Tonight’s BLOG POSTING WILL BE THE LAST FOR TWO WEEKS AS I HEAD OFF TO THE LAND OF THE RISING SUN. MY SUGGESTION IS TO GET LONG VOL AS MARKET ACTION ALWAYS INCREASES WHEN I TAKE AN EXTENDED LEAVE (just giving you the ultimate economic and trading indicator.)
Besides, as long-time readers of this blog are aware, I have written about the EUROPEAN CRISIS in detail since December 2009. Many of the things that I have written about are now here in full force and it is Spain, not Italy, that stands to call the question on the entire European PROJECT.
German SOVEREIGN DEBT IS TRADING AT RECORD LOWS AS THE NEED FOR GOOD COLLATERAL AND A SAFE HAVEN COMBINE TO PUT A PREMIUM BID TO THE ECONOMIC LOCOMOTIVE OF EUROPE. Remember, the GLOBAL DEBT MARKETS ARE DEPENDENT ON QUALITY COLLATERAL AS THE GREASE THAT SUSTAINS THE REPO MARKET. Some investors fail to understand the workings of the DEBT markets and that is a costly mistake.
U.S. GOVERNMENT BONDS ARE ALSO BENEFITING FROM COLLATERAL DEMAND AS IS SWISS, UK, JAPAN and a few others. Markets are very nervous as the global economy slows, EUROPE is imploding and the CENTRAL BANKS HAVE FURTHER DISTORTED BOND PRICES THROUGH LTRO AND OTHER QE METHODOLOGIES. These are very difficult times to try to accurately price RISK.
***Friday’s unemployment number was much weaker than consensus and this led to a dramatic selloff in the EQUITY MARKETS. Not all markets performed in line with the classic risk-off scenario as the EURO RALLIED AND THE GOLD PUT ON A VERY POWERFUL RALLY. The GOLD did lead the way as investors searched for alternative HAVENS to BONDS and the DOLLAR as tension builds on risk assets. Some investors are certain that the WORLD’S CENTRAL BANKS are going to panic and initiate some new type of STIMULUS IN AN EFFORT TO PREVENT THE IMPLOSION OF THE GLOBAL ECONOMY.
The world is nervous as there is no economy growing enough to stimulate the EUROPEAN economy, especially with the U.S. slowing and Japan remaining stagnant. The lack growth in other regions is what makes the DEVELOPED ECONOMIES A POTENTIAL DISASTER. With no growth leaders it is getting tougher to muddle through like the Japanese have previously been able to do. It is beginning to look like Bernanke’s most-feared 1937 predicament. Again, the world will look to Ben Bernanke to see what the ’37er has left in the tool box.
***Two of the best known commentators on the European situation were out with dire prognoses about the present situation. Joschka Fischer and George Soros provided timelines for Europe and the collapse of the EU project.
Fischer, the German foreign minister in the Schroeder cabinet is a very sound voice on Europe (look beyond his past in the Baader-Meinhof gang) and he is quoted in an Ambrose Evans-Pritchard article over the weekend, warning that the EU and the EURO may have a two-week window in which to come up with a major plan for fiscal harmony and some massive financial injection to prevent a financial calamity. Also, George Soros conjectures that the EU and global policymakers have a THREE-MONTH window in which to come up with a plan to prevent the implosion of the EU ECONOMY.
Two powerful voices and advisors to the powers that be are raising the temperature on the perilous state of Europe and thus the global economy. The world will turn its eyes to Ben Bernanke to motivate the ECB and others to prevent a rerun of 1937. Remember BEN, YOU PROMISED MILTON FRIEDMAN THAT YOU WOULD NOT ALLOW A REPEAT OF THE ERRORS OF 1937.
***The Irish referendum on the EU bailout and austerity measures was passed by a wide margin of 60/40. This is the best indication that indebted nations are fearful of going it alone and need the ECB and EFSF to provide all possible support to at least provide some immediate relief from the deflationary threat that is haunting the European periphery. The IRISH VOTE puts even greater pressure on the EU policy elite to answer the call of fiscal and monetary support for the DEBT-STRESSED EU ECONOMIES.
THE EUROPEAN REDEMPTION FUND APPEARS TO BE A GOLDEN OPPORTUNITY NOT TO BE MISSED. Again, all of the present problems have been festering for a long time. The longer the failure to act, the larger the response. DON’T KNOW WHEN BUT AN OVERWHELMING RESPONSE IS COMING. TOO MANY EGOS HAVE PLACED THEIR LIFE’S WORK ON THIS PROJECT. DAVOS IS THE METAPHOR FOR FAILED EU POLICIES … IT’S ALL DOWNHILL.
Tags: Ben Bernanke, central banks, collateral, Dollar, ECB, European Crisis, George Soros, Gold, Japan
June 3, 2012 at 10:06 pm |
have a great trip- say hi to Toby.
June 4, 2012 at 3:13 am |
Drunken sailor antics over 30 years cannot be cured by plying the mariner with more hootch. Monetary policy will not prevent a massive headache despite Ben’s unproven and mistaken theories that sounded good in his western New Jersey campus a decade ago. Deleveraging will continue and if accompanied by restructuring, writeoffs, and policies that promote investment and growth will act as a an effective ameliorating bromide. This is opposed to the misdirected policies of the last two chairmen of the almost 100 year old group that was born in the shadow of the 1907 panic and has never proven to be effective over extended periods.The markets are bigger than all of the Gutenberg monetary enthusiasts. I’m afraid that pain is unavoidable and an extended uncomfortable sleep will be required of our misbehaved shipmate.
June 4, 2012 at 9:37 am |
Have a great trip Yra, thanks as always for sharing your thoughts.
June 4, 2012 at 9:42 am |
While I am at it, quick question if you haven’t skipped town yet… Regarding gold, are you in the “physical only” camp due to counterparty/derivative risk or do you think the paper representations are ok (/GC and GLD)? Opinions of gold stocks vs. gold? Thanks.
June 4, 2012 at 10:47 am |
Old pirates, yes, they rob i;
Sold I to the merchant ships,
Minutes after they took i
From the bottomless pit.
have a good trip Yra!