Does anyone have a problem with the attached chart? Ignore for a second the sheer lunacy of anyone who thinks that the Greek government can grow GDP and decline the budget deficit in a straight line now that the country will see crippling strikes and rolling riots (not to mention blackouts) on a daily basis. But do note the black line, which shows the projected Debt/GDP ratio for the country as part of the bailout package. In essence Greece will go from having "only" a 133% Debt/GDP ratio to an insane 149% in 2013 before presumably dropping to 144% lower in 2014, still a good 11% higher than currently. Greece just got bailed out so it can get into even more debt! What psychopath of the Keynesian school thinks that this unbelievable trajectory is anything but a complete and utter waste of money? German, and US taxpayers, are merely giving Greece money so it can increase it debtor status with French and a few other European banks.To say that this is a viable solution is something that only those who bow at the altar of Alan Greenspan can do.
Our current market is also not driven by typical business growth. Yes, the percent returns
of fundamental valuations are up from last year’s very deep trough, but still far shy of past years
and the levels needed to support employment growth. (The Fed is not keeping rates low for
The gorilla in the room is the Federal Reserve. We all know this cyclical bull market is
liquidity driven. The unprecedented level of U.S. and global liquidity pumped into the economy
make this cyclical bull market “different” than the bull markets that ended in 1929, 1968, 1987,
2000 or even 2007. As the dissenting FOMC Governor Thomas Hoenig is trying to warn,
somehow somewhere, excess liquidity always finds its way into the markets. We have seen this in
Japan since 1993 as each cyclical bull market is fueled by a new round of quantitative easing, then
comes to an abrupt halt. The same can said for China’s Shanghai Index, which advanced 108%
from October ’08 to August ’09.
Movie Gallery's Chapter 22 just turned into a 7. The WSJ reports that the firm has decided to shutter all of its 2,415 stores and liquidate completely. Previously, the bankrupt movie rental chain had hoped to continue operating with a trimmed down asset base, and close just half of its stores. Alas, the melting of the icecube could not be stopped. This is nonetheless good news for liquidating advisor Gordon Brothers which just saw its bill double. As for main competitor Blockbuster, which itself is on the verge of bankruptcy (yes, those still do occur in the US, but the business must be really atrocious plus have no unionized workers anywhere within 50 miles of its operations), it is unclear whether the liquidation of Movie Gallery will be beneficial or merely too late. Tangentially, businesses all over America and the world which otherwise would benefit from the bankruptcy of their weaker competitors and flourish, are suffering just as much, courtesy of the no-risk/no-failure doctrine recently instituted by the administration, which has made Survival of the Fittest irrelevant.
Since we feel there is little need to post on the Greek "update" as we don't believe anything new has happened or anything has been resovled, we will instead provide that from Goldman's Erik Nielsen: "With the May liquidity crisis now practically dealt with, here are the risks for the rest of 2010 and 2011 (and beyond) as I see them: (1) Implementation of the program in the face of a social unrest; (2) the likely need for further adjustments when/if GDP doesn’t respond as expected; and (3) European approval of the second phase of their part of the package (which will emerge in their fiscal bills for the next two years.)"
Zero Hedge will not report on any of today's so-called Greece bailout news, because a) this is not news and b) Greece will still go bankrupt. According to latest polls, 53% of Germans oppose the bailout, with just 39% approving it. Guess what - same thing in Greece: per Reuters, "Opinion polls show the public opposes the measures and more than half of those asked in a recent survey said they would join protests against them." In other news, Greece has just expressed its appreciation of bankers and the European Commission, who as of noon today run the country, by blowing up an Athens HSBC branch.
"CNBC's house blowhard, Charlie Gasparino, laughed at the "securities fraud" line, saying, "Try proving that one." The Atlantic's online Randian cyber-shill, Megan McArdle, said Rolling Stone had "absurdly" accused Goldman of committing a crime, arguing that "Goldman's customers for CDOs are not little grannies who think a bond coupon is what you use to buy denture glue." Former Wall Street Journal reporter Heidi Moore hilariously pointed out that Goldman wasn't the only one betting against the housing market, citing the short-selling success of – you guessed it – John Paulson as evidence that Goldman shouldn't be singled out.
The truth is that what Goldman is alleged to have done in this SEC case is even worse than what all these assholes laughed at us for talking about last year." Matt Taibbi
The past few weeks I have been talking about the SP500 forming a top similar to the January top we saw earlier this year. Well the charts below show exactly what I have been waiting for to unfold and I think the time has come for the market to take a healthy breather before continuing this strong bull market which could last another 12 -24 months before really topping out.
Atlanta Fed's Former President Jack Guynn Is The Original Housing Crash Prophet; Greenspan Was A CFTC COT ContrarianSubmitted by Tyler Durden on 05/02/2010 - 10:21
As we were perusing the just declassified full 2004 FOMC transcripts, our attention was caught by two specific things in the December 14 uber-grouthink session. First, the original housing prophet is not Hoenig, not Lacker, and certainly no other Fed member: it is former Atlanta Fed president Jack Guynn, who prudently got out of dodge on October 1, 2006. Guynn was the first to point out, in the long ago days of 2004, that Fed policy could be leading to a massive housing bubble. Good thing the Maestro was more concerned about his misplaced dentures than to listen to voices of reason at the Eccles building. Yet speaking of the Maestro, we catch an amusing anecdote, in which it becomes obvious that none other than the Fed Chairman looks at the CFTC's Commitment of Traders reports to get an indication as to what may or may not happen to the relative strength of the dollar. When one considers this fact, and juxtaposes it with observation that the Fed runs the formerly free world, does it imminently follow that the people in charge are not brilliantly scheming and conspiratorial, but merely very, very, very dumb?
Bank Of America Sees Material Deterioration In Budget Deficit Estimates, Worried About Fiscal Tightening Post Mid-TermsSubmitted by Tyler Durden on 05/02/2010 - 09:41
A few days after the economists have had some time to digest the latest GDP numbers, the results are coming in, and they aren't pretty... And to Obama's chagrin they aren't going to get any better. The end of the stimulus "sugar high" is approaching, and most likely will culminate with the mid-term elections: the attached piece by BofA only solidifies this observation. Bank of America, after Goldman, is now the latest major bailed out bank to join the bandwagon decrying US fiscal insanity (oddly enough, few have much to say about the lunatics in charge of monetary matters). And that's just for the medium-term. Speaking of lunatics, for those curious about the long-term, who can summarize it better than the Oracle of Constitution Avenue himself: "Unfortunately, we cannot grow our way out of this problem. No credible forecast suggests that future rates of growth of the US economy will be sufficient to close these deficits without significant changes to our fiscal policies." - none other than B.S. Bernanke. Furthermore, this is the real problem, forget all about G-Pap reelection chances (none to negative): Greece is just a pleasant distraction compared to what would happen if the US can't roll $700 billion in short-term debt each month.
Soon appearing on the Bernie Madoff Book to the Month club.
Today is D-Day for Europe, and soon, the world. Shortly, the IMF will take its historic place as the cash cop of last resort, a post traditionally reserved for the Federal Reserve, which incidentally was rumored to have activated its FX currency swaps with European banks last week (whether or not that is true will be disclosed by next week's H.4.1). This action will open a floodgate of consequences, as every semi-bankrupt country forces itself into a spending frenzy to guarantee that it is truly bankruptcy, no ifs about it, and qualifies for IMF (and thus 20% US) aid. And at that point the politics of a US-funded world bailout really will come to the fore. Because while the Fed bailing out America is one thing due to the Fed's untouchable and unsupervisable status, the IMF, as a corporation, does not share the same "above the law" privileges. And in an election year, with Americans slowly realizing that the fate of the world is truly in their hands, and their tax money is being involuntarily taken away from them as we speak yet again, ahead of midterm elections, all bets are off. For those interested in the actual mechanics of the IMF rescue mechanisms available, as well as some of the political implications likely to follow, here is an overview via Bank Of Countrywide Lynch.
Last night just after 6 pm a home made car bomb, containing 3 propane tanks and 2 containers of gasoline, electrical wires, black powder and some sort of timing device, put in a green VIN-less Nissan Pathfinder, situated on the corner of 45th and Broadway, was prevented from killing numerous people in the heart of Times Square, on 45th and Broadway. According to a hotdog vendor eye witness account, quoted by CNN, the car had filled with smoke and actually exploded, however the explosion was subdued. At that point a bomb squad appeared and managed to diffuse the bomb. The car bore license plates registered to a Connecticut-based Ford F-150. Mayor Bloomberg rushed back to New York from Washington and was quoted as saying: "We are very lucky that we avoided what could have been a very deadly event. We have no idea who did this or why.” It is unclear whether the organizers of the terrorist attempt were foreign-based or domestic. Looks like Goldman Sachs and a bankrupt Greece are finally going to be dropped from the front page, for at least a few hours. And, as always, nothing like a "failed terror attempt" as a cohesive force to consolidate an increasingly polarized population.
"If you had read “This Time is Different: Eight Centuries of Financial Folly” by Reinhart & Rogoff,
none of the current alarm over Greece’s debt situation would come as any surprise. Indeed the book
shows that Greece has been in default roughly one out of every two years since it first gained
independence in the nineteenth century. However, it is never knowable
in advance at what exact moment the tipping point is reached. Today, the government of Greece is burdened with approximately €275 billion of debt, equating to
115% of GDP, are running a nearly 14% budget deficit for
2009, [Eurostat, April 2010] and S&P has downgraded
their debt to BB+/B - junk status! Up until March, the
world bond markets had taken a remarkably sanguine
view of this situation. In January, the Greeks sold €8
billion worth of bonds at a rather high (historically)
6.25%, while there was demand for €25 billion. But
shortly afterward, the situation deteriorated rapidly." Oisin Zimmermann
No photos or videos of Greek street riots, or burning Athens policemen here. With all the serious discourse over Greek bankruptcy and what not, the general public sometimes ignores the levity of the broader comedy that has brought us here in the first place, i.e. that the Greek government simply sucks at collecting taxes. And no matter how many decrees from above come, this will not change. Case in point: the Guardian reports about the latest tax collection, and immediate ensuing tax avoidance scheme implemented by the Greek government and the Greek wealthy, essentially includes the usage of Google Earth to track those who have swimming pools, cross indexing it with tax collections by address, and catching perpetrators. The loophole - green tarps to fool Google. In other words, good luck IMF.
EuroWeek magazine reports that Greece has hired Lazard in an advisory capacity: it is not a stretch to assume that this is in connection with a potential, and some say inevitable, bankruptcy... unless the country is really serious about procuring a stalking horse distressed M&A bidder for Santorini. We also note that DebtWire has yet to report on this development: looks like the FT is really starting to slip. It would not be a stretch to see why Greece and Lazard are on good terms: after Greece basically put all banks on the kleptocrata non grata list, the pseudo-French company seems like a legitimated candidate (not to mention that France will fail first should Greece default). Additionally, in March 2009 the firm advised the Hellenic Government on the sale of various Olympic Airlines assets to Marfin. Lazard is also no stranger to sovereign reorg, having worked with Nicaragua, Ecuador and Cote d'Ivoire on various restructuring assignments. However, while those deals were a walk in the park, Jim Millstein and and new (and critical) addition Felix Rohatyn will find Greece, where 80% of the population does not want a bailout and in fact is rooting for a default, a much tougher nut to crack.