Citi's Buiter On Plan Z: Unleash The Helicopter Money
All is (once again) failing.
What to do? Much more of the same of course. Only this time whip out
the nuclear option: the Helicopter Money Drop. This is the logical next
step that Citigroup's Willen Buiter sees as "Central Banks should also
engage in 'helicopter money drops' to stimulate effective demand" -
temporary tax cuts, increases in transfer payments, or boosts to
exhaustive public spending - all financed directly by the willing
central bank accomplice in the monetization gambit. In his words: "This will always be effective if it is implemented on a sufficient scale."
It is not difficult to implement, would likely be politically popular
(nom, nom, nom, more iPads), and in his mind need not become
inflationary. He does come down to earth a little though from this
likely-endgame scenario noting that "helicopter money is not [however] a
solution to fiscal unsustainability." It is just a means of providing a
temporary fiscal stimulus without adding to the stock of
interest-bearing, redeemable public debt. Any attempt to
permanently finance even rather small (permanent) general government
deficits (as a share of GDP) by creating additional base money would
soon – once inflation expectations adjust to this extreme fiscal
dominance regime - give rise to unacceptably high rates of inflation
and even hyperinflation. His estimate of the size of this
one-off helicopter drop - beyond which these inflation fears may appear
- is around 2% of GDP - hardly the stuff of Keynes-/Koo-ian wet
dreams. The fact that this is being discussed as a possibility (and was
likely always the end-game) by a somewhat mainstream economist should
be shocking as perhaps this surreality is nearer than many would like to imagine.Nigel Farage: "The EU Titanic Has Now Hit The Iceberg"
In
one of his most passionate speeches (which says a lot), UKIP's Nigel
Farage, on the May 9th celebration of the Euro, tells his European
Parliament colleagues of his grave concern at the recent elections - which are very reminiscent of the elections in Germany in 1932.
He warns that Europe faces the very real prospect of mass civil unrest
and even revolution as the Euro project itself could even be the cause
of (in it perfect irony as the initial solution to) a rebirth of national socialism in Europe.
Farage pulls no punches but in three minutes provides a clear picture
of just how concerned anyone who is not merely a head-in-the-sand
status-quo muddle-through'er should be with regards Europe: "It is a
European union of economic failure, of mass unemployment, and of low
growth" Eurozone Refuses To Blink: Will Hold Back €1 Billion From Greek Payment To Monday
Things are getting interesting. Despite earlier headlines that the €5.2 billion EFSF payment to Greece would be made as expected, money which would go to pay European banks and the ECB, it now seems there is more than meets the eye, and the Eurozone will in fact hold back €1 billion of the money until Monday in what is a major escalation in the relationship between the anarchy-controlled country and bankster oligarchy.- EUROZONE HOLDS BACK €1 BILLION FOR GREECE TO MONDAY ACCORDING TO A EUROPEAN SOURCE -Dow Jones
- EFSF SAYS 4.2 BLN EURO TO BE DISBURSED MAY 10 - BBG
- EFSF SAYS REMAINING FUNDS 1 BLN EURO NOT NEEDED BEFORE JUNE - BBG
- EFSF SAYS REMAINING 1 BLN EURO DISBURSED DEPENDING GREECE NEEDS - BBG
Is This What You Want For Your Country?
*We have reached a profound point in economic history where the truth is
unpalatable to the political class - and that truth is that the scale and
magnitude of the problem is larger than their ability to respond - and it
terrifies them. ** - Hugh Hendry, Milken Institute Global Conference 2012*
From yesterday's Huffington Post: * Oops! Air Force Drones Can Now
(Accidentally) Spy On You *
"As long as the Air Force pinky-swears it didn’t mean to, its drone fleet
can keep tabs on the movements of Americans, far from the battlefields of
Afghanistan, Pakistan or Yemen. And it can hold... more »
Wall Street slides 1 percent at open
While price could conceivably trade lower, it has once again reached a
statistical extreme similar to August and October 2011. How many traders
adhering to cold reality of discipline faded the flavor of the day
explanations back then? Volume in and around support will help determine
when supply yields to demand. Chart: S&P 500 ETF (SPY) Headline: Wall
Street slides 1...
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Austerity or Stimulus? Americans Want BOTH, Survey Says
Who doesn't want to have one's cake and eat it too? Ever wonder why the can
(problem) continues to be kicked down the economic road? Regardless of who
becomes President, the economic and political backdrop is still complete
FUBAR. While infinite liquidity carries specific consequences, they're
still politically and socially palatable when compared against other
alternatives. Aggressive...
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Trading/Investing with Singular Focus of Mind and Discpline
The only things I have come to learn over my years in the markets are the
following: Follow the money and ignore the rest. A singular (internal)
voice is need to ignore the rest. An internal voice is created by replacing
emotion with discipline. Big money is made following secular trend. Jim's
post quoting Livermore sums it up best. The focus of discipline; therefore,
must be...
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Gold Miners vs. Physical Gold
I have been arguing that you are better off in physical gold than in gold
miner stocks, for a variety of reasons. And when looking at gold stocks, we
need to distinguish between exploration companies and producing companies.
The problem with the exploration companies is that a lot of them will have
financing difficulties and they will have to cut down on exploration. They
may not get financing at all. If you have 100 exploration companies, 80 to
90 of them could easily be out of business. -* in Bullion Vault*
*Related, SPDR Gold Trust ETF (GLD), Market Vectors Gold Miners ETF (GDX)*
... more »
Anything To Do With Agriculture Is Going To Be Extremely Profitable Over The Next 20 Years
Agriculture is going to be the big thing in the next 20 years. The best
thing you can do is to become a farmer, that is where the money is going to
be made. It has been a disaster for the last 20 years, but farmers are
going to be driving the Lamborghini in the next 20 years, stock brokers are
going to be driving taxis. The smart ones will learn how to drive tractors
so they can work for the smart farmers.
Anything to do with agriculture -- seeds, tractors, fertilizer, water -- is
going to be extremely profitable over the next 20 years. - *in ET*
*
*
Related, Potash (POT), John Deere... more »
Is China A Currency Manipulator?
Mitt Romney's theory goes that by buying U.S. currency (so far they have accumulated around $3 trillion) and treasuries (around $1 trillion) on the open market, China keeps demand for the US dollar high. They can afford to buy and hold so much US currency due to their huge trade surplus with America, and they buy US currency roughly equal to this surplus. To keep this pile of dollars from increasing the Chinese money supply, China sterilises the dollar purchases by selling a proportionate amount of bonds to Chinese investors. Supposedly by boosting the dollar, yuan-denominated Chinese goods look cheap to the American (and global) consumer. What Romney is forgetting is that every nation with a fiat currency is to some degree or other a currency manipulator. That’s what fiat is all about: the ability of the state to manipulate markets through monetary policy. When Ben Bernanke engages in quantitative easing, or twisting, or any kind of monetary policy or open market operation, the Federal Reserve is engaging in currency manipulation. Every new dollar that is printed devalues every dollar out in the wild, and just as importantly all dollar-denominated debt. So just as Romney can look China in the face and accuse them of being a currency manipulator for trying to peg the yuan to the dollar, China can look at past U.S. administrations and level exactly the same claim — currency manipulation in the national interest.
10 Year Treasury Prices At Record Low 1.855%
Just because the market is totally insane, the fact that the upsized $24 billion 10 year priced at the lowest yield on record, or 1.855% (just inside of the 1.86% When Issued): a glaring indication of fleeing from all risk and into safe-ish collateral in a world of reyhpothecated junk, will likely send stocks higher. The fact that the bid to cover came at 2.90, or the lowest since November's 2.64 will be ignored. In terms of the internals, the Dealers took down 45.5%, Indirects: 38.7%, and Directs 15.8%, all more or less in line with average. The algos will now process the headline, be completely confused, and buy the S&P even as total US debt crosses $15.7 trillion.
Germany's Roadmap For A Greek Return To The Drachma
There has been much speculation about how the Greek endgame will play out, but precious little from the perspective of Germany. Until today. Courtesy of a three part series from Handeslblatt (here, here and here) we now know precisely what the next steps are as visualized by Europe's piggybank, which now is telegraphing it is set to cut Europe's most wayward child loose.
Jim Grant: "The Fed Owns The Stock Market"
The
dulcet tones of Jim Grant provided much food for thought on Tom
Keene's Bloomberg Radio show this morning. While the interest rate
observer did not change his tack on the extreme experimentation of
world's central banks, he did have some new perspective on the
incredible moral hazard (or unintended consequence) that is being
created. One of his main criticisms is the incredible arrogance
and conceit of a central banking system that believes it can see the
future and thwart things before they come to pass, as he notes "I blame the central bankers for confusing the black art of central planning with the traditional art of central banking".
He fully expects more easing by the Fed and its friends as he awaits
their response to this latest stumble in the markets but what is most
evident to him is that "The Fed owns the stock market"
since they have financially repressed all investors into risky assets
they now have been forced to have a moral responsibility to keep us
safe in those assets - incredibly! The Fed is more likely than not to
intervene with still more money-printing in any effort to keep this
bubble afloat. What Jim focuses on is the morality in economics and the
current immoral policies that have very bad consequences.Spain's Bank "Bailout" A Complete Dud: Allows Banks To Opt-Out
As we pointed out yesterday when we correctly summarized that "Spain Appears Unsure What A "Bank Bailout" Means", we said "Spain is to require its banks to set aside more provisions (between EUR20 billion and EUR40 billion) in an effort to overhaul the country's financial sector. This additional need for reserves (or provisioning) puts yet more pressure on the banks' balance sheets as it comes on top of the already EUR54 billion that has been set aside from February. Interestingly the EUR20-40 billion still falls dramatically short of Goldman Sachs' estimate of an additional EUR58 billion that is needed to cover reasonable loss assumptions. We can only assume that the game is to create as large a hole as is possible without tipping the world over the brink and then fill it with the state funds a la TARP (as Rajoy has indicated will be the case)." Well, as it turns out there was no ulterior motive behind the stupidity which is merely ad hoc improvisation of the worst kind that we saw back in Greece in the summer of 2011. Because according to IFR, not only is the bailout going to be woefully insufficient, but also, will be a 100% dud, as "Spain is likely to offer some banks the chance to opt out of some of the reforms set to be announced on Friday following heavy lobbying from the industry, according to two people familiar with discussions." In other words an insufficient bank sector nationalization, which will affect on some, but not those who actually need it, in what is now so clearly just another exercise (think stress test) to give the impression that the Spanish banking system is solvent. In the meantime, absolutely nothing will happen with the hundreds of billions of underwater mortgages carried by the big banks, which will merely fester until they finally become the Fed's problem.Guest Post: The Death Spiral Of Debt, Risk And Jobs
What we have is a Central State and an economy that has borrowed and squandered trillions of dollars on consumption and malinvestment in unproductive "stranded" assets. The debt and risk pile up, while the labor that results from consumption is temporary and does not create wealth or permanent employment. Figuratively speaking, we're stranded in a McMansion in the middle of nowhere, a showy malinvestment that produces no wealth or value, and we're wondering how we're going to pay the gargantuan mortgage and student loans. Debt and the risk generated by rising debt create a death-spiral when the money is squandered on consumption, phantom assets, speculation and malinvestments. Sadly, that systemic misallocation of capital puts the job market in a death spiral, too.Adding Insult To Injury, Goldman Cuts US Q1 GDP To 1.9%
Remember that very disappointing Q1 GDP print of 2.2%? Well, Goldman just dragged it even lower.Europe's Stigmatized Banks On The Verge Of Crucifixion
Back
in the middle of March, when all was sunshine and unicorns in the
post-LTRO world of recovery and another sustainable recovery, we were vociferous in our noting that nothing has been fixed and LTRO3 is not coming.
Sure enough, here we are a few weeks later and the encumbering stigma
that we were the first to point out (and call Draghi out on) is now
wider than at any time since the LTRO program began with the banks that
took LTRO loans now trading wide of pre-LTRO levels (fully stigmatized
despite all that extra liquidity). Today saw the Stigma spread
between LTRO and non-LTRO banks jump its most in 2 months to over
160bps (its highest in almost six months). There is however a
troubling conundrum facing the ECB. The banks that need another LTRO
(or liquidity) no longer have performing collateral to pledge and other
banks that would like liquidity will not take it since they now
understand the encumbrance and stigma that is attached to that decision.
The ECB is snookered (and so is it any wonder that Draghi is playing
for time) and perhaps this is why we are seeing the EUR leak lower
against the USD as markets anticipate some more direct monetization
mandate-busting action by the ECB (shifting the Fed/ECB balance and
implicitly the flow between the two that we have also pointed out as
critical). Either way, there is no LTRO3 coming anytime soon and
together with this morning's jumps in liquidity funding costs, the vicious circles are ramping up again in Europe.Rumor Of Pasok-Syriza Memorandum Agreement
Remember the headline frenzy from last summer. It's baaaaaaaack. From Athens News:This could go either way: if spun as pro-bailout, expect a 100 pip surge in the EURUSD. If not - don't, especially if it turns out to be an "agreement" with changes any of the terms of the Greek bailout, something Germany will not take too kindly to.A shocking and possibly groundbreaking turn of events. According to Net television, Pasok head Evangelos Venizelos has agreed to sign a letter related to the memorandum with Syriza chief Alexis Tsipras. What that letter will say is as yet unknown, but Net are standing by their sources. The temperature in the coalition room just spiked up.
Things In Europe Just Getting Worse By The Minute
The latest out of the doomed continent:- EURO ZONE DEBATING DELAY OF EUR5.2B MAY 10 PAYMENT TO GREECE - DOW JONES
- SOME GOVERNMENTS CONCERNED ABOUT MAKING A PAYMENT TO GREECE AMID POLITICAL TURMOIL
The Pain In Spain Is Mainly, Well, Everywhere
Update: Here we go - SPAIN TO NATIONALIZE BANKIA LATER TODAY - ABCThe reality is Greece is largely noise. Greece will eventually leave the Eurozone, but not this month. The hardliners inside Greece will realize they need some time to organize. The markets will have spooked the hardliners outside of Greece that they should play nice for a little bit, because forcing Greece out now won’t do them any good whatsoever. With Greece largely a sideshow at this stage, the attention is really focused on Spain and Italy. The fact that Greece might lead the way out of the Euro is having a big impact on these countries. That realization combined with the already obvious problems at the sovereign and bank level caused markets to sell off. The Spanish 10 year bond is back above 6%, dropping 20 bps today, which is a significant move. As we wrote about last Friday, there are no natural buyers, so this move occurred in an illiquid market. There is more room to run, but moves in Spanish and Italian bonds are already starting to have a less direct impact on stocks than they did earlier in the morning.
LI(E)BOR Friendo'd; European Liquidity Corzined
Three
things are occurring in European liquidity markets that should send
shivers down the spines of the most ardent bulls or believers in the
status quo muddle-through scenario. First, 3-month LIBOR is
waking from the dead having risen today after weeks of flat-lining in
its irrelevant manner. Second, Deutsche Bank was the main driver of
today's uptick in 3-month LIBOR (joining UBS as the only other bank in
the LIBOR family post LTRO2 that has raised its willing offer rate for
short-term liquidity). And third, most importantly, 3-month
EUR-USD basis swaps (that expensive but anonymous market-based
investment vehicle to find USD funding) have exploded with their
biggest deterioration in five months pushing the premium that banks are
willing to pay to receive USD over EUR to its highest in almost 4
months. So while Draghi suggests that we wait to see the
effects of LTRO filter through to the rest of the real economy, once
again he is clearly incorrect as banks are now desperately seeking
liquidity (USD-based in this case) with short-term swaps only having
been worse in the middle of the crisis last Fall and UBS and Deutsche
Bank willing (or forced) to pay up for short-term money.Demand in Asia and “Semi Official Buyer of Gold” On ‘Roubini Dip’
Gold hit a 4 month low today despite deepening worries that the political upheaval in Greece may sink the country into chaos and endanger the euro zone's efforts to end the debt crisis – possibly leading to contagion and or a monetary crisis. Some decent demand from South East Asia has been reported at the $1,600/oz level and there are also reports from Reuters of a “semi-official buyer of gold” emerging “on dip below $1,600/oz”. Gold’s weakness yesterday may have been again due to dollar strength and oil weakness - oil is now below $97 a barrel (NYMEX). It may also have been due to wholesale liquidation which created a new bout of "risk off" which has seen global equities and commodities all come under pressure. However, gold’s weakness yesterday was also contributed to by more unusual trading activity. As trading in New York got underway, there was an unusually large bout of selling with some 6,000 gold futures contracts sold in minutes and this led to gold's initial $10 fall to the $1,615/oz level. Momentum driven algorithm trading may have then led to follow through selling and the initial sell off may have emboldened tech traders to sell more leading to the falls below $1,600/oz.Goldman's Thomas Stolper Comes Clean On The EURUSD: Even More Confusion Ensues
Because the market sure could do with some humor on this blood red morning, we bring you FX strategist extraordinaire Thomas Stolper, who sadly does not give us the latest fade trade, but decides instead to come clean with pearls as: "On our EUR/$ forecast, last revised in January, we have been both right and wrong." Surely the "right" part is what he is worried about: after all if Goldman prop (whatever it is called these days) can't take the other side of the clients' trades, nobody gets paid. Yet Tommy still gets paid the big bucks: Why? For insights like these: "Cyclical forces and continued fiscal stress account for the lack of a EUR/$ rally...and we see little chance that they resolve themselves near term for EUR/$ higher." So cutting right to the good stuff: "Our structural, long term thought framework has not changed; we think global macro and flow fundamentals still argue for a weak USD and this theme will likely overwhelm other currency market developments on a one to two year horizon." We get it: the EURUSD can't go higher, but the USD is going lower. Mmmk.What Happened To Spanish Bonds Today?
So what did happen in Spain today? What is causing Spanish bonds to go down so much? The first answer is relatively easy. Nothing much new happened in Spain today, just variations of the same theme that has been out there for weeks if not months. What we have is a struggling country with many banks that would view struggling as a compliment. So why are bonds down so much? Bonds are down because someone had some bonds to sell and that started the cascade.Just for a moment imagine you are a market maker in the Spanish bond market. You aren’t even an aggressive market maker, so you just make markets on the 5 year and 10 year bond.... You look up at the street screens and they just went offered. Cr*p, no street bid. Now what to do?
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