Ignore These Six ‘Events’ At Your Own Risk

Barclays via Zerohedge:

With European stocks at multi-month highs, European bond risk at multi-year lows, US equities near all-time highs, US equity volatility expectations near post-crisis lows, and credit risk volatility fading, one could be forgiven for believing it’s all gonna be ok.

 

 

 

Of course, that assumes we get through the next six weeks unscathed...

 

 

 

Source: Barclays

Link: http://www.zerohedge.com/news/2013-08-13/ignore-these-six-events-your-own-risk

Why the Elitists Fear the Results of the Italian Election

EconomicPolicyJournal comments:
Zero Hedge comments on the elitist position taken by The Economist:

[It’s] The Economist’s turn to provoke well over half of Italy, by alleging that in not voting for technocratic, Goldman-appointed oligarchs who promote solely the banker backer interests, Italy has made a horrible mistake and has ushered in the circus…the fact that the magazine is owned by the FT, Cadbury, Rothschild, Schroder, and Agnelli is becoming more transparent with every passing day.

In other words, the banksters and other globalist cronies fear any voting anywhere that could lead to a challenge to the euro and, thus, we get covers like this:
Economist ClownsIt’s not at all clear that Grillo or Berlusconi have any idea how a currency or economy should be run, but it is always fun to see the banksters in panic.The Economist cover signals they are in serious panic.

Source: http://www.economicpolicyjournal.com/2013/03/wht-elitists-fear-results-of-italian.html

It’s Time To Name That Insolvent Banking System!

Graham Summers writing for GainsPainsCapital:

Let’s play a little game.

The game is called “Name That Insolvent Banking System.”

The way you play the game is by trying to guess which the countries whose Bank Assets to GDP ratios are in the below chart. There are only seven countries and I’ll tell you that they’re all western economies in the developed world.

If you win this game, you win the knowledge of knowing which countries’ banking systems are leveraged beyond any credibility. You can then invest accordingly, sheltering your assets from these banking system disasters. You can also ignore the tripe being spewed by the various political leaders and Central Bankers about everything being great in the global financial system.

Ready? Let’s play!

As you can see, the seven counties listed here have banking asset to GDP ratios ranging from 90% to an incredible 400%. Five of the seven have banking asset to GDP ratios above 250%, which is simply extraordinary given the implications of this horrific metric.

Having trouble?

OK, I’ll give you a hint, one of these countries is the US. We’re often cited as the debt nightmare of the world, which makes all other countries look good in comparison. So which one is the US?

Did you guess number 6?

Wrong!

OK, here’s another hint, the other six countries are all based in EUROPE.

Give up? Here’s the answer:

As you can see, the US’s banking system is in fact dramatically smaller relative to its GDP than the big players in Europe. As much grief as I and others have given our financial system about being overleveraged and filled with toxic debts, the US is NOTHING compared to Europe, including the allegedly rock solid banking system of Germany.

It’s also worth noting that France, which is considered to one of the essentially sovereign backstops of the EU is in fact one of the worst offenders when it comes to having a totally out of control banking system. Remember this when you hear French politicians talking about the EU crisis being “over.”

So… the next time you hear someone on the TV talking about great things in Europe are, remember the above chart and ask yourself… how can a country be in great shape when it’s banking system is over 200% larger than its economy? Just what are all these “assets.”

And the multi-trillion Euro question: how much of them are in fact garbage?

Source: http://gainspainscapital.com/2013/02/14/its-time-for-name-that-insolvent-banking-system/

EU threatens to punish Norway for breaching EEA agreement

In the Commission draft report , which looks into the functioning of the EEA, the Scandinavian country is being criticized for imposing tariffs on EU products from 2013 and “resisted EU efforts for ambitious liberalization” of the EU’s single market.

According to the draft, obtained by EurActiv, 427 acts whose compliance date in the EU has expired, also remained to be incorporated in Norway by October 2012.

“This situation might thus lead to competitive advantages for operators based in the EEA-EFTA countries, and more fundamentally risks undermining the legal certainty and homogeneity of the single market,” the report reads.

“This problem is of great concern for the EU side and should be solved as a matter of urgency,” the report states.

‘Selfish Norway’

Moreover, the EU also dislikes the fact that Norway has rejected several directives coming from Brussels. The Norwegian government has for example warned it won’t implement the EU’s postal directive about competitiveness for letter mail weighting less than 50 grams.

Danish MEP Bendt Bendtsen (European People’s Party), who has been closely following the trade issues with Norway, told EurActiv the problems started in 2012 when Norway raised the price of hydrangeas from the EU by 72%.

Eventually, the extra taxes spread to EU food products such as cheese and meat.

Bendtsen said Norway is acting “selfishly” and that the taxes were put on EU goods “deliberately” as the Norwegian Centre Party, which is part of the Norwegian government, has for a long time pushed for the extra taxes.

“Norway only wants the cream on the cake,” the MEP said.

Threaten with punishment

The EU’s foreign service and the Commission, which have the formal responsibility for the relationship with Norway through the EEA agreement, have confirmed that there is an increasing disapproval with Norway.

“This development worries us. We don’t like the backlog on implementing directives, and this is a case we are trying to deal with now,” Maja Kocijancic, spokesperson of Catherine Ashton, the European Union High Representative for Foreign Affairs and Security Policy, told Norwegian TV2 .

She confirmed that the EU is looking into the possibilities for sanctions within the EEA agreement’s frame.

Leader of the pro-EU organisation Europabevegelsen Paal Frisvold said Norway risks exclusion from the European marine and cargo market and could lose cooperation on mobile roaming prices, making them more expensive in Norway.

However, Bendtsen said that the right EU punishment would be to hit Norway’s fishing industry, or to take the step even further: “The consequence should be kicking Norway out of the EEA,” the MEP said.

Stupid situation

Norway’s Prime Minister Jens Stoltenberg said the country has a good relationship with the EU, but the fact that there are disagreements over individual directives is nothing new.

Erna Solberg, leader of the biggest opposition party, the Conservatives, said the Norwegian government doesn’t understand the EEA’s mutual obligations. She said Norway isn’t active enough when it comes to its Europe policy and doesn’t use the opportunities in effecting the EU legislation enough.

“It is stupid that we have put ourselves in a situation where our closest partners obviously are frustrated with us,” Solberg said .

Potential impact on British EU debate

Bendtsen said the problems in the EU-Norway relations could eventually affect the ongoing British debate on whether to stay in or leave the EU.

Norway has previously been mentioned as a positive example of a non-EU member which still gets advantages and benefits of being part of the EU’s single market.

However, in his EU speech last Wednesday, British Prime Minister David Cameron asked whether it was in Britain’s best interest and desirable for Britain to be like Norway or Switzerland – with access to the single market, but outside the EU.

“While Norway is part of the single market – and pays for the principle – it has no say at all in setting its rules: it just has to implement its directives,” Cameron said.

[Emerging Events Comment: A reflection of the polarization and splitting effect of ongoing negative social mood that will ultimately bring the EU down]

Source: http://www.euractiv.com/consumers/eu-threatens-punish-selfish-norw-news-517431

Has the World Managed to Conquer Inflation?

The industrialized world benefited from at least one bit of good luck—the lack of an external shock like the oil price rises of the 1970s – Photograph by David Falconer/U.S. National Archives

Among monetary economists, the past few years have been marked by a contentious debate. On one side are those who believe the world’s central banks need to do more to stave off deflation and recession by pumping more credit into the system; on the other are those who fear inflation and stagnation if the banks do exactly that.

To a large extent, the pro-stimulus camp has carried the day in the U.S. and Europe. And yet the results have been unexpected: Despite the aggressive measures taken by central banks to revive major economies, actual inflation around the world has continued to remain at historic lows. The Cleveland Fed suggests the markets think inflation in the U.S. over the next 10 years will remain below 1.5 percent. That’s down from expectations of closer to 5 percent in the early 1980s. Around the world, IMF forecasts released this month project inflation of below 2 percent in advanced economies and around 6 percent in emerging markets for the next couple of years.

The recent past gives these forecasts added credibility. The World Bank reports average annual inflation rates across 175 countries during the first 10 years of the new millennium were below 8 percent. This compares with an average of 66 percent in the decade starting in 1991 and 48 percent for the decade before that. Since 1999, three-quarters of all countries have had inflation rates below 10 percent.

In particular, those numbers reflect a decline in really high inflation. Belarus was the poster child for failed inflation policies last year—it had a 66 percent inflation rate in 2012, the world’s worst. But back in 1993, 20 countries had inflation rates above 66 percent. In every year from 1988 to 1995, at least 10 percent of the world’s economies saw their consumer price indexes rise more than 40 percent a year. Since 2000, that proportion has never been above 4 percent.

So what accounts for growing price stability worldwide over the past 20 years? According to analysis (PDF) by Bank of England economists Haroon Mumtaz and Paolo Surico, the industrialized world benefited from at least one bit of good luck—the lack of an external shock like the oil price rises of the 1970s. But the economists argue that better policymaking at the country level has also been an important factor in reducing inflation volatility.

The growing independence of central banks from the political process appears to have a clear impact on keeping inflation low, according to a statistical analysis of studies looking at the issue by Jeroen Klomp and Jakob De Haan of the University of Groeningen. When central banks in developing countries are beholden to politicians, monetary policy becomes looser in the runup to elections, as economists Sami Alpanda and Adam Honig have shown.

An additional factor in keeping inflation low may be explicit inflation targeting by reserve banks in the developing world, an approach that international institutions such as the IMF long advocated. (Ben Bernanke himself was also an early champion of the idea .) Nicola Baini and Douglas Laxton at the International Monetary Fund found 12 emerging economies that adopted inflation targeting between 1998 and 2002 alone. They suggested that such countries saw lower inflation and lower volatility in inflation over time, without a negative impact on growth or interest and exchange rate volatility. This may be one occasion in which the advice offered by Western technocrats has not only been followed—it’s actually worked.

On the whole, the growing global trend toward price stability is a positive one. There’s no question that runaway inflation is worth combating. High inflation helped collapse democracy in Weimar Germany in the 1930s, as Niall Ferguson has amply demonstrated. Zimbabwe, the last country to experience serious hyperinflation, created additional suffering for its people on top of what they already faced from the misrule of Robert Mugabe. Around the planet, high inflation makes a lot of people unhappy , according to analysis of polls.

At the same time, a little bit of inflation isn’t always a bad thing. There’s no evidence, for instance, that it’s a drag on economic growth: Michael Bruno and William Easterly, at that point both at the World Bank, long ago demonstrated that no clear link existed between growth and any inflation rate that stayed below 40 percent. In many countries, particularly those in the developed world, unfounded fears of even modest rises in inflation may be preventing more robust efforts to use monetary policy to create jobs.

Handing monetary policy to independent central bankers appears to have worked. But elected leaders still need to make sure they appoint technocrats with a heart—and the mandate to use it.

Source: http://www.businessweek.com/articles/2013-01-28/has-the-world-managed-to-conquer-inflation

As The Euro Soars, This Is Where The “Max Pain” In Europe Is

Zerohedge submits:

Determining the “pain threshold” beyond which the euro appreciation would significantly impair the recovery is crucial at this juncture. Deutsche Bank’s quantification of this “pain threshold”, is not fixed but depends critically on the pace of global growth. If world demand accelerates from a current pace of 1.3% YoY to 4.2% YoY by Q3 2013 (30% below trend), as per OECD forecasts, the EURUSD exchange rate which would be consistent with maintained competitiveness would stand at 1.37 (not far from where we are).

However, if growth is lower (as we humbly suspect) the threshold for currency strength to hamper growth is considerably below current levels. What is more concerning, as a dysfunctional union of economies might be suspected of, is the divergences between member states and their pain thresholds.

Crucially, the fact that Italy and France are already facing problems as the current EURUSD rate is well above their pain threshold, while Germany remains below (despite its protestations) may be fuel for more Franco-German instability as the push-pull of easier monetary policy places Draghi between a rock of core stability and a hard place of depression.

EURUSD at 12-month highs…

Via Deutsche Bank, Euro appreciation: the moving pain threshold

Exchange rate issues have made a spectacular come-back in European policy debate this week, on the back of speculations on “currency wars” emanating from emerging economies and Japan. While market sentiment towards the Euro area and specifically on the periphery has improved significantly over the last few months, a higher euro is seen as a potential “spanner in the works” which could rekindle doubts surrounding debt sustainability there, if the expected export led recovery is postponed by several quarters by a loss in competitiveness.

When controlling for the pace of world demand and when looking at the Euro area as an aggregate, we are according to our estimates currently in or near the “danger zone” where the exchange rate is effectively undermining competitiveness.

We apply our model to the four largest economies of the Euro area. We find that while the pain threshold for Germany, and probably more counter-intuitively for Spain, now stands higher than any level ever reached since the beginning of monetary union, it is actually quite low for France (1.24) and Italy (1.17), for a world demand pace of 4.2%.

It is therefore surprising, at first glance, to observe that most of the recent flurry of comments on exchange rate issues came from Germany. We suggest that the German concerns over currency wars do not primarily stem from a fear of the consequence for German exporters, but rather from the fact that further euro appreciation could unduly delay the normalization of the ECB monetary policy framework.

What these comments from Germany reflect in our view is a concern that currency wars ultimately generate global inflation which the ECB could not easily resist given the persistent fragility of the periphery.

It follows from these considerations that on balance further euro appreciation is the likeliest path, short of a rapid relapse in widespread doubts in the periphery’s sustainability (which would be likely if the Euro area “misses the recovery” in 1H 2013. This means that France and Italy must make rapid progress on productivity and flexibility (as well as possibly off-shoring) to enhance their resilience to currency appreciation.

Source: http://www.zerohedge.com/news/2013-01-28/euro-soars-where-max-pain-europe

The ECB will come under pressure in the currency wars

Mohamed El-Erian of Pimco writing for FT:

I was reminded recently that there is an important distinction between a problem and a dilemma. A problem has a solution while a dilemma must be continuously managed. The euro’s situation has evolved from being a severe problem to posing a dilemma for eurozone countries seeking to grow and secure debt sustainability.

Six months ago, stress on the European financial system led to existential questions about the euro. The financial system was fragmenting, deposits were pouring out of the weaker countries, and high interest rates were converting liquidity problems into solvency ones, adding to the regional headaches caused by countries already in vicious debt cycles.

Bold policy reactions stopped this dynamic – so much so that, today, several investors are again emphasising rate convergence for many eurozone bond markets. And while harmful credit rationing persists, especially for small- and medium-sized companies in peripheral economies, banks are less fragile.

The immediate solution to the euro’s existential problem came in the form of the European Central Bank’s “outright monetary transactions “. The ECB was supported by the progress made by governments in agreeing to reinforce monetary union with greater fiscal union, political integration and banking union.

Having solved its urgent problem, the eurozone needs to deal with a new dilemma: that of an appreciating currency. There is a growing number of countries seeking to weaken their own currencies. Indeed, in the last six months, the euro has appreciated by 11 per cent against the US dollar and by 8 per cent in nominal trade weighted terms. It has appreciated by a lot more against the Japanese yen.

With growth already sluggish, the eurozone can ill afford a stronger currency. Sharp appreciation undermines economic activity – not only for export powerhouses such as Germany but also for countries such as Spain where, for the past eight quarters, the contribution of net exports has been positive.

With budgetary concerns continuing to dominate mindsets, few countries are able and willing to stimulate their economies by loosening national fiscal policies. As a result, the number of unemployed citizens – which is 6m higher than at the outset of the global financial crisis – remains alarmingly high, and especially so among the young.

Given what other countries are doing around the world, European politicians need to significantly accelerate policy reforms if they wish to maintain competitiveness in a safe and orderly fashion. This involves quickly moving from the design to the implementation of key measures.

At the regional level, productivity-enhancing structural reforms need to accompany a renewed push on fiscal union, banking union and political integration; and, for starters, politicians should not wait for the June summit to press ahead with the “four presidents” report .

But, having averted an existential financial problem, politicians seem more interested to bask in their success than deal with remaining challenges. This understandable desire to savour the moment – and with it, the illusion of stability – is inevitably strong in the run-up to several key elections this year.

With politicians failing to manage the dilemma directly, it is only a matter of time until they again look to the ECB for help.

Expect the ECB to be pressed hard to join other central banks in actively seeking to depreciate the currency – by cutting the policy rate (currently 0.75 per cent) and quantitative easing of the type pursued by the Bank of England, the Bank of Japan and the US Federal Reserve.

This is not a road that the ECB will embark on easily. And if it does, it would seek to address a regional dilemma by adding to a global one.

Being a relative price, all countries cannot simultaneously weaken their exchange rates (except against gold, real estate and other “real” assets). And should the ECB feel forced to join collective attempts to do the impossible, the risks of a global currency war and related beggar-thy-neighbor outcomes would increase meaningfully.

Source: http://blogs.ft.com/the-a-list/2013/01/28/the-ecb-will-come-under-pressure-in-the-currency-wars/#axzz2JGt4CfvD

The Failing Pretense of Growth

Wolf Richter for Zerohedge:

Hasbro, the second largest toymaker in the US behind Mattel, confessed that it would miss fourth-quarter revenue estimates. Christmas wasn’t kind. Despite “double digit growth in our emerging markets business,” as CEO Brian Goldner said, revenues fell by 2% for 2012 and by 3.8% for the quarter. But 4% inflation, preferably more, would have covered up that debacle.

The consequences are brutal. There will be a pile of restructuring charges, and 10% of the people will be axed—a collective punishment that the Romans used to dish out to lackadaisical legionnaires. They called it “decimation” (Latin for “removal of the tenth”). One in ten soldiers, determined by drawing lots, would be stoned or clubbed to death by his buddies. It did wonders for morale, and the whole empire collapsed.

Procter & Gamble, the consumer products giant with a myriad of ubiquitous brands, brimmed with optimism in its earnings call on Friday as CFO Jon Moeller praised its “growth strategy.” But in the end, sales grew only 2%, about the rate of inflation. It’s tough out there.

A decimation had already been announced last February: 10% of non-manufacturing employees, “roughly 5,700 roles,” he said. Not people, but “roles.” 5,500 of these roles were already gone. The rest would be gone soon. Ahead of schedule. But it still wasn’t enough. In November, P&G “committed to do more,” that is axe another 2% to 4% of “non-manufacturing enrollment,” but “any additional enrollment progress”—enrollment progress!—in fiscal 2013 would give P&G a “head start” for their 2014 to 2016 “enrollment objectives” [for a peculiar American conundrum, read Making Heroes of Those Who Slash Jobs ].

But why this decimation? Sales growth. Or rather, the lack thereof. Which Moeller said, would be “1% to 2%.” Below the rate of inflation. Other large companies are in a similar predicament. Microsoft, for example, admitted on Thursday that its revenues rose a paltry 3%. Inflation is just too embarrassingly low for these corporate giants that are dependent on incessant price increases to doll up their top line.

Fed to the rescue! And it has been trying. After years of escalating waves of QE, the Fed has finally managed to print so much money that its balance sheet officially as of Friday, and for the first time in US history, broke through the $3 trillion mark. Here is a screenshot to eternalize the historic event:

On August 1, 2007, when the prior all-time-craziest Fed-inspired credit bubble was showing signs of blowing up, there were “only” $874 billion in assets on that balance sheet. Over the last two months alone, the Fed printed enough dollars to mop up $160.4 billion in securities. The two largest asset groups on the balance sheet : US Treasuries ($1.697 trillion) and mortgage-backed securities ($983 billion). Every month the Fed will add $45 billion in Treasuries and $40 in mortgage-backed securities. Until it comes up with something new.

Other central banks have also run their printing presses until they’re white hot. As all this money went looking for things to buy, it pushed bonds into the stratosphere, and yields into hell. Risk is no longer compensated. Some governments have been borrowing at negative yields. Even 10-year Treasuries yield less than inflation. And junk bonds with a considerable chance of default, if the free money ever dries up, yield as little as a 1-year FDIC-insured CD used to yield before the financial crisis. Commodity prices have been driven up. Food has become unaffordable for many people in poorer parts of the world. And equities have been driven to lofty heights. China just warned that “hot money” fresh off the US and Japanese presses would wash over China and drive asset bubbles to even more insane and dangerous heights.

But the one thing all this money-printing just hasn’t done in the US in 2012 is create the kind of substantive inflation that a lot of corporations need to beautify their revenues. Inflation creates the pretense of growth—just like salaries that have been rising, but less than inflation. It makes things look good on the surface, and analysts can go around and hype the company’s “growth strategy,” and everybody is happy. Reality be damned.

Meanwhile, European talking heads have been reassuring us on an hourly basis that the worst of the debt crisis is over. But the Japanese trade deficit, a measure of reality, not words, tells a different story about the crisis in Europe. And about troubles coming to a boil in China. But neither can be cured by Prime Minister Shinzo Abe’s plan to demolish the yen. Read…. What the Japanese Trade Deficit Says About the Fraying Fabric In China And Europe .

Source: http://www.zerohedge.com/contributed/2013-01-26/failing-pretense-growth/

Euro Crisis Seen Reaping Social Toll With Record Jobless

By Scott Hamilton writing for Bloomberg:

Euro-area jobless data this week will expose the social cost of last year’s debt crisis and recession on southern European economies as unemployment across the region probably rose to a record in December.

Unemployment in the 17-nation bloc climbed for a fifth month to 11.9 percent, according to the median of 34 economists’s forecasts in a Bloomberg News survey. That result due on Feb. 1 would show the highest jobless rate since records began in 1995. By contrast, German unemployment data the day before may show the jobless rate there held steady for a fourth month at 6.9 percent in January, a separate survey found.Euro Crisis Seen Taking Social Toll With Record Unemployment A sign reading “employment office” sits on the windows of an employment center in Barcelona. Photographer: David Ramos Vidal/Bloomberg

Euro Crisis Seen Reaping Social Toll With Record Unemployment Fran Lopez, a jobless electrician, checks his mobile phone on a street bench near his home in Madrid, Spain. Photographer: Photographer: Angel Navarrete/Bloomberg

While measures to stem the region’s debt turmoil have helped reduce sovereign bond yields from Spain to Greece, the recession and crisis have led to job cuts by companies and governments. The European Central Bank predicts the currency bloc’s economy will shrink 0.3 percent this year and President Mario Draghi said last week that the “jury is still out” on whether investor optimism can be reflected in economic momentum.

“The worst may be over for financial markets, but definitely not for the real economy,” Marco Valli, chief euro- area economist at UniCredit Global Research in Milan, said by telephone. “The unemployment situation is going to remain very poor at least for another year, if not longer.”

Spanish Unemployment

Spanish data last week showed a record 26 percent of the workforce without jobs in the fourth quarter, bringing the total close to 6 million people. In Greece, the rate was even higher in October, at 26.8 percent, also a record.

“Companies are still shedding labor, especially in southern Europe,” Martin Van Vliet, an economist at ING Groep NV in Amsterdam, said in an interview. “Unemployment will probably continue to trend higher in the next couple of months.”

While economists predict the German unemployment rate will stay unchanged, they still see an increase of 8,000 people without work this month from December, according to the median forecast of 31 economists in a Bloomberg news survey.

The euro-area economy has shrunk for two successive quarters and economists predict a further 0.4 percent decline in gross domestic product in the final three months of last year, according to the median of 26 estimates in a Bloomberg survey. The International Monetary Fund on Jan. 23 cut its global growth forecast and projected a second year of contraction in the euro region.

Tensions Ease

While investor confidence in Germany, Europe’s largest economy, rose to the highest in 2 1/2 years this month as debt tensions ease, high unemployment and continued austerity measures elsewhere are undermining household sentiment and spending. An index of euro-area economic confidence probably rose to the highest level since June, according to median estimate in a Bloomberg News survey of 30 economists.

“We’re in the phase of financial conditions improving and markets becoming more optimistic, but that has to feed through to the real economy,” ING’s Van Vliet said.

ECB Governing Council member Luc Coene said he would prefer the central bank’s as-yet-untapped bond-buying program to stay that way and it’s now up to governments to generate growth in the euro area.

‘Shallow’ Recovery

“There is only so much a central bank can do,” Coene, who heads Belgium’s central bank, said in an interview at the World Economic Forum in Davos, Switzerland, on Jan. 26. “Governments can make the adjustments that are needed to make the economy grow again. We are going to hear that message this year again and again. The next move won’t be from the ECB.”

No country has yet asked for a bailout that could trigger bond buying by the ECB after Draghi’s rescue plan, announced in July, ended a wave of panic in euro-region debt markets. The currency block will see a “shallow” recovery starting this year as long as leaders don’t hesitate to implement measures to reduce debt and increase competitiveness, Coene said.

France needs an economic overhaul to revive growth and help underpin the political union required to stabilize the euro region, Harvard economist Kenneth Rogoff said.

European governments’ policy responses to the debt crisis, such as a “half-hearted” banking union and national budget oversight by the European Commission, aren’t enough, Rogoff was quoted as saying in an interview published in German newspaper Die Welt today. Leaders need to start now with a push toward political integration that includes a European government with taxation powers, he told the Berlin-based daily.

‘Small Adjustment’

If governments follow through on their promises in the coming months, underlying momentum could mean the ECB will revise its prediction that the euro-area economy will contract by 0.3 percent this year, Coene said.

“When you look at the latest indicators in Germany, they point to a stronger underlying base of activity than was assumed,” he said. “If there is any adjustment to happen, it will be a small adjustment, and probably rather on the upside than the downside.”

Mark Carney, who is due to take over as Bank of England governor in July, said policy makers should secure “escape velocity” for their economies and there’s room for more monetary stimulus around the world. Policy in developed countries isn’t “maxed out” and central bankers can be flexible in meeting inflation goals, Carney, currently governor of the Bank of Canada, said on Jan. 26 in Davos.

‘Tough’ Conditions

Alongside the euro-area unemployment data, Eurostat, the European Union’s statistics office, will also release data on consumer prices for January. The annual inflation rate will remain at 2.2 percent compared with December, according to the median of 39 economists’ forecasts in a survey.

Euro-area economic conditions will be “tough” in the first half before a wider recovery takes hold in 2014, according to Patrick de Maeseneire, chief executive officer of Adecco SA (ADEN), the world’s biggest supplier of temporary workers.

This year “is not going to be a good year,” De Maeseneire said in an interview on Jan. 25. “The first six months will be tough, especially in France, especially in southern Europe,” he said. “Germany is also slowing down, we see automotive slowing down, and that’s going to have an effect on the surrounding economies.”

Job Cuts

PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, said last month it will eliminate an additional 1,500 jobs by 2014, on top of 8,000 announced in July.

“Job shedding continues because it’s clear the euro zone economy is still in recession,” said UniCredit’s Valli. Still, “what we’re seeing right now is all the preconditions that are necessary in order to have some sort of economic improvement. Nothing in the near term, but down the road.”

Source: http://www.emergingevents.com/crystalmountain/wp-admin/post-new.php

Europe’s ‘Bank Sector Involvement’

Zerohedge via Mark J. Grant, author Out of the Box:

How many European Union officials does it take to change a light bulb?

None. There is nothing wrong with the light bulb; its condition is improving every day. Any reports of its lack of incandescence are an illusional spin from the American media. Illuminating European rooms is hard work. That light bulb has served honorably, and any commentary not approved by the EU undermines the lighting effort.

One thing that is rationally learned from watching Europe is that what is said, what is fed to the media as fact, is often only factual in the minds of those that have created the fairy tale. Whether it is the debt to GDP ratios of the nations in Europe or the uncounted liabilities of a country or the loans to some bank that are recorded as investments and not liabilities; the drape of charade hangs resiliently over the entire spectacle. It is often a farce interwoven with a sham presented as fully cooked pie that is really half-baked and then we are all expected to eat it and rave about not just the recipe but the ingredients and the presentation. All well and good for the sheep and the herders leading them; but I have been to the top of Mt. Olympus and there are neither gods nor temples.

Now on January 30 the ECB will get paid back $182.2 billion from the European banks that borrowed the money in the LTRO operations. This is not 25% of the loans made, as touted in almost every headline, but about 10% of the loans outstanding as somehow it is conveniently forgotten that there were two loan packages totaling $1.3 trillion which were initiated in December 2011 and the second in February 2012. This is not two years ahead of schedule as headlined in the Press as about half of the loans ($655 billion) were made in the 2011 tranche. Let us begin then with a nod to accuracy and explore the rest of what we are told.

I have learned, over the last several years, that Europe is psychotic. They create an illusion, tell us that it is reality and then are angered when we question the validity of what we are told. This is not authenticity but pretense and this sort of pretense is concocted to lead you into places that no rational man wants to wander.

The interest rate, being paid by the European banks to the ECB is 0.75%, so one may rationally assume that no financial institution, in their right mind, would pay off such a loan for economic reasons. The banks cannot borrow on their own for three years at this level and so to pay them off early makes no economic sense. Yet they are being paid off and if it does not make sense economically then it must make sense for some other reason or reasons. If the agenda is devoid of common sense in its presentation then there must be a hidden agenda and a man working feverishly behind the curtains and manipulating the levers. Here it may well be the financial condition of the ECB itself which, without doubt, is stuffed with both loans and securitizations that given the wretched state of most economies in Europe, must be in very poor condition where the assets are only worth cents on the dollar or perhaps not even that if one considers the Real Estate markets in Greece, Spain, Portugal and Ireland. It is then quite obvious that the banks did not want to pay off the loans but that they were “encouraged” to do so for other reasons and one reason may well be to fund the ECB so that the central bank does not have to take on even more debt and inflate its own balance sheet as its assets values have deteriorated. Here we have a variation of the “Public Sector Involvement” which can be termed “Bank Sector Involvement” which may not cause losses on its face but which will certainly increase the funding costs for the European banks and so impair their balance sheets by the increased cost of funding which of course goes unmentioned in any European Press release and so uncommented upon by an accepting European media that blissfully accepts and willingly comments upon what it has been officially told.

“It is dangerous to let the public behind the scenes. They are easily disillusioned and then they are angry with you, for it was the illusion they loved.”

                 -W. Summerset Maugham

The Wall Street Journal, yesterday, published an article, “Europe’s Banks to Repay Aid Early,” which stated, “The data provide one of the clearest illustrations to date of the surprisingly swift healing of large swaths of the European banking system. It removes a major impediment to a gradual recovery of the broader European economy, which hinges on the health of its banks.” With great respect for the Journal I must say that they have it totally wrong. The banks, without doubt, will have higher funding costs in paying off these loans and less attractive balance sheets as a result and so it is neither Europe nor her banks that will benefit with the only possible beneficiary being the European Central Bank. All of this has been made possible not by healthier economies nor by particular cheaper funding rates for the European sovereigns or banks but by the continual and unobstructed flow of money created by the ECB and other central banks. The world has become addicted, like in Frank Herbert’s marvelous Science Fiction novel, “Dune,” where “The spice must flow.” Whether it is the global equity or debt markets, the troubled nations in Europe and even the economy in America; there is but one pillar supporting the construct and that is the printing of money and the use of the newly created pieces of paper that are supporting the various houses of cards where politics in America and on the Continent have no other answer other than to spew out money in such a torrent and at such a velocity that it puts Niagara Falls to shame.

The world seems devoid of politicians that sensibly lead though they have been quite adept at spending past what can be afforded. The worlds’ central banks have been left to pick up the bills. The balance sheets bulge, the quality of the assets, especially in Europe, deteriorate. More is spent, more money is created, the markets head higher, more money is created, there is no other answer or response than more new paper, more green ink, more blue ink, and the bubble is systemic and perilous and chock full of fiscal risks. Remember, this morning, what I have told you because there will come a time when you will wish that you had considered more carefully what I said.

“Try looking into that place where you dare not look! You’ll find me there, staring out at you!”

            -Frank Herbert, Dune

Source: http://www.zerohedge.com/news/2013-01-26/europes-bank-sector-involvement/

The Great Systemic Rig of 2012 is Ending

By Graham Summers:

Europe’s banking system has been on the ropes for years.

It’s a little known fact that  the largest recipients of US bailouts were in fact foreign banks based in Europe. Also bear in mind that the biggest beneficiaries of QE 2 were European banks. Things got so bad in mid-2012 that the whole system lurched towards collapse. The only thing that pulled the EU back from the brink was Mario Draghi’s promise of unlimited bond buying (a promise and nothing more as the EU has yet to do any of this).

However, these efforts, like all cover‐ups, will not last. Indeed, by the look of things, Europe’s banking system is breaking down again…

Greece’s four largest banks need to boost their capital by 27.5 billion euros ($36.3 billion) after taking losses from the country’s debt swap earlier this year, the largest sovereign restructuring in history.

National Bank of Greece SA, the country’s biggest lender, needs to raise 9.8 billion euros, according to an e-­‐mailed report by the Athens-­‐based Bank of Greece (TELL) today. Eurobank Ergasias SA (EUROB) needs 5.8 billion euros, Alpha Bank (ALPHA) needs 4.6 billion euros and Piraeus Bank SA (TPEIR) needs 7.3 billion euros, according to the report. Total recapitalization needs for the country’s banking sector amount to 40.5 billion euros, the report said.       Source: Bloomberg.

The above articles tell us point blank that Europe’s banking crisis is neither fixed nor even close to over. However, the numbers need some perspective: sure, €27.5 billion sounds like a lot of money, but just how big is it relative to Greece’s banks.

The entire capital base of the Greek banking system is only €22 billion.

By saying that Greek banks need €27.5 billion Greece is essentially admitting that is needs to recapitalize its entire banking system. Also, you should know that Greek banks are still sitting on €46.8 billion in bad loans.

There is a word for a banking system with a capital base of €22 billion and bad loans of €46.8. It’s INSOLVENT.

We get other signs that Europe is ready to fall back into the abyss from recent revelations concerning Spain’s sovereign bonds.

In July 2012, Spain’s ten year bond yield hit 8% even though Spain had already been granted a €100 billion bailout by the EU and the ECB had also promised to provide unlimited bond buying.

As a point of reference, remember that any yield over 7% is GAME OVER as far as funding your debt.

Then, starting in August 2012, Spain’s ten-­‐year bond yields magically began to fall. Since that time, they’ve plunged to just 5%.

http://gainspainscapital.com/wp-content/uploads/2013/01/spanish-ten-year.png

The reason for this drop in yields?

It’s not that Spain’s finances improved (its Debt to GDP ratio hit 85% this year and is on track to reach 90% by the end of 2013). Nor is it that Spain’s economy is recovering (unemployment reached a new record in 3Q12).

It’s not also that investors are less worried about Spain and have decided to buy Spanish debt (Spain just staged a terrible bond rally in early December).

So why were Spanish yields falling?

Spain has been using up its Social Security fund to buy its own debt.

Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts.

Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.    Source: Wall Street Journal

This is precisely what we mean when we say the system was rigged in the second half of 2012. Spain, a country that is totally bankrupt and likely heading for its own version of the Arab Spring (things are so bad that Spaniards have begun self-­‐ immolating just as they did in Tunisia right before that country suffered a societal breakdown) managed to fool the world into believing that things had improved by raiding its social security fund to buy its own debt.

As we said at the beginning of this issue, the rigging that occurred in the second half of 2012 was simply staggering. But it will end. Our view is that we have perhaps another month or so left at the most before things begin to get ugly again.

Source: http://gainspainscapital.com/2013/01/17/the-great-systemic-rig-of-2012-is-ending/

ZeroHedge reports:Behold The Greek Debt Slavery “To Do” Checklist Permitting It To Bail Out Europe’s Insolvent Banks

 

 

 The 38 measures are a mix of laws that must be passed by parliament, ministerial decisions and presidential decrees that affect a complete cross-section of Greek economic activity, from health spending to municipal administration to tax collection.

 

Only a handful of the measures are listed as passed or in the process of being implemented, including a highly publicized €300m in pension reductions and €325m in other spending cuts. The other reforms are grouped under six categories, though most of the changes fall under spending cuts, bank regulations, and economic reforms.

 

Among the measures that must be completed in the next seven days are reducing state spending on pharmaceuticals by €1.1bn; completing 75 full-scale audits and 225 value added tax audits of large taxpayers; and liberalizing professions such as beauty salons, tour guides and diet centres.

 

Even the longer-term reforms must be completed quickly. A draft 49-page “memorandum of understanding on specific economic policy conditionality”, dated February 9, includes dozens of measures that must be completed in the first half of the year.

 

And so forth.

 

Sarcasm aside, that this is merely a strawman loophole for Germany to say on March 1 that Greece has not completed the measure is beyond glaringly obvious……….

 

Source: http://www.zerohedge.com/news/behold-greek-debt-slavery-do-checklist-permitting-it-bail-out-europes-insolvent-banks