Archive - Sep 2011

The psychological effects of the Dow are undeniable. When the average investor or even consumer sees green, life is good, even if every other indicator in the economy clearly says otherwise. For the common Dow lemming, “green” supplants reason, mathematics, instinct, and blatant logic. If mushroom clouds came in that particular shade of bull market green, nuclear holocaust would be welcomed with beers, barbeque, and jubilee. Green in the Dollar Index is no different. Many market joyriders and MSM parrots decree victory for Team Dollar without even a remedial understanding of the implications of dollar strength being measured against multiple faltering currencies across the globe. Just because the Euro, for instance, is nearly as superfluous as the greenback, this does not mean the dollar is a stable or healthy currency by default. They are BOTH screwed. But hey, as long as that little ticker points up, all is right with the world……right?

A completely and thoroughly bankrupt Greece has just crossed some imaginary rubicon where it no longer deems it fit to even lie, and instead will simply not report any data. As Bloomberg reports, Greek FM Evangelos Venizelos, never to be confused with Jenny Craig, spoke to reporters in Athens today and told them that while the figures for the bond swap are optimistic, they are strictly confidential and will not be released by the Greek government. Considering that bond tender offer tabulation takes about 24-72 hours in even the most complicated of bankruptcies, this is a tacit admission that Greece has been unable to even complete the simplest of Greek Bailout 2 prerequisites, which is to get its bondholders to agree to an implicit 21% haircut, which is precisely as Zero Hedge predicted when we observed that German banks have sold their bonds to hedge funds which in turn are now holding Greece hostage in exchange for nuisance value. An irrelevant Venizelos also added that the target is to have all new measures passed October end, that austerity measures votes will be separate from a budget vote, and that Germany is to provide all help to stabilize Greece. We are sure the last will be news to tens of millions of German citizens.

It appears rumors (there's that word again) of precious metals' demise have been greatly exaggerated yet again. After hitting a low of $26/ounce just shortly after 24 hours ago, the metal has since soared by a whopping 26% to $32.90 (thank you CME and Shanghai Gold Exchange). That's $6.90 in one day. The same with gold. It seems that the market has finally had its brain kicked in a little following the realization that an expansion in the EFSF from E440 billion to E3 trillion (which has about 0.01% probability of happening, and would likely see the mobilization of a certain army first) would mean an exponential decline in the credibility of that "other" currency, which while potentially retaining its value against the "first" currency, will have been devalued that much more against the real, undilutable currency. We expect the market to comprehend that Goldman, for once, was spot on in its evaluation that anyone who bought yesterday at the lows, will have already made their full year unlevered return in one short day.

While Europe continues to bask in the very transitory glow of a rumor driven respite from the now daily collapse, the funding costs rise. And the market is not happy, as confirmed by the just complete Spanish auction of E3.2 billion (E3.5 billion had been targetted) in 77 and 175 Day bills, which were, for all intents and purposes, failures.  Summarizing, E1.6b of 77-day bills were sold at an average yield of 1.692% compared to 1.357% on Aug. 23. The Bid-to-cover plunged to a paltry 2.47 compared to a solidly overbooked 7.62 at the last sale. The last six auction average was 1.41% for the interest and 6.46 for bid-to-cover.  Spain also sold E1.6 billion 175-day bills at an average yield of 2.665%, half a percent higher compared to the August 23 auction where the country could still raise debt at a cheap 2.187%.  Bid-to-cover 3.95 vs 3.60 at last sale. And since this paper has to roll constantly (or between 2 and 6 months), any transitory interest benefits have now been lost and the vicious circle of deteriorating funding will continue to impact short-term debt raises by Spain, which in turn will force primary interest rates to raise again and so ad inf.

While overnight markets are rocking based on continued speculation coming from some completely uncorroborated and unconfirmed source that Europe has just boldly gone where even Goldman's Abacus has not dared to go before courtesy of the ECB's acceptance of a CDO squared "Enron Special" SPV, Germany has once again made it very clear that not only will there not be any expansion in the EFSF in regular terms, but certainly not in structural ones. As Goldman's Dirk Schumacher makes it very clear, any attempts at imposing on Germany a fait accompli reality that has no bearing in actual reality (especially one that excludes the only relevant decision-maker in Europe) will be met with increasing protests from the entire German ruling class. According to Die Welt, the Free Democratic Party is threatening to vote against overhaul of EFSF if discussions about leveraging fund don’t stop. Goldman elaborates: "FDP and CSU not fond of further increase of EFSF. Leading figures from the FDP and the CSU, the Bavarian branch of the CDU, rejected any thoughts of a further increase of the EFSF (either directly or indirectly through leverage). FDP general secretary Lindner said that "the chancellor should make clear immediately that there is no change to the business model of the EFSF." So, yes, consider that an official denial of the Liesman rumor which as typical, has no confirmation anywhere else.

While Ben Bernanke may say his mentor has always been Stanley Fischer, here at IceCap we are able to see through this charade. Mr. Bernanke’s inspiration has always and will always be the 1978 cinema classic – Grease. Whether his inspiration is Olivia Newton-John- Travolta or in fact Mr. Fischer, we know that Helicopter Ben is belting out Grease show tunes while in his office, car or bath tub (if Warren can do it, why not Ben?). And although the Chairman of the US Federal Reserve will always claim he is hopelessly devoted to doing what is best, he is actually doing the only thing he knows how to do – print money. Exactly where he got this drive to be a money printer is undeniable – we’ll blame it squarely on the shoulders of the father of modern economics, John Maynard Keynes. Blasphemous you say? Well, step aside sonny, here’s the real story behind the money printing machines from the USA, Japan, Britain and Europe, and why they will continue with this unsuccessful strategy.

Classic method of FUD - fear, uncertainty and doubt.

"We're not doing this for the Greeks, but for us," said Angela Merkel amidst a cacophony of doomsday scenarios. It's all about propping up German banks and exporters. For the French, however, the European debt crisis doesn't seem to exist.

If Goldman rules the world where governments around the world fail as Alessio Rastani claimed, then GS stock chart should not look this ugly-- down almost 50%-- in the past 24 months.

So what are those lines on charts telling us?

From the same fine Swiss folks who three weeks ago (and before it was uncovered that when it comes to playing, or at least scapegoating, dangerously, UBS is second to none) brought you, "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change," comes the sequel: "We believe the Eurozone sovereign crisis has entered a more dangerous phase. Financial and banking stresses are plainly evident as concerns about sovereign default grow. Notwithstanding signs from Washington this past weekend that European and world leaders are willing to consider more decisive policies, concrete steps remain elusive. Yet rising uncertainty threatens an already weakened world economy." The Swiss Bank's conclusions? "First, Europe’s politicians and policy makers must do more to shore up the Eurozone and investor confidence more generally. Among others, that probably includes stronger capital buffers in the banking sector, an expanded EFSF/ESM to finance bank recapitalization and support Eurozone bond markets, and further fiscal austerity in ‘at-risk’ Eurozone countries. But these are big asks of Europe’s ‘political economy’. Hence, the second conclusion: The likelihood is that the crisis will intensify before policy can deliver what is required." Reality 1: Strange little "source" voices inside the heads of chief economists of financial comedy cable channels: 0.

While few were expecting that the US government would pull a Belgium and collapse following an end of fiscal year lack of funding resolution, virtually everyone was secretly harboring just such a hope. Well, trust the government to once again kill all hopes that America has a chance to finally grow out of its depression. As the WaPo reports, with just 4 days to go until the end of the fiscal year end, and until some form of a continuing resolution has to be struck, we have once again averted Keynesian Armageddon (i.e., the inability to issue publicdebt to fund the digging of holes). "Senate leaders announced a bipartisan agreement Monday evening that would keep government agencies funded until Nov. 18, potentially ending a contentious dispute on how to pay for disaster funds. The Senate is expected to approve its version of the temporary spending bill Monday evening. The House is likely to approve a very brief extension of funding by a voice vote later this week and, when it returns to session next week, hold a vote on the stop-gap bill funding the government till Nov. 18." Expect the market response to be furious and hilarious as somehow news that America won't be lining up in front of the Southern District of New York (or, more properly, Beijing) for now, will be spun as massively bullish.

Yes, the GREAT COLLAPSE has begun. The markets will be going to new lows (below the March 2009 lows) in the coming months. We're also going to be seeing major banks go under, market crashes, food shortages, government shutdowns, and SYSTEMIC FAILURE.

Earlier we presented the flowchart of the first part of the Eurozone endgame. While satisfactory, many immediately clamored: "what is part two?" Prompted by this surge in intellectual curiosity, John Lohman has risen to meet the challenge of what the Eurozone's Biggest, Baddest, Sexiest Motherf#%$^* Flow Chart looks like. It needs no commentary, and since it also really ties the ponzi room together, we hope nobody micturates upon it until the plane crashes into the mountain. That said, we do have an accounting question: is "ass rape" a credit or a debit?