Archive - Jun 14, 2011

This one's to all you Greeks out there...

For the Fed the failure to address any of the underlying causes of the Financial Crisis has been a great success story. After all, all it had to do was pump the financial system full of more money (increasing the amount of leverage) and push for the suspension of accounting standards (so the crap debt is still there, but no longer is visible).

A day ahead of the general Greek strike coupled with major Parliament blockade protest, it is useful to remember just why it is that Greeks are so pissed. Well, besides the obvious increase in the retirement age from 61 of course. So below it is in chart format. While we previously presented the UK "misery index" which back in March hit a 20 year high for the first time, here is the same appropriately titled index for Greece. And if the UK is at a 2 decade "misery" high, then Greece is roughly at a 10 billion year high. It really may all be uphill from here... Unless of course the Greek population decides it is happy with the status quo.

The slow, steady, very predetermined and methodical depletion of Comex silver, which recently entered 6-sigma range for a perfectly random event, or is the preparation for a Hunt Bros squeeze, now that there is 32% less silver (27.9MM vs 41MM on April 19) than there was 2 months ago, is starting to become disturbing to anyone who can identify a flat line pointing northeast at -45 degrees. Contrary to promises from virtually everyone that the ongoing decline in registered silver is something very temporary, the perfectly diagonal chart below begs to differ with this naive and now disproven hypothesis. The culprit for today's decline to a new record low is Brink's warehouse, where there was a 9% draw down in both registered and eligible silver. In the meantime, registered silver has not posted an uptick in over 3 months. Amusingly this is happening even as the price of spot and futures silver continues to trend lower. We wonder at what point will the general public wake up to what is happening: 25MM oz? 20MM oz? 10MM oz? 0?

While S&P appears to have completely forgotten about the country of Belgium, Moody's has realized that should Greece default, which is now inevitable, there may be aftershocks. Today, it focuses on France, and its three main banks Credit Agricole, SocGen and BNP, all of which it has put on downgrade review with a one notch maximum downgrade potential (except for SocGen which is two). Moody's also refreshed those who care that its downgrade review of Belgium's Dexia is ongoing and could result in a two-notch downgrade. The announcement comes just as it seemed that the EURUSD was about to shake off its late afternoon swoon, and instead is now near the day's lows.

While last night's republican debate was at best a complete waste of 2 hours, and at worst something not even fit for the pages of Zero Hedge (and we have very low standards - Zero "low hanging fruit" Hedge is what we are often been called), there was 20 minutes worthy of popular attention, and all of them belonged to Ron Paul. The Texas anti-Fed crusader presented his rational opinion, substantiated by actual fact and, more shockingly, math, glaringly standing out from the herd. Alas, since America always and without fail elects precisely the candidate it so rightfully deserves, it pains us to conclude that Paul has zero chance at the presidency. That said, we hope to convert at least one additional human to his cause by presenting the complete highlight reel from yesterday. Yes it is commercial- and other candidate-free so the signal to noise ratio is not seppuku inducing.

A week ago we suggested that the second Greek "bailout" was Dead on Arrival. Gradually, the market is starting to realize just that, as schisms are appearing not just between the core and the periphery, but between the two main players: Germany and the ECB, both of which have realized Plan B is doomed to failure. Late in the day, we got another confirmation from the Luxembourg finance minister who just did what the CFTC is now doing with Frank-Dodd implementation - announce indefinitely delays until some miraculous machine from god appears. Well, no machine is coming now or any time in the future. So ahead of tomorrow's day which is shaping up to be critical for Greece, the Eurozone and potentially the entire developed world, here is SocGen's summary take down of all of today's events in preparation for tomorrow.

In this respect, the war being waged against Greece by the European Central Bank (ECB) may best be seen as a dress rehearsal not only for the rest of Europe, but for what financial lobbyists would like to bring about globally.

In sum, I still believe the data supports betting with the market when the “dumb money” indicator turns bearish. It doesn’t work every time, but show me something that does.

After surviving the start of the Second Great Depression, and living in its first great bear market bounce/short squeeze, where now all the attention is focused on a collapsing Europe, many could be wondering how, if at all, it would have been different to have lived through the first Great Depression. Luckily, courtesy of the recent release of the BIS's full annual reports, history buffs can now replay, year by year, the events in world capital markets from 1931 onward. We have put particular emphasis on the dark days of the 1930s. Below we present the first several such years as seen from the perspective of the BIS. Note the endless similarities - in fact one could say the only difference between then and now is the lack of "liquidity providing" algos (soon, there will be an iPad app for that) to front run slow and stupid retail/pension/mutual fund money. Pay particular attention to the role of gold in the crisis period, the amusing reference to FDR's confiscation of gold in 1933, and how the mood of insecured optimism shifts to one of endless gloom, and ends, as everyone knows, with World War 2.

Contrary to the popular view among economists that currency devaluation is necessary during periods of economic hardship, debasement works against the very investment that drives company formation and job creation given the tautological reality that any returns on investment will come back in cheapened money.

All aboard the we'll make it up as we go along Titanic:

• AGREEMENT ON NEW GREEK AID MAY BE DELAYED TO JULY, FRIEDEN SAYS
• FRIEDEN SAYS CONDITIONS HAVE TO BE RESPECTED IN GREECE
• FRIEDEN SAYS NEED TO ENSURE NO CONTAGION EFFECT
• FRIEDEN SAYS SEVERAL GREEK OPTIONS STILL HAVE TO BE STUDIED
• FRIEDEN SAYS GREEK DEFAULT WOULD HAVE GREAT CONSEQUENCES
• FRIEDEN SAYS GREEK DEFAULT WOULD AFFECT `ALL OUR BANKS'
• FRIEDEN SAYS PRIVATE SECTOR INVOLVEMENT FOR GREECE `LIKELY'

Earlier today, we reported about Kozani Alekos Athanasiadis, a member of parliament for the Greek ruling PASOK party, who  in a radio interview said that he would vote against the medium-term program. Next up is Giorgos Lianis who has just tendered his resignation as a member of Pasok's central committee, but is keeping his parliament seat and will continue to serve as an independent, leaving the ruling Pasok party with 155 MPs. Athens News reports: "Commenting on the public anger over the austerity measures on the Alter television channel late last year, Lianis had declared his intention to leave politics in order to be able to safely "walk the streets." It is uncler what the state of the other 155 or so PASOK members will be when walking the streets should they indeed proceed to go ahead and vote on the medium-term fiscal program, whose discussions begin tomorrow and which is expected to see a vote on June 28. Elsewhere both the Communist Party of Greece (KKE) and Radical Left Coalition (Syriza) announced that they will refrain from all Parliamentary procedures that concern the Mid-Term Fiscal Strategy, including participation in the competent committee and the Parliamentary plenary session. A statement issued underlined that "the anti-popular monstrosity is condemned and voted down because it serves the interests of plutocracy and levels off the rights of the workers and the people."

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

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Bill Gross released a very troubling tweet earlier:

Why is it odd? Because as David Rosenberg predicted two weeks ago when he expected that Operation Twist could be coming back with the Fed "capping" the 10 Year, Bill Gross, who has Larry "Fed Expert Network" Meyer in his ear and thus knows better than most what is coming, is predicting some "Twisting" though not at the 10 Year mark, but at the very short end. This is very disturbing. Because as we suggested at the end of May, QE3 will in reality be Operation Twist 2...