The Weak Suffer What They Must: Yanis and the End of Europe

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

DPC French Market, New Orleans 1910

From southern Europe to the far north, matters are shifting, sometimes slowly, sometimes faster. There are moments when it seems all that goes on is the negotiations over the Greek dire financial situation and its bailout conditions, but even there nothing stands still. The Financial Times ran a story claiming Greece is about to default on is debt(s), and many a pundit jumped on that, but there was nothing new there. Of course they are considering such options, but they are looking at many others as well. That doesn’t prove anything, though.

Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016, mind you, that reveals a few things that haven’t gotten much attention to date. It’s good to keep in mind that most of the book will have been written before Yanis joined the new Greek government on January 26, and not see it as a reaction to the negotiations that have played out after that date.

Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue.

Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall. Here’s the blurb for the book:

And The Weak Suffer What They Must
Europe’s Crisis and America’s Economic Future

“The strong do as they can and the weak suffer what they must.” —Thucydides

The fate of the global economy hangs in the balance, and Europe is doing its utmost to undermine it, to destabilize America, and to spawn new forms of authoritarianism. Europe has dragged the world into hideous morasses twice in the last one hundred years… it can do it again. Yanis Varoufakis, the newly elected Finance Minister of Greece, has a front-row seat, and shows the Eurozone to be a house of cards destined to fall without a radical change in direction. And, if the EU falls apart, he argues, the global economy will not be far behind.

Varoufakis shows how, once America abandoned Europe in 1971 from the dollar zone, Europe’s leaders decided to create a monetary union of 18 nations without control of their own money, without democratic accountability, and without a government to support the Central Bank.

This bizarre economic super-power was equipped with none of the shock absorbers necessary to contain a financial crisis, while its design ensured that, when it came, the crisis would be massive. When disaster hit in 2009, Europe turned against itself, humiliating millions of innocent citizens, driving populations to despair, and buttressing a form of bigotry unseen since WWII.

In the epic battle for Europe’s integrity and soul, the forces of reason and humanism will have to face down the new forms of authoritarianism. Europe’s crisis is pregnant with radically regressive forces that have the capacity to cause a humanitarian bloodbath while extinguishing the hope for shared prosperity for generations to come. The principle of the greatest austerity for the European economies suffering the greatest recessions would be quaint if it were not also the harbinger of misanthropy and racism.

Here, Varoufakis offers concrete policies that the rest of the world can take part in to intervene and help save Europe from impending catastrophe, and presents the ultimate case against austerity. With passionate, informative, and at times humorous prose, he warns that the implosion of an admittedly crisis-ridden and deeply irrational European capitalism should be avoided at all cost. Europe, he argues, is too important to be left to the Europeans.

Unextrapolating Bubble Expectations

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

No inflection is ever expected in the real economy since everything is always extrapolated in straight lines by orthodox economists using econometrics. Similar interpretations are being used in stocks, and not just in the “earnings recession” that is already declared “unexpected.” In terms of share prices, there is little doubt about what is holding up the S&P 500 and larger cap exposures. With stock repurchasing providing so much emphasis, extrapolations are becoming increasingly important as justifications for price multiple rationalizations.

According to the Financial Times, expectations within Wall Street are for about $400 billion in dividends and $600 billion in buybacks in CY2015, returning an unprecedented $1 trillion to shareholders. Supposedly, companies have no choice:

The combination of slowing emerging market economies, concerns about the pace of the recovery in some developed markets and falling oil prices are driving down expectations for capital investment growth. This has prompted US blue chips to shift their focus, becoming the largest buyers of shares on the S&P 500 since the financial crisis, dwarfing domestic investors and helping propel the ageing bull market into its seventh year.

I seriously doubt that there is a shift in focus among management of US blue chips, as it is amply apparent this isn’t exactly new territory. One could easily make the opposite case that as valuations remain historically lofty, only in comparison now with the dot-com bubble or 1929, that corporate management has not turned away from idleness but toward desperation as to holding share prices so “markets” don’t ever get to reconciling all of that. In other words, it’s not like CFO’s have been running full ahead with their productive investments and capex, and only now are looking at slowing growth to cut back and “reinvest” in shares. They have been doing that all along only now reaching the point where the economy isn’t as ambiguous about future prospects related to this financial repositioning.

The Fed Never Learns – Another Inventory Dump Is Brewing

Submitted by David Stockman – The Contra Corner Blog

The fairy dust peddlers who moonlight as Wall Street economists were out in force this morning after March retail sales came in with a positive m/m change for the first time since November.  This purportedly confirms that we’re back on track for a big rebound in Q2:

Ian Shepherdson, chief economist at Pantheon Economics, said he expected stronger sales in coming months as the drop in gas prices have built up consumer cash savings.

Now how in the world does he figure that? Total retail sales in March were up a miniscule $5.5 billion or 1.3% over prior year. But then again, gasoline sales were down $10 billion, meaning that consumer spending on everything else was up by $15 billion or 4%. So consumers weren’t hoarding their money or building a cash cushion for some big shopping spree later this spring——-they were just reallocating it like they always do.

Today’s bubble vision jabbering about March retail sales, of course, is just more of the phony baloney “gas tax cut” meme. The 50% cut in world oil prices did not put more income in consumers’ pockets; it just allowed them to spend a tad more on home improvement and restaurants and less on gasoline. But relative price changes and spending reallocations between categories come and go; and besides, this was the “advance” retail report that is going to get revised several more times, anyway.

What might more profitably be asked is this: Has there been any improvement in the tepid rate of retail sales gain since the pre-crisis peak? The answer is no there hasn’t been.

In fact, the March monthly number of $441.4 billion reflected only a 2.1% annual rate of gain since the November 2007 peak. During that same seven year period the CPI was up at a 1.5% rate—-meaning that inflation adjusted retail sales have grown at only 0.6% per annum during the last 7 years.

The graph below which displays inflation adjusted retail sales since the turn of the century explains how Wall Street economists chronically peddle fairy dust. In a word, they focus narrowly on short term rates of change while completely omitting any sense of context. Accordingly, if you are digging out of a deep hole the rate of change can be made to look robust when the trend is actually quite punk.

That’s exactly the case with retail sales, and the reason for the distortion is crucially important. As shown in the graph, retail sales declined only modestly during the shallow 2001 recession. So seven years after the peak, real retail sales had risen at a 2.3% annual rate or nearly 4X the rate during the most recent seven year period.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• The Shocker Crushing The Economy Revealed (Zero Hedge)
• China’s Economy: Hard Landing Or Welcome Rebalancing? (Guardian)
• The Risks Behind China’s Silk Road Growth Gamble (CNBC)
• Citi Analysts Call The ‘End Of The Iron Age’ (CNBC)
• Shale Oil Boom Could End in May After Price Collapse (Bloomberg)
• Scrap Fossil Fuel Subsidies, Bring In Carbon Tax – World Bank Chief (Guardian)
• The New Militarism: Who’s The Real Enemy? (Ron Paul)
• Optimising The Eurozone (Frances Coppola)
• Greece Prepares For Debt Default If Talks With Creditors Fail (FT)
• Why Europe Needs to Save Greece (Anders Borg)
• Greece, The Euro’s Greatest “Success” (Constantin Xekalos)
• Ackman Says Student Loans Are the Biggest Risk in the Credit Market (Bloomberg)
• Chavez’s Ghost Haunts Spanish Budget Rebels Podemos in Polls (Bloomberg)
• Anti-Euro Finnish Party Gets Ready to Rule as Discontent Brews (Bloomberg)
• The Power of Lies (Paul Craig Roberts)
• She’s Back! (Jim Kunstler)
• Greenpeace’s Midlife Crisis (Bloomberg)
• The Real Reason Californians Can’t Water Their Lawns (Bloomberg)
• Italy Rescues Nearly 6,000 Migrants In A Single Weekend (Guardian)

Much more here: Debt Rattle April 14 2015 – TheAutomaticEarth.com

Greek Negotiators “Shock” Their EU Counterparts

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Dudes, Where’s My Money?

Over the weekend, conservative German newspaper FAZ (Frankfurter Allgemeine Zeitung) reported that euro-group negotiators were allegedly “shocked” by the lack of viable reform plans offered by Greece and the general attitude of the Greek delegate. As Reuters reports:

“Euro zone officials were shocked at Greece’s failure to outline plans for structural reforms at last week’s talks in Brussels, a German newspaper on Saturday cited participants as saying, adding the Greek representative behaved like a “taxi driver”. A meeting of deputy finance ministers on Thursday gave Athens a six working day deadline to present revised economic reform plans before euro zone finance ministers meet on April 24 to consider unlocking emergency funding to keep Greece afloat.

Euro zone sources told the Frankfurter Allgemeine Sonntagszeitung that they were disappointed and shocked at Athens’ lack of movement in its plans, and in particular its reluctance to talk about cutting civil servants’ pensions.

The mood between Greece’s leftist government and its euro zone partners, especially Germany, has deteriorated in the last few weeks, with personal recriminations flying between ministers and calls from Athens for Berlin to pay war reparations.

The paper said at last week’s meeting the Greek representative just asked where the money was “like a taxi driver”, according to sources, and insisted his country would soon be bankrupt.

The euro zone sources told the paper that Greece’s creditors do not believe this is the case and that it would be a domestic political issue if Athens is unable to fully pay salaries and pensions.

The paper also said that German Finance Minister Wolfgang Schaeuble, who has taken a tough line toward Greece in bailout talks, would have to get the Bundestag lower house of parliament to vote on any fundamental changes to the reform program.

(emphasis added)

This was immediately denied by the Greek ministry of finance, which issued a statement basically accusing the newspaper of making it all up:

“When the readers of FAZ read the minutes of the Euro Working Group meeting the newspaper will have difficulty justifying its headline and the content of its article,” the finance ministry said. “Such reports undermine the negotiation and Europe.”

However, we tend to believe that the FAZ probably relies on some inside source – that source may well be biased, but the report in our opinion correctly outlines the main problems between the Syriza-led government and the EU. One of those is that they keep talking past each other. Cutting civil servants’ pensions is a case in point: The Greek government has repeatedly insisted that this is something it simply refuses to do. It has even announced that it plans to roll back some of the public sector reforms already undertaken, by e.g. rehiring 10s of thousands of civil servants that have been fired by the previous government. Given the byzantine, ineffective and corrupt nature of Greece’s civil service, there can be little doubt that it would be better not to try to turn the clock back.

This Is Not Good

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

If you go back and review the academic literature from the 1960’s up until the 1980’s as it related to monetary policy and recession, you find a rather solid foundation for credit as a means of deconstructing contractionary forces. The interface between expectations and actions had typically occurred within the realm of business credit, whereby deepening pessimism was “passed off” into the real economy as either tightening lending standards or lower credit availability. Monetary policy post-1980 took that foundation as an excuse toward a heavily activist approach which believed that alleviating or softening any credit crunch would be the same as avoiding recession entirely (it obviously wasn’t).

Of course, that was never a safe assumption to begin with and there is enormous distance covering the whole boundaries of finance. But the fact remains, even of 2007-08, that the inception of recession gathers at the point where business credit starts to swiftly fall away. This is a last resort kind of process where businesses will appeal to borrowing even in the face of a slowdown in revenue as they are never quite sure that any slowdown might be just temporary; so it becomes a full-blown dislocation where that appeal amidst the slowdown is no longer viable.

That was always the primary danger between this latest slowing and the others that have come, as an annual ritual, before. The “dollar” breakdown beginning last summer was, at its core, a financial process that threatened more than just asset prices and “market” liquidity. It had the potential to trip up and derail vital flow to actual business needs (rather than the purely financial up to this point).

To that end, there have been some very concerning signals in a lot of different economic accounts that play upon that potential, including some sentiment surveys which I studiously ignore out of pure disdain. However, even sentiment surveys have some use and meaning where they attain an outlier state or denote strongly a potential durable shift, even outright inflection. Leave it to my colleague Joe Calhoun to remind me of that , forwarding the latest and not-well known CMI from the National Association of Credit Managers.

330 Million Citizens and Only One Democrat Interested in being President.

Submitted by Thad Beversdorf, Chief Economist – Bullion Capital

I was watching Meet the Press Sunday and found it fairly comical when they got around to discussing Hillary Clinton.  In fact, they replayed a SNL skit from Saturday night that made fun of Hillary and the fact that she is the only viable candidate for the Democrats because of the Clinton dynasty.  The host of Meet the Press, Chuck Todd and his panel guests all had a good laugh “ha ha ha… yes that’s funny because it’s true ha ha ha”.  And once they had a good if not awkward chuckle, one can only presume at the expense of the American people, they simply moved on and stepped over that giant elephant in the room.  So despite the fact that we all understand something is incredibly wrong with the fact that Hillary has no challengers in a nation of 330 million citizens we are simply supposed to ignore this giant puss filled boil on the face of our democratic process.

How can this be?  How is it that in such a well educated society with an abundance of opinions throughout this vast land the Democratic party is unable to find anyone outside of the core political machine willing to even take a stab at becoming the chief public servant?  This is supposed to be a self governed democracy.  We have destroyed the entire Middle East over the past 15 years in the name of self governance and rule by the people for the people.  What a farce!  How can anyone in this country say with a straight face that we are a nation ruled by the people for the people when the system is so locked down to anyone outside of the elite political insiders that we cannot even find a few tokens to throw at the facade of democracy at work?

It is absolutely disgusting that on one hand our political ‘leaders’ stand high on their towers of righteousness proselytizing a natural right to self governance around the world to the point that they use it to defend the immense piles of collateral carnage building up behind the fence.  While on the other hand our political ‘leaders’ have mutated the political process here at home to such an extreme that not only do we not have any impact on the legislative process between elections but have now totally abandoned the actual election process toward self governance itself.

Greece Out of Funds by Month End Default and Drachma Imminent?

Submitted by Mark O’Byrne  –  GoldCore

– Greek government to withhold IMF payments according to the FT
– Prime Minister Tsipras denies preparing for default according to Reuters
– Government funds to run out by end of month
– Default would likely lead to “Grexit” and return to drachma
– EU may not withstand uncertainty surrounding break-up of monetary union
– Concern could trigger derivatives crisis and ‘Lehman moment’
– Like frogs in a pot of water that is very slowly coming to the boil

The Financial Times, citing unsourced “people briefed on the radical leftist government’s thinking” has made the claim that the Tsipras government in Athens has “has decided to withhold E2.5 billion of payments due to the International Monetary Fund in May and June if no agreement is struck”.

The Greek government was quick to deny the claim. “Greece … is not preparing for any debt default and the same goes for its lenders. Negotiations are proceeding swiftly towards a mutually beneficial solution,” read a statement from the Prime Minister’s office.

The Greek government is rapidly exhausting its funding  to pay salaries and pensions with no funding from its lenders having been released since July. Another “end of the road” deadline looms – this time the Eurogroup meeting on April 24th.

This meeting may truly be the “end of the road” because it is expected that the Greek government will have finally depleted its reserves and will be wholly dependent on its creditors by the end of this month.

Negotiations have been going around in circles since the election of the anti-austerity Syriza government in January and appear no closer to resolution. It became apparent in late February that neither side was prepared to compromise – each having too much to lose from deviating from their central positions. There has been adequate time, since then, for preparations to be made for an orderly “Grexit”.

China Is Turning Scary Even For Economists

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The Chinese lunar year always offers difficulty with Chinese economic figures, and this year was perhaps heightened in that respect since the New Year fell rather late on February 19. That suggests less dependable interpretations especially about February figures. So after rising a suspicious 48.3% in February, Chinese exports (in US$’s) are down 15% in March even though they were expected to have increased 12%. That February estimate was already problematic particularly since it was nowhere to be found at least as far as the US end since the Census Bureau reported essentially no growth in US imports from China in January and February.

Part of the dichotomy is surely “dollars” as a matter of finance rather than the dollar as purely currency. Whatever the entanglement, March’s numbers have even the credentialed economists, wholly unperturbed until now, suddenly nervous about not just China but the whole rest of it.

“It’s a very bad number that was much worse than expectations,” Louis Kuijs, an economist at RBS in Hong Kong, said about the export data.
“It leads to warning flags both on global demand and China’s competitiveness.”
Buffeted by lukewarm foreign and domestic demand, China’s trade sector has wobbled in the past year on the back of the country’s cooling economy, unsettling policymakers.

That last phrase, “unsettling policymakers” I think is wholly incorrect; if anything, the PBOC and Chinese government have been warning about this very scenario for some time. That would seem to apply as far backward as even late 2013 when the introduction of monetary and financial “reform” turned to a priority. If anything is “unsettled” about weakness in China, and more importantly what that signals the global economy, it is economists that are still operating under the knotted assumptions that monetary policydoes more than bubbles and thus the US is “booming.”