One sneeze, and over we go
The Slog: European bond rates are rising rapidly.
Yesterday the rise spiked after Mario Draghi said the ECB was
maintaining the key lending rate, and the overnight deposit rate. The
ECB also cut its 2013 gross domestic product growth forecast to negative
-0.6% from -0.5% as predicted in March, but boosted the 2014 outlook to
1.1% from 1%. Italian 10-year bond yields zoomed 23 basis points to
4.369%, Spanish 10-year bond yields rose by the same to 4.675%, and
Portuguese 10-year yields climbed 24 basis points to 6.019%. Greek
10-year yields climbed 15 basis points to 9.271%.
What these reactions tell us is two things. First – as with the
jittery stock movements and Bernanker QE exit hints – any sign at all
that the Wily Coyote flying carpet is about to be pulled evoke dramatic
pessimism. That’s because the markets know that this is just a
game: they’ve known this for coming up to two years now. Any sign at all
that the game-players are taking their ball home is greeted with panic.
Second, Portugal above 6% and Greece back over 9% means that this is no
longer a loss of faith in one Clubmed sovereign: the markets are losing
faith in the eurozone. A wobble from France will be enough to destroy
what’s left of the European Bond risk appetite.
The money to supply growth is draining away. Both Bloomberg and Zero Hedge ran this chart yesterday:
Confidence is falling (at last) in financial
stocks, and the credit availability is becoming more profoundly
negative. The Moody’s Credit Trends conference first round met in Copenhagen met yesterday. The next part is due to take place in Munich next Thursday 13 June.
It may well be a propitious time for it to meet, but whether it will
suggest any kind of solution is a different matter entirely.
China calls time on the Days of Wine & Roses. The
Beijing leadership shuffle, confirmed by the National People’s
Congress, has dropped growth targets by around 7%. The latest economic
‘book’ notes factory overcapacity, rising operational costs and slower government revenue growth. Thus there won’t be any
big increases in government investment this year. The new top dog Li
Keqiang, who succeeded Wen Jiabao, also wants to sort out the black hole
of off-balance-sheet operations by commercial banks allied to local government debt noted here 15 months ago.
The general policy was confirmed by the remarks of Vice Premier Zhang
Gaoli, a member of the Politburo, who said, “We must not put undue
emphasis on the speed of growth. Instead, we must guard against risks
and keep inflation under control”. He also emphasised the need to press
ahead with structural reforms that will boost domestic consumption. What
Mr Zhang didn’t do was explain how to boost the home market when
exports are collapsing and nobody’s doing any overtime. This is, I’d
imagine, because he doesn’t have the remotest clue how to square that
circle.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
When a borrower’s income declines, the moneylenders charge a higher
risk premium. When Sovereigns whisper about quietly leaving the stage,
stock markets become jittery. When manufacturing stagnates in that
context, the markets start to panic.
We’ve had steadily rising and now spiking ClubMed Bond rates this
week. Global stagnation is now an established fact. Stock prices have
fallen. If Sovereigns fall back on more stimulation from here on,
lenders will demand higher still Bond yields. If they don’t do it, stock
markets will plunge. If stock markets plunge, investors will rush to
safe havens. If neither stocks nor bonds are safe, there is nowhere to
go except precious metals and upscale property.
What the world’s central banks face this Friday is the unthinkable:
plunging stock markets = falling risk capital = recession turns to slump
= lenders deserting the Bond markets in droves = unsustainable Western
sovereign debt across the board. The accelerating trend I suggested yesterday morning is
not only continuing, it is worsening. There is no way out of the
vicious spiral any more. This is it: in weeks, months or days – who
knows any more? Who knows what the Bilderberger chaps may have been
cooking in southern England this week? Who knows whether summer holidays
will slow down the chain reaction?
I don’t, and nobody else does either. But this is the
cliff-edge. No shale gas drivel, no ‘peripheral boom coming’ crap, or
Draghi upweighted 2014 forecasts or Obamite employment ‘data’ is going
to cut it any more. There is no more road. The only thing left is that
trick of climbing on each other’s shoulders to form a pyramid: a Ponzi
pyramid wobbling about in the sea breeze on the cliff edge. Until one
day, somebody sneezes….and it’s all over.
The force of gravity accelerates objects towards the Earth at 32.2 ft
per second per second. As I have written here many times before, there
is no such thing as a gradual panic.
No comments:
Post a Comment