BTFD - Change of Underwear Edition

As they say, a picture is worth a thousand words.  So the 'technical' view of the market presented below needs no further comment, except to say that there is lots of pain, but no sign of capitulation.  And as far as the fundamentals go, today's punk jobs number, last night's China PMI number and the ongoing European Debt saga are keen reminders that global macro risks have never been higher.  Therefore, there remains a MAJOR disconnect between Wall Street's view of the world v.s. reality.  A divergence that is already closing, and soon to be sealed shut:

Spain @Full Ponzi (Revisited)

This just in, the ECB has already recanted and signalled the potential for another LTRO immediately if needed.  That didn't take long, no wonder gold was up 3% on Friday.  Meanwhile, the first two LTROs lasted only 5 months before they fell apart, so which Spanish bank is going to step into the breech now to buy Spanish Gov't debt knowing that any 'sugar rush' will likely last at most a few weeks and leave the banks even further behind the eight ball.  Or, will they cash in their Spanish Gov't bonds as collateral, and use the new LTRO money to buy U.S. Treasuries (or German Bunds), thereby giving a one finger salute to the ECB.  Under that scenario the ECB would lose all credibility and would be forced to buy up Spanish Gov't debt directly - or face Spain's default.  And notice, how this whole LTRO3 is packaged under the guise of  'greater fiscal integration' which read-between-the-lines could take between several months and likely never to implement i.e. it's just political top cover for the ECB (see point #7 below).  Lastly, notice that Germany finally called the bluff on all of these copious jackasses who are saying Germany needs to be less rigid and inflexible regarding Eurobonds (aka. subsidies for bankrupt countries).   Germany says sure we can talk Eurobonds as long as we also discuss fiscal integration aka. fiscal discipline under German control.  As they say, careful what you wish for, you just may get it...

TOTAL CORRUPTION

The next and current President sponsored by the Matrix:

Instead of Campaign Finance Reform, which would separate money from politics and move the U.S. towards a real democracy, as one would expect, the ever-cynical Idiocracy took things in the extreme opposite direction i.e. now anything goes.  Yet the latest example of widely accepted moral degradation.

And to think these figures are just for starters, as the campaigning is not even really underway yet.  Obama alone expects to raise $1 billion.  But don't count Mitt Romney out, as he made his fortune in Private Equity, and knows a thing or two about fundraising...Lest they forget though, their puppet masters expect (the same) big things from Robama or Obamney regardless which of these Harvard-bred clones wins in November...

FYI, here is the historical trend for total Presidential campaign spending (in $ millions) i.e. slightly above the inflation rate (doubling every four years since 2000)...and this only shows through 2008.  In this new era of the 'Super PAC', this chart will be going parabolic:

The Krugman Moment

As I just posted, we are quickly reaching the endgame for Keynesian/Fiscal policy use and abuse in Spain.  Spain is the 12th largest economy in the world so its bailout options are considerably more limited than Greece's and the consequences of its 'unwinding' will be far more impactful.   

Therefore, unless Spain can pull a rabbit out of the hat, it will likely be the first (of many) nations to reach what I call "The Krugman Moment"...

EXTREME CAUTION: SPAIN @ FULL PONZI

Risk markets scrambled today to figure out what is next for Spain.

The answer to that question is encoded in this article.  

Spain is Too Big To Fail Save and Italy is Next In Line

As predicted last December (see "Why the Bazooka will Fail Regardless"), the ECB's LTRO ('bazooka') debt buying programs hastened default by killing the natural market for debt.  When LTRO 1 and 2 went into effect, Spanish banks gorged themselves on Spanish government debt to the tune of 300 billion Euros, thereby driving prices higher and temporarily improving their balance sheets.  It was supposed to be a three year no-brainer carry trade, but it was a self-propagated illusion.  

Three years is the new five months:

As anyone with any knowledge of the markets could have predicted, the boost in debt prices was short-lived and ephemeral, because once the LTRO funds ran out, there was no marginal buyer of Spanish debt.  Meanwhile, the Spanish government continues to bring ever more debt to the market to sustain its burgeoning deficits.  Also as expected, foreign holders of Spanish debt "hit the bid", and dumped their bonds into the market, taking full advantage of the LTRO-inflated prices, and leaving the Spanish banks as the primary holder of Spanish government debt.  Fast forward, and ex-LTRO, debt prices are again spiraling downwards, as each tick lower in bond prices increases yields, translating into higher interest rates (in the primary market) for Spanish government debt.

FULL PONZI - The Reach Around

So...in order to to prop up its banks last week, specifically Bankia, the Spanish government attempted to use its few remaining billions to recapitalize the bank which has been in turn recapitalizing the government these past months.  I call this 'the reach around', because it reminds me of a man who shoves his head up his own ass.  And no surprise, debt markets were not amused at this stunt, sending bond prices lower and yields higher, today at 6.61%.  Apparently, the ECB was not amused either.

END GAME: Spanish Banks Now Dissolving and there is no marginal buyer of Spain's debt

On the asset side of Spain's bank balance sheets, the government debt which is marked to market declines every day, directly eroding bank equity.  Meanwhile, depositors are fleeing, thereby drawing down cash reserves.  Therefore Spanish banks will soon forced to sell off assets (aka. Government bonds) into an already fragile market to raise cash, further reducing their own equity.  

Lastly, as the first article above indicated, there is no European financial stabilization program big enough to restructure Spain's debt load.  The new European Stabilization Mechanism (ESM) won't be approved until July at the earliest, and no one knows if that funding would be sufficient.  The LTRO programs were strictly for 'Extend and Pretend', and there will be no lasting effect other than to trash the ECB's own balance sheet.  Recall that in order to obtain the LTRO loans which were used to buy up Spanish government debt, the Spanish banks pledged 'other loans' as collateral i.e. junk mortgages pledged at 100% face value !  Thereby sticking broader Europe with the sinking value of those collapsing 'assets'.

Now repeat the above and replace the word Spain for Italy.

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Postscript: Anyone reading the above may wonder how I can recommend owning short-term U.S. Treasuries at this juncture.  The short answer is that it's a matter of timing, with the U.S. being the last domino in the line.  The long answer is in my recent discussion around deflation v.s. inflation.

Harvard: leading the U.S. into the abyss

I had an epiphany last night that some would say is long overdue:

Harvard above all other 'schools of thought' is spawning sociopathic morons who are destroying the U.S. from every angle.

Just consider the most recent examples:

BTFD until the SHTF

Buy the Fucking Dip [BTFD] - that's Wall Street's mantra these days.  And why not, it's worked well for most of the past three years, save for a couple of notable market meltdowns.  As I have said before, Central Bank liquidity programs are payoffs for large institutions to look the other way to risk.  Therefore, not withstanding worsening fundamentals in Europe, here in the U.S., and in China, I have yet to find one stock analyst saying that stocks are an outright sell.  Small investors, on the other hand, having just gotten unfriended by the Facebook IPO, are selling big time...

Deflation v.s. Hyperinflation Revisited (yes, again)

The Deflation v.s. Hyperinflation debate continues to rage across the blogosphere, but for my part, for all the wrong reasons.  In my opinion, those in the clear majority who predict hyperinflation as the next likely outcome have a severe conflict of interest.  The next time you visit a blog predicting hyperinflation, take a look around for the gold and silver advertisements adorning the blog and/or question the current investment position of the blog.  As expected, the Idiocracy sees this current Deflation/Hyperinflation divergence as another opportunity to make a lot of money.  They see 'LTRO's' and 'QE n' programs around every corner.

Message to Policy-Makers: Stop Pretending

It's time to stop living beyond our means on the backs of our children and grandchildren.
The long-term costs of our profligacy will be borne by them (and yes, us) for decades:

Sudden Death Overtime

The world Ponzi is now in Sudden Death Overtime.

The widening gap between rich and poor will soon be shut...violently...

In related news:
HP Announces 27,000 layoffs - Shares up 7% on the news: