Archive - Sep 14, 2011 - Story

Three things are sure in life: death, taxes, and betting against the calls of Goldman's Thomas Stolper. Sure enough:

• We lower our EUR/$ forecast path slightly but keep the same upward-sloping trajectory.
• Our new EUR/$ trajectory is 1.40, 1.45 and 1.50 in 3, 6 and 12 months, from 1.45, 1.50, 1.55 previously.
• The recent increase in the Euro area’s fiscal risk premium is likely to persist.
• Very large short EUR/$ positioning is likely to last in the near future.
• But the underlying Dollar downtrend should drive EUR/$ higher over time.
• We discuss the CHF and safe-haven currencies after the SNB’s commitment to intervene.
• Our new EUR/CHF forecasts are 1.21 flat in 3, 6 and 12 months.

Reuters is reporting that according to a press report released to reporters in Athens, a Greek government spokesman has said that despite rumors, all have agreed that Greece will remain part of the Eurozone. And from Bloomberg: "Greece is an integral part of the euro area and recent decisions to meet budget targets will help shield the economy, the Greek government said in a statement today following a call between Greek Prime Minister George Papandreou, German Chancellor Angela Merkel and French President Nicolas Sarkozy." Well, at least Greece has agreed to not blow itself up. Now... if only enacting this theory into practice was as easy as releasing a statement.

In conjunction with Eurobonds, EU officials have been working on plans to create Euroteams for the Olympics, World Cup, and the Eurovision Song Test. Officially, the effort is supposed to solidify the fiscal union that will have to occur to make Eurobonds the success the market has already decided they would be. Off the record, at least one official felt that letting Brussels be in charge of the Euroteams would make their jobs more important. Reaction so far has been swift and vehement. One London Olympic Organizer was heard to say "We finally invite them to invade us, and they can't even get that right!" Trading floors across the city and the rest of Europe are in a state of pandemonium. "Utter Rubbish" says one British trader. "They are just doing it so we won't ever win the world cup again, they just never got over that we kept our own currency" lamented another. French traders were dumbfounded, yet adamant that Les Bleus would never agree to a combined team. Spanish traders have attacked the plan, saying "it is one thing for you to give us money and support our caja's, but to try and steal our glory as World Cup Champions, well that is another thing entirely!" German traders put it more succinctly "Nein". Dutch citizens took it all in stride, while enjoying a leisurely smoke at a coffee house, one supporter mentioned, "We never win it on our own, so maybe this is a chance for us".

We are delighted to bring to you this wonderful news:

DAVID BIANCO NO LONGER WORKS AT BOFA, SPOKESWOMAN SAYS

Which means that in the pantheon of brain dead, lemming, Koolaid Permabulls, there are now just four. It probably also means that the latest paperweight to come out of Bianco, his upgrade to the S&P from 1,400 to 1,450 has been retracted. In other news, we are confident Bianco will find the economy far less hospitable from the wrong side of the unemployment line.

You know it: the chief Nobel prize winner in Oration and Teleprompting is out and about and has already threatened that unless Congress acts, the middle class will see a tax hike. And by act he means "passing this bill." That's right: after half our readers were hospitalized with alcohol poisoning yesterday, the challenge is back for the second day in a row. The rules are known: a shot must be taken every time Obama says "You must pass this bill."

The latest headline is in, and judging by the swoon in the EURUSD it is not pretty. Sure enough, this one has nothing to do with the Coneheads coming to rescue the world, and everything to do with an EU document which says that the shit is about to hit the fan. Yep: the EU is now holding the gun against its head and threatening to shoot. Furthermore, the document warns ministers this week about the threat of a renewed credit crunch as a "systemic" crisis in sovereign debt spills over to banks, according to EU documents. In one a series of bluntly worded reports prepared by officials for a meeting of EU ministers on Sep. 16 and 17, they warn: "While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic."

In the past week, any and every move higher in the market, which is a direct consequence of the EURUSD seeing an uptick, has been as a consequence of rumor or statement or outright innuendo that China may either buy European bonds or European assets, but generally bail out the now ridiculously insolvent continent (and with Greek 1 Years at 150%, it is pretty clear what will happen). Yet, once again the conventional wisdom leaves much to be desired. Such as the answer to one very simple question: China just may buy up a whole lot of Greek and Italian bonds, and even EFSF issuance, but... who will bailout China. Wait, China is in trouble? Why yes: from Marketwatch: " China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts. The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said." That's ok, by the time China is insolvent, Chinese stabilization of Europe will be complete, and Europe can boldly step up and rescue China in turn. And so on... And so on... In the wacky, wonderful, ponzi world of ours.

By now only the cream of the naive, Kool-Aid intoxicated crop believes that the US is not in either a deep recession, or, realistically, depression. For anyone who may still be on the fence, here is David Rosenberg's latest letter which will seal any doubts for good. It will also make it clear what the fair value of the stock market is assuming QE3 fails, which it will, and the market reverts to trading to fair value as predicated by bond spreads. To wit: "If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple." And since we are in the throes of a deep depression and a 10x multiple is more than generous, applying that to $75 in S&P earnings, means that the fair value of the S&P is... we'll leave that to our readers.

Every "solution" to the European debt crisis, whether it is ECB purchase, EFSF, Eurobonds, or BRIC's, fails to account for the fact there are really two types of bonds out there.  There are those that are trading and marked, and those that remain on some bank balance sheet unmarked. That is a key distinction.  If all Greek bonds were marked at 45 (or even had 55 points of reserves held against them) then there would be a lot of potential solutions.

You know what they say about official denials:

• CARNEY SAYS WHITE HOUSE COOPERATING WITH SOLYNDRA PROBE - Bloomberg
  
• CARNEY SAYS WHITE HOUSE DIDN'T TRY TO INFLUENCE LOAN REVIEW - Bloomberg

Will a doomed solar company, and a failed economic voodoo religion be Obama's Watergate? We will know in a few weeks. In the meantime, someone should probably look into how much money Obama received courtesy of Solyndra 2, aka Mojave Solar LLC

• DOE ANNOUNCES $1.2B LOAN GUARANTEE FOR CALIFORNIA SOLAR PROJECT
• U.S. CITES LOAN GUARANTEE TO MOJAVE SOLAR LLC

Yeah, that's right: even as the PR scandal of Solyndra is threatening to sweep the administration, it continues to funnel more taxpayer capital in failed solar projects!

Well, that was a brief hiccup for the ponzi scheme. Luckily, the market has forgotten that it priced in China bailing out Europe two days ago so it is time the vacuum tubes are reminded. From Bloomberg: "China's NDRC says China using foreign reserves to support investment abroad; NDRC Vice Chairman says in transcript of remarks on website double-dip recession abroad is “avoidable,” willing to buy bonds of sovereign-debt crisis nations. National Development and Reform Commission Vice Chairman Zhang Xiaoqiang spoke in an interview with the media in Dalian today, according to transcript distributed on the planning agency’s website today." EURUSD predictably soars... for at least a few more minutes, when we start the whole bailout rotation all over again, first with Russian, then Brazil, etc, etc. In the meantime, what all this means, read the post by Dylan Grice on how to deal with a whole world gone pathlogically rogue, and willing to lie and cheat in order to preserve the status quo.

Update: never a dull day as apparently there is a silver lining: from Reuters "Austrian finance minster says parliament only rejected changing the agenda; EFSF vote will be delayed with a special meeting to be called"

Yup, Europe is open, and the suiciding has started early.

• AUSTRIAN PARLIAMENT COMMITTEE DOESN'T APPROVE EFSF UPGRADE
• AUSTRIAN PARLIAMENT COMMITTEE NEEDED 2/3 MAJORITY

As a reminder all countries need to ratify the EFSF, even the weakest links, or else no bailout. As Peter Tchir reminds: "And Austria is AAA, it is needed for EFSF to get AAA on its size, would have to be cut back by about 15 billion EUR to still have AAA.  Though I would guess this gives other countries the courage to say enough is enough."

Speaking at a briefing Rome, Germany's economy minister Philipp Roesler has been dropping truth-bombs this morning. These have perhaps been responsible for the decompression in European credit spreads (SENFIN 9bps off tights). The most unequivocal, and most ultimatum-like is his noting that "Merkel and Sarkozy will send a 'clear signal' to Greece tonight on the need to meet deficit cutting goals".

Everyone, especially various textbook "schools" of postmodernist Keynesianism which (in addition to apparently never having actually been in the real world) believe there is such a thing as a free lunch as long as a reserve currency can issue infinite debt, and stubbornly fail to see the creeping currency devaluation which ultimately represents itself in hyperinflation, should read the following note from SocGen's Dylan Grice who explains pretty much... everything, including why in world starved for honesty, gold is the benchmark, and is now worth $10,000. To wit: "Gold might be a mere lump of dense, useless shiny metal, but it’s one which crackpot central bankers can’t print. Indeed, benchmarked against the printing of The Ben Bernak, the price of gold at which the US dollar would be fully gold-backed is now $10,000. You might think such a ‘price target’ is far-fetched (and I might agree with you). But bear in mind that the last time honesty was perceived to be so scarce – in the 1970s gold mania – the dollar was over-backed by gold (see chart below). If it happened then, why not again?"