On power, politics and scandals. Reuters reports,

Few have been accused of a violent crime like Strauss-Kahn. The world financier and French presidential hopeful was charged on Sunday with criminal sexual act, unlawful imprisonment and attempted rape in New York City after a hotel maid said she was assaulted.

“Politics and power and sexual harassment certainly have a long history,” said Michele Swers, associate professor of government at Georgetown University. “This being an attempted criminal rape is, I think, of an order of a different magnitude.”

“If their narcissism or egotism isn’t matched by a healthy dose of humility of what it means to be human … and they run on their intellect and don’t attend to their emotions on any level … then they are bound for trouble,” said Weiss.

http://www.reuters.com/article/2011/05/15/us-strausskahn-power-idUSTRE74E3QZ20110515

As commodities have been getting smacked around the last two weeks, we’ve been very keen to observer the vast outperformance by equities, even on days that they’re down as well.

Quite simply: Paper is beating rock.

Can that outperformance continue is a question that’s surely worth trillions of dollars to investors, and it’s the subject of the latest Viewpoints letter from Goldman Sachs’ Jim O’Neill. He writes:

Many market participants appear to have forgotten the days of the 1980’s and 1990’s where economic strength was not symbolized through rising commodity prices.  During that time, we had two decades of declining commodity prices and, while there were periods of recession, we experienced two decades of global economic expansion. Could such days ever return?

1. First, the sharp spike in commodities that has coincided with this latest round of global growth has created instability-causing inflation. It’s very plausible that recent weakness in some economies could be attributed to high oil and food prices.
2. Goldman’s own proprietary measure of Chinese economic strength has been flagging, and historically it’s lined up with commodity prices well, and at this point suggests further commodity downside.
3. If China’s 5-year plan is to be believed, the country’s oil consumption “will not grow even close” to the level that was projected for it back in 2004.

As it relates to the directional trend of equity markets, however, the last week’s events do draw me to a conclusion that if equities are to develop another leg into higher prices, it probably won’t be sustained if it is simply the result of commodity prices recovering. If commodity prices go straight back up, it will add renewed pressure to headline consumer prices in China and elsewhere, probably resulting in additional monetary tightening.
 
If commodity prices don’t move back up, one of the beneficial consequences is that it will make it probable that a number of central banks won’t need to tighten as much as otherwise, possibly not at all, including China and maybe also the ECB. It is interesting that ECB President Trichet didn’t utter the magical phrase “strong vigilance “at this week’s press conference.
 
Can equity markets rally without leadership of commodity companies and prices? Of course they can, but I shall leave the sectors most likely to all of you to ponder.

It seems commodities down is now a good sign. Welcome to permabull world.
http://www.businessinsider.com/jim-oneill-can-equities-rally-without-commodities-2011-5#ixzz1MV27t3GV

What if…?

“People would have a truer gauge of the economy’s performance if the government provided what he calls “structural” GDP, which does not include debt-financed consumption. Currently, per capita GDP in the U.S. is not far off an all-time high. But excluding deficit spending, the real number is 10 per cent below the peak reached in 2007. Indeed, it has fallen back to levels not seen since 1998.

“If structural GDP fails to grow as a consequence of our deficits, then deficit-spending has failed in its sole and singular purpose,” he says. “What we find is that this recession is horrific.” (theglobeandmail)

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/taking-stock/why-the-us-gdp-number-may-be-as-bogus-as-a-three-dollar-bill/article2022944/

Enjoy this must see video. Great insight featuring among others Mr Celente from Trends Journal. Full video, click the link at the bottom.

We just released ‘College Conspiracy’ a day early so that NIA members can see the movie before we issue our press release tomorrow morning to not just the nationwide education news wire, but to thousands of college administrators and education journalists through two special education microlists.

We need to get millions of people to watch ‘College Conspiracy’ if we are going to expose what we believe is the largest scam in U.S. history! NIA is the most pro-education organization in the world, but the college bubble we have today is destroying the lives of millions of Americans who deserve to be receiving a much higher quality of education for only a fraction of the cost.

As you watch this documentary, we hope that you notice and appreciate the quality of work that we put into it. We hired one of the best Hollywood animators and a famous Hollywood narrator to help make this movie our most impressive and professional documentary of all time. It took us three months just to write the script, which used many of the ideas that were submitted to us by NIA members.

We would like to give our most sincere thank you to the thousands of NIA members who emailed us suggestions of topics to cover and expert guests to interview!

‘College Conspiracy’ is going to open up the minds of millions of students who have been brainwashed their entire lives by the propaganda in the mainstream media. We are a nation of sheep, where nobody thinks for themselves and everybody follows the same system. The system we have today turns everybody into debt slaves, while the Federal Reserve allows bankers on Wall Street to steal the wealth of middle-class Americans through inflation.

Now is the time for all young Americans to think outside of the box and become self-educated. Don’t rely on others to provide jobs for you. Go out there and make a job yourself!

http://inflation.us/videos.html

Will Greece’s bail out money, scheduled to be discussed this weekend, fail due to Aphrodite striking? IMF’s comments on the Strauss news;

Ms. Caroline Atkinson, Director of External Relations at the International Monetary Fund (IMF), issued the following statement today:

“IMF Managing Director Strauss-Kahn was arrested in New York City. Mr. Strauss-Kahn has retained legal counsel, and the IMF has no comment on the case; all inquiries will be referred to his personal lawyer and to the local authorities.

“The IMF remains fully functioning and operational.”

Could the Strauss arrest lead to a tougher stance from IMF on bail outs in Europe?

“He has been the IMF chief most committed to European integration and most actively involved in the European debate,” Pisani-Ferry said. “He strongly believes that Europe has to follow the logic of monetary union and build a political union.”

Strauss-Kahn has repeatedly urged the EU to take a bolder, more comprehensive approach to its debt challenge, warning that its piecemeal approach to crisis management was behind the curve and was not working.

In private, he has made clear his support for issuing common euro zone bonds — vehemently opposed by Germany — to reduce the prohibitive borrowing costs of weaker peripheral European states, in return for stronger EU-supervised economic reforms. (Reuters)

Let’s see this development further. Without Strauss, Lipsky will take temporary charge, but we doubt any significant decisions will be made, prior to Strauss situation getting clarification. This black Swan, was not on the risk manager’s desktop for simulation. Look out for some volatility when trading starts.

Some reactions to the Strauss news, from Reuters;

HERVE MORIN, FORMER Defense MINISTER, PRESIDENT NEW Center PARTY

“I’m not a socialist, he is not my political friend, but despite that I call for the presumption of innocence. I will not take part in the witch hunt, with the dogs that are barking and those spreading rumors and saying ‘I told you so’.”

FRANCOIS BAROIN, FRENCH GOVERNMENT SPOKESMAN

“We have to be extremely prudent in analysis, comments and consequences. The position of the French government respects two principles: a legal process under the authority of American justice … and the respect of the presumption of innocence.”

MARTINE AUBRY, SOCIALIST PARTY LEADER

“The news we received from New York last night struck like a thunderbolt. I call on the Socialists to stay united and reasonable.

“I urge that we wait for the facts, respect the presumption of innocence and to maintain the necessary decency.”

FRANCOIS HOLLANDE, CANDIDATE FOR SOCIALIST PARTY PRIMARY

“I’m flabbergasted, It’s terrible news. There is a charge, but it’s not proof of guilt. We have to react with emotion … but also with reserve.

“It doesn’t resemble the man I know. The sooner justice intervenes, the earlier it will be better for him, the institution he represents and for all of us.”

CHRISTINE BOUTIN, PRESIDENT OF CHRISTIAN DEMOCRAT PARTY

“Do you realize the image of France in all this? It’s no longer possible for DSK (Strauss-Kahn).”

JEAN-CHRISTOPHE CAMBADELIS, STRAUSS-KAHN ALLY

“At this time, I neither want to nor can draw hasty conclusions about the charges against Dominique Strauss-Kahn. This whole story does not resemble him. (He) will soon be able to speak and defend himself.”

http://www.reuters.com/article/2011/05/15/us-strausskahn-reaction-idUSTRE74E0YQ20110515

Interview with Trichet in today’s El Pais. Translated for our readers with Google,

Amid the worst crisis in the eurozone since its inception, with three rescued countries, large market pressures and even speculation about a possible restructuring of debt in Greece, Eurobank governor considered “absurd” the idea that any country to abandon the euro and defends the reform momentum in Spain.
Set in a major European figures in the endless crisis management of the euro, Jean-Claude Trichet (Lyon, 1942) faces his last months at the helm of the European Central Bank (ECB) in fiscal fire igniting even in Greece, Ireland and Portugal, and who knows if in some countries. Germany and northern Europe grow rapidly, but the periphery suffers. And the crisis has exposed a cacophony of voices very harmful to the eurozone, a chorus that sticks sanity, Trichet’s firm tone: “The fiscal situation in the euro area as a whole is much better than the U.S. Japan. The paradox is that some countries have a very bad situation that requires heavy adjustments. “ Affable, calm in difficult circumstances and with great prestige in the academy and in the salons of international policy, Trichet is “absurd” the idea that one country-Greece-could leave the euro. Remains committed to rule out a debt restructuring in countries with problems: the new Greece. And it calls for strict adherence to set plans, not only in Greece: “Spain has done much, but much remains to be done,” she warns.

Full translated interview,

trichet

Euro misery continues….The index measures, unemployment plus inflation. We see that not one Euro country has improved in terms of misery index (for improvement you have to be to the right of the 45 degree line).

European fiscal austerity is killing  demand, raising inflation and producing more unemployment. Average Joe in Europe feels this (not to mention the filling up the tank experience). The European consumer is still overly indebted, while the Us consumer has deleveraged somewhat. Unless Us unemployment falls, Us will be visiting the euro club soon, ie moving to the left on the chart. Welcome to Misery.

Chart, Eurostat

After reading the allegations of Mr Strauss, let’s return to the debt ceiling for a moment. Mr Geithner sent another letter explaining the catastrophic consequences of not raising the debt ceiling, this time to senator Bennet. Geithner delivers this within a day from Druckemiller’s interview we posted yesterday, Must read interview; What if US Defaults?-Druckenmiller.

U.S. Treasury Secretary Timothy F. Geithner said a default arising from failing to raise the debt limit could cause “irrevocable damage” to the economy, risk a “double-dip” recession and increase unemployment.

“Default would not only increase borrowing costs for the federal government, but also for families, businesses and local governments — reducing investment and job creation throughout the economy,” Geithner said in a letter dated yesterday to Senator Michael Bennet, a Colorado Democrat.

Failing to raise the $14.29 trillion debt ceiling would “force the United States to default” on obligations such as payments to service members, citizens, investors and businesses, Geithner wrote. “This would be an unprecedented event in American history. A default would inflict catastrophic, far- reaching damage on our nation’s economy, significantly reducing growth and increasing unemployment.” (Bloomberg)

http://www.bloomberg.com/news/2011-05-14/damage-from-defaulting-on-debt-would-be-irrevocable-geithner-tells-bennet.html

From the letter to Bennet;

Full letter below,

bennet letter

The might Strauss has been accused of rape. The same guy is bailing out Greece and other Euro countries. What could possibly go wrong then, if the allegations are true?

You can certainly kiss that SDR goodbye.

International Monetary Fund director Dominique Strauss-Kahn (left) calls for new world currency … Dominique Strauss-Kahn, managing director of the International Monetary Fund, has called for a new world currency that would challenge the dominance of the dollar and protect against future financial instability … “Global imbalances are back, with issues that worried us before the crisis – large and volatile capital flows, exchange rate pressures, rapidly growing excess reserves – on the front burner once again,” Strauss-Kahn said … “Using the SDR to price global trade and denominate financial assets would provide a buffer from exchange rate volatility,” Strauss-Kahn said, while “issuing SDR-denominated bonds could create a potentially new class of reserve assets.” – UK Telegraph

Once again, if proven guilty, powerful and mighty men have a total dislocation from justice and normal people. For those who have been around for more than last two years, Mr Strauss had a peculiar situation 2008. In the middle of the 2008 financial crisis, where the world was about to implode, Mr Strauss was busy giving special treatments;

A sex scandal is sweeping the International Monetary Fund at a time when it should be fully occupied with the global financial crisis.

IMF chief Dominique Strauss-Kahn is under investigation for allegedly abusing his position after having a sexual relationship with a blonde employee who left with a payoff in August.

The inquiry will consider claims that the 59-year-old former French finance minister gave Piroska Nagy ‘special treatment’. (Daily Mail)

Who is going to lead the bail out of the Eurozone, if Mr Strauss goes to jail? Could this start the real sell off in Euro, then spread to Silver, oil and start the sell off in equities. This mini swan was not in the risk matrixes. Risk off,  baby.

http://www.nytimes.com/2011/05/15/nyregion/imf-head-is-arrested-and-accused-of-sexual-attack.html?_r=1&hp