Archive - Nov 1, 2011 - Story

Yesterday, the Chicago PMI miss led us to suggest that the ISM is next. Sure enough, today this other metric that had consistently beaten the negative HF economic data in the late summer was the latest to hit an inflection point, and miss substantially, with expectations of an improvement in the September number of 51.6 to 52.0 trounced, following an index print of 50.8. And while there was no major moves in the bulk of the index components, the Prices subcomponent saw an epic collapse, tumbling from 56 to 41. What does this imply for the S&P? Nothing good. But remember: correlation is not causation, a fact the Fed loves to abuse without pause.

The decision by Greek PM Papandreou to call for a referendum on the latest Greek bailout deal shows that Greece is becoming ungovernable. The PASOK leader made this decision because riots in the streets, increasing refusal by civil servants to implement the austerity measures and the likely loss of his majority in parliament made the survival of the government unlikely within weeks or months. So Papandreou has gone for broke. He hopes that by winning a vote on the bailout plan he can shut up the opposition both in parliament and on the streets. But this high-risk strategy threatens to bring the whole house of Euro cards down.

Just out from Reuters:

• ANOTHER GREEK RULING PARTY LAWMAKER CALLS FOR ELECTIONS, NATIONAL UNITY GOVT - GREEK MEDIA

And with that the PASOK majority is history.

News is now coming fast and furious, with the latest locus of activity once again Greece, where we learn that there will be an emergency meeting in minutes, at 4 pm local. Dow Jones reports that early elections, and the referendum, will be discussed by the Greek cabinet, according to a government official. Supposedly G-Pap is trying to control the revolt in the socialist party. We fail to see how this is remotely good news, as early elections are merely another form of popular referendum which will simply delay the final outcome of the prevailing hatred toward the bailout, only with it it risks esclating the country closer to outright civil conflict.

We have discussed this a few times over the last year and as Greece begins to show signs of defection, it is perhaps worth considering what a spoiled and chided sovereign might do in a temper tantrum. Peter Tchir, of TF Market Advisors, puts it best this morning: "Everything I have read over the past couple of weeks coming out of Italy, tells me that if there was one country prepared to "screw" the Euro and go it alone, it would be Italy.  They don't like Merkozy treating them like children, and they have a big enough economy that a dirt cheap Lire would make exports possible".

The horror...The horror

As EFSF spreads widen and Greek CDS-Cash basis implodes, the flight to safety bid in Bunds is incredible. The largest single-day move in Bund yields ever, at over 5 standard deviations, is very noteworthy and the last hour or so has seen Bunds dislocated (lower in yield) from French debt also as OATs move to record 123bps (+15bps today). Bunds also outperforming TSYs by 9bps today (so far) and interestingly, given the Bund bid, German CDS is popping 13bps to 97.5bps (which seems like a cheap bet on Euro break-up now).

Oh this is getting good.

• Greek Health Minister Says Referendum Won’t Happen: Proto Thema

Next up: the army arrives in full party regalia to pay the capital a visit.

Did we miss the announcement from Italy where it said it is following Netflix into full business plan suicide? Because the 10 Year just imploded. It is now time to panic.

Margin of error: zero

• Greek Ruling Pasok Party Majority Falls to 151, Kerdos Reports - BBG

Intessa Sanpaolo celebrates by being halted down over 14%..... and Banco Popolare.

Things in Greece are becoming absolutely surreal after Reuters has disclosed that G-Pap did not even tell his FinMin Venizelos (who earlier was hospitalized with stomach pains... yes, we know) that he was about to announce a referendum. From Reuters: "Greek Prime Minister George Papandreou had not informed his Finance Minister, Evangelos Venizelos, he was going to announce a referendum on the latest EU aid deal, a Greek government official said on Tuesday. "Venizelos had no idea about the referendum. All he knew about was the vote of confidence," a government official told Reuters on condition of anonymity. "He told Papandreou he should inform foreign partners and a letter was drafted in the early morning hours." What can one say but "coordinated decision-making."

Stunned horror, even from the ECB which is not even pretending to be able to put a floor under Europe's fulcrum security - the Italian 10 year. Popcorn not optional. If this thing hits 8X, cue panic. It also appears, that contrary to Fast Money's expectations, the dump in BTPs was not "entirely driven" by MF liquidations, and the bankruptcy was not a "wildly bullish" event.

And the hits just keep on coming, with the Greek government now just one vote away from total collapse

• ONE GREEK RULING SOCIALIST LAWMAKER QUITS PARLIAMENTARY GROUP - STATE TV MORE - RTRS
• GREEK MP'S MOVE REDUCES PM PAPANDREOU'S MAJORITY TO 152 OUT OF 300 DEPUTIES - RTRS

As a reminder 151 votes are needed to pass a vote. But that's not all:

• Senior member of Italian opposition says party has asked president Giorgio Napolitano to form new government before G20 summit in Cannes

Oh yes, Italy, the one place everyone was terrified about before Greece stormed back to center stage with a bang. Result:

• ITALY 2-YR BOND YIELD SPREAD VS GERMANY HITS NEW EURO LIFETIME HIGH ABOVE 500 BPS

It was almost funny how quiet he was at the summit. It seems like he sat back, got the best deal he possibly could for Greece and now Greece can decide if it is good enough. The IIF and their NPV calculations. The ECB and their paid in full demands. The EU and their austerity and controls and demands over which Greek assets can be sold to whom? Debt to GDP of 120% by 2020. How about debt to GDP of 10% by year end? How about some nice asset sales to China at premium prices not only to get some immediate funds but to develop a nice long term relationships with deep pockets and a great trade partner. Not sure where IMF fits in. All along I have argued it was Greece's choice to default or not and that it was in their best interest to do it. He played it far better than I could have. He holds the cards. He is putting his people and national interest above Europe. Merkozy must be in a panic.