Ambrose Evans-Pritchard is SERIOUSLY ALARMED

Our last visit from Ambrose began with:

We last linked to Ambrose Evans-Pritchard in "Metal prices fall further than during Great Depression" with the comment:

A visit from our terminally depressed pal*, Ambrose Evans-Pritchard.

naked capitalism tips us to today's story by saying:

Ambrose Evans-Pritchard, Telegraph. For him, this is almost cheerful. But his optimism for the US rests in part on his conviction that the euro "will die a slow death."

Clicking that "Ambrose" link will get you to some astounding econ. and market calls.
From FT Alphaville:

In case you haven’t heard enough depressing news about sterling and feel like a supplementary dose of depression central, you simply must check out the latest blog post from Telegraph business editor Ambrose Evans-Pritchard.

Clearly if there’s ever a time to break into an upper casing blog-title panic, it’s a five cent drop to $1.39 in cable; for Evans-Pritchard is SERIOUSLY ALARMED about sterling. As he explains (our emphasis):

The slide in sterling has turned “disorderly”. We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel. For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.

So there you have it, a problem that is potentially bigger than the UK government.

What does that entail? A sequence of events which may, according to Evans-Pritchard, conclude in something far worse than what happened to Iceland (our emphasis):

If the Government is forced to nationalise RBS and perhaps Barclays with their vast exposure in dollars, euros, and yen, it risks being submerged. It is one thing for a sovereign state to let its national debt jump in a crisis — or a war — perhaps even to 100pc of GDP. It is another to take on foreign debts on such a scale with no reserves. Yes, the banks have foreign assets as well to match the debts. But how much are these assets really worth?

This is the moment when the “rubber hits the road” — to borrow from American argot — the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.

We cannot even do what Iceland did to save its skin. Reykjavik refused to honour the foreign debts of its buccaneering banks. It let them default, parking the losses in Resolution Committees. Small islands can do that. Iceland has fish instead, and lots of metals. Britain cannot follow suit. The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.

What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster. England has not defaulted since the Middle Ages. There is a real risk it may do so now.

Of course, need we remind readers, Ambrose Evans-Pritchard has never much liked the euro, the euro zone, Trichet or the ECB....MORE

Swiss slide into deflation signals the next chapter of this global crisis

Here are some of our past links to Ambrose Evans-Pritchard:
Feb. 16: "Creditanstalt Redux?: Failure to save East Europe will lead to worldwide meltdown"

I've been feeling far too chipper so I decided to check in with Ambrose Evans-Pritchard. Yikes.

Jan. 30: "Ambrose Evans-Pritchard is SERIOUSLY ALARMED"
Dec. 30: "Metal prices fall further than during Great Depression"

A visit from our terminally depressed pal*, Ambrose Evans-Pritchard.

From The Telegraph:

Watch Switzerland closely. It is tipping into deflation, the first Western country to succumb to Japan's disease.

Swiss consumer prices fell 0.4pc in March (year-on-year). Swiss CPI will be minus 1pc at least by July, nearing the level where spending psychology changes. By the time you have a self-feeding spiral, it is too late.

"This is something that we must prevent at all costs. The current situation is extraordinarily serious," said Philipp Hildebrand, a governor of the Swiss National Bank.

The SNB is not easily spooked. It is the world's benchmark bank, the keeper of the monetary flame. Yet even the SNB's hard men have thrown away the rule book, taking emergency action to force down the exchange rate of the Swiss franc.

Here lies the danger. If other countries try to export deflation by this means, we will face a second phase of the global crisis. Taiwan is already devaluing. Korea, Singapore, and Sweden all seem tempted to follow. Japan is chomping at the bit.

"We don't fully realise in the West what a catastrophic collapse Japan has suffered," says Albert Edwards, global strategist at Société Générale. "The West has dumped a large part of its economic downturn onto Japan by devaluing against the yen.">>>MUCH MORE

See also: "You can't trust the Swiss, that's the bottom line,"

U.S. Faces Global Funding Crisis: Merrill Lynch

As we said in "Oil Price Shock Means China at Risk of Blowing Up":

We are fans of Ambrose Evans-Pritchard. Whenever we feel too chipper a dose of A.E.-P. calms us right down. From our post "Barclays warns of a financial storm as Federal Reserve's credibility crumbles":

Ambrose Evans-Pritchard grooves on this kind of story and because he looks for them, he finds them. It was he who brought us RBS's warning "Royal Bank of Scotland: Global Stock and Credit Crash Alert". He's useful for putting stuff on the radar, not so much for inflection/turning points.

From the Telegraph:

The US Treasury may have just days to act before foreign patience snaps, writes Ambrose Evans-Pritchard
Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst. Britain and other Anglo-Saxon deficit states could face a similar retreat by foreign investors.

"Japan was able to cut its interest rates to zero," said Alex Patelis, Merrill's head of international economics....MORE

HT: Naked Capitalism who writes:

Ambrose Evans-Pritchard appears to be trying to corner the market in apocalyptic financial news. But his sources aren't evangelicals, survivalists, or even goldbugs. The experts he cites are with respected financial firms, meaning they don't sound alarms casually. Even more significant, the terms they are using to describe what might be coming are uncharacteristically dire....

Enjoy the rally while it lasts - but expect to take a sucker punch

Here's how we intro'd some of Ambrose Evans-Pritchard's stories:

Creditanstalt Redux?: Failure to save East Europe will lead to worldwide meltdown

I've been feeling far too chipper so I decided to check in with Ambrose Evans-Pritchard. Yikes.

Metal prices fall further than during Great Depression

A visit from our terminally depressed pal*, Ambrose Evans-Pritchard.

Phase III (or is it IV?): Europe on the brink of currency crisis meltdown

Ambrose Evans-Pritchard makes Nouriel Roubini look like a Chamber of Commerce booster. Here are some of our previous links to his writings. With the U.S. markets looking to trade up 4%, a lot of folks may be tempted to start a chorus of "Happy Days are Here Again". Not our A. E-P.

We like the Telegraph's International Business Editor, a lot (some of his market calls* in 2008 looked like inside information). Here's the latest:

Our delicious spring rally is nearing the limits. The 40pc rise on global bourses since March assumes that central banks have conjured away the debt overhang by slashing rates to zero and printing money. Nothing of the sort has occurred. Two thirds of the world economy will be in deflation by July.

Bear market rallies can be explosive. Japan had four violent spikes during its Lost Decade (33pc, 55pc, 44pc, and 79pc). Wall Street had seven during the Great Depression, lasting 40 days on average. The spring of 1931 was a corker.

James Montier at Société Générale said that even hard-bitten bears are starting to throw in the towel, suspecting that we really are on the cusp of new boom. That is a tell-tale sign.

"Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair yet again," he said. Genuine bottoms tend to be "quiet affairs", carved slowly in a fog of investor gloom.

Another sign of fakery – apart from the implausible 'V' shape – is the "dash for trash" in this rally. The mostly heavily shorted stocks are up 70pc: the least shorted are up 21pc. Stocks with bad fundamentals in SocGen's model (Anheuser-Busch, Cairn Energy, Ericsson) are up 60pc: the best are up 30pc.

Teun Draaisma, Morgan Stanley's stock guru, expects another shake-out. "We think the bear market rally will end sooner rather than later. None of our signposts of the next bull market has flashed green yet. We're not convinced the banking system has been fully fixed," he said....MORE

*If you are interested, use the Search Blog box, keyword Evans-Pritchard.

"Five years of financial crisis through the eyes of Ambrose Evans-Pritchard"

From the Telegraph:

Ambrose Evans-Pritchard, the Telegraph's international business editor, has followed the global financial crisis from the credit crunch to the eurozone debt crisis. Here is a selection of news and views from his stories, blogs and columns over the past five years.

9 August, 2007: Dow crashes 387 as contagion spreads after the European Central Bank provides emergency liquidity to the credit markets for the first time since the 9/11 terrorist attacks, acting to prevent contagion from the US sub-prime mortgage slump spreading through the German, French, and Dutch banking systems.

Anybody who has been on holiday has come back to face a different world. It's the Wild West right now," said David Bloom, chief currency strategist at HSBC. "Investors can't decide whether we're looking at a fundamental crisis." 
 

22 December, 2007: Crisis may make 1929 look a 'walk in the park'

The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor. "The sub-prime mortgage crisis hit a vital nerve of the international financial system."
-----
Ambrose: The risk for Britain – as property buckles – is a twin banking and fiscal squeeze. The UK budget deficit is already 3 per cent of GDP at the peak of the economic cycle, shockingly out of line with its peers.

Maastricht rules may force the Government to raise taxes or slash spending into a recession. This way lies crucifixion. The UK current account deficit was 5.7 per cent of GDP in the second quarter, the highest in half a century. Gordon Brown has disarmed us on every front.
------

Ambrose: The ECB's little secret is that it must never allow a Northern Rock failure in the eurozone because this would expose the reality that there is no EU treasury and no EU lender of last resort behind the system. Would German taxpayers foot the bill for a Spanish bail-out in the way that Kentish men and maids must foot the bill for Newcastle's Rock? Nobody knows. This is where eurozone solidarity stretches to snapping point. It is why the ECB has showered the system with liquidity from day one of this crisis.

...MORE

US will emerge as undisputed top dog in 2009

We last linked to Ambrose Evans-Pritchard in "Metal prices fall further than during Great Depression" with the comment:

A visit from our terminally depressed pal*, Ambrose Evans-Pritchard.

naked capitalism tips us to today's story by saying:

Ambrose Evans-Pritchard, Telegraph. For him, this is almost cheerful. But his optimism for the US rests in part on his conviction that the euro "will die a slow death."

From The Telegraph:

Interest rates near zero across the G10 bloc will prevent a replay of the Great Depression, but they will not pull us quickly out of the doldrums, writes Ambrose Evans-Pritchard, in a semi-serious look at 2009.

Central banks will do whatever it takes to combat debt deflation. Even Frankfurt will join the rush to print money, buying every form of debt from mortgages to corporate bonds.

The Fed will follow the Bank of Japan in propping up stock markets. Puritans will grumble, but the surprise will be how it long takes for this stimulus to gain traction. We will learn the term "pushing on a string".

Western societies will feel the first shivers of raw fear as people twig that the authorities are not in control. Iceland's winter will set an awful example. Job losses will reach 1m a month in the US at the point of peak pain. Economists know this is a late-cycle effect – darkest before dawn – but the public will see it otherwise. This will be the phase that shakes society.

The geopolitical landscape will look different. Cohesive states with a rule of law and old democracies – the Anglosphere, Holland, France, Scandies – will muddle through. They will start to enjoy a political premium in investor psychology, despite horrendous debts.

Obama's America will shine. The country will reemerge as undisputed top dog, the only one with real demographic, scientific, and strategic depth. As first into the crisis, it will be the first to hit bottom. Those expecting the dollar to collapse will have to wait.

The damage to core Europe will take longer, but run deeper. Belgium will face a break-up scare. Markets will test highdebt states as they try to roll over bonds – €200bn (£191bn) for Italy and €40bn for Greece. Spain's corporate debts will turn bad.

Germany's economy will contract by 3pc as exports collapse, and the delayed effects of the strong euro and tight money feed through. Angela Merkel's (pictured below) Left-Right coalition will be haunted by its failure to tackle the crisis earlier. The neo-Marxist Linke party and the hard-Right will muscle in. The country will start to look ungovernable. This will at least divert attention from the Club Med mess, making a North-South split in the eurozone less likely. After sterling's sudden death, the euro will face slow death. The pair will refind their accustomed level....MORE

*Some prior A.E-P. articles (sometimes our headlines, sometimes his):

Oct. 28, '08
Phase III (or is it IV?): Europe on the brink of currency crisis meltdown

July 16, '08
U.S. Faces Global Funding Crisis: Merrill Lynch

July 7, '08
Oil Price Shock Means China at Risk of Blowing Up

June 27, '08
Barclays warns of a financial storm as Federal Reserve's credibility crumbles

June 18, '08
Royal Bank of Scotland: Global Stock and Credit Crash Alert

"Europe stumbles blindly towards its 1931 moment"

We haven't checked in with Ambrose Evans-Pritchard in a while, here goes:

It is the European Central Bank that should be printing money on a mass scale to purchase government debt, not the US Federal Reserve.

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt - the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.

“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece....MORE

The last time Ambrose brought up Credit Anstalt was in February 2009:
Creditanstalt Redux?: Failure to save East Europe will lead to worldwide meltdown

I've been feeling far too chipper so I decided to check in with Ambrose Evans-Pritchard. Yikes.
From the Telegraph:

The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung. Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East....MORE

Well, other than that Generalfeldmarschall Paulus, how's the weather?
Creditanstalt failed in May 1931. From Kindleberger's "World in Depression: 1929-1939":

In 1929, the Bodenkreditanstalt was fused overnight with the Creditanstalt. The Bodenkreditanstalt brought to the Creditanstalt large loans to industrial concerns which could be maintained only by the device of ignoring market values...*

Hmmm, sounds familiar.
Unicredit now owns Creditanstalt.

Citigroup warns of fresh wave of bank failures in Europe

Same story, two headlines/datelines from Ambrose Evans-Pritchard at the Telegraph:

By Ambrose Evans-Pritchard, International Business Editor 7:33PM GMT 21 Dec 2010
Citigroup has warned of a fresh wave of bank failures and sovereign defaults in Europe unless EU leaders come up with a credible response to the crisis.

Prof Willem Buiter, the bank's chief economist, said the eurozone was paralysed by a "game of chicken" between the European Central Bank and EMU governments.

Both sides are trying to shift responsibility on to the other for shoring up southern Europe and Ireland, raising the risk of contagion spreading. "The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual," he said.

Mark Schofield, Citigroup’s global head of interest rate strategy, said Portugal would need an EU rescue soon and that it was "highly likely that Spain will go the same way". This risks overpowering the €440bn (£373bn) bail-out fund....MORE

And the longer version:
Citigroup fears fresh wave of sovereign defaults and bank failures in eurozone
By Ambrose Evans-Pritchard, International Business Editor 6:18AM GMT 22 Dec 2010

Barclays warns of a financial storm as Federal Reserve's credibility crumbles

Ambrose Evans-Pritchard grooves on this kind of story and because he looks for them, he finds them. It was he who brought us RBC's warning "Royal Bank of Scotland: Global Stock and Credit Crash Alert". He's useful for putting stuff on the radar, not so much for inflection/turning points.
From the Telegraph:

US central bank accused of unleashing an inflation shock that will rock financial markets, reports Ambrose Evans-Pritchard

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.">>>MORE

Ambrose Evans-Pritchard: "Spain’s blackout story is disintegrating"

You don't want Ambrose dissecting your alibi unless it's airtight.

As the international business editor of the Daily Telegraph he's been listening to finance execs spew B.S. excuses for a generation.

From the Telegraph via Yahoo News, May 22:

The stench of a cover-up hangs over Spain’s giant blackout, the worst electricity failure in any developed country in modern times.

Faith in the current investigation has reached rock-bottom. The socialist government of Pedro Sánchez is trying to buy time with explanations that either make no technical sense or veer into absurdity.

Red Eléctrica, which runs the grid, is accused of stonewalling everybody.

Sources in Brussels have told The Telegraph that the authorities were conducting an experiment before the system crashed, probing how far they could push reliance on renewables in preparation for Spain’s rushed phase-out of nuclear reactors from 2027.

The government seems to have pushed the pace recklessly, before making the necessary investments in a sophisticated 21st-century smart grid capable of handling it.

One is reminded of the Chernobyl meltdown in 1986, which began as a test to simulate what happens to a cooling reactor in blackout conditions. Operators ignored warnings that the Number Four reactor had too little power. It set off a cascading failure.

If it is established that the blackout was a controlled experiment that went wrong, and if this information has been withheld from the public for almost four weeks, the Spanish Left faces electoral oblivion for a political generation.

The government has de facto control over Red Eléctrica through a golden share (in breach of EU norms). It put a socialist politician and party loyalist in charge even though she had no experience in the field and faced withering criticism at the time. Her salary in this plum job is six times higher than the Spanish prime minister.

The previous chief resigned in protest over political meddling. He accused the government of pushing its green agenda with “messianic” zeal – but without taking the accompanying steps needed to pull it off.

The Spanish Association of Electrical Energy Companies (AELEC) has finally lost patience. It came close to calling the whole inquiry a travesty in a caustic statement this week.

How this saga unfolds has ramifications far beyond Spain. Blackouts always raise the ideological temperature in the culture war. Spain’s dystopian “apagón” comes at the moment of peak backlash against all things green in the Western democracies.

Old Energy and the global Right have together seized on the episode to prosecute and convict renewable power before trial, hoping to drive a stake through the heart of net zero.

“Spain reminds us that intermittent energy sources cannot replace the reliable base power provided by fossil fuels or other stable sources,” said Republican senator Steve Daines at a hearing on Capitol Hill this week.

The apagón tells us no such thing. Several countries have a higher share of renewables in the electricity mix without suffering blackouts, including the industrial powerhouse we call Germany. Sen Daines is conflating the issue of intermittency with the separate issue of inertia and grid frequency.

AELEC, which includes Endesa, IBM, Iberdrola and Schneider Electric, said the authorities had inverted the likely chain of causality. It was not the generators that failed to deliver stable power to the grid: it was the grid that failed to manage it and then automatically shut down the generators, whether solar, wind, nuclear or gas....

....MUCH MORE 

Are they sure it wasn't caused by someone spilling bat soup into a transformer? 

Maybe it was a raccoon dog chasing a pangolin in a substation.

Related, the introduction to May 23's "How Virologists Lost the Gain-of-Function Debate".

Credit Anstalt All Over Again "UniCredit Stock Halted After Plunge As Fresh Wave Of Italian Fears Emerges"

Following up on June 27ths "Is The Big Money Looking for a Credit Anstalt in Italy? (GS; JPM)":

I've mentioned Credit Anstalt a few times. Both Ambrose Evans-Pritchard and I were thinking about counterparties and bank runs. The collapse of CA brought on the second, nastier phase of the Great Depression.
Before the current bull move, Feb. 16, 2009:

Creditanstalt Redux?: Failure to save East Europe will lead to worldwide meltdown

I've been feeling far too chipper so I decided to check in with Ambrose Evans-Pritchard. Yikes.
From the Telegraph:

The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung....

Well, other than that Generalfeldmarschall Paulus, how's the weather?
Creditanstalt failed in May 1931. From Kindleberger's "World in Depression: 1929-1939":

In 1929, the Bodenkreditanstalt was fused overnight with the Creditanstalt. The Bodenkreditanstalt brought to the Creditanstalt large loans to industrial concerns which could be maintained only by the device of ignoring market values...

Hmmm, sounds familiar.
Unicredit now owns Creditanstalt.

After the rescue of the bankrupt corpus and a couple mergers CA became part of Italy's Unicredit in 2006....

Here's the latest, from ZeroHedge:

Another day, another implosion in Italy, this time focusing on core bank UniCredit, which earlier dropped by 6.5% resulting in a stock halt, only to reopen just modestly higher.

There was no immediate catalyst, just more of the same: rumors that FinMin Tremonti is resigning, especially following the arrest of Marco Milanese which indicates the fallout is imminent (see below), rumors that Italian banks are failing stress tests, rumors that Italy has the most exposure to Greece, and other generalized fears which today coalesced around the bank that was the most active today on the European version of Sigma X.In other news, 2 Year government spreads are once again surging as GDP-weighted EU sovereign risk is at fresh all time highs (probably to make company to the Dow Jones Transportation index).
UniCredit stock plunging:

Most active Goldman's European dark pool...MORE

Oh Dear God I was Channeling Ambrose Evans-Pritchard's Piece on the Death of the Euro

Yesterday I led off three posts by saying Happy New Year! The posts were:
"Is a super-volcano just 390 miles from London about to erupt?"
"10 Most Corrupt Politicians 2011"
Department of Homeland Security Monitoring Blogs, Twitter For These Words:

Here's Ambrose:
2012 could be the year Germany lets the euro die
So we enter Year IV of the Long Slump, the cruellest yet though not the most acute. 

 There will be no Chinese credit explosion this time, no real help from post-bubble India or over-stretched Brazil.

It will be a global downturn on all fronts, aborting what remains of recovery even before industrial output in the OECD bloc has regained its pre-Lehman peak.

The second wave will hit with youth unemployment already at 45pc in Greece and 49pc in Spain; and with the US labour participation rate already at depression levels of 64pc

We will hear more about Italy's Red Brigades, Greece's Sect of Revolutionaries, and America's militia groups, and how democracies respond. Proto-fascism in Hungary is our warning.

China's surgical soft-landing will slip control, like Fed tightening in 1929 and 2007, or Japan's squeeze in 1990. Once construction has run amok, bears will have their way....MORE 

He goes on in a similar vein for a few paragraphs, doing a whirlwind tour of the horrors that await us in 2012 and ending with:

Guten Rutsch

That's right, Happy New Year!
In the language of love no less. 

Germany Pushing for 'Hard' Greek Default, Risking Europe-wide 'Snowball'

I honestly don't know how Ambrose Evans-Pritchard can get out of bed in the morning.
If my Weltanschauung matched the tone of his writing I'd hide under the blankets.
The fact that he can get up reminds me of an old joke:

Lost

Three-legged dog

Blind in one eye

Recently castrated

Answers to: Lucky

Here's Ambrose at the Telegraph:

9:13PM BST 10 Oct 2011
German push for Greek default risks EMU-wide 'snowball

Germany is pushing behind the scenes for a "hard" default in Greece with losses of up to 60pc for banks and pension funds, risking a chain-reaction across southern Europe unless credible defences are established first.

Officials in Berlin told The Telegraph it is "more likely than not" that investors will suffer fresh losses on holdings of Greek debt, beyond the 21pc haircut agreed in July.

The exact level will depend on findings by the EU-IMF "Troika" in Athens.

"A lot has happened since July. Greece has fallen back on its commitments, so we have to assume that the 21pc cut is no longer enough," said one source.

Finance minister Wolfgang Schäuble told the Frankfurter Allgemeine that the original haircuts were "probably" too low, saying banks must have "sufficient capital" to cover greater losses if need be. Estimates near 60pc have been circulating in Berlin.

The shift in German policy has ominous echoes of last year when Chancellor Angela Merkel first called for bondholder haircuts, setting off investor flight from Ireland and a fresh spasm in the EU debt crisis.

"This could set off a snowball effect," said Andrew Roberts, credit chief at RBS. "The markets will instantly switch attention to Portugal, where two-year yields are already 17pc"....MORE

Markets: What's Big and Bad and On the Horizon?

I usually don't have much time for Gluskin Sheff's David Rosenberg. His pig-headed refusal to listen to the market as the averages advanced more than 70% was not only arrogant but expensive for his firm's clients.

I can handle arrogant as long as you're right, hell I can tolerate a fat guy in a grass skirt and spike heel Manolo Blahniks if he's right.
It would be fun to watch him tottering around.
But Mr. Rosenberg hasn't been right for a while and he's not funny.

Funny is important if you're doing the Angel of Death schtick. Here's our thinking:

Unlike his fellow gloomster David Rosenberg, Société Générale's Albert Edwards amuses* as he forecasts gloom, doom and despair. They both bow to the master, the Telegraph's international business editor, Ambrose Evans-Pritchard whose writing I once described as a "continuum that ranges from morose to suicidal.
Here he is at his despondent best...

Back in October we posted "Gluskin Sheff’s David Rosenberg has finally lost it":

We haven't posted much, if anything, from Mr. Rosenberg. His adamant refusal to acknowledge the rising market is at odds with our approach, playing the cards you're dealt.
Unlike our gloomy pal Ambrose Evans-Pritchard who can be downright funny in the depths of his despair, Mr. Rosenberg is a strategist. He'll be right one of these days, we hope we are too.
Oh well, here's the story from FT Alphaville:

Poor Dave

Much as we love him, we must report that Gluskin Sheff’s David Rosenberg has finally lost it. Here’s the evidence - from his latest “Breakfast with Dave” note to clients on Thursday:

So far, the backup for the U.S. 10-year Treasury note yield is a 38% Fibonacci retracement of the decline from the nearby high established in August.

Fibonacci analysis!?!? That, surely, is the domain of wacko tip sheets and self-help investment seminars.

It seems the Dow’s journey above the 10,000 mark finally tipped Dave over the edge:

The media are certainly going to town on this news but it is, in fact, old news; it’s “only” the 26th time the Dow has managed to cross this milestone.

Dave, of course, has been leading us all in fighting the tape these past few months. A selfless act - and also a bit foolhardy, in hindsight. Look at the sad result...MORE

On the other hand his latest, via ZeroHedge caught my eye:

As usual, some prudent market observations from Rosie.

A good friend, and long-time reader, was kind enough to pass along these thoughts yesterday. Basically, the stars are starting to align for something really big to happen.

First, the Shanghai index peaked in August 2009 and had a secondary top in December 2009 (global demand slowing?). Many emerging markets are all negative year to date.

Second, gold peaked in the first week of December 2009 (and now breaking down) while the U.S. dollar index (the DXY) is breaking higher (Greece has not been resolved).

Third, TIPs (ETF) peaked the first week of December 2009 (and just broke to a new four month low).

Fourth, commodity prices peaked in the first week of January and appear to be rolling over. Head-and-shoulders top from October 2009 peak?

Fifth, could we be in for a March peak in equities? The NYSE new high list peaked six trading days ago. Recall that a market correction followed in October of last year and January of 2010 following similar peak in new highs....

Bottom line: Stronger U.S. dollar. Rising bond yields. Lower commodity prices. Slower growth. And the stock market is flirting at post-crisis highs. Bond yields are rising temporarily and this will very likely prove to be a good buying opportunity; however, over the near-term, higher yield activity may well persist and the question is how the equity market is going to handle this backup in market rates....MORE

*A couple links from that post "Société Générale's Albert Edwards: "Stocks Drop May Turn Into ‘Rout’ as Economy Peaks":

May, 2008: "This Week’s Advice: Canned Food, Guns and a Ham Radio"

June, 2008: "Société Générale: “We see a y-shaped global recession. We are going down before looping backwards”'

October 7, 2009: "Climateer Line of the Day (Société Générale's Albert Edwards edition)":

“Investors think this is a sweet spot, but it is in fact a putrid boil that has not been properly lanced”

Ya gotta love it. And just so you know he isn't all grins and giggles:

***Alert****Economic and equity market meltdown imminent****Alert***

--September 5, 2008, ten days before Lehman failed, AIG became a wholly owned sub. of the U.S. Treasury, WaMu etc., two days before Fannie and Freddie were nationalized."Meltdown"-Société Générale"

Ambrose is Worried as BAML Names Names In the Robot Revolution

Although we looked at the BAML report a week ago in "6 Predictions, 9 Stocks, A Revolution, An apocalypse, and Killer Robots – Oh My!" here is more detail from Ambrose Evans-Pritchard at the Telegraph:

Robots may shatter the global economic order within a decade

'The pace of disruptive technological innovation has gone from linear to parabolic,' says Bank of America 

Robots will take over 45pc of all jobs in manufacturing and shave $9 trillion off labour costs within a decade, leaving great swathes of the global society on the historical scrap heap.

In a sweeping 300-page report, Bank of America predicts that robots and other forms of artificial intelligence will transform the world beyond recognition as soon as 2025, shattering old business models in a whirlwind of “creative disruption”, with transformation effects ultimately amounting to $30 trillion or more each year. 

“The pace of disruptive technological innovation has gone from linear to parabolic,” it said. Any country that fails to embrace the robot revolution will slip rapidly down the rankings of competiveness, and will be left behind.

South Korea is currently in the lead with 440 industrial robots per 10,000 employees in the manufacturing industry, followed by Japan and Germany. Britain is languishing far behind at 75, one of lowest levels in the developed world, the dark side of the UK’s low-productivity labour policies.

The report said the demand for automation is “skyrocketing” as the world’s population ages – with the number of people over 60 expected to rise from 841m to more than 2bn by the middle of the century – and as the once limitless supply of cheap labour dries up in Asia.
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Manufacturing wages in China have jumped ninefold since 2000, and the country’s workforce is shrinking. China is already the world’s biggest buyer of robots, making up a quarter of the global market. 

The costs of robots, "care-bots" for the elderly, "agribots" to plants seeds or pick fruit, commercial drones and artificial intelligence have, on average, dropped by 27pc over the past 10 years, and are expected to fall a further 22pc by 2005.

...MUCH MORE

HT: I think Barry Ritholtz had this.
ValueWalk did as well

Evans-Pritchard: "China's epic hangover begins"

In the Doomster Danse Macabre we don't link to Rosenberg or Roubini very often. I once said:

...When dancing the Apocalypto, the AA boys, Ambrose and Albert, have much better rhythm.

Here's Ambrose:

China's credit bubble has finally popped. The property market is swinging wildly from boom to bust, the cautionary exhibit of a BRIC's dream that is at last coming down to earth with a thud.

It is hard to obtain good data in China, but something is wrong when the country's Homelink property website can report that new home prices in Beijing fell 35pc in November from the month before. If this is remotely true, the calibrated soft-landing intended by Chinese authorities has gone badly wrong and risks spinning out of control.

The growth of the M2 money supply slumped to 12.7pc in November, the lowest in 10 years. New lending fell 5pc on a month-to-month basis. The central bank has begun to reverse its tightening policy as inflation subsides, cutting the reserve requirement for lenders for the first time since 2008 to ease liquidity strains.

The question is whether the People's Bank can do any better than the US Federal Reserve or Bank of Japan at deflating a credit bubble.

Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, almost as much in real terms as Wall Street from 1929 to 1933.

"Investors are massively underestimating the risk of a hard-landing in China, and indeed other BRICS (Brazil, Russia, India, China)... a 'Bloody Ridiculous Investment Concept' in my view," said Albert Edwards at Societe Generale....MORE 

A twofer!
HT: MarketBeat:
Meanwhile, in China, the Warning Signs Keep Piling Up

"China's economic destiny in doubt after leadership shock"

As far as I know Ambrose is the first Anglo journalist to take such a dim view of the leadership "change" but some of my Mandarin speaking friends have similar thoughts on what they are reading.
This is a potentially huge deal.
Ambrose Evans-Pritchard writing at the Telegraph:

The forces of reaction and economic folly threaten to prevail in China. The long political arm of Jiang Zemin has reached out from the shadows to thwart reform, with huge implications for Asia and the world. 

If reports from the Hong Kong press and China's blogosphere are correct, a remarkable upset has occurred on the eve of the ten-year power shift next week -- the greatest turn-over of top cadres since Mao's revolution. Photo: Reuters

If reports from the Hong Kong press and China's blogosphere are correct, a remarkable upset has occurred on the eve of the ten-year power shift next week -- the greatest turn-over of top cadres since Mao's revolution.

The South China Morning Post says the new line-up of the Politburo's Standing Committee is "packed with conservatives". The succession deal agreed over the summer has been scuppered.

The 86-year Mr Jiang -- who rose to supreme leader on the bones of Muxidi and Tiananmen in 1989 -- has placed his accolytes in charge of the economy, propaganda, as well as the Shanghai party machine.

The hardliners seem poised to snatch control of the seven-man Committee, tying the hands of incoming president Xi Xinping and premier Li Keqiang. If confirmed, long-term investors may have to rethink their core assumption about the future course of China.

This power struggle going into the 18th Party Congress matters more in the sweep of history than the run-off two days earlier between a centrist Barack Obama or the centrist Mitt Romney, though the stage drama is less compelling.

Mr Jiang's rear-guard coup should give pause to thought. It was he who instituted the Patriotic Education movement in schools in the 1990s, whipping up nationalist fervour to replace the lost mystique of Maoism. The effect was to nurture revanchist hatred against Japan, creating a monster that now requires feeding.
His eerie return comes at a time when China and Japan are "one error away" from outright war over the Diaoyu/Senkaku islands, to cite the findings of four American diplomats in a report to US Secretary of State Hillary Clinton.

Stewart Patrick from the US Council of Foreign Relations likens East Asia to Europe just before the First World War. It was then that Sir Norman Angel famously argued that the great European powers were so intertwined by trade and investment that conflict had become unthinkable. Nationalist emotions decided otherwise....MORE

Is The Big Money Looking for a Credit Anstalt in Italy? (GS; JPM)

I've mentioned Credit Anstalt a few times. Both Ambrose Evans-Pritchard and I were thinking about counterparties and bank runs. The collapse of CA brought on the second, nastier phase of the Great Depression.
Before the current bull move, Feb. 16, 2009:

Creditanstalt Redux?: Failure to save East Europe will lead to worldwide meltdown

I've been feeling far too chipper so I decided to check in with Ambrose Evans-Pritchard. Yikes.
From the Telegraph:

The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung....

Well, other than that Generalfeldmarschall Paulus, how's the weather?
Creditanstalt failed in May 1931. From Kindleberger's "World in Depression: 1929-1939":

In 1929, the Bodenkreditanstalt was fused overnight with the Creditanstalt. The Bodenkreditanstalt brought to the Creditanstalt large loans to industrial concerns which could be maintained only by the device of ignoring market values...

Hmmm, sounds familiar.
Unicredit now owns Creditanstalt.

After the rescue of the bankrupt corpus and a couple mergers CA became part of Italy's Unicredit in 2006.
And today, from ZeroHedge:

Here Are The Most Actively Traded Names In Goldman's Dark Pool (Or Why Is The Big Money Fascinated With Italy?)

Courtesy of recent disclosures, the common man (as in anyone who does not pay millions in kickbacks, er, soft dollar fees to GS) can now observe what is being traded on Goldman's Dark Pool, better known as Sigma X. Why is this important? Because as Themis Trading presented last week, only 30% of all trading occurs on open exchange venues, meaning the bulk of actual shares change ownership behind the scenes, in places such as Sigma X, Chi X, and the dark pools of Credit Suisse, Citi, and various other banks, not to mention numerous other secondary ATS, where very little if any of the daily trading detail is released for general observation. This means that while HFT algos drive up the volume of numerous top 10 stocks merely for the sake of collecting rebates, the real action is in the most actively traded dark pool names, where the big boys are actively trading risk, where HFTs are non-existent, and the companies that represent the top 5 is what investors, speculators, and vacuum tubes should be focusing on. Not surprisingly, today's most active names are Banca Monte dei Paschi di Siena, Unicredit and Intesa Sanpaolo. Translation: someone is actively positioning for serious action in Italy shortly. 

The Realpolitik of Quantitative Easing (the Fed throws down the glove)

Although I poke gentle fun at Ambrose Evans-Pritchard's dour outlook:

Our old pal, The Telegraph's Ambrose Evans-Pritchard, writes on a continuum that ranges from morose to suicidal. Here he is at his despondent best...

the guy has sources that other writers would kill for.

Our post on Thursday "Peoples Daily: "World needs to stay vigilant about active depreciation of the dollar'" combined with A E-P's latest are scary.
From the Telegraph:
Currency wars are necessary if all else fails

The overwhelming fact of the global currency system is that America needs a much weaker dollar to bring its economy back into kilter and avoid slow ruin, yet the rest of the world cannot easily handle the consequences of such a wrenching adjustment. There is not enough demand to go around.

Asian investment in plant has run ahead of Western ability to consume. The debt-strapped households of Middle America, or Britain and Spain, can no longer hold up the dysfunctional edifice. Asians must take over, or it will come down on their own heads.

The countries actively intervening in exchange markets to suppress their currencies – China, Japan, Korea, Thailand, even Switzerland, to name a few – are all too often the same ones that have the biggest trade surpluses with the US.

They are taking active steps to prevent America extricating itself from the worst unemployment since the Great Depression, now 17.1pc on the latest U6 index and rising again.
Each country is doing so for understandable reasons: Japan to avoid a deflationary crisis, China to hold together a political order that is more fragile than it looks. In both these cases they are trapped because they clung too long to a mercantilist export strategy, failing to wean themselves off American demand when the going was good.
Yet this is an intolerable situation for the US. It should be no surprise that Washington has begun to retaliate in earnest, and not just by passing the Reform for Fair Trade Act in the House (not yet the Senate), clearing the way for punitive tariffs against currency manipulators.

The atomic bomb, of course, is quantitative easing by the Federal Reserve. America has in effect issued an ultimatum to China and G20: either you stop this predatory behaviour and agree to some formula for global rebalancing, or we will deploy QE2 `a l’outrance’ to flood your economies with excess liquidity. We will cause you to overheat and drive up your wage costs. We will impose a de facto currency revaluation by more brutal and disruptive means, and there is little you can do to stop it. Pick your poison.

This is what QE2 means, though Fed officials prefer to talk of their “mandate” of supporting employment. It is nothing like QE1, which was emergency action to halt the economic free-fall of late 2008 and early 2009. This time the Fed is using QE as a long-term tool to manage America’s chronic ailments....MORE

Ambrose Evans-Pritchard is Worried: "Global liquidity peak spells trouble for late 2012"

"Dystopia, dystopia, you border on the psych-neurotic".
(melody [and geography lesson] below)

We'd be worried if Ambrose wasn't worried.

From the Telegraph:

The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year - with grim implications for Europe’s Latin bloc.

Data collected by Simon Ward at Henderson Global Investors shows that M1 money supply growth in the big G7 economies and leading E7 emerging powers buckled over the winter.

The gauge - known as six-month real narrow money - peaked at 5.1pc in November. It dropped to 3.6pc in January, and to 2.1pc in February.

This is comparable to falls seen in mid-2008 in the months leading up to the Great Recession, and which caught central banks so badly off guard.

“The speed of the drop-off is worrying. This acts with a six months lag time so we can expect global growth to peak in May. There may be a sharp slowdown in the second half,” said Mr Ward.

If so, this may come as a nasty surprise to equity markets betting that America has reached “escape velocity” at long last, that Europe will scrape by with nothing worse than a light recession, and that China is safely rebounding after touching bottom over of the winter.

Stocks usually turn about two months before the real economy peaks, but not always.
Stephen Jen from SLJ Macro Partners said the world economy is weaker than it looks, with monetary stimulus losing traction in the West just as China, India, Brazil, et al, hit the buffers, constrained by inflation and their own credit woes....MORE