Financial Market report for Monday July 11, 2011
1) … Associated Press reports "The fact that contagion is spreading marks the failure of politicians to draw a line under the euro-crisis to date," Rabobank analyst Jane Foley said. "As yields rise and debt financing costs become even more exaggerated the difficulties of containing the crisis become even bigger
Stocks falling lower included
World Government Bonds, BWX, fall as Mike Mish Shedlock reports Bond Vigilantes Strike; Crisis in Italy Escalates; Portugal 2-Year Debt Hits 18.36%, Greece 31.34%, Ireland 17.83%; New Record High Spreads
Junk Bonds, JNK, turned lower from a double high
Open Europe reports EU leaders may be shifting stance on Greek default as contagion fears hit Italy
The FT reports that many EU leaders now believe that any new bailout package may involve some form of Greek default and debt reduction. Eurozone finance ministers will meet today to continue discussions on a new plan for dealing with Greece, with one senior official saying, “The basic goal is to reduce the debt burden of Greece both through actions of the private sector and the public sector”. Discussions over the past week have focused on the ‘French plan’ which seeks to gain voluntary private sector involvement, with that now looking unworkable, attention is turning to Germany’s original plan of a bond swap or even some form of bond buyback.
Meanwhile, fears were growing on Friday that contagion could spread to Italy, causing the country’s cost of borrowing to reach its highest point for nine years as well as a large sell off in bank shares and a big decrease in the stock market. The panic led Italy’s stock market regulator, Consob, to rush through new rules on short selling, which state that any short positions involving Italian firms equal to more than 0.2% of the firm’s capital will need to be disclosed. The on-going dispute between Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti is only serving to increase the worries, with Tremonti saying, “If I fall, Italy falls as well…If Italy, a country too big to be rescued, falls, then the euro falls too”, reports FTD. An ECB official is quoted saying, “We can’t afford many more days like Friday. We are really worried about Italy.” Die Welt reports that ECB officials have stated that the current eurozone bailout funds are insufficient, following the fears of contagion to Italy. The ECB is reportedly in favour of doubling the funds available to €1.5 trillion.
In the Telegraph, Ambrose Evans-Pritchard argues that, with the eurozone crisis seemingly turning to Spain and Italy, “Germany must now be willing either to buy or guarantee Spanish and Italian debt, and in doing so to cross the Rubicon to fiscal and political union, or accept that EMU must break up with calamitous consequences for German foreign policy. Large matters, beyond the intellectual vision of Germany's current leaders.”
In the FT, John Dizard argues that eurozone policymakers’ threats of Lehman-style contagion, should Greece default or leave the euro, are “nonsense” designed to “corral the doubters into agreeing to the most recent, half-thought through, workout or ‘rescue’ plan the speaker is sponsoring.”
FT WSJ EurActiv Le Figaro La Tribune WSJ 2 WSJ: Borg Interview FT Weekend FT Weekend 2 Times City AM Hs.fi euobserver.com kauppalehti.fi IHT Mail Le Soir El Pais FT: Munchau FT: izard WSJ: Stelzer Telegraph blogs: Hannan Telegraph: Evans-Pritchard Sunday Telegraph: Halligan FTD FTD 2 FTD 3 FTD 4 Die Welt
The Euro, FXE, plunged today.
Wolfgang Münchau In Financial Times says the rating agencies have done the eurozone a big favour by downgrading Portugal to junk status.
Lorenzo Bini Smaghi says the EU should issue debt through a supranational agency.
Business Insider reports The Sad Story of How Italy Got To Be Such a Wreck.
In news of social wilding Greek politicians who voted for the austerity package are subject to angry and violent attacks by fellow Greeks. A new grass root initiative called Door-to-Door target politicians at their home. Bild.de reports that an international insurance broker relates the risk of a civil war in Greece is high.
Business Insider reports How Obama Killed The Debt Ceiling "Grand Bargain".
Mike Mish Shedlock comments Republicans Likely Blew It On Saturday as the picture changed dramatically as Boehner abandoned efforts to reach comprehensive debt-reduction deal.
2) … Seigniorage in the age of neofascism will be more political than economic and come from the word, will and way of the Sovereign and The Seignior, who will enforce austerity as deleveraging comes to the capital markets. This is contrasted with Milton Friedman free to choose economic regime of neoliberalism where the wise investor, wall street and corporations and central banks developed prosperity by securitizing GSE and sovereign debt.
Serfdom will be the principle characteristic in the age of regional economic governance. The seigniorage of neoliberalism came from the money good rating of debt and the collateral provided …. the seigniorage of neofascism will come from respect for and fear of the Sovereign and the Seignior.
EuroIntelligence in their for fee newsletter reports Majority of French hopes for a victory of the left in 2012. “A majority of 56% of the French hopes for the left’s victory in the presidential elections in 2012, a survey by Ifop for Paris Match shows (hat tip Les Echos). Former French president Jacques Chirac, who was surnamed the “lazy king” because he spent his 12 years in office without doing much, is still France’s most popular politician (76%). He is followed by Christine Lagarde, the IMF’s new MD and Francois Hollande, one of the socialist’s hopefuls for 2012 (both 72%). Socialist party chairwoman, Martine Aubry, also a potential candidate is at 64% while Nicolas Sarkozy is at 41%. Little consolation for the president: He is up by 6 points compared to Ifop’s last poll” … And Automatic Earth reports As Italy Sinks, France Is Leaking.
The current print edition of The Economist reports that Greek socialism is characterised by patronage and pork as well as the worst form of corruption where the results of sports events are bought and sold by a group of government insiders. And I relate that Greek socialism has developed an economy of the municipal and state worker, as well as a culture of socialist entitlement and not meritocracy, which I believe has developed from decades of ongoing conflict and response from the working people to ongoing Drachma devaluations.