Archive - May 9, 2011 - Story

Your daily diversion comes from German government advisor Bofinger:

• Eurozone needs a very comprehensive solution, or may not remain intact over next 12 months
• Need to consider EU stimulus measures for Greece in addition to belt-tightening
• Have to change overall approach for Eurozone periphery countries

Euro now sliding since apparently the EURUSD traders did not get the Friday memo that the G-7 have decided fair value for the pair is 1.35 tops. Oh yes, in the meantime we can't wait for Germany to get back to the DEM which will buy about $10 USD and make German exports a thing of the ancient past.

If Too Big To Fail was made into HBO namedropping comedy hour, this certainly deserves its own 90 minute, Bollywood produced, TheOnion directed, 3D motion picture:

• GREEK FINANCE MINISTRY SAYS S&P CREDIBILITY IN QUESTION
• GREECE SAYS S&P MOVE ISN'T JUSTIFIED

Pretty much says it all. Elsewhere, Greek prosecutors are "investigating" Der Spiegel. No Citigroup bond runs to be scapegoated this time...

• Under our sovereign ratings criteria, a commercial debt rescheduling typically constitutes a default.
• In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds.
• Accordingly, we are lowering both the long- and short-term ratings on Greece to 'B' and 'C', respectively.
• We are leaving both ratings on CreditWatch Negative.

• Fannie Mae requests additional 8.5 billion dollars in government aid (Xinhua)
• U.S. Will Press China to Hasten Yuan's Rise (WSJ)
• European Officials to Revamp Greek Aid (FT)
• Europe Pressured to Revise Irish and Greek Bailouts (Reuters)
• Krugman: The Inflation Monster Under the Bed (NYT)
• Euro Holds No. 1 Spot as EU Shows Resolve on Greece Debt (Bloomberg)
• EU to Cut Emerging Nations’ Trade Benefits (FT)
• Japan Reaffirms Nuclear Energy Use (NYT)
• The truth behind the popular markets adage of 'sell in May' (Telegraph)
• What to watch, on the Street and on the court, to determine whether the rally will continue…or fizzle (Barrons)

When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body. The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders. To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let's follow the money.

Confused about the Goldman "approach" to forecasting? After reading the following most recent note from GSAM chairman Jim "BRIC" O'Neill you won't be: just predict the opposite of everything your other colleagues at Goldman anticipate, and you are covered. Indeed, in his latest note, the BRICster not only directly contradicts David Greely's latest note that the long-term prospects for commodities are strong as ever by saying that "This suggests to me that commodity prices could weaken further." (for what "this" is, read the note). As for Thomas Stolper's soon to be stopped out prediction of a EURUSD hitting 1.50, O'Neill has some contrarian cold water for that too: "In my book, even with the likelihood that the Fed will remain friendly post QE2 termination, the Euro belongs in a 1.20-1.40 range." So there you have it: one firm, an infinite number of outlooks. That way, they will always be right. As for who Goldman's clients should listen to? We suggest - nobody. But since that REDI/Sigma X feed needs serious soft dollar cash infusions, that is probably not an option. So just flip a coin. Someone will be right.

It was the best of times, it was the worst of times....This time is different.....There is nothing new under the sun.....All of us---by “us” I mean human beings---tend to think too much with our egos and not enough with our rational minds. When we are young, we think we have unique and novel insight into life and the human condition, as if we are the first person to have ever thought certain thoughts. We all read---at least back when I went to school---the classic literature, the Greek playwrights and Shakespeare, but it is only when we reread these works as adults that we realize that everything has been thought of before. The best we can do is put a slight sidespin on it. We are humbled. We bring this same tendency---a belief in our uniqueness---into the issues that face our time on Earth. “There has never been a better time to be alive.”...." This is all going to blow up faster than most people think, and it is TEOTWAWKI.”....Somewhere in the middle probably lies the truth. Many of us---myself included time to time---fear that life as we know it is about to come to an abrupt and painful end. Others---most visibly those who are wheeled out as guests on CNBC---think things are on a rise as far as the eye can see. And for some---I am thinking John Paulson and David Tepper---times have never been better. Who is right? Maybe nobody.

Back on Friday we shared a prediction that not only will Greece not leave the Eurozone, but what will happen after the weekend: "I'm convinced Greece is jealous that the portuguese got a much better deal.  They want the same deal arguing that they have already suffered long enough...  Monday they announce that Greece is getting better terms and we are off to the races... by early 2012 greece restructures debt." Once again, this was spot on. Reuters reports: "The European Union is looking to lower interest
rates on bailout loans to Greece and Ireland and is working on a second
rescue for Athens in a chaotic effort to prevent a disorderly debt
restructuring. The executive European Commission said on Monday it hoped to see a decision within weeks on reducing the rate charged to Ireland to make Dublin's debt more sustainable. "The Commission is clearly in favour of a rate
cut," a spokesman for EU Economic and Monetary Affairs Commissioner Olli
Rehn said. "The Commission is against debt restructuring."" Once again Europe looks the can in the mouth, and kicks it as far down the street as it possibly can. Next up: fully blown, uncontrolled restructuring in early 2012 as nothing will change in the interim, and more taxpayer revolts will continue taking Europe by storm until we have one that actually matters and puts the PIIGS out in the cold.

Last week we predicted that rumors of a Greek (self) expulsion are nothing but hot air, and an attempt to escalate so-far failing rhetoric at improving the economics of austerity. This was proven right, even as we also predicted, the EURUSD surprisingly remains sticky in the 1.438 area, meaning 120 pips in EURUSD was wiped out on purpose. Here is Goldman's take on this weekend's developments: "Policy makers discuss further help package for Greece. The head of the Euro group Juncker said after a meeting of finance ministers last Friday that "we believe that Greece will need a further program". According to FT Deutschland such a new program could include an extension of repayments of the loan provided under the first program as well as a reduction of the interest rate for these loans. Juncker also dismissed the idea that an exit of Greece from the Euro-zone was being discussed: "This is a stupid idea, it is not a direction we will ever embark on". Newspaper Die Welt reports that the German government demands as a pre-condition for any further program that Greece will also negotiate a - voluntary - maturity extension with its private creditors."

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge