Off to See the Wizard...The Euro's Beetle Kill Forests

Happy late Father's Day to all of you out there. 

I have a 4 month old daughter, so I had a pretty awesome father's day to say the least.  My wife let me do something that I rarely get to do anymore...

You know it-- Eat REAL (no turkey for this dad!) bacon.  It was amazing.

Tune in for Wizard Speak Tomorrow



For those out there that believe in magic, Master Wizard Ben Wizzie will address his minions tomorrow in what will surely be the most anticipated say nothing speech he has had since his last post rate decision say nothing speech.  We will hear about 'stubborn' unemployment numbers, 'slow, yet sustained' economic recoveries and 'easing' inflation pressures that should help cure both unemployment and slow recoveries.  After that he will pull a rabbit out of a hat, put a stripper in a box and cut her in half and try to pull a silver dollar out from behind Lebron James' ear-- but he will only be able to find three quarters.

While Ben Wizzie's speech and post-speech press conference will be the buzz of the day, the real issue for all the markets should be (and will be over the next 12 months) Europe, the Euro and the Euro have's vs the Euro have not's.

The Already Infected Euro Zone Forest

I spent my Father's Day in the small mountain town of Grand Lake, Colorado.  Grand Lake is a true blast from the past Colorado mountain town.  There is only one street in the entire town that runs about 6 blocks and houses a combination of ice cream stores, T-shirt shops and bars.  It is one of those 'My Parents went to Grand Lake and all I got was this Crummy T-Shirt' kinda tourist trap for about 14 weeks a year. It is one of those towns that lives for their 4th of July fireworks over the lake.  Most of the year there is literally one road in and one road out (and that was true this weekend as the seasonal road, Trail Ridge Road, was closed due to 5 feet of weekend snow!).  While the lake is beautiful, the one thing you notice when you pull into this one horse town is the acres upon acres of dead pine trees-- victims of the pine beetle that feeds on the lodge pole pine tree that is (should I say was) the dominant tree in much of Grand County and the Grand Lake area.

Pine Beetles can not be stopped... once they show up it is inevitable that the mature forests will be destroyed.  The destruction can, and does, take years.  At first, the needles show a faint red, but over many seasons the whole tree's needles will turn red as the tree dies.  A season or two after, the needles fall completely of the tree and the tree stands like a arbor skeleton, next to thousands of other dead trees... ghost like and lifeless... the entire forest transformed. 

Greece is essentially no different than Grand Lake.  For that matter, so is Spain, Italy and Portugal.  These countries are infected with beetles that are slowly taking them down.  For years the town of Grand Lake did everything imaginable to try and stop the beetles while saving the forest.  They continued to spray chemicals that did nothing, hoping that 'this year's batch' would kill the beetles... but the beetles can not be stopped.  Europe and the Euro have similar problems.  They have tried to stabilize Greece, but it has failed.  They again will try to bail-out Greece with high hopes that 'this restructuring' will be the one, but ultimately all of these attempts will end in failures... one after another.  Greece, Spain. Italy, Portugal... the Euro itself?

The one flaw for Grand Lake was the idea that the beetles could be stopped.  Instead, Grand Lake should have been looking for ways to rebuild for when the forests were dead.  How could this have been done?  Plant different trees like Aspen that are not susceptible to the beetle?  Clear trees at the first sign of infestation?  The answer to that question, I don't know. Europe needs to start putting together their plans for countries that will inevitably default instead of kicking the can down the street by trying to save them through restructuring insanity-like plans that have always failed in the past. 

Today Grand Lake is a beautiful town surrounded by hundreds of thousands of dead trees in all directions.  Some say that this is nature, and that is the way it is supposed to happen.  Some say the worst is over for Grand Lake, and that now they can focus on building a new forest.

However, the cost of not having a plan will soon show it's ugly head for Grand Lake.  Today Grand Lake is a beautiful town surrounded by hundreds of thousands of dead, dry, fallen over, rotting trees.  The forest is a sea of fuel for a forest fire.  With no other vegetation in place and no clearing measures for the dead forest, a single rouge match, a bottle-rocket that flies off course or a smoldering cigarette tossed from a passing car will torch the whole area.  After the forest burns, the trees, whose root systems are essential to holding together the jagged mountain side soil, will be gone.  Until regrowth can happen, any large rain or snow melt will be susceptible to mudslides.  This process could happen this summer or it could take years, but it is only a matter of time until it happens. 

We will have to see what the cost of doing nothing is for the Euro-zone.  The Euro itself may not go up in flames like Grand Lake, but there will be fireworks.

The beetles can not be stopped.



Politics vs Wall Street = Consumers + This Sucks

Obama announces his 2012 campaign for president.  Is this the changing of the guard from Wall Street to Main Street.  What will win more votes?  More jobs, higher equity prices or cheaper costs on gas and groceries?  The Feds money printing machine vs Obama's shaking hands and kissing babies grassroots campaign begins NOW! 

Yee Haw!  It's poly-tickin' season again!  Whoo hoo! 

For all of those that enjoy news that isn't news what-so-ever, President Obama announced his plans for reelection in 2012.  Obama 2012.

Other things that happened today that were of equal newsworthiness:  The sun rose in the east.  A bus in Queens ran 14 minutes late due to construction.  Someone's alarm clock was mistreated due to a case of the Mondays.  Judge Judy reruns were enjoyed by a gaggle of the unemployed.  Erin Burnett looked mousey and not sexy on CNBC (this is common on Mondays though she improves during the week, in my opinion).

There isn't a single news site that was surprised by Obama announcing his re-election.  That alone is not news.

One of the real news stories of the day came from Chicago Fed President, and active FOMC voting member, Charles Evans.  Evans, on a CNBC video in full disclosure, called an end to QE after the $600 Billion QE2 is finished.  This is a big about face from his previous stance on the QE programs.  Evans has come full circle in the last 90 days on his QE stance. 

EVANS CNBC VIDEO

Evans is stepping away from the printing press:

Evans said while he had thought the economy would need more support when the second round of “quantitative easing” was first launched, he now believes $600 billion is “quite likely the right number.” The program is slated to end this June.

Evans has become a wild card for the Fed today, despite him being a big player in the QEFOREVER talk less than a yea ago.  It should be noted that Evans is still on the side of being accommodate towards monetary policy, which in my mind means the door is open to more QE if the wheels fall off the bus in July.

Evans says no more + Bernanke says more + Prime Time press conferences

= American public * WTF + This sucks

Obama is not a Wizard

Bernanke is still running the show.  His week is very busy, as he speaks tonight in Atlanta and releases the FOMC March minutes on Wednesday at 2pm.  This is a critical week for Bernanke.  Not only is he in prime time and speaking twice, but his choice words this week will be critical in 'controlling inflation' to the American public.

Bernanke's biggest challenge this week is being able to convince the world with enough wizard speak that all is good in the U.S.A., that inflation is tame and that QE2 will end on time. but not be an issue for the economy.  If he fails to portray these messages, the gloves come off on Thursday as the ECB and the Bank of England are expected to raise rates to combat inflation. 

Europe raising + Feds printing money and no tightening = Dollar beyaaatch slap fest

As for Europe, their cost increases are out of control.  It is time for Europe to give it all they have got to slow down the price increases.  Brent closed at over $121/ barrel today-- getting VERY close to the 2008 peak of $144 for Brent.  Look at some of the European gas prices as of March 2011.  Story here:  Gas prices around the world.

Obama is not a wizard-- He has no Fedspeak powers of monetary pimping magic. This has become apparent over the last year.  Obama's best move so far in his presidency has been to step aside and let Ben Wizzie take the center stage and pimp the S&P higher and higher. 

While this has helped Wall Street, Main Street is still struggling in the grapples of persistent unemployment, no wage growth and sky-rocketing prices for food and energy.  The only difference between the US and Europe is that Europe has admitted it has a problem.   

Unfortunately for Obama, Main Street and Wall Street are much different customers in regards to a re-election campaign.  Will he be able to take back the reigns or is he in for a wild ride on the monetary express?  

(American Voters*High gas) + No wage growth - No Cash for Coach Handbags = This Sucks 

...It is time to focus on Main Street... Or is it?

Election day is still a long way off... or is it.  For the Dems, losing the election would be the equivalent to falling on a garden rake and ripping open your butt-hole, and finding out someone video taped it and sent it in to American's Funniest Videos.  The kicker-- you get 2nd place to a 3-legged talking dog.  In essence you get your ass torn open in front of the world and you are still a loser.

So what is the correct algebraic formula for politics and the market right now? 

I know Wall Street wants higher equity prices.

I know Main Street wants jobs...  Good jobs that is-- Fortune 500 companies, benefits, good hours and all the free French Fries one can handle (up to 2 orders per shift that is).  McDonalds to Hire 50K. 

McDonald's?!?  Well Mr. Executive, the average pay is $8.30 an hour... which is JUST SLIGHTLY under that unemployment check that you are getting for another 99 weeks. 

The only difference-- if you are on unemployment you don't have to work at McDonald's! 

So get your fat asses back to work America! 

Unemployment line + Job + Job = Job at McDonald's = This... Really... Sucks.

Is this as good as it gets?  Are these the jobs that are being 'created?' 

At least Wendy's has the Frostie...

Mr. Obama, YOU have a long road ahead of you. 

Sunday is to Relax: Big Thanks: Big Week to Come

THANKS FOR READING!

First and foremost, I would like to send a big shout out to all the Peak readers-- We appreciate the support and hope you enjoy the site.  For sites focusing on macro economics that blend in references to gangsta rap, Humpty Dumpty, master wizards, Bono bashing and borderline crude sexual references in order to get their point(s) across, we think we are pretty close to the number one place to go on the web.

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We will continue to post 4-5 times a week, so check back often!

BIG WEEK AHEAD

This week is starting to look like a week of mega news for the financial world.  Some of the stories include:

• Total disregard for currency valuations for all the G-7 fiat currencies.  This last move looks to be a direct attempt to strengthen the dollar, disguised as a wolf in yen's clothing. 
• Radioactive Spinach and the tsunami you rode in on.  Japanese officials say that 2 of the 6 reactors look to be back online.  33% is not to shabby-- unless of course you are talking about nuclear reactors that will NOT melt down.  I have a hard time setting the bar at anything under 100%.
• Libya Shmibia-- What is uglier than Egypt melting down?  Libya.  What is uglier than Libya melting down?  Saudi Arabia.  When is Iran going to join this party? 
• Nothing finer that inflation in China.  You want inflation?  Go the Big Red Engine.  The fan is still spinning in China, but sh*t is being shot at that fan from a bazooka.  What happens when the sh*t hits the fan? 
• US consumer vs the no inflation but rising prices monster:  This is not the 80's-- in the 80's we had wage growth.  We have not had wage growth in the US since 2006-2007.  Anyone who thinks the 'resiliant US consumer' won't do an about face when gas and groceries eat up all that sweet sweet disposable income probably works for CNBC.  People bought last year due to deflation.  consumers LOVE deflation for TV's but hate deflation for houses.  Who wins-- Big automotive-- they have been selling deflating goods for over 100 years and no one seems to catch on.   
• Europe's about face on raising rates:  Times be a changing in the EU.  The disaster that is the Euro is about to be dealt a blow when the sure thing of raising rates becomes the big chill. 

All this on tap this week... Some great posts to follow.  And if you are stressed, you had better run down to your local 7-11 and stock up on menthols-- looks like those are going away just like your home equity.

SUNDAY IS TO RELAX

Please take today to relax and breath-- Sunday is to relax. 

I personally battled a fence yesterday and lost-- I took a 2X4 to my forehead from about 8 feet and I have a welt the size of Russia in between my eyebrow and my receding hairline.  Hurt like a Mutha...

With that being said, make sure you appreciate and enjoy the things in life that are important to you.

For me it is my little girl-- she turned one month old yesterday.

The yawn and the end is precious! 

Have a great rest of your weekend!

Randr

Europe Enters Unorganized Chaos

First and foremost, I need to send out my support for the people of Japan.  Natural disasters like the recent earthquake and tsunami make us realize how small each and every one of us really is. 

The Euro is a mistake that cannot be fixed, much like a person getting caught cheating on their spouse with a prostitute because the cheater’s spouse comes down with VD—on the surface you can sell the idea of ‘all is well’ to the masses at the county club, but eventually the truth comes out and everything falls apart rapidly.

The county club that is the EU is trying to hide their diseased whore, despite the fact that she is openly sleeping with many of its members.  While the EU tries to sell sunshine and cookies to the rest of the world, the Euro has VD and it is spreading. 

The EU whore is running rampant in many countries and it is only a matter of time before all the members of the EU have been affected by the disease, regardless of their fidelity to the currency.  While the regular VD may show up as syphilis or gonorrhea, the EU problem is a whoring of their currency and acceptance of a unified currency despite the fact that many EU country’s economies cannot, and will not be able to support themselves without individual currency manipulations. 

Regardless of the level of the sickness in the EU, the band plays on: EU ups bailout fund

The EU will raise its bailout fund from 250 billion Euros to 440 Euros.  In addition to this Greece is getting a loan modification for their loan terms, including a reduced interest rate and extension of repayment terms.  Ireland’s 85 billion Euro bailout will most likely be modified as well.

Treating the symptoms instead of finding a cure.

It seems as if Ben Wizzie is starting to rub off on the EU—inflate, inflate, inflate!  The problem with stimulus is that it is short term and needs to be continued or the effects will wear off.  Europe is not ‘fixing’ any of the problems, but instead is pushing them into the future, in hopes that the present will be better if the problems are out of sight and out of mind. 

More stimulus in the form of this bailout fund is quite the juxtaposition to Trichet’s hawkish stance in interest rates.  Everyone expects a 0.25% rate hike April, and many are calling for 2-3 hikes to battle inflation.  Euro to raise rates in April

Europe Enters Unorganized Chaos

Pumping stimulus for PIIGS and raising rates at the same time is unorganized chaos.  These actions are polar opposites of each other and will have horrible effects when mixed. 

Spain, Greece, Ireland and Portugal are insolvent.  Instead of being able to fail gracefully, or to inflate their individual currencies, they are being held up by the rest of the EU, who has to eat their dirty leftovers from the financial crash.  Raising rates will curb inflation, but it will also curb stimulating measures to grow credit growth and bring back investment.  Stimulus is inflationary.  Who wins? 

Investors will have to decide whether or not to buy many EU nation’s bonds.  I would think that in an increased stimulus, yet reduced growth environment that countries like Spain, Greece, Portugal and Ireland’s bonds will have to pay a massive premium over big brothers Germany and England.

How much would you pay?

Ireland bond yields are almost at 10%.  Is this is deal or a disaster?

Spain turns back the clock.

A Spanish fishing town is bringing back the old currency the Peseta. Spain Says UNCLE

A small Spanish town has reintroduced the peseta currency, nine years after it was replaced by the euro.

Business owners in Murgardos in northwestern Spain are encouraging locals to find old stashes of the coin in a bid to improve the area’s economy.

More than 60 shops in the Galician fishing town have agreed to accept the defunct currency alongside the euro in the hopes of encouraging spending.

This may be the best idea any EU country has come up with in the last 9 years. 

Learn from others mistakes? 

You would think that Europe would see that rampant stimulus leads to rampant inflation, but Europe is blinded—it is a symptom of the VD.  The EU knows If one of the PIIGS does down, they will all fall, and so does the Euro. 

The dominos are in line for one of two scenarios—Massive, unprecedented Euro weakening from PIIGS uncertainty and never ending stimulus or a complete collapse of the currency when Germans have had enough. 

If you are sleeping with the Euro right now I’d make sure to wear a condom.  Double wrapped.