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Stability Of The European Union (14) June 13, 2012 To August 2) 172 comments
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
Ten Year Bond Yield Curves as of 7/20/2012
From: The Disciplined Investor tinyurl.com/7yg5zku
(click to enlarge)
----------------------------
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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This post has 172 comments:
However, if Switzerland were to de-peg the Swiss franc from the euro and the euro keeps going lower, there would be a tremendous upside in the Swiss franc.
China will devalue the yuan (and firm up the newly repositioned dollar peg at the same time), also with little warning.
I look for both events to occur within the next 12 months.
Just announced from OANDA:
Due to the extreme volatility some market analysts foresee, OANDA fxTrade will not accept any trading activity from 6:00 AM EST until approximately 3:00 PM EST, on Sunday, June 17, 2012.
OANDA believes the convergence of a major market event [Greek elections June 17th.] during off-market hours represents a potential trading risk and has taken this rare step to protect traders from excessive rate fluctuations.
Please note that during this halt in trading, you can still access your account details but no trading activity will be accepted. For this reason, OANDA strongly recommends that all traders consider MINIMIZING currency exposures prior to the trading halt.
If you do intend to maintain open positions during this period, be aware that OANDA will hold exchange rates steady during the trading halt. However, when trading resumes, rates will immediately adjust to the current market rate AND IT IS POSSIBLE THAT THE UPDATED RATE COULD RESULT IN A MARGIN CLOSEOUT IF THE PRICE HAS MOVED SIGNIFICANTLY AGAINST YOUR POSITIONS.
Therefore, it is your responsibility to ensure you have adequate funds in your account to prevent a margin closeout.
-----
Time to start digging your foxholes...
Fair warning indeed...
Feel like the marathon runner crossing the finish line 8 hours after the race ended.
Very Cool! I have a decent-sized WFC bond getting called tomorrow. But I'll probably add that to the dry powder heap.
Thanks FPA, others.
####
Going to be interesting visiting the Liberty Bell and Independence Hall today. Our founding fathers would be rumbling, ready to start another war...against Capitol Hill.
1603 GMT: EXIT POLLS ALSO INDICATE NEO-NAZI GOLDEN DAWN PARTY BACK IN PARLIAMENT
http://yhoo.it/MiDcmD
Meanwhile...
The Greek PASOK party of former PM G-Pap threw a grenade into coalition discussions, following an announcement by Katerina Diamantopoulou that Pasok will NOT join into a coalition government with ND unless Syriza also joins said coalition. Which Syriza stated moments ago it would NOT do. PASOK did the same thing for the last election.
OH... and this just in: "GERMANY'S WESTERWELLE SAYS GREEK PACKAGE CAN'T BE NEGOTIATED.
---
A true idiot.
Andrew Freris of BNP Paribas is also supportive of your view that "they will form a government irrespective of SYRIZA." He pointed out tonight on Bloomberg that Syriza's recent growth in political support was in part driven by defectors from the Pasok Party. As I understood his reasoning, Pasok leader Venizelos' demand that Syriza be a part of a unity coalition -- is likely an effort to attract back former Pasok members into the new coalition -- thereby weakening some of the Syriza resistance to play ball with the new government.
This was insight I had not read elsewhere -- and it certainly appears plausible.
mj
Meanwhile, one major outcome of the weekend elections, Hollande's French Socialists winning an absolute majority is getting treated as a non-news event. I think this is a huge event given that it gives Hollande a green light for his anti-austerity and therefore anti-German policies. The implications of that story are huge. On top of this we have the Spain bailout situation coupled with the fact that the source for Spain's bailout funds has not as yet been ratified by the Germans. My guess was that yields for Spain's sovereign debt would continue to climb and this morning we have this: (June 18, 2012) Spain 10yr bond yield up 22bp to 7.08%. The private capital markets are closing for Spanish debt.
Nothing has been resolved.
Than of course we have Egypt's weekend election, and their military leaders latest action that will likely ignite the powder keg.
Its absolutely true that this has huge implications for Merkel, who is soon to lose control of the Bundestag, following the French example as Germany rushes toward the socialists and the Greens.
Egypt may or may not blow up, depending entirely upon whether or not the military decides to side with the Brotherhood. I don't believe this is a decided issue by any means, but I think the odds are better than even that they will.
I expect similar behavior from French Socialists. Politicians these days worry too much about the next election... which is why so many are voted out.
http://bit.ly/LWxdF7
--[extraction] The problem is that Spain and Italy have combined total needs of 620 billion euros in the next two years alone.
If you're doing this math in your head, you'll quickly realize that's 233 billion euros more than the total bailout mechanisms now in existence.
Oops.
Call me crazy, but under the circumstances I don't understand how European leaders can pursue the same course of sorry-assed lending in Spain that they did in Greece and expect different results.
It's simply irrational.
I'll be in Pittsburgh/New Castle applying little attention to what I believe will be a telling sign come this Thursday:
Spain will be auctioning 5 year bonds. Who is going to buy them? At what rate?
If today's Greece news wasn't risk on....
So nice of US taxpayers to help Germany's banks out. This game is getting old.
---
Meanwhile:
The EU voted to scrap the use of ratings agencies.
But dumping the ratings agencies?
LOL, also simple justice. They are a disgrace even running in this crowd.
I have been thinking about the EUs desire for a fiscal union. One way to force a fiscal union would be to already have control of much of a states taxpayers revenues through non-subordinated debt bailout mechanisms. Is it plausible that the EU is trying to make it possible for banks to buy more worthless sovereign bonds? Are they attempting a new kind of takeover, a fiscal kind of coup?
Unless they were using Egan Jones(?), probably no harm as the ratings agencies we depended on are always late or wrong if not late.
That was sort of a joke! :-))
HardToLove
This really is the bottom line. The purpose of the fiscal union, would allow the taxation of wealth where it exsists, to be transferred where it does not exist. What they are trying to get, is just such a taxing mechanism that doesn't appear to be just such a taxing mechanism. The fiscal union in the US does this all the time. Income taxes in one state, pay for earned income credit refunds in another state.
If they did have a fiscal union, they could impose a Euro wide income tax on everyone and then buy stock in failing banks. The problem is that such a bailout is obvious. They would prefer to do it with debt or inflation, like the US did with TARP. That way the pain is not so obvious.
Their struggles to date have been all about getting such a clandestine taxing mechanism in place to bail out their financial sector, but since they never started with such a union, any approach reveals the tax for what it is. Thus, politically, it has been a hard sell.
Keep in mind though, even if they do get a union, they will be unified behind an unworkable business model. They are and will be, a collective behind the idea that consumption drives production, and its really the other way around. Even if they do get a tax to shore up their financial sector, all they have done is bought time. They will be right back where they are now (the US union didn't stop us from losing almost 9 million jobs via a federally induced real estate bubble), and all that paper they will create will once again be struggling to find value. And, it will be paper that doesn't enjoy reserve status. So any damage they do they will do mostly to themselves. They won't be able to export it via their currency the way the US does.
When this happens, be prepared to ride a risk on trade on the way up, but be ready to bail when the signs of the cracks appear. The question is, "when will they pull this off?"
They will literally, eventually tax themselves into severe austerity.
Its 1860 in Berlin, and they are figuring out how to continue their dominance of the Union...
The payoffs have been made, and the opposition has been distracted by the bait, and only the few manipulating behind the scene see the coming war as both welcome and essential to their plans...
Any similarity to the American War Between the States is just because the process of turning an alliance of willing and equal participants into an empire of the unwilling and the unequal ruled from a central capitol by an oligarchy is usually a violent process.
Is it possible that the Europeans have been so domesticated that they will meekly exchange freedom and sovereignty for promises of security? Yes, perhaps even likely...
But I still think it's 1860 for some.
Politician thinking, obviously. Just keep repeating the lie.
Ratings agencies kept telling everyone where the monkey was and that was ruining the game.The rules shall be changed as often as needed to ensure the outcome is politically acceptable. Everyone will win the same.....ummmm.... lose the same would be more like it.The domesticated sheeple of the EU have not a clue how badly this will end.
All that time creating intricate methods was largely a waste, and in the end had no impact on the costs to the company or the pay to the employee (I ultimately decided these were not good candidates for piecework and they became hourly jobs).
In the case of trying to determine "When?" for the future impact of the sovereign debt decisions being made now, I fear that we investors are "internal to the cycle time of the machine". I don't believe its knowable as the result of any train of logic, but is instead something best monitored constantly with a personal safety net woven by each investor as best they can.
http://bit.ly/KWvj5Z
A great song that fits this altered state of reality.
http://bit.ly/M9DDD7
Ummm, investors refuse to take their nice mind altering drugs?
http://on-msn.com/LkOgDW
What did I write years ago...Wells Fargo ain't on this list!
####
Being sneaky here, for you closest of pals. It's late. The final Axionistas are all now resting their heads here at the Hampton Inn.
Great day. Fantastic.
But, "yinz" pals, I will not be able to due a summation at least until Saturday or Sunday. Last year I was doing the final polishing on my Notes and More...from the Axion SC, around 2AM.
It's now 2AM. No way am I going to embark on a tally of today's meet. Stay tuned. I will turn out something by Saturday or Sunday. Lots of stuff.
Bottom line for you pins and needles folks? I have positively no doubt that Axion will achieve the 300% YoY revenues.
I did not want to post anything on the APCs tonight. But I did want to let you guys know my take away is positive...way more than last year, or at the November PowerCube unveiling.
Sorry FPA, to cloud this blog with AXPW stuff, but again, I am not prepared yet to write the full blown summation of this visit, and yet I figured that some of you might want a tad of Mayascribe input.
Looking forward to your full New Castle story.
http://cnnmon.ie/NFD1Vq
This week is surely an interesting one. Now France on deck.
In preparation for EU Summit #732 (sarcasm) this Thursday -- a briefing document will be discussed regarding the Euro zone's ESM fund which could backstop bank deposits: http://bit.ly/OoS48v
Still at issue are the facts that 1) the ESM still awaits final ratification; 2) the ESM (and the EFSF) combined are capped at a ceiling of 500 billion euros; 3) Germany has been reluctant to support a European deposit insurance scheme; and 4) the multitude of EU summits have rarely delivered much more than a plan to do more planning. Maybe this time it's different?
Meanwhile sovereign debt costs continue to mushroom. Early this morning "Spain's borrowing costs doubled and even tripled in an auction of 3- and 6-month bills, the first sale since the country formally asked the EU for bank bailout money." http://bit.ly/LcGAzc
Its not often talked about, but before the FDIC, some of the individual states provided deposit insurance. The reason they stopped, was because they kept going belly up. It seems that if you provide a guarantee, people don't punish banks that take on too much risk. The result is lots of risky lending because banks no longer have to compete for deposits via performance, asset inflation follows, followed by a bust, that takes down lots of banks and finally the insurance fund. Moving this moral hazard to a national scale or an international scale does nothing to change the physics of all this. It just translates the moral hazard to a broader capital base, allowing for an even bigger bubble to be created.
The FDIC is basically busted right now. The estimates for them to get the reserve fund to its required ratios, should be sometime in 2025. If Europe pulls off deposit insurance, more asset bubbles will form. It could take years for them to burst, but the result will be the same. If you could time the bubble, you could have a great deal of wealth transferred your way.
"The reason they stopped, was because they kept going belly up. It seems that if you provide a guarantee, people don't punish banks that take on too much risk. The result is lots of risky lending because banks no longer have to compete for deposits via performance, asset inflation follows, followed by a bust, that takes down lots of banks and finally the insurance fund."
Well put.
It also dampens innovation and competition (FDIC insurance).
At some point the insurance should be lessened considerably.
Still, it might be entertaining to sit down with some insurance actuaries and have them run a thorough analysis on the banks and come up with a fair price for insurance going forward...
LOL, it would most certainly cost a lot more than the FDIC fees collect.
Gov taxes plain and simple. The Fed is a taxing agency. The ECB is a taxing agency. The FDIC is a taxing agency. They are called something else, because that is how you fool the public into believing that they aren't being TAXED for these things.
The question really is whether or not enough members have experienced enough pain to sign off on this essential step toward a US of E.
Cheers.
http://bit.ly/LNOPmr
Germany's Merkel says Europe will not have shared liability for debt as long as she lives
Italy's Unelected PM Mario Monti: "If the Chancellor does not give up I will tell you that I resign because if things do not change are not able to bring Italy out of the abyss".
While simultaneously slamming shut the Fed eurowindow, forcing our brokerages and banks to prepare for disaster in Europe, and making plans to swoop in and scarf up anything good which survives the carnage.
Lamentably we are doing the opposite, anchoring the whole floating mass disaster to the US$ and the UStaxpayer.
I guess nobody in the White House ever took a lifesaving course which included what to do in the event that the person you are trying to save insists on trying to take you down with them...
Latest info on Spain's budget from MISH'S Global Economic Trend Analysis:
There are two main components to Spain's budget: State (3.5% objective) and Regional (1.5% objective). The Total Public Administration deficit, which is supposed to come in at 5.3% for the year, is a combination of the two (+ 0.3% from somewhere else). The current Regional figure is not given in the article, but it is likely to be not too far off 1.5% for the year.
The problem is that Spain has reached its' yearly budget deficit target of 3.5% of GDP in 5 months, not 12. If this continues, the State alone will come in at better than 8% for the year. Added to the Regional and the wiggle, that gives 10% for the year.
U.K. June Manufacturing PMI rises to 48.6, beating expectations of 46.5 and better than the 45.9 registered in May. Input prices fall at fastest pace since May 2009.
Greece June Manufacturing PMI shows accelerated contraction, coming in at 40.1 in June vs. 43.1 in May.
Eurozone PMI June Manufacturing comes in at 45.1, unchanged from May but up slightly from the June flash estimate of 44.8.
German Manufacturing PMI (final) comes in at 45.0 in June, better than a prior estimate of 44.7 but down from May's 45.2. It's the lowest reading in three years.
France June Manufacturing PMI (final) comes in at 45.2 vs. prior estimate of 45.3. Jobs were cut at the fastest pace since Sept. 2009.
Italy June Manufacturing PMI at 44.6, down slightly from 44.8 in May. New orders drop sharply. Input prices decrease at fastest rate since July 2009.
Spain June PMI Manufacturing falls to 41.1 vs 42.0 in May. This is the fifth month of acceleration in the rate of output decline. The sharp reduction in employment continue.
China's official PMI falls to 50.2 in June - the slowest growth this year - from 50.4 in May vs. consensus of 49.9 and the HSBC flash reading of 48.1.
US PMI at 9 AM today, ISM at 10 AM.
PMI reports on major exporters South Korea and Taiwan also indicated new orders from overseas were falling. The manufacturing sectors in these countries contracted in June for the first time in five months, the reports showed.
mj
China COULD lose the handle though if they are slow backing the Bad Banks in backing the trillion dollars in real estate at risk of imploding, starting with the Trusts.
WSJ has good article today on this...
http://read.bi/LRJL27
Regardless, the CNBS majority of guest commentators are talking market up - everybody must be counting on BB's helicopter (and his new cadre of recruits from around the world) to inflate assets.
I don't know whether to laugh or cry at this "nominal wealth" effect vs. "real wealth" we should be targeting.
Maybe we should get some Zimbabwe notes as a hedge, huh?
Let's hope they can't re-inflate the credit bubble along with everything else or we'll really have some hurt put on us down the road.
MHO,
HardToLove
Finland and the Netherlands will block the euro zone's permanent bailout fund from buying bonds in secondary markets, the Finnish government said on Monday, despite European leaders' decision last week that rescue funds be available to stabilize markets.
ESM bond buying from secondary markets would require unanimity and that seems unlikely because Finland and the Netherlands are against it.
---------
Finland and the Netherlands probably want collateral on the "loans".
2 of his points particularly rang true for me:
1) "This is not so much a retreat by Germany as a replication of the creditor/debtor debate in a new terrain."
2) "Monti may herald the summit as a victory, but the real, material concessions seem few."
http://seekingalpha.co...
Meanwhile a big storm is brewing over the LIBOR manipulation... My instincts tell me this is a big story. I was researching it early this morning with the idea of writing a few articles on it, but the more I look at it the more my head hurts.
Ireland increased the number of physical dwellings in the entire country by 50% between 1998 and 2008. Having visited the country in 1999 and 2010, all I can say is the difference in number of structures was daunting.
Spain is believed to have had a worse real estate bubble than Ireland... never mind us.
+++++
Yet, I think something often lost when we discuss the collapse of these bubbles is the collapse of job skills. People developed skills for jobs in the global construction boom for about a decade that are now, in many cases, irrelevant skills with no jobs. They're not trained for other things. Losing a job is one thing; not having the skills to get a comparably well-paying job is another.
SA: 7/6
10:34 AM No aid from the ESM can be given to banks without the guarantee of the sovereign, says a senior EU official, squashing post-summit ideas the rescue fund could directly bail out lenders. "This is very much not the case," he says, scratching his head at how markets ever got such an idea.
In Spain, the Yield is back above 7%
And over in Greece....
During the recent election every party promised to renegotiate the terms of their agreement with the Troika. This was the cornerstone of political debate as promises were poured on the populace in an attempt to gain power. Well, they got their power.
Today all of the promises hit the wall and stopped as the IMF told Greece that there would be NO NEW NEGOTIATIONS, and the leaders in Greece said they will no longer try to renegotiate bailout terms. The Troika’s report on the financial condition of Greece is going to be damning and they know it.
Over the last year Greece raided their university, pension, and hospital funds. They stopped paying their suppliers and raided their banks. They are out of cash, and very likely out of credit. Greece will default. This is also going to be a disaster for the IMF and the EU.
The fat lady is singing for Greece... I think she will be quite busy this quarter.
http://tinyurl.com/bqy...
Jamie Dimon, JPMorgan
2009
My, how far we have come!
Where are our leaders?
I think it works nearly perfectly for those that matter. An ever smaller & smaller (& richer) group of people we just can't live without. How could this system possibly not work smoothly?
http://reut.rs/M5uahz
-- "The ECB rate cut has failed to produce a meaningful
turn-around in market dynamics," Lena Komileva of G+ Economics
said.
"If anything, it has increased monetary divergence between
the core and the periphery within the euro zone, which poses
questions about the ability of fiscal policy to bridge the gap."
Three-month Euribor rates, traditionally the
main gauge of bank-to-bank lending, saw its biggest fall on
record to hit an all time low of 0.549 percent, down from 0.641
percent.
----
NigelFarage is correct, these people are not credible.
---
I need to make clear what the ESM can do: the ESM is able – if one were to decide ever on such an instrument – to take an equity share in a bank. But only against full guarantee by the sovereign concerned. What you have is that it cuts out the effect of that loan on the debt-to-GDP ratio of the sovereign.
Does it still remain the risk of the sovereign or does it go to the ESM?
Answer: It remains the risk of the sovereign.
...
So while in public all the talk was about how Spanish banks would get a bailout without it burdening the government debt [risk level], this anonymous senior European official is saying that the bailout to the banks really is just a loan to the government in disguise because "it remains the risk of the sovereign."
- - - - -
[In other words, they are trying to game the Debt-to-GDP ratio of the sovereign, presumably with the intent of lowering yield rates. Of course, what everyone with a cortex will do is add a corrective factor to the Debt-to-GDP ratio to get a more accurate picture of the risk. ]
Meanwhile:
* EU SAYS NO SOVEREIGN GUARANTEE NEEDED FOR DIRECT ESM BANK FUNDS
BUT
The exact same thing was said after the last Euro summit sending the EURUSD higher by 200 pips, only to see it crash to 2 year lows in the week following after Germany made it clear this was not really the case.
Turns out it is not really the case this time either:
* Details of how the future system will work remain to be negotiated: Commission spokesman Simon O’Connor
You can see the half-life of this latest attempted manipulation in todays ERUUSD currency rates.
HardToLove
I am haunted by the final days of Keynes, when he awkwardly recanted his lifelong economic theories, and acknowledged that Smith's "invisible hand" might actually be necessary and real after all...
Jump foward to a world where a panicked leadership has managed to finally kill the invisible hand... LOL, but where the clueless leadership persists in waiting for it to save them like it always has in the past.
Having slain the golden goose, they gather together over and over and plot how best to use the golden eggs which will be arriving any minute now.... Soon.... No? Well, that's odd, I guess we must just do some more delaying tactics, for surely it will put in an appearance any day now...
I just picked up my ancient copy of Atlas Shrugged, tattered from use, and wondered how many of those leaders have ever read it, or if so, viewed it as prophecy rather than a ridiculous dark vision of the future.
Great to be back. Next show is not until August...
Thanks for asking. I am still working on battery backups, we use Ryobi rechargeables for fans, but lighting is going to require a heavier battery (probably the biggest Penn marine offering, though I have not made a final choice just yet).
http://bit.ly/M2hpT0
And the report ventured into what had been euro blasphemy: it discussed the pros and cons of the reintroduction of national currencies including ... gasp ... the “reintroduction of the D-Mark.” That the words came from the Council of Economic Experts in an official manner is another step towards what appears to be more and more the inevitable—though they labor to explain why it would be better for German industry to hang on to the euro, and though they warn of the high risks of an “uncontrolled break-up” of the Eurozone.
Finnish Finance Minister Jutta Urpilainen set the scene for the long European summer break when she declared that Finland wouldn’t agree to take on “collective responsibility for debts and risks of other countries.” And if push came to shove: “We are prepared for all scenarios, including abandoning the Euro.” For what promises to be a torturous summer, read.... The Euro Crash Refuses To Go On Vacation.
"The Council of Economic Experts that advises the federal government on economic policy came out with a sobering study that concluded that the current bailout funds—the temporary EFSF and the permanent, still non-existent, and highly controversial ESM—the very instruments that would save the Eurozone, could in fact not save the Eurozone."
Thanks,
mj
This is Euro in its most dire moments still acting as if life is a beach and a 6 week vacation.
http://bit.ly/MgTR9H
The cartoon with the song is perfect.
Drink up is what I say! You know if they can't bail themselves out, Ben is going to.
Spain will likely have to cede most control over its banks to Europe in exchange for assistance, according to a draft agreement of the bank bailout agreement. The requirements could mean holders of junior bonds and preferred shares issued by banks that are bailed out will face losses [i.e., subordination]. Many individuals in Spain have bought preferred shares of local banks.
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So even preferred shareholders, issued under local law, are going to get a haircut if not a decapitation. I can't find a reference to how much of Spanish debt is under English Law, but according to the Wall Street Examiner, there is about 1.2 Trillion euros worth of Italian and Spanish bonds. http://tinyurl.com/87b....
What would be very interesting would be how much of the 7% yield bonds are under local Vs. English law?
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“Spain is not Uganda.” – Spanish PM Rajoy
“Uganda does not want to be Spain.” – Uganda Foreign Minister
From: MarketWatch, By David Roman.
The additional austerity includes an increase in the standard rate of value-added tax from 18% to 21%, and the lower rate to 8% to 10%. The measures also include a cut in jobless benefits for new claimants [unspecified amount], a salary cut of around 7% for state employees, and [unspecified amount] billions of euros in savings from local government reforms.
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Want to bet they took current tax revenues divided by the old tax rate, than substituted the new tax rates to project revenue increases? My bet is that sales and employment will decrease as the new taxes adversely affect sales. This is the problem with following an austerity solution. What about Growth? The statement from the Spanish Prime Minister Mariano Rajoy is designed to grease the bailout funds from the EU. Spain will take on more debt and the debt/ death spiral will accelerate. Why was this obvious piece of fluff published? Unspecified billions of euros in savings from local government reforms... Crapola.
How are Spain's people reacting to the news that they have just been screwed by their government and the banks?
Cops are using rubber bullets on protesters.
How will they capture the feeling of this slowly unfolding disaster in history books in 50 years? Putting this blog in a time capsule would be a good start.
-- Economists and analysts predict the LIBOR scandal could be one of the most expensive to hit the banking sector since the financial crisis, engulfing more multinational banks with fines that dwarf the one handed to Barclays and further eroding investor confidence in the banking sector.
Jamie Dimon, when I have seen him interviewed lately, looks different, like a scared man about to get eaten alive by his own greed. I hope he get his due.
Why in the world do I still own his stock? Shame on me.
http://on-msn.com/MjKXIw
I can not envision what further erosion must look like?!! LOL
Maybe a black and white striped suit, a small office with bars and guards and a warden.
HardToLove
Step 2.) REVIEW STEP ONE.
MHO,
HardToLove
You've hit the nail on the head..."teach them"...train them.
They "supervise" bankers who makes millions of dollars.
They are out manned, but their job can be done with much more success.
Mind you, IMHO it is easier to relocate away from French taxes than American taxes. And, the wealthy were already leaving France last year due to new estate tax laws - the tax hike is just an extra kick in the pants for those previously slow to get motivated.
Lastly, another issue the EU creates is it gives the wealthy more mobility for changing the tax code they live under.
Note to Greece: get rid of income taxes and make yourself a tax haven (its not like locals pay their taxes anyway).
The state could set up a good fuel distribution system and tax the fuel by 30% of so for more income. Toll roads that were fast and well maintained would give another source of revenue. The welfare state shall rise again!
Of course, only the NEW residents would have to pay. Old time citizens would get most of it rebated........if they registered and were identified. Notice I said "rebated". If they are "off the books" they wouldn't get anything back from all the fees.
Probably wouldn't work. Too reasonable.
Let's get on it, and more. Add in the Hong Kong corporate tax: Free Trade! For all Greeks, and the whole planet; to all who comes.
Believe it or not, I have read where Honduras is considering exactly this approach to global econ. The first western Free Trade country, all to be put on the Honduran isle of Roatan.
Tour de France to be renamed Tour d'Impots
http://bloom.bg/OHfob8
As to their tax, it's their (socialist) country and they can reap the rewards of their policies. I guess they aren't concerned about the capital flight reported in the EZ recently, nor with having a competitive "football" team either, as you mention.
HardToLove.
"In Today’s Headlines: ECB is increasingly supportive of bail-in losses for Irish and Spanish Senior Bank bond holders, Finland will receive collateral in exchange for supporting the Spanish bank bailout, Bavaria is tired paying to supporting Berlin, Sicily may need an Italian bailout, six northern European nations 2 year yields are now negative, and Portugal issues bills.
• The odds of Senior Irish Bank bondholders being forced to share the burden with the Sovereign appear to be increasing, according to the WSJ. Ireland’s finance minister met with ECB president Mario Draghi yesterday. The ECB in a statement said that Draghi “noted that the question of burden-sharing with senior bond holders is evolving at the European level.” These comments follow reports that Draghi was pushing for senior bond holders to share in losses in Spain as well. Draghi’s stance is a shift from that of his predecessor, Trichet.
• Finland will sign off on the Spanish bank bailout in exchange for €770 million in collateral. Finland will be the only country in the Eurozone to receive collateral. Finland also insisted on a similar deal when it agreed to support the second Greek bailout. The collateral is intended to represent 40% of Finland’s contribution to the €100 billion bailout. In exchange for the collateral, Finland forgoes any profits on the loans.
• Bavaria, Germany’s richest state, is challenging Germany’s own internal system of revenue redistribution. Within Germany, the rich southern states of Bavaria, Baden-Wurttenburg and Hesse transferred €7.3 billion in 2011 to their poor cousins in Berlin, Bremen and the former East Germany. The complaint is similar to Germany’s own reluctance to support payments to peripheral Eurozone partners. The real risk to Germany appears limited however, as the Bavarian challenge is not likely to be heard and ruled on by Germany’s constitutional court for months, if not years.
• Sicily may need to be bailed out by Italy, says the Financial Times. The regional government has been beset by corruption scandals and budget mismanagement. With only €5.3 billion of debt however, any bailout by Italy is not likely to impact the Nation’s credit profile.
• Six European nations now have negative 2-year bond yields. The list includes Germany, Finland, Denmark, Switzerland, the Netherlands and Austria. Denmark and Switzerland are not part of the Euro, but are pegged to the common currency. Investors have flocked to their bonds both as a safe-haven and on the outside chance that capital flows will force their respective central banks to lift the peg.
• Portugal sold 2.0 billion of 6- and 12-month bills at a yield of 2.292% and 3.505% respectively. Tomorrow, Spain plans to sell up to €3 billion in 2-, 5- and 7- year bonds. "
Did not hear about this. Probably because NO ONE expects there to be a profit. Nada, zip, zilch chance of that happening. LOL
http://bit.ly/Nz3RMq
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Don’t know yet if this is just another pawn move...
So who really knows what the hell will happen. Check out the investing for dummies on QC or ZH.
Der Spiegel is a notoriously hard left rag (think "National Enquirer backs Voldermort"). The source is suspect, particularly since it has a spotty history with Brussels. With prospects of nailing the despised current center-right German government in the upcoming elections, der Spiegel is literally drooling at the prospect of anything which resembles bad news for Greece (as long as the situation can be spun to help "their" side in the elections).
Plus the EU bureaucracy should NOT be confused with the folks calling the shots in the EZ, ie, Germany and France.
Still...
Assuming the IMF has issued such a cut and dried "NO!", which I find totally out of character, it won't be because they are tapped out.
Finally, further currency juggling for Greece will occur within the current framework, which is all waiting on the Germans to sort out their position.
“If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told broadcaster ARD yesterday, adding that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.”
Bloomburg: The Balearic Islands and Catalonia are among six Spanish regions that may ask for aid from the central government after Valencia sought a bailout, El Pais reported.
Castilla-La-Mancha, Murcia, the Canary Islands and possibly Andalusia are also having difficulty funding themselves and some of these regions are studying plans to tap the recently created emergency-loan fund that Valencia said it would use yesterday. Spain created the 18 billion-euro ($23 billion) bailout mechanism last week to help cash-strapped regions even as its own access to financial markets narrows.
http://bit.ly/MCVsvR
Sick humor.......I know!!! I have become so jaded.......disgusted....
http://bit.ly/OiZZ2T
Banks Short selling ban re-instated.
http://bit.ly/Oj01rv
La Stampa reports there are now ten major Italian cities at risk of an imminent financial collapse. Italian yields now at 6.34%.
And... Italy stocks dive 5% while Italian Regulator Reintroduces Financial Stock Short Selling Ban
From Consob: In view of recent trends in the market, Consob has reinstated the prohibition of short selling securities of the banking and insurance sectors listed in the annex.
The measure takes effect from 13:30 pm today, July 23, 2012, and remains in force throughout the week until 18:00 pm Friday, July 27.
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Consob is Italy's equivalent of the SEC
The Germans?
Not sure.
At any rate the principal is very simple, people try to escape the oppression that "experts" managing an economy always create. Capital is just stored labor. Labor is the only means you basic human capital (your body) can utilize to effect survival. Thus, if you think about it, the assets your body creates via the labor expended by your body, are just an extension of your body.
http://bit.ly/OjskG1
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Moody's?? Their credibility is dead of course, but it's very unusual for Moody's to be first at anything. Perhaps the payoffs were not sent....
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No kidding. The inclusion of imf may be a hidden clue. There is no way Greece can hit new targets by the time for the next tranche . There may not even be time to generate the new targets by that time. So is this a way to provide time, or is it what it seems?
Though the reason for this will lie with Spain and Italy rather than from an inherent desire to help Greece.
Even with my loose estimate of things, the chance that Greece will simply start digging in and refusing to follow the guidelines is high.
"Greece will likely need more debt restructuring, EU officials visiting Greece tell Reuters. One anonymous official told the news service that "Greece is hugely off track" and "the debt sustainability analysis will be terrible." Greece appears to be contracting at 7%, not the 5% assumed. The statement should not come as a significant surprise, as it seems to simply confirm what everyone long expected. However, there does not appear to be the political will for another Greek bailout at the moment. With the next €31 billion tranche due in September and with Spain growing worse, the troika may not want to, or be able to, address the issues in Greece now."
"Spanish bonds are rallying on speculation that the European Bailout funds will be granted bank licenses, which would increase their firepower by allowing them to access the ECB’s borrowing window. Earlier this morning, Spanish 2-year yields had spiked as high as 6.95%, raising concerns that Spain was essentially cut off from the bond market. The 2-year is now in 45 bps from its intra-day high to 6.50%."
My take is. We won't print euros for the right pocket, but we will print them for the left pocket. Spanish yields go down, US treas yields go up, but the Euro vs the dollar goes down. Its like squeezing jello to reduce the size of the jello. It doesn't get smaller, it just leaks out somewhere else.
Their problems won't be solved until the fixed costs their regulatory environments create are reduced to being commensurate with what their technological levels can support.
Obviously politicians all have the same slimy skin the world over.
Not a surprise.
Elections have swung on the economy for a long time. Bush the first lost to Clinton because the Fed waited to ease too long.
Not sure which way Bernanke is feeling is better for him, but he gets a role in this election whatever action or inaction he takes.
The answer may be hidden in plain sight here, if you scroll down to top contributors and top industries: http://bit.ly/Nbd64I
Correct me if I'm wrong, but I thought it was because he caved after saying "Read my lips - no new taxes".
I remember it vividly and it was the only thing he did that I recall caused me to lose a certain amount of respect for him.
HardToLove
BB is basically trying to do the reverse by getting the wealth factor up. The problem he has is Obamacaretax and Dodd Frank, etc, offset the wealth effect with the uncertainty of higher costs they create. So BB is trying to boost the wealth effect with monetary policy, and fiscal policy is negating his efforts. The result is the malaise we are seeing in all the economic and job data.
Via Ruters - Draghi is planning concerted action using both the ECB and the future euro European Stability Mechanism (ESM) tomorrow to purchase sovereign debt from Spain or Italy in order to help push down borrowing rates for those two countries. The ECB's role would be a stopgap until the ESM is approved by the German constitutional court, which of course may never happen.
There is one problem: its highly doubtful that the German government is going to agree with Draghi's approach. The Bundesbank also is likely to reject the idea.
There is also the subordination issue that is going to come up again in the absence of an explicit statement it will be assumed by private capital that ECB is senior.
I keep getting the picture that his early comments of "believe me it will be enough" was a guy at a dinner party that has gotten way too buzzed, and he keeps slurring all his words and when he finishes saying "believe me it will be enough" he collapases face down into his soup.
Today, he has sobered up and he is all clean and pressed, and forgotten his words at the dinner party.
Anyway, I will have to wait before I can make any more money off of ECB or the Fed.
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The final Markit U.S. manufacturing purchasing managers index reached 54.0 in December... woo woo
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Good potential for a market whipsaw given the high for the cliff vote combined with unknowns of thePMI and ISM scheduled for this morning.
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Quadruple Witching occurs on Friday Dec 21.
Dec 17, 2012
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