The Fabled Greek Mega-Bailout
Guest post by Azizonomics.
In a truly eyebrow-raising CNBC interview, Matthew Lynn alleges that Europe shall be saved! (As if by the grace of God!).
With Europe on the brink yet again Germany will act.
The Greeks can’t carry on with the austerity being imposed on them. No country can be expected to endure annualized falls in GDP of 7 percent or more,” he said, “and 50 percent youth unemployment for years on end.
On Tuesday we learned that the Greek economy shrank by another 6.2 percent in the latest quarter. It simply isn’t acceptable” Lynn said.
But Germany and the rest of the EU could come up with a Marshall Aid-style package for Greece. Very little of the bail-out money so far has gone to the Greeks. It has all gone to the bankers.
Forget talk of a ‘Grexit’. There will be a mega-bail-out—a ‘Grashall Plan’—instead.
And when it happens, the markets will rally on the news.
Who else would publish this? (That’s a redundant question — who else, besides J.P. Morgan and maybe a few government agencies, wouldn’t have fired Jim Cramer after what he said about Bear Stearns?)
Time for another Fed Twist?
Guest post by Doug Short.
We’re well into our sixth month since the latest Federal Reserve intervention, Operation Twist, was officially announced on September 21. We’ve now seen several bouts of aggressive Fed attempts to manage the economy following the collapse of the two Bear Stearns hedge funds in mid-2007 about three month before the all-time high in the S&P 500.
Initially the Fed Funds Rate (FFR) underwent a series of cuts, and with the collapse of Bear Stearns, the Fed launched a veritable alphabet soup of tactical strategies intended to stave off economic disaster: PDCF, TALF, TARP, etc. But shortly after the Lehman bankruptcy filing, the Fed really swung into high gear. The FFR fell off a cliff and soon bounced in the lower half of the 0 to 0.25% ZIRP (Zero Interest Rate Policy). The thud to the FFR bottom coincided with the first of two rounds of quantitative easing in an effort to promote increased lending and liquidity.
If a picture is worth a thousand words, this chart needs little additional explanation — except perhaps for those who are puzzled by the Jackson Hole callout. The reference is to Chairman Bernanke’s speech at the Fed’s 2010 annual symposium in Jackson Hole, Wyoming. Bernanke strongly hinted about the forthcoming Federal Reserve intervention that was subsequently initiated in November of 2010, namely, the second round of quantitative easing, aka QE2.
Eurozone crisis explained
The Eurozone crisis continues, despite some countries celebrating holidays. The Greek situation is reaching absurdity, and the blame game is about to start. The ECB has been throwing good capital after bad capital. On the other side of the Med, we are getting reports that people are withdrawing massive amounts of cash from Bankia. The stock is getting creamed, down some 10% today. What is going on in Europe?
The Eurozone crisis video for dummies below, a breakdown of the European debt situation, starting with Greece and consuming the entire continent.
Inside the CPI
Guest post by Doug Short.
The Fed justified the previous round of quantitative easing “to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate” (full text). In effect, the Fed has been trying to increase inflation, operating at the macro level. But what does an increase in inflation mean at the micro level — specifically to your household?
Let’s do some analysis of the Consumer Price Index, the best known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart below illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U, which I’ll refer to hereafter as the CPI.
Is Gold a Good Investment?
Guest post by Gresham’s Law.
Even though gold has already enjoyed an 11-year bull run we still think that it’s a good investment. Here we present a few charts that suggest that the current gold price is actually quite cheap!
There are three simple (but apparently elusive) charts that indicate the cheap valuation placed upon gold at present. [Note: We'll be updating these charts every week so that you can track their progression over time.]
Chart 1: What Percentage of Each Federal Reserve Note is Backed By Gold?
JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking
The JPM news are getting a lot of attention today. Some smart, other less smart comments. A few clever thoughts from Simon Johnson.
Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster. But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.
In the light of JP Morgan’s stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model. But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.
The Pain in Spain: A Turn for the Worse
Guest post by Dough Short.
Last month I posted an overlay of Spain’s benchmark index, the IBEX 35 and the S&P 500. Today’s news that the Spanish 10-year yield closed north of 6% prompted me to take another look at the IBEX. The index closed the day with a loss of 2.77%, setting a new low, 57.28% off its 2007 high — fractionally below the -57.25% trough on March 9, 2009.
Here is an update of the overlay.
Sell in May
Biderman on the sell in May theory. It was proven right in 2011 and 2010. Is this time different?
In 2010 the US stock market peaked at the end of April and then sold off until the Fed announced QE2 several months later. In 2011 the stock market peaked at the end of April and sold off until the Fed announced Operation Twist several months later.
This will be the third year in a row that stocks have started selling off in May. I predict the drop will continue until the Fed announces the next version of stock market stimulus; probably in August at the Fed’s Yellowstone confab.
Why stock prices did not peak at the end of this April was that in April 2010 and April 2011 there were decent inflows into US equity mutual funds and US ETFs. This April there were outflows not inflows from both US equity mutual and Exchange Traded Funds.
Remember all there is in the stock market are shares of stock, 80% of all stock being owned by intermediaries such as mutual, exchange traded, pension and hedge funds. Since the start of October, which was right after the FED announced operation Twist, stocks are up by 25% or so. Video below.
Bernanke Isolated!?
Is Bernanke losing it? To QE (more) or not to QE, to raise or not to raise are the next questions the Fed must adress, but there is a small problem, Bernanke is slowly losing his friends. That could be a huge issue going forward. Bernanke looks increasingly isolated, and that is not good for stability. More on this via the Atlantic.
Behind every great president stands a great central banker. Ronald Reagan had Paul Volcker. Dwight Eisenhower had William McChesney Martin. And FDR had, well, FDR.
Grant Williams on firewalls, central banks and much more in the latest things that makes you go hmmm
Another must read by Grant Williams
“But what about the Maginot Line?” I hear you cry… Well, the German army found a slightly simpler solution to that particular ‘impregnable defense’; they attacked France through Luxem- bourg and then Belgium, completely bypassing the main part of the Maginot Line – thus render- ing it virtually useless.
That’s the problem with firewalls, you see; they ALWAYS seem as though they provide a solution to the problem they are built to mitigate but they rarely do.
Since 2008, the Central Banks of the world along with their respective govern- ments have been moving heaven and earth to put in place the kind of firewalls that will protect the world from a ‘collapse of the system’ – even though we literally have no idea just what that ‘collapse’ would look like or entail.
Quantitative Easing, TARP, HAMP, LTRO I & II, Ba- sel III and all sorts of other schemes have been dreamt up by those in power in order to protect the world from something that is, essentially, unavoidable; the after-effects of two decades spent bingeing on debt and free money. And what has been the single most often-used solu- tion employed in the treatment of this particular problem? Yes, more free money.
Let’s be clear, printing money out of thin air CANNOT fix this. If it COULD, then why not just give everybody in the world $10,000,000 in cold, hard cash and we can all go about our business? The question is redundant. The answer obvious. But that hasn’t stopped the Keynesian geniuses at the wheel from persisting down this particular road for several years now in the misguided be- lief that just a LITTLE more free cash will finally get things flowing again.
It won’t.
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