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It’s Easy As 1-2-3, ECB, SNB, SOTU and QE

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Lee Adler tells what to look for in the market in reaction to the State of the Union, the Swiss National Bank removal of the Euro peg, and the ECB’s expected decision this week to undertake QE.

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How Low Will Oil Go?

This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

Lee Adler takes uses long term charts and cycle projections to clearly show you where and when the bottom is most likely, and what to look for in a bottoming process.

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Today’s RFWS was absolutely outstanding. (I’m glad I actually watched this one rather than just listening while running.) When it comes to financial journalism, Lee, you remain an island of sanity in a huge sea of crap. Thanks.

Bob

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Must Reads

Greece’s fight against "fiscal waterboarding" will halt economic recovery

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We are about to witness a historic showdown between the major euro area institutions and Greece. Greece’s newly appointed finance minister Yanis Varoufakis, a staunch bailout critic, will lead the negotiations on debt haircuts. On the other side will be the creditors: the International Monetary Fund and the European Commission – with additional support from the ECB. Private bondholders may get dragged into the fight as well (although many of them are Greek banks who will do what the government tells them). A number of Eurozone politicians have already expressed skepticism about any debt forgiveness for Greece. But Varoufakis is likely to focus on the argument that Germany has to take a great deal of the blame for the situation in which Greece now finds itself – calling the imposed austerity measures “fiscal waterboarding”. Here is a good quote from Strafor:

Stratfor (via Forbes): Another version, hardly heard in the early days [of the Eurozone crisis] but far more credible today, is that the crisis is the result of Germany’s irresponsibility. Germany, the fourth-largest economy in the world, exports the equivalent of about 50 percent of its gross domestic product because German consumers cannot support its oversized industrial output. The result is that Germany survives on an export surge. For Germany, the European Union — with its free-trade zone, the euro and regulations in Brussels — is a means for maintaining exports. The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.

The debate will also focus on the fact that Greece has done an amazing job in cutting its debt/GDP ratio – in spite of the falling GDP.

Source: @RBS_Economics 

Greek government bond yields spiked on Syriza’s rhetoric as well as on the right-wing antiausterity party becoming Syriza’s new coalition partner. The battle lines have been drawn.

The Greek government bond yield curve has become more inverted as markets price in principal reductions that are likely to apply evenly across the curve (which is what typically causes such inversion).

It is expected that if such haircuts are applied, they would hit both official and unofficial accounts (including bonds held by the ECB). Of course debt forgiveness would haircut the government bonds held by Greek banks – who are some of the largest holders. That’s why shares of Greek banks got decimated today. New bank bailouts will be required if there is any hope for credit availability to the private sector. For now most credit activity will come to a grinding halt – and with it any hopes for economic recovery.

Source: @WSJGraphics

The overall equity market fell over 9% today as government officials halt privatization and extend an olive branch to Russia (see story).

The newly elected government may ultimately get its debt forgiveness. But in the process the damage done to the nation’s private sector will be severe – just as the nation begins to come out of a depression that rivals some of the worst downturns in global history.

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Death Valley Days Continue: Mortgage Purchase Applications Only Up 1% From One Year Ago

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I remember the pundits cooing over lenders (and Fannie Mae/Freddie Mac) expanding their credit boxes (aka, lowering their credit standards) and how 2015 would be a year to remember. No so far.. Mortgage applications decreased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for […]