Number of the Week: More Stress, More Physical Euros

"9.7%: Euros in circulation as a percentage of euro area M2
Let’s say you lived in a European country where there the possibility of a euro exit was becoming less remote by the day.

Thinking that through, you might worry that the euros you have in the bank might suddenly be converted into a currency of uncertain value that we will call the lirchma. You might also worry about your ability to access your cash in any form, since your country’s financial institutions might have to shut down for a while as they tried to get clarity on what the new currency is worth, sort out contracts — and prevent a bank run from depositors rushing to pull their lirchma and convert them into euro.

It’s an exercise that might convince you to hold a few more cold, hard euros in cash.
And indeed, Europeans’ preference for cash in hand over cash in the bank seems to be growing. In September, currency in circulation accounted for 9.7% of euro area M2 — a money supply category that also includes close substitutes for money such as savings accounts, checking deposits and retail money market funds. That is up from 8.9% at the start of 2009.

The other thing to do if you were worried about your country exiting the euro would be to put your money in another country. There’s some of that going on as well."

at http://blogs.wsj.com/economics/2011/11/19/number-of-the-week-more-stress-more-physical-euros/?mod=WSJBlog

Either the ECB Prints and Germany Walks… or the EU Sees a Domino Debt Collapse Followed by Systemic Failure

"By now, even the mainstream media is realizing what I’ve been saying for well over a year: that the EU in its current form is finished.

I initially believed that we would see Greece kicked out of the EU. However, at this point it looks much more likely that it will be GERMANY who leaves.

The reason is quite simple really. Germany WILL NOT tolerate debt monetization. They’ve seen how that situation plays out (Weimar) and will not allow it again, END OF STORY. If the ECB opts to print money, Germany is out.

So… the only other option for the EU to last is the leveraged EFSF. However, as we’ve seen, that option is a dead end as well:

No new Euro zone money for debt crisis at G20

The Euro zone won verbal support but no new money at a G20 summit on Friday for its tortured efforts to overcome a sovereign debt crisis, while Italy was effectively placed under IMF supervision.

Leaders of the world's major economies, meeting on the French Riviera, told Europe to sort out its own problems and deferred until next year any move to provide more crisis-fighting resources to the International Monetary Fund.

"There are hardly any countries here which said they were ready to go along with the EFSF (Euro zone rescue fund)," German Chancellor Angela Merkel told a news conference...."

at http://www.zerohedge.com/contributed/either-ecb-prints-and-germany-walks%E2%80%A6-or-eu-sees-domino-debt-collapse-followed-systemic-f

US Corporate Taxes As a Percent of Corporate Profits



US Corporate Taxes as a Percent of Corporate Profits

at http://jessescrossroadscafe.blogspot.com/2011/11/us-corporate-taxes-as-percent-of.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

ECRI Weekly Leading Index: November 18 2011

"The latest release of the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index weakened slightly falling to 121.8 from last week resulting in the all important annualized “growth” component showing a value of -7.9 and continuing suggest a recession call on the part of the ECRI’s economics staff .

The chart above shows the ECRI’s Weekly Leading Index growth component since 2001.

Notice that this index has turned notably negative which, along with an erosion in many other key macro-economic series, appears to be signaling that the probability of recession is high."

at http://paper-money.blogspot.com/2011/11/ecri-weekly-leading-index-november-18.html

London Stock Exchange Becomes Lender of Last Resort to Italian Banks

"The New York Times DealBook reports Banks in Italy Find an Unusual Liquidity Lifeline

The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market.

With cash increasingly hard to come by, Italy’s banks are turning to CC&G, the exchange’s Italian clearinghouse, for short-term lending. That includes some of the country’s largest financial institutions, including Unicredit and Mediobanca, according to a person close to the situation.

While just two banks received short-term capital from CC&G in 2009, that number has now risen to 15 — half of them Italian and the rest European financial institutions that trade in the country.

The money, which comes from collateral that traders must put up to complete financial transactions, is deposited with the banks to cover shortfalls in liquidity. CC&G earns a profit by charging banks interest on the money that they borrow..."

at  http://globaleconomicanalysis.blogspot.com/2011/11/london-stock-exchange-becomes-lender-of.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Leading Indicators or Statistical Noise?

"Inquiring minds are digging into the touted numbers of the day, the conference board index of leading indicators.

Index of Leading Indicators

Leading Indicator Contribution	May	June	July	Aug	Sep	Oct
Average Weekly Hours Manufacturing	+.00	+.00	+.00	-.07	+.00	+.13
Average Weekly Initial Claims	+.04	+.00	+.14	-.02	-.03	+.08
Manufacturers' New Orders, Consumer Goods and Materials	-.01	+.00	+.13	-.11	-.03	+.01
Index of Supplier Deliveries	-.32	+.04	-.42	+.01	+.06	-.01
Manufacturers' New Orders, Nondefense Capital Goods	+.10	-.05	+.07	+.10	-.04	+.01
Building Permits, New Private Housing Units	+.21	+.03	-.07	+.10	-.16	+.27
S&P 500 Stock Market Index	+.02	-.14	+.11	-.41	.0.4	+.10
M2 Money Supply	+.13	+.35	+.59	+.71	+.10	+.10
Interest Rate Spread, 10-Year Treasury Bonds Less Federal Funds	+.32	+.31	+.31	+.23	+.20	+.22
Index of Consumer Expectations	+.23	-.14	-.26	-.25	+.06	+.07

Month in, month out, one of the biggest leading indicator components is the treasury-Fed Funds Rate spread.One might think that the direction of the spread would be important, but one would think wrong. Month-after-month, the conference board woodenly add points to this leading index component.

In these zero-bound conditions, I suggest using the direction of the 10-year rate itself would make more sense, with a falling rate an indication of weakness.

Is the stock market a leading indicator or a coincident index of stock market sentiment? If it was leading, what did it say at the 2007 stock market peak? What dis it say at the March 2009 stock market bottom?

The idea the stock market leads the economy is complete nonsense. It is coincident at best, and lagging at worst.

Building permits are a leading indicator, but most of this month's rise is a rebound from last month's bleak report.

The average workweek hours for the last 7 months have been 41.4 41.4 41.4 41.4 41.3 41.3 41.5

Is that meaningful? The conference board seams to think so. I think it is random noise until there is a clear trend.

Is M2 money supply a reflection of capital flight out of Europe? A reflection of excess reserves parked at the Fed? Flight of money into savings accounts from CDs that yield nothing? All of the above?

My conclusion is a couple indicators are better, the rest is meaningless noise or worse yet, biased nonsense..."

at http://globaleconomicanalysis.blogspot.com/2011/11/leading-indicators-or-statistical-noise.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

John Williams - GDP is a nonsense Number

"John Williams of the Shadow Stats on the Financial Sense NewsHour Nov/15/2011 : Third quarter GDP numbers have no relation to reality. John believes unemployment hasn’t really recovered from the 2001 Recession. GDP is a nonsense number. It is a worthless number in terms of having any meaning in terms of the economy. Heavily politicized, very heavily modeled. They use extremly low rates of inflation. That number could easily be negative as well as positive John Williams of Shadow Stats says..."

at http://marcfaberchannel.blogspot.com/2011/11/john-williams-gdp-is-nonsense-number.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29

“Germany is the core, everything else is secondary”

"The Wall Street Journal’s Matt Phillips describes the turmoil in European sovereign bond markets. He says some traders tell him that they now consider countries like France a part of the periphery and are pricing it as such. This risk-off sentiment has spread throughout the euro zone to countries like Finland which is the only country in the euro zone except Luxembourg which is both AAA-rated and meets all of the Maastricht Treaty requirements.

In the companion video below, the Wall Street Journal also discusses the Spanish and French auctions from earlier today. The Spanish were forced to accept yields of almost 7% for 10-year monry. That is unsustainable. Moreover, Spanish bonds sold off in the aftermath of this weak result. The question everyone is asking, therefore, is how much longer will this last – and who will be the buyer of last resort?

All of this turmoil has made its way into the credit markets, turning the sovereign debt crisis into a credit crisis. Credit is contracting in places like Italy or throughout the entire European leveraged loan market..."

at http://www.creditwritedowns.com/2011/11/germany-is-the-core-everything-else-is-secondary.html

IS THE USA BECOMING JAPAN?

"We have written in the past about the current state of the U.S. economy and why, in so many ways, we are following down the same path that Japan begin some 2 decades ago.

Yesterday, “Munk Debates” fostered a debate between David Rosenberg and Paul Krugman who voiced opinions for the “Japan Syndrome” versus Ian Bremmer and Larry Summers on the opposition.

You can skip to about 29 minutes for the debate to actually start. The first four opening remarks give you the broad concepts and from there you can decide – are we becoming Japan or not..."

at http://pragcap.com/is-the-usa-becoming-japan

Official Denial Signals Spanish Bailout Imminent; Dreadful Result in Spanish Bond Auction, 6.975% Yield on 10-Year Debt; Merkel says "ECB Cannot Solve Euro Crisis"

"The ECB stepped into the fray once again today but the the results of the Spanish debt auction today speak for themselves. The rate on 10-year bonds is close to touching the 7% mark.

The BBC reports on the "Dreadful Result"..."

at http://globaleconomicanalysis.blogspot.com/2011/11/official-denial-signals-spanish-bailout.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Now That Greece Has Defaulted, the Default Dominos Are Coming Fast

"Now that Greece has defaulted (and it was a default) I believe that in the coming weeks we will see other PIIGS countries line up for defaults. Indeed, we are already seeing hints of this:

Portugal, Spain urge G20 members to help ease crisis

Spain and Portugal said on Saturday the euro zone's debt crisis is a global problem, calling on the United States and other G20 powers to help contain the fallout.

Spanish Prime Minister Jose Luis Rodriguez Zapatero urged the G20 countries least affected by the crisis to provide "urgent stimulus plans" to shield the global economy.

Europe's debt crisis looks set to dominate the summit of Group of 20 leading economies in France from Nov. 3-4.

http://www.reuters.com/article/2011/10/29/eurozone-g20-portugal-idUSN1E79S03020111029

Merkel: Must prevent others from seeking hair cuts

Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings..."

at http://www.zerohedge.com/contributed/now-greece-has-defaulted-default-dominos-are-coming-fast?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

Global Dollar Liquidity Freeze Leads To Pervasive Sell Off

"Just two charts confirming that we have entered a complete USD liquidity lock up, and that the global coordinated USD swap line rescue operation will be launched any minute: both the US FRA-OIS and the EUR Basis Swap are at multi year extremes. The entire dollar funding market is now at levels not seen since the Lehman collapse and is effectively frozen. Only this time it is much, much worse as never before has the global central bank cadre been assumed and implied to be backstopping the global liquidity cascade. Ex-out the implied backstop by the monetary authorities, and liquidity is now locked up more than ever in the history of capital markets. The liquidity crunch explains why everyone is liquidating the one asset that is performing best YTD to procure much needed dollars - gold..."

at http://www.zerohedge.com/news/global-dollar-liquidity-freeze-leads-pervasive-liquidations?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

Central banks cannot control where the funds flow

"Marc Faber : While central banks can inject fresh funds into the markets, they cannot control where the funds flow. Money printing has encouraged speculation on commodities whose prices have gone up faster than real demand in recent years.“Some people will benefit from money printing that deflates the purchasing power of currency ... but the middle and lower--income classes are being hurt,”

at http://marcfaberchannel.blogspot.com/2011/11/central-banks-cannot-control-where.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29

Central Banks: “Gold Is Money”

"No, you didn’t hear them actually say it. In fact, Bernanke says quite clearly “no” – gold is not money. But their actions speak much louder than words. The Financial Times reports that central bank gold buying is at a 40-year high. In other words, whereas central banks have primarily been net sellers of gold since the crash of the Bretton Woods system, they are now net buyers – and quite heavily so.

This is especially the case in rapidly growing economies such as the People’s Republic of China. So while European and American central banks are (still) selling gold and “investing” in paper currencies/fiat monies, the developing world is going heavy on what used to be the world accepted means of exchange. As the West goes down the tubes, the “new” economies are not only growing in terms of wealth and prosperity, but they are also adopting sound money. Meanwhile, we are getting rid of paper money for the sake of saving money – and replace it with digital ones and zeroes. (But at least we have “more money” than they do!)

So if we look to what central banks do and not to what they say, then Bernanke was quite obviously lying. In case anyone thought differently…"

at http://blog.mises.org/19274/central-banks-gold-is-money/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29

Nigel Farage: ‘Germany is dominating Europe’

"The well known eurosceptic Nigel Farage is having a field day over the sovereign debt crisis in the euro zone. Farage says that the EU lacks democratic legitimacy, a complaint heard ever more often during this crisis. He goes further, saying political puppets are being put into place right across the euro zone. He sees this as a demonstration of a "German-dominated Europe", something he believes the euro was supposed to prevent.
Video below (hat tip Bob)
My only comment in presenting this video is that this view will gain currency if German-sponsored plans for fiscal austerity in the periphery, followed by fiscal integration and penalties or exclusion are adopted going forward. And nationalism will be the central issue driving this view forward..."

at http://www.creditwritedowns.com/2011/11/nigel-farage-germany-is-dominating-europe.html

Italian default scenarios

"The most important debate of our lifetimes is now ongoing. For many, the answer will be existential. First, the question: Should the ECB “write the check’ for the euro area national governments? In thinking about the answer to this all-important question, I prefer to shift the focus by changing the verb “should” to “will”.
Answering this slightly different question is much more important than answering the first question for you as an investor, a business person and as a worker. If the ECB writes the check, the economic and market outcomes are vastly different than if they do not. Your personal outlook as an investor, business person or worker will change dramatically for decades to come based upon this one policy choice and how well-prepared for it you are. The right question to ask then is: Will the ECB “write the check’ for the euro area national governments?
To date, my answer to this question has been yes. See, for example, my thoughts on why questioning Italy’s solvency leads inevitably to monetisation and why Investors will buy Italian bonds after ECB monetisation. But what if the ECB doesn’t write the check? What if the ECB let’s Italy default, what then?..."

at http://www.nakedcapitalism.com/2011/11/italian-default-scenarios.html

Sovereign Debt Yields and Spreads Soar Everywhere: Belgium, France, Italy, Spain, Ireland; Major Problem List is Every Country but Germany; Belgium Spread Inverts Significantly

"The ECB, IMF, EMU, and EU are on the verge of multiple emergency meeting, if indeed meetings are not already underway. A quick check of the following bond spread tables and today's yield action will explain.

Across the board, yields and spreads widened significantly today. Note in particular the jump in the 2-year bond yield of Belgium.Also note the inverted spread situation for Belgium.

The spread to German 2-year bonds is 3.49 while the spread to 10-year bonds is 3.13..."

at  http://globaleconomicanalysis.blogspot.com/2011/11/sovereign-debt-yields-and-spreads-soar.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

European Government Bond Market "Frozen" says Bank of Italy Managing Director; ECB Steps in But Rally Fails to Hold

"An official for the Bank of Italy says Bonds Bids, Offers Show Government Bond Market "Frozen".

Spreads between bid and ask government bond prices indicate markets are “frozen,” said Franco Passacantando, Bank of Italy’s Managing Director for Central Banking, Markets and Payment System in Milan today.

The European Central Bank is “almost exclusively buying Spanish and Italian bonds,” he added.

ECB Steps in But Rally Fails to Hold

Yield on 10-Year Italian bonds opened above 7% for the second consecutive day but the ECB acting as buyer of only result stepped in to push the yield down to 6.75%. The rally failed to hold, and the 10-year Italian bond yield now sits at 6.95%.

Bloomberg reports Italian Yields at 7 Percent for Second Day as ECB Rally Fails to Hold..."

at http://globaleconomicanalysis.blogspot.com/2011/11/european-government-bond-market-frozen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

A Global View of the Housing Bubble

"Interesting chart from (of all places) McKinsey, circa October 2009:

“From 2000 through 2007, a remarkable run-up in global home prices occurred (see chart). But that trend has reversed abruptly. In 2008, the value of US residential real estate fell 10 percent; the global average fared only somewhat better, declining by almost 4 percent. We estimate that falling home prices erased more than $3.4 trillion of household wealth in 2008.”

The chart below reads to me as having regular cycles, oscillating within a range. But something happened in the early 2000s to have that range explode upwards.
(Please note the title is from McKinsey, I have long stated this was a credit bubble –not a housing bubble)
>

Source: McKinsey Quarterly
~~~
Question: How did Europe and Asia and Canada all have a simultaneous housing boom as big if not bigger than that of the US?
Were the Australians compelled to follow the CRA? Did Barney Frank influence the Belgians? Were the US GSEs effecting policy in the UK?
Or might some other factors — like ultra-low rates, excess leverage, demand for junk AAA-rated paper, misaligned incentives, and/or derivatives have been at play?
Discuss…"

at http://www.ritholtz.com/blog/2011/11/a-global-view-of-the-housing-bubble/

The new EFSF is (nearly) dead; long live the new ESM!

"No-one likes to kick a financially engineered monoline-cum-CDO super-fund of dubious sovereign debt when it’s down.

Aside from Moody’s, that is.

In its latest weekly credit outlook, published Monday, the rating agency includes a neat chart showing how EFSF spreads have widened relative to the spreads of its AAA-rated guarantors (click to expand).



This, of course, shouldn’t happen:

The rise in EFSF spreads is an important signal because it reflects a rise relative to the spreads of its Aaa-rated guarantors. In theory, EFSF spreads should be below the weighted average spread of its Aaa-rated guarantors, since EFSF issuance is 100% covered by guarantees from Aaa-rated sovereigns and also benefits from guarantees from non-Aaa-rated member states and from the underlying borrower’s repayment obligation.

CDS written on the EFSF have also been ‘trading’ wide relative to AAA credits (in our wild approximations, that is).

Is the revamped EFSF over before it’s begun?

Possibly. Breaking at pixel time:..."

at http://ftalphaville.ft.com/blog/2011/11/14/745971/the-new-efsf-is-nearly-dead-long-live-the-new-esm/