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The European Union always was a CIA project, as Brexiteers discover

By
Ambrose Evans-Pritchard

27 April 2016 • 8:18pm   

Brexiteers should have been prepared for the shattering intervention of the US.  The European Union always was an American project.

It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations.

While irritated at times, the US has relied on the EU ever since as the anchor to American regional interests alongside NATO.

There has never been a divide-and-rule strategy.

The eurosceptic camp has been strangely blind to this, somehow supposing that powerful forces across the Atlantic are egging on British secession, and will hail them as liberators.

The anti-Brussels movement in France - and to a lesser extent in Italy and Germany, and among the Nordic Left - works from the opposite premise, that the EU is essentially an instrument of Anglo-Saxon power and 'capitalisme sauvage'.

France's Marine Le Pen is trenchantly anti-American. She rails against dollar supremacy. Her Front National relies on funding from Russian banks linked to Vladimir Putin.

Like it or not, this is at least is strategically coherent.

The Schuman Declaration that set the tone of Franco-German reconciliation - and would lead by stages to the European Community - was cooked up by the US Secretary of State Dean Acheson at a meeting in Foggy Bottom. "It all began in Washington," said Robert Schuman's chief of staff.

It was the Truman administration that browbeat the French to reach a modus vivendi with Germany in the early post-War years, even threatening to cut off US Marshall aid at a furious meeting with recalcitrant French leaders they resisted in September 1950.

Truman's motive was obvious. The Yalta settlement with the Soviet Union was breaking down. He wanted a united front to deter the Kremlin from further aggrandizement after Stalin gobbled up Czechoslovakia, doubly so after Communist North Korea crossed the 38th Parallel and invaded the South.

For British eurosceptics, Jean Monnet looms large in the federalist pantheon, the emminence grise of supranational villainy. Few are aware that he spent much of his life in America, and served as war-time eyes and ears of Franklin Roosevelt.

General Charles de Gaulle thought him an American agent,  as indeed he was in a loose sense. Eric Roussel's biography of Monnet reveals how he worked hand in glove with successive administrations.

It is odd that this magisterial 1000-page study has never been translated into English since it is the best work ever written about the origins of the EU.

Nor are many aware of declassified documents from the State Department archives showing that US intelligence funded the European movement secretly for decades, and worked aggressively behind the scenes to push Britain into the project.

As this newspaper first reported when the treasure became available, one memorandum dated July 26, 1950, reveals a campaign to promote a full-fledged European parliament. It is signed by Gen William J Donovan, head of the American wartime Office of Strategic Services, precursor of the Central Inteligence Agency.

The key CIA front was the American Committee for a United Europe (ACUE), chaired by Donovan. Another document shows that it provided 53.5 per cent of the European movement's funds in 1958. The board included Walter Bedell Smith and Allen Dulles, CIA directors in the Fifties, and a caste of ex-OSS officials who moved in and out of the CIA.

Papers show that it treated some of the EU's 'founding fathers' as hired hands, and actively prevented them finding alternative funding that would have broken reliance on Washington.

There is nothing particularly wicked about this. The US acted astutely in the context of the Cold War. The political reconstruction of Europe was a roaring success.

There were horrible misjudgments along the way, of course. A memo dated June 11, 1965, instructs the vice-president of the European Community to pursue monetary union by stealth, suppressing debate until the "adoption of such proposals would become virtually inescapable". This was too clever by half, as we can see today from debt-deflation traps and mass unemployment across southern Europe.

In a sense these papers are ancient history. What they show is that the American 'deep state' was in up to its neck. We can argue over whether Boris Johnson crossed a line last week by dredging up President Barack Obama's "part-Kenyan ancestry", but the cardinal error was to suppose that Mr Obama's trade threat had anything to do with the ordeals of his grandfather in a Mau Mau prison camp. It was American foreign policy boilerplate.

As it happens, Mr Obama might understandably feel rancour after the abuses that have come to light lately from the Mau Mau repression.  It was a shameful breakdown of colonial police discipline, to the disgust of veteran officials who served in other parts of Africa.  But the message from his extraordinary book - 'Dreams From My Father' - is that he strives to rise above historic grudges.

Brexiteers take comfort that Republican hopeful Ted Cruz wants a post-Brexit Britain to jump to the "front of the line for a free trade deal”, but he is merely making campaign hay. Mr Cruz will conform to Washington's Palmerstonian imperatives - whatever they may be at that moment - if he ever enters the White House.

It is true that America had second thoughts about the EU once the ideological fanatics gained ascendancy in the late 1980s, recasting the union as a rival superpower with ambitions to challenge and surpass the US.

John Kornblum,  the State Department's chief of European affairs in the 1990s, says it was a nightmare trying deal with Brussels. "I ended up totally frustrated. In the  areas of military, security and defence, it is totally dysfunctional."

 Mr Kornblum argues that the EU "left NATO psychologically" when it tried to set up its own military command structure, and did so with its usual posturing and incompetence. "Both Britain and the West would be in much better shape if Britain was not in the EU," he said.

This is interesting but it is a minority view in US policy circles. The frustration passed when Poland and the first wave of East European states joined the EU in 2004, bringing in a troupe of Atlanticist governments.

We know it is hardly a love-affair. A top US official was caught two years ago on a telephone intercept dismissing Brussels during the Ukraine crisis with the lapidary words, "fuck the EU".

Yet the all-pervading view is that the Western liberal order is under triple assault, and the EU must be propped, much as Britain and France propped up the tottering Ottoman Empire in the 19th - and wisely so given that its slow collapse led directly to the First World War.

Today's combined threats comes from Jihadi terror and a string of failed states across the Maghreb and the Levant; from a highly-militarized pariah regime in Moscow that will soon run out of money but has a window of opportunity before Europe rearms; and from an extremely dangerous crisis in the South China Sea that is escalating by the day as Beijing tests the US alliance structure.

The dangers from Russia and China are of course interlinked. It is likely - pessimists say certain - that Vladimir Putin would seize on a serious blow-up on Pacific rim to try his luck in Europe. In the eyes of Washington, Ottawa, Canberra, and those capitals around the world that broadly view Pax Americana as a plus, this is not the time for Britain to lob a stick of dynamite into Europe's rickety edifice.

The awful truth for the Leave campaign is that the governing establishment of the entire Western world views Brexit as strategic vandalism. Whether fair or not, Brexiteers must answer this reproach. A few such as Lord Owen grasp the scale of the problem. Most seemed blithely unaware until Mr Obama blew into town last week.

In my view, the Brexit camp should be laying out plans to increase UK defence spending by half to 3pc of GDP, pledging to propel Britain into the lead as the undisputed military power of Europe. They should aim to bind this country closer to France in an even more intimate security alliance. These sorts of moves would at least spike one of Project Fear's biggest guns.

The Brexiteers should squelch any suggestion that EU withdrawal means resiling from global responsibility, or tearing up the European Convention (that British-drafted, non-EU, Magna Carta of freedom), or turning our backs on the COP21 climate accords, or any other of the febrile flirtations of the movement.

It is perhaps too much to expect a coherent plan from a disparate group, thrown together artificially by events. Yet many of us who are sympathetic to the Brexit camp, who also want to take back our sovereign self-government and escape the bogus and usurped supremacy of the European Court of Justice, have yet to hear how Brexiteers think this extraction can occur without colossal collateral damage and in a manner consistent with the honour of this country.

You can quarrel with Europe, or you can quarrel with the US, but it is courting fate to quarrel with the whole democratic world at the same time. 

Dá-me ideia que, a médio prazo, a Europa vai de novo dar que falar pela negativa. E muito negativa.

O problema das dívidas soberanas não está resolvido. Tem que vir aí uma onda massiva de debt restructuring. Será quase impossível isso acontecer sem fazer os credores privados perderem uma parte. A Alemanha já sinalizou que deseja isso, e não que seja só o $$ dos contribuintes a pagar os problemas. A intervenção do BCE tem limites maiores que a da Fed, pois não temos cá uma federação.

O Sul da Europa está estagnado, numa situação de depressão, e não há qq sinal de que isso mude a médio prazo. Basta mais um problema internacional, guerra, commodities a subirem de novo, etc, e o Sul fica mto afectado -- e a caminhar para a falência.

A Itália pode ser uma candidata a sair do euro, não é só a Grécia e Portugal.

E os países do Sul estão a ficar crescentemente ingovernáveis com este desvio para a esquerda idiota -- Syriza, Costa e companhia. Agora vai ser em Espanha também.

No UK, vai haver referendo talvez este ano. Embora as elites estejam na sua maioria a favor da manutenção, o povo não está. Vê-se isso nos comentários online. O referendo vai ser renhidíssimo. E os meses antes dele vão fazer cair os mercados. Importante é realizar que se o UK sair, provavelmente a UE não sobrevive. Há uma reacção em cadeia, com alguns países do Norte a seguirem-lhe o exemplo.

Na realidade, em Davos já vários dirigentes falaram que uma saída do UK poderia ser fatal para a UE e precipitar o desmoronamento desta em meses (um ministro francês disse-o).

Há ainda a possibilidade de alguns países do Norte, também aflitos, como a Finlândia ou Holanda, expressarem que querem sair do euro afinal. Há fortes argumentos para defender que as crises neles também se devem em parte ao euro, não é só no Sul.

E já nem falo do desastre dos refugiados e de Schengen, que está a colocar os europeus uns contra os outros. Alguns países de leste estão pura e simplesmente a não seguir o que vem nos tratados europeus. Já ninguém se rala com ameaças de Bruxelas.

Os sinais de desintegração acumulam-se. Bastará alguém chegar-se à frente com uma declaração pública, por ex, e o castelo de cartas começa a desmoronar-se. Além disso isso poderá ser desordenado, e mais rápido do que se pensa.

Estou a falar de algo com potencial para colocar os mercados bolsistas de joelhos, e não só os europeus. Não como 2008, mas sim bastante pior. Até porque as valorizações das acções estão um bocado esticadas.

Os problemas da China e outros até parecem pequenos comparados com isto.

Por tudo isto, acho que uma série de tópicos podem voltar a ser actuais. Um deles é como proteger o nosso $$ em contas bancárias. Não estou convencido pela regra dos 100k. Melhor uns 50k, os dirigentes podem alterar essa regra a todo o momento. Lembremos, de qq maneira, que parece haver intenção de fazer os depositantes perder em caso de falências bancárias.

Mas os depositantes poderão perder quase tudo, mesmo sem falência bancária, se um país falido sair do euro, como pode acontecer.

A Alemanha sinalizou que não quer mutualizações de dívidas. E os povos europeus sinalizaram que não querem mais integração. E o cameron está agora a formalizar isso, um stop à integração. Como é que uma união monetária se aguenta nestas condições.

Por tudo isto, um short a acções europeias, principalmente bancos, principalmente da Europa do Sul, pode ser adequado. Nem que seja para fazer um hedging do resto da carteira.

Outras coisas que podem vir a ser rentáveis são o ouro e o franco suiço. Vão voltar a chover capitais sobre a Suiça.

Mas tudo isto que aqui escrevi é só para iniciar o debate. Não faço a mínima ideia dos timings para estas coisas todas. Não sei se algum destes problemas rebenta em 2 meses, 6 meses, 2 anos, ou 5 anos. Mas que um ou vários vão rebentar, isso vão. O prémio potencial é muito grande. Nem que seja o prémio de não perder demasiado.

Major stock bear  awakening

by Adam Hamilton, 15-1-2016


The US stock markets have suffered their worst early-year losses in history in young 2016, an ominous proof that a major trend change is underway.  The Fed’s new tightening cycle is already slaying recent years’ extraordinary easy-Fed-fueled stock-market levitation.  Unfortunately the only possible reckoning after such a record artificial stock boost is a long-overdue major bear market that is finally awakening.

Just a month ago, the stock markets looked radically different.  The Federal Reserve’s Federal Open Market Committee that sets monetary policy mustered the courage to hike rates, ending exactly 7 years of a record zero-interest-rate policy.  Stock traders rejoiced, interpreting the first rate hike in 9.5 years as a sign the Fed had great confidence that the US economy was improving.  So they bid stocks higher that day.

The benchmark S&P 500 stock index (SPX) surged 1.5% to 2073 the afternoon of the Fed’s first-ever ZIRP-ending rate hike.  That was merely 2.7% under the SPX’s all-time record high seen just 7 months earlier in late May.  Euphoric Wall Street strategists spent the next couple weeks calling for that powerful bull market in stocks to continue in 2016, with plenty of predictions for the SPX climbing another 10%+ this year.

But something snapped as this new year dawned, unleashing waves of selling.  Enough stock traders worried that an anomalous stock bull fueled by the Fed’s ZIRP and quantitative-easing money printing might not fare so well without ZIRP and QE.  Since that first rate hike since June 2006 was so close to the new year, they waited to 2016 to realize their big gains which delayed their taxation for an entire year.

So instead of rallying in recent weeks in line with early years’ strong upside bias on new capital inflows from pension funds and year-end bonuses, the stock markets have plunged.  The SPX has lost a truly breathtaking 7.5% in 2016’s mere 8 trading days as of the middle of this week!  The massive selling that is necessary to drive such a drop has been relentless yet orderly, with insufficient fear to mark a durable bottom.

As I warned last June just weeks after the SPX’s record high as euphoria reigned supreme, the Fed shift is a major stock-market risk.  The US stock markets had  perfectly mirrored the Fed’s increasingly-bloated balance sheet since the dawn of the wildly-unprecedented QE and ZIRP era in late 2008 in response to that year’s stock panic.  Whenever the Fed was actively monetizing bonds with QE, stock markets rallied.

But when both QE1 and QE2 ended, the stock markets corrected hard.  Popular greed had grown so epic that the end of the final QE3 bond-buying campaign in October 2014 was shrugged off.  Yet the SPX’s QE-fueled momentum soon stalled out anyway, with this flagship index peaking less than 7 months later.  While the new bond monetizations ended with QE3, the Fed hadn’t started selling its gargantuan holdings.

As recent weeks are proving, the final nail in the Fed stock levitation’s coffin was the end of ZIRP less than 14 months later in December 2015.  But the Fed-boosted stock bull was already in topping mode.  During that long span between the Fed ending QE’s new buying and executing its initial rate hike, the SPX only edged 3.1% higher.  The end of ZIRP is even more ominous for stock markets than the end of QE.

The 7 years of ZIRP and QE had openly manipulated short and long interest rates to record lows.  Corporations took advantage of the deluges of cheap money to borrow with a vengeance.  But instead of using these vast amounts to actually grow their businesses and hire people, the great majority of it went into pure financial engineering.  It was used to buy back stocks, boosting share prices and  apparent profitability.

According to the Fed, US non-financial corporations spent a staggering $2.24t buying back their stocks since 2009.  And the Fed reports they borrowed $1.9t to do this, so over 5/6ths of all the stock buybacks of the ZIRP era were debt-financed!  Without record-low interest rates, the economics of such stock buybacks crumble.  And they have been recent years’ overwhelmingly-dominant source of stock demand.

The 2015 stock-market action reflected the dire implications of the end of QE and ZIRP, which euphoric traders foolishly chose to ignore.  As this first chart shows, the US stock markets stalled out before rolling over to form a giant rounded topping pattern in the past year or so.  That gradually eroded all the bullish psychology enough to start breaking it in early 2016.  But the flagship VIX fear gauge shows no bottom in sight.



Stock traders are notorious for their myopic shortsightedness.  Their opinions on market outlook are just dominated by the latest action from recent days and weeks.  But much-longer-term context is necessary to understand why a major stock bear is awakening.  And to the great peril of everyone who refuses to study the bigger picture, the serious stock selling seen so far in 2016 is only the very tip of the iceberg.

Despite the vast distortions caused by QE and ZIRP, the stock markets behaved normally between 2009 and 2012.  They had just plummeted in a once-in-a-century stock panic in late 2008, so a major cyclical bull market was due as I predicted in early 2009.  By September 2012 just days before the Fed launched QE3, the SPX had powered 112.5% higher in 3.5 years.  Its bull-market trajectory to that point was totally normal.

The stock markets would rally for a year or so, and then correct.  These 10%+ declines in stock prices are normal and healthy in bull markets, as they rebalance sentiment before greed grows too excessive.  It’s provocative to note though that both major corrections in the SPX in that era ignited right after the Fed’s massive QE1 and QE2 bond-monetization campaigns ended.  So the Fed was already distorting stocks.

But in September 2012, the Fed birthed its wildly-unprecedented QE3 campaign.  It was very different from QE1 and QE2 in that it was open-ended, with no predetermined size or end date.  QE3 was soon more than doubled in December 2012 to an $85b-per-month pace of conjuring new money out of thin air to buy bonds.  Fed officials deftly used QE3’s undefined nature to actively manipulate stock traders’ psychology.

Every time the stock markets threatened to sell off since early 2013, top Fed officials would rush to their microphones to declare they were ready and willing to expand QE3 if necessary.  This was interpreted by stock traders exactly as the Fed intended.  They started to believe an effective Fed Put was in place, that the Fed would quickly ramp its record easing if necessary to arrest any material stock-market selloff.

So the stock markets started levitating, decoupling from their normal bull trajectory.  Not wanting to fight the Fed, traders began ignoring all conventional sentimental, technical, and fundamental indicators to aggressively buy every minor dip.  This Fed-spawned psychology along with the extreme debt-financed corporate stock buybacks courtesy of ZIRP drove the most extraordinary stock-market levitation ever witnessed!

Nearly all the stock-market action since early 2013 is a Fed-conjured illusion that never represented the underlying real-world fundamentals as we’ll discuss shortly.  That indicators-be-damned buying without any normal selling to rebalance sentiment resulted in one of the longest correction-less spans in stock-market history, an incredible 3.6 years.  That only ended with the SPX’s brutal 10.2% 4-day plunge in late August.

That extreme selling was a big warning shot across traders’ bows that the markets were topping and rolling over into bear mode, as I warned again just days after that plummet.  While China’s surprise devaluation of its yuan was credited as that plunge’s cause, that revisionist history isn’t true.  That yuan devaluation came on August 11th, which was fully 7 trading days before that intense stock-market selling began.

The real catalyst for August’s sharp correction was the release of minutes from the latest FOMC meeting the afternoon before that big selling hit.  They were more hawkish than expected, with most of the FOMC members agreeing that conditions had almost been achieved for hiking rates at their next meeting in mid-September.  So it really wasn’t China that blasted US stocks in late August, but  Fed-rate-hike fears!

Of course that very global stock selloff the hawkish Fed spawned stayed its hand in September.  But at the FOMC’s next meeting in late October, the Yellen Fed hellbent on finally hiking warned that it would likely happen at the next mid-December meeting.  And so it came to pass.  Though the end of ZIRP that had enabled the debt-financed stock buybacks that levitated stock markets was wildly bearish, stocks held on.

The Fed’s first rate hike in nearly a decade happened just a couple trading days before Christmas week which many traders take off entirely.  But during the two trading days between the hike and that holiday week, the SPX plunged 3.3%.  The writing was on the wall for anyone who cared to read it, as I warned again that very day.  But with year-end so near, traders nervously sat on their hands to avoid realizing gains.

Then as 2016 dawned and all those capital-gains-tax bills would be pushed an entire year into the future, all hell broke loose.  Again China was blamed, with its ongoing yuan devaluation and limit-down stock-market closes under brand-new circuit breakers apparently driving heavy American stock selling.  But underneath it all was the super-bearish ramifications of the Fed’s first tightening cycle in a decade underway.

Then just this Wednesday, the blame-China excuse for the horrendous early-year US losses imploded.  On a day with the best economic news out of China in some time, a big upside surprise in exports, the US stock markets opened higher.  But they soon started to sell off on no news whatsoever, collapsing to a huge 2.5% loss which made for the worst trading day of 2016.  And this year, that’s sure saying a lot!

Make no mistake, China is a peripheral issue to the dire implications of the new Fed tightening cycle on stock markets levitated for years by epic record Fed easing.  And the selling isn’t over even on a near-term basis.  Check out the definitive VIX fear gauge above, which measures the implied volatility on 1-month S&P 500 index options.  The higher the VIX, the greater general fear which is necessary for a bottoming.

Even during the Fed’s levitation, durable bottoms after major selloffs never occurred unless the VIX shot above 40.  During the SPX’s 16.0% correction in mid-2010 following the end of QE1, the VIX rocketed as high as 45.8 on close.  During the next 19.4% correction a year or so later after the end of QE2, the VIX soared as high as 47.5 on close.  And in late August 2015’s sharp correction, the VIX hit 40.1 on close.

The near-term selling in the stock markets is very unlikely to end in the magnitude of plunge we’ve seen so far in 2016 without a VIX read up above 40.  As of Wednesday, the VIX’s highest close of the year was merely 26.4 last Friday.  Even Wednesday’s sharp 2.5% SPX plunge saw the VIX merely hit 25.0.  There is simply not yet enough fear to see a durable bottom, as the selling has been big and relentless but orderly.

And even when that 40+ VIX inevitably arrives and a major short-covering rally is unleashed, the stock markets aren’t out of the woods by a longshot.  They remain overdue for the major bear market that was artificially delayed by the Fed’s record easy money spewing from QE and ZIRP.  While extreme central-bank manipulations can temporarily distort market cycles, history has proven they can’t be eliminated.

Before we get into the fundamental proof of why a major stock bear is awakening, consider the sheer damage it will wreak in the chart above.  Bear markets start at a 20% SPX loss off of the preceding bull’s peak, which would drag this benchmark index to 1705.  That would erase all the stock-market gains since mid-2013, the majority of the Fed’s stock-market levitation!  Even 20% would devastate stock-trader sentiment.

But it’s going to get far worse than that, as bear markets tend to cut stock prices in half!  And that average comes after garden-variety bulls that haven’t been artificially extended by central banks.  A 50% overall drop is likely very conservative for this new bear underway.  Yet even that would drag the SPX all the way back to 1065 within a couple years or so, blasting this index back to late-2009 levels just after the stock panic!

The bigger this long-overdue bear market grows, the more it’s going to scare stock investors into selling and running for the exits.  And the more they sell, the bigger this bear will grow.  Bear markets, just like bulls, are self-feeding beasts.  So selling is only going to intensify as 20%, 30%, 40%, and even 50% total declines in the S&P 500 are seen.  Naive investors trapped unaware in this are going to lose fortunes.

While the end of 7 years of QE and ZIRP is exceedingly dangerous for Fed-levitated stock markets, this risk is compounded greatly by the resulting  extreme stock-market valuations.  This next chart looks at the average trailing-twelve-month price-to-earnings ratio of all 500 SPX component stocks.  Weighted both simply and by companies’ market capitalizations, this terrifying valuation data guarantees an outsized bear.



The stock markets move in great third-of-a-century cycles I call Long Valuation Waves.  Their first halves see mighty secular bulls where stock prices are bid up far faster than underlying corporate earnings, so valuations soar.  This necessitates second-half secular bears, which see stock markets grind sideways on balance for long enough for profits to catch up with lofty stock prices.  We remain deep in a secular bear.

It started in early 2000 as the last secular bull peaked, and consisted of a series of shorter cyclical bears and bulls.  The former indeed cut stock prices in half, while the latter doubled them back up to breakeven again.  Thus for fully 13 years ending in late 2012, the SPX slowly meandered within a giant secular trading range between roughly 750 support to 1500 resistance.  That typical pattern was very healthy for stocks.

As these blue SPX P/E lines reveal, stock-market valuations gradually mean reverted from bubble levels over 28x earnings as the last secular bull peaked down towards normal levels.  The century-and-a-quarter fair-value level for US stock markets is 14x earnings, and we were well on our way back there before the Fed’s brazen open-ended QE3 campaign reached full steam in early 2013.  Then stocks soared to a breakout.

The SPX blasted above its secular-bear 1500 resistance in January 2013 on the Fed’s we’ll-expand-QE-if-we-need-to jawboning and never looked back.  But this sentiment-driven stock levitation truly had no fundamental foundation.  Stock-market P/E ratios soared with stock markets, proving that earnings were not justifying recent years’ big gains.  By last month, the SPX’s P/E of 26x was  back near 28x bubble levels!

Such extreme valuations demand a stock bear to bring them back in line with norms, which is why one is guaranteed.  And it’s even more remarkable to see near-bubble stock prices considering recent years’ epic ZIRP-fueled stock buybacks.  Buying back stocks reduces outstanding share counts, which spreads overall profits across fewer shares.  This boosts the earnings per share used to calculate P/E ratios.

So without the radical stock-buyback binge the Fed fomented, valuations would now be well into bubble territory at today’s stock prices!  And they’re actually heading higher if stock prices don’t drop sharply to bring them back in line.  Overall US corporate earnings are now projected to fall in the fourth quarter of 2015, up to 5%.  Lower profits will force valuations even higher, further ensuring one heck of a bear.

Based on the latest trailing twelve months of earnings for all the elite S&P 500 component companies, and that’s current to the third quarter, the SPX would have to fall all the way back down under 1100 merely to hit historic fair value at 14x earnings!  The white line above shows where the SPX would be trading at 14x fair value.  Just getting there would require a 48.5% bear market, right in line with historic averages.

But today’s situation is much worse than that.  We remain mired deep in the secular bear which started in early 2000, and tend to run for 17 years.  While the SPX’s nominal peak near 2125 last May was a lot higher than March 2000’s near 1525, if you adjust the latter using CPI inflation it works out to about 2100 as well in early-2015 dollars.  So ever since 2000, the stock markets really have ground sideways on balance.

Secular bears don’t end at fair value of 14x earnings, but persist until stocks are trading at half that level or 7x before they finally yield to the next secular bull.  In order to push valuations down that far based on today’s corporate earnings, the SPX would have to see an astounding 74% bear market that would crush it under 550!  Since bears take a couple years to unfold, stock prices won’t have to go that low as profits rise.

But this still illustrates how scary-extreme these stock markets are in fundamental valuation terms due to the wild distortions the Fed unleashed through QE and ZIRP.  Given the extraordinary stock-market levitation fed by epic record Fed easing leading into this awakening bear, I’d be shocked if it stops at a mere 50% loss.  Traders are going to pay an awful price as these markets mean revert lower and overshoot.

All the Fed’s record monetary inflation ballooning its balance sheet and record-low rates accomplished was artificially extending a long-in-the-tooth cyclical bull market within a secular bear.  And with QE and ZIRP done and a new tightening cycle upon us, the gross stock-market excesses are only just starting to unwind.  Investors and speculators alike trapped unaware in this resulting bear are going to get slaughtered.

But the prudent can still thrive during stock bears.  The coming S&P 500 downside can be directly bet on with puts in the leading SPY SPDR S&P 500 ETF.  Investors can also use SPY puts to hedge their long stock investments.  But since the vast majority of stocks get sucked into bear markets, a far better option is selling investments and parking capital in cash.  Cash is king in bears, going beyond preserving wealth.

Investors who wisely go fully in cash early in a bear can literally buy back twice as many shares in their investments after the bear runs its course and cuts stock prices in half.  Then they can use this much-larger base to rapidly multiply their wealth in the next bull.  And gold is even better, because unlike cash it rallies during stock bears as falling stock prices kindle gold investment demand for portfolio diversification.

Just like during the last two cyclical stock bears that cut the markets in half in the early 2000s and again in the late 2000s, Wall Street is going to deny this current selling is a new bear all the way down.  Since it earns vast percent-of-assets management fees, Wall Street’s mission is to keep people fully invested no matter what.  In order to understand what’s really going on, you have to cultivate contrarian intelligence sources.

That’s what we’ve long specialized in at Zeal.  We really walk the contrarian walk, buying low when few others will so we can later sell high when few others can.  We publish acclaimed weekly and monthly newsletters that draw on our decades of exceptional experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks.  If you want to not only survive but thrive in this bear, you need to subscribe today and get informed!

The bottom line is a major stock bear is awakening.  The new Fed tightening cycle marks the end of the most extraordinary record easing in history.  Its combination of record-low interest rates and record-high money printing unleashed vast deluges of stock buying resulting in recent years’ artificial levitation.  But it was totally unjustified fundamentally, with stocks soaring far faster than profits leading to near-bubble valuations.

With those extreme Fed tailwinds suddenly shifting to headwinds, the Fed-fueled stock-market levitation is rapidly starting to unwind in this young new year.  And this selling is just getting started, as nothing short of a full bear market will force extreme valuations back down to fair value.  The chickens are finally coming home to roost for the Fed’s radical stock-market distortions, and the reckoning ain’t gonna be pretty!

Quais são as empresas "investment grade" ou "investíveis" do PSI Geral? Há umas 60 cotadas no mercado principal.

Mas as seguintes devem ser rejeitadas por: i) serem bancos, ou de media, ou do futebol; ii) terem liquidez baixa; ii) terem negócios em descontinuação (Pharol, SDC, Sonaecom, etc).

Banco Popular
BANIF
Benfica
BCP
BES
BPI
Santander
Brisa
Compta
ESFG
Estoril-Sol
FC Porto
Grão-Pará
Impresa
Lisgráfica
Mediacapital
Orey Antunes
Toyota Caetano
Sporting
Sumol-Compal
VA Atlantis
PHAROL
SONAECOM
SDC Investimentos
Martifer

Defiant Portugal shatters the eurozone's political complacency

Brussels faces a second anti-austerity revolt as the Portuguese Left tears up the script and demands the right to govern
 
By  Ambrose Evans-Pritchard

8:45PM BST 21 Oct 2015

   Comments1096 Comments

The delayed fuse on the eurozone's debt-deflation policies has finally detonated in a second country. Portugal has joined the revolt against austerity.

The rickety scaffolding of fiscal discipline and economic surveillance imposed on southern Europe by Germany is falling apart on its most vulnerable front.

The anti-austerity revolt in Portugal is a foretaste of what may happen in a string of EMU states when the global economic expansion rolls over

Antonio Costa, Portugal's Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF 'Troika'.

Against all assumptions, he has suspended his party's historic feud with Portugal's Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament.

The verdict from the markets has been swift. "We would be very reluctant to invest in Portuguese debt," said Rabobank, describing the turn of events as a political shock.

The country's president has the constitutional power to reappoint the old guard - and may in fact do so over coming days - but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh.

"The majority of the Portuguese people did not vote for the incumbent coalition. They want a change," said Miriam Costa from Lisbon University.

Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

Mr Costa's hard-Left allies both favour a return to the escudo. Each concluded that Greece's tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency.

The Communist leader, Jeronimo de Sousa, has called for a "dissolution of monetary union" for the good of everybody before it does any more damage to the productive base of the European economy.

His party is demanding a 50pc write-off of Portugal's public debt and a 75pc cut in interest payments, and aims to tear up the EU's Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the "commanding heights of the economy".

Catarina Martins, the Left Bloc's chief, is more nuanced but says that if the Portuguese people have to choose between "dignity and the euro", then dignity should prevail. "Any government that refuses to obey Wolfgang Schauble must be prepared to see the European Central Bank close down its banks," she said.

She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation's banking system.

These two parties have for now submited to eurozone pieties, agreeing vaguely to abide by EMU fiscal rules. Such lip-service is meaningless.

The EU Fiscal Compact requires Portugal to cut its public debt from 127pc to 60pc of GDP over twenty years, under pain of sanctions, with parallel cuts in Italy, Spain, France, and Belgium that feed on each other and are likely to trap monetary union in a contractionary vortex for another generation.

For Portugal it entails a primary budget surplus on such a scale that it cannot possibly be compatible with the economic agenda of the Left.

Mr Costa's own proposals - scarcely more moderate - put him on a collision course with the European Commission. He has vowed to "turn the page on austerity", reverse Troika cuts, roll back labour reform, review the privatisation of public transport and the water works, and launch a 55-point reflation package led by spending on health care and education.

The upset in Portugal has caught Europe's elites off guard. The eurozone is enjoying a cyclical rebound of sorts, driven by the happy trifecta of cheap energy, a cheap euro, and cheap credit. The ECB's quantitative easing has flushed the system with liquidity though Europe still has one foot in deflation.

Europe's leaders thought the crisis was over and believed their own propaganda that Portugal has successfully clawed its way back to safety by adhering strictly to Troika terms. This was always wishful thinking.

William Buiter, Citigroup’s chief economist, says Portugal has many of the same economic ‘pathologies’ as Greece, with debt ratios already beyond the point of no return, and a fresh solvency crisis almost inevitable in the next downturn.

Portugal's combined public and private debt is 370pc of GDP. This is the second highest in the developed world after Japan, but Japan is an international creditor while Portugal has net external liabilities of 215pc of GDP. "A systemic solution to the problem of excessive leverage is needed," says the International Monetary Fund.

The IMF praises Portugal's “export miracle” but warns that the gains have been narrowly based. While exports have jumped from 30pc to 40pc of GDP since 2010, there have been no such advances in "domestic-value added" shipments, which are what matter for competitiveness. “A durable rebalancing of the economy has not taken place and the nontradable sector is still dominant,” it said.

“Portugal faces an acute growth challenge. Productivity growth has been declining over the past half-century. Portugal’s working-age population is projected to fall, and the country’s capital stock is contracting because of underinvestment,” it said.

It is this mix of high debt and chronically low growth that is so toxic, compounded by deflationary forces that poison with debt dynamics. The IMF says the only sure way to escape the stagnation trap within EMU constraints is a blast of radical market reform. Yet reforms have already "stalled". They now look implausible.

The anti-austerity revolt in Portugal is a foretaste of what may happen in a string of EMU states when the global economic expansion rolls over, as it may well do within a couple of years on historical patterns.

The social and political damage caused by the eurozone's self-inflicted slump from 2008-2014 is still fermenting, a combustible atmosphere if the region is soon hit by fresh downturn.

The currency bloc is in worse shape on almost every metric than it was before the Lehman crisis. Debt levels are 35 percentage points of GDP higher. EMU-wide unemployment is stuck at 11pc. The credibility of eurozone leadership is in tatters.

Powerful populist forces are waiting in the wings in Spain, Italy, and France. The events in Portugal have shown that every election in Southern Europe is a now an "event risk". Political chickens are coming home to roost, and economic time is running out.

Indebted Portugal is the Problem Child of Europe


By Mehreen Khan, 6-8-2015


Asphyxiating debt levels, falling job creation and bad loans still plague the economy, a year after it exited its bail-out programme, warns the IMF.

"A sudden change in market sentiment could render Portugal’s capacity to repay more vulnerable" said the IMF.
   
Portugal must carry out a bold programme of deep spending cuts and tax hikes to tackle its perilously high debt levels, the International Monetary Fund has warned.

A former bail-out economy often hailed as a poster child for the eurozone's austerity medicine, Portugal continues to have the highest public and private debt ratio in the eurozone at over 360pc of GDP.

The IMF has now told the government to redouble its belt-tightening efforts to reduce its debt overhang and meet a mandated budget deficit target of 2.7pc this year. Should Lisbon fail to cut spending, the deficit is expected to balloon to 3.2pc of economic output.

Portugal officially exited its €78bn international bail-out programme last year. The economy is now expected to expand by 1.6pc in 2015, an upturn largely attributed to favourable external factors such as low commodity prices and a weak euro, said the Washington-based Fund.

Despite noting the recovery was broadly "on track", the IMF painted a precarious picture of an economy heavily exposed to a downturn in global fortunes and fears over Greece's future in the euro.

"A sudden change in market sentiment due to concerns about the direction of economic policies or re-pricing of risk could render Portugal's capacity to repay more vulnerable," warned the report.

A sudden change in market sentiment could render Portugal’s capacity to repay more vulnerable

Four years of Troika-imposed measures has seen government debt hit 127pc of GDP this year, leaving the country "vulnerable to any prolonged financial market turbulence", according to the IMF's monitoring report.

Prohibitive debt levels are now expected to dampen domestic demand, "constrain the pace of recovery and weigh on medium-term growth prospects".

In further worrying signs that the recovery has already lost steam, Portugal's unemployment rate crept back up to 13.7pc in the first quarter of the year, up from 13.1pc in late 2014. Since the IMF's assessment, joblessless has fallen back to 11.9pc in the three months to June.

Last year, the government was forced to inject €5bn to stave off a collapse of Portugal's biggest lender - Banco Espírito Santo. But the country's financial system continues to be plagued by rising "bad" non-performing loans which grew by 12.3pc in the first three months of the year.

Political risk could also throw the fragile recovery off track and precipate a fresh crisis in southern Europe. Despite five years under a compliant centre-right government, progress on implementing structural reforms demanded by creditors has eased off, said the IMF.

The country goes to the polls in October, where the anti-austerity Socialists are on course to win a parliamentary majority. Party leader Antonio Costa has vowed to roll back Troika-imposed reforms and end the country's "obsession with austerity".

In the face of such resistance, the IMF urged any new regime to take office and "regain momentum on structural reforms".

With the growth outlook tempered, the IMF noted that its partners in the ECB and European Commission continued to set "ambitious goals" for the economy, forecasting debt will fall to 107pc of GDP by 2019. The Fund's own projections predict debt ratios will stay above 118pc in 2020.

Mass private sector debt restructuring and the liquidation of "zombie" companies is also needed to bring down downeye-watering corporate sector levels, recommends the IMF.

To meet creditor targets, any future government would have to reverse of public spending pledges and carry out "streamlining [of] public services, rationalising the public wage bill and reducing social security spending and interest costs".

But the IMF voiced doubts any regime could fully implement such a bold programme of cuts.

"The proposed savings on the public sector wage bill, social benefits and pension outlays, in particular, appear overly optimistic when compared to recent spending trends," said the report.

Ora aqui está uma notícia interessante, no Observador:

As casas de apostas parecem quase certas que a Grécia vai continuar no euro. Por cada 14 libras apostadas na manutenção da Grécia no euro, caso assim aconteça, os apostadores ganharão apenas uma libra, ou seja, os apostadores atribuem uma probabilidade da Grécia continuar no euro de 93%, segundo a Betfair, diz o jornal grego Khatimerini.

Mas isto lembra-me que se poderia tentar aproveitar os sinais destas casas de apostas para investir em ETFs e outros activos.

Até se poderia talvez fazer arbitragem entre as duas coisas, e conseguir "almoços grátis" -- isso é menos improvável com este mecanismo do que com valores cotados em Bolsa, pois nestes últimos a arbitragem já é muito eficiente.

Parece-me que isto é suficientemente importante para merecer um tópico.

Estou interessado nesta empresa: Karyopharm Therapeutics, KPTI.

Tem a patente de uma droga anti-cancro que já está a ser testada há anos. Já passou com sucesso os trials phase 1 e phase 2. Falta-lhe o phase 3, mas este deverá chegar nos próximos 2 anos.

A droga já se mostrou eficaz num broad range de cancros. É além disso eficaz contra vários vírus.

A posse desta droga é o principal activo da empresa.

A cotação já subiu de $15 até $48, e entretanto desceu, está a $28. Comprei ontem, e por acaso está a subir 5% hoje. Vou manter para o longo prazo.

Investors have woken up to Greece's nuclear risk


By Ambrose Evans-Pritchard, 29-1-2015


Markets have woken up to Greek nuclear risk. Bank stocks on the Athens exchange have crashed 44pc since Alexis Tsipras swept into power this week with a mandate to defy the European power structure.

Greek bonds bought with such zest by investors last April - entranced by the mirage of recovery, and deaf to simmering revolution below - are signalling a rapid slide towards bankruptcy. Five-year yields spiked to 13.5pc today.

Contrary to expectations, Mr Tsipras has not resiled from a long list of campaign pledges that breach the terms of Greece's EU-IMF Troika Memorandum, and therefore put the country on a collision course with Brussels, Berlin, and Frankfurt.

He told his cabinet today that the government is willing to negotiate on its demands for debt relief but will not abandon its core promises to the Greek people. “We will not seek a catastrophic solution, but neither will we consent to a policy of submission. The country is holding up its head,” he said.

If anything, he is upping the ante. He could have gone into coalition with the centrist, pro-EU Potami party, and could have explained any softening of his line towards Europe as a necessary move to hold the government together. Instead he chose to go with Independent Greeks, a nationalist party that is even more virulently hostile to the Troika. This has been a cannon shot across the bows of creditor states.

Mr Tsipras is clearly gambling that Germany and the creditor powers will not let monetary union break up at this late stage, over a trivial sum of money, after having already committed €245bn, for to do so would shatter the illusion that the eurozone crisis has been solved. This may be a misjudgment.

“We will immediately stop any privatisation,” said Panagiotis Lafazanis, leader of the Marxist Left Platform, the biggest bloc in the Syriza pantheon. Plans to sell the PPT power utility and the Piraeus Port Authority have been halted. The minimum wage will be raised from €500 to €751 a month as a first order business. This is an explicit rejection of Troika austerity terms.

We are witnessing a democratic revolution. Never before have the EMU elites had to face a eurozone government that refuses to play by any of their rules, and they have yet to experience the lascerating tongue of Yanis Varoufakis, a relentless critic of their 1930s ideology of debt-deflation and "fiscal waterboarding".

Mr Varoufakis told me before his appointment as finance minister that Syriza will not capitulate even if the European Central Bank threatens to cut off €54bn of liquidity for the Greek banking system, a move that would almost certainly force Greece to nationalise the banks, impose capital controls, and would - in my view, though not in his - force it to reintroduce the drachma within days.

"A freshly elected government cannot allow itself to be intimidated by threats of Armageddon," he said. His first act in office today was to announce that 600 cleaners in the finance ministry will regain their jobs, paid for by cutting financial advisers. The corridors erupted in cheers.

Whether you are "staunchly" on the Left or "unashamedly" on the Right - as the BBC likes to characterise opinion - it is hard not to feel a welling sympathy for this popular revolt. If it takes a neo-Marxist like Alexis Tsipras to confront the elemental folly of EMU crisis strategy, so be it.

The suggestion - almost a mantra in EMU power circles - that Syriza is retreating from "reform" is risible. There is no reform. The two dynastic parties in charge of Greece for over three decades have always treated the state as a patronage machine, and seem to have great trouble shaking the habit.

"The concept of reform has been gradually discredited during the current crisis," says Athens think-tank IOBE. The IMF's mea culpa on the Troika's mishandling of Greece admits that the policies imposed were mostly wage cuts and brute austerity, with precious little reform of the state structure or product markets. Greece's ranking on the World Economic Forum's competitiveness index has dropped from 67 to 81 over the last six years, below Ukraine and Algeria.

If there is any party that can put an end to this oligarchy it is probably Syriza. They are outsiders, without such vested interests. Mr Varoufakis has vowed to smash the "rent-seeking" kleptocracy that enjoys legal tax immunity and has turned state procurement into an enrichment scam. "We will destroy the bases which they built for decade after decade," he said.

What Syriza is really retreating from is a scorched-earth austerity policy that has slashed investment by 63.5pc, caused a 26pc fall in GDP, pushed the youth jobless rate to 62pc at its peak, ravaged the tax base, and sent debt spiralling up to 177pc.

We have witnessed "The Rape of Greece", to borrow the title of a new book by Nadia Valavani, suddenly catapulted into power as Syriza's deputy finance minister. IMF officials privately agree. The Fund confesses in its candid report that the Troika fatally under-estimated the violence of the fiscal multiplier.

Yes, successive governments lied about the true state of public finances in the years leading up to the crisis, but this is a distraction in macro-economic terms. The flood of French, German, Dutch, and Anglo-Saxon capital into Greece was so vast that the drama would have unfolded in much same way even if Greek politicians had been angels.

The greater lie was the silent complicity of all the relevant players in allowing the deformed structure of monetary union to incubate disaster. Surveillance reports by EU bodies in did not sound the alarm during the boom years, though one of the authors told me at clandestine lunches in Brussels that the whole of southern Europe was heading for disaster. Internal critics were silenced.

What has happened to Greece since then is a moral scandal. Leaked documents from the IMF Board confirm that country needed debt relief at the outset. This was blocked by the EU for fear that it would set off contagion at a time when the eurozone - negligently - did not have a lender-of-last resort. Greece was sacrificed to buy time for the euro.

The EU-IMF Troika forced a bankrupt country to take on further loan packages, allowing foreign banks to dump their bonds onto Greek taxpayers and trap Greek citizens in debt servitude. To add insult to injury, this was called a rescue.

The IMF minutes for May 2010 said Troika loans “may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders”. Greece suffered IMF austerity without the usual IMF cure of devaluation and debt relief. It has every right to demand redress.

Yet Mr Tsipras faces a tortured moral choice. If he defaults, he walks away from debts owed to taxpayers in countries that are also net debtors with mass unemployment. Italy's contribution to the Greek loan package is €41bn and Italy too is in crisis. The Mezzogiorno's GDP has fallen by 15pc since 2008. Levels of hardship are comparable to those in Greece. All of Southern Europe is on the hook due to the insidious mechanisms of EMU crisis strategy.

Syriza's manifesto - the Thessaloniki Programme - demands cancellation of "the greater part" of Greece's public debt, comparable to the relief secured by Germany at the London Conference in 1953, and which was necessary to pave the way for the post-War boom. It wants a broader "European Debt Conference" to restructure the debts of all southern European states. In a sense it is right.

Mr Varoufaki says the eurozone will be "toast within a couple of years" unless it comes to terms with the fundamental absurdity of eurozone capital flows. Either the surpluses of the North are recycled into the South, or the bloc as whole will remain trapped in a deflationary vortex. "You can't have a monetary union that pretends it can survive by simply lending more money to debtor countries on condition that they must shrink their income," he told Channel 4's Paul Mason.

Yet it is not within Syriza's power to bring about such a broad change. The cold reality for now is that Athens is on a war footing with an EMU power-structure controlled by the creditors. The chorus of warnings over the last two days has been painfully loud and clear.

It is one thing to soften the terms of Greek debt repayment and cut the primary surplus from a target of 4.5pc to maybe 3.5pc of GDP. It is another to overthrow the Troika altogether. “We expect them to fulfil everything that they have promised to fulfil,” said Jyrki Katainen, EU's economic enforcer.

The dawning awareness of this unbridgeable chasm is what is frightening investors, and events are now moving with lightning speed. Barclays says capital flight may have reached €20bn since early December. The pace is surely accelerating.

Greece will hit its first crunch-point at the end of February when its bail-out extension expires. No doubt there will be an emergency delay of some kind - perhaps a month - but the debt redemptions will pile up soon after that, culminating in a €7bn repayment to the ECB in July and August that Greece cannot possibly meet without a deal. The mere anticipation of this awful moment will bring it forward.

Marcel Fratzscher, head of Berlin's DIW institute in Berlin, told Reuters that Mr Tsipras is playing a "very dangerous game". "If people start to believe that he is really serious, you could have massive capital flight and a bank run. You are quickly at a point where euro exit becomes possible," he said.

Holger Schmieding from Berenberg Bank says he has returned from Athens in despair, seriously worried that events may soon spin out of control. "Vicious circles can start fast,” he said.

Ora aqui está a agenda do Syriza, dia a dia, depois de ter ganho as eleições.

1º dia - forma uma coligação governamental em tempo recorde
2º - tomada de posse
3º - aumenta salários e pensões mínimas e anuncia fim da austeridade
4º - ordem secreta de Tsipras para se começarem a imprimir dracmas
5º - garante em público que tenciona manter-se no euro
6º - estuda os problemas de fuga de capitais dos bancos gregos e prepara controlos de capitais
7º - garante que a queda de cotação de 45% em 3 dias dos bancos gregos não é problema e não serão precisos controlos de capitais
8º - diz que vai negociar duro com a Alemanha, quer um haircut
9º - telefona à empresa impressora, para saber como vão os dracmas
10º - garante que fará tudo para se manter no euro
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etc