HELLO LATVIA GOODBYE GREECE

We've said before that the British are masters of understatement. Here's a sample from a recent letter to the Financial Times editor.

"Sir, Little in life is certain but when a cohort of academic economists coalesce around a consensus (Letter, February 19), the odds historically seem to favor the opposite."

 Discussing the Greek mess--and who doesn't have an opinion these days--the letter continues that "...'democratic demands of citizens' must be respected, but central to the debate on Greece is the implicit democratic bargain that, if voters choose a government, then they are accountable for its actions."

Over the  past five years Greece has spurned the opportunity to match Ireland, Spain and Portugal in reforming its economy. Its citizens cannot escape responsibility for that, and as a consequence voters in Germany and many other EU countries seem to be making their own democratic demand that good money should not be thrown after bad.

If Greece would have acted decisively and could now come to the table seeking relief, because despite its best endeavours the debt burden remained too great, then surely there would have been much more sympathy. 

However, put simply, does anyone really believe that Greece will reform if is given more money.

In 1866 there was an effort--the Latin Monetary Union (1866-1927)--to unify several European currencies similar to the current union. Belgium, Italy, France and Switzerland created the union and agreed to exchange their currencies for certain weights of gold and silver.

The history of that failure reveals Greek footprints, according to the BBC, "with its chronically weak economy meant Greek governments responded by decreasing the amount of gold in their coins."

Monetary unions are hardly new. Here's quote from a 2012 article.

Greece is falling out with its neighbors over their common currency - just as it did about a century ago. But forging closer bonds through shared currencies rarely works for long, says historian David Cannadine.

The continuing travails of the Greek economy and the threat they represent to European Monetary Union may both seem novel and unprecedented, but in several significant ways, we've been there before. 

Far from being a recent innovation, there have been monetary unions for almost as long as there has been money. But across two and a half millennia, and whatever varied forms they may have taken, few of them have endured, which helps explain why they've been so easily and so largely forgotten.
http://www.bbc.co.uk/news/magazine-

Hello Latvia goodbye Greece.

VOLUME AND VOLATILITY

Markets are an ongoing learning curve.

There are things like two Ps, one S and two Vs.

The Ps are about premium and price. The S about spread and there nearly always is one. So pay attention. Tons of money get made daily on the spread. Think wages and productivity here just for one.

Lately, there's been an absence of the two Vs, volatility and volume.

According to the Wall Street Journal, this slowdown might be soothing the nerves of some, but what does it mean for others in particular and the market in general?

Volatility and trading volumes have collapsed this month as U.S. stocks have marched to fresh records, a respite that few investors foresaw and few expect to continue.

For now, the return to placid markets is being welcomed by buy-and-hold investors who have been rewarded in recent years for sitting tight. The Dow Jones Industrial Average notched its first record close of 2015 on Friday, while the S&P 500 posted its third record finish and the Nasdaq Composite is less than 2% from its first record in almost 15 years. 

Yet the February trading environment threatens to deal a new setback for banks and hedge funds that make more money in bumpy markets. Many bankers and short-term traders welcomed a raucous January in which stocks slipped in heavy trading as price swings widened.

Last year, stock-trading volumes increased for the first time since the financial crisis, and the pickup carried over into January. But in February, daily average trading volume slumped 4.8% from the prior month. Two of the three slowest trading days of 2015 came last week.



Like it or not, the big banks have been over-regulated, as is the wont of politicians and bureaucrats and the reactionary world they inhabit, and their trading desks have taken the hit. Volatility and volume are usually event driven.

The list of gray to really dark clouds hovering over global markets seems calm for now, but this could be the big lull before the even bigger storm.

By some accounts, high frequency trading--much in the news last April owing to Michael Lewis' book about it, "accounted for 46% of stock-market trades in January, up roughly two percentage points from last year's average and up about three percentage points from 2013."

In the past low volatility and volume has pushed the market higher on several occasions, but that begs the question about just how stretched valuations are now in this market and, oh yea, some of those gray and dark clouds still hovering out there.

AROUND THE NET

http://www.telegraph.co.uk/finance/personalfinance/money-saving-tips/11410509/When-will-a-loaf-of-bread-cost-22

http://www.marketwatch.com/story/dollar-wary-ahead-of-testimony-from-feds-yellen-2015-02-23

http://fuelfix.com/blog/2015/02/22/no-new-talks-set-between-shell-steelworkers

http://247wallst.com/investing/2015/02/22/top-11-corporate-earnings-for-the-coming-week

http://www.dpa-international.com/news/international/greece-rushes-to-finalize-reform-proposals-ahead-of-monday-deadline-

http://www.spiegel.de/international/europe/what-a-grexit-would-mean-for-greece-and-for-europe-a

http://www.nasdaq.com/article/asian-shares-rise-japan-hits-fresh-15year-high

http://money.cnn.com/2015/02/20/news/economy/venezuela-economy-inflation

http://profitsofchaos.com

http://www.wsj.com/articles/rising-franc-upends-daily-life-in-swiss-borderlands-

http://theeconomiccollapseblog.com/archives/americans-slaves-dont-even-know

http://resourceinsights.blogspot.com/2015/02/what-is-saudi-arabia-not-telling-us.

http://www.bloomberg.com/news/articles/2015-02-22/u-s-gasoline-rises-to-2-3286-a-gallon-in-lundberg-survey

http://www.reuters.com/article/2015/02/22/us-ukraine-crisis

http://www.wsj.com/articles/oils-plunge-could-help-send-its-price-back-up

http://www.naturalnews.com/048722_medical_abuse_government_kidnapping_parental_rights.

GREECE AND OTHER NO BRAINERS

We've all heard the meme too big to fail.

So when does too miserable or pathetic not to be saved come into play. Well, for now it appears like the recent Greece deal is a case in point.

As one writer put it: "The country's (Greece) departure would undermine the idea that the single currency is irrevocable, possibly setting a precedent for other nations that might run into financial trouble.That is something that euro-zone policy makers are keen to avoid, seemingly at any cost."

The key term here--and by the way the one most dangerous--is at any cost. If it sounds like the old economic moral hazard, you're getting there. It's the moral equivalent of economic unconditional love. "It's all right, Little One, anything you do, we'll be there to bail you out."

To date, this is a victory for the scaremongers, the same ones who scared the Scots into keeping their attachment to the UK at the hip, "...with the eurozone economic recovery still fragile--growth this year is estimated at just 1.3%--a Greek exit could be particularly disabling."

Yes, it could. But just as easily it could surprise to the upside, like riding oneself of a non-compliant, recalcitrant, long-time non-productive employee. Then there's the huge size of the Greece's economic contribution to the overall EU.

Next the writer states, "While the full impact (as if it is ever known in anything beforehand) of a....Greek exit for the eurozone is unclear, it would likely clobber the currency." Is that clobber a
short-term or long-term one?

There's been two bailouts--2010 and 2012--and like another scribe put it: "...the continent, then as now, was itself suffering from slow economic growth." 

That's spells a lot of euros heading south. "Many Europeans are frustrated at seeing their euros flow south to a country whose economy never seems to improve."

And there you have the crux of too-pitiful-to-be rescued.

Meanwhile, the euro is down nearly 6% versus the greenback so far this year adding to the U.S's  buyer-of-last-resort stature. For all those who deny a currency war is alive, afoot and well we say enjoy your economic delusions.

Azerbaijan might not conjure pictures of a big economy but central bankers there just depreciated their currency nearly 34% against the U.S. dollar.
  
According to the bank, the move was aimed at creating additional incentives to diversify the economy, boost the nation's international competitiveness and export potential, ensure strategic stability of the balance of payments and international solvency of the country, one news source reported.

Sounds like a competitive devaluation to us.

On another front, we've said before from the beginning that those billions in consumer savings from lower gas prices won't get spent and it appears they aren't.

Meanwhile, in some areas gas prices are once again up 50 cents off their recent lows. While there's been a run-up in some retail and restaurant equities owing to consumer spending, a meaningful uptick in consumer spending--the Great American past time--is meaningfully AWOL.

January retail sales numbers were unchanged from December. So if consumers keep their wallets closed, another so-called economic no brainer bites the dirt.

OUR VIEW

EDITORIAL ELECTION GARBAGE UK STYLE

There are a lot of stupid editorials in media around the globe everyday. One of the latest and dumbest appeared in the Financial Times, "Britain's parties should be funded by the state."

With an upcoming general election slated for May, concerns grow about private political donations or, in more crude terms, buying political sway. 

Citing a recent report from the so-called independent Election Commission, the editorialist laid out how two groups, business on the right and unions on the left, the two parties are "boosting their coffers."

Why the concern, so asks the writer, because "the main parties are becoming more reliant on a small number of donors to meet their funding needs." The implication here is that this represents something new. It doesn't, not in the UK or the U.S.

Undue political influence, so the claim goes, of individual donors is the risk. The study highlights how narrow the pool of big donors is becoming. To wit, more than half of the funds over the last decade went to Tories and three-quarters to Labour where these so-called grants, more crudely known as bribes, of £50 000 ended up.

Then this brilliant piece of editorial babble states: "Speculation that such donors might be looking to buy access to power have been at the heart of a series of scandals in recent years, such as cash for honours or cash for peerages."

That pathetic, naive sentence is followed up with this one: "If public suspicion grows, trust in politics is inevitably corroded in the end." Really?

Like all good card-carrying Keynesians, the writer then suggests the usual solution, more government intervention by taxing the public to pay for these circuses. Membership in both parties has declined over the years, the writer laments, implying that this is one of the main reasons.

Well, we have another suggestion, one we think much more germane, incompetence.

As with all politics--as most of us already know from long experience--big things always start out small. The sum put on each taxpayer, the writer projects, would be modest. Now there's an abstraction for you. Sure it would. For the nonce.

Then the editorial concludes with this gem.

If the political class at Westminster is to have any chance of winning back public trust, it needs to end the suspicion that the culture of political donation is corruptible. The only way to do this is a system of taxpayer funding that leaves the politicians at arms length from businesses and the unions.

There's at least three things amiss with this beauty.

To begin with, the Brits are masters of understatements. Next the public should be forced to pay up for honest politicians. Sounds a bit like sticking the horse behind the applecart. And finally, though it might remove them to arms length from businesses and unions, it puts then a hell of a lot closer to taxpayer purse strings.

Somehow that hardly sounds like a decent trade off.

That's our view. We hope you know yours.

TEARS, BOREDOM AND CENTRAL BANKS

Kudos to the Financial Times' James Mackintosh's "Short View" today on his point about economists never being renown for their writing style.

After plowing through 40 laborious pages of "dusty prose" from two central banks--the Fed 21 pages and the ECB 19--one can offer a serious suggestion about how to interrogate those captives at Guantanamo. Forget water boarding. Simply make them read these two works of economic pablum.

They'll tell you everything you want including forfeiting their first born.

To borrow a line from an old English professor who was, as he put it, sentenced after the age of 50 to an academic form of Dante's Inferno, reading freshmen papers, that "bore one to tears." In this case, tears is too generous, too kind.

Investors found market-moving information in the Fed's caution about raising rates while ignoring its long discussion about 'lift-off tools' it will use when it raises rates.

The ECB revealed that it was worried that the market would take it badly if the widely anticipated quantitative easing did not arrive, and that it upped it's proposed €50bn to €60bn, but for less time.

Central bank watchers revel in every dull sentence, and investors, plus the media, typically look in the minutes for an insight into policy mares' thinking. This is dangerous.

...the minutes are usually out of date. The last Fed meeting was before January's blowout jobs data, while the ECB's took place as market-based inflation expectations were rebounding (they have since dropped).

....they are little more than an extension of policy statements, not verbatim record of discussions. This is a form of propaganda, not a true insight. Serious disagreements may be visible in the minutes--but mostly would be obvious from public statements by individual policy makers long before the minutes were published.

Mackintosh further cites the unexpected or unknowns as when policy change their minds as happened in the Swiss National Bank debacle that few if any saw coming when banker suddenly undid the euro peg. It's valid point and further proves any claim to real transparency is just that, lip service.

Any credibility central bankers global wide enjoy depends on having a huge flock of lemmings. As Mackintosh writes: "....central bankers have little idea what they are likely to do than anyone else, as it depends on what happens in the economy--which they, like anyone else, are hopeless at forecasting.  

Some clues to how they might react to new developments may be gleaned from the minutes, but most investors try to draw conclusions about how rates will move instead. Those who still believe the myth of central bank omniscience should look at their record."

Truth be told Mackintosh is only half correct in his assertion. Economists are renown for their distinct lack of writing style. Calling anything prose, dusty or otherwise, from that bleak quarter, is an act of magnanimity more befitting a saint.

AROUND THE NET

http://www.buzzfeed.com/andrewkaczynski/ron-paul-good-news-that-secession-is-happening

http://www.marketwatch.com/story/us-stocks-futures-waver-ahead-of-greece-meeting-pmi-2015-02-20?

 http://www.businessinsider.com/byron-wien-says-market-will-shock-2015-2

http://www.dnsrsearch.com/A//www.scott-mather-discusses-pimcos-total-return

http://www.marctomarket.com/2015/02/great-graphic-unexpected-results-of

http://www.bloomberg.com/news/articles/2015-02-20/yellen-confronts-economists-ignorance-as-she-weighs-higher-rate

http://www.businessinsider.com/its-time-to-break-up-with-american-express-2015-2

http://www.marketwatch.com/story/by-this-measure-winter-has-been-rather-warm-2015-02-19

http://wolfstreet.com/2015/02/19/french-investment-bank-what-the-ecb-has-to-do-to-prevent-a-market-meltdown

http://financialspuds.blogspot.com/2015/02/my-bias-or-yours.

http://www.businessinsider.com/bank-of-america-investor-flows-to-europe-2015-2?

http://www.reuters.com/article/2015/02/20/us-eurozone-greece

AROUND THE WEB

Random Reads
japan-shares-hit-15-year peak

apnews.myway.com/us--lower gas prices-delayed spending

money.cnn.com/gallery/autos/2015/02/17/ultra-luxury-suv

www.reuters.com/article/2015/02/18/us-eurozone-greece

IMF aid package pushes Ukraine gas prices up 280%

central-banks-have-lost-control-world

ukraine-receives-eu-funds-to-block-asylum-seekers-from-reaching-europe

credit-suisse-low-expected-returns-in-stocks-2015

federal-reserve-interest-rates-language

is-warren-buffett-right-about-big-oil-stocks

MY BIAS OR YOURS

One chart doesn't a trend make or, for that matter, a trend reversal.

Here are two charts, however, that make for some interesting reading notwithstanding your bias. And recall everybody has one.

With energy some say the price of crude has further to fall while others argue an uptick to higher prices is near. So who will make the money here, the shorts or the longs?

The  American Petroleum Institute today rattled markets with their crude oil supply numbers.

SAN FRANCISCO (MarketWatch) — The oil market got a bit of a shock late Wednesday, when the American Petroleum Institute’s supply data were released.

U.S. crude-oil supplies as of the week ended Feb. 13 saw a whopping 14.3 million-barrel jump from a week earlier, the trade group reported, according to news reports and various sources.

Analysts polled by Platts forecast an increase of just 3.1 million barrels for the week. Prices for March crude CLH5, -2.90%  on the New York Mercantile Exchange dropped to $50.48 a barrel in electronic trading after the API data, down from a regular-session settlement of $52.14.

The market will have to wait for confirmation from the U.S. Energy Information Administration, which will release its weekly petroleum supply figures at 11 a.m. Eastern time on Thursday. Supply data are delayed by a day this week due to the Presidents’ Day holiday.


 
Everyone knows how far oil has dropped since mid-June. For more on  its possible rebound read
marketwatch.com/story/if-history-is-a-guide-oil-could-rebound-in-may-2015-02-18



As we said earlier it's a matter of which bias one has.

KEEP IN MIND IT'S AN OLD ONE

There's an addiction going on and it has little to do with street drugs although one might say in another way it has everything to do with a street drug.

It this case, it's a six-year addiction. And the drug of choice is low or near zero interest rates. While one of MSM's latest memes, besides the possibility of a Grexit, centers on when the Fed will start jacking up interest rates, it raises the issue of how far and for how long.

The second part of that question is, once started how many rate hikes will there be and over what time span? If history is any guide, taking the last 50 years or so, 26 months is the average once the hikes are underway. 

The last time the Fed started raising rates was 11 years ago. They stopped two years later. Most of us know what followed, a financial crisis.

One of the problems with addictions is they're difficult to break. With investors of all sorts scrambling for yield the past several years, there's a ton of leverage in these markets. A cynic might even describe it as "scary leverage."

To be sure there are enough white hat boys and girls around to suggest otherwise. One thing looks fairly certain, central bankers are either going to be terribly wrong or terribly correct. 

Those who believe the Fed will break the historical mode and tread more softly versus those who believe the Fed will return to business as usual so as not to toss any unexpected flies into the monetary ointment.

Business as usual just might turn out to be the exact opposite of what the market needs.

Just last week John Williams, head honcho at the San Francisco Federal Reserve Bank, a member some think is Chairwoman Janet Yellen's interest rate clone, warned that the time for higher rates is "closer and closer."

Anyone who pretends to know just how the market in general and investors in particular will react is doing just that, pretending. Keep in mind the S&P 500 suffered only one big break last October when it briefly--and that's the key term here, briefly--dipped below its 200-day moving average.

Keep in mind the S&P 500 eked out a small gain today to close at a record for the second time this year. Keep in mind despite all the hand-wringing about Greece and the Ukraine, there appears to be a large amount of complacency around.

If this were a three-card street shell game, one could say the marks are lining up. Just when they all get in place, well, we'll have to wait and see.