George Friedman, the Chairman of Stratfor, a geopolitical intelligence company, wrote a piece that digs deeps into the European problem, especially Portugal, because the country's condition is widely misunderstood by all the clueless talking heads that see conspiracies against their way of life everywhere they look. I share some key excerpts.

We flew into Lisbon and immediately rented a car to drive to the edge of the Earth and the beginning of the world. This edge has a name: Cabo de São Vicente. A small cape jutting into the Atlantic Ocean, it is the bitter end of Europe. Beyond this point, the world was once unknown to Europeans, becoming a realm inhabited by legends of sea monsters and fantastic civilizations. Cabo de São Vicente still makes you feel these fantasies are more than realistic. Even on a bright sunny day, the sea is forbidding and the wind howls at you, while on a gloomy day you peer into the abyss. Just 3 miles west of Cabo de São Vicente at the base of the Ponta de Sagres lies Sagres, a pleasant little town of small villas and apartments. For the most part, these are summer homes, many owned by Germans and British, judging from the flags flying. It was here in 1410 that Prince Henry the Navigator founded a school for navigators. If Cabo de São Vicente is where the Earth ended for the Europeans, Ponta de Sagres became the place where the world began.

Prince Henry was the second son of Portuguese King John I. As a member of the royal class, he had the means to finance his ambitions. Those who attended his school included Vasco da Gama, who made the first voyage from Europe to India, and Magellan, whose expedition first circumnavigated the globe. Columbus was once shipwrecked and rescued off the coast, subsequently learning many of his later nautical skills in Portugal. This school gave rise to the most extraordinary alumni association imaginable.

It is odd to be thinking of Europe's legacy while sitting here in Portugal. Only the dead leave legacies, and Europe is not dead. Yet something in it has died. The swagger and confidence of a great civilization is simply not there, at least not on the European peninsula. Instead, there is caution and fear.

There is a great deal of discussion about Europe's economic crisis and finding a way to return to the lost promise of the European Union. But what was that promise? It was a promise of comfort and security and what they called "soft power," which is power without taking risks or making anyone dislike you.

The Portuguese Empire, culpable of countless atrocities which were no different than what everyone else was doing, "was the longest-lived of the modern European colonial empires, spanning almost 600 years, from the capture of Ceuta in 1415 to the handover of Macau in 1999 and granting of sovereignty to East Timor in 2002." To bring perspective to the topic, consider that Portugal is slightly smaller than Indiana and has few resources, while it managed to establish a presence in almost every continent.

Today there's little that resembles the tenacity and vision of Henry the Navigator. What we have, left, right and center, and politically speaking, are certifiable lazy idiots and plenty of whiners that don't have the guts to explore, but carry loud, yet empty voices constantly attempting to protect a culture of entitlement. Then the political pettiness carried on by the mentality deficient, disguised as intellectuals, adds fuel to the fire without adding solutions. Why no solutions? Because it takes work and dedication, and their skills end where their mouths begin! Without a doubt, the economic damage is done and if people think that the present European condition is painful, wait until the future starts to unfold. But you can either sit on your ass, or acknowledge the errors of the last few decades and set sail into the unknown like the men of centuries past (many women would have done it if allowed), and rediscover yourselves. As it stands, you're only spoiled brats that want something for nothing.

Now French president François Hollande wants to be the smartest person in the room, and called "for a united 'economic government' in the Eurozone, with its own full-time president, budget and harmonized tax system." Yes, we all agree, political union before monetary union. Duh! But it's too late, poupée, imbécile, or whatever works.

In keeping this week on a different tone, I must add another political point because it will affect markets. Benghazi, IRS, and DOJ! Three is a charm! This is more than a coincidence, and while I do not presume that Obama directly ordered any of the above unless the facts dictate otherwise, it's a reflection of the culture, and the implied approval of any tactics to defeat political opponents reins supreme. What is appalling is that for a President that projects himself as being in charge, he certainly does not know much what transpires around him. Are you sure you live in the White House? And when Jon Stewart goes out of his way to deliver a joke that literally calls the President a liar, there's a problem. Bob Woodward, a fair and pleasant man that I met two decades ago and that has the White House's back far more often than not, didn't go as far as explicitly comparing the current scandals to Watergate. But he updated his opinion on Benghazi due to recent disclosures, placing the issue far closer to Watergate than he did only six months ago.

The incident with the Associated Press, an organization that is largely behind the administration's policies, is not a surprise, and I bet that it has noting to do with leaks that compromise national security. But it has now awaken all reporters across the spectrum, because they just realized that the love affair will be terminated when they step out of bounds, and the usual chocolate covered strawberries given in exchange for looking the other way will be replaced by Taser shocks to get them back in line. Having an ideological belief is everyone's right, but when ideology interferes with journalism, also known as the pure gathering of facts, the professional becomes a fraud regardless of the political side taken. Jake Tapper, formerly with ABC News and now with CNN, brought the behavioral issue to light when Fox News was attacked, but love is blind... well, not quite when the loyal media is the target. Can you hear the kettle starting to whistle as the water reaches a boil? Like I stated last week, watch out, this sucker may be going down!

Perfection continues, and a different pattern is evolving. All indices are positive, while the dollar continues to gain. That's the difference! Where a high dollar is detrimental to large caps with an international presence, it is no longer holding equities back and the greenback is now rising in tandem with the stock market. The dollar is positive short and long-term, while the euro continues to sink toward $1.2750 and is negative short and long-term. The yen doesn't appear to find a bottom and has embraced its trip south. WTI and Brent oil are short-term positive and negative respectively, with their long-term trends holding neutral and negative. The spread widened to $8.41. Gold continued to head toward $1,350 with the immediate hard bottom about $200 below from here, and silver simply going along for the ride. Copper is short-term neutral and long-term negative, holding hope for real growth in the U.S. The 10-year Treasury rate rose to 1.95% from 1.90%. The 10-year note and the 30-year are now short and long-term negative. Next week we'll get U.S. housing data, durable goods, FOMC meeting minutes, and Bernanke's story before the Joint Economic Committee. In addition, we'll get another EU Economic Summit, and flash PMI numbers will come in.

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Retail sales increased 0.1%, and without gasoline sales rose 0.7%. March decline was revised down to -0.5%, and February was revised up to 1.1%. Business inventories were unchanged in March, while sales dropped 1.1%. Import prices declined 0.5% and export prices decreased 0.7%. CPI dropped 0.4% in April, the largest decline in over 4 years, with the core rate rising 0.1%. PPI dropped 0.7%, the largest decline in 3 years, and continuing to set the deflationary stage.

The Mortgage Bankers Association's mortgage application activity index decreased 7.3%. Refinancing decreased 8.0%, and home purchases decreased 4.0%. Freddie Mac's average 30-year mortgage rose to 3.51% from 3.42%, and the 15-year increased to 2.69% from 2.61%. Jobless claims increased 32,000 to 360,000, and the 4-week moving average increased 1,250 to 339,250. The number for seasonally adjusted insured unemployment decreased 4,000 to 3,004,000.

Housing starts plunged 16.5% in April to an annual rate of 853,000 units. Building permits jumped 14.3% to an annual rate of 1.02 million. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 44 in May from 41, but still negative.

Philly Fed manufacturing index declined to -5.2 in May from 1.3 in April. New orders declined from -1.0 to -7.9, and shipments dropped to -8.5 from 9.1. The current inventories index rose to 4.1 from -22.2 and employment declined 2 points to -8.7. The Federal Reserve Bank of New York's general economic index declined to -1.4 this month from 3.1 in April. Industrial production declined 0.5%, with manufacturing dropping 0.4%. Capacity utilization declined to 77.8% from 78.3%.

Industrial production in the Eurozone rose 1.0% in March, although on an annual basis production decreased 1.7%. Eurozone's GDP contracted 0.2% during Q1-2013, solidifying the recession and marking the longest recession (six quarters) in almost 20 years. France's GDP declined 0.2% and the recession is in, while Germany expanded by a meager 0.1%. Italy's GDP, the other major partner, dropped 0.5%.

CPI in the Eurozone was tame, registering 1.2% in April on an annual basis, and markedly down from 1.7% in February. Germany's CPI came in at 1.2% and wholesale prices declined 0.4%. France's CPI was up 0.7% on an annual basis. The ZEW Economic Sentiment for Germany rose slightly to 36.4 from 36.3. The broader ZEW Economic Sentiment for Europe increased to 27.6 from 24.9. Eurozone's trade balance registered a €22.9 billion surplus, with exports rising 2.8% and imports declining 1.0%. Italy had a trade surplus of €3.2 billion, but exports dropped 6.0% and imports plunged 10.6%.

On an annual basis, China's industrial output increased 9.3% in April, and retail sales rose 12.8%. Fixed-asset investment increased 20.6%. Japanese Preliminary machine tool orders dropped 24.1% on an annual basis, accelerating from the previous month's decline of 21.5%. Japan's core private-sector machinery orders, jumped 14.2% in March, although there were temporary large orders that will not repeat. Japan's GDP advanced 0.9%, or a 3.5% annual rate, although capital expenditures declined 0.7%.

After a very long wait, one can now buy one yen with one penny and get change back, although headlines prefer to use ¥100 to $1. The euro had been flat between $1.30 and $1.32 for about one month, and then broke below the range on Friday, with the dollar becoming the fiat paper of choice.

There's a murmur in European political circles, and the political saviors of yesteryear are finding that talking and doing are unrelated, and while Europe's condition continues to deteriorate, the people are getting fed up with the fiscal tactics. Yet, the mentality is well captured by the following quote, showing that "entitlement" is what the population grew up with.

Now we are all very disappointed. All the promises - especially to stop companies laying off workers - have not been met.

Short of a dictatorship, how can any government stop layoffs in the private sector? Then we have the bright minds of yesteryear dimming right before our eyes, and when a select few told them that they were certified idiots by pursuing the euro project, they charged forward anyway. Now they have become turncoats, shamelessly seeking redemption, and Mr Lafontaine said he backed EMU but no longer believes it is sustainable. Seriously?

Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is "leading to disaster".

Then the never invisible IMF, and it should be, advanced through Christine Lagarde that "for European banking union to succeed, all EU member countries need to be in agreement," referring to the banking union. Good luck Christine! Meanwhile, the so called banking union must contend with facts like "bad loans at Italian banks rose by 21.7 percent in March compared with a growth rate of 18.6 percent in February." However reports surfaced that "the European Central Bank could soon be buying bad loans from struggling southern European nations in an effort to spur lending to businesses… to allow banks to pass on some of the credit risk to other investors." as I continue to state, there's no free lunch and someone is always on the hook.

Now that the flood is in, everyone is reaching for sand bags which are useless when the water has settled. Austerity continues to be the culprit of the day, and "French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe's two biggest economies," while Paul Krugman issued a "call to arms against austerity." Sadly, Krugman doesn't get it!

We already had the Cyprus experience and the possibility that Spain will follow in its foot steps is highlighted in the article "Spain is officially insolvent: get your money out while you still can."

Spain is holding off further recapitalization of its banks in anticipation of the arrival of Europe's banking union, which it hopes will do the job instead. But if the Cypriot precedent is anything to go by, a heavy price will be demanded by way of recompense. Bank creditors will be widely bailed in. Confiscation of deposits looks all too possible.

As economic weakness spreads to other parts of the world, Australia's Federal Treasury "downgraded its economic growth forecast for this year and next by a quarter of a percentage point, predicting a slowdown that would dent tax revenue and make it even harder to deliver a budget surplus," while suspicious economic data pours out of China. Then the Reserve Bank of Australia reduced interest rates by 0.25% to 2.75%, and while the ECB and India had already made their moves, South Korea followed suit by lowering rates by 0.25% to 2.50%.

I mentioned North Korea in the article "China's 15 Minutes Of Fame Are Up" and advanced that "although not much is said about it, politics are no longer the driver, but rather economics, and the heavy dependence on exports to developed markets has forced China to revisit its relationship with its much cherished neighbor." Interestingly, a report this week indicated that "The Foreign Trade Bank of North Korea, the country's main foreign-exchange bank, was notified that its account was closed, Beijing-based Bank of China said in a brief statement, without offering any details." Without a doubt, economic pressure is on!

A quick political point. The Benghazi hearings could turn out to be much about nothing, some have said, but that is not my impression. The strong possibility exists that Congressional democrats will run for the hills as the story continues to unfold, and in addition to a weak economy, we'll have a political crisis in our hands that will paralyze the administration. Fox News has been the engineer driving a train without media passengers, but ABC News just jumped on board. Watch out! This sucker may be going down! Nothing may ever be proven, but to think that all the editing was done without authorization from the top, is extremely naïve. The sad aspect of this story is that if the administration had been truthful about the attack, even with the security shortcomings, the people would have rallied around the President, because we cannot guard against every possible threat. But intelligence is never abundant in political circles.

We're humming along with all indices in positive territory, short and long-term, and even a slight and healthy pullback is being denied. It's too perfect! The dollar turned positive short and long-term and the euro broke the $1.30 level, turning negative all around. The yen tried to make another comeback but plunged on Friday, retaining its short and long term negative trends intact. One aspect that is being closely watched is whether the dollar and equities will start rising and falling in tandem, which would be due to foreigners pilling onto, and out of, stocks, especially since a high dollar is detrimental to every Dow component's earnings. Short-term, WTI and Brent oil are positive and neutral respectively, and WTI is neutral long-term, with Brent still negative. The spread narrowed further to $7.09 from last week's $8.56, and before long WTI will be selling at a premium to Brent, again. Gold broke down on Friday, and while its long-term negative trend hasn't changed since December 2012, its short-term trend turned negative from neutral. Silver simply follows along, and it's getting to the point that isn't even worth talking about it. Copper managed to stay positive short-term but below $3.50, while the long-term is still negative. The 10-year Treasury rate jumped to 1.90% from 1.75%. The 10-year note and the 30-year are now short-term negative and long-term neutral. Next week we'll get U.S. retail sales, CPI, PPI, housing data and consumer sentiment. Europe will give us preliminary GDP and CPI, with China adding fixed asset investment and industrial production.

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The IBD/TIPP Economic Optimism Index decreased in May to 45.1 from 46.2 in April, and is now slightly above the 44.4 reading in December of 2007 and when the economy entered the recession. Consumer credit increased $7.97 billion in March after rising $18.6 billion the previous month. The slowdown was due to a reduction in credit card debt, while student loans keep charging forward. Wholesale sales dropped 1.6%, the largest drop since 2009, while inventories rose 0.4%. The inventories/sales ratio was 1.21, and higher than 1.17 one year ago, indicating plenty of stuff to move off the shelves.

The Mortgage Bankers Association's mortgage application activity index increased 7.0%. Refinancing increased 8.0%, and home purchases increased 2.0%. Freddie Mac's average 30-year mortgage rose to 3.41% from 3.35%, and the 15-year increased to 2.61% from 2.56%. Jobless claims decreased 4,000 to 323,000, and the 4-week moving average decreased 6,250 to 336,750. The number for seasonally adjusted insured unemployment decreased 27,000 to 3,005,000.

The Mortgage Bankers Association stated that "the delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.25 percent of all loans outstanding at the end of the first quarter of 2013, an increase of 16 basis points from the previous quarter, but down 15 basis points from one year ago." More in a few weeks on the distorted housing market. The Treasury budget delivered a surplus of $112.9 billion in April because "the impact of large individual tax deposits resulted in budget receipts of $406.7 billion," or $90 billion more than in April of 2012.

Eurozone services PMI rose to 47.0 in April from 46.6, slowing down the decline, with Spain's PMI dropping to 44.4 from 45.3, and Italian PMI rising to 47.0 from 45.5. Eurozone retail sales declined 0.1% in March on a monthly basis, and dropped 2.4% year-over-year. German factory orders rose 2.2% in March, after a February increase of 2.2%, and industrial production rose 1.2%. France manufacturing output decreased 1.0% in March, and industrial production declined 0.9%. UK manufacturing production rose 1.1% and industrial production increased 0.7%. Italian industrial production declined 0.8% in March, after a decline of 0.9% in February.

German trade balance registered a surplus of €18.8 billion, while exports decreased 4.2% and imports declined 6.9%. The UK trade balance had a deficit of £3.1 billion, with exports increasing 3.5% and imports rising 2.6%. UK Retail sales dropped 2.2% in April on an annual basis, and Spanish unemployment got some relief, with the jobless ranks decreasing by 46,500 persons.

The HSBC services PMI for China declined to 51.1 in April from 54.3 in March. New orders was the slowest in over 1-1/2 years, and employment dropped for the first time since 2009. While everyone is suspicious of the data, China's trade surplus was $18.2 billion, with imports rising 16.8% and exports jumping 14.7%. China's CPI rose to 2.4% on an annual basis, while the PPI dropped 2.6% showing ongoing overcapacity. China's new loans registered 729 billion yuan in April, with the money supply rising 16.1% from one year ago. Japan's current account surplus declined 4.3% in March, with the total standing at ¥1.25 trillion ($12.5 billion).

As austerity continues to provide social discomfort, with Greece approving another 15,000 job cuts to satisfy the Troika, there is growing sentiment against the strategy of cutting spending. The problem here is that the wrong decisions were made in the past, akin to a pizza parlor, which can operate efficiently with 5 employees, hiring 25 people because all the family members needed a job. At some point the arrangement becomes unsustainable, and as hard as it is, someone will have to suffer the consequences. The new Italian prime minister already spoke.

Enrico Letta, Italy's new centre-left prime minister leading an unprecedented grand coalition, cancelled planned tax rises worth up to €6bn in a clear break with the policies of his technocrat predecessors.

Slovakia's prime minister, Robert Fico, also joined the parade, and soon enough others will follow, despite the fact that someone has to fund the spending and service the debt. Not easy, I know!

Slovakia's prime minister has called for an end to "completely counter-productive" austerity policies and for governments to focus instead on reigniting growth, as his small but very open economy is pummeled by the slump in the Eurozone.

While the austerity debate will gather steam, the European Commission reminded everyone that conditions on the ground are getting worse, with "EU economies to breach deficit limits as economic picture darkens."

Three of the Eurozone's five largest economies will bust through EU-mandated deficit limits this year as the bloc's recession continues to deepen, according to highly anticipated European Commission forecasts published on Friday. In addition to the anticipated breaches by France, Spain and the Netherlands, the currency union's third-largest economy, Italy, will come within a hair's breadth of missing the limit of 3 per cent of economic output, with a 2013 deficit forecasted at 2.9 per cent.

However, one way to collect much needed tax revenue is to target the underground economy, but in addition to those that do not play by the rules, underground economies flourish when taxation is high, and that is only one reason why Socialism is self defeating.

The Fed delivered a mixed message, stating that "it could increase or decrease bond buying" depending on economic data. Let's not forget that the markets have been fueled by the Fed, and pulling the rug from under the markets' feet driven by the false assumption that the economy is on good footing, will have dire consequences. However, with unemployment down to 7.5%, or 12.0% as we measure it, the incentive for more QE is disappearing.

But the surprise came courtesy of the European Central Bank (ECB), when in addition to the expected cut of 25 basis points, the ECB's chief, Mario Draghi, confided that negative rates are an option. What exactly is the ECB trying to accomplish? Growth or an incentive for much needed capital to leave the Eurozone? It cannot be the former, and the export business requires that willing buyers at the other end actually exist, which is not the case! Low rates, especially close to zero, reinforce the public's perception that the economy is not in good shape, and has a negative influence on sentiment. It never works, yet central banks insist on doing it, only because they're clueless. Lastly, margin debt has aided the stock market, and the current number of almost $380 billion hasn't quite surpassed the previous high that took place in July of 2007. We all know what happened after.

Finally the Dow broke 15,000 and the S&P 500 closed above 1,600, despite negative data for two days in a row, not to mention all week. We're now in pleasure town while surprises lurk in the shadows, and the bait has been set for the last humans to join the party. Long-term positive trends are now in place for all indices, and the short-term is positive all around, yet weak. The dollar bounced back but kept its short-term negative trend, while its long-term is neutral. The euro has been attached to the $1.31 mark and despite wild swings, it is neutral all around. The yen tried to mount a comeback and is still negative short and long-term. WTI and Brent oil are now long-term neutral and negative respectively, while the short-term has WTI in positive territory, and Brent is weaker and neutral. The spread has narrowed further to $8.56 from to $9.85 last week. Gold stayed within a $50 band, and is short-term neutral and long-term negative. Silver is weaker, and is still negative short and long-term. Copper jumped 20 cents on Friday, turning positive short-term but keeping its well defined long-term negative trend. The 10-year Treasury rate increased to 1.75% from 1.66%. The 10-year note and the 30-year are now short-term neutral and negative respectively, but both still hold their long-term positive trends. Next week we'll get U.S. consumer credit, and Fed speeches at the end of the week. The G7 meets again, several European service PMIs will be released, and China's CPI, PPI and new loans will be delivered.

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Consumer spending increased 0.2% in March, and personal income rose 0.2%, while the savings rate was unchanged at 2.7%. PCE inflation was unchanged, with the core rate rising only 1.1% on an annual basis. Not only did spending slow, but so did income growth! The Employment Cost Index rose 0.3% in Q1-2013, with benefits increasing 0.1%, the slowest rate in 14 years.

The Mortgage Bankers Association's mortgage application activity index increased 1.8%. Refinancing increased 3.0%, and home purchases decreased 1.4%. Freddie Mac's average 30-year mortgage declined again to 3.35% from 3.40%, and the 15-year decreased to 2.56% from 2.61%, a new record low. Jobless claims decreased 18,000 to 324,000, and the 4-week moving average decreased 16,000 to 342,250. The number for seasonally adjusted insured unemployment increased 12,000 to 3,073,500.

Pending sales of homes increased 1.5% in March, and February was revised down to a loss of 1.0% vs. the initial decrease of 0.4%. Hardly a strong showing. The S&P/Case-Shiller 20-city composite index increased rose 0.3% in February, and registered an increase of 9.3% on an annual basis. An improvement, but we're still 30% below the peak. The Conference Board's consumer confidence index increased to 68.1 from 61.9 in March, which is overall extremely weak considering market performance.

Chicago PMI turned negative for only the second time since October 2009, declining to 49 from 52.4. The final Markit U.S. Manufacturing Purchasing Managers' Index (PMI) declined to 52.1 in April from 54.6 in March, the weakest in 6 months. Meanwhile, the Institute for Supply Management's PMI decreased to 50.7 from 51.3, and there is consistency across the board. Furthermore, the ISM's service PMI decreased in April to 53.1 from 54.4. Factory orders dropped 4.0% after a downward revised 1.9% gain the previous month. Construction spending declined 1.7% in March, with residential rising 0.7%, but non-residential dropping 2.9%. February's number was revised up to 1.5% vs. 1.2%. Total vehicle sales dropped to an annual rate of 14.9 million units from 15.3 million.

The trade deficit sunk to $38.8 billion from $43.6 billion and showing the weakness that keeps spreading. The unemployment rate declined to 7.5% from 7.6%, while 165,000 new jobs were created. March and February were revised up for a net gain of 114,000 jobs, and still extremely weak. Productivity during Q1-2013 increased 0.7% after a 1.7% decline during Q4-2012. Labor costs increased only 0.5%, slowing down considerably from a 4.4% gain in Q4-2012.

Eurozone retail PMI, as measured by Markit, increased to 44.2 from 43.7, staying negative for 18 months running. Eurozone's final PMI remained negative and rose slightly to 46.7 from 46.5, while Spanish PMI rose 0.5 to 44.7 and Italian PMI increased 1 point to 45.5.

Eurozone inflation dropped to 1.2% from 1.7%, and the lowest in 3 years. Germany's CPI is on track to rise only 1.2% annually, while a decrease of 0.5% took place in March. Eurozone PPI declined 0.2%, and registered a 0.7% gain on an annual basis. Unemployment hit a new record of 12.1% with no end in sight. Italian unemployment was unchanged after the previous month was revised down to 11.5% from 11.6%, while in Germany the jobless rate held at 6.9% with 4,000 people joining the unemployed ranks. German retail sales dropped 1.4% on an annual basis, and French household consumption rose 1.3% in March, although a decline of 0.4% was registered for Q1-2013.

Japan's PMI increased to 51.1 in April from 50.4, and unemployment declined to 4.1% from 4.3%. Preliminary industrial production was up 0.6%, and household spending jumped 5.2% on an annual basis, while retail sales registered the third consecutive drop, declining 0.3%. China's official PMI declined to 50.6 from 50.9, with exports going negative. The HSBC Purchasing Managers' Index (PMI) decreased to 50.4 from 51.6 and China's April Non-Manufacturing PMI dropped to 54.5 from 55.6. The Australian PMI, a country heavily dependent on China, slumped to 36.7 from 44.4, the lowest reading since the depth of the crisis in 2009. In addition, Taiwan's GDP for Q1-2013 increased only 1.54% on an annual basis, far short from the government estimate of 3.26%.

While the debate over austerity continues, with Keynesians against it and everyone else in favor, except for those affected, the root cause is often missed in translation. Bill Gross blasted European austerity because it is not producing growth. But that is not the point Mr. Gross, and I am surprised that he doesn't understand it. Take for instance a man that spent well above his means, while accumulating debt that became increasingly more difficult to service. At some point austere measures had to be taken, unless bankruptcy delivered a fresh start, while carrying a 10 year penalty of bad credit. Thus, austerity is not only a self-inflicted punishment, but also, and more importantly, a consequence of past behavior and not something that is forced upon people just because it feels good. If you lent money to a friend and that friend was on the verge of bankruptcy due to his reckless habits, would you give him some more money because it wouldn't be fair for him to endure a lifestyle change? I guess not.

In Europe, Angela Merkel stated that ""The ECB is in a difficult position. For Germany it would actually have to raise rates slightly at the moment, but for other countries it would have to do even more for more liquidity to be made available," while not acknowledging that, for that very reason, the euro is a flop. In addition she advanced that "Eurozone members must be prepared to relinquish control over some policy areas," although that should have taken place prior to the euro creation. Her buddy and a Member of the Executive Board of the ECB, Jörg Asmussen, delivered a speech that highlighted the condition, again.

To the cynics, my message is: we will not solve a debt crisis with more debt. Moreover, simply giving more time will not resolve the underlying structural problems. Member States who are implementing the necessary adjustments have begun to reap the benefits. Relaxing now would mean endangering the hard-won gains of past efforts. The foundations of future growth are fiscal sustainability coupled with structural reforms. In a way, we have a 'debt ceiling' in Europe too. It is not set by an Act of Congress, but by the markets. Investors have clearly shown they are not willing to further finance Member States with such high levels of debt, at a reasonable price. Therefore the adjustment must continue.

Meanwhile, Eurozone debt to GDP ratio increased from 87.3% at the end of 2011 to 90.6% at the end of 2012, although deficits decreased from 4.2% to 3.7%. While France's deficit was only 4.8%, Spain's was 10.6%. Over here, Ben Bernanke told his friends at the last IMF meeting that he doesn't see U.S. inflation risks, although the follow-up question should have been "How effective is the Fed's monetary policy, or experimentation?" No answer. An interesting Quarterly Report to Congress (pdf) by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), quietly delivered a worrying development.

SIGTARP is concerned that the number of homeowners who have redefaulted on a HAMP permanent mortgage modification is increasing at an alarming rate. Treasury's data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1% and 39.1%. HAMP permanent modifications from 2010 also had high redefault rates, ranging from 28.9% to 37.6%.

In Russia, Putin the magnificent, probably shed a tear when he stated that "Russia's economy is showing 'alarming signals' of a slowdown, requiring urgent action to shield the world's biggest energy exporter from global turmoil," or the potent BRIC story that keeps on giving. I wrote the article "China Is Not a Bubble: It's the Hindenburg" two years ago, and the game plan hasn't changed. The latest news indicate that "China Top Leaders Warn on Financial Risks as Rebound Falters," while "Beijing alert to national debt risk fears." To put the icing in the cake, "Chinese banks hold trillions in nonperforming loans," and the beauty of finance is that regardless of ideology, the math never fails.

Long-term neutral trends are now in place for all indices, and the short-term is positive all around, yet weak. The dollar continues its slight pullback, while keeping the positive long-term trend, and the euro is literally stuck in neutral, waiting for the ECB's decision on rates or for another shoe to drop. The yen is still negative, although a rebound from extremely oversold conditions has been attempted, especially since the BOJ didn't announce any more money printing. WTI and Brent oil remain long-term negative, with WTI positive short-term and Brent in neutral. The spread has narrowed to $9.85 from $11 last week. Gold rebounded nicely and turned short-term neutral, but is facing resistance at $1,475 while the long-term remains negative. Silver had more of a slight positive hiccup but remains negative all around. Copper bounced up but turned short-term negative again without hesitation as economic news are not supporting the metal. The 10-year Treasury rate decreased further to 1.66% from 1.70%. The 10-year note and the 30-year continue to hold short and long-term positive trends. Next week we'll get U.S. trade balance, unemployment numbers, personal spending and income, and Fed's decision. The ECB will decide on rates, and China PMI will be out.

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Existing home sales declined 0.6% in March to an annual rate of 4.92 million in March from a downwardly revised 4.95 million in February. Inventory rose to 1.93 million units, a 4.7 month supply and up from 4.6. The median price was $184,000, up from $173,800. Sales of new homes increased 1.5% in March, to an annual rate of 417,000 units, and the median sales price dropped 6.8% to $247,000. Inventory was steady at 4.4 months of supply.

The Mortgage Bankers Association's mortgage application activity index increased 0.2%. Refinancing increased 0.3%, and home purchases increased 0.3%. Freddie Mac's average 30-year mortgage declined further to 3.40% from 3.41%, and the 15-year decreased to 2.61% from 2.64%. Jobless claims decreased 16,000 to 339,000, and the 4-week moving average decreased 4,500 to 357,500. The number for seasonally adjusted insured unemployment decreased 93,000 to 3,000,000.

Richmond Manufacturing Index declined 9 points to −6 from March's reading of 3. Shipments dropped 17 points to −9, and new orders declined 4 points to −8. The jobs index lost 6 points to end at 3. The Markit Flash U.S. Manufacturing Purchasing Managers' Index (PMI) declined to 52.0 in April from 54.6 the previous month, and was the lowest level in 6 months. Durable goods orders plunged 5.7% in March due to less airplanes. But with the transportation removed, orders still declined 1.4%, while capital goods were up 0.2%. The February number was revised down to a gain of 4.3% from 5.6%.

Advance GDP for Q1-2013 registered 2.5% annual growth rate, and up from 0.4% in Q4-2012. Consumer spending rose 3.2%, helped by higher gasoline prices. Inventories grew $50 billion and will have to decrease in Q2, with sales of goods and services rising 1.5%. Housing investment increased a whopping 12.6% but the latest data shows a pull back in new homes sales. Defense keeps cutting back with spending reduced by 11.5%, while government decreased spending by 4.1%. Inflation rose only 0.9% as compared with the previous quarter when it increased 1.6%. The savings rate was the lowest in 6 years, dropping to 2.6% from 4.7% in Q4-2012, and with incomes declining at a 5.3% rate, the largest decline since Q3-2009, consumer spending cannot continue. Auto sales, the other subprime debacle in the works, fueled much of the consumer spending growth. Hmm! The University of Michigan-Thomson Reuters consumer-sentiment index's final number for April was 76.4, down from 78.6 in March.

Eurozone consumer confidence improved to -20 from -22, but still negative for 13 years running. Markit's flash Eurozone services PMI, increased to 46.6 in April from 46.4 in March, but still negative. Germany declined to 47.9 from 49 and France was up to 44.4 from 44. German Ifo business confidence declined to 104.4 from 106.7, the second consecutive drop. Eurozone private loans declined by 0.9%, after a 1.1% contraction the previous month. However, credit extended to governments rose 3.5%, and the pattern of the public sector sucking whatever it can find is still intact.

UK retail sales registered -1 on the CBI's monthly distributive trades survey, with 37% of retailers saying sales were down on their level in April 2012 while 36% reported an increase. In the fall of 2012 the number was 30, a far cry from current conditions. UK's GDP increased 0.3%, skirting the formal definition of a recession, but with a weak heartbeat. Retail sales in Italy dropped 0.2% month-on-month in February compared with 0.4% in January. Spanish unemployment registered 27.2%, and there's no end in sight.

HSBC's flash PMI for China registered 50.5, down from 51.6 in March. Japan's core CPI dropped 0.5% in March, the fifth consecutive decline.

The fact that officials were somewhat quiet regarding the Boston terror attack was viewed with suspicion by some of the quiet people that I deal with, and a little over 12 hours after the FBI provided the public with some photos and video, all kinds of information surfaced - names, nationalities, intent - as if this was CSI: Boston, or the typical TV show that is solved in 40 minutes, discounting commercials. Turns out that the FBI had interviewed one of the terrorists two years ago. Now that Osama bin Laden is dead we don't have anything to worry about, or so goes the story, and although I question the need for some firearms and some accessories, I suspect that the talk about tougher gun laws will subside. The emerging public perception is that we're still not safe, and the polls will show the political fallout all the way to the White House, because the softer form of diplomacy and appeasement will be questioned till the cows come home, and a sense of distrust is building up.

In other news, the Fed Beige Book stated that the U.S. economy is growing at a "moderate" pace, with five districts reporting "moderate" growth, five reporting "modest" growth, and New York and Dallas reporting "slight accelerations." Problem here is that "moderate" and "modest" are synonyms, and "slight" is not much different. On debt quality, Egan-Jones, a credit rating agency that is always ahead of the curve, downgraded Germany to A from A+ and indicated that debt will rise to 100% of GDP due to exposure to the Eurozone. In addition, Fitch downgraded UK long-term foreign and local currency to AA+ from AAA.

Apparently Cyprus is not a done deal, and voting will take place regarding the bail-in deal, while Ireland, Greece and Portugal are resurfacing as trouble spots.

Portugal is readying itself for a convulsive moment when the government attempts to bypass a constitutional court ruling that bans many of its most caustic austerity measures. The situation worsens daily in Greece. And then there is Ireland. A plan to slash €1 billion from the public service pay bill over three years has just been rejected by unions, plunging the Fine Gael/Labour government into crisis.

However, it appears that Portugal found some resources to circumvent the Constitutional Court's slap, and approved "around €800 million of new spending cuts on Thursday." Meanwhile, Germans are fed up and "two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in Eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy," while the German Parliament approved the Cyprus deal. But the pressure is being felt throughout the Eurozone, and car sales are only one indicator as they head for a 20 year low. An important metric was Germany's auto market plunge of 17%. Yet, the European officials in charge of repairing the damage continue to be in a state of denial.

"The euro area has made further progress in the implementation of its comprehensive crisis-response strategy," European Union officials will tell the Group of 20 finance ministers this week, according to a draft statement obtained by Bloomberg News at an EU meeting in Dublin two days ago. The bloc expects "a mild recovery setting in toward mid-2013 and strengthening in the second half of 2013 and in 2014."

The IMF wants reforms in the Eurozone to accelerate but are not very clear on what to do, while reducing growth estimates and now "sees the 17-country euro area shrinking 0.3 percent, compared with a 0.2 percent retreat in January." They also urge the Europeans to stimulate demand. Seriously? ECB's Mario Draghi is now a storyteller and his reference to 1763 only indicates that he feels that people don't get the picture.

In 1763, exactly 250 years ago, Amsterdam was the centre of a deep financial crisis. Highly leveraged investors were faced with a situation of falling asset prices. The rolling over of existing obligations became very difficult and the liquidity crisis became severe. Investors could not refinance themselves other than through fire sales of distressed assets. Amsterdam bank houses went bankrupt and merchants suffered significant losses.

While the U.S. became a larger market for Japan's exports, pushing China to number two, the event is an indication of the economic malaise that is still being kept hidden in China. Adding clarity to the subject, and as a rare statement from a Chinese senior auditor, Zhang Ke shared with the world that "we audited some local government bond issues and found them very dangerous, so we pulled out. Most don't have strong debt servicing abilities. Things could become very serious." Finally, Brazil rose the Selic rate by 25 basis points to 7.50%, trying to contain inflation, while the economy keeps drifting downward. It's the BRICS story that keeps on giving.

As the market was shooting for new highs, gold fell apart and then Boston was attacked by terrorists. As it stands now, trends have changed color, and while the short-term turned negative on a dime for all indices, the Nasdaq 100 and Russell 2000 are now long-term negative. S&P 500, Dow and Wilshire 5000 are neutral long-term, and the overall change in long-term trends was the first since January 2, 2013. The dollar reversed course and is now short and long-term positive, with the euro holding in neutral. The yen rebounded slightly and then resumed the trip south. WTI and Brent oil are negative all around, bringing some relief at the gas pump, while keeping the $11 spread. Gold finally dropped like a stone, extending last week's decline, and silver followed. Needless to say, short and long-term trends for precious metals are as negative as they can be. Copper kept its negative trends and hasn't been this cheap since the fall of 2011. The 10-year Treasury rate decreased to 1.70% from 1.72%. The 10-year note and the 30-year continue to hold short and long-term positive trends. Next week we'll get U.S. advanced GDP for Q1, housing data, durable goods, and global PMI numbers.

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The Empire State manufacturing index registered its third positive month with a reading of 3.1, although new orders declined 6 points to 2.2. Shipments dropped seven points to 0.8, and employment rose 4 to 6.8. The Philly Fed manufacturing index eased to 1.3 from 2.0 in March, with new orders declining to -1.0 from 0.5. Industrial production rose 0.4% in March, largely aided by utility output due to weather. Capacity utilization moved up to 78.5% from 78.3%. CPI declined 0.2% in March, thanks to lower gas prices, with core prices increasing 0.1%.

The National Association of Home Builders/Wells Fargo index of builder confidence declined to 42 from 44 in March and the lowest level in 6 months. Housing starts increased 7% in March to an annual rate of 1.04 million, and the highest level since June 2008. Building permits declined 3.9% to an annual rate of 902,000, easing future building activity.

The Mortgage Bankers Association's mortgage application activity index increased 4.8%. Refinancing increased 5.0%, and home purchases increased 4.0%. Freddie Mac's average 30-year mortgage declined further to 3.41% from 3.43%, and the 15-year decreased to 2.64% from 2.65%. Jobless claims increased 4,000 to 352,000, and the 4-week moving average increased 2,750 to 361,250. The number for seasonally adjusted insured unemployment decreased 35,000 to 3,068,000.

Eurozone's trade surplus registered €10.4 billion in February, with imports decreasing 7% and imports rising by €2.6 billion on an annual basis. Italian trade balance posted a surplus of €1.09 billion. Eurozone current account had a surplus of €16.3 billion in February, although combined direct and portfolio investment had net outflows of €11 billion. ZEW Economic Sentiment for Germany plunged to 36.3 from 48.5, while ZEW Economic Sentiment for Europe dropped to 24.9 from 33.4.

Eurozone inflation held steady at 1.7%, with the core number rising to 1.5% from 1.3%. German PPI is running at 1.2% annually, and rose 0.2% in March. U.K. inflation was unchanged in March, while the annual increase registered 2.8%. The core number moved up to 2.3% from 2.2%. UK PPI output rose 2.0% month-to-month, and input increased 0.3%. UK unemployment rose to 7.9%, with 70,000 people joining the jobless ranks. UK retail sales declined 0.7%, after a 2.1% jump in February.

China's GDP grew 7.7% in Q1-2013, and slower than 7.9% registered in Q4-2012. Industrial production increased 8.9% in March, while retail sales slowed to 12.6% growth. Fixed-asset investment rose 20.9%, and foreign direct investment continues to be extremely low, recording 1.4% growth and a far cry from 13.2% growth in 2011. FDI declined 3.6% in 2012.

Japan's industrial output increased 0.6% in February, while the country's trade deficit of $3.7 billion was the 9th consecutive negative month. Exports rose 1.1% on an annual basis, and imports increased 5.5%.

…as long as you are on a special list. Everyone is aware of the snafu that occurred at the Fed, with the admission that "it inadvertently e-mailed the minutes of its March policy meeting a day early to some congressional staffers and trade groups." It turns out that a select group of banks and investment houses were also on the list, and although there are many questions, the three most important are: Why is there an e-mailing list and what is the urgency? Can't everyone get the minutes when they are available to the public? Isn't everyone involved technologically able to navigate to the Fed's website and retrieve a copy? I have no faith in these charlatans! While we're on the subject, are there any other lists in any agency that bypass data embargos? Meanwhile, the minutes show that Fed members are staking all kinds of positions on QE and nobody has a clue!

The news have been dominated by Japan and Europe as of late, with Portugal and Ireland getting a seven year extension to repay their loans - as if the Eurozone had a choice. Of course, there are strings attached, but nobody cares because the bomb has been defused one more time. ECB's Jens Weidmann did remind us that "managing the crisis won't be a matter of months." He thinks that "it is something we will be working on for years, because winning back competitiveness and consolidating state budgets are huge, wide-ranging challenges which will take a long time." Ja, bekommen wir es!

The now famous "Bail-In" has taken on a life of its own, while becoming the recipe of choice after the successful implementation in Cyprus. The euro masters are debating the proposal to "impose losses on interbank deposits of lenders," while Olli Rehn whispered that "big bank depositors could bear cost of bank failure." And as if Cyprus' bank accounts weren't enough, "then they seize three quarters of the country's gold reserves" for good measure. Next they'll conquer the coast and impound all the fish, while there's speculation that Greece may suffer the same bank deposit fate.

The good news is that with Japan pumping yen into every deep hole, literally, the observation was made by Moody's that Spain may not need another "Bail-Out-In," although nothing has changed, financially speaking, only perceptions and Japanese shopping habits.

Spain is less likely to need a sovereign bailout now than it was in October as funding costs have fallen since then, Moody's Investors Service said. "When we did our last rating action we said we do attach quite a high likelihood for Spain's having to ask for an ESM precautionary credit line -- that is embedded in the current rating," Kathrin Muehlbronner, an analyst at Moody's, said in an interview in Madrid today. "At the moment we would see the likelihood as lower than back in October."

However, we're now moving up the ladder, and France "has been singled out for harsh criticism by the European Commission with a warning that low French competitiveness and high debt threaten the EU's single currency." Who would have thought that we would be using such mean words in 2013 against the romantic French people.

Over here, our new Treasury Secretary, Jack Lew, traveled to Germany to deliver a message that should have been done over Skype.

Treasury Secretary Jack Lew on Tuesday urged countries with a trade surplus to boost domestic consumption, underlining a divergence of views between Washington and Europe's economic powerhouse Germany on austerity policies.

Problem with the concept is that Germany is an export nation, not a consumer driven economy, and I am not sure that they know how to spell "verbrauch," while "sparpolitik" is the name of the game.

All is well again, with the Russell 2000 and Nasdaq 100 flipping long-term positive, and joining the other indices. Short-term trends are now positive all around, and the sweet Dow 15,000 and S&P 1,600 are the targets to create the big headlines and further convince the last holdouts that the market is the place to be. The dollar continues the pullback while keeping the long-term trend positive. The euro has been revitalized and is short-term positive, while keeping its negative long-term trend intact. The yen bounced off the penny line (100 yen to $1 dollar), but is still negative short and long-term. WTI and Brent oil continued to adjust downward, and while both are negative all around, WTI $90 and Brent $100 are obvious barriers. The spread is steady and is now $11.82. Gold and silver plunged on Friday, and while they settled at $1,501 and $26.33 respectively, the last prices were $1,476 and $25.72. Deflation was the cause given by some, while nobody truly has a sense of "why," especially when all the news were supportive of a gold rally. As a side note, gold's long-term trend has been negative since December 2012. Copper reached up to neutral, but reversed course on Friday, turning short-term negative and completing the short and long-term negative trends for the commodities we track. The 10-year Treasury rate increased to 1.72% from 1.69%. The 10-year note and the 30-year are still short and long-term positive. Next week we'll get U.S. CPI, housing data, and a number of speeches by Fed members. Also China data, including GDP, and more IMF and G20 meetings.

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Wholesale inventories declined 0.3% in February, with sales up 1.7% and the inventory/sales ratio rising to 1.19 from 1.18, or plenty of inventory. Business inventories increased 0.1%, after a revised 0.9% gain in January. Sales rose 1.2%, and the inventories/sales ratio increased to 1.28 from 1.26 year-on-year.

The Mortgage Bankers Association's mortgage application activity index increased 4.5%. Refinancing increased 5.0%, but home purchases decreased 1.0%. Freddie Mac's average 30-year mortgage declined to 3.43% from 3.54%, and the 15-year decreased to 2.65% from 2.74%. Jobless claims decreased 42,000 to 346,000, and the 4-week moving average increased 3,000 to 358,000. The number for seasonally adjusted insured unemployment decreased 12,000 to 3,059,000.

The Federal government deficit was $107 billion in March, much lower than the $198 billion deficit one year ago. Spending declined $71 billion from one year ago, due to lower TARP costs and defense. Revenue increased 9% to $186 billion, thanks to higher payroll and income taxes. Import prices declined 0.5% in March, after increases of 0.6% and 0.5% the previous two months. Export prices declined 0.4%. Retail sales declined 0.4%, following a downward revised 1.0% gain for February from 1.1%. The preliminary University of Michigan-Thomson Reuters consumer sentiment index declined in April to 72.3 from the final reading of 78.6 in March.

Industrial production in the Eurozone gained 0.3%, although it was still down 3.1% from one year ago. German industrial production increased 0.5% in February, but January was revised down markedly to -0.6% from a gain of 0.6%. France's industrial production rose 0.7%, but the Italian number showed a decline of 0.8%. UK manufacturing rose 0.8%.

German trade surplus increased to 16.8 billion euros from 13.6 billion euros in January, although exports declined 1.5% and imports dropped 3.8%. The French trade deficit widened to 6.01 billion euros from 5.65 billion euros, with exports declining 1.9% and imports decreasing 0.8%. UK trade deficit for February registered 3.6 billion pounds, as compared to 2.5 billion in January. Exports declined 1.1% and imports rose 1.7%. German CPI increased 0.5% in March and is up 1.4% on an annual basis, while French CPI rose 0.8% and is up 1.0% year-on-year. German wholesale trade price index increased 0.3% on an annual basis, and declined 0.2% from February.

China's annual CPI for March declined to 2.1% from 3.2%, mostly due to lower food prices. The PPI registered -1.9%, the 13th consecutive month of declines, and down from -1.6% in February. China's trade balance registered a rare deficit of $800 million, with exports rising 10% and imports increasing 14.1%. New loans jumped to 1.06 trillion yuan from 620 billion, delivering the floaters to save the economic boat. Australia unemployment rose to 5.6% from 5.4%, the highest since 2009, and the country's fortunes are directly tied to China.