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8/15/12

Nigel Farage, head of the U.K Independence Party, appeared on Fox News yesterday. The Independence Party describes itself as libertarian. I don’t know if it is my admiration for plain speaking British politiicans or libertarianism, but it was a hoot watching his interview. A worthwhile six minutes.

Mr. Farage goes through the problems of the eurozone, which he compares to the Titanic.  He is colorful when he refers to the current state of affairs in Europe as “Noddyland.”  He points out the “nonsense” of $120 billion going to rescue Spain’s banks at three percent interest while Italy will have to borrow 20% of that at seven percent.  At the 2:10 mark Farage identifies the eurozone as “begins to resemble Communism, that in terms of its belief that the state and government creates jobs, it doesn’t it destroys them.”

Spain’s Prime Minister Mariano Rajoy decided to extend unemployment benefits for the long term unemployed. Rajoy cited the potential for social unrest if payments were not continued. There is no doubt Spain has a problem with unemployment as it is the eurozone’s highest at almost 25%, but they have another problem. They are broke.

Spain’s regular jobless benefits program is contributions based and extends for two years. The last government extended the benefits by six months with the government picking up the tab. The extended program was expiring today and Rajoy was facing falling popularity and threats from the country’s unions of a “hot autumn.”

The country’s two largest unions have scheduled a nationwide protest march that will converge in Madrid on Sept. 15. National polls show Rajoy’s Peoples Party is losing support, down to 36% from last fall’s 45%.

The Spanish government recently negotiated an agreement with the European Commission to extend deficit targets one year to give the government some breathing room. Among the $78 billion dollars is austerity measures Rajoy agreed to was to cut the unemployment benefits costs. He has now raised the costs of jobless benefits.

Two weeks ago (Aug. 2) the European Central Bank’s Mario Draghi said the ECB was prepared to do whatever was necessary to save the euro. The proposal from Draghi was that countries would have to apply for support from the eurozone’s rescue funds and accept strict conditions.

Spanish interest rates have moderated somewhat since Draghi’s statement. Rajoy and Italy’s Mario Monti are waiting to apply for aid, but it is widely believed they will in September. Germany’s Constitutional Court rules on the Eurozone Fiscal Pact on Sept. 12 and Eurozone Finance Ministers will meet on fiscal conditions that would be imposed on countries seeking aid.

Rajoy’s actions send a signal to the ECB, Germany and the eurozone he is not serious about austerity measures. What do you want to bet Spanish interest rates will move higher to get his attention? Bloomberg speculates Rajoy may upset the bureaucrats he needs to support his government with bailout aid.

The market continues the low volume meandering trade today.  CPI came in lower than expected this morning.  This is interpreted by the market as leaving room for the Fed to initiate QE since inflation is not showing in “official” numbers.  TIC Net Long-Term Transactions fell out of bed at $9.3 billion compared to June’s $55.9 billion.  We should get some headlines tomorrow as Angela Merkel will be making news.  U.S. Building Permits, Housing Starts and Initial Jobless Claims will be released before market open.

It looks like time to start watching precious metals again.  George Soros and John Paulson increased their stakes in GLD in just released 13F filings.  They see more money printing on the horizon…in Noddyland.

Quote:
America is... is no longer, uh, what it... it, uh, could be, uh, what it was once was... uh, and I say to myself, 'uh, I don't want that future, uh, uh for my children.---Barack Obama

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