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  • Stability Of The European Union (13)? (Starts March 13, 2012) Ends June 13, 2012. 184 comments
    Jun 13, 2012 5:44 PM

    I changed the name of this Insta on Nov 21, 2010, after Ireland said they are seeking a bailout.

    This Instablog is the result of a question by one of the Renegades in OptionsGirl [OG] Quick Chat 90
    tinyurl.com/24y6u87

    Basically, what I wanted to address was what shoe is going to fall first, the US Dollar, or the Euro... I also wanted to see if there was any evidence for a time estimate with respect to issues for the Euro.

    I added more information on August 21, 2010.

    ____________________________________________
    Things are not looking good for Greece. I don't think they are going to be able to service all that debt. Enormous cuts in spending accompanied with increased taxes will likely destabilize their government. Remember, they can't print money as a way out of their debt trap. Investors are going to buy the safest assets in this environment. That should drive Greece's bowering rate higher. Here is some relevant information from a recent Bloomberg article:
    ___________________
    (August 13) Spanish, Greek Bonds Fall on Renewed Growth Concern; Bunds Gain By Anchalee Worrachate

    On August 13, the extra yield, or spread, investors demand to hold Greek 10-year securities instead of equivalent-maturity German debt, Europe's benchmark, rose 11 basis points to 808 basis points. That's the most since May 7, before the European Union announced a 750 billion-euro financial backstop for the region's most indebted nations.

    Concern some European nations would struggle to pay their debts helped boost demand this year for bunds, the region's benchmark securities. Spanish bonds returned 1.5 percent this year and Irish debt 0.5 percent, compared with an 8 percent gain from German securities, according to indexes compiled by European Federation of Financial Analysts Societies. Greek bonds lost 19 percent.

    Data today showed Spanish banks borrowed a record amount from the European Central Bank in July as investors shunned the indebted nation's lenders. Borrowing rose 3.1 percent to 130.2 billion euros ($167 billion) from 126.3 billion euros in June, according to daily averages compiled by the Bank of Spain.

    Spanish bonds are heading for their first weekly loss in five on renewed concern that climbing borrowing costs for Spanish regions put the national budget at risk.

    Catalonia, which accounts for a fifth of Spanish gross domestic product, has been shut out of public bond markets since March and the extra yield it pays over national government debt has almost tripled this year.

    The yield spread between 10-year Irish bonds and the benchmark German debt widened to 294 basis points today, the most since June 29, as investors bet the government will have to inject more capital into banks, including Anglo Irish Bank Corp.

    Ireland's borrowing costs rose at an auction of its six-and eight-month bills yesterday as investors demanded higher compensation for risk facing the government's finances. The country will sell 2014 and 2020 bonds debt next week.tinyurl.com/2dtuc5v
    ______________________________________________

    While the US is in a somewhat similar position, the US can print money, and our bonds have not be rated as junk. The higher the interest rate, the higher the perceived risk. The higher the interest rate, the deeper into the debt trap you go.

    I conclude that the Euro will drop relative to the dollar as money seeks less risk. How rapidly will this occur? I think the following chart provides some evidence with respect to timing.

    From June 2010 to August 2010 the average ten year Greek bond interest rate went from 64% of its peak crisis level to 85.5% of the peak crisis level.

    As of August, the Greek ten year bond interest rate is at the second highest level its been at over the past five years.

    If the interest rate is proportional to risk, than in the last three months, the risk level of the Greek ten year bond has increased at an average rate of 7.2% per month [ (85.5 - 64)/3 ].

    I suppose a natural accompaniment to shorting the Euro would be to go long on the dollar. This assumes that the debt crisis of the European Union will reach critical mass in advance of the US dollar.

    ______________________________________________________
    Added August 21, 2010

    A picture is often worth a thousand words. Here we have the Percent Economic Growth Rates for three countries: US, Greece, Germany. Note the distinct downturn in the US Economic Growth Rate.


    tinyurl.com/25vyea7

    Here is National debt as a percentage of GDP in 2009 for the Euro Zone. Look at Greece and Italy.


    tinyurl.com/2vvcnxv

    Here is Government deficit as a percent of GDP for 2009. Look at Greece and Ireland. Look at UK and Spain.


    tinyurl.com/2vvcnxv

    Here is the all important Jobs Picture as of March 2010. Look at Greece, Spain, Ireland and France.

    tinyurl.com/29grmpy

    =================
    Added September 29, 2011.

    What is the EFSF?:

    The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the Eurozone to combat the European sovereign debt crisis. The €110 billion bailout to Greece is not part of the EFSF guarantees, but a separate commitment.

    When you look at the Guarantee commitments by the different euro zone countries [tinyurl.com/3xde35o] you will see something interesting. Greece, Ireland, Italy, Portugal, and Spain (i.e., the PIIGS) account for over one-thrid (36.7%) of EFSF commitments. All by themselves, Italy and Spain have a financial commitment of almost one-thrid (29.8%) of the total EFSF commitment.

    ___________
    (October 23, 2011) I added this nice summary graphic of the Dominoes effect associated with the European debt crisis. You can also see the graphic and the accompanying article with the following link:

    (October 23, 2011) Guest Post: The European Financial Crisis In One Graphic: The Dominoes Of Debt. From: Zero Hedge, by: Tyler Durden. tinyurl.com/3ulxgmj

    The original copyrighted graphic is from Charles Hugh Smith (" 2011) attinyurl.com/ygsa6j

    Added February 9, 2012

    Greek General Government Debt Percent GDP
    tinyurl.com/73h5q2x

    (March 10, 2012) Europe's Scariest Chart Just Got Scarier. From: Zero Hedge, by Tyler Durden. tinyurl.com/7moa6tg

    Unemployment for individuals less than 25 rose to 51.1 %, twice as high as three years ago as budget cuts imposed by the European Union and the International Monetary Fund as a condition for dealing with the country's debt problems have caused a wave of corporate closures and bankruptcies.

    Fantasy Greek GDP Growth Rates:

    In the fantasy report "Greece: Preliminary debt Sustainability Analysis" dated February 15, 2012 which I referred to as the "Deus ex machine" report one of the EUs key economic assumptions was that Greek GDP growth in 2012 would be -4.8% and -1% in 2013.

    The Greek economy saw growth rates of:

    -0.2% in 2008,
    -3.3% in 2009,
    -3.4% in 2010,
    -6.9% in 2011
    -7.5% in fourth quarter of 2011.
    (Data from John Mauldin report tinyurl.com/7axvcmw)

    I plotted the Greek GDP data below and projected the GDP values for 2012 and 2013 based on the current data. I also plotted the Greek GDP projections from the Deus ex machine report - blue line.

    There is no Greek stimulus, jobs are in freefall. Which projection do you believe?

    (March 29, 2012) Greek Deposit Run Update: Hopeless And Getting Worse. tinyurl.com/8425yf7

    ============

    Added April 27, 2012

    Q1 unemployment is now one quarter of the working population or 24.44%, up nearly 2% from the 22.85% as of December 31

    (click to enlarge)

    Global PMI Changes from March to April 2012

    (click to enlarge)

    From: ZeroHedge tinyurl.com/76d39dj

    FUNDING GAP

    (click to enlarge)

    From: ZeroHedge - tinyurl.com/88qfjmc

    ----------------------------
    WARNING: This is a no Troll Zone. If you are disruptive, your comments will be deleted.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (184)
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  • Author’s reply » Be sure to check out the projection for Greek GDP in the chart at the bottom of the Instablog header.
    13 Mar 2012, 03:09 PM Reply Like
  • If you havn't read this article by Grant Williams, you really should. I read it in John Mauldin's blog (newsletter?).
    A close look at the "Spanish Problem". Boy, howdy!

     

    European Countries That Make You Go Hmmm...
    Grant Williams, March 12
    13 Mar 2012, 08:35 PM Reply Like
  • SB...was there a link?
    14 Mar 2012, 12:17 PM Reply Like
  • European Countries That Make You Go Hmmm...
    Grant Williams, March 12

     

    http://bit.ly/wMjMIi
    14 Mar 2012, 05:00 PM Reply Like
  • siliconhillbilly: Greetings. Thanks.
    14 Mar 2012, 05:31 PM Reply Like
  • Thanks!
    15 Mar 2012, 04:27 PM Reply Like
  • Some thoughts about CDS and some links included to free data source.

     

    "CDS: Insurers Pay Only When The Bond Is 'All Dead'"

     

    http://seekingalpha.co...

     

    HardToLove
    14 Mar 2012, 07:14 AM Reply Like
  • "PIMCO's chief executive Mohamed El-Erian described Chancellor Merkel's decision to insist on fiscal reform as a ‘burden' to an already challenged political construct that is trying to restore order.
    El-Erian, also co-CIO at the world's largest bond house, said Merkel's move towards European fiscal union was a 'political moral hazard'."

     

    Full article: http://bit.ly/xk3uZw
    16 Mar 2012, 02:56 AM Reply Like
  • LOL, its also a 'fiscal harzard' for PIMCO.

     

    Merkel had no choice. If she had attempted to grant the bailouts without a requirement for fiscal reform the German citizens would have hung her out to dry. Even so, its likely that this affair will end her party's control of Germany, and shift power far to the left.
    16 Mar 2012, 09:29 AM Reply Like
  • Author’s reply » Reality is starting to interfere with the illusion that all is solved. Check out the two charts in this article...

     

    (March 23, 2012) "New" Greek Bonds Break 20%, Slide 14% In 2 Days. From: Zero Hedge by Tyler Durden.

     

    New Greek bonds (GGB2) have dropped dramatically in the last 2 days. The 2023 bond has fallen from over EUR29.5 on Wednesday to under EUR25.5 this morning, prices have dropped an incredible 14% and down a painful 17.5% from its opening break highs of just 2 weeks ago. Yields have broken back above 20% for the first time for this new 10Y. http://tinyurl.com/8yx...
    23 Mar 2012, 10:22 AM Reply Like
  • LOL, you have to start doubting the sanity of the EZ leaders who seem intent on pretending that Greece will just "get better" in some spontaneous fashion.
    23 Mar 2012, 10:27 AM Reply Like
  • Trip, I think it's just political window dressing, as in "we did the best we could". Eurocrats can't be so stupid as to actually think Greece is going to remain an EU member. Politicians are like that, ya know ;-)
    23 Mar 2012, 12:49 PM Reply Like
  • I just want someone to create a Yoda youtube video *if* this powder goes ka-blooey.

     

    Nigh. The end is.
    Collapsed. The Greeks are.
    Chaos. Spain is in.
    Fraught and confounded. Merkel is.
    In total meltdown. Due to knock-on effects. Japan's economy is.
    Out. Bernanke is bailing.
    Yoda. This has been.
    Nigh. The end is.
    23 Mar 2012, 01:04 PM Reply Like
  • Feeling Euro issues have somehow grown too quiet, I went looking for trouble... and found it...

     

    Merkel Says Germany May Let Rescue Funds Run in Parallel
    http://bloom.bg/GR3Uzt

     

    "Chancellor Angela Merkel gave her first indication that she is prepared to allow an increase in the debt-crisis firewall, saying that Germany could let the temporary and permanent rescue funds run in parallel.

     

    "Merkel cited “fragility” in Spain and Portugal as she revealed Germany’s position on addressing the future financial backstop. Agreement among euro-area governments this week “could be the basis” for the International Monetary Fund to channel more resources to help fight the turmoil, she said.
    26 Mar 2012, 12:35 PM Reply Like
  • Deutsche Bank at the ready to be a mess (from Bloomberg)

     

    Deutsche Bank AG (DBK), adding assets as other lenders trim their balance sheets, leapfrogged France’s BNP Paribas SA (BNP) to reclaim the title of Europe’s largest bank.

     

    Assets at the Frankfurt-based company rose 14 percent to 2.16 trillion euros ($2.88 trillion) in 2011, making it the largest publicly traded bank in Europe for the first time in five years, according to data compiled by Bloomberg.

     

    Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money.

     

    Full article: http://bloom.bg/HcUyCl
    27 Mar 2012, 01:36 PM Reply Like
  • I hate to be lazy and not read the article, but they did say what was driving the growth (increase in cash? increase in loans? increase in securities?) and how did they fund it? Are they getting deposits from other EU countries or is it advances from the ECB and wholesale funding? I could see a big increase in deposits and an increase in cash as deposits flood in from people looking for the highest deck of the sinking ship.
    27 Mar 2012, 01:51 PM Reply Like
  • "The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks"

     

    "... able to maintain less capital than peers and borrow more to enhance returns because clients believe the German government would never let it fail, Roehmeyer said..."

     

    CDS insurance is 2nd least expensive at DBK among big banks with the exception of HSBA

     

    "Deutsche Bank’s balance sheet has been buoyed by acquisitions and its derivatives book, one of the biggest in Europe"

     

    Can't quote more without overstepping copyright. Its a good read, and reminds me of how thorough Bloomberg can be, and used to be consistently, before market share concerns ran over quality control. http://bloom.bg/HcUyCl
    27 Mar 2012, 02:00 PM Reply Like
  • "balance sheet has been buoyed by acquisitions"

     

    An associate of mine is from Switzerland, and I once asked what community banks are like in Europe, and he said, "There are none".

     

    If these guys are buying up more and more institutions it all must be blessed by their regulators, which could suggest Germany is slowly turning its banking sector into one big national bank, a quasi arm of the gov. This is common in regulated economies. The selling point of regulations is to protect the little guy, but what winds up happening is that the little guy competing business goes away because the regs make it too expensive to do business, and the little guy consumer is left with one big monster that can charge whatever it wants because it becomes to big to fail. If there is price fixing, then the monster will fail and be bailed out, and the little guy consumer will be forced to pay for it, whether he wants to or not. Boy these regulator types are sure looking out for the little guy.

     

    It may be far off in the future, but the German gov may one day pull a Fannie and Freddie and just stiff all the equity holders and step into their shoes for free. It might be better to be a debt holder rather than a equity holder, like in the case of Fannie and Freddie.
    27 Mar 2012, 02:11 PM Reply Like
  • Ouch! Truth hurts.

     

    Who props up the Euro when the big German banks hit the wall?
    Where does the government borrow money?

     

    Does Brussels have a big enough printing press?
    27 Mar 2012, 05:37 PM Reply Like
  • Irish journalist lays into ECB rep (5 min): http://bit.ly/wroIac

     

    His anger is interesting because I think it represents an attitude likely to spread, and its not an attitude that will support the status quo.
    27 Mar 2012, 08:11 PM Reply Like
  • I have yet to understand exactly WHY the Irish government in power at the time agreed to repay the unsecured debts of the private Irish bank or banks that made absurd infrastructure loans and sold bonds to the other European countries to support those loans.
    The loans to the Irish citizens all have zero value now. The government can't recover anything by selling the unwanted housing and other infrastructure that was built with the borrowed money. Why did they do it? Moral responsibility??

     

    Anyone?
    28 Mar 2012, 12:19 AM Reply Like
  • For the same reason that the American government did the same sort of thing for GS. They were corrupt, far too closely linked to the banks, and had delusions of grandeur.

     

    If they had been using their own currency, they might now be in the same situation as we are.

     

    First and foremost the object lesson is a political one. The Irish govenment, though indeed far too involved with those banks and known generally as "business friendly", was also working from an ideology which believed it could have a capitalist/socialist mix without internal conflicts of interest.
    28 Mar 2012, 10:02 AM Reply Like
  • JS

     

    Very telling video...if one takes the time to "listen".
    (I suspect too many will/do not, but I hope that the attitudes does spread)
    Very interesting cultural clashes growing...in this case German/Irish.
    SB..."WHY"...IMO...yes, a cultural "moral responsibility" in spite of ignorant and naive (and yes, corrupt and greedy) politicians and bankers.

     

    TB...IMO...analogous but not the "same" as the USA.
    The USA has a better understanding of the financial complexities...more USA citizens are more fully aware of the shenanigans than the Irish...and we caved.
    "Open discussion and debate"...I think not!
    28 Mar 2012, 01:34 PM Reply Like
  • Author’s reply » Here is Felix Salmon's take on the deal. http://tinyurl.com/7r5...
    28 Mar 2012, 03:13 AM Reply Like
  • I've read "Boomerang" by Michael Lewis. Twice. Excellent.
    But it didn't answer my original question about why the Irish govmint paid off the bank loans with tax money.

     

    The only reason that makes any sense at all is that the bailout somehow hid the involvement of the financial officials (ministers) in government. And their hunting buddies, or whatever passes for such in Ireland. If you assume the whole top of the government was raking off some loose money, it all makes even more sense.
    28 Mar 2012, 07:01 PM Reply Like
  • Author’s reply » (March 29, 2012) Greek Deposit Run Update: Hopeless And Getting Worse. http://tinyurl.com/842...

     

    I included a telling chart on Greek corporate and household deposits at the bottom of the new concentrator. The red line represents Greek deposits.
    29 Mar 2012, 11:01 AM Reply Like
  • Most (all?) Greek banks are insolvent after they take their share of the bond haircut and the economy's meltdown. Who would keep deposits in such banks when others are readily available?

     

    Is there news of a Greek version of our Resolution Trust operation? If not, there will be.
    29 Mar 2012, 11:05 AM Reply Like
  • Author’s reply » Reminds me of the Gecko line about bleeding from all of their orifices.
    29 Mar 2012, 11:08 AM Reply Like
  • Now there is Spain. http://on.msnbc.com/GZ... This will get worse as time goes by. http://bbc.in/GZyOpd
    29 Mar 2012, 01:15 PM Reply Like
  • "This will get worse as time goes by."
    Undoubtedly, RBF.

     

    The question is: what does bottom look like? Feels 5 years or less away now; still almost seems plausibly around the corner. I think when it *feels* like the bottom is between 10 years and forever away, we're there. But, I've no idea, living through something is radically different than reading about other times like it.
    29 Mar 2012, 01:34 PM Reply Like
  • Agree RBF and Jon. And while everyone is focused on the BIG ticking bombs -- firecrackers are going off in emerging Europe. IMF is now warning that the share of non-performing loans in Central and Eastern Europe has exploded from 3% pre-crisis to 13%: http://bit.ly/H7iX7r
    30 Mar 2012, 11:33 AM Reply Like
  • Following on that 3% to 13% number MJ. If I recall correctly, we discussed a few Euro concentrators back that a good chunk of Hungarian and Polish mortgages are held in Switzerland.
    30 Mar 2012, 11:42 AM Reply Like
  • And the SA gotta-know news this morning had Greece already saying they'd need another bail out.

     

    HardToLove
    30 Mar 2012, 12:07 PM Reply Like
  • This just in! Some of the EZ problem children's bonds will no longer be accepted as collateral. http://seekingalpha.co...
    30 Mar 2012, 01:09 PM Reply Like
  • John Maudlin's All Spain All The Time posted here for posterity: http://seekingalpha.co...

     

    I've read it twice now. I plan to read it again.
    1 Apr 2012, 10:30 PM Reply Like
  • I saw a Bloomberg news bit yesterday that Germany just granted some "public service" union a 6+% pay raise.

     

    Must be an election coming up :-)

     

    The insanity continues in Euroland.
    2 Apr 2012, 10:51 AM Reply Like
  • Spanish bond sale was not well received. They may be getting some unwanted attention from bond vigilantes soon if they aren't already. http://bit.ly/HegzBo Hat tip WSB
    4 Apr 2012, 09:25 AM Reply Like
  • BBC article on the rise of the barter system in Greece http://bbc.in/IHFpFk
    12 Apr 2012, 11:46 AM Reply Like
  • Pressure from predatory tax systems always drives people into barter as a preferred means of exchange...

     

    Time for my ad streamer:

     

    "Will trade art for food"....
    12 Apr 2012, 12:41 PM Reply Like
  • Who's Art?

     

    Does he know he's being passed around? :-))

     

    HardToLove
    12 Apr 2012, 12:42 PM Reply Like
  • >HTL: GROAN !
    12 Apr 2012, 12:44 PM Reply Like
  • As an inveterate punster, thank you! :-))

     

    HardToLove
    12 Apr 2012, 12:46 PM Reply Like
  • I charge more for "Art", but I am happy to trade "art" (lower case). In today's world of language destruction (everyone who does anything is an "artist" - whether its cutting hair or collecting trash, and we are adding the term "artisan" to industrial processes like mass-produced baked goods), the odd pun is welcomed as additional free advertising!
    12 Apr 2012, 12:49 PM Reply Like
  • Nice poochy, Trip. Named, Art?

     

    Speaking of art, I'm getting Trip's original Minstrel, tomorrow.

     

    And so tomorrow, I will be artfully hanging a minstel over a fire(place).

     

    ####

     

    The Greeks have been bartering since the stone age. Totally not surprised bartering is up.
    12 Apr 2012, 03:53 PM Reply Like
  • George. Just a puppy still.
    12 Apr 2012, 03:56 PM Reply Like
  • Paper in Spain topping 6% this morning for the first time since DEC. Can I get 7%? 8%? Stay tuned.
    16 Apr 2012, 11:08 AM Reply Like
  • Here's an intelligent summary of the dynamics to keep on your radar during this Sunday's French elections from Marc Chandler: http://seekingalpha.co...
    19 Apr 2012, 04:38 PM Reply Like
  • Spain and Italy. Rates soar. http://bit.ly/JEEQkt

     

    Spain:
    "The money raised was towards the top of its targeted range of €1-2 billion. But it had to pay a steep price. The borrowing rate leapt to 0.634% from 0.381% for three-month bills and to 1.58% from 0.836% for six month bills, when compared with the last similar auction on March 27."

     

    Italy:
    "Rome issued bonds worth a total of €3.44 billion today. The offer included €2.5 billion in bonds due in 2014 which were sold to give buyers a yield, or rate of return of 3.35%, up from 2.35% at a similar sale in March. The government also sold €501m of inflation-indexed bonds due to mature in 2017 at 3.88%, up from 2.04%, and €441.5m in bonds due in 2019 at 4.32%, up from 3.06%."
    24 Apr 2012, 12:50 PM Reply Like
  • Author’s reply » April 24, 2012. The Greek central bank downgraded its' forecast for the economy expecting it to shrink by about 5% verses the 4.5% forecast three weeks ago.

     

    In alarming stats given by Antonis Samaras, the leader of New Democracy (Greece's major conservative party) Greece had 1 million companies in 2009 but 250,000 have since closed and 300,000 more do not pay their workers on time [http://tinyurl.com/7a8...].

     

    So in the four years, Greece has lost a quarter of its' businesses. Of those remaining, four out of ten are in such financial stress that they can't pay their employees on-time.
    25 Apr 2012, 08:57 AM Reply Like
  • Interesting statistic...

     

    I wonder how many companies the US has lost in the last 4 years. We know our total employment is dropping like a stone, and unlike Greece, we actually have significant population increase and a younger demographic at work...
    25 Apr 2012, 10:30 AM Reply Like
  • Author’s reply » (April 27, 2012) Spanish Economy Crumbles: Unemployment Nearly 25%. From ZeroHedge by Tyler Durden.

     

    Latest figures from Spain indicate that Q1 unemployment is now one quarter of the working population or 24.44%, up nearly 2% from the 22.85% as of December 31. Which suggests that real unemployment is far higher, and confirms that the economy is in free fall. http://tinyurl.com/7mw...

     

    See the updated Spanish unemployment chart at the bottom of the concentrators information inventory. Over half of their citizens 25 or older are unemployed! This is a powder keg.
    27 Apr 2012, 08:13 AM Reply Like
  • Rat, did you mean that: "Over half of their citizens 25 or YOUNGER are unemployed!"?

     

    Frankly, these are similar numbers to my own scribbling tracking the American economy.

     

    Talking to folks (many self employed or with small businesses) has revealed to me that a transformation to an underground, cash economy has taken hold in the US, and I would expect something similar in Europe as well. People are working fractional jobs for cash paid under the table, or are getting 1099's and getting carried as "independent contractors" by their boss. Even extremely large and successful companies are eliminating full-time positions and filling the slots with temps or creating "job sharing" situations to prevent access to profit sharing, insurance, etc. Organized crime syndicates are moving back into neighborhoods, muscling in to control basic services and local government contracts (just like the 30's, and for the same reasons).

     

    In an odd way this transitional phase between a healthy economic condition and disaster will tend to lengthen the period of time the nation can tolerate low employment before we see a more general and devastating collapse. As many Asian nations have demonstrated, it is even possible to cobble together a culture around these condtions which can sustain and rule for many decades...

     

    So though I agree the news is deeply disturbing, I also believe that it is possible that we cannot project geopolitical events in the markets based upon this sort of thing. As usual, the universe is able to remain chaotic without a big bang longer than we can imagine.
    27 Apr 2012, 11:45 AM Reply Like
  • Author’s reply » Yes, thanks for catching that Trip... its 25 or younger.... so over half of the young, the harbingers of revolts are unemployed.
    27 Apr 2012, 11:49 AM Reply Like
  • Yes. And as for any revolt, it may have to overcome the wishes of the street gang bosses who many of those unemployed youth will be working for, who might just like things just as they are...

     

    My experience has been that organized crime, WHEN it has a good thing and knows it, often becomes a very conservative element resistant to change...

     

    But this is a transitional stage, almost always, an inflection point which CAN trigger quickly to the negative, or more slowly to the positive, often reacting to some underlying strength in the dominant national culture.

     

    Unfortunately the dominant cultures in Europe are primarily weak as kitchens and simply spoiled rotten.

     

    Ironic, to be pinning our hopes on organized street thugs for some period of stability.
    27 Apr 2012, 12:02 PM Reply Like
  • Trip: It will be interesting to see how many Spaniards remain "unemployed" when the government can no longer pay unemployment benefits. Then again, how would we know if they had a job?

     

    I agree with you that the "off the books" economy of Spain, like other damaged economies, is far more resilient than official numbers would indicate.

     

    Greece should be a fascinating source of information if some scholar can figure out how to extract information on street level money flow in the absence of "government numbers". Gasoline sales? Food consumption? Electricity usage? Could keep a lot of grad students busy doing interviews ;-)
    27 Apr 2012, 12:11 PM Reply Like
  • Actually, TB brings up something that gets harder to track the worse the economies of the world becomes: the "gray market".

     

    Gray market = off the books and not paying taxes.

     

    My experience has been that "gray market" labor was already quite high in Europe. The worse it gets, the higher it goes.

     

    So, we have the influence of government trying to under-report unemployment and employers trying to under-report employees. I'm quite sure the governments are out ahead of the employers in most countries still, but market forces could balance those numbers out.

     

    *****

     

    related thought... I expect xenophobia to rise (because that's what happens when economies get bad)
    but we may also see a rise in off the books illegal alien labor in the developed world (because if you're going to employ someone on a cash only basis and underpay them, who will keep their mouth shut better and give you more leverage as an employer than someone you can report to the government and have kicked out of the country?)

     

    let the good times roll :-)
    27 Apr 2012, 01:29 PM Reply Like
  • Jon: Correct. I do indeed associate this with illegal immigration - and its "gray market" cousin, corporate-sponsored immigration for the purpose of undercutting high salary class jobs. This job market pollution benefits a very few, and even then at an extraordinarily high cost to both the society and the individual.

     

    The pollution also inevitably extends to our already severely fact-challenged national statistics, which unfortunately retain potent political and economic power despite the underlying flaws.

     

    Its easy to see all thes negatives as reinforcing a dark vision of the future.
    27 Apr 2012, 01:35 PM Reply Like
  • Capitalism can never be killed. It just goes underground. If you think about what capitalism is, it makes sense why this is true. Capitalism is not survival of the fittest, that's a pure democracy, a spoils system. We have to think about, is what captial is. Capital is stored labor. Resources have no value until acted upon by human labor. When you build a house, you store your labor for years. So instead of building shelter every night, you build it over the course of a couple of nights, and then have shelter for the rest of your nights. The time you used to spend building shelter can now be spent on other things. As such the asset (shelter) represents your stored labor (capital). Assets = Capital.

     

    Thus capitalism is a system where people store their labor and they are free from having that capital taken from them. Thus a free market is not a market in which you are free to do whatever you want, like a mob, but free from the tyranny of the mob. A free market is where capital is free from force and fraud. Thus, when this occurs, people reach their maximum capital creation via innovation of their labor. They don't have to spend any time protecting what they create, they just spend their time creating.

     

    It is human instinct to create capital. It is a buffer against death. The more you have stored, the less likely you need to live hand to mouth, and the less you have to fear when resources in the environment don't cooperate. In short, capitalism is a force of nature. It is a force of human nature. Trying to shut that down is like trying to shut down gravity or trying to push a waterfall back up with your bare hands. You either learn to build a water wheel, or the backup will eventually wash you away. But rest assured, water will flow down hill, no matter how much Marx, Keynes, et al, try to delude otherwise.
    27 Apr 2012, 01:52 PM Reply Like
  • "Capital is stored labor." You've hit it on the head. So simple and yet so profound.

     

    I really wish *this* was taught in school along with how insurance works, and mortgages work, and time value of money, etc. So few people have the slightest concept of what, how, and why these most important things work.
    27 Apr 2012, 10:18 PM Reply Like
  • Why would teachers in a public school system ever suggest to be skeptical of gov confiscation of capital, when that confiscation provides for their bread and butter? Wisconsin and Greece are great examples of a spoils system, and a spoils system always uses the fraud of the "common good". But have you ever noticed that the common good means the minority gets screwed for the benefit of the majority. Students in a public school system will never be taught their rights revolve around self preservation (storing capital and the real mechanics of economics - insurance, mgts, etc). If they were they might not fall for the fraud of the "common good" wherein in the majority votes to enslave the minority.

     

    Slaves were never allowed to store their labor. A slave had a 100% income tax and 100% regulation, but they had "free" housing, "free" healthcare, "free" family planning, and guaranteed employment. Sound familiar.

     

    The reason Europe (and now the US) is constantly discovering that their economies are unstainable, is that no human has the instinct to be a slave. Europe (and now the US) is attempting to have each citizen enslave their fellow citizen. People won't produce for others they way they will for themselves, they lower their production, and soon they start to run out of things to consume, which is known as austerity. This is why everyone starts fighting, because everyone starts to resent everyone else. Do you get the impression the Germans just love the Greeks?

     

    This is why the story of Europe is wasted glory. Fuedalism is no different that socialism or communism. They are all systems of slavery. They are all a system where a few at the top determine how everyone else will live. People will never be as productive under that system, as they are under a system that is compatible with their instincts to store their own labor.

     

    Europe (and now, ironically, the US) is infected with slavery. They are all taught this in their schools. They have no clue how to avoid austerity. In fact, Europe always has been austere. Healthcare is rationed, education is rationed, energy is rationed, and not rationed based on price, but rationed in the sense it is illegal for you to have more than what the elite says you can have. They may buy themselves time by using the ECB to transfer wealth from the general populace to the financial markets, but that time will be wasted.

     

    They won't use that time to become more productive, they will only try to tighten their belts. They need to grow their income, by unleashing their human instincts to store their labor, which is capital creation, which comes via innovation, and the innovation leads to higher production. The higher production is what will allow them to consume more, and thus leave austerity. They have no idea how to do this. Its like putting a typewriter mfg CEO in charge of Apple.

     

    I would say we can count on crisis out of Europe for quite a while longer. The flight to safety they will create for us, will help keep down the cost of our gov (low treas yields). Rest assured though, instead of taking advantage of their stupidity, will we waste it with our own stupidity. We are not taught in our schools what we need to do.

     

    End of rant.
    28 Apr 2012, 07:45 AM Reply Like
  • Precisely
    29 Apr 2012, 02:56 PM Reply Like
  • Author’s reply » I added a table of Global PMI Changes from March to April 2012. It speaks for itself.
    2 May 2012, 11:29 AM Reply Like
  • Author’s reply » The Greek elections culminated 2 votes short of a majority for the pro-bailout New Democracy and Pasok parties. What happens next?
    Based on: Greece: Next Steps. From: ZeroHedge, by Tyler Durden. http://tinyurl.com/7vg...
    -----
    Each of the top three vote getting parties, in order of voter preference is sequentially offered a three day opportunity to form a coalition government.

     

    May 7 to May 9: Antonis Samaras has three days to form a government. Mr. Samaras yesterday invited “all pro-European parties” to unite forces under his leadership to “keep the country in the euro” and “modify” the economic policies attached to Greece’s bailout program. That implies he’s likely to hold talks with most parties that have made it into parliament, apart from the neo-Nazi Golden Dawn and the Communists who are both categorically anti-Europe.

     

    May 10 to May 12: If Mr. Samaras fails, Alexis Tsipras, leader of Syriza will have three days to build a government. Mr. Tsipras had called upon all left-wing parties to join forces before the election and will do so again now.

     

    May 13 to May 15: If Mr. Tsipras fails, the exercise will be repeated by Evangelos Venizelos, the leader of socialist Pasok, which was the winner of the 2009 election and the party that oversaw the country’s bailout program and its debt restructuring.

     

    [Chaos]

     

    Meanwhile, on May 15th €430 million in international-law bonds mature. And the holders of those bonds have not agreed to the terms of the PSI [haircut arrangement] and will thus demand full payment of money that Greece does not have. [So it appears we will see a Greek PSI-related lawsuit on May 15 when Greece defaults. Given that there appears to be a depleted probability of a Greek Government in place at this point, there is nobody around that could negotiate a deal unless the Troika or the IMF steps in. In which case, a default would still have taken place. ]

     

    May 16: If none of the top three vote getting parties is able to form a coalition government, the president will call the leaders of all the parties in parliament together for one last stab at a cross-party coalition. But if that fails the president and the party leaders are tasked with cobbling together a caretaker government that will lead the country to fresh elections.

     

    If the party leaders can’t agree on a caretaker prime minister (this has happened once before, in 1989) the president appoints the chief justice of either Greece’s Supreme Administrative Court, the Supreme Court, or the Court of Audits, to take the reins and lead the country to elections.

     

    June 10: Is the earliest date that fresh elections can be held if all previous steps have failed.

     

    June 30: is the deadline by which a functioning Greek parliament must approve €11.5 billion in further cutbacks to deal with expected budget gaps in 2013 and 2014 under the bailout plan agreed with the Troika. [No government, no approval of more austerity - no money].
    ---
    By the way, while Lucus Papademos, Greece's technocrat caretaker PM remains in his position, Papademos’ "government" cannot legislate as parliament was dissolved ahead of the elections.

     

    [I think the odds of a military coup increase sharply with no functioning government in place starting June 11th.

     

    I wondered if June 11 was a 'noteworthy' date. Interestingly, Greece adopted its' current constitution on June 11, 1975. Not that it means anything just an interesting coincidence of timing.]
    7 May 2012, 12:08 PM Reply Like
  • Isn't Papademos the one that managed to get prostitution counted as part of GDP way back when? If they could just ramp up that portion of the economy and tax it, then all their problems would be solved. Thank goodness for the all knowing technocrats.
    7 May 2012, 12:15 PM Reply Like
  • Isn't prostitution the classic "off the books" job/employer? The IRS sure has problems taxing the "personal services" businesses :-)

     

    So sex workers will be able to buy food, but tax revenue wouldn't increase by much. Receipt? Where? Cash only, please!
    7 May 2012, 12:20 PM Reply Like
  • PASOK (socialist party) just indicated in an interview that they are willing to participate in a coalition government. Syriza (Leftist party which finished 2nd) met with ND (center-right, finished first and gets first shot to form government) and said "no".

     

    Interestingly, the numbers dovetail neatly for an ND and PASOK coalition:

     

    ND won 109 seats in the 300 seat parliament
    PASOK won 42 seats...

     

    And 151 rules.

     

    In this case, I would expect the new government to stick with the plan in place.
    7 May 2012, 12:21 PM Reply Like
  • OK, new news is that PASOK also said "no" to the ND.

     

    This opens up a real can of worms.

     

    A coalition of Syriza and PASOK would muster only 93 seats, far less than a 151 majority, and not enough to even outweight the ND's 109.

     

    Even addin the (shudder) KKE Communists to the other 2 leftwing parties leaves them short at 119, and tossing the DIMAR (Democratic Left) party in brings them just to 138. Its also highly unlikely that the 4 would be a cohesive coalition.

     

    Looks like a new election is coming, I suppose, though what are the odds that it will only make the schism more insurmountable?

     

    Good breakdown of the Greek situation: http://bit.ly/JXFSod
    7 May 2012, 03:11 PM Reply Like
  • Democracy is failing. No one can form a gov't. Any odds on the country being taken over by local military or foreign military?
    7 May 2012, 03:18 PM Reply Like
  • They've been there -- done that before. I think the EU dynamics right now may be more flammable than most folks think.
    7 May 2012, 03:28 PM Reply Like
  • So will Holland show a trend where more and more nations reject controlling expenses, and then they get enough leverage to get the ECB to accomodate with Euros? Then, eventually, the Euro starts to take a hit, which you would think would damage Germany's purchasing power, so then Germany decides to bail on the Euro. Sort of like Greece trying to tax their rich, and the rich leave or hide their wealth and incomes. There is a difference between levying a tax, and levying a tax you can collect. The producer just runs away. Maybe Germany will run away too.

     

    How about this. The trend has been that when you try and cutoff the dependent class in Europe they riot. What if Germany leaving is the same as cutting off they looter class, and they decide to go to war to keep Germany from leaving the Union (sound familiar). What if this time the US has to go back to Europe for another war, but this time it is to defend Germany?
    7 May 2012, 03:44 PM Reply Like
  • I don't think anything should be made out of left/right winning anything right now. If the right was in power, the left will win. If the left was in power, the right will win. The only trend is people are frustrated and they think political change will change their fate.
    +++++
    However, it took many years to arrive at the point in their fate (and ours too which we and) they wish to change in each country, and electing people who say they will do things that will placate them (and us, the general populace) is not likely the answer, but what does come with democracy. Folks will only make the tough decisions when they absolutely have to, and who will be in power at that time will be incidental to who got tossed out last for not solving problems that simply cannot be solved in a 24-hour-news-cycle-dem... until the electorate recognizes their own role as co-cospirators to their own economic train wreck with the politicians.
    +++++
    The built up damage of irresponsibility that goes back somewhere between 25 and 100 years (depends on where you want to start) is coming home. The bill is very expensive. In the end, all the sovereigns are going to walk away without paying it because it is impossible to pay. The question is how much damage they do between now and then - the final crisis moment - and how to insulate one's self against all that damage.
    7 May 2012, 07:17 PM Reply Like
  • Author’s reply » (May 12, 2012) Current situation:
    The three top parties were given the chance to form a government and failed. We are now seeing the last possibility where the President is attempting to form a government with all of the parties at the same time.

     

    Meanwhile, post-election polls are showing soaring support for the Syriza party led by Alexis Tsipras. Syriza's totals rise every day, and by the time elections are held, any coalition might put them in the majority. They are currently at 52 seats, but the post-election polls are currently indicating 128 seats.

     

    The reason for all this popular support appears to be Syriza's five points of coalition proposal:

     

    1) The immediate cancellation of all impending measures that will impoverish Greeks further, such as cuts to pensions and salaries.

     

    2) The immediate cancellation of all impending measures that undermine fundamental workers' rights, such as the abolition of collective labor agreements.

     

    3) The immediate abolition of a law granting MPs immunity from prosecution, reform of the electoral law and a general overhaul of the political system.

     

    4) An investigation into Greek banks, and the immediate publication of the audit performed on the Greek banking sector by BlackRock.

     

    5) The setting up of an international auditing committee to investigate the causes of Greece's public deficit, with a moratorium on all debt servicing until the findings of the audit are published. http://tinyurl.com/cm8...

     

    ---------
    WHY NOT?
    The notion that nothing much will happen outside of Greece if the Greeks stop paying and leave the EU is ridiculous. There are hundreds of billions of dollars at stake here, perhaps even trillions. Some EU countries banks could fail requiring interventions, more governments will likely fall (dominos falling), and other countries deeply in debt could say - "why not?". "Why not?", a line I always remember delivered by Warren Oates in the Wild Bunch when the decision was made to fight to the death in the name of loyalty.

     

    In order to preserve the Balance of Power, Greece needs to continue using the Euro and stay in the EU. It seems clear that for the EUs Troika to accomplish that goal, they need to stop new Greek elections in order to prevent other people from thinking "Why Not?". So EUs Troika needs to somehow leverage a compromise probably kicking the can down the road again, or they need to make a deal with the Greek Military to take over. From their perspective they need to prevent people from speculating: "Why Not?".
    12 May 2012, 04:55 PM Reply Like
  • Maybe China will "buy" Greece from the Greek people. Just pick up the payments! Pay off the other EU members and leave the EU.

     

    China could then send their troublemakers to Greece to suffer with the rest of the Greeks as the benefits and promises are dumped. You don't think the Chinese Com. Party bigwigs would actually keep pumping in "kick the can" money, do you?

     

    The EU banks get relief and the Greeks no longer owe anyone.
    Then the relocated ethnic chinese work 90 hour weeks and borrow money from their relatives and build a new economy on the Mediterranean.

     

    And then I woke up................
    12 May 2012, 05:31 PM Reply Like
  • My wife lived in Greece for the better part of 2 years.

     

    I just asked her what she thinks, "They don't fix stuff. They're looking for a way out. Anyone should pay but me... The thing is Greeks probably don't think there's anything flawed with their economy... They think its just bad times."

     

    Her sarcastic reaction to their inability to form a government, "But they invented the word democracy."
    12 May 2012, 06:41 PM Reply Like
  • Democracy at its worst is simply "mob rule".

     

    Greece is about to exercise my idea from a year or more ago: Just say "No".

     

    Then we see what comes next.

     

    An engineered military coup is one option, I agree...

     

    So is a collective action to make good the problem bonds at the sime time Greece is ejected from the EZ and rejoins the third world whence it came, drachma valued at $.0042 and all.
    12 May 2012, 09:13 PM Reply Like
  • Thanks for your summary update, FPA. The flammable EU situation I think is going from bad to worse. SA is reporting this am:

     

    8:51 AM The cover of Der Spiegel: "Acropolis adieu, why Greece must leave the euro now."

     

    2:27 AM SYRIZA leader Alexis Tsipras believes he can call the eurozone's bluff and renegotiate Greece's bailout terms, but officials are so far having none of it. The ECB's Patrick Honohan yesterday said a Greek exit from the euro could be "technically" managed, while Bundesbank chief Jens Weidmann threatened that the cash would stop flowing to Athens.

     

    I do not underestimate the ability of all interested parties to "extend and pretend" for a longer period of time -- but I gave up on Greece reclaiming any real stability under any currency-- the day I heard that today they actually import olive oil from Germany. They provide the olives and Germany does the relatively lower cost processing -- seriously. My imagination has a hard time envisioning any scenario (medium term) with a happy ending.
    13 May 2012, 09:41 AM Reply Like
  • From John Mauldin's latest newsletter.

     

    "For good or ill, Europe has embarked on a program that will require multiple trillions of euros of freshly minted money in order to maintain the eurozone.............. This is a Ponzi scheme that makes Madoff look like a small-time street hustler. "

     

    Someone mentioned the devaluation of the Euro, didn't they?
    13 May 2012, 01:41 AM Reply Like
  • The unraveling continues, as you folks have predicted.

     

    "New election blow for Germany's Merkel - exit polls"

     

    http://bbc.in/KC339L

     

    HardToLove
    13 May 2012, 07:15 PM Reply Like
  • Whatever ink the euro is printed in, find that company and get ready to load up.
    13 May 2012, 10:18 PM Reply Like
  • Author’s reply » Another charming Monday coming up - Europe is a blood bath. The S&P lower Bollinger is 1349. S&P Futures are currently at 1341 - Oil with a 94 handle.

     

    Over in Greece:
    President Papoulias invited politicians from the biggest three parties to return to the presidential mansion at 12:30 p.m. EDT on Monday, along with a small leftist group. But an official from the second biggest party, SYRIZA, said its leader Alexis Tsipras would not attend. Tsipras says he wants to keep Greece in the euro but the bailout deal must be torn up, a position shared by an overwhelming majority of Greeks but regarded by those in Brussels as untenable.

     

    The leader of the smaller, moderate Democratic Left party, Kouvelis, will attend Monday's talks, and his party commands enough seats to provide the conservatives and socialists with a majority, but he has repeatedly said he would not join a coalition without Tsipras. "A government that does not ensure the participation of the second party [SYRIZA] will not have the necessary popular and parliamentary support." No deal means new elections where it appears SYRIZA may win a majority.

     

    Meanwhile, on Tuesday, May 15th, €430 million in international-law bonds mature. And the holders of those bonds have not agreed to the terms of the PSI [haircut arrangement] and will thus demand full payment of money that Greece does not have.

     

    Given that there will be no government in place on May 15th, we should see a Greek PSI-related lawsuit on May 15 when Greece defaults.
    14 May 2012, 04:22 AM Reply Like
  • Author’s reply » Watch Italy's attempt to sell three-year bonds today. This will be an indication of contagion issues impacting demand for lower-rated euro zone debt.
    14 May 2012, 04:31 AM Reply Like
  • Author’s reply » Italy sold €5.25 in bonds this morning at rates that did not indicate large contagion effects. It sold its three-year benchmark at an average 3.91 percent yield, the highest since January but below market levels of around 4 percent at the time of the auction.
    14 May 2012, 07:13 AM Reply Like
  • Author’s reply » Greek finance ministry to pay EU 435M bond. They were running out of money.
    15 May 2012, 12:27 PM Reply Like
  • Greeks target June 10 for next election http://bloom.bg/Mk2aVL

     

    If electoral trends hold from last election, seems like they'll have an even harder time forming a government after the next election than the most recent one.

     

    On the bright side, the government is blameless if there isn't one.
    16 May 2012, 08:17 AM Reply Like
  • Spain leads tomorrow's headlines in Europe http://ind.pn/J1wter
    17 May 2012, 09:09 PM Reply Like
  • Bloomberg notes Moody's just downgraded 16 banks in Spain http://bloom.bg/J4jQ3e
    17 May 2012, 09:13 PM Reply Like
  • Blech. I'm better off packing and not knowing...
    17 May 2012, 09:15 PM Reply Like
  • Author’s reply » Friday May 18, 2012 - After The Close Today, Spain Hiked Their Budget Deficit From 8.5% to 8.9% http://tinyurl.com/6su...
    18 May 2012, 09:23 PM Reply Like
  • Let the printing begin.
    18 May 2012, 09:24 PM Reply Like
  • Is there a betting pool for what day the Euro and Dollar match?
    19 May 2012, 12:23 PM Reply Like
  • Not yet. Someone will do it, though.
    20 May 2012, 06:21 AM Reply Like
  • Author’s reply » Could be something brewing in the French mortgage market that could lead to bank nationalizations... http://tinyurl.com/7ju...
    20 May 2012, 03:35 PM Reply Like
  • >FPA ... Sounds ominous. Let's hope the French have the good sense to nationalize this bank and not bail it out. It's about time someone steps up and ends this bank balance sheet disaster.
    20 May 2012, 04:02 PM Reply Like
  • Big day coming for Greece -- June 17 -- so says John Mauldin:

     

    http://seekingalpha.co...

     

    Yep (everyone). Time to fire up those euro printing presses.

     

    Not that this means much, but at no time since a few months after March 09' have I been sitting on as much dry powder.

     

    Expecting the dollar to gain a bunch of strength during the summer doldrums. Some PM miners out there look tantalizing right now. I'm not touching them...yet.
    20 May 2012, 09:17 PM Reply Like
  • I just heard on a podcast with Richard W Rahn that the central bank of France has stopped publishing its balance sheet on its website.
    22 May 2012, 05:58 PM Reply Like
  • I just heard on CNBC that a former PM of Greece admitted that plans had been in the works for "if" they leave the EMU.

     

    Of course, CNBC then attributes that as the cause of the late-day market drop after having a "good day" up to that point.

     

    How could it be that "the market" was unaware that that this *must* have been going on?

     

    From it's long-time behavior, I don't believe "the market" was unaware.

     

    HardToLove
    22 May 2012, 06:03 PM Reply Like
  • This smart lady lays out the idea that Greece can default on its private bonds, but stay in the EuroZone.

     

    I think she's right.

     

    http://bbc.in/JIaL4n
    23 May 2012, 02:12 PM Reply Like
  • Well, really? Who would think that real capitalism, i.e. failure and resurrection, might be a better solution that "Coordinated Can Kicking" to preserve private interests?

     

    Folks come up with something new all the time don't they?

     

    HardToLove
    23 May 2012, 02:27 PM Reply Like
  • Two parallel currencies? Makes my brain hurt. I suppose there would be a daily "exchange rate" posted just as if between two sovereign countries.

     

    OK. If they default on loans from "private" banks, it's hard to see that the EU 'crats could claim Greece defaulted on government obligations. Without admitting how intertwined the various governments are with their in-country "private" banks. By not accepting new EU loans with explicit, nasty terms they might just make it out alive.

     

    Why not? Can't be much worse than the alternative of perpetual debt. This could be fun to watch! What will the equity markets think? ;-))
    23 May 2012, 03:27 PM Reply Like
  • The exposure for some of the banks will mean a major hit for those particular banks...

     

    But the reaction of the markets as a whole might well be one of great relief.
    23 May 2012, 03:31 PM Reply Like
  • Sort of like when that gas pocket deep in your bowels finally exits.

     

    HardToLove
    23 May 2012, 04:55 PM Reply Like
  • Author’s reply » (Reuters) - Top Spanish officials are at odds over how to help the country's highly indebted regions refinance 36 billion euros of debt this year, government sources told Reuters on Wednesday.
    This figure, just revealed in the budget plans compares with previous reports of around 8 billion euros of bonds maturing in 2012. The difference is due to bilateral loans from Spanish banks to the regions worth 28 billion euros that were NOT MADE PUBLIC PREVIOUSLY. Spain's government last week admitted its 2011 public deficit was higher than it had previously reported.
    24 May 2012, 12:06 AM Reply Like
  • Ah ha! Finally, the truth is out. Spain has been spinning this lie since before the birth of the EU. Of course, in the past it was the Regional banks and governments which were solvent, and the national bank and government which ran deficits...

     

    This is a major announcement, and despite being so obvious (everyone always knew the regions had a lot of debt as well), the nature of the links make it apparent what a shell game the prior government was playing throughout the long recession.

     

    Any doubt about the necessity for money printing in the EuroZone just vanished.

     

    This could affect the euro today, depending upon how much of the recent drop was frontloading this information by those already in the know prior to the public announcement.
    24 May 2012, 07:15 AM Reply Like
  • This is from Bloomberg on how Greek exit of Euro could impact Russia: http://bloom.bg/Kstejz
    24 May 2012, 06:20 AM Reply Like
  • Couldn't happen to a nicer autocrat then Putin. Cold war KGB all the way thru.

     

    I do feel bad for the average Russian. Depending heavily on oil (and gas) income to pay for pensions and state job salaries is a BIG problem.
    24 May 2012, 01:22 PM Reply Like
  • Author’s reply » Spain's Catalonia seeks government help to pay debt

     

    May 25 (Reuters) - Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government because it is running out of options for refinancing debt this year, Catalan President Artur Mas said on Friday.

     

    In the past two years Catalonia has placed patriot bonds, at 4.5 percent to 5.0 percent, but he says the capacity for the people of the region to buy such bonds is at its limit. A quarter of all Catalan savings are already in patriot bonds, he said. [!!]

     

    The other option would be short-term financing from banks, but Catalonia's neighbor, the region of Valencia, recently paid 7 percent for a six-month loan, a level seen as unsustainable.

     

    Catalonia's deficit was supposed to be cut last year to 1.3 percent of gross domestic product, but the regional government overshot that by close to three times.
    This year it is struggling to reach a deficit target of 1.5 percent of its economic output, a goal many economists see as impossible given that the Spanish economy is set to shrink this year by about 1.5 percent.

     

    Catalonia has cut public sector wages, instituted a tourism tax and a 1 euro charge to fill each medical prescription, applied the maximum surcharge on gasoline and frozen infrastructure investments to try to get the budget under control. http://tinyurl.com/82o...
    25 May 2012, 09:33 AM Reply Like
  • Now we are gaining insight into just how much the regional governments (and regional banks) mean to the Spanish picture. Over-focus on the central government and central/2Big banks means the observer misses at least half of the story.

     

    I am impressed by the Catalan region's attitude and work. I believe they are an example of the hope for the future of Spain, rather than some new headache that popped up from the underbrush. The support of the citizenry for their own local government shows that it has a chance to work its way out of the quagmire...

     

    What we don't know is what role was played by the national government in undercutting the region's efforts (this is just a shot in the dark on my part, but I would bet a small sum that I am correct). Personally I would find Catalan's Patriot Bonds much more palatable as an investment vs the Spanish government's debt, but I also like the heavy percentage of their debt which the locals are financing from their own pocket, so encouraging them to take the bonds to a higher profile market peopled by bond sharks would not be doing them any favors...

     

    We will see what the central government (recently elected center-right variety, so different from the hard left flavor removed for malfeasance in the recent elections) does to respond to this request for help.

     

    IMO this is where the action really lies in the Spanish sitrep, and has for a long time (I dimly recall mentioning the important but subtle roles played by the regional banks and governments back in 2009 or 2010, but maybe it was on another site...).
    25 May 2012, 09:48 AM Reply Like
  • TB: Greetings. We did indeed discuss the role that regional financial institutions here, in the EZ and in China would play in the coming debacle. China is going through a debt implosion crises as well. They are hiding it better but experiencing it nonetheless as their regionals are holding massive amounts of debt. Of the three regions I suspect the U.S. regionals are the best positioned. Which makes the recent activities of JPM etal even more suspect as no one knows how much they are holding off the books.
    29 May 2012, 05:59 PM Reply Like
  • >robert.b.ferguson ... look to the derivatives market. Off balance sheet liability has been estimated at 3-6% a couple of years ago and no one has put forward anything to refute or change that since. So what is that for projected loss in a 1.5 Quadrillion market? What would JPM (or any bank) be liable for .... I don't know ... & that's the problem that scares everyone and explains the EU.
    29 May 2012, 06:27 PM Reply Like
  • I would like to congratulate the government of Spain for properly nationalizing a bank and hope they can sensibly complete this task and move on to the next.

     

    http://bit.ly/JsZBeJ

     

    Should have been done years ago in many places near & far.
    29 May 2012, 11:08 PM Reply Like
  • Author’s reply » In Spain, April saw €31 bn (or 1.9%) deposit outflow from banks. Within this only half is attributable to corporate (- €7 bn or -3.4%) and retail balances (- €8 bn, or -1.1%). The residual outflow is attributable to deposit reductions by others (financial institutions / pension funds / etc)."
    ---
    One quarter of the working population or 24.4% is out of work which no doubt has something to do with Retail sales being down for twenty-one consecutive months.
    30 May 2012, 11:05 AM Reply Like
  • Author’s reply » Spain has sent its' deputy prime minister to Washington to discuss the country's economic crisis with the U.S. treasury secretary and the head of the International Monetary Fund.

     

    I was surprised that Geithner would even accept the meeting. So what's that all about?

     

    If you think nothing can happen, you might want to short (EWP) which tracks the MSCI Spain Index. Or if you think something is up, buy (EWP).
    31 May 2012, 09:01 AM Reply Like
  • From a macro analysis perspective about a group of people's ability to produce, here is a little blurb about the types of things Europe imposes on itself. It helps understand why they have such a hard time making good on their debt.

     

    Code du Travail
    By French law, once a company has at least 50 employees working
    inside France, management must create three worker councils,
    introduce profit sharing, and submit restructuring plans to the
    council if the company decides to fire workers for economic reasons.
    As a result, France has 2.4 times as many companies with 49
    employees as with 50. In fact, to circumvent the onerous labor laws
    and costs associated with compliance, many French companies
    that wish to expand their business and employee base beyond 49
    employees have simply sent production to surrounding countries
    including Tunisia or Romania. With near 10% unemployment in
    France, labor laws that were designed — 102 years ago, mind you
    — to aid workers appear to be exacerbating unemployment woes
    by sending jobs across the border.
    In the current Affordable care act, businesses with fewer than 50
    employees are exempt from having to provide health insurance.
    Will we become a nation of 49 employee firms?
    31 May 2012, 09:11 AM Reply Like
  • The primary difference between the antiquated French law and American laws about the same topic is its age...

     

    Pending SCOTUS ruling on Obamacare, of course.
    31 May 2012, 09:19 AM Reply Like
  • I have a feeling the Supreme Court striking down Obamacare will in no way affect Obamacare's implementation. It will be enforced regardless of what the Supreme Court says.
    31 May 2012, 09:23 AM Reply Like
  • Author’s reply » Zounds! 2Y Swiss interest rates have dropped to - 26bps. Yes, that is a minus sign. You pay 26bps to allow the Swiss government to borrow your money.
    31 May 2012, 09:40 AM Reply Like
  • Investors pulled $7.2B from stock based mutual funds last week. http://bit.ly/JZaFjf I'm sure that it has nothing to do with the global economy slowing or the continuing adventure in the EZ. Moreover that isn't the biggest weekly withdrawal this year. Look for a genuine run to start when things get really bad.
    31 May 2012, 09:59 AM Reply Like
  • Author’s reply » Looks like the hill of woe is increasing in size daily.
    31 May 2012, 10:04 AM Reply Like
  • Author’s reply » June 1, 2012 (Reuters) - The German government shifted ground on Friday, supporting a European Commission proposal to give Spain more time to reduce its budget deficit, in a sign Berlin is prepared to take a more flexible approach to tackling the euro debt crisis.
    ---
    More meaningless can kicking. But if the Germans say the same thing to the Greeks, that could have an effect on the upcoming elections. Meanwhile, the idiot Troika continues to shoot itself in the foot. My comments are in brackets [ ].

     

    May 30, 2012 - EU Says More Cuts Needed, Review After June 17 Elections. From: Greek Reporter, by Andy Dabilis

     

    With all eyes seemingly on the critical June 17 elections that could determine whether Greece leaves the Eurozone, another warning has come from one of Greece’s international lenders that more spending cuts are needed, and that a review of the country’s books – essential to determine whether fiscal targets for more loans to be released – won’t be done until after the polls.

     

    The European Commission said the next Greek government must pursue budget cuts with “determination” to be eligible for emergency aid, and that the next audit won’t happen until the end of June – by which time an additional $15 billion in cuts were supposed to have been made.

     

    [Of course there is no government to make the cuts, so it's highly unlikely additional cuts were made.]

     

    [Shekel Rattling:]
    In the face of parties opposed to the austerity demands of the Troika likely to gain a majority vote in the next elections, the Troika has warned that any attempt to tinker with reforms could lead the money pipeline being shut off. “Greece will therefore have to make substantial additional expenditure cuts in the coming months,” the Commission said in a report on May 30. “Comprehensive international financial assistance can continue to be provided only if policy implementation improves.”
    “The determination of the Greek authorities to stick to the agreed policies will be tested in the coming months when deficit-reduction measures to close the large gap for 2013-2014 need to be identified,” the Commission said. “Implementation risks will remain very high. The success of the second program depends chiefly on Greece.”

     

    Greece, which has struggled to meet targets for narrowing its budget deficit while receiving aid pledges of 240 billion euros ($299 billion) over the past two years, faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the Commission.

     

    [Utter fantasy. The country is in a death spiral. Look at the fourth chart up in this Insta's header (Greek GDP Growth Projected). The Troika’s projections are nonsense. The actual gap is going to be more like 8.5%. More and more people are loosing their jobs. That, by itself means less tax revenues. You have to have economic growth to reverse the downward trend. You also can't come up with arbitrary deadlines. You have to plan your financial program based on the Greek Economic systems response.]

     

    The austerity program has worsened a deep recession now in its fifth year, created 21.7 percent unemployment and led to the closing of 1,000 stores a week, with restaurants shuttering and even major hotels closing. [The current austerity program is destroying the country.]

     

    The Commission says that Greece is lagging in tax collection, a problem growing worse by the day as many Greeks, suffering from pay cuts, tax hikes, slashed pensions and political uncertainty, have slowed or stopped paying taxes, causing revenue estimates to plunge.

     

    [They are also suffering from massive unemployment, and businesses closing. That's also going to have an effect on the old tax revenues.] http://tinyurl.com/6wo...
    1 Jun 2012, 08:49 AM Reply Like
  • Kind Folks: Talked to my Wells Fargo Senior Advisor earlier this week. A couple weeks before, my broker told me that Sen. Bob Casey, a democrat from PA, called him (I find that fact pretty cool!).

     

    I don't know what all went down during the conversation, but Sen. Casey stated to my broker that he did not foresee the Bush tax cuts NOT being extended.

     

    It seems "fiscal cliff" will get lots of media play during the next two quarters. But now we have some info from someone important inside the beltway, a democrat, that believes the Bush Tax cuts WILL be extended for maybe six months to as long as a year.

     

    Also, my broker believes there will be no QE3 later this year, no matter what Europe does.

     

    Plan accordingly.
    1 Jun 2012, 11:17 AM Reply Like
  • It would be more logical for the ECB to become more accomodative. It's the path of least resistance, and it would make sense that getting an agreement for more ECB accomodation would have the highest probability of success. As the banks see more and more deposits flee, the fear will rise for these bank's abilities to meet withdrawal requests. So the ECB will either have to take more collateral for advances, or ease the haircuts for the collateral they have already taken. Slowly you would see ECB advance funding for these banks become more and more a bigger slice of their funding mix.
    1 Jun 2012, 11:31 AM Reply Like
  • Author’s reply » Thanks Maya! I am going to repost this over in the QC as well.
    1 Jun 2012, 11:36 AM Reply Like
  • Go ahead, buddy.

     

    Being my broker is a "known republican," I find Casey calling him...amazing.
    1 Jun 2012, 11:38 AM Reply Like
  • Author’s reply » The latest figure at the bottom of the Blogs header shows the current funding gap including Italy and Spain’s 3 year funding needs.
    4 Jun 2012, 03:26 PM Reply Like
  • Author’s reply » (June 4, 2012) Insurers Halting Coverage on Exports to Greece Cuts Deep.
    From: The Greek Reporter, by: Andy Dabilis

     

    Greece is heavily dependent on imports. Last year, it imported goods worth $59.6 billion, more than twice what it exported. Now, the world’s two biggest trade credit insurers – Euler Hermes and Atradius – said they have stopped providing cover for import shipments into Greece. The insurers cover companies against the risk of not getting paid, but with the government already having stopped paying its bills long ago, there are fears that private companies will also stop.

     

    The Secretary General of the Athens Association of Trade Representatives, said it was impossible to order anything on credit, forcing companies to burn through cash reserves to pay upfront.

     

    Vasilis Korkidis, head of the ESEE retail federation, told Reuters that the country’s agricultural sector was in disarray. He said shortages in raw materials could come as early as September, once the existing insurance credit contracts expire, followed by shortages in fuel, drugs and food. Greece imports nearly all its medicines. http://tinyurl.com/7dc...
    4 Jun 2012, 05:13 PM Reply Like
  • Being distant from all that, in the relative security, ATM, of our society, it's hard to get a true feeling for what the Greek people are and will be experiencing, in terms of desperation, hopelessness, hardship, shortages of basic necessities, ...

     

    Reading that, and extending, it suddenly struck me that regardless of culpability, the suffering of the people will be quite direct and severe.

     

    I feel sadness for them and hope they find their way back quickly.

     

    HardToLove
    4 Jun 2012, 06:22 PM Reply Like
  • Author’s reply » (June 5, 2012) The Reign In Spain Is Over
    From: Zerohedge, by Tyler Durden

     

    Spain has now officially asked the European Union for aid for its banks. The markets seem to be responding as if the bank issue is isolated. It is not isolated.

     

    Spain says it is a 50 billion Euro problem and the reality is probably more like a 400 billion Euro problem. Now that Spain has asked for a bailout of their banks the European auditors will show up and I would bet large money that the values of many loans and the value of Real Estate and the securitizations tied to it will be found to have been vastly overstated. Then it will be the regional governments and their debts and the house of cards will implode.

     

    Bear in mind that the current Stabilization Fund in Europe, not the one that is not yet in existence, has nowhere near the capital to shore up the Spanish banks much less the country.

     

    The G-7 is having an emergency meeting about Spain this morning and while there is a lull presently; it will not last. The periphery nations, led by Spain, are pushing on Germany and the funding nations to step-in but the cost will be very high along with a huge loss of sovereignty. I doubt if many in Europe understand the price that will be extracted which will be the EU taking over Spain’s financial system, taxes and social services so that Brussels/Berlin will control the country. Spain arrived at the precipice, and this morning; they have fallen over the edge.

     

    Sancho is no longer fighting with windmills this morning. Germany will demand vengeance for the irresponsible behavior of Spain. Make no mistake here, don’t get fooled again; Spain is going to come under the heel of the jackboot and applying what motives you may to Germany will make little difference in the end. The current government of Spain will no longer be in control. The end-game began this morning. Spain is done!
    http://tinyurl.com/739...
    5 Jun 2012, 09:07 AM Reply Like
  • There are audits...

     

    And then there are "Audits".

     

    I do not expect the destructive digging done with Greece (which after all has little in the way of large provincial governments involved) to occur with Spain.

     

    Comparing Greek olives to Spanish oranges here.
    5 Jun 2012, 09:11 AM Reply Like
  • Italy is next.

     

    http://bit.ly/NeAJgz
    5 Jun 2012, 09:13 AM Reply Like
  • We should not be surprised when the Europeans adopt an accomodative "mark to whatever the motrgage says" valuation system for debt. Mark to (depressed, cratered) market will not be the standard.
    5 Jun 2012, 09:24 AM Reply Like
  • TB that is the issue. There simply is too much debt everywhere. What value to mark the currency at to accommodate that simple fact. Until that is resolved we will squirm in misery for some time.

     

    I think that solution is still somewhere down the road, much closer to the gates of hell. We need to get off this highway.
    5 Jun 2012, 09:41 AM Reply Like
  • Author’s reply » I think they have to put a positive mark on the assets because they simply do not have the available funds to bail out Spain. It seems the only option is for the EU to print. But Germany will be dead set against that. Rock and hard place.
    5 Jun 2012, 10:02 AM Reply Like
  • As Italy pointed out this week, Germany cannot stop the EZ from printing (or even its major component members). This is true. Therefore Germany is very likely to just have to accept the printing, and determine where they want to go from there.

     

    Given the overall zero to negative growth in the EU right now, Germany has several reasons to accept Euro depreciation as a positive development... After all, it will aid their exports immensely, and retain their captive markets. The alternative, which is to leave the EZ and reinstall the DM, is not a winner, particularly since it would instantly detach their captive markets and hurt their export business with the rest of the planet, not to mention the basic cost of taking this step.
    5 Jun 2012, 10:14 AM Reply Like
  • But there are still costs for that. The dilution of the Euro from the printing will hurt purchasing power. It is basically a subsidy for exporters paid for by people in Germany not directly related to exports. It is a basic mercantile system. In exchange for the BMWs they create with their labor, the exporters receive a piece of paper. The issue becomes what can you buy with that piece of paper? The faster those pieces of paper come in and the faster they are spent in Germany, means the local business is working longer, selling more, for the same contribution margin. They will tend to be loathe to hire based on labor regulations, so either they keep working longer hours, or they raise their prices. They will raise their prices, and as soon as that happens, people won't spend as much, earnings will go down, equities in Germany won't be worth what the price suggested, so the equity prices will fall as well.

     

    In short, another recession is coming a few more months or years down the road after the equities rally. Just keep an eye out for it and be ready to avoid it.

     

    The only thing that would truly save them would be to get price blind gov out of price sensitive decisions. They simply aren't educated to do this. All they understand is taxing the populace to make for their price blind mistakes. This means bubble after bubble after bubble. Just look for the signs.
    5 Jun 2012, 10:30 AM Reply Like
  • TB, agree that the EZ can print Euros, but I think that there is even some reason to be believe that some individual EZ countries could "effectively print." When Berlusconi came out last week with his challenge that "we should just print ourselves" -- my small search yielded this provocative summary of ways an individual country could default and "effectively" print Euros. The entangled mess that would ensue for the EZ would be major -- but I ask myself whether desperation could lead to some of these extreme actions by individual countries? http://bit.ly/JSNvjU
    5 Jun 2012, 10:33 AM Reply Like
  • Yes, Berlusconi's comments were what I was alluding to. And the perception that Germany controls the ECB and the entire EZ is overblown. This is particularly true as center-right Merkel loses her French center-right government ally, and prepares to wage what is probably a losing battle to retain her own party's seat of power in the coming Bundestag elections next year...

     

    I believe that the other members of the EZ can decide upon and enact policy even with a "no" vote from Germany (and that "no" is none too certain, as I argued above).

     

    I also believe that EZ members could, as was done for so long before the current crisis arose, secretly create QE and simply spend more than they publicly disclose or hide the spending in provincial outlays, etc. Once the onus on such cheating is gone, chaos results.
    5 Jun 2012, 10:41 AM Reply Like
  • Its very easy for the EZ to print. The ECB can loan euros to all the banks for outrageously valued assets. Frankly thats what has been going on for some time. The question is can they sustain this since private investors know whats going on and soon there will be no private investors "investing" in EZ as seems to have already started. Sovergns have also begun to loose interest in investing also.

     

    It will soon come down to banks getting hugh loans for the chairmans desk and side stand. How much for the light bulbs?
    5 Jun 2012, 01:39 PM Reply Like
  • Author’s reply » Eurozone finance ministers said Saturday they were willing to give Spain up to 100 billion euros to help its troubled banks, which are suffering due to their massive exposure to the ailing property sector.

     

    De Guindos, Spain's Minister of the Economy says the new Spain aid carries no macro-economic, fiscal conditions. Only the banks getting aid will face conditions. So unlike Ireland, Spain's economy minister said a deal on financing for the country's troubled banks would not impose any conditions on the wider economy.
    ---
    And in response - Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain. Ireland secured an 85-billion-euro ($112 billion) rescue deal from the European Union and the International Monetary Fund in November 2010, but only after agreeing to draconian austerity measures.

     

    "Ireland wants to renegotiate its rescue plan to ensure parity with the deal for Spain which looks set to win a bailout for its banks without any broader economic reforms in return." AFP (French news agency)

     

    And with Ireland on the renegotiation train, next comes Greece. Only with Greece the wheels for a bailout overhaul are already in motion and are called a "vote of Syriza on June 17." And remember how everyone was threatening the Greeks with the 10th circle of hell if they dare to renegotiate the memorandum? Well, Spain just showed that a condition-free bailout is an option. Which means Syriza will get all the votes it needs and then some with promises of a consequence free bailout renegotiation.

     

    ------
    My guess is that Spain's bailout will have broader economic strings - unless the bailout is not coming from the EU? There must be more to this than we currently know...
    9 Jun 2012, 08:57 PM Reply Like
  • My take on the Spanish bailout money going directly to the banks was that it was coming from other central banks, OR from the same facility (likely using liquidity borrowed from the US Fed) which was used to inject liquidity into the European banks 6 months ago.
    10 Jun 2012, 11:36 AM Reply Like
  • Author’s reply » The banks are in trouble because of the real-estate bubble. The rate on the loan is 3%, half that of Spain's sovereign bonds. The loan is to the banks. My guess is that the properties of the banks are serving as collateral for the loans, probably at a favorable and secret value marking.
    10 Jun 2012, 12:06 PM Reply Like
  • You mean like they are being pledged at par?

     

    Suddenly that scene from Titanic just appeared in my mind of people struggling to get to the top part of the stern of the ship as it up ended before plunging into the murky depths, as if the person clinging to the top most rail at furtherest most end will somehow avoid the 28 degree water.

     

    The only solution for Europe is to deregulate their markets, and allow productivity to start giving their assets value again. They simply aren't educated for this. Each news story of another bailout is simply the annoucement that they have climbed farther up the up ended stern.
    10 Jun 2012, 01:39 PM Reply Like
  • >jhooper: I can't really see the French cutting their massive subsidies to rural farmers and other voters in order to deregulate. They will print until the Euro is worth much less than a basket of commodities at present value, if given the chance. Or they will leave the EZ and print diluted Francs.

     

    Politicians ALWAYS choose the less visible method for distributing economic pain in hopes that no one will realize they are responsible. Doesn't work. The guy in the big house is ALWAYS responsible. Whether they are or not. In a democracy? Just vote your troubles away!

     

    Italy? Spain? See above.
    10 Jun 2012, 02:00 PM Reply Like
  • One other thing. Bailouts will have the same effect as QE or LTRO. It will juice the markets (equities up, bonds down), until earnings and economic data don't support the the elevated prices. Then the juice effect will reverse (equities down, bonds up-especially dollar denominated assets). The effect of the swing will depend on the size. A hundred billon or so will not nearly have the impact of 800 or 900 billion. Also, the phase in period needs to be considered with relation to the volume. Do the injections happen all at once, or over the course of several months? Towards the end of the program or shortly after, the dejuicing begins.
    10 Jun 2012, 02:09 PM Reply Like
  • >FPA: Doesn't that imply the Spanish banks can not clean the zombie bubble loans from there books because those loan properties, at vastly inflated value, are/will serve as collateral for the new bailout loans?

     

    No official loan write-down implies the banks can't serve their stated purpose of providing capital for productive investments. Their books are full of loans already. No one will touch the properties as long as they are held at an inflated value, so no value can be recovered. So how does Spain ever become competitive again with this rock around its neck?

     

    This precedent looks bad for the entire Zone. It's booga booga economics. Please tell me I missed something and the Spanish banks can actually be banks again.
    10 Jun 2012, 10:18 PM Reply Like
  • Author’s reply » You are right Siliconhllbilly. Until they clear the books of the toxic loans they are the walking dead. They have done nothing to solve the problem, they have just kicked the can. I think the withdrawals will continue, and will accelerate after Greece elections. This means they will need more cash down the line. They will need more cash just to service the new loans they just got, people will likely continue to withdraw their assets, and there ability to provide loans has likely not changed. The country is not growing.

     

    What they have accomplished is that the capital structure of the banks have been changed with the DIP (debtor in possession financing). So all the bank bondholders have just been subordinated. The Spanish people have being buying bank bonds... they just got shafted.
    11 Jun 2012, 10:22 AM Reply Like
  • Author’s reply » Subordination:
    The Spanish loan, coming at ~3% or half Spanish GGBs, is a priming loan, subordinating existing creditors. That raises the risk profile of existing creditors.

     

    ESM Funding Mechanism:
    The money for the bailout is dependent on the ESM funding mechanism getting approved. But, the bailout mechanism has not yet been ratified by Germany. The reason? According to Spiegel, German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax, and that threatens to undermine a deal struck last week with the opposition over the EU's planned fiscal pact. The Social Democrats (SPD) and Greens are insisting on a plan for a transaction tax and measures to boost growth." [More headlines and deal making needed ..]

     

    Merkel needs the opposition on her side to get the required two thirds majority to pass the ESM ratification. Without the support of the opposition the Spanish bailout collapses.
    On top of this we have the following from Die Welt today that "Spanish banks should come under special supervision" according to Volker Kauder, parliamentary leader of Merkel’s CDU. This is something which the Spain public will violently oppose.
    ---
    Greek elections are one week from today... wo wooo
    10 Jun 2012, 05:24 PM Reply Like
  • Subordination will also cause private investors to be pushed down the list which means they will be less likely to put any more money at risk in Spain. This is not good for future bond rates.

     

    Folks should soon realize 100B euros will not go far and there will be future needs but since it will be accounted in a "special" way so as not to count against the GDP/dept ratio one has to assume that future loans will also receive special accounting status until all future loans are off balance sheet.

     

    I am not making this up folks.

     

    I think now is a good time to buy VIX before folks realize that yes the music has started to play again but more chairs just got removed.
    11 Jun 2012, 07:43 AM Reply Like
  • Author’s reply » Exactly Guns. Their normal capital sources will now dry up. They also just increased their payouts to service those new loans. They have done nothing to solve the reason the banks needed the loans in the first place, lack of growth. They can't solve a debt problem by adding more debt. This just puts them further in the hole.
    11 Jun 2012, 10:31 AM Reply Like
  • Author’s reply » Spanish 5Y CDS broke back above 600bps (just shy of their record 603bps level) and 35bps wider of their intrday low spread from 5 hours ago. Spanish 10Y yields are over 50bps wider/higher than their intraday lows just after the open in Europe.
    11 Jun 2012, 10:41 AM Reply Like
  • I believe these events reflect the reality that the "sustainable" payouts for European sovereign debt has just received another little boost skyward. The idea seems to be to keep kicking the can down the road until the growth fairy comes to visit and bestow magikal goodness on all the good little fabian socialists huddled in their zero-sum castles...

     

    Its notworthy that the new center-right Spanish government HAS started to detach some of the same parasites which got the country into trouble to begin with... This is likely to stabilize things, but won't restart growth on its own. You have to wonder whether they will now begin to roll back the mal-investments which cost them 9 existing jobs for every 4 they created...

     

    Oddly enough, just doing that chore might well ignite some low grade "growth".
    11 Jun 2012, 10:53 AM Reply Like
  • Author’s reply » It just gets better...

     

    Although Spain may have preferred for the money to paid direct to the banks, Brussels (Berlin), insisted that the funds be provided to the government for distribution through its Fund for Orderly Bank Restructuring. This means that it is the state (the taxpayers), not the banks, that is responsible for the debt. Meanwhile, Spain’s economy is expected to shrink by as much as 2% this year and tax receipts should decline in a similar way.
    11 Jun 2012, 11:06 AM Reply Like
  • Spanish banks open up 4% and only to close 3% down.

     

    Why am I not shocked?

     

    Guns is/was right. Buy VIX at today's open would/should be a shrewd move...right through the 17th of June.

     

    But alas...I am on a quasi-vacation and missed out.

     

    OT: But this latest news about Axion Power and 2,000,000 MORE SHARES being in a forced dump situation, I just may go more stupid, stupid, stupid overweight than I already am. <rubbing my grubby hands together with a Machiavellian smile>

     

    FPA: Once again, I cannot tell you how grateful I am in your creating this blog. Pop in here, while company is in town, and learn...quickly, what's going on, is a real gift. Thanks, Pal!
    11 Jun 2012, 11:42 AM Reply Like
  • Author’s reply » Thanks Maya, I appreaciate it.
    11 Jun 2012, 11:45 AM Reply Like
  • Author’s reply » European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro. Reuters

     

    I suppose this is another ham-fisted attempt to influence the Greeks to not vote for Syriza. To me, it signals a breach of Trust, and will likely accelerate bank withdrawals all over the Euro zone. You NEVER discuss capital controls in advance of implementation. Bank runs are the quickest way to destroy the banking system.
    11 Jun 2012, 12:27 PM Reply Like
  • I was wondering how long it would take before the capital controls get rolled out. This has been done before in europe.
    11 Jun 2012, 01:02 PM Reply Like
  • I have to argue with your statement that: "You NEVER discuss capital controls in advance of implementation".

     

    I agree, leaders never SHOULD...

     

    But very often they DO. This includes our home grown idiots, er, "public servants" of course.

     

    As always, they confuse the need to educate the citizens with the need to manipulate the citizens, which confusion I have always felt was premeditated. Using fear to move the herd is as old and elemental a concept as when man first discovered that his new wolf-dogs were great for driving the sheep and game herds where he wanted them to go...
    11 Jun 2012, 01:13 PM Reply Like
  • >FPA:

     

    I believe the expression "thrashing around blindly in panic" describes the Eurocrat moves recently. Spanish banks have effectively been nationalized. They should have been allowed to go bankrupt, then reorganized. The EU just enabled anyone having money in a Spanish bank to pull it all out and run. Was that their plan?

     

    Greece? I don't think anyone cares any more. They are gone.
    Smartest thing they can do is default, after accepting any last "love offering" the EU can be persuaded to give them.

     

    This train wreck is happening faster than I thought it would.
    11 Jun 2012, 01:26 PM Reply Like
  • Siliconhillbilly, "thrashing around blindly in panic" has led to them falling into the furnace. It just got hotter than hell today. Spain bailed out and all was going great until....now look at the markets. I figured it would take a couple of weeks....it did not last the day.

     

    Bond rates already climbing, VIX already climbing and the panic hasn't even set in yet. This is the smart money figuring things out right now. Dumb money will follow in a panic later.....I just wonder how much later and dumber!!
    11 Jun 2012, 02:18 PM Reply Like
  • http://seekingalpha.co...

     

    Duru has a point about monitoirng the euro/swiss franc pair.
    11 Jun 2012, 04:39 PM Reply Like
  • It may be that the most important headlines today were not about Spain's bailout, but the expectation of similar treatment for the rest of Europe. This action has set a precedent. Now either the precedent is followed in a uniform system pervading the EZ, or it becomes a very destructive force within the currency union.
    11 Jun 2012, 04:41 PM Reply Like
  • Ireland, at least, should be frothing at the mouth after the "deal" they got!
    11 Jun 2012, 06:16 PM Reply Like
  • All things are negotiable. Especially once you start making up the rules as you go.
    11 Jun 2012, 06:24 PM Reply Like
  • What I find borderline hilarious in a saddening way is FPA's first sentence at the top of this Instablog...written more than a "tear" and a half ago.
    11 Jun 2012, 07:08 PM Reply Like
  • Right on cue for the summer doldrums. Here comes Italy:

     

    http://bit.ly/LPPrGU
    12 Jun 2012, 05:53 AM Reply Like
  • Italy then France. The barbie is ready for grilling this summer.

     

    http://bit.ly/N7Wgss
    12 Jun 2012, 08:17 AM Reply Like
  • No, no DG -- maybe France -- but Italy cannot possibly need to ask for EU aid. It is very sensible for Italy to borrow @ 5%+ and to lend to Spanish banks at 3%. What are good neighbors for? (sarcasm)

     

    SA
    8:03 AM Mario Monti hits the wires to call "totally inappropriate" comments from Austrian finmin Fekter that Italy "too will need support." Fekter has since tried to soften the remark, saying she has no indication Italy plans to apply for aid. Political gaffe: Accidentally telling the truth. [Global & FX] Comment!
    12 Jun 2012, 08:24 AM Reply Like
  • Not to mention that Italy is responsible for providing 22% of the money Spain needs to borrow. Lets see 22 billion borrowed at 6% and loaned at 3% should be deficit positive. Yep that will work as long as there are positive results. LOL
    12 Jun 2012, 08:57 AM Reply Like
  • This is a great article on the subordination of euro debt, from an Alice in Wonderland perspective, which is quite fitting actually, that goes on to say basically, GET OUT OF THE EURO SOVEREIGN AND BANK DEBT.

     

    http://bit.ly/LVXn7J
    12 Jun 2012, 08:23 AM Reply Like
  • Author’s reply » (June 12, 2012) Spanish bonds plummet:
    The yield on Spain's 10-year bond yield spikes above highs reached last November. The yield shoots up 28 basis points in late Europe trading, to 6.81%, highest level on record.
    ----
    One of the effects of subordination. They have basically shut themselves out of private funding.
    12 Jun 2012, 11:34 AM Reply Like
  • Author’s reply » (June 12, 2012) Greek Bank Run Update: €100-€500 Million Per Day

     

    Bloomberg's Marcus Bensasson reports, citing Kathimerini, the Greek banking system has continued to hemorrhage deposits this month, amid uncertainty over the outcome of elections on June 17. "Many people are putting money in shares of mutual funds denominated in dollars because of the bureaucratic difficulty of taking money out of Greece, or are keeping cash at home, the newspaper said." How much? "Deposits are leaving the banking system at a rate of 100 million to 500 million euros ($125 million to $625 million) a day, Kathimerini said, without specifying over how long a period that rate of outflow has continued." http://tinyurl.com/75l...
    ---
    This is roughly 0.3% of the entire deposit base fleeing each day.
    12 Jun 2012, 12:06 PM Reply Like
  • I can not believe that folks have not already fled. My money would have been gone months if not years ago. I can not believe there are that many folks to stupid or slow or ignorant or what have you that they have waited till the very very very last minute to run.

     

    Capital controls could have shut them off months, weeks, days ago. Yet here they are running from the bank this late in the game and we expect them to be smart eought to elect a govt that will find an answer to this problem. Are you kidding me. Who are we kidding.

     

    This will go on till it fails and darwinism takes over.
    12 Jun 2012, 02:57 PM Reply Like
  • Greeks havn't put much money in banks for years. Theirs has been an "all cash, tax avoiding" economy for quite a while.
    12 Jun 2012, 03:02 PM Reply Like
  • An interesting comment from a fellow artist from Greece:

     

    "Only tourists pay taxes".
    12 Jun 2012, 08:43 PM Reply Like
  • And now that they have no tourists.........
    13 Jun 2012, 08:58 AM Reply Like
  • Latest from John Mauldin on EZ debt. Excellent. Even I understood it!

     

    http://bit.ly/pNLttE
    12 Jun 2012, 04:55 PM Reply Like
  • Money like people will flee tryanny. Eventual the tryants build walls to keep them in. In 1893the richter predicted that germany would some day turn socialist, and they would build walls to keep peopple in.
    12 Jun 2012, 05:34 PM Reply Like
  • No worries mate. The FED will ride to the rescue. Keep in mind that the ECB has unlimited access to USD promised by the FED. http://bit.ly/MAoDZT This means that U.S. tax payers are once again on the hook to pay for EZ socialism. I'm sure that the electronic Dollars are already working their magic and we won't ever be told about it. After all we were never supposed to find out about the original $T funneled to the EZ through AIG. http://reut.rs/MAoDZU
    12 Jun 2012, 06:15 PM Reply Like
  • From Mark Grant posted at ZH.

     

    The Prime Minister of Spain today called for a deposit guarantee fund, pleaded for the EU to take over the budget of Spain and said Spain would cede its sovereignty over its banks.

     

    http://bit.ly/LCNAXi
    13 Jun 2012, 09:02 AM Reply Like
  • This is what is really happening, less Grant's hyperbole:

     

    http://fxn.ws/MEbRtY

     

    Its too obvious, really. Either the EZ makes sense and its members must create a serious fiscal union - or not. The concept that a group tapping a common currency can do so WITHOUT a fiscal union was always rank nonsense. Most of the bailouts and angst since the meltdown began has been attempts to throw out sufficient smoke to conceal this central, glaring truth.

     

    It is of course possible (nay, extremely likely) that the "nuanced" Europeans will seek once again to emit more smoke, erect more mirrors, and try to perpetuate the euro-myth a little while longer...

     

    NO serious meetings have even been scheduled just yet to address such basic ideas as fiscal union, rules for departure from the EZ, or even creative concepts like dual currency rules, and that is the most certain indicator that even now they still intend to delay and extend the crisis.
    13 Jun 2012, 09:51 AM Reply Like
  • This is choice. Nigel Farage on the spain bailout.

     

    http://bit.ly/KBrd33
    13 Jun 2012, 09:20 AM Reply Like
  • http://yhoo.it/L7wROw

     

    The EU Energy guy is a US of E fan.

     

    This idea has a strong following, particularly in Germany...

     

    There is a strong (and old) conspiracy theory that things have been strung along and managed to achieve this end. The idea behind the theory is that only sufficient pain for a sufficient period will drive the herd of cats into the cage.
    13 Jun 2012, 11:39 AM Reply Like
  • Unfortunately no one wants Brussels to tell them what their retirement age will be (some where between 55 and 68 for now) so I doubt there will be a U.S.E. in the near future. Most likely a divorce is coming.
    13 Jun 2012, 05:22 PM Reply Like
  • The new French socialist in charge is not likely to work well or closely with Merkel. Soros is predicting a economic melt down in three months time and is undoubtedly working toward that end. http://bit.ly/OAIBYb
    13 Jun 2012, 12:04 PM Reply Like
  • Author’s reply » New concentrator ready: http://tinyurl.com/8a4...
    13 Jun 2012, 05:41 PM Reply Like
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