I have written a fair amount on Greece over the years (who hasn't) and recently saw this nice piece by Felix Salmon that summarizes the situation in terms of where Greece is economically, how it got there and options forward. If the whole situation is Greek to you, worth the read as the options forward could lead to some very interesting consequences:
http://seekingalpha.com/article/3027366-greeces-debt-crisis-how-did-we-get-here
Too simplistic, you say. Well if you want a somewhat more complex though still enlightening explanation of what is happening in the EU, albeit one focusing on Germany, then I recommend this:
http://www.nakedcapitalism.com/2015/04/herr-schaubles-foibles-eurozone-rebalancing-conundrum.html
It makes a nice plausible explanation of why Germany is to blame for many of Europe's woes and is now focusing its trade surplus sights outside of Europe as its European trading partners can no longer afford to buy stuff with all the austerity measures sucking away available resources. The author suggests that it may be Germany, not Greece, that decides to leave the EU first out of self interest. Das ist sher interesting (no freakin clue if this is even close to an accurate German translation but I think it sounds good).
Have you noticed, a lot of folks are saying the EU does not seem long for this world. Wish I had thought of that. Kind of makes you wonder what is going to happen to all those Euro denominated bonds floating around these days, including some 100 year ones Mexico -sí México y sí 100 años - just sold. Seriously folks, Mexico has been selling 100 year bonds at just over 4% denominated in euros. That is a currency exchange rate play that is going to leave a bruise.
http://globaleconomicanalysis.blogspot.com/2015/04/milestones-in-bond-insanity-negative-10.html
Oh, this is going to be very interesting indeed.
Friday, April 10, 2015
Thursday, April 9, 2015
She's A Yellen and He's Insana To Listen To Her
There is sooooo much debate lately on whether the Fed will move off ZIRP (a Mork term if I ever heard one). Is the economy where it needs to be? Is unemployment close enough to the target? Are dogs now sleeping with cats? The Fed removed that magical "patient" word recently and there is a whole market on guessing when the rate increase will come. All eyes are on the Fed. Or perhaps I should say all ears, as they are not exactly Yellen what they intend to do.
http://www.mineweb.com/news/gold/will-she-wont-she-yellen-interest-rates-and-gold/
Some think that the Fed should stand pat as the economy is in a tough patch at the moment and exchange rates are doing the same work as a rate hike. While I do think the Fed will stand pat and not hike rates at all this year or next because the economy will worsen before they get to that point, I nonetheless am not saying that is what they should be doing. Others, like Mr. Insana at CNBC, think the Fed is just fine staying where it is with ZIRP and should do so as that is the right thing to do:
http://www.cnbc.com/id/102511918
In what language does Insana mean insane?
While I think they will stay with ZIRP and perhaps have another QE or two next year, the Fed should not be maintaining their current stance or any stance and stop with the QEs already. They should abandon all stances (and hope) and stop their meddling. They of course won't do so, so I am not going to waste my time arguing why they should. Unfortunately, they will prove why on their own in due course.
I recently linked a post by David Stockman - Reagan's Director of the OMB - who makes a very elegant case against the Fed actions for like the past few decades. I agree with him on it but know he is wasting his breath, and rumor has it more people listen to him than me. Note I said rumor - it has yet to be confirmed. Nothing short of an epic bubble bursting that people finally attribute to Fed policies will get us there, and that will have to be sooo extreme it is a scary thing to ponder. Perhaps some smart politician will be able to tie the next bubble bursting to the Fed and include in his or her platform the promise to appoint to the Fed appointees that see the role more conservatively. Now there is little one President can do as only one Fed President gets appointed every other year and they serve 14 year terms, but if we have to wait that long to clean house it is best to get started. And even if the Fed were magically replaced or decided to change and stop its monetary games, there is presently at least a real question on whether it would have any impact.
Let's assume Janet were to wake up tomorrow morning and lean over to her multi-millionaire husband and say, "Honey do you know where in the world I put the Depends?" Oops, scratch that, I meant she would say "Honey, you know the world depends on us to do the right thing. I think I will stop the Fed from meddling in things and let the economy achieve a natural balance." If she did that, would we be alright? No, not at all because other central banks have to stop too. We are at ZIPR but the EU is at NIRP (which unfortunately is Negative IRP and not No IRP). Indeed, the financial shenanigans banks and corporations use to generate financial bubbles are now increasingly taking place in Europe where credit is even cheaper. So even if Janet and all the other Feds wake up with a dose of common sense, the bubble still cometh.
So time to prepare yourself - if you have not already - for the storm that looms folks. It is coming. I do not know what Lehman Brothers pin is out there this time to pop it, but it is there. The market knows it and has been trading sideways for four months. Perhaps its time to move to Iceland. Or maybe its time to move to Russia - I kid you not:
http://globaleconomicanalysis.blogspot.com/2015/04/russia-forced-to-do-right-thing-buy.html
It would appear that Russia is actually allowing free market forces to dictate for a change and it may be working. Wouldn't that be precious - Russia mastering capitalism better than the U.S. Put that in your трубка and smoke it Bernanke.
http://www.mineweb.com/news/gold/will-she-wont-she-yellen-interest-rates-and-gold/
Some think that the Fed should stand pat as the economy is in a tough patch at the moment and exchange rates are doing the same work as a rate hike. While I do think the Fed will stand pat and not hike rates at all this year or next because the economy will worsen before they get to that point, I nonetheless am not saying that is what they should be doing. Others, like Mr. Insana at CNBC, think the Fed is just fine staying where it is with ZIRP and should do so as that is the right thing to do:
http://www.cnbc.com/id/102511918
In what language does Insana mean insane?
While I think they will stay with ZIRP and perhaps have another QE or two next year, the Fed should not be maintaining their current stance or any stance and stop with the QEs already. They should abandon all stances (and hope) and stop their meddling. They of course won't do so, so I am not going to waste my time arguing why they should. Unfortunately, they will prove why on their own in due course.
I recently linked a post by David Stockman - Reagan's Director of the OMB - who makes a very elegant case against the Fed actions for like the past few decades. I agree with him on it but know he is wasting his breath, and rumor has it more people listen to him than me. Note I said rumor - it has yet to be confirmed. Nothing short of an epic bubble bursting that people finally attribute to Fed policies will get us there, and that will have to be sooo extreme it is a scary thing to ponder. Perhaps some smart politician will be able to tie the next bubble bursting to the Fed and include in his or her platform the promise to appoint to the Fed appointees that see the role more conservatively. Now there is little one President can do as only one Fed President gets appointed every other year and they serve 14 year terms, but if we have to wait that long to clean house it is best to get started. And even if the Fed were magically replaced or decided to change and stop its monetary games, there is presently at least a real question on whether it would have any impact.
Let's assume Janet were to wake up tomorrow morning and lean over to her multi-millionaire husband and say, "Honey do you know where in the world I put the Depends?" Oops, scratch that, I meant she would say "Honey, you know the world depends on us to do the right thing. I think I will stop the Fed from meddling in things and let the economy achieve a natural balance." If she did that, would we be alright? No, not at all because other central banks have to stop too. We are at ZIPR but the EU is at NIRP (which unfortunately is Negative IRP and not No IRP). Indeed, the financial shenanigans banks and corporations use to generate financial bubbles are now increasingly taking place in Europe where credit is even cheaper. So even if Janet and all the other Feds wake up with a dose of common sense, the bubble still cometh.
So time to prepare yourself - if you have not already - for the storm that looms folks. It is coming. I do not know what Lehman Brothers pin is out there this time to pop it, but it is there. The market knows it and has been trading sideways for four months. Perhaps its time to move to Iceland. Or maybe its time to move to Russia - I kid you not:
http://globaleconomicanalysis.blogspot.com/2015/04/russia-forced-to-do-right-thing-buy.html
It would appear that Russia is actually allowing free market forces to dictate for a change and it may be working. Wouldn't that be precious - Russia mastering capitalism better than the U.S. Put that in your трубка and smoke it Bernanke.
Monday, April 6, 2015
If You Think The Last One Was Ugly . . .
I will post more on this later, but for a nice macroeconomic overview of where we are today and how we got here, I highly recommend the following article to your reading pleasure:
http://seekingalpha.com/article/3053346-meet-the-new-recession-cycle-its-triggered-by-bursting-bubbles-not-surging-inflation
http://seekingalpha.com/article/3053346-meet-the-new-recession-cycle-its-triggered-by-bursting-bubbles-not-surging-inflation
Sunday, April 5, 2015
ECB Putten Der QE Into Der EU - das ist gut?
Bloomberg notes that the ECB plans for $1.1T QE in the EU are certainly fueling an already booming German economy:
http://www.bloomberg.com/news/articles/2015-03-29/german-economy-finds-new-fuel-as-it-reaps-benefits-of-draghi-qe
The German economy is hitting on all fours and the future looks bright. Unemployment is at record lows, the DAX is skyrocketing (Index up 23% this year), consumer spending is on the rise, exchange rates are good and every thing is just dandy. Add in a little QE and ya, das ist gut. There is that little Greece thingy, but relatively speaking Greece is economically a small country. Of course it is part of the broader based PIIGS problem, which is part of the broader EU structural problem, which is part of the global economy problem, but Germany is immune to all that. Und ya, deflation is behind it too. After two months of deflation it showed .1% inflation. Yeah!
One instigator for all this glowing success is likely the exchange rate with the U.S., it's number two trading partner after France. Yet that might not continue be the benefit one would think. I have not seen anything yet on the U.S. trade deficit shrinking in terms of what that means to Germany and the rest of the EU, but it has to mean something. Imports in the U.S. were down over $10B in February, which is over 4%. That is not a small drop, though one month does not a trend make. The point being, however, that it will be exceedingly difficult for Germany to continue doing well when its trading partners generally are on the brink of a recession - if not already in one. And last I checked, Germany's number one trading partner France, was not exactly booming - unless you like Zombies:
http://www.businessinsider.com/frances-zombie-economy-is-missing-out-on-europes-recovery-2015-3
I have little doubt Germany will have a wonderful 2015, especially benefiting more than most from the QE in the EU and that comparatively speaking it will continue to do better than the rest of the EU and most other countries as it has its fiscal house in pretty good order, but the DAX at levels 50% above the records set 2007 is unrealistic and likely due to there being no place else for a lot of people to put their money. Und das ain't gut.
http://www.bloomberg.com/news/articles/2015-03-29/german-economy-finds-new-fuel-as-it-reaps-benefits-of-draghi-qe
The German economy is hitting on all fours and the future looks bright. Unemployment is at record lows, the DAX is skyrocketing (Index up 23% this year), consumer spending is on the rise, exchange rates are good and every thing is just dandy. Add in a little QE and ya, das ist gut. There is that little Greece thingy, but relatively speaking Greece is economically a small country. Of course it is part of the broader based PIIGS problem, which is part of the broader EU structural problem, which is part of the global economy problem, but Germany is immune to all that. Und ya, deflation is behind it too. After two months of deflation it showed .1% inflation. Yeah!
One instigator for all this glowing success is likely the exchange rate with the U.S., it's number two trading partner after France. Yet that might not continue be the benefit one would think. I have not seen anything yet on the U.S. trade deficit shrinking in terms of what that means to Germany and the rest of the EU, but it has to mean something. Imports in the U.S. were down over $10B in February, which is over 4%. That is not a small drop, though one month does not a trend make. The point being, however, that it will be exceedingly difficult for Germany to continue doing well when its trading partners generally are on the brink of a recession - if not already in one. And last I checked, Germany's number one trading partner France, was not exactly booming - unless you like Zombies:
http://www.businessinsider.com/frances-zombie-economy-is-missing-out-on-europes-recovery-2015-3
I have little doubt Germany will have a wonderful 2015, especially benefiting more than most from the QE in the EU and that comparatively speaking it will continue to do better than the rest of the EU and most other countries as it has its fiscal house in pretty good order, but the DAX at levels 50% above the records set 2007 is unrealistic and likely due to there being no place else for a lot of people to put their money. Und das ain't gut.
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