RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 29/11/10
The increasingly fragile American Empire has been built on a foundation of lies. Lies we tell ourselves and Big lies spread by our government. The shit is so deep you can stir it with a stick. As we enter another holiday season the mainstream corporate mass media will relegate you to the status of consumer. This is a disgusting term that dehumanizes all Americans. You are nothing but a blot to corporations and advertisers selling you electronic doohickeys that they convince you that you must have. Propaganda about consumer spending being essential to an economic recovery is spewed from 52 inch HDTVs across the land, 24 hours per day, by CNBC, Fox, CBS and the other corporate owned media that generate billions in profits from selling advertising to corporations schilling material goods to thoughtless American consumers.
...But did traders pick the wrong currency to sell? Tonight's prompt sell off in the Euro is now being attributed to comments by Banque de France Governor Christian Noyer who said monetary easing creates the potential for global imbalances. While it is true that Noyer stated that The European Central Bank will keep its emergency measures as long as needed, this is not news. Obviously all of Europe is now reliant solely on the ECB's bidding of last resort for each and every failed bond auction and to prevent bond routs in the secondary market. Again: this is not news. Yet what is interesting is that instead of selling off the EUR, traders may have picked the wrong currency. To wit: Noyer was actually blasting the pegged CNY, which means that the CNY-derivative currencies, the AUD and the NZD should have taken the brunt of tonight's action, and in the wrong direction at that. And, ultimately, the target was the USD. The moment this became clear (9pm Eastern) is when gold took off.
Everything you desired to know about the "Irish Package" and then some, dissected with clinical post-mortem precision by Goldman's Francesco U. Garzarelli. We can only hope the Spanish, Italian and French packages are deemed more satisfactory by the market.
The upcoming week will be dominated by the same key themes as last week. News on the European sovereign debt crisis, China tightening, the Korean conflict and macro data will remain in the limelight. However, with key US releases including Chigaco PMI, ISM and payrolls data watching may become relatively more important in the coming week. Then again, there is always the trust old FRBNY, which kicks off the reflation trade with not one but two POMOs tomorrow: altogether $39 billion in monetizations coming up in the next week.
The alternative title for today entry is: Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. The entire controlled demolition of the Eurozone's finances can be summed up in one phrase: privatize leverage and profits, socialize losses and risk. The basic deal is this: protect the bank's managers, shareholders and bondholders from any losses, while heaping the socialized losses and risks on the taxpayers and citizens. While there are murmurings of "forcing bondholders to share the pain," any future haircut will undoubtedly be just for show, while the Irish pension funds are gutted to bail out the banks.
If the recent Hungarian "appropriation" of pension funds, and today's laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the "new" money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France. Financial News explains how France has "seized" €36 billion worth of pension assets: "Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades." FN condemns the action as follows: "The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system." In other words, with the ECB still unwilling to go into full fiat printing overdrive mode, insolvent governments, France most certainly included, are resorting to whatever piggybanks they can find. Hopefully this is not a harbinger of what Tim Geithner plans to do with the trillions in various 401(k) funds on this side of the Atlantic.
Despite its illiquidity, The FX market has been the first and earliest indicator of how the market is taking the Irish bailout. So far it has been a complete abortion, and after opening in the mid 1.33 in the interbank market, the EURUSD has just touched on 1.3196, and is about to take out Friday support. The vigilantes refuse to go away. In addition to LCH margin hikes on Portugal and Spanish bonds tomorrow which now appears inevitable, we continue to expect that FX margin requirements will be hiked over the next few days across the board. Lastly, expect to hear rumors of secret service chasing any and all bond shorts/CDS longs. The war for the Eurozone's survival is now on in earnest.
It's time for a shirt: "Irish bondholders got a bailout and all the EURUSD managed was a measly 35 pips higher." It seems the currency vigilantes are calling the bluff in JC Trichet, and tomorrow Portuguese bonds will be next on the bidless brigade, further validating that the IMF's, just like the Fed's, primary mandate is to rescue insolvent bankers everywhere there is a taxpayer population that can be raped. But back to the EUR: at last check the currency was trading well inside 1.33, and only about 2.2k pips from Thomas Stolper's 12 month target of 1.55. Not to begrudge anything to Tom: after all, post QE4 he will certainly be spot on (the only question is how long it take Blackhawk Ben to get us there), but we wonder if another Goldman luminary got the memo. To wit: in an interview with the Telegraph, Jim "BRIC" O'Neill told Kamal Ahmad that "the eurozone must embark on a significant round of fiscal and political harmonisation if the euro is to survive...there are elements of the black swan concept that seem rather applicable
to the EMU story" and if that wasn't clear enough, he added that the "euro should carry a "risk premium" and that it was over-valued by at least 10pc." Bottom line, according to O'Neill the "fair value for the euro is €1.20 against the dollar and anyone buying it 10pc above that is not very sensible." Uh.... What? Did Wikileaks intercept the memo from Thomas Stolper sent out just this November 25, in which the chief currency strategist said: "Overall, we believe the EUR/$ remains very much on track for the projected trajectory of 1.40 in 3mths as well as 1.50 and 1.55 in 6 and 12 months." And like that, Goldman has all bases covered. Of course, seeing how the outcome is binary, Goldman has just discovered the Schrodinger currency: per the bank that rules the world, the euro is now both alive and dead at the same time.
Today the myth of a popular, democratic government in Ireland collapsed for good. After an impromptu poll of 500 people nationwide found that a "substantial majority" of the people, or 57%, wants the State to default on debts to bondholder, what it ended up getting was precisely the opposite. Why? "Last night that the Irish delegation
negotiating with the EU-IMF last week raised the issue of default. "The Europeans went completely mad," a senior government source said." Of course, this is a reason for the Europeans not to want an Irish default, not for the Irish. And last time we checked, the Irish government represented its people, not the interests of Brussels. As America showed all too well, we expect every banker in the world to threaten perpetual damnation for Ireland should they decide on doing what is right for its people (and so very wrong for another year of record banker bonuses). Then again, with elections in Ireland imminent, it is almost certain that there will be a massive popular overhaul of the government, and all bets at that point will be off whether the ECB can dictate terms to a brand new, and far more loyal, government. To quote to Independent: "In Dublin, there is barely concealed outrage at the interventions of Ms Merkel
and at the position adopted recently by the European Central Bank, which
precipitated the arrival of the EU-IMF team in Ireland."The ECB f**ked us," one government official in Dublin was reported
yesterday to have said." We wonder how soon before rhetoric finally shifts to action.
The latest Wikileaks data dump has been released and it is about to make the world hate the US just that little bit more: it represents a massive sampling of the daily traffic between the State Department and some 270 embassies and consulates. And as the attached front page of tomorrow's Der Spiegel shows, according to the unclassified US embassy cables, America had something quite unpleasant to say about virtually everyone, culminating with Ahmadinejad, who was called "Hitler." But aside from the unpleasantries which may or may not be buried (and don't expect a prompt burial: Der Spiegel is already on the case and has this to say, "251,000 State Department documents, many of them secret embassy reports from around the world, show how the US seeks to safeguard its influence around the world. It is nothing short of a political meltdown for US foreign policy") the far bigger question will be how the once great American superpower could have allowed such a huge oversight in traditionally classified diplomacy. Very soon the once legendary US foreign service department will be butt of all jokes. Perhaps it is time for someone within the administration to finally take some blame for this fiasco, although we most certainly are not holding our breath for a Hillary Clinton resignation.
"The federal government is subsidising state and local debt servicing costs with their BAB program. The Fed is subsidising the federal government’s debt servicing costs with “security purchases” (aka QE2). While the US political and financial establishment is desperately trying to distract Americans with as many overseas “crises” as they can contribute to, the fiscal situation in the US careens towards the cliff." William Buckler, with his Privateer report, once again establishes that in the pantheon of newsletters, he and Kiril Sokoloff are untouchable at the very top. In his latest piece, Buckler deconstructs geopolitics, finance, economics and explains the plutocrats' behavioral modeling in a way fre else seem capable of doing. For anyone confused what all the recent events out of Korea, China, Europe, and the US mean, read the following.
Everyone expected a number between 5% and 6.7% on the Irish rescue interest rate. However, when one considers that the NPRF, which will serve as a source of capital in the rescue package has a zero interest rate (Ireland will not be paying interest to itself), and amounts to 20% of the total bailout figure, it appears that the blended rate of new money is actually 7.25%. From politics.ie: "Presumably the pensions reserve funds are at 0%, as its already our
money. They form about 20% of the total amount. If one fifth of the
amount is at zero percent, and the average is 5.8% - what is the
interest on the rest of the money? I calculate 7.25%"
So here is the Irish bailout in a nutshell: senior bondholders impairment: zero; Irish pensioners impairment: about 100%. Olli Rehn just confirmed during the press conference that senior bondholders will not be impaired. Irish taxpayers and pensioners to be overjoyed. Additionally, the maturity of the Irish IMF loan will be 7.5 years. This also means that the maturity of the Greek loans will likely be extended. Club Med will now exist indefinitely on life support, or until the euro is dissolved, whichever comes first. Lastly the pathologically lying sociopath just said that Europe will rerun its stress tests again next year... And as many times as needed until faith in Europe is restored, and 300 million austere Europeans finally believe their corrupt, thieving, fat ass politicians.
The State’s contribution to the €85 billion facility will be €17½ billion, which will come from the National Pension Reserve Fund (NPRF) and other domestic cash resources. This means that the extent of the external assistance will be reduced to €67½ billion.
...The facility will include up to €35 billion to support the banking system; €10 billion for the immediate recapitalisation and the remaining €25 billion will be provided on a contingency basis. Up to €50 billion to cover the financing of the State. The funds in the facility will be drawn down as necessary, although the amount will depend on the capital requirements of the financial system and NTMA bond issuances during the programme period. If drawn down in total today, the combined annual average interest rate would be of the order of 5.8% per annum. The rate will vary according to the timing of the drawdown and market conditions.