European Credit Crunch Hits Broad Economy As M3, Private Loans Collapse

The primarily sovereign credit crunch in Europe, which has resulted in part due to the ECB's disastrous, and since reversed decision just like in 2008, to hike rates early in the year, only to go ahead and not only cut but expand its balance sheet by a record EUR 800 billion in the past six months, has finally started trickling down to the corporate, and more importantly financial levels, where as was just reported today, the broadest monetary aggregate, the M3, rose by a only 2.0% in November, dropping by a whopping 60 bps from October (keep in mind this is a huge amount on a number that is in the tens of trillions), which happened to be the biggest annualized contraction change since 2009. What is worse, and what confirms that the daily "near default" state Europe finds itself in every single day has sent shockwaves of uncertainty around the continent, is that the loans to private businesses grew at just a 1.7% rate in November, a plunge from October's 2.7% and missing expectations of 2.6% by a wide margin. Said otherwise, corporate credit (far more important than its sovereign equivalent) is being turned off. And as has been widely discussed without credit flowing, there is not only no growth, but the threat of imminent economic depression. Lastly, that this has happened even as the ECB's balance sheet has risen from EUR 1.9 trillion to $2.7 trillion in 6 months is truly humiliating from Trichet as none of the money he injected into the banks has made it to the broader public, and instead all has been used to prop up Europe's failing banks, something we know all too well here in the US.

Merkel Economic Advisor Does Not Exclude Eurozone Break Up

In an interview making the rounds this morning, which appeared in German "for the people" daily Bild, one of the German Council of Economic Experts, Beatrice Weder di Mauro, who is one of five economic advisors to Angela Merkel, put it in no uncertain terms (Bild readers don't like the kind of "political talk" other politicians are best known for) that while a breakup of the Eurozone in 2012 would be "bad for everyone involved" it can not be completely excluded. She also warned that unless the financial crisis is intercepted quickly, it can lead to a recession in Germany, with the economy contracting 0.5%, and leading to an increase in unemployment. Finally, she made it all too clear how Germany plans to deal with the PIIGS laggards: "Over-indebted euro-zone nations must submit to a long-term insolvency rule." Now granted this was google translated, but somehow we believe it captures the essence of the underlying thought quite succinctly. In other words, Germany is once again toying with the "expulsion" nuclear option, the same one that according to UBS analysts as recently as a few weeks back, would make precious metals, tinned goods and small caliber weapons the best investment option. How this will impact the EURUSD on this day when the currency is already at a near 2011 low is unclear, but will hardly be favorable.

The Cycle of Panic In Gold

Eric De Groot at Eric De Groot - 2 hours ago

The cycle of panic in gold is also known as ass whopping cycle is describe as follows: (1) “Money” positions ahead of the downside move. Commercial traders pile on their short positions (see red arrow), Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Long & Short As A % of Open Interest The quiet reposition of funds on the futures... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

 

 

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If I Were Buying Anything I’d Be Buying Agricultural Commodities

Admin at Jim Rogers Blog - 2 hours ago

If I were buying anything I’d be buying agricultural commodities. Going forward we’re going to have huge shortages of everything – including farmers – I think ag will be a great place for the next 10-20 years. - *in CNBC* *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.* 

 

 

 

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Silver unable to sustain price rallies

Trader Dan at Trader Dan's Market Views - 10 hours ago

Silver has become the victim of the deflationary mindset trade with RISK AVERSION leading to a significant outflow of speculative money from the grey metal. I have said repeatedly that Silver will not go anywhere as long as INFLATIONARY FEARS are *NOT* foremost in traders' minds. Note the following Gold/Silver ratio chart which details this exact thing. This ratio began moving in favor of Silver only after the Federal Reserve first announced and then began its Quantitative Easing programs back in late 2008. You can see the line beginning a steady decline as Silver appreciated at a ... more » 

 

 

 

 

WSJ On DSK, DisUnion, And The Dismal Dithering In Europe

In an interesting history, today's WSJ points to a closed-door meeting in Washington on April 14th of this year as the moment that the attempts to 'save' Europe began to unravel. The player at the center of the debacle - one Dominique Strauss-Kahn - was pressing for more 'help' from Europe or else the IMF would not deliver more magic-money to the Greeks. The ultimatum drove a wedge between many competing camps over who should be on the hook for more or less of the money required to save this tiny sovereign. Critically, as we have pointed out again and again, it is not (in this case) size that matters, but the precedent that a nation leaving the socialist construct of the Euro 'breaks' the union and the WSJ weaves a torrid tale of this increasing tension and DSK's catalytic impact and timely 'dismissal' from the process. Furthermore, the clear 'dithering' they describe among these so-called leaders offers insights into what we can expect going forward as a new fiscal compact (same as the old one) begins to emerge with mid-March hard Greek deadlines looming fast.

Guest Post: Will "Tax the Rich" Solve Our Deficit/Spending Crisis?

If there is one stance that can gather non-partisan support, it's "tax the rich." If we look at tax revenues and income in a practical way, we find "tax the rich" will not close the widening $1.5 trillion gap between Federal revenues and spending. Clearly, $1.5 trillion annual Federal deficits to fund the Status Quo--fully 10% of the nation's GDP--is unsustainable. Eventually, the ad hoc "solutions" currently being pushed by the Federal Reserve--zero interest rates to keep borrowing costs artificially low and money-printing operations that buy Treasury debt--will encounter political and/or market pressures which will limit the marginal effectiveness of these interventions, and the real cost of these historically unprecedented deficits will trigger a host of unintended consequences--all negative.  How about those soaring corporate profits? If we taxed 100% of the $1.5 trillion corporate profits, then we could close the $1.5 trillion budget deficit. But then Wall Street would have nothing to support those sky-high stock valuations.

Oil Inventories Jump And Kansas City Fed Manufacturing Drops To 28 Month Low

Yet another set of macro data that will keep 'em guessing as Oil inventories rose more than expected and the Kansas City Fed's Manufacturing index dropped to 28 month lows and went negative for the first time in two years. Oil inventories rose significantly (and WTI drops below $99) bucking the notable seasonal trend (and missed expectations dramatically). These two combined to be enough to take the edge off the rally in stocks and pull ES (the e-mini S&P futures contract) back to its VWAP.

Art Cashin On Yesterday's Market Air Pocket, And A Rasputin Anniversary Primer

Now that we have had a day to digest the move from yesterday, we go to the only voice in the market worth listening to, that of Art Cashin. Not surprisingly, he doesn' tell us anything we did not already report or know, but good to hear the confirmation nonetheless.

Goldman Says Good Riddance to 2011

"Not many market participants will lament the passing of 2011" is how Goldman starts a brief note today looking back at a year full of adverse shocks in order to judge the year-ahead's potential to destroy forecaster's perspectives. The 'shocks' as well as the known unknowns are summarized effectively as the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. They note that by definition, shocks are unpredictable. But slowing growth (and in places outright contraction), public sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil, and this may well be a source of more shocks as the year progresses.

After One Month Respite, Pink Slips Are Flying Again

Following 4 weeks of supposed improvements in the labor picture courtesy of declining initial jobless claims, even as we all know too well that Wall Street has been firing thousands and thousands of highly paid bankers and CNBC talking heads left and right (are bankers too good for that $400/week paycheck from Uncle Sam?) today initial claims for the week ended December 24 once again resumed their drift higher, printing at 381k, up 15k from the perpetually upward revised prior week total of 366K (previously 364K). And as usual, the Seasonal Adjustment process smoothed out a whooping jump in actual terminations of 69k, which rose from 421K to 490K. Continuing claims also rose by 34K, from 3567K (upwardly revised, duh) to 3601K. Finally, those on EUCs and Extended Benefits once again saw a net drop off from the 99 week cliff as more and more people fall out out of the workforce in perpetuity following 2 years of being unable to find a job. The total amount of jobless on extended claims is now down by 1 million from a year ago, down from 4.5 million to 3.5 million, and dropping. We for one, can't wait to hear what the media spin will be next month when employers put the pinkslipmobile on turbo boost next month and fire all those temp workers they has been stockpiling to help with the EOY inventory liquidations, and we get another 400K claims print.

Monti's Double-Speak On Welfare But Sure EFSF Needs More Juice

While the technocrats cling to their vision for a European Bloc (amid a tumbling 'stable' EUR), Italian Prime-Minister-in-lieu Mario Monti is spreading the good word. Presented with little comment, via Bloomberg headlines, from a press conference in Rome, the Goldmanite builds the bridge to nowhere that the Socialist construct is unsustainable, yet the EFSF needs more funding to ensure the unsustainable social welfare model remains, err, unsustainable?

• *MONTI SAYS EUROPE MUST NOT GIVE UP MODEL OF SOCIAL WELFARE
• *MONTI SAYS EUROPE CAN'T SUSTAIN CURRENT WELFARE SPENDING
• *MONTI SAYS EFSF NEED `SIGNIFICANTLY MORE' FUNDING

Oh and this...

• *MONTI SAYS NOTHING JUSTIFIES CURRENT ITALIAN SPREAD

Next Steps For The Euro?

Over the last week we have spent a lot of time focused on what drives markets. More specifically the notion that while earnings and 'confidence' are often driveled out by strategist after strategist as the drivers for why the S&P will hit 1525 next year, it is the credit impulse or credit creation that drives everything as Central Bankers try their hardest to out-create one another. Furthermore, exactly a week ago we indicated that the primary correlation for 2012 would be the relationship between the balance sheets of the ECB and the Fed and the level of the EURUSD. Sure enough RBC has taken our suggestion to the next level in predicting just what the next steps for the Euro will be. It seems evident that is the ECB continues to 'not print' at this rate, and its balance sheet expands by another 500-1000 billion, the next target for the EURUSD is about 1.10 - which of course leaves no choice for the Fed other than to print as well.




BTFD...

Gold And Silver Plunge As EUR Reaches 15 Month Lows

Submitted by Tyler Durden on 12/29/2011 - 07:32 Aussie Copper France Investment Grade Portugal Sovereigns It seems funds left redemptions until the last minute in the vain hope that everything will be fine in the European dis-Union as we see renewed selling pressure in EURUSD - taking out the January 2011 swing lows (as a mediocre Italian auction and failed Hungarian auction weigh heavily on the expectations for a 'solution' or firewall). Gold and Silver are also legging down hard (the latter now -9.5% from Christmas Eve) and the former loses $1550. Gold took out its September 2011 swing lows back to near six-month lows.

Wall Street Response To Italian Auction

Here is the kneejerk Wall Street response to the key event of the day. Funny how the Italians think it was a good auction and everyone else kinda sorta disagrees.

Italy Sells Long-Dated Bonds To Weak Demand, 10 Year Prices Just Inside Of 7%, Bids To Cover Miss

Today's most anticipated economic headline - the sale of 3 and 10 Year Italian bond - auction has crossed, and judging by the selloff in the Italian secondary bond market (north of 7% now) and the drop in the EURUSD, now under 1.2900, it was a solid disappointment. Italy sold well below the targeted EUR 8.5 billion in 2014, 2018, 2021 and 2022 notes, with the key 10 Year 5% bonds pricing in line with the target EUR 2.5 billion, and optically successful at 6.98%, just inside the 7% critical level. The Bid To Cover was a weak 1.36, barely an improvement from the 1.34 from November 29, the day before the coordinated Fed bailout of Europe, when the same auction cost Italy 7.56%. And this was the good news: virtually all the other discrete auctions were far uglier than the headline indicated with demand weaker across the board.

ECB Deposit Facility Usage Declines Nominally, Still At Nosebleed Levels

Following yesterday's surge to an all time record high of EUR 452 billion, which confirmed that virtually all LTRO cash had been redposited back at the ECB to lose 75 bps as per the "inverse carry trade" first presented here, today's update shows that yesterday the cash held by banks at the ECB declined by EUR 15 billion to EUR 437 billion - a delta of just over the amount raised by Italy in its 6 month and Zero Coupon bond issues yesterday. And despite said successful auctions, today the Italian 10 Year BTP is once again over the critical 7% benchmark level, even as Italy prepares to issue between 8 and 11 billion in 3 and 10 Year bonds - an auction which will prove far more challenging as it falls outside the LTRO maturity date and thus leaves banks exposed to non-carry trade covered risk.

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