The Curse Of The Euro: Money Corrupted, Democracy Busted – David Stockman’s Contra Corner 07-17-15

Salient to Investors:

David Stockman writes:

  • Germany has set fire to the Eurozone in order to save it. Lending another $96 billion to a bankrupt country makes no sense, while the fiscal targets set for Greece are ridiculous. Greece has a de facto public debt of $400 billion vs. $200 billion of GDP. Within days the entire banking system of Greece will be taken over by the ECB, meaning that depositors will be given a big haircut. Greece will become an outright debtors’ colony and its government will function as page-boys for the Troika occupiers, resulting in political and social upheaval which will spread throughout Europe as Greece implodes.
  • Another recession is coming to Europe. The Eurozone is a fatally flawed monetary union. If any sovereign state of the EU cannot pay its debts, those debts need to be written off or restructured.
  • The euro is the doomsday machine, or more precisely the rogue ECB behind it. The euro will eventually collapse and Keynesian policies will be repudiated and dismantled, but not before European prosperity is extinguished for a generation.
  • Europe had a de facto common currency before 1914 under the fixed exchange rates of the gold standard, which helped produce a multi-decade of prosperity not seen before or since.
  • The ECB printing press has fundamentally falsified the price of debt, produced phony economic growth in the early years and fiscal profligacy after the growth bubble burst after the 2008 crisis, resulting in only 0.9% annual rate of nominal GDP since. The EU-19 debt ratio has climbed steadily towards 100% of GDP since the financial crisis vs. the 60% debt-to-GDP target of the EU treaty.
  • Bond market discipline is fully compatible with national sovereignty and democratic fiscal governance and is a requisite for Europe.
  • Merkel was conned into believing that the original bond sell-off was due to the same speculators who supposedly caused the great financial crisis of 2008.
  • The burst global credit bubbles of 2008 and euro bond crash of 2010 and after had the same cause – central bank financial repression causing government bonds to be underpriced and global investors to scramble for yield; speculators could surf the financial bubbles on the back of cheap carry from the central bank pegged money market.
  • Superstate bureaucrats cannot meaningfully elevate economic growth rates and so enable insolvent state borrowers to grow out from under unsustainable debt. Portugal, Italy, Ireland Greece, Spain – PIIGS – and France prove that quasi-socialist welfare states in the contemporary European setting prove this.
  • When you destroy honest bond markets you eventually end up with Stalinist governance in the name of the free market.
  • Speculators who rode the Draghi bubble made hundreds of billions of profits buying PIIGS debt on 95% repo, and were then positioned to sell their bonds back to the ECB at the first sign of a market break.
  • Spain’s real GDP at the end of Q1, 2015 was still 6% below early 2008, but its debt ratio has risen sharply to near 100% of GDP. There is no possibility of honest fiscal governance in a social democracy like Spain when its debt price is blatantly falsified. Spain’s budget deficit in 2014 remained at 5.8% of GDP so won’t survive another recession, and will be bailed out fueling radical popular movements a la Greece.

Read the full article at http://davidstockmanscontracorner.com/the-curse-of-the-euro-money-corrupted-democracy-busted/

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When It Comes To Total Debt, Greece Is Not That Much Worse Than France (Or The USA) – Zero Hedge 07-17-15

Salient to Investors:

Tyler Durden writes:

  • The IMF has admitted Greece has an unsustainable debt problem.
  • French PM Hollande’s sole focus in the Greek crisis was to preserve near-term stability and his job at any cost – he is guaranteed to lose the 2017 French elections.
  • Once the current generation of French workers retire and realizes their retirement entitlements were a lie, France will have two choices: violence or the more likely printing press.
  • France has had 80 consecutive months of record unemployment and its fiscal and solvency situation will deteriorate dramatically over the next 2 years.

Albert Edwards at SocGen says:

  • Greece’s net government liabilities as a percent of GDP are rapidly approaching 1000% vs. just over 500% for the US and 5 times for France, the most unstable core nation.
  • Germany, Finland, Holland and Austria are traditional fiscally conservative.
  • France’s debt dynamics and sustainability is highly questionable, with worse unfunded liabilities to GDP ratios, along with the US and Germany, than Spain and Italy
  • When adding in off-balance sheet liabilities which are only now coming onto the balance sheet as populations rapidly age, the US, France, Germany and the UK are worse off, in that order. The likely policy response will be a combination of inflation, default on pension and medical promises, and severe fiscal retrenchment, and for the US and UK, QE, devaluation and the printing press.
  • Within the euro zone, the Greek settlement shows that austerity and reform will be the likely solution imposed from above.
  • Germany has net overseas assets of 50% of GDP to call on to pay its unfunded bills. France is a net debtor by 20% of GDP.

 

Read the full article at http://www.zerohedge.com/news/2015-07-17/when-it-comes-total-debt-greece-not-much-worse-france-or-usa

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Alexis Tsipras—-Angel Of Mercy Or “Trusty” Of The Central Bankers’ Debt Prison? – David Stockman’s Contra Corner 06-23-15

Salient to Investors:

David Stockman writes:

  • Keynesian central banking has created a worldwide financial bubble.
  • Soaring bond yields and the fear of losing debt market access are the one force that can cause governments to sober-up and acknowledge the facts.
  • Reagan did not want Volcker to ease the intense upward pressure on interest rates and private investment that the giant US deficits imposed. Three decades later, the world is upside-down, with sovereign debt markets becoming financial whore houses, all due to Keynesian economics’ unrelenting falsification of bond prices using QE and ZIRP. Much of Wall Street loathed monetization in Reagan’s day, but today feast on and worship it.
  • The 10-yr German bund trading at 0.05 % and long-term Italian (a quasi-bankrupt country) bonds trading at under 1% is absurd.
  • The Greek showdown is a striking example of how monetary evil-doing imperils political democracy. Greece bankrupted itself years ago using a debt market falsified by the ECB and remains a notoriously corrupt, inefficient, special interest dominated economy.
  • The Greek economic expansion between 2001 and the 2009 peak of 10% nominal GDP growth was unsustainable because it was a debt fueled bubble of public and private construction investment, new household consumption and drastically increased pensions and other social welfare programs.
  • Greece’s current public debt ratio of 180% of GDP cannot be serviced over the long haul. Greek Prime Minister Tsipras’ left-wing statist economics would cause Greeks catastrophic suffering if it were ever implemented but he is absolutely correct on the matter of political self-governance.
  • The Greek default drama provides an opportunity to deal a death-blow to today’s malignant regime of Keynesian central banking. There is no way that the euro and ECB could survive a Greece exit, nor could worldwide Keynesian central banking survive the blow of their demise.

Read the full article at http://davidstockmanscontracorner.com/alexis-tsipras-angel-of-mercy-or-trusty-of-the-keynesian-central-bankers-debtors-prison/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

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Income Inequality Significantly Hurts Economic Growth, OECD Says – Bloomberg 12-08-14

Salient to Investors:

The OECD said:

  • Widening inequality creates a drag on economic growth that can be counteracted by tax policies to benefit the less well-off. Changes in wages and salaries have been the biggest direct driver of inequality. The earnings of the 10% best-paid workers have risen relative to the 10% at the bottom, who also saw a drop in annual hours worked.
  • Inequality undermines growth by preventing disadvantaged people from accessing education to develop their skills, impeding social mobility.
  • Policy makers need to be concerned with the general welfare of the bottom 40% of society and not just the poverty of the lowest 10%. Tackling poverty won’t be enough. Needed are government transfers, including policies to improve access to public services such as health care and education. Policies that help to limit or reverse inequality may also make societies wealthier.
  • Inequality knocked 6%-7% off US GDP growth between 1990 and 2010, and hurt growth in the UK, Italy and Mexico.
  • A widening in inequality like that seen in OECD states over the past two decades would slow growth by a statistically significant 0.35% a year, or 8.5% over a quarter century.

Read the full article at http://www.bloomberg.com/news/2014-12-08/income-inequality-significantly-hurts-economic-growth-oecd-says.html

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Italy`s Crisis – Dr Nouriel Roubini blog 09-28-13

Salient to Investors:

Nouriel Roubini at NYU writes:

  • Expect Italian elections in early 2014 but sooner is possible.
  • If there is no solution to Italy’s crisis, the spread will rise to 3 percent in a few days and the calm period for Italian stocks will end.
  • Bank stocks will be particularly hard hit and credit costs will continue to rise.
  • The sooner the elections, the worst the damage for bonds.

Read the full article at  http://drnourielroubini.blogspot.com/2013/09/italys-crisis.html

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Europe Gaining Confidence Among Investors in Global Poll – Bloomberg 09-11-13

Salient to Investors:

A Bloomberg poll of investors, analysts and traders showed:

  • 40% see the euro-area economy as improving, more than 4 times the number in May
  • 40% see the world economy as strengthening, the most since January 2011.
  • 52% expect stocks to produce the best return over the next year versus 16% for real estate, 4% for bonds. 48% expect bonds to perform the worst.
  • 19% are bearish on gold, with 44% expecting it to fall in 6 months.
  • 26% see political gridlock over fiscal policy as the greatest risk to the global economy, followed by a weakening Chinese economy. 17% see Europe as the greatest risk to the global economy, versus 33% 4 months ago.
  • 34% said the EU offers one of the best investment opportunities, up from 18% in May, while 18% said the EU offers the worst prospects, down from 45% in May.
  • 53% said the Euro Stoxx 50 Index will be higher in 6 months.
  • 75% said Spain and Italy will avoid bankruptcy.
  • Almost 33% said Greece will avoid bankruptcy, with 54% saying its position in the euro area will be weaker after Germany’s elections this month.
  • 12% plan to buy euros and 9% intend to buy more euro-area government debt.
  • 64% said the US economy is improving.
  • Just over 50% said Europe’s markets are a best bet for the coming year, and 58% expect the S&P 500 to rise into early 2014.
  • 59% said Japan’s economy is improving. 58% expect the Nikkei 225 Stock Average to sustain its rise this year, but only 26% see Japan as a top investment opportunity in the next 12 months.
  • 52% plan to increase their exposure to equities over the next 6 months versus 63% in January, a third are looking to real estate, and 37% like the U.S. dollar. Over 50% are reducing their investments in US Treasury bonds and 38% are fleeing corporate bonds.
  • 15% plan to increase their gold reserves versus 30% a year ago. 25% are reducing their exposure to commodities.
  • 27% are buying emerging-market equities, 27% are selling them. 6% plan to increase their yen exposure, and 3% like Japanese government bonds.
  • 41% are optimistic on Obama’s policies toward the investment climate, while 50% regard him favorably, both the lowest levels in a year.
  • 65% like Angela Merkel’s policies. 50% like David Cameron’s policies. 70% like Abe’s policies. 47% like Xi Jinping’s policies. 13% like Francois Hollande’s policies.

Peter Kinsella at Commerzbank said the structural issues facing the euro and monetary union are being addressed, and the acid test is whether they will lead to job growth.

Andreas Domke at Allianz Global Investors Europe said a surprising broad recovery seems to be under way.

Marie Owens Thomsen Credit Agricole Private Banking said global risk is the lowest in the post-crisis period as investors see little risk of a systemic threat, so there is ample scope for risky assets to climb.

Read the full article at http://www.bloomberg.com/news/2013-09-11/europe-gaining-confidence-among-investors-in-global-poll.html

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‘Dr. Doom’ Roubini: U.S. Growth Picture Is Sub-par – BloombergTV 09-06-13

Salient to Investors:

Nouriel Roubini at NYU said:

There has been a global recovery in the last year with the US recovery and reduced tail risks of a eurozone breakup and a hard landing in China.

The US economy recovery is very fragile, with barely 2% GDP growth expected in Q3, and the improvement in the labor market is partially due to a lower participation rate. US government spending is still falling, a fiscal drag, capital spending is weak, housing is softening, flat consumption in July, and net exports are worsening.

The Fed may taper in September but with the 10-year T-yield close to 3% so any further tightening will hurt the interest rate sectors like housing and capital spending. Any Fed tapering in September should be accompanied by a very dovish statement: a hawkish statement would push 10-yr T-yields well above 3% and choke the economic recovery.

The Eurozone is improving but the problems in the periphery remain unresolved: 5 of the 7 peripherals remain in recession. While the tail risks of a Greek exit and Italy and Spain losing market access have been significantly reduced, the fundamentals problems of the periphery have not been not resolved:  low potential growth because of slow reform, public debts well above 100% of GDP for Italy, Spain and other peripherals that will keep on rising, problems of competitiveness. and some improvement in current accounts that are cyclical due t the recession and not structural.

Italy government could collapse if Berlusconi’s threat to pull the plug on the government unless he gets a pardon or avoids prison is not a bluff, the government will collapse and there will be elections before year-end and the chances of a government lasting more than a year and structural reforms both of which the country needs are relatively low.

The Greek government could fall within 6 months. Portugal and Spain have political uncertainties. Europe has austerity fatigue in the periphery and bailout fatigue in the core.

If attack on Syria is surgical and last only a few days then the further effect on oil prices will be moderated: if the conflict escalates then oil prices would be longer and more persistent and significantly damaging for all oil importing countries.

Emerging markets have had the double whammy of Fed tapering and rise in bond yields and the slowdown of China which has led to a fall if not the end of the commodity super cycle.  India, Indonesia, Turkey, South Africa, Brazil all have current account deficits, fiscal deficits, falling growth, inflation above targets, and social and political problems and elections within the next 12 to 18 months, and ugly policy choices. However, most of these countries are in better shape than in previous emerging market crises in the past decade crises with more flexible exchange rates, war chest of reserves and less currency miss-match so do not expect a repeat of the massive yen crisis of 10-15 years ago.

Watch the video at  http://www.bloomberg.com/video/-dr-doom-roubini-jobs-signal-sub-par-u-s-growth-AJzLRJ1gTcGrHz47j0zFnA.html

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OECD Lifts European Growth Forecasts on Recovery – Bloomberg 09-03-13

Salient to Investors:

The OECD said:

  • Germany will expand 0.7 percent in 2013 versus 0.4 percent predicted in May
  • France will grow 0.3 percent in 2013 versus shrinking previously predicted of 0.3 percent
  • The UK will grow 1.5 percent in 2013 versus 0.8 percent predicted in May.
  • In the euro area, re-balancing remains incomplete with weak domestic demand in high debt countries having been offset by stronger exports only to a limited extent. Supportive monetary policy must be continued, with further monetary easing should the recovery were to fail to take hold.
  • Italy will shrink 1.8 percent in 2013.
  • The US will expand 1.7 percent in 2013, down from 1.9 percent predicted in May
  • China will grow 7.4 percent in 2013, down from 7.8 percent previously predicted. China has seemingly passed the trough and looks set to recover further in half2 2013
  • In a number of other emerging economies, recent financial market tensions and weak momentum suggest both a reappraisal of trend growth and deterioration in cyclical conditions.

Read the full article at  http://www.bloomberg.com/news/2013-09-03/oecd-lifts-european-growth-forecasts-on-recovery.html

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If You Think Europe Is Fine, Look at Italy – Bloomberg 08-06-13

Salient to Investors:

Simon Johnson at MIT Sloan writes:

Optimists say Europe is on the mend – the ECB is maintaining stimulus, Germany’s export potential remains large, France will continue to be a haven for investors, while struggling countries such as Greece and Portugal represent less than 1/10 th of the euro area’s economic output and population.

However Italy is the 3rd largest economy in the euro area and its gross debt is 1.3 times GDP, one of the largest in the world, though countries have grown their way out of even larger debt burdens.

Italy’s big problem is that it is growing far too slowly – an average annual inflation-adjusted rate of 1.2 percent in the 1990s, versus the euro area’s 1.8 percent. Since 2000, Italy’s average growth rate fell to 0.4 percent versus 1.3 percent for the euro area.

Yet Italy’s investment rate is higher than Germany’s, infrastructure investment is in line with euro-area averages, education has improved steadily, and labor-market and product-market regulation have converged toward Germany’s levels. Even R&D has improved in recent years.

The main obstacle to growth in Italy is governance, such as corruption and rule of law. Italy also faces an aging population and a lack of immigration.

Italy’s national averages mask important regional differences.

The World Bank says Italy has 1.63 newly registered corporations per 1,000 working-age people, versus 10.41 in the UK and 1.35 in Germany.

Read the full article at  http://www.bloomberg.com/news/2013-08-06/if-you-think-europe-is-fine-look-at-italy.html

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Italy to Spain Beckon as Yields Beat Germany: Real Estate – Bloomberg 07-16-13

Salient to Investors:

Europe’s biggest real estate managers are making their first investments in southern Europe since the financial crisis as low prices and diminishing risk make commercial properties more attractive.

Anne Kavanagh at Axa Real Estate Investment Managers said we are at or near the bottom and starting to see a rotation from defensive to riskier investment, and sees more reality in European pricing than 12 months ago. Countries such as Germany and the UK attract the bulk of investments because of their reputations as havens.

Insurance companies, private-equity firms and sovereign-wealth funds are seeking deals in Spain and Italy as the economic prospects for the countries improve and the likelihood of a euro-currency breakup recedes. Investors are targeting hotels, homes, offices and warehouses, insurers are focused on modern, high-occupancy office buildings on busy streets, private-equity firms are targeting distressed homes held by Spain’s Sareb.

Georg Allendorf at Deutsche Bank Asset & Wealth Mgmt is considering buying real estate in southern Europe for the first time since 2010.

Peter Damesick at CBRE said buyers are attracted by the prospect of an improved economic outlook in Spain and Italy and growing confidence that the euro will survive. Returns in the commercial hubs of Madrid and Milan have become more attractive compared with other European cities after a slide in investment in both countries last year boosted yields. CBRE said yields for prime offices were 6.25 percent in Madrid in Q1, 6 percent in Milan, 4.9 percent in Frankfurt and 4.75 percent in London.

Mauro Montagner at Allianz Real Estate said many international investors are coming back, or coming into the market for the first time, realizing they are no longer like trying to catch a falling knife. Montagner said the market is more dynamic than it appears, and is competing with 8 other investors for an Italian property that probably would not have attracted any interest a year ago.

Magali Marton at DTZ said investment in Spain and Italy fell in 2012 to the lowest level since at least 2001, but will begin to recover this year and return to pre-crisis levels as early as 2014. Marton said Italy’s appeal lies in robust consumer spending and increased political stability as the political class demonstrated its capacity to manage the country and reduce public debt, and says Italy’s real estate market is more promising than Spain’s because of Italy’s strong industrial sector and lack of the construction boom that burdens Spain with an oversupply of buildings. 

The European Commission predicts Spain will grow 0.9 percent and Italy will grow 0.7 percent in 2014.

Spanish property owners face financial and regulatory pressure to sell after holding assets for years to avoid realizing losses.

The IMF said house prices in Spain are still falling sharply and further correction is likely.

Paul Danks at NAI Global said it is a very good time to expand into these markets as the majority of the big-name investors have always been there, but clearly inactive over the last few years.

Read the full article at http://www.bloomberg.com/news/2013-07-15/italy-to-spain-beckon-as-yields-beat-germany-real-estate.html

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