agreement by EU leaders to force bond-holders to face a haircut should
an EU state become “insolvent” after 2013. I think this was done in an
effort to placate the many voices that are saying “no” to the state
bailouts. It sounds as if the leaders are responding; “We will fix this
problem now, but in the future will let the chips fall on the
bondholders back.”
That may sound like a reasonable approach. I see some unintended consequences. From the WSJ:
Creditors of euro-zone countries that face insolvency after 2013 will see their bond holdings restructured.
Okay, we get that. After 2013 holders of bonds of troubled countries get
hit. But what happens between now and 2013? Again from the Journal:
Ms. Merkel has stressed in that the proposal would affect only bonds issued from late 2013.
Wait a second. If bonds issued after late 2013 are at risk, does that
mean that bonds issued before 2013 are not at risk? That sure is what it
sounds like to me.
The bond market is going to call this bluff. There are Greek, Irish and
Spanish bonds that are trading at 9%, 7% and 5% respectively that are
the buy of a lifetime if I am reading this right. Who wouldn’t want to
buy a nice 9%, ten-year Greek bond that was also guaranteed as to
payment by the big hitters of the EU? A “fully” guaranteed bond would
trade closer to 3% than 9%.
So I am left confused by this development. Other questions:
-If the “at risk” provisions for all existing EU sovereign debt is
somehow eliminated you have to ask; who is making the promise that all
that debt is money good? The ECB? I would think not. We are talking of a
few trillion Euros if you add in Spain and Italy. You need a big stick
to guarantee that nut.
-What the hell is going to happen in 2013? By setting a “date certain”
situation where the status of a borrower changes from one day to the
next is just begging for a crisis. Depending on the circumstances one of
the countries could be blocked out of the credit market overnight. This
plan is a set-up for failure, not success.
It’s possible that I (and the Journal) are reading this wrong. We shall
see. It will show up in bond prices and CDS spreads. This could also be
something that later gets clarified. That will be interesting. The
headline for that might be:
Merkel Changes Direction“Current Debt Not Secure”
I think the EU finance ministers botched this up by including the, “Drop Dead In the Future”
policy. The markets will provide it’s own vote. There may be a knee
jerk up move for the Euro. Relief? I don’t like this development. I
would fade any rally.
Orly, I find your posts thought provoking. What do you think about the Euro level this morning and the implications for the S&P?
That is a thought provoking thought d_78 x 2........for what it is worth and Orly may or may not agree but would not be shorting the Euro at this level - 1.31 sitting at the 200 day ma - NFPs this week - Multiple billions of POMOs with 2 already today - the S&P also would not short at the 1170/5 level either as POMOs may be priced in however the billions coming this week whether priced in or not are probably certain to to weigh on the dollar. The FED appears determined to drive asset price higher so look for a decisve break of 1175/1170 to the downside and 1200 for higher.
2 cents worth........closed all trades this morning; short the DAX, short EUR/CAD, short AUD/CAD, short NAS100. Flat and currently no open positions.
Good post. I felt like we were in the twilight zone for weeks with everyone screaming at Merkel to shut-up about investors taking haircuts. What is the risk necessitating a risk premium in the yield if investors do not take haircuts when the investment goes south? The problem - as we see - is a haircut not coming from the market but delieverd by edict from a committee managing a bailout. Now it is a question of who gets screwed, who do you know, how much pull do you have?
Saving all bond-holders from loss guarantees contagion. If, by shorting bonds, I can force the ECB to zero-out my risk and hand it to the sovereign - why wouldn't I do that?
It should be a good show. I have seen for at least 10 years a "European pride" in all matters, great and small. I have been chastised by Europeans for presenting charts that indicated the Galileo satellite launch schedule might slip, and was informed that no matter what, they would be more prompt than the Americans! They name all their stuff Euro-this and Euro-that. The growing sense that they had the new reserve currency was such an ego boost to them. Yet at the end of the day, when the citizens of the common currency countries are in the streets in despair and anger over national deals with a supra-national unelected bureaucracy - is this the Euro-dream?
Talk is cheap. Don't listen to what they are saying, look what they are doing.
One of your better posts Bruce. Terrific analysis. I think you should stick with currency exchange in your posts as that is usually when you hit one out of the ballpark. Nicely done. I would be curious what is your analysis on Chinese currency. Maybe you could take that topic up sometime soon???
By the way Bruce, Yves has given me "the boot" on her blog. Apparently she thinks I'm a "bigot". I'm pleading not guilty by the way. But that means I have more time to pick on you here Bruce.
Her loss is my gain.
It smells like anything and everything that might sound good is getting uttered. Ireland may in fact have NOT agreed to the bailout..what they might instead have agreed to was to say they had with one government and to let the successive govt. proclaim the shackles dropped.
It's just smoke and mirrors to give TPTB enough time to complete construction on their titanium-clad ship before a tsunami engulfs the Dalai Lama on Mount Everest.
God, that movie sucked ass.
Everything they say is a lie.
Everything they say is manipulation.
Everything they say is calculated to get what they want today.
Wake up! Everyone with a pension or retirement account --- remove all your funds immediately, then convert at least 90% of your fiat savings into physical silver and gold.
Anyone who remains in the current scheme is royally screwed. Get out while you still can.
all you have to is to find european equivalent ofBill Gross - i.e. the people who run european "big old money" and who "de facto" run the joint, and find out if they'vee been buying Greek, Irish, Spanish and Portuguese bonds hand over fist and on margin. if the ansver is yes, they have been buying, then you know these bonds are money-good.
Would love to see who is whom among the financiers. Chinese? Arabs? Not just Europeans you can be sure of that. All these intermediaries between the Irish and their shadowy masters....smells like fear.
It means the ECB will fund the banks through the back-door, a la the Fed and POMO/QE until 2013. After that, you're on your own.
2013 is the point at which there is no one left to tell the lies, so it is the get the fuck out of town drop dead date with whatever you can stuff in your suitcase/offshore accounts warning.........stick around and after that if you are party to the fraud then you really are on your own.
You know there are some really nice real estate deals to be had for cash from a few select bank friends (who are still friends) in quiet out of the way places - bring an extra pair of sunglasses, peroxide and at least several passports just in case.
Get fucking real (not you Orly). 2013 is a made up piece of shit just like all of the rest of it.
Your first clue is if the banks are reduced to stealing from the Irish savings/pension/welfare fund to finance this wallpaper it over bullshit deal then it is obvious; Who's next? And, please step forward'.
It is all very corrupt.
Yes. Interest rate on NEW 'bailout' money (ex pensions) over 7%. Nice fucking present from the Overlordzbankenelitegruppen to the tater eaters.
Irish need to default, get real bondholders (not zombie EU suits) to the table and negotiate. Maybe they can hire some Brazilian negotiators or someone else who knows how the North-South cookie crumbles. For the North is getting very small indeed (USA now on the bubble).
Yes Jim and very Minnesota polite on your part with points well taken except I believe you meant to call tater eaters (Irish get to the front of the fucking line) shit eaters if I am not mistaken, and no offense taken as I know none was intended.
We now all know where the phrase 'shit eating grin' comes from, don't we.
And, who's next in line, please?
According to the ECB, the fifty billion to be used for governmental budget matters will last two years. That's plenty of wait-and-see time.
It may be the only possible way it can be done, though. Now, we must borrow from the private interests to fund the public interests in order to save the private interests.
There's a lot of money in pensions and 401(k) plans available globally and it may be that a government-private partnership is wise at this point.
Seems like as win/win as a win/win can be in this situation. Otherwise we're all screwed.
:D
roro has the justice refutation of your assertion.
the practical refutation is that bad banks don't get better by being "bailed out". it is the prospect of that happening that let them get so bad in the first place. if they had to eat their errors as a matter of course they would not have made so many.
to repeat: receivership is the only workable course says history and common sense. only with the knowledge of which firms are actually solvent at market prices can "trust" return to financial transactions in the banking system. and only with unencumbered balance sheets (and not being paid interest (!) to keep reserves in the fed) can it lend again.
Dear Orly,
All right then, so if I/we have private money I/we sure as fuck do not want to be lending or entrusting the lives/hope of our children to the lying, cheating, stealing my eyeballs, motherfuckers like GS or Deutche Bank pricks, right?
The interest rates on the Irish deal are preversely inverted.
The 'people' have the capital and can afford to lend it at their will and charge a fair rate of return for their labor.
The 'people' are probably close to figuring that out.
The Irish should revolt. They should be the first ones to really opt out of the "global economy" BS. It's all going to crash anyway, why not just take this opportunity to ditch it all? Yeah, it'll still cost them their pensions, but rather than blow their pensions on bankers and continued enslavement, they can buy their own freedom.
No. What I mean is something I have proposed before and that is to have "Save (X) Bonds," where x means any country, continent or county. These bonds would be sanctioned by the federal government (or the ECB or Bank of England...) that would entrust the full faith and credit of said entity into these bonds.
The pensions, 401s and 403- not to mention ALL the government union pensions (police, fire department, etc...)- a ton of money- are required to place a certain amount of their funds into these bonds.
The program would be overseen by a strict private-citizen advocate (I would nominate Bill Black...), in conjunction with the government of said locality. (It could even be the local school board...) The taxpayer will not lose money on this deal.
The win/win comes in when the pensions are now backed 100%, no matter what. (Lesser money is worth more than nothing...) Peace of mind is priceless and I bet if you asked pensioners which they would rather have, a smaller nest egg for sure or a bigger nest egg maybe, I bet they would choose the former. The pensions can also fund these ugly financial instruments until they just fade away or we find a solution that will get us out of this mess.
that's theft, pure and simple. the government is broke. they will still be broke after they rescind the constitution and steal our wealth - you know that we earned instead of stole or bloew at the casino like those being bailed out.
how about the banks eat their own losses and we keep our money?
and while we are at it, how about we end their criminal debt based ponzi monetary system that systematically asset strips society to their benefit too, OK?
Oh, right! Why didn't I see that. Now I get it.
The predators should steal 50% to 100% of retirement accounts from people, "invest" (hahahahaha) them in fraudulant "bonds" (give-aways to banksters)... and then people should delude themselves into believing they will ever be able to get any of those funds back, or retire someday.
So, overtly stealing the life savings from billions of people constitutes a "partnership"? Wow... join the Orwell society, please.
My point is that the people take control of the situation. Demand the books and tell those guys to take a hike...but not too far 'vasue we have a few questions. Get people into the system to shore up the banks, wean the mortgage-backed securities off the banks' books (btw, I still haven't heard an explanation as to why these MBSs won't turn over and disappear as the mortgages themselves are dissolved, but anyway...) have the private money (pensions, etc...) basically become a GSE of its own and issue its own bonds.
For the people by the people and hopefully with a few criminals behind bars.
It is up to us to take control of the situation. They are not going to just give it to us. I wouldn't be surprised to start to see some rather serious "sit-ins" and the like on banks worldwide.
Now, you can have your life savings stolen completely or you can make an investment in getting your life savings back- eventually. Which would you choose?
if you really believe this is possible orly, you should start an petition online where capital participants will agree to pledge X amount of capital to the Irish should they default on their current bonds and agree to hire someone like a Bill Black to go in and do a complete forensic analysis on the books of the Irish banks & Irish subs of global institutions and publish it online for all the world to see.
until then, the vise grips will remain firmly in place.
Now, you can have your life savings stolen completely or you can make an investment in getting your life savings back- eventually. Which would you choose?
You totally miss my entire point. Your question (above) prevents a massively false alternative.
What I would do... and have done... is get all my assets out of the hands of criminal fraudsters (the banking system) and invest it in real, physical goods (mostly physical gold and silver). I have no interest in wasting my life trying to convince a bunch of liars, cheater and predators not to do what their entire life is based upon --- lie, cheat, steal and defraud. Have you never heard the tale of the scorpion and frog?
In other words, my choice is to avoid their scams entirely, not waste lots of time and then get screwed anyway.
But you're screwing yourself if you believe that PMs are the answer to anything. I mean, if we were truly going back to the stone age where computers are impossible, then I would say, yeah, that makes sense.
The chances of that are nil, though. You're listening to a bunch of frightoholic, apocolyptic gold bitchez and that's not at all the way this scenario is going to play out. We have to save the system we have. It's the only way.
Gold goes back to $420/t.oz.
If gold goes back to $420/oz, I'll give you 1 millions dollars. That's how afraid I am of that possibility.
Those bad mortgages need to be put back to the banks that securitized them. Make them eat their own fraud and die of the poison. The world will be a better place if the derivatives game is made to stop.
My question is how long is the average mortgage kept in the US? NFL...means not for long. Seven years average at most? As mortgages turn due, roll over or foreclose, all those tranches of debt are just gonna dry up and there'll be nothing left to have to save. The problem takes care of itself.
No more bad debt on the books, banks can mark-to-market again and all is right with the world.
May I please please come for a state visit to Dublin and then a state parade with all the trimmings and w/ me in an open landau.
Should be fun for all who attend.
hrh ADF
To all the cynics out there, ye of little faith! Clearly you don't understand that technology will save us from EVERYTHING? Here's how all this debt is going to be cleaned up:
Dreaming Up Uses for a Giant Invisibility Machine
http://www.nytimes.com/2010/11/29/technology/29iht-cache29.html?_r=1&par...
PARIS — Researchers in Germany may have developed a technological solution to the global economic crisis, even if that was the furthest thing from their minds.
The breakthrough occurred at the Karlsruhe Institute of Technology, where scientists, working with colleagues from Imperial College London and other universities, have come up with a way to tailor the flow of light around objects so that they disappear from view.
---
Yes, bad debt will be "cloaked" so that we don't see it [of course, lots of sand would also do the trick, enough such that we could all stick our heads in it]!
/SarcasmOff
Why don't they just use a somebody else's problem generator?
Finally, the financial world has produced something of good, real value! If some aliens want to attack us, now we can cloak the earth...too bad the richest 1 precent of world will own the machine and will just cloak the Hamptons, Manhattan, and Aspen, leaving the rest of us exposed. However, when the realize they need people to grow food, manufacture products and all the farms and factories are toast, then they will be very upset.
This seems irrelevant to me because at the current rate every country in the EU will be bailed out before 2013
Fail early, fail often.
That seems to be the message. What government is stupid enough to wait one last day (sometime in 2013) to access the credit market when their cost---even for Germany---is going to jump significantly tomorrow? The fact that any nation would wait a day too long would be prima facie evidence that they are incompetent and thus should have to pay more.
Frau Merkel is a devoted student of the Mayan culture, and in turn, knows that civilization won't exist after 2012. Might as well max it out and party hardy!!!!!
damn hardy at this point (protective gear, canned goods, well maintained and supplied firearms, a variety of precious metals and energy sources... ).
This is how Germans think. Whenever there is a problem, they start Der Prozess, slow grinding machine at first. They refine the Prozess until the end result is good or even excellent. Americans are quick to react but in many cases they try everything else than the right solution.
That is why Merkel is talking about 2013, get the system going and do it right this time, instead of just throwing money at the crisis.
Germans and German banks are two different things...If Germans think clearly and rational, they will let their banks fail and start over...German banks lent money to every over-indebted country in Europe.
Lord only knows what deus ex machina the hegelians are planning this time. Quadrupling down on a busted flush doesn't make sense unless.....what?
you KNOW they ain't got shit - i like the way you think :)
...you own the casino?
...you've stacked the deck?
...you're running a scam in concert with the dealer?
http://assembly.coe.int/Documents/WorkingDocs/Doc10/EDOC12299.pdf
Maybe we need Industrial Size mikla because the Bloomberg bullshit spin machine is at 'top fucking speed ahead';
Greece Wins EU Pledge for 4 1/2-Year Extension to Repay Emergency Loans2 bullshit lottery Winners in the same night.......omfg!!!
"...everyone's a winner, bargains galore! You too can be the proud owner -- the quality goes in before the name goes on..." -- Tom Waits
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