Presenting Europe's 'Over-Indebtedness' Roadmap To Catastrophe
Europe faces three systemic risks: Sovereign (GRExit vs. GERxit), Liquidity (unsustainable refinance rates and foreign capital outflows), and Banking (insolvency and under-capitalization). All of these can fundamentally be traced back to an era of excessive over-indebtedness, which as Pictet notes, leads to required deflationary policy responses that are incompatible with developed market government targets (of re-election, Keynesian pro-growth fiscal policy, and satisfying financial market's expectations). While LTRO did indeed address liquidity risk in the very short-term, it is now painfully clear (just look at European bank stock prices) that financials are driven by sovereign risk (not so much liquidity risk) at the margin. The following three charts provide a roadmap to Nirvana or Samsara (hell). With the Summit underway, Pictet's path to catastrophe roadmap (tactical and strategic) is critical to comprehend.

Shocking Details Of Barclays Epic Lie-bor Fraud: "Duuuude…Whats Up With Ur Guys 34.5 3m Fix…Tell Him To Get It Up!"

"On 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger"

Europe's "Monetary Twilight Zone" Neutron Bomb: NIRP

Just because ZIRP is so 2009 (and will be until the end of central planning as the Fed can not afford to hike rates ever again), the ECB is now contemplating something far more drastic: charging depositors for the privilege of holding money. Enter NIRP, aka Negative Interest Rate Policy.

Goldman Changes Its ECB Call, Sees 25 Bps Cut To Repo Rate On July 5 To 0.75%

And some thought we were only kidding that NIRP is soon going to be Europe's new best friend. Also, if the former employer of Mario Draghi is now saying a rate cut is imminent, it means that the fiscal pathway to resolution is dead and that Friday's summit will be an even bigger disappointment than everyone now expects.

Fiat Money Kills Productivity

Only a wilful and ideological Keynesian could ignore the salient detail: as soon as the USA left the gold exchange standard,  total factor productivity began to dramatically stagnate.   Coincidence? I don’t think so — a fundamental change in the nature of the money supply coincided almost exactly with a fundamental change to the shape of the nation’s economy. Is  the simultaneous outgrowth in income inequality a coincidence too? Keynesians may respond that correlation does not necessarily imply causation, and though we do not know the exact causation, there are a couple of strong possibilities that may have strangled productivity. It’s not just total factor productivity that has been lower than in the years when America was on the gold exchange standard — as a Bank of England report recently found, GDP growth has averaged lower in the pure fiat money era (2.8% vs 1.8%), and financial crises have been more frequent in the non-gold-standard years.

Stockton, Calif., to become largest city to declare bankruptcy

Eric De Groot at Eric De Groot - 15 minutes ago

The city of Detroit defaulted on their bonds in 1932. While Detroit may not have sought the protection of bankruptcy, it took them until 1963 pay off these bonds in nominal or vastly depreciated dollars. Municipalities are defaulting. This means currencies will depreciate and history will repeat. Headline: Stockton, Calif., to become largest city to declare bankruptcy (CBS/AP) STOCKTON,... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Where Has All The EUR Tail-Risk Gone?

Everyone and their dog is by now well aware of the stress in Europe - and implicitly the chance for a major tail-risk event occurring. Yet, as Citi's Steven Englander notes, the amount of tail risk that is actually priced in is astonishingly small. Whether it is risk-reversals (which are skewing increasingly towards EUR strength relative to the USD) or Digital options (which are essentially the market's oddsmaker for a big - 15% or more - move in the currency), it appears investors are gravitating to a view that the sovereign crisis will play out in debt markets more than in currency markets. We agree with Englander when he notes "this looks to be an extremely hopeful view of how events will play out". Given the German unwillingness (and quite possibly inability) to underwrite the rest of the euro zone, the risk of contagion and EUR weakness may be much bigger than what is now priced in.

Europe "Welcomes" The Spanish Bailout

One just can't come up with better wording if one tried.

• EUROGROUP WELCOMES SPANISH REQUEST FOR FINANCIAL ASSISTANCE
• EUROGROUP SAYS CYPRIOT RESCUE IS `WARRANTED AT THIS STAGE'
• EUROGROUP SAYS SPAIN BANK NEEDS ESTIMATE AT EU51B TO EU62B
• EUROGROUP SEEKS `AMBITIOUS MEASURES' FROM CYPRUS ON BANKS

And a little change in the original plans:

• EUROGROUP SAYS SPAIN TO REQUEST TECHNICAL ASSISTANCE FROM IMF

 

So Much For the 'Epic' JPM 'Whale-Trade' Unwind

Last night's release of DTCC CDS data came and went with little furor. Despite the protestations of various mainstream media reporters last week that they had been 'told' that JPM had unwound 65-75% of their IG9 disaster last week, their is nothing in the actual reported data from the CDS repository to suggest any 'epic' unwind or change in actual risk transfer occurred. We hate to say we told you so but the spike in activity was very likely associated with the CDS roll as all those Weinstein-wannabes unwound their index-arb positions (sold back their index protection and bought back their single-name protection) as opposed to face the illiquidity cliff of holding through the roll. The last few weeks have seen index net notionals drop for IG9 - which fits with the index-arbitrage unwind - but little to no change in the tranched risk (which is the more appropriate to track JPM's exposure) suggesting that JPM remains the 'diligent shareholder-friendly' holder of its tail-risk hedge just as Dimon said they would.

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Is That A NIRP In Your Pocket Or Is Gold Just Happy To See Negative Rates?

Gold and Silver are spiking once again, after experiencing quite a roller-coaster ride of rips and dips in the last week or so but this latest spike is suggesting the market's concerns at NIRP is growing. Moments ago, when noting the recent drive for NIRP at the ECB, we noted, that "once [the EUR747 billion in ECB deposits] has to pay to stay, it is certain that nearly $1 trillion in deposit cash, currently in electronic format, would flood the market." Judging by the dramatic move in gold in the last few minutes, at least the PMs appear to already be discounting just such a move.


 

The Summer Of Their Discontent

This Summit is likely to be the one where the masks come off the revelers at the Ball and where the faces behind the masks are unveiled for all to see. We predict this weekend will be full of many “Oh My God” moments which will go unreported in the Press but where it dawns, with a wicked thump, that the wealthy nations of Europe are unwilling to pay for the poorer ones and that all of the make nice comments of the last thirteen years were no more than polite conversation in the European parlors. This Summit will not be the end but it may well mark Churchill’s famous postulation that it is the beginning of the end. The cries of anguish are about to be met with refusal and the realization that “No” is actually “No” will produce, I fear, the exact same reaction of a six year old unruly child who throws himself on the floor in utter frustration when he does not get what he wants. It is still now, it is quiet; but it will not be soon!

Barclays Found To Engage In Massive Libor Manipulation, Gets Wrist-slapped By Coopted Regulators

We can finally close the case on the massive Libor manipulation issue that we first brough to the world's attention back in January 2009 when we penned: "This Makes No Sense: Libor By Bank." As of minutes ago, Barclays is the first bank to admit it has engaged in gross manipulation of the key benchmark rate that sets the cost of capital for $350 trillion in interest-rate sensitive products. As the CFTC notes, as it produly announces an epic wristslap of $200 million for Barclays Bank: "The Order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005." Surely this massive fine will teach them to never do it again, until tomorrow at least, when the British Banker Association once again finds 3 month USD liEbor to be... unchanged. In other news, who would have thought that the fringe "conspiracy" brigade was right all along once again.

Headline Durable Goods Beats, Core Ex-Transports And Capital Goods Shipments Miss

There is a little for everyone in the latest BWB (Baffle with BS) data point - durable goods. The headline number printed at +1.1%, on expectations of a 0.5% rise, up from a downwardly revised -0.2% (from 0.2%). So a beat even as the baseline was cut. However, when stripping out the extremely volatile transports number, the result was very different and at +0.4%, it was a miss of expectations of 0.7%, although still up from the April -0.6%. Finally, actual Capital Goods shipments excluding non-defense rose 1.6% on expectations of a 1.9% increase. In other words: a beat when including volatile fluff, a miss on the core. The inventory/shipments ratio slipped to 1.63, lowest reading since Dec. 2011; may “imply weaker times ahead,” says Bloomberg economist Rich Yamarone. Is this good enough for the Fed to push on with the NEW QE: it is unclear. Which is why next Friday's NFP will once again be watched by everyo8ne and be the latest "most important payrolls number ever."

Daily US Opening News And Market Re-Cap: June 27

European equities are seen modestly higher at the midpoint of the European session, with the utilities and financials sectors leading the way higher. As such, the Bund is seen lower by around 40 ticks at the North American crossover. The closely-watched Spanish 10-yr government bond yield is seen lower on the day, trading at 6.85% last, as such, the spread between the peripheral 10-yr yields and their German counterpart has been seen tighter throughout the European morning. Issuance of 6-month bills from the Italian treasury passed by smoothly, selling EUR 9bln with a higher yield, but not an increase comparable with yesterday’s auction from the Spanish treasury. The decent selling from Italy today may pave the way for tomorrow’s issuance of 5- and 10-year bonds, which will be closely watched across the asset classes. Data of note has come from Germany, with the state CPIs coming in slightly higher than the previous readings, proving supportive for the expectation of national CPI to come in flat at 0.0% over the last month.

Overnight Sentiment: Directionless

In a market in which horrible data leads to upward stock spikes, what can one expect but a directionless market for now: after all today's biggest pending disappointment, the durable goods orders due out in an hour, has not hit the tape yet sending stocks soaring. Newsflow out of Europe is more of the same, summarized by the following BBG headline: 'MERKEL SAYS EURO BONDS ARE THE ‘WRONG WAY." We for one can't wait for the algos to read into this as more bullish than Eurobonds only over her dead body. Perhaps that explains why despite the constant barrage of abysmal economic data, capped by today's epic collapse in MBS mortgage applications plunging 7.1% or the most since March despite record low mortgage yields, futures are once again green. In summary: the usual Bizarro market which has by now driven out virtually everyone.

The Magic Of Investing

Admin at Jim Rogers Blog - 1 hour ago

The trick to investing is not to lose money. The losses ruin your compounding rate and compounding is the magic of investing. - *in Market Wizards* *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.* 

Gold Outlook: I Do Not Think It Is Necessarily The Best Asset

Admin at Marc Faber Blog - 1 hour ago

I do not think it is necessarily the best asset. What I am suggesting is that people should diversify their assets and should own some gold compared to paper money. Over time central banks will continue to print money everywhere in the world. Therefore, the purchasing power of paper money will decline. So I would own some gold. We are in a correction period and we may still go lower. But on this weakness I would continue to accumulate gold. - *in Economic Times* Related: SPDR Gold Trust ETF (GLD), Newmont Mining (NEM), Goldcorp (GG), Barrick Gold (ABX) *Marc Faber is an internation... more » 

 

Underperformance of Chinese Stock Urges Caution

Eric De Groot at Eric De Groot - 3 hours ago

China with its growing middle class, strong manufacturing base, and capital inflows has become the engine of global economic growth. As goes China, so follow the world. The underperformance of Chinese equities relative to US equities since 2009-2010; therefore, urges caution towards global growth (chart 1 and 2). This suggests caution towards the risk-on trade. Look no... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Increasing Doubts, More Liquidity, And Panic Coming

Eric De Groot at Eric De Groot - 4 hours ago

Liquidity will be provided through convoluted means if necessary to postpone the inevitable. However, the longer politicians talk, stare down markets in order to support external agendas - as long as I live, and pursue ex-post rather than ex-ante policies, confidence will only erode further. All hell breaks loose when doubts about governments' ability to solve the problem described... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

European Stocks Soar (And So Do Peripheral Bond Yields!)

It's another one of those hope-fueled days in Europe as European stock indices across evey nation close comfortably in the green as the EU Summit begins. Germany has taken all the substantive things off the table and Cyprus and Portugal threw in the towel but nevertheless, stocks are 1-2.5% higher (with Italy and Spain outperforming). We assume this is reflexive pricing of 'the crisis is now so scary that the ECB will have to do something' but it seems the FX and Sovereign bond market missed that pre-emptive hope-driven view as Portugal yields/spreads spiked, Spain pushed back up to 6.93% and saw further flattening in its yield curve (as short-dated LTRO-enthused bonds underperform dramatically) as 2s10s is almost back to six-month pre-LTRO levels. Italian spreads pulled off their worst levels to close mixed but remains over 40bps wider on the week. EURUSD closed down over 35 pips at 1.2450 and stocks were in a world of their own also relative to credit markets today.

Italy Pays More For 6 Month Debt Than America Pays For 30 Year, As LTRO Claims Its First Bank Insolvency

Today Italy had a rather critical Bill auction in which it sold €9 billion in debt due six months from today. Obviously, since the maturity is well inside of the LTRO, the auction itself was rather meaningless from a risk standpoint. Still, the good news is that Italy managed to place the entire maximum amount targeted. The bad news: it cost Italy more to raise 6 months of debt, or 2.957%, than it costs the US to borrow for 30 years (2.70%). Not only that but the average yield 2.957% was the highest since December when the Italian 10 Year was north of 7%, and nearly 50% higher compared to the 2.104% at auction on May 29, or less than a month ago. The Bid/Cover of 1.62 was unchanged compared to the 1.61 at the May 29 auction. From Reuters: "Today's bill sale points to the sovereign getting this supply away but at yield levels sufficiently elevated to leave a niggling doubt at least as to the medium-term sustainability of the country's public finances," said Richard McGuire, a rate strategist at Rabobank. On Tuesday, Spain paid 3.24 percent to sell six-month bills. Madrid is seen at risk of having to ask for more aid after formally requesting a European rescue for its banks this week. But doubts are also growing on Italy's ability to keep funding its 1.95 trillion euro debt, which makes it the world's fourth-largest sovereign debtor. Domestic appetite has so far allowed the Treasury to complete 56 percent of its 445-billion-euro annual funding plan."

Cliff Asness' Cliff Notes To Progressive America

Cliff Asness, head of the quant hedge fund AQR, has been known to be a vocal opponent of various failed governmental policies in the past few years. Today, he has shared his "dictionary" (of "humorous" persuasion as he himself notes, with definitions "written sarcastically as a faux left-winger, some just conservative/libertarian interpretations of what the left really means.") of the key terms dominant in Progressive America right now. In a world in which other people's money has pretty much run out, and ahead of a rather historic Supreme Court ruling tomorrow, we believe some of these are quite relevant.







Today’s Items:

First…
EU ‘Would Be Allowed To Change Countries’ Budgets
http://www.telegraph.co.uk

The draft plan, set to be discussed at the EU summit, would create a closer fiscal and banking union that would turn Brussels into a finance ministry for all 17 euro-zone members. Germany has demanded that national budgets be subjected to strict controls as a prerequisite for mutualising debt and issuing euro-bonds. In short, the PIIGS in the Euro-zone will either face fierce austerity or simply leave the union.

Next…
What It Looks Like When a Nation Collapses
http://www.shtfplan.com

We have the proverbial canary-in-the-coalmine glimpse of how things will be when the economic collapse occurs. It is Greece. From non-existent essential services from fire to medical needs to a starving population, this is a frighteningly real opportunity to see how our preparations are strong and where they are lacking. Time is short; thus, keep preparing.

Next…
22 Statistics That Prove That The American Dream Is Being Systematically Destroyed
http://endoftheamericandream.com

Here are a few…
1. The U.S. has gone from number one to twelve in the world in GDP per capita.
2. 400 wealthiest Americans have more wealth than the bottom 150 million.
3. Nearly 1 in 4 children in the U.S. are in poverty.

Next…
Diversifying Into Gold
http://www.goldcore.com

In May, Turkey raised its reported gold holdings by 2% to 245 tonnes. Russia increased its reported gold holdings by 15.5 metric tones. These are two examples as to why it is important in the long run, to ignore the paper noise, manipulation, and after preparing, to keep stacking physical.

Next…
10 Threats That Most Preppers Haven’t Prepared For
http://offgridsurvival.com

Here are a few…
1. No, or fake, law enforcement
2. Gangs and raiders.
3. Self defense
4. Garbage… Careful about burning it.

Next…
Detroit to Lay Off 164 Firefighters
http://www.usatoday.com

At the end of July, 164 firefighters will lose their jobs. If the city gets a federal grant, then 108 firefighters will have their jobs restored… If not, there may be some fire sales in Detroit.

Next…
‘Obama Truth Team’ Orders Website Shut Down
http://www.canadafreepress.com
http://www.homelandsecurityus.com

A political website that contained stinging criticism of the Obama administration and its handling of the Fast and Furious scandal was ordered to be shut down by the Obama campaign’s ‘Truth Team’. It will not be long before this self ministry of truth goes after other sites as well. Hopefully; however, unlikely, the ISP GoDaddy will send Obama’s ‘Truth Team’ a copy of the U.S. Constitution with the first amendment highlighted.

Finally, Please prepare now for the escalating economic and social unrest. Good Day

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