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
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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

Chinese Manufacturing Contracts, Gauge Hits 32-Month Low; Soft-Landing Nonsense; Global Recession is Here

The global recession has begun. Europe is undeniably in recession, the US is on the way, and Chinese manufacturing just entered contraction.

MarketWatch reports China manufacturing gauge shows contraction
HSBC’s preliminary China manufacturing survey fell to a 32-month low in November, well below analysts’ forecasts, with the reading signaling the sector is now contracting.

The Purchasing Managers Index printed at 48.0 on a 100 point scale, reversing from a mildly expansionary reading of 51.0 in October, HSBC reported Wednesday.

Consensus forecasts for had called for a 50.1 result, just above the 50 level that separates expansion from contraction, according to CNBC.

“As inflation is likely to decelerate at a faster-than-expected pace, it will leave more room for Beijing to step up selective easing measures, which should gradually filter through to keep China on track for a soft landing,” HSBC economist Hongbin Qu said in comments accompanying the flash PMI release.
Soft-Landing Nonsense

Everyone is looking for the Fed, the ECB, and the Chinese Central Bank to steer the global economy to the proverbial "soft-landing".

Yet the fact remains, trillions of dollars have been spent already, hoping to forestall another recession. Every action has added to debt in the US, UK, Japan, and Europe, and created a huge inflationary construction boom in China.

Crude is still hugging $100 a barrel. Food prices are up. Is the Fed going to launch another round of QE into that? I doubt it. I doubt China does either, especially with a regime change coming up.

Is Congress going to approve stimulus changes that would help Obama get re-elected? The idea is laughable.

Crash Landing

Should central banks step in, watch for gold, crude, and oil prices to rise, and little else to happen. Central banks and world governments have applied so much totally useless Keynesian and Monetarist stimulus to prevent the inevitable, there may be no landing at all (soft or hard), until a global crash.

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

Showdown in Greece; EU Gives Deadline on Signatures; Samaras Won't Sign, Sends Letter Instead, Seeks Policy Changes

European officials have had enough of the technocrat leadership in Greece. They have given a week for Antonis Samaras, the leader of New Democracy party, and member of the coalition to sign a document saying he will support the European Union debt plan.

He says he will support the plan (with modifications). The EU wants a signature now, with no changes.

Does a Signature Even Matter?

Other than pigheadedness on behalf of the EU, does a signature even matter? Why? The next government can easily vote to undo whatever this government does. Will Samaras remain in power? Is his signature binding on the next parliament (or even this one)?

I will have more questions in a moment but first consider a couple of articles.

EU Gives Deadline on Signatures

Ekathimerini reports EU sets deadline for signatures
European officials insisted on Tuesday that party leaders in Greece’s coalition government must provide written guarantees expressing their commitment to a new European Union debt plan before a Eurogroup summit next Tuesday to unlock crucial rescue funding. But center-right New Democracy appeared unmoved and the right-wing Popular Orthodox Rally (LAOS) -- the third party in the coalition -- appeared to harden its stance against the country’s creditors.

Sources in Brussels told Kathimerini that the EU decided to send Athens the ultimatum after talks between European Commission President Jose Manuel Barroso and New Democracy’s vice president Stavros Dimas, who is also foreign minister, failed to secure a shift in the stance of ND president Antonis Samaras, who has refused to offer written guarantees to Brussels, saying his word should be enough.

Eurogroup chief Jean-Claude Juncker, who received Greek Prime Minister Lucas Papademos in Strasbourg, said he hoped party leaders would fulfill EU demands by Tuesday. “Would there be no cross-party agreement, that disbursement of course could not take place,” Juncker said, referring to an 8-billion-euro loan without which Greece faces default next month.

There was pressure from elsewhere too. Dutch Finance Minister Jan Kees de Jager said his country would bar further aid unless Samaras changes his tune. “We want to see a signature from Mr Samaras… otherwise, as far as I am concerned, they will get no money. Absolutely not.” But ND spokesman Yiannis Michelakis indicated that ND’s leader was unmoved. “I have nothing to add on the issue of the signature that is being asked of Samaras,” he said.

Meanwhile the leader of LAOS, Giorgos Karatzaferis, shifted from his earlier suggestion that he would do “everything necessary” to secure crucial loans, saying that instead of signing a letter, he would write an article outlining his commitments in his party’s newspaper.
Samaras Won't Sign, Sends Letter Instead

Athens News reports Samaras won't sign, EPP letter published
As the pressure mounts on the major Greek party leaders to provide written support for the October 26/27 eurozone deal, New Democracy (ND) president Antonis Samaras has reiterated his stance that he will not sign such a statement.

ND party spokesman Yiannis Mihelakis stressed on Tuesday that he has nothing further to add on the issue of Samaras' signature over commitments requested by the EC-ECB-IMF 'troika'. Mihelakis added that Samaras has made specific statements saying he backs the October 26 EU summit agreement, adding that no request has been made on behalf of the European Union as regards the ND leader’s signature.

In the letter, Samaras underlines the fact that he supports Prime Minister Lucas Papademos and the targets of fiscal adjustment but notes that “certain policies have to be modified”.
Policy Changes?

Who blinks first? Samaras or the EU?

While pondering that question, consider this logic from my friend Bran who every day sends me links like those above.

Bran writes ...
Imagine a US bill launched by the Democrats affecting international shipping. Suppose the bill gets a mixed vote and passes.

Along come the Chinese who are part beneficiaries of the bill and they then insist not just the President sign it, but also demand the head of the Republican party to do so, or they will not abide by their reciprocally enacted legislation.
Just imagine that setup and tell me how Speaker of the House John Boehner or Senate Minority Leader Mitch McConnell might react.

Even if the Congressional leaders did sign such a document, would it be binding on the next Congress?

In the case of Greece, elections will be held early next year (supposedly). With all these demands and all this political posturing, one has to wonder.

I for one hope Samaras holds firm and does not sign. The quicker the Eurozone blows up, the better it will be for everyone.

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

Only a Handful of Stocks are Up the last Five Days

There have been few hiding places over the last five trading days. The major indices are down sharply and all sectors are also down. As the Sector Market Carpet shows, stocks in the utilities and consumer staples sectors were down the least, while technology and energy stocks were down the least. The red box to the right shows the top five gainers and losers. 

Shaza sent me this from the blog Some Assembly Required

Problems are distorted by the lens used to examine them.
Dead On Arrival: Never mind the details of the IMF's new 'Precautionary Credit Line' proposal, the IMF does not have the money to fund it adequately (estimated at $3 to $4 trillion) and it will require the support of the GOP to get the 'contribution' it would require from the US.
Balance Beam: Attempting to position itself as a support of democracy and human rights in the Middle East without upsetting the dictatorships it has and continues to support, the US has called for “restraint on all sides” in the ongoing confrontation between armed police and unarmed demonstrators in Egypt. For example, the demonstrators shot by the police should ideally die quietly and off camera.

And this:

The winners circle for 2011 (so far)

Richard HemmingNovember 18, 2011

Fossicking for gold

As the year draws to a close, it's worth noting some of the hits and misses of this column.

The big hits, as it turns out, include many of the gold stocks.

All but one or two of the gold stocks this column has written favourably on over the past eight or so months have done well, some more than doubling.
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These include Norton Gold Fields (ASX code NGF), Red Five (RED), Northern Star (NST), Papillon Resources (PIR), Doray Minerals (DRM), Troy Resources (TRY) and Resolute Mining (RSG).

Oil heading for $US200 a barrel?

David Lee SmithNovember 22, 2011

In May 2008, as crude oil steamed toward an all-time high of $US147 per barrel, a Goldman Sachs group predicted that the price could move as high as $US200 within the following 24 months.

Instead, during the second half of the year its price rolled over and began a free fall to near $US30 as December brought the eventful year to a close.

It now appears, however, that Goldman might just have been early in its prediction rather than simply wrong.
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Oh, I know, light, sweet crude is currently trading near $US100 a barrel, and it would require a host of major events to drive it to double that level, especially during 2012.

European Commission Staff Threatens Strike; Would Anyone Notice?

The Eu Observer reports EU staff to go on strike
EU staff unions have re-iterated their threat to go on strike after negotiations with the European Commission failed to produce an agreement on a new package of pay and pension changes.

“If Sefcovic does not reopen the negotiations, we will go on strike,” said Felix Geradon, secretary-general of the Union Syndicale, the biggest of the eleven within the institutions.

Earlier this month, the unions gave the commission a strike notice, giving warning that they are prepared to down tools for one day any time between 23 November and 17 December, a move that would practically shut down the European Commission.
Would Anyone Notice?

The key to answering that question is found in the preceding paragraph: the strike "would practically shut down the European Commission".

If true, people might notice a stunning improvement in productivity, fewer stupid rules as described in EU Bans Claim "Drinking Water Can Prevent Dehydration" Expect More Such Stupidity if European Nanny-Zone Fiscal Union Forms, and a general overall improvement in economic confidence.

Unfortunately, such a productivity-improving strike would likely not last long enough for people to notice the EC is (at best) totally useless, and at worst economically damaging in a major way.

Mike "Mish" Shedlock
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IMF Announces New "Precautionary and Liquidity Line"; Fed Discusses More Stimulus; Both Much Ado Over Nothing; Expect Continued Bull Market in Meaningless Headlines

The market spurted higher mid-morning over new and improved credit lines by the IMF, and another never-ending discussion by the Fed about increasing liquidity.

Bloomberg reports IMF Revamps Credit Lines to Lure Nations
The Washington-based IMF today said the new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Countries with potential needs can also apply, as they did in the past under the Precautionary Credit Line that the new instrument replaces.

“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution,” IMF Managing Director Christine Lagarde said in an e-mailed statement. “This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”

The changes, which enable countries that pre-qualify to request IMF funds without having to make as many policy changes as with traditional loans, come as Europe’s crisis threatens to spread to Spain and France. The IMF is co-financing bailouts in Greece, Portugal and Ireland and is preparing to send a team to Italy for an unprecedented audit of the country’s efforts to cut its debt.

The Standard and Poor’s 500 Index pared losses after the report.
Not Big News

Via email, Bank of America / Merrill Lynch says "This is Not Big News"

  • The IMF has announced some easier access to their limited supply of funds (as below). Despite the eye catching headlines, BofAML do not think that this is particularly new news, nor that financially impactful, unfortunately except possibly for smaller countries and even that is unclear.
  • Thanos (ex-IMF): Thinks the IMF's PLL is in no way a game changer by itself. The PLL could be used in east Europe. It could also be used in Italy and Spain, but more for its conditionality than for its limited firepower compared to funding needs. And in any case, an SBA or even an EFF would be better for Italy and Spain, as such arrangements have more conditions linked to reforms.
  • Laurence Boone (Head of Euro Econ): Thinks this does not necessarily mean more money. It means easier access to IMF money. In 2008/09 euro national central banks lent about $75bn to the IMF, a repeat of this lending is something they may or may not be able to repeat this time.
  • Ardash (BofAML APAC): Points out the PLL was flagged during the G20 summit and mentioned in its communique - officials have already suggested it would be more appropriate for financing needs of smaller countries, rather than the big fish (Italy and Spain).. even 10x quota is simply not enough, let alone judging whether they are committed to "sound policies".

Expect Continued Bull Market in Meaningless Headlines

Note the market continues to move on meaningless headlines. Also note the duration of each move higher keeps getting shorter. That means we can expect a huge bull market in meaningless headlines as EU officials, Eurozone officials, and the IMF keep searching for things to say to placate the markets.

"Lure" the Perfect Word

By the way, Bloomberg's headline title is near-perfect. The phrase "lure nations" is appropriate. "To their economic death" needs to be added.

This is what I think of the IMF as noted in To Ireland With Love.

IMF's Trojan Horse Gift to Ireland

I believe we have all heard the story and know how it ends.

Mike "Mish" Shedlock
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Three Easy Steps to Getting Rich Quick in Bear Markets

Here is a humorous chart from a nice E-Wave site called Pretzel Logic's Charts and Analysis.

Nasdaq 100 Index

click on chart for sharper image

The above chart is from SPX 1000 Here We Come (Right Back Where We Started From) in which Pretzel writes ...

The NDX just completed a major top formation. On Thursday, the support level of this top was broken, and on Friday, the NDX spent all day unable to rally back above it. The chart also has some helpful hints on how to "get rich quick" in a bear market -- assuming you have enough capital to move the market, that is.

Those of you who are into technical analysis in general, and E-Wave in particular, may wish to check out Pretzel. He has many e-wave charts in the above link and lays out the technical case for a big downdraft quite nicely, complete with an alternate bullish possibility.

Three Easy Steps to Getting Rich Quick

Those of you not into technical analysis but with a proven ability to move the markets, please note these three "easy" steps toward guaranteed profits.

  • Step 1: Generate quick run up off the lows, using shorts as fuel.
  • Step 2: Distribute as much of your overvalued inventory as possible to retail investors. Schedule press release "New Bull Market"
  • Step 3: Let the market go again. Buy back your old inventory at much lower prices. Rinse and repeat.

More seriously, on a fundamental and technical basis, this is not a market to be messing with unless you know how to hedge. Moreover, if you don't know how to hedge, this is not the time to learn how.

Odds of a big market breakdown are both high and rising.

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

UK Prime Minister "Our Plan to Cut Debt is Failing"; Plans to Cut Debt Fail Nearly Everywhere; One Success Story

Plans to cut debt have failed nearly everywhere I look.

  • Greece is obvious enough and a government collapsed over it.
  • Spain is obvious enough and a government collapsed over it.
  • Italy is obvious enough and a government collapsed over it.
  • Portugal is obvious enough and a government collapsed over it.
  • US is obvious enough and the failure of the super-committee to come to agreement is proof enough

In the UK, news is just as "reassuring" as Prime Minister David Cameron says "Our Plan to Cut Debt is Failing"
David Cameron and his senior ministers have admitted for the first time that there is a danger they will not be able to tackle borrowing on time.

The Prime Minister on Monday conceded that tackling Britain’s debts was “proving harder than anyone envisaged”, raising the prospect that the Coalition would be unable to close the deficit by 2014-15.

That would rule out any significant tax cuts before the next election. It also raises questions about the Coalition’s fundamental purpose.

Departing from the deficit-reduction timetable could raise fears that Britain will face rising borrowing costs as bond markets take fright.

Debt is “a drag on growth”, Mr Cameron told business leaders. “We are well behind where we need to be,” he said.

Kenneth Clarke, the Justice Secretary, has warned that the global economy is “in a devil of a mess”, which is “bound to have an effect” on the Coalition’s plans to clear most of the deficit before the next election.

The candid remarks pave the way for George Osborne, the Chancellor, to admit next week that his target will be missed and the structural deficit will not be erased until at least 2015-16.
The odds Cameron will succeed by 2016 are the same as the odds he would succeed by 2014. Zero.

At least the UK admits failure. In the US we have a situation best described as Mission Accomplished: Nothing; Kerry Says No Problem "Lawmakers Have a Year"; Boehner's, Pelosi's "Moral Obligations" Fly Out the Window
Mission a Brilliant Success, Achieves 100% of Its Goals

The Super Committee accomplished nothing, as expected, and more importantly, as designed. Neither political party really wanted to do anything about the deficit (because it would cost them votes). By D.C. standards this mission was a "brilliant success". It achieved its purpose, which was to do nothing. Both parties got the smoke-and-mirrors delay they wanted, while pointing fingers at the other side.
One Success Story

Those looking for a success story can find it in Iceland. It truly is different in Iceland because Icelandic citizens were actually give a chance to vote on what to do, and vote they did against the wishes of parliament, to tell the IMF and EU to go to hell (twice I need to add, because incompetent politicians were hell-bent on stopping default following the first vote).

Iceland defaulted. The result has been spectacular. Iceland is well on its way to recovery.

Meanwhile, PIIGS flounder around like fish out of water, shoved bales of austerity and ordered by outsiders and unelected officials to breathe.

The current situation is hopeless. Politicians either need to accept that fact, or put things to a vote like Iceland did.

Serious restructuring and a breakup of the Eurozone is the only solution.

Mike "Mish" Shedlock
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Morning Update/ Market Thread 11/22 - Mission Impossible Edition…

Good Morning,

Theme Music, Maestro, if you please:

Stocks continue lower this morning with the dollar slightly higher, bonds higher, oil higher, gold & silver higher, and food commodities continue lower after breaking down from their prior ranges.

For those worried about gold, here is the daily chart once again showing that the primary and secondary uptrends are still very much in tact:

Nothing highlights what I’ve been saying about the impossible math more than the “Super Committee’s” failure to even take a bite from it. Remember, they were tasked with “saving” $1.2 trillion over 10 years, but that would not have stopped the deficits from growing, it would have only slightly slowed their growth. And that was pure fantasy because any projections they were working with were simply false as they still don’t understand the exponential function of math. The following video series should be mandatory for all politicians, economists, accountants, heck everyone:

When I say impossible math underlies our economy, impossible is exactly what I mean. Not just in the United States, but in Europe and throughout the developed world. The root of the impossible math is the way in which our money comes into being as a debt that is owed to private individuals. You see, the Super Committee cannot stop making interest payments on the now $15,000,000,000,000 debt because they are living and fed from campaign money that comes from the people who profit from those insane interest charges.

There is only one way that the Super Committee can actually accomplish their impossible mission, and that is to end the “Fed” and begin producing sovereign, non debt money. Of course doing so unrestrained would be another problem, thus they would have to create checks and balances such as are contained within Freedom’s Vision.

Any politician who says they can “create jobs” while remaining within the central banker box is simply high, they do not understand the impossible math and how the economy is saturated with debt. There is only one way to create jobs going forward, and it involves clearing out the debt saturated condition, which must be accomplished one way or the other – any plan that fails to clear the debt will fail.

Of course we still haven’t addressed step one that prevents any “Super duper stupendous committee” from success – step #1 is to restore the proper rule of law. You start down that path by prosecuting the FRAUD, which is still rampant.

Speaking of fraudsters, I have a personal message for the stinking pile of manure that is Newt Gingrich… Go F___ yourself, Newt. And while you’re at it, it is YOU who should get a job and take a bath, I can smell the immoral narcissistic stench clear across the country! For you to say that it was not the Occupiers that paid for the parks they are occupying is not only patently false, as they are tax payers who most certainly did help to pay for that park, but you illustrate exactly how it is you and your overweight pandering to central bankers that proves you would accomplish exactly nothing except deepening the problems America faces. It is YOU who needs to go get a freakin’ job, you A-hole. Perhaps a little manual labor would be good for the soul, try it. By the way, you are now clearly in the running for the Economic Edge Asshat of the Year Award – congratulations.

What a field of candidates. Newt’s immoral words and life deeds may not land him in prison, but I know that Cain probably deserves a very long prison stay indeed, and would love to see that other Asshat Award contender on trial for his sexual assaults and for using his position of power over women. Running for President? He belongs behind bars least his next victim be one of our daughters!

The first revision for Q3 GDP came in much lower than expected at 2.0%, down from 2.5%. Note in Econocomplicit’s commentary how they try to spin this positive, yet also note how the growth figures were lowered, but the inflation figures were not:
The economy got a moderate downgrade for the third quarter but the downgrade largely came from where there is the least damage to forward momentum. The Commerce Department's second estimate for third quarter GDP growth was bumped down to an increase of 2.0 percent annualized, compared to the initial estimate of 2.5 percent and to second quarter growth of 1.3 percent. Analysts had forecast a revision to 2.4 percent annualized.

The downward revision primarily was due to a downward revision to inventory investment-from plus $5.4 billion initially to minus $8.5 billion. This revision is the equivalent of a 0.43 percentage point lower contribution to GDP growth.

Minor downward revisions also were made to personal consumption, nonresidential fixed investment, residential investment, and government purchases. Net exports were revised up to minus $400.7 billion from minus $409.4 billion.

The net effects of revisions to inventories and other components (notably net exports) leave demand numbers still relatively healthy. Final sales of domestic product were unrevised from the initial estimate of 3.6 percent. Final sales to domestic purchasers were down to 3.0 percent from the original estimate of 3.2 percent annualized.

Economy-wide inflation was unrevised at 2.5 percent and compares to the second quarter rise of 2.5 percent. The market median forecast was for 2.5 percent.

Turning to current quarter strengths and weakness (as opposed to component revisions), the economy was still gaining modest momentum. The acceleration in real GDP in the third quarter primarily reflected accelerations in PCE and in nonresidential fixed investment, a smaller decrease in state and local government spending, a deceleration in imports, and an acceleration in exports that were partly offset by a larger decrease in private inventory investment.

On the news, equity futures dipped modestly. Nonetheless, the key points today are that there is no significant change in underlying demand in the third quarter and recent monthly data indicate further strengthening.

Of course that is all bumpkis. Real GDP is not only negative, but it is extremely negative. And our GDP is overstated by 40% or more because they count our deficit spending, debt owed to private bankers, as “production.” That means that GDP is really a measurement of our money(ness), not of production. Below is a chart showing supposed GDP along with our national debt in grey, and below that all the current “Fed” measurements of money supply – note how all the money adds up to debt, since all our money is debt! Then notice how our national debt, which is now $15 trillion not the $14 trillion depicted there as they can’t update their charts fast enough to keep pace (so I extended the line to reflect that), is now outpacing our GDP:

GDP/National Debt/Money Supplies (money is debt):

Now then, when you take our GDP and divide it by our money supply, you quickly understand that something not good is happening – namely that the amount of “production” for a given amount of money is diminishing rapidly:

GDP Divided by MZM:

Because our money is debt, we are boxed in. Add more money, add more debt = impossible math. Pay down your debt, you have less money = impossible math. How hard is this to understand for crying out loud!

Of course there are savvy people in politics and in banking who fully get this. It is BY DESIGN. Debt is their tool that is used to control YOU. Pointing out the impossible situation of the system they create and perpetuate does nothing until we are fully ready to remove them from power. To do that all you must do is no longer consent to their lies! I, Nathan Martin, do not consent to their lies! Say it and repeat it, it will literally set you free.

Now let’s examine today’s announcement that Corporate Profits rose by 6.5% year over year in Q3, up from the .3% prior!
Corporate profits in the third quarter grew to $1.507 trillion annualized-up from $1.470 trillion in the fourth quarter (previously $1.470) trillion). Profits in the third quarter rose an annualized 10.3 percent, following a 4.3 percent gain the quarter before (previously 4.3 percent). Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits on a year-on-year basis advanced 6.5 percent, compared to up 0.3 percent in the second quarter.

Of course these “Corporate Profits” are complete nonsense too! They are there only due to the FRAUD. Remove the fraud, and corporate profits vanish. I’m talking about all the fraud, the mark-to-fantasy accounting, the offloading of stench filled debt onto Fannie and Freddie, the corporate shell games that are being played, the rating agency fraud, the “war on drugs” money laundering, etc., etc..

As proof of that, below is a chart showing the parabolic nature of corporate profits – they rose as the fraud rose, then for a very short time mark-to-market accounting was reimposed, profits crashed. They used their make money from nothing power to buy off Congress and the FASB, and BINGO, next thing you know mark-to-fantasy is back, and so are parabolic corporate profits:

Corporate Profits:

Gee, did your home value recover like that? How about your retirement plan? Does your budget look better than ever? How about your cost of living? To me, that chart is symbolic of the Occupy movement’s cry.

Once again, since it they who want to deceive us all with “productivity” propaganda, it’s time to revisit that very apropos Kennedy quote:
“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product...if we should judge the United States of America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”
― Robert F. Kennedy

We are the many
You are the few

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

Perfect Storm the Most Likely Scenario; Is Europe Set to Declare a Chapter 11 in Early 2012?

Panic is spreading says Steen Jakobsen, chief economist at Saxo Bank. Steen eyes the perfect storm including a potential "Chapter 11" call for European banks.

Via Email
This morning there is too much bad news.

US Super Committee failed to find the 1.2 trillion US Dollar needed to stop the automatic spending cuts being initiated from 2012, but the more acute problem being the expiration of the payroll tax and the emergency benefits by year-end 2011. It now looks less likely a deal can be struck as Congress now have even less incentive to find common ground ahead of next year US election.

The immediate impact could be a full one percent slower growth in the US – Goldman Sachs provided this excellent graph detailing the potential negative impact: The number could be -2.0% to -0.5% in first two quarter of 2012 – again underlining our believe in an economic perfect storm as the most likely scenario:

click on chart for sharper image

The debt crisis is taking a new negative turn – as seen in prior liquidity crisis’ the EMG Europe bloc comes under attack and this morning there are two extreme worrisome news pieces out:

Hungary seeks Aid from EU, IMF: Hungary have submitted formal request to the EU and IMF for help. Hungary feels this is needed to secure risk-free growth for the economy – talks should be concluded in early 2012.

Austrian banks told to limit lending to the east
: Basically, they need and want to protect their AAA and they seems to believe, rather naively, that the best way is to cut lending to the their EEC bloc lending. Again the credit-cake is getting smaller.

Finally, another core country Belgium may lose its caretaker PM – Belgium been without elected government since June 2010! – the political landscape in Europe getting slightly concerning:

  • Greece – Technocrat – non-elected Government – Opposition still refuses to sign EU letter.
  • Italy – Technocrat- non-elected
  • Spain – new majority government, but on the basis of big no to austerity from prior government, not exactly vote of confidence to fiscal restraint.
  • France- Election next year – Marine Le Pen could surprise in the polls, as the French election is two rounds. She is making heavy anti-EU noises and starting to raise her campaign
  • Belgium – Belgian chief government negotiator asks to quit.

Keep an eye on Belgium rates today – they have risen from 3.6% in early October to now close to the magic 5.00 which spells trouble, with capital T…


Market bounced of the 1180-00 target for now, but a test still looks like on the down-side as 2012 more and more looks like one big perfect storm both politically and economically. This is not the time to be brave. This week will see dramatic revisions to US growth based on Super Committee failure, and same for Europe as PMI will show lacking confidence. This is now full blown “confidence crisis” – there is increasingly a need for my call for "Chapter 11" for Europe.

Safe travels,

Steen Jakobsen | Chief Economist
Chapter 11 in early 2012?

On his blog, Steen asks Is Europe set to declare a Chapter 11 in early 2012?
Europe may need to pull a Chapter 11 – a US-style bankruptcy, which would permit a market shutdown and Euro Zone reorganization before reopening for business.

The EU desperately needs a break from market pressures in order to allow the political apparatus to really gather its forces and finally move Europe and its debt crisis ahead of the curve. Here we are just a couple of weeks after the feeble attempt to apply an EFSF plaster on the problem and we’re already back to Square One: the EU debt crisis has reached the point at which none of the readily available tools or institutions are sufficient to match the magnitude of the crisis. This dictates the need for an out-of-the-box solution.

EU policy makers played the extend and pretend game for as long as they could - but now the writing is on the wall: popular outrage is on the rise and putting increasing pressure on the political process - as we are seeing increased demonstrations and grass-root activity taking over both the political agenda and the media. And markets are now balking as empty promises and now a real lack of funds are seeing bond yields beginning to spike out of control. The self-reinforcing cycle of downgrades and austerity and recession are taking us to the very brink of a full scale Crisis 2.0.

It’s important to point out that politicians will only do something drastic in a true state of emergency, so one catalyst we’ve yet to see to prompt action is a serious drop in the stock market.

The extend-and-pretend policies that have continued through 16 EU Summits have only led us to a Catch-22 in which everything that is done with good intentions (or not) is to the detriment of something else.

So what form might a Chapter 11 for the Euro Zone take? It is increasingly likely that some kind of total “bank holiday” is enforced to put a stop to market pressures – and then to reinforce and relaunch a stricter EU Growth and Stability Pact as a price for cranking up the ECB printing presses to full speed.

Before accusing me of lunacy on my idea of a market holiday, it’s important to point out that banking holidays are not without precedent. In 1933, President Roosevelt declared a bank holiday that ran for an entire week in March of 1933, during which he passed the Emergency Banking Act and the Federal Reserve moved to supply currency to banks.

After 9/11 we also had a “forced” bank holiday. The banking panic of 1907 saw massive illiquidity and bank closings as can be seen in this excellent link. The main point for 1907 however remains: The biggest and most solvent banks survived, the small ones failed – 73 banks failed but it created a rebirth which catapulted the stock market higher.

Germany and Northern Europe understand that printing money at the ECB will not solve anything, as it would only throw more debt on an already back-breaking load. But if this bloc countries wants to buy time to implement stronger constitutional changes, the most path is a quid-pro-quo solution in which Germany gets a stronger Growth and Stability Pact implemented, not only into EU law, but also ratified as part of a new standard for restrictive fiscal policies with built-in debt breaks for all individual countries. Germany gets it “discipline leads to growth” for the long term, while the Keynesians get their “liquidity fix” from the ECB.

In short, the main issues are the following (in no particular order of prioritization):

  • Time is up – the market needs solutions, not plans for plans. The timeline for Political Europe is way too slow for market comfort.
  • Interbank funding is starting to freeze over. Every day sees risk factors pointing higher and a systemic liquidity crisis could develop at any time.
  • Financing gap. EFSF has 440 EUR 440 billion (though it has never been funded). Some estimate that Italy and Spain need EUR 400-500 billion per year to refinance and recapitalize its banks – per year! Talk about mismatch of supply and demand.
  • Lack of constitutional frame-work to establish or enact changes.
  • Democratic and constitutional rights are close to being violated, if not in the letter of the law, then certainly in the eyes of the voters.

As we head into 2012, I am increasingly convinced that we have an almost perfect economic and political storm brewing on the horizon.
Germany Will Not Go Along

The obvious flaw in the idea of a Europe-wide bank holiday is Germany.

The German supreme court has ruled there must be a voter referendum for these kinds of changes. Would Merkel risk putting the German Supreme court to that test? I highly doubt it.

Individual countries, notably Greece, are another matter as I have mentioned a couple of times recently. For further discussion, please see...


Greece is at the breaking point now if they do not get the next tranche of money, and it still is not clear they will get it. If Greece left would Portugal be far behind? It's hard to say for sure.

Might Italy decide on a bank holiday? Yes, that is possible too, just not as likely, at least right now. It may be a different matter after the next election.

The ideal solution would be for Germany to leave. Might that involve a Eurozone-wide bank holiday? Certainly, just not yet.

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

Hungary seeks Aid from EU, IMF; Austrian Banks Told to Limit Lending to the East; No Government in Belgium Since June 2010, Negotiator Quits

Credit stress continues in Europe with a spotlight on several countries, none of the typical culprits.

Hungary Seeks Aid From EU, IMF

The Wall Street Journal reports Hungary Seeks Aid From EU, IMF
The European Commission said Monday that it has received a formal request from Hungary to receive financial assistance from the European Union and the International Monetary Fund.

"The Commission will examine the authorities' request in close consultation with EU member states and the IMF," the commission, which has antitrust powers in the EU, said in a statement.

In a separate statement, International Monetary Fund Managing Director Christine Lagarde also said it has "received a request from the Hungarian authorities for possible financial assistance."

The ministry said it expects to start the negotiations before Christmas, with a new agreement to be concluded in the initial months of 2012. It didn't disclose details on the nature of the requested IMF support. The government would seek a deal with the IMF on an insurance contract to reassure investors and to allow Hungary to raise the capital it needs, it said.

No Government in Belgium Since June 2010, Negotiator Quits

Belgium is still without a government and has been since June 2010. Every time there has been a hint of a breakthrough, the setup collapses. Fed up with lack of progress, the Belgian chief government negotiator asks to quit
BRUSSELS: The lead negotiator in Belgium’s drawn-out government formation tendered his resignation on Monday after talks for a 2012 budget ground to a halt, a move which threatened to derail the country’s near 18-month search for a new administration.

Elio Di Rupo, leader of the French-speaking Socialists, had attempted to form a government based on a six-party coalition of Dutch and French-speaking Socialists, Liberals and Christian Democrats but there was little common ground on how to make the budget cuts mandated by the European Union.

Parties in the debt-heavy country had sought to save 11.3 billion euros and keep the country’s deficit below 2.8 percent of gross domestic product (GDP), in line with EU rules, but could not agree how to divide the deficit reduction between new taxes and savings.

When the budget talks, which are essential to the formation of a new government, made no progress on Monday, Di Rupo handed in his resignation to the country’s monarch, King Albert II.

Di Rupo handed in his resignation once before, in July, when talks over the electoral boundaries collapsed. At that stage the palace did not accept his resignation and talks resumed shortly after.

Belgium has come under market pressure over its lack of a new government and sovereign debt nearly as big as its GDP, with its cost of borrowing increasing steadily. Spreads between Belgian 10-year bonds and benchmark German Bunds rose sharply in November, going above 300 basis points, up from 103 basis points at the start of 2011.

Belgium’s interim government, headed by Yves Leterme, is preparing an emergency budget, based on the 2011 budget.
Austrian Banks to Limit Lending to East

The Financial Times reports Austrian Banks  Told to Limit Lending to East
Austrian bank supervisors have instructed the country’s banks to limit future lending in their east European subsidiaries, a further sign of the potential knock-on effects of the eurozone crisis for economies around the world.

The restrictions come as Austrian officials seek to defend the country’s AAA credit rating, amid concerns that the government might have to bail out its banks because of losses in central and eastern Europe, where they are the biggest lenders, and their exposure to Italy.

The moves by Austria, which appear to be unilateral, show how even the eurozone’s strongest economies are feeling the pressure of the sovereign debt crisis.

The Austrian central bank said in a statement that Erste Group, Raiffeisen Bank International and Bank Austria, owned by UniCredit of Italy, would be prevented from loaning significantly more in CEE countries than what they raise in local deposits. Subsidiaries that are “particularly exposed” must ensure the ratio of new loans to local refinancing is not more than 110 per cent.

The three banks’ CEE exposure exceeds Austrian GDP, raising concerns that the government would be unable to bail them out if their loan portfolios turned sour. The announcement came just as the spreads of Austrian bond yields over German Bunds rose to record highs and was also designed to calm market jitters, a central bank official said.
A quick check of Belgium 10-year government bonds shows the yield has risen to 4.87% vs. 1.91% for Germany.

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

Official Denial in Greece Regarding "Indefinite Liquidity and Banking Stability"; Is a Worthless Guarantee Twice as Good When Doubled?

Things are really humming along in Greece, complete with an official denial of instability in the Greek banking system.

Please consider Government Doubles Bank Guarantees
State guarantees to Greek commercial banks are to double from 30 billion to 60 billion euros in order to secure liquidity in the market, Finance Minister Evangelos Venizelos told lawmakers in Athens on Monday.

Addressing Parliament’s Financial Affairs Committee, Venizelos said that ensuring the market’s cash flow continues will secure the liquidity of the banking system and safeguard bank deposits.

“The Greek banking system is guaranteed with indefinite liquidity and there is no issue with the stability of the system. This is the case for all eurozone countries,” Venizelos said.
"Official Denial" is Ominous

The concept of official denial comes from British television sitcom, Yes, Minister.

“The first rule of politics,” Sir Humphrey, the wily civil servant in the show, insists is: “never believe anything until it is officially denied.”

In case you missed it please see Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied)

The statement by Venizelos "there is no issue with the stability of the system" is an ominous sign. So is the doubling of state "guarantees". The sane thing to do in Greece is immediately pull all your funds from Greek Banks.

For further discussion, please see History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What's the Rational Thing to Do?

That is not a prediction, it is a statement saying "do not take any chances".

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

U.S. Debt Panel Fails to Agree on Cuts

A special debt-reduction committee in the U.S. Congress failed to reach agreement, extending partisan gridlock into the 2012 election year and setting the stage for $1.2 trillion in automatic spending cuts.
President Barack Obama blamed Republicans, saying in remarks at the White House they “refused to listen to the voices of reason and compromise.” The president said he would veto any move to avoid the automatic spending cuts that are supposed to start in 2013 as a result of panel’s failure.
Committee co-chairmen Representative Jeb Hensarling of Texas, a Republican, and Senator Patty Murray of Washington, a Democrat, said in an e-mailed statement that “after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”
Murray told reporters she would keep working toward a “fair and balanced” deal that could forestall the automatic cuts. “We have a responsibility to find that solution, and I’m going to keep working each and every day until we get there.”
Standard & Poor’s said it would keep the U.S. government’s credit rating at AA+ after the Hensarling and Murray announcement. S&P, which stripped the U.S. of its top AAA grade on Aug. 5, said it decided that the failure by the committee didn’t merit another downgrade. Moody’s Investors Service today affirmed its Aaa credit rating of the U.S. while maintaining a negative outlook.

Last-Ditch Attempts

Vets Join Tough Job Market

As the U.S. pulls troops out of Iraq, some companies say they are looking to add a few former soldiers to their ranks.

Dyron Snipe, with daughter Seidron, says his expectation of deployment could hinder his job prospects.

That may be easier said than done.

Following President Barack Obama's October troop withdrawal announcement, tens of thousands of service members are expected to leave Iraq by Dec. 31. Those who don't re-enlist, join the reserves or ride out a contract will re-enter civilian life and for most, that means getting a job.

But only about half of veterans felt they were prepared to assimilate into civilian life and look for work, according to an October survey by Monster Worldwide Inc. And nearly one in five recently returned veterans from Iraq and Afghanistan screen positive for post-traumatic stress disorder, according a 2008 study by RAND Corp., a nonprofit research institute.

Yet veterans and service members are known to have skills that managers consider essential to the workplace. Some of those skills include attention to detail, self-discipline, problem-solving, decision-making in stressful situations and ability to work in a team, say human-resources experts.

More than 60% of employers feel motivated to hire veterans based on their qualifications and prior work experience and a full 98% of employers that had hired a veteran would hire one again, according to an October Monster survey.

MF Global Trustee Says Shortfall Could Exceed $1.2 Billion

The court-appointed trustee overseeing the liquidation of MF Global’s brokerage now estimates that the shortfall in the firm’s customer funds could be more than $1.2 billion, double previous estimates.
Regulators currently suspect that MF Global improperly used customer money for its own purposes in the days before filing for Chapter 11 protection, according to people briefed on the matter.
The decision to release the updated figure on Monday came after authorities concluded that much of the customer money had left the firm, these people said.