Europe’s Era of Harmony Is Over

No one else I know can muster as much deep experience and insight into the sprawling, incendiary world of geopolitics as my good friend George Friedman, founder and chairman of Geopolitical Futures; and in today’s Outside the Box – part 2 of my 8-part SIC Speaker Series – George brings all his powers to bear to issue quite a declamatory statement on the present and future of the European Union.
George’s argument can be summarized as ‘the center cannot hold.’ With Brexiteers on its western front and unruly right-wingers on its eastern wing in Poland, Hungary, and the Czech Republic, the EU is sore beset. But as George notes, the center is quietly debating whether that might not be a good thing:
There has been some talk in the central region of either creating a separate union consisting of Germany, France, Belgium and the Netherlands, or creating a bloc within the existing bloc. The point would be for these countries to stop being responsible for countries not ready to operate at the center’s level of performance. It would mean that southern Europe, with its economic problems, and Eastern Europe, with its distinctly different political culture, could go their own way.
That is what I would call a desperate conversation. Far from ever achieving a ‘United States of Europe,’ the EU members will be lucky (or maybe not so much) if they can retain their economic union. George agrees, and he has concluded that dissolution is inevitable:

This post was published at Mauldin Economics on DECEMBER 20, 2017.

Global Liquidity Crisis Is Over… Dollar Shortage Suddenly Disappears

Remember last week when the world was desperately willing to pay excessive spreads to get their hands on dollar liquidity (the worst liquidity crisis since the European crisis)…
Well that’s all over now!
EUR-, JPY-, and GBP-cross currency basis swaps have suddenly snapped higher (less negative) as dollar liquidity is suddenly not a problem anymore…

This post was published at Zero Hedge on Dec 20, 2017.

The Sun is Cooling Faster than Anyone Suspected

The danger from the Global Warming crowd is that they are misleading the entire world and preventing us from what is dangerously unfolding that sparks the rapid decline in civilization – GLOBAL COOLING. I previously warned that this is not my opinion, but simply our computer. If it were really conscious it would be running to store to buy heating pads. This year will be much colder for Europe than the last three. It will also be cold in the USA. We are in a global cooling period and all the data we have in our computer system warns that the earth is turning cold not warm.
This cooling is very serious. This decline in the energy output of the sun will manifest in a commodity boom in agriculture as shortages send food prices higher. We will see famine begin to rise as crops fail and that will inspire disease and plagues. We will see the first peak in agricultural prices come probably around 2024 after the lows are established on this cycle. We have been warning that this rise would begin AFTER 2017.

This post was published at Armstrong Economics on Dec 20, 2017.

Global Stocks Rise To Record Highs As Tax Reform Is “Priced In” All Over Again

Yesterday we joked that with the US House of Representatives set to vote for the GOP tax bill on Tuesday, markets would “price in” the same tax legislation they have been pricing in every day for the past year, all over again…
Get ready for US markets to price in tax reform all over again in just a few short hours
— zerohedge (@zerohedge) December 19, 2017

… and sure enough, that’s precisely the narrative being spun this morning to explain why US futures and global stocks are once again, drumroll, higher. To wit, from Bloomberg: “European stocks struggled to build on Monday’s jump as the common currency advanced, while U. S. equity futures edged higher as the prospects for tax cuts in the world’s largest economy continued to buoy sentiment.” Of course, US equity futures have been doing that precisely that every single day for weeks and months on end, but now that Congressional passage finally appears imminent, it may finally be time to stop buying the endless rumor and sell the news. As a reminder, on Monday Republican Senator Susan Collins of Maine said she’ll back the GOP tax bill, a move that all but clinches the votes necessary to pass the legislation. Both the House and Senate plan to vote by Wednesday on final legislation before sending it to the president.
As markets grind toward the end of a stellar year for global stocks, the biggest focus for investors still chasing gains is the progress of U. S. tax reform, which is inching toward a denouement. The House is scheduled to vote Tuesday on the tax bill following a floor debate that morning. It then goes to the Senate, where Republican leaders intend to bring it up as soon as they get it. ‘It will help sustain a very strong year of earnings growth for U. S. and for global equities,’ said Timothy Graf, State Street Bank & Trust head of macro strategy EMEA., speaking on Bloomberg TV. ‘It will keep sentiment robust.’

This post was published at Zero Hedge on Dec 19, 2017.

Economic Stimulus Alive and Kicking in EU

Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.
We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.
With its latest rate hike, the Federal Reserve has pushed the Federal Fund Rate to 1.5%. That’s the highest we’ve seen since 2008. Even at that, we’re still well below the 5.25% peak hit during the last expansion.
Meanwhile, ECB chair Mario Draghi announced back in October that quantitative easing would live on in the EU.

This post was published at Schiffgold on DECEMBER 18, 2017.

Greece Is The Patsy For Europe’s Failure (And The Ordeal Is Far From Over)

Authored by Raul Ilargi Meijer via The Automatic Earth blog,
I feel kind of sorry this has become such a long essay. But I still left out so much. You know by now I care a lot about Greece, and it’s high time for another look, and another update, and another chance for people to understand what is happening to the country, and why. To understand that hardly any of it is because the Greeks had so much debt and all of that narrative.
The truth is, Greece was set up to be a patsy for the failure of Europe’s financial system, and is now being groomed simultaneously as a tourist attraction to benefit foreign investors who buy Greek assets for pennies on the dollar, and as an internment camp for refugees and migrants that Europe’s ‘leaders’ view as a threat to their political careers more than anything else.
I would almost say: here we go again, but in reality we never stopped going. It’s just that Greece’s 15 minutes of fame may be long gone, but its ordeal is far from over. If you read through this, you will understand why that is. The EU is deliberately, and without any economic justification, destroying one of its own member states, destroying its entire economy.

This post was published at Zero Hedge on Dec 18, 2017.

There’s Never Been A Worse Time For A European Investor To Buy US Treasuries

Since the common currency’s inception in 1999, the EUR-hedged yield ‘offered’ to European investors from investing in US Treasuries has never been worse…
As Bloomberg notes, for European investors using swaps to protect against currency swings, the benchmark 10-year U. S. yield fell Friday on a euro-hedged basis to around -60bps.

This post was published at Zero Hedge on Dec 18, 2017.

Austria’s Anti-Immigrant Freedom Party Enters Government; Wins Key Ministry Posts

Two months ago, in Europe’s latest shocking, anti-establishment outcome, Austria’s 31-year-old Sebastian Kurz became the world’s youngest leader after his conservative People’s Party won the Austrian National Council elections, making him Austria’s youngest Chancellor in history, while the establishment Social Democrat party suffered its “worst result since Hitler rule.”
***
And now, two months later, in a double whammy for Europe’s outraged liberal establishment, the anti-immigrant Freedom Party of Austria (FPO) – which finished third in October’s elections with 26% of the vote, less than a percent behind the Social Democrats, has joined a coalition government with Sebastian Kurz and his People’s Party (OVP). The agreement between the People’s Party and the Freedom Party, which is returning to government after more than a decade’s absence, was struck on Friday, the two parties’ leaders, Sebastian Kurz and Heinz-Christian Strache announced in a joint news conference.

This post was published at Zero Hedge on Dec 16, 2017.

The Inconvenient Limits to European Unity & Integration

‘With Friends Like These…’ Spain Tries to Scupper Italian Takeover of ‘Strategic’ Company By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. The race is on in Spain to stop Atlantia SpA, an Italian infrastructure group majority owned by the Benetton family, from buying Barcelona-based toll-road operator Abertis Infraestructuras SA. Atlantia SpA made a 16.3-billion ($19 billion) bid for Abertis back in May. Thanks to the fact Atlantia can borrow money at an absurdly low rate (grazie mille, Signor Draghi), most of its bid is in cash.
Spain’s government has taken a keen interest in proceedings. ‘It doesn’t please us at all,’ said senior government sources in May. The Rajoy government claims that the motorways controlled by Abertis, both in Spain and overseas, as well as its majority stake in Hispasat, the world’s ninth largest satellite operator, represent national strategic assets.
The biggest concern appears to be over the prospect of decisions pertaining to Abertis’ assets being made in another European capital, though according to sources cited by Expansin, the real reason is that the Spanish government ‘doesn’t want Abertis in Italian hands – it’s as simple as that.’

This post was published at Wolf Street on Dec 16, 2017.

Global Dollar Liquidity Shortage Explodes – Worse Than European Crisis

Very quietly, in the last few days, cross currency basis swaps (CCBS) related to the dollar have reversed their rise and started collapsing deeper into negative territory… again. This might not be of much interest to buyers of global equity markets at this point, but it is signalling ominous signs of growing funding stress in the financial ‘plumbing’.

As Bloomberg notes ‘cross-currency basis swaps, which money managers and corporate treasurers outside the U. S. can use to borrow in dollars, remain close to the widest levels since January even after quarter-end, when such financing strains typically dissipate. The market was a key indicator of stress during the financial crisis, and while it’s nowhere near the alarming levels of that era, it’s still garnering the attention of analysts.’

This post was published at Zero Hedge on Dec 15, 2017.

Bond Markets Really Are Signalling A Slowdown

Authored by Lakshman Achuthan and Anirvan Banerji via Bloomberg.com,
Analysts shouldn’t dismiss the yield curve’s message just because inflation expectations have been declining in recent years. When it comes to the economic outlook, the bond market is smarter than the stock market. That Wall Street adage appears to be on the money from a cyclical vantage point, with key indicators in the fixed-income markets independently corroborating slowdown signals from the Economic Cycle Research Institute’s leading indexes.
The yield curve is widely considered to be among the most prescient indicators. That’s why its flattening this year has been troublesome for an otherwise optimistic consensus to explain away.
This hasn’t stopped optimistic analysts from dismissing the yield curve’s message on the grounds that inflation expectations have been declining in recent years, or that foreign central banks like the European Central Bank and the Bank of Japan continue to artificially suppress their bond yields, pulling down U. S. yields. We’re reminded of Sir John Templeton’s warning that ‘this time it’s different’ are the “four most costly words in the annals of investing” — but that’s effectively what it means to simply ignore the slowdown signals emanating from the fixed-income markets.
Of course, there’s no Holy Grail in the world of forecasting, which is why we look at a wide array of leading indexes that each includes many inputs. From that vantage point, the yield curve flattening actually makes a lot of sense.

This post was published at Zero Hedge on Dec 15, 2017.

Bill Blain: “I Have Never Seen So Many Extraordinary Events In One Year, And I’ve Been In Markets Since 1985!

We don’t think 2018 is going to be the End of the World. There will be opportunities and mistakes. Winners and grinners, and more than a few losers. Sure, we’re looking forward to the new MiFID regime – isn’t everyone? (US Readers…..)
Our broad brush picture is a continuation and acceleration of the Global Macro Alignment theme – a stronger global economy, cautious normalisation, continued upside for risk assets (stocks and alternatives), but a negative outlook for the bond markets with rates set to rise as Central Banks pull back from distortion. They will remain nervous about financial market instability.
If things wobble, them my personal view is the High Yield market is where we will see the most dramatic losses start in bonds. We still see a strong chance of equity market correction – and will buy into it because the global economy is expanding. Our big Macro Threat for the coming year is resurgent inflation – how quickly will it mount and will it take out market sentiment.
The devil is in the detail. We’re positive across all the developed economies and expect to see growth expectations raise. Although the US, UK and Europe will be moving into Normalisation with tightening, while inflation remains sub 2% Japan will continue its ZIRP (zero interest rate policy) which is massive yen negative and therefore stock positive – my Japan-watching macro man Martin Malone is calling for further massive gains in Japan Stocks.

This post was published at Zero Hedge on Dec 15, 2017.

Brexit Moves To Phase 2 – Sterling Slides As EU Warns Talks Will Be Far More Testing

Following the humiliation of losing the House of Commons vote on Friday, in which MP’s took the final say on the Brexit deal from the executive, UK Prime Minister was in Brussels as EU leaders gave approval for Brexit talks to move to phase 2. At a dinner last night, she was applauded by leaders of the other 27 EU nations after giving a speech. This morning, the European Council approved the recommendation from the European Commission that talks should proceed to the next phase. Donald Tusk, President of the European Council, tweeted the news.
From the FT ‘EU leaders have confirmed that ‘sufficient progress’ has been made in the first phase of Britain’s Brexit talks, giving a boost to Theresa May, the UK prime minister, and paving the way for crucial discussions next year on trade. In a summit in Brussels on Friday the EU’s 27 other member states endorsed the European Commission’s recommendation that London had given enough guarantees on the most important divorce issues for talks to begin on a future relationship. The three issues were the UK’s Brexit bill, the rights of EU citizens and the Northern Irish border.
Mrs May was not in the room when her fellow heads of government quickly signed off on the end of phase one talks. They had applauded her on Thursday night to mark the end of several months of fraught negotiations on the divorce. Friday’s declaration was widely expected after Mrs May secured an agreement last week with Jean-Claude Juncker, commission president. That agreement came after the British prime minister assuaged the concerns of Northern Ireland’s Democratic Unionist party over the Irish border; Mrs May relies on DUP support in the UK’s parliament.

This post was published at Zero Hedge on Dec 15, 2017.

European, Asian Stocks Slide But US Futures Rebound As Tax Deal Fears Ease

U. S. equity index futures point to a higher open, having rebounded some 10 points off session lows with the VIX stuck on the edge between single and double digits, while European and Asian shares decline as investors assess central banks’ shift toward tighter monetary policy and concern over tax overhaul ahead of final plan.
It has been a groggy end to what is still set to be a third week of gains for MSCI’s global stock index following more upbeat data and signs that central banks including the Federal Reserve will keep treading carefully with interest rate hikes.
On Thursday, US stocks closed 0.41% lower after Republican Senator Rubio said he intends to oppose the tax bill as written unless there was a larger child tax credit (currently $1,100). He said GOP leaders ‘found the money to lower the top (individual tax) rate’, but ‘can’t find a little bit’ more to help working class parents raising children. However, later on, President Trump said he is ‘very sure’ Mr Rubio will vote yes. So still lots of potential changes here before the bills gets voted by the Senate, potentially as soon as Monday, although on Friday, US equities appears sanguine about the risks and have faded most of Thuesday’s weakness.

This post was published at Zero Hedge on Dec 15, 2017.

Europe, Brexit and the credit cycle

Europe’s financial and systemic troubles have retreated from the headlines. This is partly due to the financial media’s attention switching to President Trump and the US budget negotiations, partly due to Brexit and the preoccupation with Britain’s problems, and partly due to evidence of economic recovery in the Eurozone, at long last. And finally, anyone who can put digit to computer key has been absorbed by the cryptocurrency phenomenon.
Just because commentary is focused elsewhere does not mean Europe’s troubles are receding. Far from it, new challenges lie ahead. This article provides an overview of the current state of play from the European point of view, and seeks to identify the investment and currency risks. We start with Brexit.
At least there’s some money on the table Last week, sufficient agreement had been obtained from the Brexit negotiations to allow the EU’s negotiators to recommend to the Council and the European Parliament to proceed to the next step, which is to discuss trade. That has now been approved.

This post was published at GoldMoney on December 14, 2017.

It’s Central Bank Bonanza Day: European Stocks Slide Ahead Of ECB; S&P Futs Hit Record High

One day after the Fed hiked rates by 25 bps as part of Janet Yellen’s final news conference, it is central bank bonanza day, with rate decisions coming from the rest of the world’s most important central banks, including the ECB, BOE, SNB, Norges Bank, HKMA, Turkey and others.
And while US equity futures are once again in record territory, stocks in Europe dropped amid a weaker dollar as investors awaited the outcome of the last ECB meeting of the year: the Stoxx 600 falls 0.4% as market shows signs of caution before the Bank of England and the European Central Bank are due to make monetary policy decisions as technology, industrial goods and chemicals among biggest sector decliners, while miners outperform, heading for a 5th consecutive day of gains. ‘The Federal Reserve raised interest rates last night, but they weren’t overly hawkish in their outlook. This has led to traders being subdued this morning,’ CMC Markets analyst David Madden writes in note.
The stronger euro pressured exporters on Thursday although overnight the dollar halted a decline sparked by the Fed’s unchanged outlook for rate increases in 2018, suggesting “Yellen Isn’t Buying Trump’s Tax Cut Talk of an Economic Miracle.”
That said, it has been a very busy European session due to large amount of economic data and central bank meetings, with the NOK spiking higher after the Norges Bank lifted its rate path, while the EURCHF jumped to session highs after SNB comments on CHF depreciation over last few months. The AUD holds strong overnight performance after a monster jobs report which will almost certainly be confirmed to be a statistical error in the coming weeks, while the Turkish Lira plummets as the central bank delivers less tightening than expected. Meanwhile, the USD attempts a slow grind away from post-FOMC lows.

This post was published at Zero Hedge on Dec 14, 2017.

Stocks Rebound From “Bama Shock”, All Eyes On Yellen’s Last Rate Hike

After an early slide last night following the stunning news that Doug Jones had defeated Republican Roy Moore in the Alabama special election, becoming the first Democratic senator from Alabama in a quarter century and reducing the GOP’s Senate majority to the absolute minimum 51-49, US equity futures have quickly rebounded and are once again in the green with the S&P index set for another record high, as European stocks ease slightly, and Asian stocks gain ahead of today’s Fed rate hike and US CPI print.
‘The big issue now is whether Republicans will push through their tax bill before Christmas,’ said Sue Trinh, head of Asia foreign-exchange strategy at RBC Capital Markets in Hong Kong. ‘And more broadly, U. S. dollar bulls will be more worried that this marks a Democratic revival into 2018 mid-term Congressional elections.’
The negative sentiment faded quick, however, because according to Bloomberg, despite the loss of a Senate seat, it probably won’t affect the expected vote on business-friendly tax cuts, however, as the winner won’t be certified until late December.

This post was published at Zero Hedge on Dec 13, 2017.

The best tax incentive in the world

In a move almost destined to prove that laws and policies have absolutely zero meaning, the European Union released a list of ‘tax havens’ last week… with a massive, giant, highly conspicuous omission.
The blacklist contains the names of the usual suspects – Panama, United Arab Emirates, etc., along with a few additions like Mongolia and Marshall Islands.
But, again, conspicuously missing from this list is far and away the biggest tax haven in the world – none other than the United States of America.
It’s hard for US taxpayers to imagine the Land of the Free being a tax haven.
Americans are taxed heavily on ALL of their income, no matter where in the world they live.
Americans are taxed when they earn, when they save, when they spend and when they die.

This post was published at Sovereign Man on December 13, 2017.

Stressful Year Ahead for Spanish Banks

The ‘spillover effects.’ By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. Just how much more stress Europe’s banking system can bear will be one of the big questions of 2018. This year was already a pretty stressful year, what with two major Italian banks being put out of their misery while, another, Monte dei Paschi di Siena, was brought back from the dead. In Spain, 300,000 shareholders and subordinate bondholders mourned the passing of the country’s sixth biggest bank, Banco Popular, which was acquired by Santander for the measly price of one euro.
Now, a whole new problem awaits. A report published by Spain’s second largest lender, BBVA, has warned about the potential impact on the sector’s profitability of new rules on provisions due to come into effect in early 2018.
Until now, banks only had to report losses when loans began deteriorating – i.e. when the defaults began. But the introduction in January of a new accounting rule, known as IFRS 9, will force banks in Europe to provision for souring loans much sooner than at present. One direct result will be that banks will have to hold more capital on their books, and that will have a detrimental impact on their profits.

This post was published at Wolf Street on Dec 12, 2017.

Five European Nations Issue Warning To America On Tax Reform

First it was the Chinese, now it’s the Europeans, as the rest of the world is suddenly very unhappy with the prospect of US tax reform (or maybe it is an unexpectedly strong US economy). As we discussed yesterday, with the historic Trump tax reforms on the verge of passage and the Fed’s dot plot signalling another 7-8 rate hikes (soon to be revised much lower), China is nervous that the capital outflows, which it thought it had bottled up, might be about to return. China is preparing a contingency plan which includes ‘higher interest rates, tighter capital controls and more-frequent currency intervention to keep money at home and support the yuan’.
Amusingly, the Wall Street Journal quoted a Chinese official who described Washington’s tax plan as a ‘gray rhino’. The latter is a combination of an ‘elephant in the room’ and a ‘black swan’, i.e. a high probability threat which people should see coming, but don’t. The focal point of China’s fears is the Yuan, which the authorities have spent so much time and effort stabilising during the last two years. Speaking to the WSJ, the Chinese official sounded a warning: ‘We’ll likely have some tough battles in the first quarter.’
Switching to Europe and five European finance ministers have sent a letter criticising the US for undermining the ‘rules of the game’ and international trade. Notwithstanding Brexit, the signatories included the UK Chancellor, Philip Hammond, as well as his counterparts in Germany, France, Italy and Spain. Essentially, the European nations are warning the US that it risks starting a trade dispute.

This post was published at Zero Hedge on Dec 12, 2017.