Goods are measured in DOLLARS. This means that this chart is NOT REAL, does not reflect reality at all UNLESS we truly correct it for inflation. I can’t do that because the “Fed” has completely distorted the reality of inflation, but what I can do is simply divide the Durable Goods dollar quantity by the largest measurement of money, MZM:

Durable Goods Divided by MZM:

Gee, what do we find? Diminishing production relative to money creation. I could do the same thing by dividing Durable Goods with our debt, and the results look the same. What does it prove? It proves that our Durable Goods report is a fraud, when you measure production in dollars that are being devalued, then your measurement is meaningless. Thus this, and all economic statistics measured in dollars are a lie. A lie that gets bigger with the exponential growth of money and moneyness. The bottom line is don’t consent to the lies!

Demand that they stop lying to you and demand that the rule of law be righted by returning the money creation power to the people where it belongs!

Ready for more lies? Okay, here comes Personal Income and Outlays. Here the claim is that Personal Income grew by .4% in October, 3.9% year over year. And that “Consumer Spending” (Personal Outlays) grew by .1% in October, 4.7% year over year. Again, these are measurements of dollars. It says NOTHING about what you got for your dollars. And it says nothing about how long you had to work to get the items those dollars got you. Okay, let’s listen to the lies about “tame inflation:”
Personal income and spending posted additional gains in October. Inflation was tame. Personal income in October advanced 0.4 percent, following a 0.1 percent increase in September. The October rise came in higher than the market median projection for 0.3 percent. The wages & salaries component posted an even stronger 0.5 percent boost after rebounding 0.4percent the month before.

The pace of consumer spending eased in October but followed a strong gain the prior month. Personal consumption expenditures rose 0.1 percent in October, following a 0.7 percent surge in September. Market expectations were for a 0.3 percent gain. By components, personal spending was led by durables, up 0.8 percent after a 2.9 percent jump in September . On a drop in gasoline prices, nondurables decreased 0.2 percent, following a 1.0 percent jump the month before. Services rose 0.1 percent after a 0.2 percent gain in September.

Headline inflation turned negative while the core rate was soft. The headline PCE price index declined 0.1percent, following a 0.2 percent increase in September. The market expectation was for no change. The core rate firmed modestly to a 0.1 percent rise in October from no change the month before. Analysts had called for a 0.1 percent rise.

Year-on-year, headline prices are up 2.7 percent, compared to 2.9 percent in September. The core is up 1.7 percent on a year-ago basis versus 1.6 percent the month before.

The October personal income report is moderately strong, taking into account that the easing in spending came off a strong September. Within income, the robust gain in the wage & salaries component is particularly encouraging. While unemployment remains high, for consumers that are employed, the fundamentals for spending continue to improve.

While we hear the lies, we do not consent to them! “Robust gain in wage & salaries” my ass. What a whopper of a lie – your wage is relative to cost because you are paid in dollars. If you want to see a true picture of your wage, let’s divide Personal Income by MZM, our money supply, to see what the truth looks like:

Personal Income Divided by MZM:

Uh huh. Are you feeling the squeeze? Excess money production, production that benefits the few, not the many, is the root cause.

“Consumer” Sentiment just came in at a pathetic level of 64.1, down slightly from the previous month’s 64.2. Let’s chart Consumer Sentiment on the same graph as Total Consumer Loans, shall we?

Consumer Sentiment & Total Consumer Loans:

Note how Sentiment rose into the year 1999 right along with the creation of the credit bubble. Then crisis with monetary response that throws the economy past the debt saturation point and ever since Consumer Sentiment has been on a down trending path.

It doesn’t have to be like this. You don’t have to consent to living inside of a nation that indebts itself to a few narcissistic individuals – that is a most improper rule of law. And you don’t have to believe or consent to the lies being bombarded upon you nonstop from the media and those whose livings are derived from propping up an illegal and immoral system.

Listen to Bill Black calmly describe the FRAUD and what needs to happen to make it stop:

Bill Black interview begins at the 7:15 point:

Don’t consent to the lies, don’t consent to the FRAUD.

“Talk is cheap when the story is good, and the tales grow taller on down the line…

I, Nathan Martin, no longer consent to the lies.

Understanding the Problem, Understanding the Solution, and Understanding Who is to Blame are Three Different Things

Ambrose Evans-Pritchard speaks of the Self-serving myths of Europe’s neo-Calvinists

In his article he chastises Germany for its role in the Eurozone mess, citing Germany’s Wolfgang Schauble and the northern neo-Calvinists. Pritchard also praises a report by Simon Tilford and Philip Whyte on how stricter rules threaten the eurozone.

There is certainly much in the report that I agree with, primarily a description of the problem. Unfortunately, there is even more I disagree with, notably the solution.

Ideas I agree with:

  1. Creditor countries cannot be absolved of all blame.
  2. If the eurozone had been a fully-fledged fiscal union, it would not be in its current predicament. (Mish: It would be a different predicament, likely much worse)
  3. The current crisis is not simply a tale of fiscal irresponsibility and lost competitiveness in the eurozone’s geographical periphery. It is also about the unsustainable macroeconomic imbalances to which the launch of the euro contributed (in creditor and debtor countries)
  4. The challenges presented by Greece were always going to be daunting, given the dysfunctional nature of its political economy.
  5. The medicine prescribed to Greece – which was partly motivated by an urge to punish it and to take a stand against moral hazard – was doomed to failure.
  6. A year’s worth of punishing austerity and contracting activity has only succeeded in pushing Greece deeper into insolvency.
  7. The eurozone will not emerge from the debt crisis without economic growth.
  8. It is now clear that a currency shared by fiscally sovereign member states is more vulnerable to losses of confidence than a monetary union that is more fully integrated.
  9. A familiar pattern has now set in. Under market duress, leaders hold an emergency summit and announce an agreement designed to restore confidence once and for all.
  10. After an initial bout of euphoria, financial markets digest the contents of the agreement, conclude that it does not resolve the underlying problems, and the cycle starts all over again. Each agreement buys less time and the stakes become larger with every summit.

Hopefully we can all agree on those 10 points. The problem is the Euro was fatally flawed from the beginning.

No in Many Languages

No currency union has ever survived without there being a fiscal union at the same time. Is Germany to blame for this?

I say Nein, Non, Ochi, Iie, Nie, Nej, and of course No.

Who is to Blame?

The rules of the Maastricht Treaty were known by everyone at the outset and there were many architects of the Euro idea including Jean-Claude Trichet. In that regard it makes as much sense to blame France as it does Germany.

Moreover, countries could have accepted or rejected the treaty. Every country had a vote (or many votes - as politicians crammed the Euro down their citizens' throats whether they wanted it or not).

The UK chose wisely, other countries did not, including Germany. Every country stupid enough to enter this untenable arrangement can look in the mirror and blame themselves.

The Non-Solutions

Unfortunately, the rest of the report borders on the nonsensical, notably "All eurozone countries should therefore finance debt by issuing bonds which would be jointly guaranteed by all of them."

The authors then proceed to discuss all the inherent problems with the idea including "moral hazards", borrowing targets, etc, stating "A dogmatic target of budgetary balance four years hence, irrespective of a country’s position in the economic cycle, would achieve little."

The authors then have to figure out a way around dogmatic targets, proposing "rules should be set with reference to the cyclically-adjusted fiscal position for each member state."

That of course creates another problem as to how to do that, coming to the conclusion that 17 votes is too many, and a creditor-dominated board would not work, but "A board of nine economists, from the big eurozone economies, the European Commission, the European Central Bank (ECB) and the OECD might form a good basis."

Good grief.

Wait, I am not done yet. The authors freely admit "the issuance of eurobonds will not prevent debt crises in the absence of steps to reduce trade imbalances within the eurozone" then attempt to dream up solutions to that problem.

That idea makes as much sense as attempting to solve a trade disparity between California and Indiana.

We are still not done yet. The authors see a need to "set up a jointly-funded, eurozone-wide deposit protection scheme."

Finally, the authors conclude "The ECB’s mandate is too restrictive. The central bank must guard against excessive inflation. But its fear of inflation blinds it to the much more serious threats confronting the eurozone economy."

Apparently Europe needs a "mandate" but one that is meaningless, and allows the central bank to print at will.


The authors ramble on about various problems, real and imagined, then conclude with ...
Eurozone leaders now face a choice between two unpalatable alternatives. Either they accept that the eurozone is institutionally flawed and do what is necessary to turn it into a more stable arrangement. This will require some of them to go beyond what their voters seem prepared to allow, and to accept that a certain amount of ‘rule-breaking’ is necessary in the short term if the eurozone is to survive intact. Or they can stick to the fiction that confidence can be restored by the adoption (and enforcement) of tougher rules. This option will condemn the eurozone to self-defeating policies that hasten defaults, contagion and eventual break-up.
Indeed, Not

Pritchard, cited the above paragraph and finished with "Indeed. Read it all"

I did read it all and nearly threw up at the self-serving myth there are only two options.

  1. Break the rules
  2. Stick to self-defeating policies

There is a third option and Pritchard should know it well: Plan for a breakup of the Eurozone and make banks write down bad investments. Bondholders will take a hit, but they deserve to. It is time to stop bailing out banks at the expense of taxpayers.

The report by Simon Tilford and Philip Whyte with all their convoluted solutions culminating in the creation of a "fiscal nanny-zone" should be enough to convince anyone the Euro is not worth saving.

Countries that disagree can keep the damn thing. If France wants a fiscal nanny-state and unlimited printing by the ECB, fine. Let France have it.

True Solution

The best solution and the one I propose is for Germany to leave the Eurozone. I am quite sure other countries in Northern Europe would follow. The Euro will still survive in my proposal, and France can be king of the nanny-hill if it elects to stay in.

Yes this would be disruptive. However, it would give the Euro-fools what they want and Northern European voters (not politicians) what they want.

Michael Pettis outlined a compelling case why Germany exiting the Eurozone is the best option. Please see Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied) for details.

The Euroskeptics Were Right

The Euroskeptics were right, straight from the beginning. Pritchard was among those skeptics. He was right then. He was also correct in a major way when he stated the German supreme court would not allow Eurobonds or ECB printing.

Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for details.

Unfortunately he is wrong now. In more ways than one.

  1. Pritchard is wrong on who to blame
  2. Pritchard is wrong to perpetrate the myth the euro can be saved
  3. Pritchard is wrong about fearing deflation (a natural state of affairs actually, it is only fractional reserve lending and mountains of debt that bring upon such fears. The solution is to get rid of central bankers and end fractional reserve lending)
  4. Pritchard is wrong to not fear inflation in the scenario proposed by Tilford and Whyte.

Eurobond, Unlimited Printing Foolishness

I am not the only one who thinks the eurobond, unlimited printing idea is beyond foolish. John Hussman had an excellent writeup on Monday Why the ECB Won't (and Shouldn't) Just Print
Over the past week, we've heard all sorts of propositions that the European Central Bank (ECB) "must" begin printing money to bail out Italy and other countries, because "there is no other option." There are three basic difficulties with this idea.

The first is that ECB buying might help to address immediate liquidity issues of distressed European countries, but it would not address long-term solvency issues, and would in fact make them worse.

The second is that the ECB, under existing European treaties, has no such authority, and the prohibitions against it are very explicit. Changing that would be far more difficult than many market participants seem to believe, because it would require an explicit and unanimous change in the EU Treaties that AAA rated countries such as Germany and Finland vehemently oppose.

The third difficulty is that even if the ECB was to buy the debt of distressed European countries with printed money, the inflationary effects would likely be far more swift than anything we've seen in the United States. This would not "save" the euro, but would simply destroy it by other means.
Hussman builds an excellent case.

I will conclude the way Pritchard did: "Indeed. Read it all".

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Banks Make Plans for Euro-Zone Split

A few weeks ago many thought a breakup up the eurozone was "unthinkable". Today, "disaster plans" are being made by numerous banks to allow for just that event.

The Wall Street Journal reports Banks Ponder Euro-Zone Split
A key part of the world's foreign-exchange trading infrastructure is bracing itself for the possibility of a breakup of the euro zone, the latest sign investor concerns about the Continent's debt crisis are on the rise.

CLS Bank International, which operates a platform in which banks settle most of their currency trades, is running "stress tests" to prepare for the possible dissolution of the euro, according to people familiar with the situation.

Some of the 63 banks that co-own CLS are making similar plans. "We always plan for contingencies," said a senior executive at one of the largest currency-dealing banks.

New York-based CLS is by far the biggest name in the currency market known to be making preparations for such a scenario. Analysts with Japanese bank Nomura Holdings said Friday that a euro breakup is a "very real risk," while HSBC Holdings analysts told clients on Tuesday that it's "not unimaginable" for countries to leave the euro zone.
This is the kind of discussion and action that is needed because a breakup appears inevitable.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

2-Year Italian Bond Yield Hits 7.27%, Yield Curve Inverts; Italy, Belgium, Spanish Bonds Smacked

Sovereign debt yields and spreads are under renewed pressure today in Italy, Belgium, and Spain.

Sovereign Debt Table 10-Year Bonds

Sovereign Debt Table 2-Year Bonds

Note the inverted yield curve for Italy and Belgium.

Italian 2-year bonds were smacked hard today, opening at 7.27% before calming down to 7.06%. The 10-year yield opened at 6.85 and surged to 6.98 before calming down to 6.88%. 2-year Italian bonds are not only above 7%, but also yield more than 10-year bonds.

Note: At 4:13 ET 2-Year Italian bonds are back up to 7.21%, and climbing way faster than 10-Yr bonds at 6.91%

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List