EurAnalysis

http://globaleconomicanalysis.blogsp...-eurozone.html

Snippet:

. Absolute priority to debt service
Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure. This will reassure public and private creditors that the Hellenic Republic will honour its comittments after PSI and will positively influence market access. De facto elimination of the possibility of a default would make the threat of a non-disbursement of a GRC II tranche much more credible. If a future tranche is not disbursed, Greece can not threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement.

2. Transfer of national budgetary sovereignty
Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.

Mish's Conclusions and Mine !!!

Expect Greek "Bank Holiday" Soon

Perhaps I am mistaken but I do not see any chance Greece will agree with this proposal.

German and IMF demands make meaningless any hint of a deal "soon". Germany has signaled it has had enough and will not throw another 130 billion euros down a rathole. The IMF signaled the same thing but not as emphatically.

Thus, if Germany does not back down and the IMF insists on a 10-page list of “prior actions” a Greek exit from the Eurozone is at hand.

Look for a "bank holiday" in Greece soon.

I am a Canadian and this comes from an American. I only post the link for awareness purposes.

http://ampedstatus.com/full-report-t...-america/#rise

Snippet:


It’s time for 99% of Americans to mobilize and aggressively move on common sense political reforms.
Yes, of course, we all have very strong differences of opinion on many issues. However, like our Founding Fathers before us, we must put aside our differences and unite to fight a common enemy.

It has now become evident to a critical mass that the Republican and Democratic parties, along with all three branches of our government, have been bought off by a well-organized Economic Elite who are tactically destroying our way of life. The harsh truth is that 99% of the US population no longer has political representation. The US economy, government and tax system are now blatantly rigged against us.

Current statistical societal indicators clearly demonstrate that a strategic attack has been launched and an analysis of current governmental policies prove that conditions for 99% of Americans will continue to deteriorate.

The Economic Elite have engineered a financial coup and have brought war to our doorstep. . . and make no mistake, they have launched a war to eliminate the US middle class.

To those who feel I am using extreme rhetoric, I ask you to please take a few minutes of your time to hear me out and research the evidence put forth. The facts are there for the unprejudiced, rational and reasoned mind to absorb. It is the unfortunate reality of our current crisis.
Unless we all unite and organize on common ground, our very way of life and the ideals that our country was founded upon will continue to unravel.

Before exposing exactly who the Economic Elite are, and discussing common sense ways in which we can defeat them, let’s take a look at how much damage they have already caused.

real quality commetary here and in the earlier post.

What is key in the Euro's power drive north is that the fear of an immediate end of the Euro has been put to rest. Many of the formerly lights flashing red are now merely flashing yellow. Some of the key points are:

 

1. Italian bonds are below 6 %
2. all governments in Europe are (for now) docile
3. bank liquidity is (for now) no longer a problem
4. Greek default (or whatever) is now only a matter of finalizing terms
5. the primary sovereign bond market is now flush with cash
6. the ECB did not lower rates to .75% as expected

Individually any one of these points should be worth 150pips, and all together they are the "fundamentals" that are driving the higher TF correction we are seeing.

However the bottom line is that all that really happened is the ECB dumped a lot of newly minted cash into the banking system and bought a bunch of bonds. And a massive increase in the amount of cash in the system means that currency should fall.

Shucks, good to know that things are bad. Otherwise I would have been deluded.

Last 7 years I have been in China admiring the enormous progress they made in improving pretty much all aspects of their life (including free speech, right to assembly, religious freedom, freedom of the press and transparency of the government.)

Now that I am back in Canada I just can't get over how much better off we are. But damn, I wish I had had the good sense to be here back when things were really good.

http://www.goldmoney.com/gold-resear...gmrefcode=gata

Snippet:

http://www.goldmoney.com/images/thumbnails/Fed.jpgBoth the US Federal Reserve and the European Central Bank are now offering limitless quantities of new money – the ECB to support the banks, and the Fed for reasons (despite explanations) that are not entirely clear. The Fed in its press release announced that it expected interest rates to “warrant exceptionally low levels for the Federal Funds Rate at least through late 2014.” The fact that the central banks governing the two most important currencies in the world are issuing money to all-comers at very little interest cost for up three years has not been lost on gold and silver, whose prices shot up in response to the Fed’s announcement.

The Fed has effectively extended its zero interest rate policy (ZIRP) for another 18 months. The reason stated is “low rates of resource utilisation and a subdued outlook for inflation in the medium run”. More important perhaps and unsaid is the presidential election due later this year and the need to finance a deficit that seems impossible to cut.

The Fed is running huge risks with its extended ZIRP, principally with monetary inflation morphing into price inflation. To help achieve its low inflation target the Fed uses the Personal Consumption Expenditures Price Index (PCEPI), which assumes that consumers switch spending from higher priced goods to those that are stable or falling. The result is that this index rises at about one-third less than the Consumer Price Index, which itself rises at less than half the CPI calculated on the more honest methodology used before 1980. The upshot is that the Fed uses inflation targets that are so heavily adjusted that they are effectively meaningless.

Aaron

Great post too my friend... And u hit the nail on the head as to the order flow principals behind this latest higher TF push/correction

I'm on my phone here but I have received numerous emails asking me to explain month end fixes that large institutions use in the currency markets as a hedge

I promise I will tackle the subject on here tonight once I get back in front of my computer

The latest from Greece...

http://www.ekathimerini.com/4dcgi/_w...01/2012_424842

Snippet:

Next week will see the conclusion of negotiations on the private sector involvement (PSI+) in the restructuring of the Greek debt, according to an IIF statement issued after the meeting of its head, Charles Dallara, with Prime Minister Lucas Papademos in Athens on Saturday.

The Institute of International Finance statement adds that the private creditors, whom it represents, are close to the completion of the program for the slashing of the country’s debt. “There has been fresh progress in the talks,” the statement reads.

Finance Minister Evangelos Venizelos agreed, stating that ”we are just a step before an agreement on PSI. Next week we shall complete the negotiations,” along with the talks on the new loan contract, he said.
Dallara will leave Greece on Sunday, but remain in close contact with the Greek government.

The main points of the PSI plan will be one of the topics in the talks that Papademos will have on Sunday at 1 p.m. with the leaders of the parties supporting his government, Giorgos Papandreou of PASOK, Antonis Samaras of New Democracy and Giorgos Karatzaferis of Popular Orthodox Rally (LAOS).

At 8.30 p.m. on Saturday Papademos began a meeting with representatives of the country’s official sector creditors, the European Commission, the European Central Bank and the International Monetary Fund.

Kno's Comments:

What about the Merkel demand ? That was revealed today. I guess she wants to show solidarity with the Greek People and do it the Greek way.

There will be a deal ? My money is on no deal and Greece exits the Euro Zone in March and Merkel completes her Agenda of getting rid of Greece and earns Political Points at home. There we are for the moment !!!

This is an excellent review of the December numbers and it allows you to be more aware of what January 2012 numbers might really mean.

http://www.streettalklive.com/daily-...mber-2011.html

Snippet:

In this month's update of the "real" employment situation we will dig down behind the headlines and look deeper into this morning's release of the Employment Situation report from the Bureau of Labor Statistics. On the positive side there were 200,000 jobs created in the previous month and the unemployment rate fell from an upwardly revised 8.7% to 8.5%.

Furthermore, while October was revised higher by 12,000 jobs; November was revised lower by 20,000. Now it is time to dig behind the headlines.
As we discussed earlier this week with the ADP Employment report, which showed a 325,000 job increase, this is the seasonally strong time of year for employment increases due to the retail shopping season. This also showed up into today's employment report as 42,000 of the 200,000 jobs "created" were "courier's and messengers" for the holiday delivery season. Therefore, due to seasonality, it is no surprise that we saw a fairly healthy jump in employment but unfortunately many of these jobs tend to be very temporary in nature.

First, let's start by putting things into perspective. If you take a look at the actual number of those "counted" as employed that number has risen from the recessionary trough. However, in reality, employment is still far below the long term historical trend. Currently, the deviation from the long term trend is the widest on record and has made very little improvement.

Conclusion...

We have been fairly vocal that 2012 could likely see the start of the next recession. However, does the recent uptick in employment dissuade us about our call? Not really. The table details every recession going back to 1948 as identified by the "Start Date" which is the first month of the recession as identified by the National Bureau of Economic Research. The table shows the month-over-month increases in payrolls beginning 3, 2 and 1 month before the actual first month of economic recession.

The first thing to notice is that there are only 4 months in the entire table that actually show job losses. Employers are generally very slow to hire, and fire, employees which is why employment is a lagging indicator. However, if we look at the net change of employment over a 3 month period what we notice is that job gains were actually quite strong just prior to the onset of an economic recession.

http://www.streettalklive.com/images...nds-010612.pngThe chart of the 3 month net change in jobs shows this a little more clearly. As you can see the 3 month net change in jobs tends to peak just prior to the onset of a recession. What is important to note here is that the 3 month net change in jobs has already peaked at normal historical levels and has begun to trend lower.

With the end of the holiday shopping season now behind us it is likely that we will see renewed weakness in the employment reports in the coming months ahead. While today's data was certainly better than a "sharp stick in the eye" the reality is that the economy is currently struggling along at a very anemic pace. Without employment growing fast enough to offset labor pool overhang we are unlikely to reduce the real unemployment problem that persists in the U.S. This bodes poorly for the consumer, the economy and ultimately the markets as this weakness leaves all three very susceptible to unexpected system shocks. While we certainly hope for the best - "hope" is not an investment strategy that we can use.

Great weekend review work kno!! Looks like the markets are really gonna start heating up! I'm watching the VIX like a hawk in the next few weeks!!

I had a post what i saved on my cp from a blogger what describes it verry well in a theoritical base here is the post.


The trend is for asset inflation, and will last as long as the peoples of the EU and the US do not challenge the political status quo.

Today, we think it would be important to leave the analysis of the latest news aside (including the negotiations on Greece’s debt) and instead, to present a theoretical framework that may allow us to understand the ongoing rally and what may develop during 2012 and beyond. There is nothing more practical than a good theory and a good theory is indeed what we are looking for this morning.

Let’s first examine what we are witnessing today, namely the financing by the Fed and the European Central Bank (“ECB”), of the Eurozone financial system. Below, we describe how it works and we carry the analysis to the extreme. We like challenging models to their extreme implications, because this aprioristic deductive exercise forces us to identify what mainstream economists, many months later than us, usually end up calling “tail risks”.



In step 1 , we see the first pillar of the EU financial system bailout: The Fed extending US dollar swaps to the ECB, at below market rates. As can be seen, these swaps are an asset of the Fed and a liability to the ECB, which receives US dollars in exchange. With these US dollars, as we explained on December 12th, the Fed avoids a liquidation of US denominated assets by EU banks and the resulting increase in the cost of US dollar funding as well as in counterparty risk, for US financial institutions. These swaps can therefore be seen as vendor financing in favor of US banks, at the expense of American taxpayers and anyone who invests their savings in US dollars (i.e. US banks, via the Fed, provide cheap financing to their trading counterparties, all paid for by a devaluation in the purchasing power of the US dollar. On this matter, please refer our comments on September 12th, 2011).


However, the extension of USD swaps is not enough to save the status quo. The institutional weakness of the Euro zone, having failed (back in March 2011) the move towards a unified bond and fiscal integration, triggered the jurisdictional arbitrage of deposits (Euro funding). Deposits were taken from banks in the periphery (Greece, Portugal, Spain, Ireland, Italy) and shifted to the core (Germany, France, Netherlands). This situation generated a funding squeeze that was and continues to be addressed by long-term refinancing operations (“LTROs”) by the ECB, as shown on step 2. In these operations, the ECB extends collateralized Euros to EU banks. These are loans, assets to the ECB, and liabilities to the EU banks. Since its inception, the ECB has steadily been decreasing the minimum quality of acceptable collateral and increasing the tenor of the financing. Most of these funds have been returning to the ECB as excess reserves, a disturbing fact. But at one point, the repression by the political apparatus and the temptation to use these cheap funds to buy high yielding EU sovereign debt is too strong and we start seeing the use of these funds to monetize (i.e. purchase sovereign bonds in the primary market) EU fiscal deficits. That is shown, as step 3.


On step 3 too, we see that these funds keep open the window for depositors in weak banks to continue the liquidation of their deposits, in exchange of fresh cash. On the other hand, once the governments sell their bonds to the banks, they distribute the Euros issued by the ECB across the Eurozone.


Finally, on step 4, we see the conversion of these Euros by EU depositors and corporations, into US dollars (or Swiss Francs or gold), as a way to protect their savings from the unsustainable status quo: They know that the EU fiscal deficits will remain alive and have uncertainty on the future of the monetary system. Who provides them with the window of opportunity to exchange their Euros for US dollars? Ultimately, the Fed, with the provision of cheap US dollars to the ECB, via swaps.


This circular process, in extremis, brings us to the final line in the graph above, where we show the balance sheets of the Fed, the ECB, the EU banks and the EU depositors & Non-financials. The Fed will own US swaps against which US dollars will have been printed. Yes, printed! This had occurred in the 1920’s and 1930’s, but at least back then, those US dollars were somehow backed by gold reserves. Today, that’s no longer the case. Who will have the US dollars owed to the Fed? Not the EU banks nor the ECB, but the EU depositors & Non-financials! In summary, the people of the Eurozone!


In extremis too, the balance sheet of the ECB will look like that of a middle man. As assets, it will carry long-term refinancings. As liabilities, it will have the US swaps, that it extended to the EU banks. These EU banks however used the euros to buy sovereign debt, which is now their asset, and owe euros (i.e. LTROs) to the ECB. This is a very unstable situation, because if the fiscal situation of the Euro zone does not improve, these sovereign bonds in possession by the EU banks will remain driving capital losses.


This analytical framework leaves us with questions:


If the Fed ends up being the creditor of the EU depositors and corporations…how will it ever get its money back? What will be needed to repatriate these US dollars? We think there are only two ways to solve this problem. The best case and least likely is to see an improvement in the fiscal situation of the Euro zone. If deficits were stabilized or even reduced, the sovereign bonds held by the EU banks would drive capital gains, euros would flow back again to the EU banks in the periphery and US dollars would have to be sold in exchange, to buy these Euros. The EU banks would be then in a position to both return the LTROs and the US dollars to the ECB. The worst case occurs if the Fed implements an exit strategy, raising US dollar interest rates and US dollars flow back to the US. This is also not likely, at least in the short-to-near term, in our view. This would require, a priori, a strong economic recovery.


Another interesting question is related to the Euros in circulation, supplied by the LTROs: What happened to them? In extremis, we see that the EU depositors and Non-financials first took these Euros from the EU banks and later exchanged them for US dollars. Were they taken out of circulation? No, but the velocity of circulation increased, from the ECB to the banks, to the people, and back to the ECB. This is consistent with the monetization of sovereign debt and a context of high inflation. Once again, we note that this analysis is in extremis…For now, we can see it as a natural logical consequence. To mainstream analysts, this is a “tail risk”. The reader is of course free to take a view on this matter.


Please, note that this analysis implies the survival of the Eurozone with the liquidation of sovereign debts via inflation.


Is this status quo sustainable? If not, what will accelerate its demise? How will gold and the rest of the risky asset spectrum behave? , we present a flow chart, where we seek to summarize this process.



As we can see, as backdrop to the process described above, the Euro zone today is crowding out private investments, given the high cost of sovereign debt. In addition, it has and continues to implement higher tax rates and further interventionism and financial repression. With the Fed swaps, as we pointed out on September 12th, the Euro is still artificially stronger than without the swaps, which makes the EU less competitive. Finally, the institutional uncertainty of the EU zone remains unadressed. All these factors only contribute to prolong the recession and a high unemployment rate.

The flow chart is clear: As long as the people of the EU put up with this situation and the EU Council, chaired by Mr. Herman Van Rompuy effectively kills democracy at the national level AND as long as the Fed continues to extend US dollar swaps, this status quo will remain. If people revolt and the EU breaks up or if the Fed is no longer politically strong enough to force these swaps, the status quo will collapse.

Contrary to popular belief, this status quo is based on the “coupling” and not “decoupling” of the Fed with the ECB. This coupling relaxes correlations, because the US dollars sent by the Fed to the ECB were printed and nobody in the US feels the immediate pain. Hence, we have the rally in stocks and gold, without any correction in the US Treasuries market.

Whenever the political sustainability of the EU is challenged, we will see a run for liquidity. And 2012 will have many of these panic situations, affecting any late longs in gold or stocks.

Finally, when the “decoupling” takes place, the US dollar can only remain strong if the fiscal situation of the US permits. But we fear that the Fed will embark on interest rate targeting. This is a story for another letter…

The trend is for asset inflation, and will last as long as the people of the EU and the US do not challenge the political status quo.

interesting, i imagined something of the sort was going on with the swaps

lol.. So I was sitting here typing up a detailed explanation of how currency hedges work in Month/Quarter/Annual Hedge and mutual fund portfolios... And after about 3 paragraphs I did a quick search and found this excellent article on the topic

http://www.mta.org/eweb/docs/pdfs/10...g-intraday.pdf

Please read it guys and learn.. pretty valuable tool to help understand trading the major fix's at thend end of each financial period(day, week, month, quarter, etc)

bro the swaps are dirty dirty sinful business being played by the CB's around the world

INTERESTING VIEW....

Iran Parliament to vote on banning Oil imports to EU today.
http://af.reuters.com/article/energy...8CR10F20120127

India to pay Gold instead of Dolllar for Iranian Oil. China may follow suit.
http://www.infowars.com/india-to-pay...r-iranian-oil/

I thought it might be useful to post this link and then comment on their thoughts adding some of my own. I am preparing now for the start of the trading week and am getting my head into the flow of events to come.

http://www.dailyfx.com/forex/fundame..._Currency.html

Snippet:

If we were to assess the situation by analyzing the most potent fundamental driver first – underlying risk appetite – we would label this nascent bear trend a dominant trend, but we would also have to be highly skeptical of follow through. As the market’s liquidity provider, the dollar represents a ‘last resort’ harbor for capital when there are serious concerns about the stability of the broader financial markets.

That requires rather extreme conditions to keep the dollar bid. Currently, the S&P 500 (my favored benchmark for basic sentiment) is nearly six-weeks into a bull run. That said, volume behind this move (a measure of conviction) has trended towards its lowest levels since 1999 (using a three-month average). Set that against the building evidence of an impending global slowdown (if not recession), a deepening European crisis and protectionist agendas across the largest financial centers; and threat of a downdraft in risk is high.


However, the experienced fundamental trader knows that what ‘should’ happen and what does happen frequently deviate for markets that run on speculation. We have absorbed clear signs of trouble (Euro Zone downgrades, poor 4Q earnings and weakened global GDP figures) with no change in bearing from the riskiest assets or the most stoic. To make the most effective dollar collapse or rally, a clear and strong bearing on market-wide sentiment is needed. Yet, it would be difficult to truly encourage a lasting sense of confidence given the fundamental headwinds that a building. A move towards greater stimulus would provide temporary fuel, but the half-life of such programs has grown shorter and shorter with each new effort. That said, there seems to be a growing expectation for the Fed to bestow a QE3 on the world sometime in the early second quarter; but such efforts are usually made when markets are under significant pressure.

Kno's Comments

I really thought when I posted this link today that I would find some helpful information. After reading the above it once again confirms my strong convictions that many so called knowledgeable analyst's do NOT understand what they are saying and do NOT have a really in depth knowledge of what happens to create cause and effect.

When the FED on Wednesday announced QE3 to the world very few understood what it meant with one immediate exception. The market understood and Gold immediately went up over $40.00 US. Who do you think bought Gold ? Where is Gold now ? ($1,738.75 US Spot)

Once that happened humans that really understand what happened started to write their commentaries and I have posted a few of them here in the last few days. I am leading up to an important point. Garbage In is Garbage Out... To really understand what is happening in your world you need to really educate yourself. If your information sources are similar to the link posted here you probably will be programmed to think you understand what is happening. I am not knocking the information given since there is nothing said that is false however it closes the door to understand what actually happened in a much more specific way. The comments are too general to understand past the reading of it and saying yes and now what. How will this information help me to make a profit ?

Keep In Mind My Position. I SAID QE3 was Announced and We all know it was not. However by cause and effect it surely was and hence my comments.

In order to show the contrast I will go further and share my own personal views of what happened since Wednesday past at 12:30 PM when the FED made their announcement.

First and foremost please understand that you are not trading in FREE MARKETS. Therefore normal logic does not apply. You need to understand the Rules Of The Game in order to have a chance to win. That can be done by reading some of the posts on this thread from some very knowledeable posters. Notice how I said from this thread and not from all other information sources.

It is important to have more than a surface understanding so that you can decide for yourself when something makes sense or not. One of my best sources of information for having a clearer picture on a daily basis of what is really going on is to go to a source of information that I have found to be more accurate and revealing than most for over 13 years since I started learning things that I was not aware of. It is so simple yet very few will take the time to follow my lead. If you really want more information than we got from the link that I posted go once a day at the end of the trading day to WWW.JSMINESET.COM

There you will get a clear unbiased review of the news and what it really means. I have found dozens of reliable, knowledgeable such information sources such as this one over the last 13 years. I am not so smart to have figured it out by myself howver I can read and research and understand.

Now I will get to more specific issues otherwise I put myself in the same category of being too general as I just pointed out about this link. By sharing my thoughts here this morning it helps me to focus my own thoughts and prepare for the start of my trading week.

I have pointed this out before and I will again. You gain a great EDGE over other traders if you understand MONEY FLOW !!!

Thinking about it in a logical way using common sense as I try to do it is clear that as money flows from the US Dollar to Gold that those two Asset Classes have had a change in value as happened on Wednesday past.

I talk about Risk On and Risk Off as others do here on this thread however I want to go deeper than just that.

Going back to money flow and now including Risk On and Risk Off I will add the following as relates to what happened in the actual Asset Classes on Wednesday January 25, 2012 at 12:30 PM EST. I will do this on another post since on Edit I might not be able to post the update.

if anyone is willing to help me here - the BOJ . if they are going to do the intervention as expected by many speculators - who are they going to sell their yen to?

and why?




im off to dinner - and sucks but id like someone with a knowledge of this to help me out.

oh yeah i also want to point out that i think on 2010 coupla Cb's made failed interventions. therefore - its not always a success. just wanted to put that in as well.

"If any disruption happens regarding the sale of Iranian oil, the Strait of Hormuz will definitely be closed,"

i like that word....if that happen...the oil will skyrocket soon!!!haha

http://www.reuters.com/article/2012/...80M0IU20120123

probally but the real move is already over 3 months ago when it started nobody looked now it is getting a hype so like crude to tank lol...

i mean...risk to new high..hehehehe....
and we can see it was started already.....