The Only Good Deal For Greece Is NO Deal

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Ben Shahn Sideshow, county fair, central Ohio 1938

The only thing that would really go towards beginning to solve the problems with Greece is for Athens to NOT sign a deal. The short version of why that is so: it would leave the EU intact for longer. And the ECB.

Neither have any viable future, but as they go down, they can cause a lot of damage and pain. It’s mitigating that pain which should now be our priority no. 1, the pain that will result from the demise of Europe’s institutions. But we see precisely zero acknowledgment of this. Anywhere.

All that attention for whatever comes out of yesterday’s, and today’s, and tomorrow’s Troika vs Athens talks is very cute and nice and all, and putting on a ‘phantom summit’ is hilarious, but in reality it’s all based on a far too myopic picture.

Maybe that’s what you get when you’re only looking at life as exclusively consisting of things that can be either bought or sold, which seems to be the way the entire world press interprets the negotiations, the only way they have of interpreting anything. But this is not about money.

There’s more to life than money. That is to say, there’s a lot more going on than those talks and the deal-or-no-deal results that may or may not emanate from them. To wit: If the past 5 months or so have made anything clear, it’s that the eurozone has no future at all, and the EU as a whole has very little.

There is no trust left between Brussels and Greece, and therefore at the same time also not between Brussels and Rome, or Madrid. Italy and Spain could be the next to receive a five-month treatment like the one Greece has had, and the people there sense it. Even if their present governments do not.

As I said a few days ago :

None of these institutions, IMF, EU, ECB, has any raison d’être or any claim to fame unless there is explicit trust in what they represent. That trust is now gone, and it’s hard to see how it can ever be recovered.

Whatever happens to Greece going forward, that is perhaps the biggest gain its dramatic crisis will gift to the rest of Europe, and indeed the world. Which therefore owe it a debt of gratitude, and of solidarity.

You know, we’ve heard it said that politics is about seeing ahead. Well, that’s just too bad, because if there’s one thing European politicians, to a (wo)man, show us these days it’s that they lack the ability to see ahead, even just beyond the beam in their own eyes.

These people don’t see ahead, they project ahead. They are under the self-reinforcing collective illusion that the future will bring what they want it to bring. They honestly think they have the power to control history. And control all of Europe. Their vision of the future is one that they look good in.

And that can in turn only possibly bring about mayhem. Or actually, as the Greece crisis tells us, it already has. Something the leadership in Brussels, Paris and Berlin will flatly deny, because, as Paulo Coelho once said: “Collective madness is called sanity”.

The more power they seek to gather in Brussels, the harder the resistance against them, and against that power, will become. But that is not going to stop them. Just read the report issued last week by the “Five Presidents: Completing Europe’ Economic and Monetary Union.

Brussels sees, projects, solutions to its problems exclusively in more Brussels. But nobody in Europe wants more Brussels. Nobody wants to give up more sovereignty, people instead want back what has been given away. Still, the myopic Five Presidents come with this:

Economic Union: A new boost to convergence, jobs and growth
• Creation of a euro area system of Competitiveness Authorities;
• Strengthened implementation of the Macroeconomic Imbalance Procedure;
• Greater focus on employment and social performance;
• Stronger coordination of economic policies within a revamped European Semester.

Financial Union: Complete the Banking Union
• Setting up a bridge financing mechanism for the Single Resolution Fund (SRF);
• Implementing concrete steps towards the common backstop to the SRF;
• Agreeing on a common Deposit Insurance Scheme;
• Improving the effectiveness of the instrument for direct bank recapitalisation in the European Stability Mechanism (ESM). Launch the Capital Markets Union
• Reinforce the European Systemic Risk Board

Fiscal Union: A new advisory European Fiscal Board
• The board would provide a public and independent assessment, at European level, of how budgets – and their execution – perform against the economic objectives and recommendations set out in the EU fiscal framework. Its advice should feed into the decisions taken by the Commission in the context of the European Semester.

Continue reading


Submitted by J.C. Collins  –  philosophyofmetrics

The White House is seen at dusk on the eve of a possible government shutdown as Congress battles out the budget in Washington, DC, September 30, 2013. AFP PHOTO / Saul LOEB        (Photo credit should read SAUL LOEB/AFP/Getty Images)In a June 12 press release from the International Monetary Fund it was made clear that the time for the United States to act on the 2010QGR is fast approaching.  The IMF has given the US until September 15 to enact the quota and governance reforms as agreed upon back in 2010.

From that date the “Plan B workaround” will begin to be implemented and the completion of the steps required to reach the objectives of the 2010QGR will need to be fully implemented by mid-December, 2015. This statement can be interpreted several different ways.  The obvious is that the methodology for the “workaround” will be implemented by mid-December, but the actual process of completing the reforms will take somewhat longer.

This is to be expected, as things in the international monetary architecture do not happen overnight.

The integration of data reporting standards and macropudential policies amongst the IMF, China, World Bank, BRICS New Development Bank, and Asian Infrastructure Investment Bank (AIIB), along with the needed changes to the balance of payments framework (which includes exchange rate adjustments), are heralding in the new multilateral framework which the supra-sovereign international money clearing unit (represented initially by the SDR), will expand and grow upon.

As stated previously, the long-term goal is to transition the SDR from a basket of currencies (like the ECU in the lead up to the euro) to the actual international money clearing unit that was originally intended back in 1944 during Bretton Woods, the bancor.

In the post When Will China End the Dollar Peg, posted back in March, 2015, we reviewed how China will likely widen the managed peg which the renminbi holds against the dollar.  In a recent article from Bloomberg, this is exactly what is being suggested and stated that China will do in the lead up to the decision on the SDR.

The inclusion of the RMB to the SDR basket composition is a forgone conclusion at this point.  The United Stated does not have the political influence to fight the 2010QGR and the SDR changes.  The fact that the other major members of the IMF have signed on to the AIIB is a clear indicator that the US is being isolated on the global monetary field.

All players, including China, are intending to utilize the IMF and SDR.  This should be clear by the Chinese push to have the RMB included in the SDR composition, and the acceptance of this eventuality by the IMF.

It is important to point out that the IMF is not a US institution, it is an international monetary institution which the US has dominated through the use of the dollar as the international money clearing unit since 1944.  The original intention was to use the bancor as the reserve asset, and trade would be cleared through the International Clearing Union.  The US vetoed the use of the bancor and the IMF was created in place of the ICU.

Now the IMF is being re-worked by the rest of the world, including China and BRICS, to act in the original role intended for the ICU, with the SDR acting as the reserve asset for a period of time as the bancor is developed and implemented in the forthcoming years, much like the ECU preceded the euro. Continue reading

In Gold We Trust 2015

Submitted by Pater Tenebrarum  –  The Acting Man Blog

The Gold Standard of Gold Reports is Back

As every year around this time, our good friends Ronald Stoeferle and Mark Valek, the managers of the Incrementum Fund, have published their annual “In Gold We Trust” report, the extended version of which can be downloaded below.


This year’s report is slightly longer than the 2014 report and discusses practically the entire breadth of gold-related topics, including highly instructive excursions into economic theory, monetary history and an extensive discussion of current political and economic trends.

For the past few years, gold investors certainly had little to write home about. In dollar terms, gold has essentially been going nowhere, with a slight downward bias. Actually, the past three years in the USD gold price look a bit like the past 18 years of “global warming”.

And yet, a lot depends on one’s home currency. Gold’s sideways trend in dollar terms actually represents a small victory, given the strong rally in the dollar in 2014. As a result, gold price charts actually look quite encouraging in terms of most non-dollar currencies. In fact, its performance in euro and yen terms over the past 18 months has been none too shabby.

Moreover, as Ronnie and Mark point out, gold has held up extremely well in a disinflationary environment in which many commodities such as crude oil have been obliterated. As our readers know, we believe that the underlying bid that is supporting gold is from people who are looking at the third huge asset bubble blown by loose monetary policy within the past two decades and are feeling increasingly queasy. It can’t hurt to hold some insurance – and sooner or later it will be essential.

Naturally, while the party in “risk” still rages, it is widely held that this time is somehow different. Actually, every slice of economic history is unique, but as Mark Twain noted, history often does tend to rhyme. There is one thing that unites all credit expansions: they eventually all blow up – as in, no exceptions. In this sense, it isnever different.

Gold in currenciesGold priced in US dollars, euro and yen over the past 18 months. Gold may look weakish in dollar terms, but it certainly looks just fine in terms of every other major currency, via StockCharts, click to enlarge. Continue reading

How Your Bank Could Steal Your Money

Submitted by William Bonner, Chairman – Bonner & Partners

(Still) Waiting for Greece

The Dow ended the week back above 18,000 points, despite all the hand-wringing over a potential Greek default.

Gold fell back below the psychologically important $1,200-an-ounce mark.

It is a wait-and-see period.

We are waiting to see what will happen with Greece, for example.

An emergency summit will be held today in Brussels to determine its fate.

alarmA special Greek clock, frozen at 5 to 12 forever and ever …

Cartoon by Ilias Makris

A Heinous Accusation …

But before we get to the Greeks, we rise to our own defense. Last week, a reader leveled a heinous accusation – a dirty blow, beneath the belt, outrageous, and hideous. He implied we were a closet Democrat. Can you imagine?

Our escutcheon sullied … our dignity impugned … our intelligence and savoir faire challenged in such a defamatory manner! Wrote Diary reader Bud S., in response to our recent series, “The Good, the Bad, and the Ugly” (To catch up, here’s Part IPart II,Part IIIPart IV, and Part V):

“Commenting on Bill’s current list of ugly people, it seems like the common denominator is that they’re all Republicans.

Hmmm … How can you have a list of ugly people without a Clinton or an Obama on it?

Hmmm … very interesting, guess you can make of that what you will.”

Let us assure readers we are not now, nor have we ever been, a Democrat. Not even with a small “d.” We confess that in our youth – our lungs filled with the gas of civic virtue and our head with delusions of democracy – we once pulled the lever for Jimmy Carter.

As presidents go, he was not the worst. But we quickly realized our error and swore off voting forevermore – a pledge that we have solemnly honored ever since.

If our barbed words seemed to prick Republicans lately, it is only because – at least as far as the zombie wars are concerned – they are the loudest and dumbest jackasses in the field.

Yes, there are plenty of Democrats in this pasture, too. But you get the impression that their motives are purer. They are just in it for the money. And the Imbecile Vote – which is, of course, decisive.


Jimmy Carter delivering one of his famous “fireside chats”. The last one of these may well have cost him the election – he sounded pessimistic and spoke of more sacrifices to come, while Reagan was projecting optimism (rightly so, as it turned out later).

Photo credit: National Library of Congress Continue reading

The ‘Dollar’ Does Disturb Junk

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Stocks may be ignoring the “dollar” and liquidity more broadly (at least as far as repurchases are concerned) but the continued stress in the eurodollar world has had an accumulating effect in some places. Primarily that has been shown in the once-thriving junk space, including more illiquid “products” like leveraged loans, which has continued in disfavor more recently. The shift in junk pricing, and thus credit risk perception, has confirmed to a great extent the overall “dollar” view, including the past two months or so.

By and large, there seems to be renewed concerns about liquidity, economy or both. It is universal and has even crept back into overall issuance (investment grade, by contrast, continues to be unperturbed). The usual extended commentary from this point is really unnecessary, given the repeated context, so here are the charts:

ABOOK June 2015 Dollar Lev Loan Mkt ValABOOK June 2015 Dollar Lev Loan Deal ValABOOK June 2015 Dollar Lev Loan LongerABOOK June 2015 Dollar HYG

Price negativity is, again, having an effect on issuance…

ABOOK June 2015 Dollar HY IssuanceABOOK June 2015 Dollar Corp Issuance

Continue reading

The Money Printers’ M&A Ball – Where The Debt Zombies Go To Mate

Fed governor Jerome Powell is living proof that we are heading for another calamitous financial meltdown. This clueless monetary apparatchik averred yesterday that the Wall Street casino is in the pink of good health with no evidence of irrational exuberance in sight. Said the former LBO guy from Carlyle Group,

“Things are fully priced, but I really don’t see bubble territory,” Powell said. “I can’t say we’re at significant risk of financial instability.”

Maybe he should glance at the financial papers, starting with the Merger Monday stories. Comes word this week that two more bloated debt zombies plan to mate—–and their financials scream bubble mania.

To wit, Energy Transfer Equity (ETE), which has a TEV (total enterprise value of market equity plus debt) of $89 billion, plans to acquire Williams Companies (WMB), which sports a TEV of $79 billion. Needless to say, this is not about smart new technology or some other cutting edge mousetrap. The resulting TEV of $168 billion—-or a tad less than the GDP of Greece’s woebegone 11 million citizens—–is all about rolling-up dumb old technology into a bigger bundle.

The proposed merger’s massive TEV purportedly measures the value of approximately 100,000 miles of steel pipe; a few thousand pumping stations which are based on 50-year old natural gas engine designs that work by the simple expedient of siphoning fuel from the flowing gas; and various and sundry liquefaction and gasification plants that extract liquids along the way.

But what this combination really measures is the degree to which the Fed’s insane QE and ZIRP policies have transformed business executives into deal junkies and the corporate securities market into an out-of-control arena of rank speculation.

Let’s start with the cash flow of this pending nuptial. In the LTM ending in March, the combined companies generated exactly $10 billion of EBITDA. That doesn’t seem like much against $168 billion of TEV, but that’s not the half of it. It seems that the combo also consumed $6.2 billion of cash on CapEx——that is, laying pipe and maintaining pumping stations.

So we are in fact talking about just $3.8 billion of net cash flow to service the return requirements of $168 billion of capital. That makes the EBITDA less CapEx multiple 44X.

It also makes the valuation flat out absurd. The net cash flow of the latest technology whiz-bang is rarely worth 44X. But when it comes to cold steel pipes buried in the US energy patch and gas transmission pipelines that are heavily regulated by state and Federal authorities, this towering valuation multiple is just plain nuts.

The Wall Street stock touts, of course, say not to worry because both companies have been growth machines and there is plenty of post-merger synergies. As to the former point, for example, they reassure their retail mullets that the heavy CapEx which eats up the EBITDA is front-loaded. Therefore, down the road a spell the investment phase will end and these companies will become veritable corporate cash machines.

Not on the record—-not even close. During the 40 quarters from 2005 through 2014, ETE generated $19 billion of EBITDA and consumed $20 billion in CapEx. Likewise, WMB generated $31 billion of EBITDA and consumed $28 billion of CapEx.

In short, an entire decade ought to be more than ample time to prove up an investment now/cash flow latter proposition. And that’s especially apt in the case of businesses which have low value-added and depend upon decades-old, pedestrian technology.

So here’s the skunk in the woodpile. During the entire decade ending in 2014, this prospective combination managed to churn out $50 billion of EBITDA and spent $48 billion on CapEx. It goes without saying that $2 billion of net cash flow is nothing to write home about in any circumstance, but most especially in this case.

Why? It seems that a goodly portion of even the modest EBITDA indicated above was acquired. That’s right. Both companies have been serial deal machines, and over the last decade spent upwards of $16 billion on acquisitions designed to roll-up the pipe, so to speak. Continue reading

“They Can’t Print Money Forever” – Ron Paul

Submitted by Mark O’Byrne  –  GoldCore

– Former U.S. Congressman blasts Fed’s role in markets
– Gives scathing analysis of modern economics and markets
– Highlights complete disregard of economic fundamentals in investment decisions today
– As will be the case with Greece, U.S. will eventually be forced to liquidate debt
– Attempts to forecast day of reckoning are futile as it is a function of psychology
– “They can’t print money forever”
Gold and silver will weather and thrive in currency devaluation


Ron Paul, former congressman for Texas, laid plain the absurdity of central policy towards the markets in a recent interview with Amanda Diaz on CNBC. He believes a day of reckoning is in the cards because the central banks “can’t print money forever.”

Dr. Paul blasted the role of the Federal Reserve in markets where superficial pronouncements herd speculators to and fro: “I am utterly amazed at how these Federal Reserve Chairman reports can play havoc with the market: one word – what they say and what they don’t say and who’s going to interpret it,” he said.

He believes this manipulation of markets by the Fed is having very negative consequences for the economy. Speculators are chasing Fed-induced momentum rather than making investment decisions based on analysis of what is happening in the real world. Savings, once the bedrock of American capitalism, have been replaced by easy credit leading to “a lot of malinvestment and a pyramiding of gigantic debt”, adding“People don’t depend on savings for their capital – they depend on the Fed!”

He states that at some point the financial elites are going to have to admit that Greece’s debt is unpayable and will have to be liquidated. He sees the same thing eventually unfolding in the U.S. also, saying “there will be an unwinding of this pyramiding of debt and all this malinvestment that has occurred for a good many years.”

The interviewer – abandoning any pretence that the markets are in anyway independent – states “This is a Fed that has held this market up for quite some time now” and then asks Dr. Paul to indicate when he thinks the crisis will unfold.

He states that it could happen any time – maybe tomorrow, maybe two years from now.  “It all depends on a psychological acceptance of this system. So, a lot of people who are still making a lot of money know that it is not going to last but they figure ‘well, everybody else thinks it’s going to last…’ and they just keep owning bonds and buying stocks.”

He therefore believes that it is impossible to gauge when the day of reckoning will come.

“So no, I don’t think there is anyway to know what the time is but after thirty five years of a gigantic bull market in bonds: believe me, they cannot reverse history and you cannot print money forever and deceive the markets forever. Eventually, the markets will rule and that’s only a question of when that will happen and of course I’m running a little bit scared because I think there will be a day of reckoning.”

In the event of currency devaluations, physical gold and silver – which cannot be printed and devalued by central banks with reckless abandon – will not only survive but thrive.

Manufacturing Better Be Isolated Or The Aberration Becomes Universal

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Durable goods orders and now shipments continue to be a serious drag on the overall economy. On a year-over-year basis, shipments joined orders in contracting for both durable goods (ex transportation) and capital goods. For some, there was a glimpse of hope in that the seasonally-adjusted category of new orders for capital goods rose in May, but that was, as retail sales, in sharp contrast to the unadjusted comparison.

The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent last month. These so-called core capital goods orders slipped 0.3 percent in April.
Manufacturing has been pressured by investment spending cuts in the energy sector in the aftermath of a more than 60 percent plunge in crude oil prices last year, as well as dollar strength.

The view that seems to be supplanting the previous narrative about the “unquestionable” recovery is that mysterious weakness can be found – but only in limited experience.

“The bottom line is that equipment investment is one of the few expenditure components that isn’t showing signs of a marked rebound in the second quarter,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients.

Maybe that is progress in a certain light, as in the space of about half a year the “narrative” has transited from universal recovery and boom to transitory anomaly again in weather to lingering but isolated economic illness. Subtle and lagging is this shift, but it is noticeable and that is significant in and of itself as it amounts to further refuting last year’s surety on economic direction.

In fact, from a very broad perspective, the behavior of durable goods and especially capital goods is every bit consistent with economic performance in 2015. You can take the declines in capital goods directly from the capacity utilization figures provided by the Federal Reserve; businesses that see a sudden drop in utilization rates are not going to be keen on ordering and buying new equipment. And if capacity has suddenly become excess, then the massive inventory overhang is undoubtedly responsible for that; all of which traces back to the quite clear consumer recession that has now stretched into May, months beyond where weather and “anomalies” were hanging.

ABOOK June 2015 Durable Goods ex transABOOK June 2015 Durable Goods Cap GoodsThis is the first time since early 2013, in the aftermath of the 2012 slowdown, where all four categories (durable goods and capital goods, new orders and shipments) are all contracting. That would suggest that, no, there isn’t any rebound and that the distress is more widely impugning than just limited manufacturing. The behavior of new orders, especially, as well as the timing of that behavior precludes manufacturing and business investment being isolated in terms of “mystifying” weakness. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Americans Throw Out $165 Billion Worth Of Food Every Year (MarketWatch)
Europe, A Big Phony (Costas Iordanidis)
Greek Problems Mask The Rising Risks In Italy And France (Satyajit Das)
Britain Would Not Survive A Vote For Brexit (FT)
Greece: A Deal Nobody Believes In (Paul Mason)
Troika’s Red Ink Tells Its Own Story (Guardian)
Greek Syriza Official Says Lenders’ Proposals ‘Blackmail’ (Reuters)
Last-Ditch Greek Rescue Hopes; Tsipras Faces Austerity Ultimatum (Telegraph)
Greece Debt Crisis Talks End In Renewed Deadlock (Guardian)
Greece Rejects Creditors’ Counter-Proposals (AFP)
How Draghi Shifted ECB Crisis Tactic Amid Greek Brinkmanship (Bloomberg)
To Potami Leader Warns Tsipras Over Bailout Reshuffle (FT)
Martin Schulz, The Man Who Would Be Caliph (Neurope)
IMF Must Help Europe With ‘Aggressive’ Athens: Sinn (CNBC)
US Credit Card Debt Grew At 11.5% In April, Fastest In Years (Forbes)
Three Words Count in Bonds: Liquidity, Liquidity, Liquidity (Bloomberg)
Toyota’s Drug Problem, and Japan’s (Pesek)
How WikiLeaks Could Help Precipitate The Fall Of The Saudi Empire (RT)