Slovenian Government Collapses After Confidence Vote Loss; EFSF Ratification To Be Delayed Until 2012Submitted by Tyler Durden on 09/20/2011 - 12:03
As expected earlier, the next domino in the European contagion cascade, has just tumbled after the local government has collapsed following loss of parliamentary confidence vote.
- SLOVENIAN GOVT LOSES PARLIAMENTARY CONFIDENCE VOTE - BBG
This means that the pan-European EFSF vote, originally scheduled to be completed by the end of this month, will likely be delayed until 2012 which means at least 4 more months of SMP bond purchases and more anger at direct ECB monetization of Peripheral debt.
Uncertainty. That has become the key word of the day, the month, and of 2011 in general. And while broad uncertainty has manifested itself most notably in the capital markets, it has a far more practical representation in labor markets, where the main reason why employers are not hiring more people, arguably the primary scourge of the Obama administration's record low approval rating, is due to corporate uncertainty about the future: about taxes, about government demanding its pound of flesh when the time comes, and about the economy in general. Ironically, as PIMCO speculates in its daily note authored by Tony Crescenzi, probably the primary driver of global uncertainty is the increasingly uncoordinated response by monetary policy authorities (read Central Banks) in which where before all had cooperated in the global game theory, now increasingly it is every printer for himself, as the default response turns to one of defection. And as everyone who has studied Game Theory knows, it is only the first defection that provides the biggest return, with each subsequent act generating far less benefits to the uncooperative actor, forcing even more uncooperative irrationality, and so on in a toxic spiral until outright belligerent action develops. For now said belligerence has begun to manifest itself in plain vanilla trade wars, such as that pointed out last night with the Chinese response to Europe's lack of response to its "bailout" overtures, and following up with the just announced complaint filed by the US against China on chicken prices. Naturally this is just the beginning. The real concern is that where trade wars end (which in turn begin when FX wars end), real ones start. When a year ago we first branded the Chairsatan as "genocidal" we were mostly joking. Perhaps it is time to reevaluate our definition, as it is far less comical under the current environment. Here is what Pimco has to say on the issue.
On September 15, 2011, beginning at 12:48:54.600, there was a time warp in the trading of Yahoo! (YHOO) stock. HFT has reached speeds faster than time itself. Up to 190 milliseconds into the future, or 0.19 fantaseconds is the record so far. It all happened in just over one second of trading, the evidence buried under an avalanche of about 19,000 quotations and 3,000 individual trade executions. The facts of the matter are indisputable. Based on official exchange timestamps, there is unmistakable proof that YHOO trades were executed on quotes that didn't exist until 190 milliseconds later!
We have been pointing to the incessant rise in the risk of the Financial Stability Board's most systemically important entities for weeks now. It appears the European Systemic Risk Board has, according to Dow Jones, issued its first warning to governments, urging them to prepare capital injections for some European banks.
It looks like the Slovenian Government may collapse today. It is one of the smallest EU members, but an EU member nonetheless. Slovenia accounts for about 0.5% of EFSF and is Aa2/AA Looks like Greece won't default today, though it seems that more and more people think it is the likely outcome, and actually think it is the best outcome from Europe. Stocks continue to rally on every bit of good news related to Greece, but there is a growing consensus that Greece should default sooner than later, and that it would be easier for Europe to deal with that, than the eventual default. Still waiting for the "private sector initiative" results on Greece. I really am not sure how much of a benefit Greece gets, but the banks transfer about 40% of their Greek exposure to EFSF exposure. Not a bad deal for banks considering where Greek bonds trade.
That didn't take long. After touching a ridiculous price of $304.79 back on July 13, the collapse in the stock price of Netflix in the 2 short months since to fresh 52 week lows has been nothing short of breathtaking, and demonstrates just how effectively one can destroy their company (and also confirms that "value investors" with zero conviction in their calls are not even worth the entrance fee of their periodic soiree gatherings). Below we demonstrate who the biggest losers are in the past 10 weeks, based on the top 25 holders as disclosed in their 13F filings as of June 30. Our advice to Apple longs: take particular note of what happens when the hedge fund groupthink hotel decides to exit a burning theater stock in less than orderly fashion. And of particular insult to injury note, UBS Global Asset Management has lost $115 million in NFLX since the stock highs just over 2 months ago. Which Gamma 2 or Vega 666 trader will get blamed for that particular debacle?
Well, as expected, the Chinese news finally filtered through to the vacuum tubes. It took them a few hours... But it is finally there. BNP is down 7.3% at last check and tumbling. Comments from the IMF, which is always behind the curve, are not helping.
Some pure poetry from Art Cashin today which explains why future US generations may want to hold a referendum on being born...
With the expanded two-day FOMC meeting (which until 45 days ago was supposed to be just one day) set to start shortly, here is chief policy maker Goldman Sachs reiterating again how much futile loosening to expect from the Fed. Nothing new here: Goldman repeats its call that Twist will hit tomorrow (and in a following report MS reiterates its call for Torque), sees IOER being cut from 0.25% to 0.1%, (sending the money and repo markets into a tailspin), but stops short of demanding another major round of LSAP. Basically, anything short of this will crash the market; anything long of this (as Rosenberg predicts) including several hundred billion in outright bond purchases, sends risk and gold soaring, and the dollar plunging.
Flurry of headlines following an unscheduled IMF release:
- IMF CUTS GLOBAL GROWTH ESTIMATE, SAYS EUROPE MAY WORSEN OUTLOOK
- IMF SAYS DOWNSIDE RISKS ARE GROWING
- IMF SAYS ECB SHOULD CUT INTEREST RATES IF DEBT TENSIONS PERSIST
- IMF CUTS U.S. 2011 GROWTH ESTIMATE TO 1.5% VS 2.5% SEEN IN JUNE
- IMF CUTS U.S. 2012 GROWTH ESTIMATE TO 1.8% VS 2.7% SEEN IN JUNE
- IMF CUTS 2012 EURO-AREA GROWTH PREDICTION TO 1.1% VS 1.7%/JUNE
- IMF CUTS 2011 WORLD GROWTH FORECAST TO 4% FROM 4.3% IN JUNE
- IMF CUTS 2012 WORLD GROWTH FORECAST TO 4% FROM 4.5% IN JUNE
- IMF SAYS ECB MUST KEEP INTERVENING `STRONGLY' IN DEBT MARKETS
- IMF CUTS SPANISH GROWTH FORECAST FOR 2012 TO 1.1%
Judging by the futures one may be forgiven to assume that sovereign default risk in Europe has moderated today. One would also be 100% wrong. It's contract roll day and Italy downgrade day (first of many: Moody's on deck) not to mention algo ES futures ramp up ignore day, and as a result everything is wider across the board, and Italy 5 Year hit 520 earlier, a new all time record.
To anyone short the USD/EUR-CHF who just went to the bathroom a minute ago, our condolences. The rumor is that the SNB will expand its EURCHF peg to 1.25 tomorrow. Completely unfounded of course. It may just as easily be another forceful intervention round. Or just plain and simple central planner rumor mongering: as noted, Swiss August exports plunged and Hildebrand will take any help he can get.
Gone are the days when rating agencies couched the big fat inconvenient truth in big words and wordy phrases like "Selective Default" (predicated upon 90% acceptances of effective bond tender offers, which as has now become clear is not happening) when discussing Greece. French-owned Fitch let the genie out of the bottle this morning when it announced that it now expects Greece to "probably default" (as in the real deal, not some transitory paper definition), "but not leave the Eurozone." In other words, we have replaced one wishful thinking (partially default) with another (full default, but partial implications). Because unfortunately as most know, there is no charter precedent for keeping a bankrupt country in the EU and currency union. Which means eurocrats are now scrambling to not only lay the liquidity groundwork for a Greek bankruptcy (which they did last week with the global USD liquidity lines, which also conveniently lay out the timing for such an event) but also changing the laws furiously behind the scenes to make sure a Greek default does not violate some European clause, which it certainly will. All of this ignores the fact that the financial aftermath of a Greek default will hit the credibility of the ECB more than anything else. How bureaucracy can provision for that we are not too clear.
An interesting interview in Frankfurter Rundschau with German government advisor Lars Feld shares Germany's latest perspective on Greece, which is, as many expect, that the country at the heart of the Eurozone is merely setting the liquidity framework and backup preparations for the inevitable. To wit: "Restructuring Greece’s debt would cause “limited” reaction in financial markets because they have been expecting a Greek default for some time." Alas, that was the hubris that drove the decision to send Lehman over the cliff. But the world has never learned from history, why should it now? When asked if Greece is broke, Feld cuts to the chase "I fear that Greece has a solvency problem" translation - yes. Not that we needed to get confirmation with 1 Year yields in the mid 100s, mind you. Yet despite recognition of the inevitable, when asked whether Greece will leave the Eurozone, his response: "That would be a disaster - for Greece and for the euro-zone... Greece's economy and its financial system would sink into chaos, at least for a brief period time. And the speculative floodgate against the euro and its member states would open. Those who believe a Greek ouster is possible is at best naive." And therein lies the rub.