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Goldman's View On Europe Bailout Plan #42 - "Unlikely To Calm Markets"
We now know that the European Union, as part of its most recent ridiculous idea for a global eurozone bailout, is planning on soon issuing its own bonds and thus becoming a defacto Treasury. How the hell it plans on doing this is simply beyond comprehension, but it certainly involves a lot of "financial innovation"... ergo - enter Goldman Sachs, from whom it would need a ringing endorsement to proceed with its plan. Alas, the just released note from Erik Nielsen is anything but favorable. (and yes title is a ref: Douglas Adams - the EU has the answer, if only they could find the question now).
The heads of state of the 16-member Euro-zone met last night to finally and formally approve the Greek package (the IMF’s part will be approved tomorrow Sunday in an extra-ordinary Board meeting in Washington.) The Euro-zone leaders used the occasion to issued a broader statement (below).
- On Greece: The money will be there for the May 19 payment. The Greek PM reiterated his “total commitment” to the policy reforms agreed. My comment: Good, but entirely expected news. I maintain my view on the risk to the program and its implementation.
- On the present broader crisis: “All the institutions of the euro area (Council, Commission, ECB) as well as all euro area Member States agree to use the full range of means available to ensure the stability of the euro area”. My comment: Note the words “the full range of means available” – they may hesitate before pulling out the really big guns, but it’ll happen if needed.
- More specifically, the Commission will propose a European stabilization mechanism to preserve financial stability in Europe, which will be submitted for decision to an extraordinary ECOFIN meeting tomorrow Sunday. There’ll also be a proposal for stronger governance to be presented on May 12 My comment: They’ll try to finesse the messy process of get help to Greece. They may try to pool their money more formally, but it’ll still have to come from individual country borrowing (and hence national approval processes) as opposed to a common bond. Also, there won’t be any money for unconditional disbursement. I suspect that the governance stuff could refer to punishment of those who slip on their fiscal policies, e.g. suspension of payments from the structural funds. There will be nothing in terms of surrendering fiscal authority or other dramatic stuff.
- Finally, they agreed to accelerate their work on financial regulation.
All in all this is good news, but it is unlikely in itself to calm markets; its all too “slow-burner” stuff. But what it will do is to provide sort of a fig leaf for the ECB to introduce exceptional measures, just like the Greek package (and the ECB’s own “approval” of it) made it possible to suspend the ratings agency from determining access for Greek sovereign securities. I am not sure what exactly the next ECB measures will be, but I would rather suspect an announcement probably already tomorrow, maybe along with the Ecofin decision, on additional measures. It could be the mega-loans to the banks rumoured yesterday, it could be a FX-swap arrangement, or “simply” a re-introduction of 12-months repos along with an easing of haircuts. I rather doubt that it’ll be outright purchases of sovereign debt at this stage.
Stay tuned.
Erik F. Nielsen
Chief European Economist
Goldman Sachs
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Never let a good crisis go to waste.
I guess somebody junked that because the truth hurts.
I can guarantee you that WH is regularly visiting this site.
The irony of your comment and avatar is truly overwhelming.
And I am sure you are right!
If the WH means White House, then here is my letter to the man.
Dear Mr. President,
During the campaign, one of your supporters believed that you would pay her mortgage. I sincerely apologize for laughing at her, because obviously, the joke is on me, since you really did pay for her mortgage. I would like to ask that you include me in that program as well.
I pinky promise that I did vote for you.
Please pay my mortgage also, then I can go back to purchasing things that I do not need and I can re-join the Extend & Pretend Game currently in progress....just like my neighbors who walked out on their mortgage. They now have money to burn since they repurchased their new home from the same sub-prime lenders that still have the full faith and credit of the US government.
Many thanks,
Your LOYAL constituent.
I personally hate his avatar. It's a reverse Al Jolson mask and ever since I saw it in connection with the Tea Baggers it's been obvious to me why they take such delight in it.
Let's paint the black guy white and give him big red lips. But it's the Joker, see? No one will be able to deconstruct this at all!
Give me a break.
"If the clouds are full of rain, they empty themselves upon the earth; And if a tree falls to the south or the north, in the place where the tree falls, there it shall lie.”
"Who is this who darkens counsel by words without knowledge?"
The minions of the Alchemist speak a different language, in high and lofty tones that elevate them to power over those who have failed to question the mode of their ascent and who are satisfied to eat the crumbs that fall off their tables. However, their greatest deception is not to the foolish unsuspecting or helpless masses, instead it is upon themselves. The power they perceive themselves to have exists only in their dark minds, enabled by those who play within their circles, as if the dark clouds on the horizon won’t unleash their fury on them, not realizing they are intended for them.
“The fool folds his hands and consumes his own flesh. Better a handful with quietness than with both hands full, together with toil and grasping for the wind.”
The fields multiplied through this Grand Alchemy will wither and blow away while those with “a handful” will prosper in their quietness.
Okay, I just plagerized myself....WHATever!
Great job, applause all around.
Damn thats intense.
"its all too “slow-burner” stuff"
Sometimes when the wife's holding out, if you're itchin' for a little action, you've just got to force it.
You can't create a brand new ECB treasury without breaking a few eggs.
The answer is 42, not 48...
good point. orignal number was hyperinflated
Tyler;
To be correct; Greece has not been "bailed out," it's LENDERS (banksters) have been bailed out!
Phoney (funny) munny for banksters, from banksters!
Attila
FED----->AIG-----> 100% Counterparty CDS recovery
FED------>IMF------>ECB------->Greece------->Various Banks 100% loan recovery
See a pattern here.
Trade accordingly.
Just wait until they start pimping buy and hold again [easier than to ban shorting] and introduce EDS [equity default swaps] to various institutional and retail investors [although just a hybrid of out-of-the-money puts and CDS contracts be it single name or baskets]. And just wait till that becomes the next big thing in the HF world where you could buy EDS on institutionally held stock [P&G for example] and repeat may 6 [bring down the stock 30%+/70%+ in order to trigger an equity event and return 50% of the notional value of the EDS] and have a 1000%+ day and laugh all the way to the bank. Its a neat deal if you can get it, which of course you can not, since you are not in the "Club". Also just imagine if EDS take hold like CDS did and become industry standard for pension funds, HFs and new issuances and IPOs, the notional amount of CDS would pale in comparison to a couple of quadrillions which would be insured by EDS contracts. If Bernanke can pull that of, he would make 100% sure that note one single market, not one single stock ever goes down. EVER.
Taking the cue:
Could it be that the overall US strategy, what with QE and mark-to-fantasy and so on, is ultimately an exercise in judicious use of the printing press?... as-needed to kick the can down the road but not so much as to bring about Weimar?
And could it be that Europe is attempting the same trick, tickling the dragon's tail but staying just this side of a hyperinflationary woosh?
If this can be done to some of the people some of the time, can it work with all the people all the time? Is this a deft dance, a tottering balance edging along the wire, attempting the seemingly impossible deflating of a credit bubble without bringing on a catastrophe? Making each emperor's clothes more and more transparent, until everybody is in an equal state of undress -- amounting to a cut of new clothes for all?
Every time another apocalyptic prophecy just fails to materialize I have to pause and wonder.
The horse has no head. Lies upon lies have been told. And yet somehow we "can handle the truth"... and the headless horse is still galloping.
http://www.youtube.com/watch?v=v36qCXzCud0
"Jimmy Brown, made of stone
Charlie Clown, no way home
Bring on the headless horses
Wherever they may roam
Shiver and say the words
Of every lie you've heard..."
And yet!...
Enron
http://www.youtube.com/watch?v=_dm61gVae-I
Burn, baby, Burn
Wash, rinse and repeat.
Hey, if they say they did their best, then it means they did their best.
Can't blame a man for trying no?
Now who wants to take the honors to press the reset button on Europe?
I will... when that button covers the entire world's economies.
I am the destroyer of worlds: http://tinyurl.com/mnh9ac
Let it be said that the lowly Coon did it.
We had a Coon go up a power pole and short out the wires, he was on fire. He gave it his all. You should be proud.
I'm starting to root for the rioters.
I don't think all the people in the US that are going to lose their pensions to Wall St have woken up yet.
What do you think will happen in the US when they tell every retired cop and firefighter that their pensions all got slaughtered but that banks that did it got bailed out?
What do you think all the active cops and firefighter will do when they know their retirement was sacrificed to Wall St bailouts and they get bupkis?
I suspect a coming surge in sign-ups:
http://oathkeepers.org
I am Chumbawamba.
I took that oath twenty six years ago for the US Navy.
Seems like a whole lot pf people in DC that take this oath on a more regular basis need to start living up to it or get out of government.
No, the difference is that I assume you MEANT it. Check out OathKeepers.
Did then, still do now.
The catch to it all is figuring out who the "enemies of the Republic" are. I figure 90+% of the people who took / take this oath will assume that the "enemies" are who their bosses, generals, commissars, and bundfuehrers tell them.
http://www.mercurynews.com/re-golf/ci_15022019 San Diego sues over employee pension payments The Associated Press Posted: 05/05/2010 06:48:23 AM PDT Updated: 05/05/2010 06:48:23 AM PDT
SAN DIEGO—San Diego is suing to force its employees to pay more into their pension fund to make up for $80 million in investment losses.
The suit was filed Monday in Superior Court against the San Diego City Employees Retirement System, which is funded by both city and employee contributions.
The suit asks a judge to order the system to increase worker contributions. City Attorney Jan Goldsmith argues that under the city charter, workers must split the cost of making up the investment losses.
Labor leaders fear about 9,000 union workers would be charged an extra $4,000 each.
A ruling is expected before the city makes its annual pension payment on July 1.
I don't figger that anyone working for a city, municipality, state, or federal government is likely to do more than pay up.
And they should considering work expended vs. salary and benefits derived.
I, for one, WELCOME the INEVITABLE self-destruction of the present day economic and financial system as it is the ONLY way that a new system can be built, much like a forest fire cleans the dead vegetation and creates place for new plants to grow. The system is BEYOND reforming. It needs to be rebuilt.
It's nature. It's life. Don't fight it. Embrace it.
Another like mind. I was hoping for the embrace thursday. Alas, another disappoinment.
FUCK YES
+100
Long live the forest, let it burn.
There is only one hitch to this line of thinking though. The apathetic, it will happen on its own viewpoint, leaves open the window for TPTB to plan the demolition and reconstruction. It is my feeling that it would be best, most ideal, if a good sized minority forced the inevitable by civil disobedience/non participation. If we do not have a say in the demolition, we may not have a say in the reconstruction.
If say 20% of the US citizenry would sign a petition to work strike/transaction strike on a given day for a fixed period of time, and then deliver a list of common sense demands to be met, we could force their hands. If the demands are not met, the work strike/transaction strike would go on, crippling the country. The banksters are not the only ones that can threaten very bad outcomes, methinks.
Probably a pipe dream, BUT it would work.
Excellent point, my thoughts exactly. Maybe this is why the PTB don't fear a collapse so much, confident that they will remain in charge.
Time to bring out the guillotines, methinks.
Guillotines, Bitches!!!
Embrace the Gallopin' Gertie:
http://www.youtube.com/watch?v=HxTZ446tbzE
Gordon, embracing the system's destruction seems like riding a tiger.
I am detaching. On the sidelines with my gold and my guns.
But, I still don't feel prepared...
Gordon, the Forestry folks never got it right either, and they are just a lowly department of the gubmint. So called "controlled burns" are a farce. The under brush is very thick now and the saplings are dry like kindling. The whole thing is gonna burn! It's like No Child Left Behind, no kid fails a grade (thereby graduating illiterate), and the banning of dodge ball. We have become a nation of wussies. I, too, am on the sidelines with my small stash of worldly goods, self defense tools, and a bit o' the precious metals. Let me know when the smoke clears.
maybe some big hand-o-god will take out the top layer and leave the rest of us the f--k alone to grow tomatoes and kids.
People are not losing their pensions to Wall Street. Of course that is the Obama lie of the day, week, month, and year. Wall Street never had the money. Noboby had the money. It was all based upon some future promise to fund with other people's money. I suppose now that those other people don't want to hand it over it has become Wall Street's fault?
Who the hell junked this post? It's absolutely correct.
Everything we think is MONEY is no more than the fingers-crossing that some greater number of people will borrow more of it in the future.
did i hear someone mention gold?
musta been those voices in my head again. time for my pills.
:^)
They won't cut the cops' pensions. They need them to maintain order and put on the riot gear and bust the heads of the people standing up for their rights and what is right and otherwise proving themselves enemies of the State.
So if Goldman gets all bearish, they are to be beleived?
Those markets will calm right on down. Ol Ben will squeeze those Euro shorts.
Meanwhile, the EU, will come up with their version of the fed so that the politicians can be insulated from giving away their citizens money to the banks.
Stock markets just love even the smell of bailouts and loose money and will think the pigs are good to go.
The real crash will be kicked down the road a piece.
Quantitative Sleezing, Euro style. Winks.
There is diminishing return for bailouts too. Each successive bailout or intervention yields less relief and for shorter periods. I'm starting to welcome the interventions. They give me a better shorting opportunities.
exactly. I am looking for a better re-entry into the TZA I let go over $7.50 :-)
The real crash will be kicked down the road a piece?
(Reuters) - Another deflationary wave of global credit strains, heralded by the Greek debt crisis, will broadly punish riskier assets, technical analyst Robert Prechter said on Friday.
U.S. stock markets will erase their past six months of gains "in a matter of weeks," said Prechter, president of research company Elliott Wave International, in Gainesville, Georgia and known for predicting the 1987 stock market crash.
http://www.reuters.com/article/idUSTRE6465TI20100507
I agree. By "a piece", I mean one final blow off top this summer, followed by a bleak fall and a decidely unmerry Christmas for the bulls.
That double dip everyone thinks we avoided will be coming with a vengance.
Get ready for QE 2.0 new and improved version, and a nice VAT to go along with our being made like more Europe-like.
Doomers still have to wait until the markets grow weary of the constant rabbits being pulled out of the politicos hats (and asses).
Rabbitt #23 is "Europe gets a treaserve too"
Plenty of rabbitts left, but as another poster commented, the law of diminishing returns is starting to kick in.
The markets are like crackheads, Ben gave them a nice big slab via QE, they loved that, Obama gave them some bunk dope with the "cash for pretending things are good" alphabet soup programs, but that stuff wore off.
Now they get a nice little hit of Euro-crack, great stuff, but the market will still crave the first QE bomb dope.
Look for the quick reversal of the Fed withdrawing QE 1.0, Obamas alphabet soup programs to suddenly unexpire and of course yet more bailouts. Qe 2.0 will either get sold or just snuck in.
The net effect imo, will be a mediocre grind for years before any real gloom. Everyone will become assimialated into bailout policy as the new normal and 10 trillion deficits still wont matter just like Cheney said.
The SP500 will be kept above critical levels but it will stay down and barely alive.
The Union has been built on hope and change, hmmm sound familiar, with a ponzi scheme as the wizard. Now the collateral cultural damage done through hope and change to each state will manifest itself ... Got Gold?
Yes, I do have gold. I wish I had bought a lot more when it was REALLY CHEAP.
A few months ago I was talking with my brother on the phone. He had heard me urge him to buy gold over and over. And then he asked me: "You must have, what 1000 oz, right?" I responded that I only wished I had a big fraction of that.
The Gordons and the Chumbas look like they will be BIG WINNERS (as big gold holders). But, who knows? I sure do not know...
Hey DCRB, its the internet. We are all BIG WINNERS! (good looking too)
Bought my first few ounces in 1999 and picked up the pace in 2001. Slow going but it piles up. Breaking that $400 threshold was a very traumatic time. I just knew I was nuts for paying that much... and $6 for silver? Crazy! I still drag out that roll of 1/10th ounce American Gold Eagles now and then and smile. 5 ounces in one small tube. Now that is money you can actually buy stuff with. Remind me one of these days to tell you about the $50 car.
I got my first leafs at $285 each.
Had a decent little stash of those, some Silver Eagles and some platinum at around $500 and then the wife cracked the safe and took them during the divorce brouhaha. Oh well.
I took some krugs off a buddy of mine at $740 or so during the 2008 BS; he said he saw gold goin lower. Traded a stack of FRNs for them. Thanks for the chips amigo.
Actually I have been buying PMs since the 1980s, but did not pick up the pace until a few years ago. I don't even know what my average buying price really is...
Oh, that would be $1100 Mr. IRS man.
.....
I remember soon after moving down here how BURNED and SUCKERED I felt after buying that Platinum Eagle for $900! I felt like a jerk! I feel better now.
Bummer about her walking off with the Pt that you invested in.
Should have used the Tungsten PM's for divorce trav7777
the biggest fraud being played on anyone with a retirement plan is that when XYZ company shares go up 10%, the increase in your retirement account is actually real.
There is a convergence appearing on the horizon that will become obvious to many very soon:
Government will be taxing corporations to death and profits will drop precipitiously.Where does that leave your forward P/E valuation model?
LOL!!!
Statutory and effective tax rates are a joke:
http://www.reclaimdemocracy.org/corporate_welfare/real_tax_rates_plummet...
Just a snippet:
We'll see.. I'm thinking that if the ECB and Fed do something pretty dramatic this weekend the system as it exists might be OK. But make no mistake.. Lehman 2.0 has arrived.
http://themeanoldinvestor.blogspot.com/
Retirement assets are just one class of magic deflating personal assets in this economy. Along with income and real estate.
Not really sure I wanna listen to or pay attention to an organization whose sole business is defrauding and looting as many people as possible on the planet. I think it's appropriate that the name "Goldman" should be relegated to the list of the other despicable words associated with crimes against humanity such as "Hitler", "Holocaust", "Apartheid", etc.
+ $1210, as usual Gordon.
This can't be good for the FED - another central bank chasing trillions could move rates upward.
Douglas Adams - the EU has the answer, if only they could find the question now...
EU :Come off it Mr. Market you can’t win you know! Look, there’s no point in lying down in the path of progress!
Mr.Market: I’ve gone off the idea of progress it’s overrated!
EU: But you must realize that you can’t lie in front of the bulldozers indefinitely!
Mr.Market: I’m game—we’ll see who rusts first.
From 'Chapter 42 of The Decline and Fall of Europe', Print Edition: 2098.
According to Trichet, the idea for The EU Guide To Reality came to him whilst he was hitchhiking around Brussels. He was lost, unable to communicate with the natives, which drove him to purchasing beer and lying in a field in the middle of Cinquantenairee Park, pondering the nature of his ineffectual guide book and thinking that if somebody would write The EU Guide To Reality he would be “off like a shot”.
I guess the pool of bond purchasers is limitless...
As is the pool of idiots.
Bondholders = idiots. They deserve what's coming their way.
I'm no genius in the field of finance, Gordon, so tell me where I'm wrong here: The "bondholders" are those financiers with a fiduciary responsibility to prudently invest all that money in those 401k accounts, as well as other retirement accounts of municipalities and union organizations, etc. So, who, exactly, are the idiots?
From www.prudentbear.com by Douglas Nolan. I apologize for the lengthy post but this is well worth reading:
http://www.prudentbear.com/templates/NewPrudentBear/images/bg-h-sidebar....); background-repeat: repeat-x; background-attachment: initial; -webkit-background-clip: initial; -webkit-background-origin: initial; background-color: initial; background-position: 0% 100%; border: 0px initial initial;">Recent Commentary"Liquidationist" Revisited:
John Maynard Keynes dismissed the “austere and puritanical” “liquidationists.” Over the years, Chairman Bernanke has similarly ridiculed the “Bubble poppers” – those in the late 1920’s that believed the Fed needed to tighten policy to rein in out of control securities leveraging, speculation and economic imbalances. Dr. Bernanke has blamed “overzealous” central banking for contributing to the Great Depression.
Andrew Mellon has proved the perfect poster child for those seeking to simplify, distort and discredit so-called “liquidationist” analysis: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate… It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”...
History has not been kind to Andrew Mellon and “liquidationist” thinking. Mr. Mellon could have phrased his views in a more palatable fashion. All the same, there was actually an expansive body of writings and insightful economic analysis during the late-twenties and into the depression that went significantly beyond moral judgments. An impressive group of scholars and statesmen from this period believed that the U.S. Credit system and economy had become grossly distorted from a runaway inflation that had commenced back with the outbreak of the First World War.
Those “old timers” had survived repeated inflationary booms, busts and destabilizing monetary instability going back to the 1860’s. From experience, they understood the perils of rapid Credit expansion and the necessity of reining in excesses early in the cycle. The “anti-inflationists” were convinced that the only way to return to a more even keel was to bring down the inflated price level; to bring down inflated asset values; to bring down inflated incomes; and to stabilize economic output at more sustainable levels.
After a massive inflation, the “old timers” understood that the only way to return balance and monetary order to the system was through quashing speculation, financial excess and economic profligacy. And this view was much more based on the understanding of the inherent instability of Credit inflations than it was a “puritanical” judgment. Sustaining a Bubble was certainly not a viable policy option.
From Dr. Bernanke (extracted from his speech, “Asset-Price ‘Bubbles’ and Monetary Policy”, October 15, 2002): “The correct interpretation of the 1920s, then, is not the popular one--that the stock market got overvalued, crashed, and caused a Great Depression. The true story is that monetary policy tried overzealously to stop the rise in stock prices. But the main effect of the tight monetary policy… was to slow the economy--both domestically and, through the workings of the gold standard, abroad. The slowing economy, together with rising interest rates, was in turn a major factor in precipitating the stock market crash. This interpretation of the events of the late 1920s is shared by the most knowledgeable students of the period, including Keynes, Friedman and Schwartz, and other leading scholars of both the Depression era and today.
…There is little credible evidence of a bubble in the U.S. stock market before March 1928…yet, in part because of the workings of the gold standard, U.S. monetary policy had already turned exceptionally tight by late 1927… Tighter policy earlier would have brought the Depression on all the more quickly and sharply… The Federal Reserve went on to make a number of serious additional mistakes that deepened and extended the Great Depression of the 1930s. Besides trying to pop the stock market bubble, the Fed made little or no effort to protect the banking system from depositor runs and panics. Most seriously, it permitted a severe deflation in the price level, which drove real interest rates sky-high and greatly increased the pressure on debtors. A small compensation for the enormous tragedy of the Great Depression is that we learned some valuable lessons about central banking. It would be a shame if those lessons were to be forgotten.”
Through the teachings of Keynes, Friedman, Bernanke and others we have been taught flawed analysis and educated in the wrong lessons from the terrible experience of the Great Depression. The doctrine of inflating Credit, while disregarding speculation and Bubble dynamics, is fraught with myriad dangers. And, well, we’re now 20 months into Dr. Bernanke’s - and global central bankers’ – experimental “helicopter money” and “government printing press” assault on the Credit crisis. Not for a moment have I expected such overzealous inflationism to do anything other than exacerbate financial and economic fragility.
The financial world would be a safer place today had Trillions of additional dollars (and euros, yen, etc.) of liquidity not been unleashed upon the markets. After all, ultra-loose financial conditions accommodated 20 months of historic deficit spending in Greece, periphery Europe, here at home and all about. Massive government borrowing likely fomented heightened trading activity and speculation in sovereign Credit default swap markets around the world. Clearly, synchronized fiscal and monetary stimulus incited speculative excess throughout global securities markets.
The “inflationists” would argue that fiscal and monetary stimulus was essential for fostering U.S. economic recovery. A “liquidationist” (“anti-inflationist”) would counter with the argument that the cost of Trillions of additional government debt and related marketplace distortions far outweigh what will prove ephemeral benefits. Attempts to avert system adjustment and restructuring – efforts to sustain the previous Bubble economy structure – will prove unsuccessful. This will in large part be because of the enormous amounts of ongoing Credit expansion and monetary profligacy required for such an endeavor. There are a host of issues related to the government throwing Trillions (of new “money”) at a maladjusted economy. I have over the years broadly referred to these types of consequences as “Monetary Disorder.” Some of these effects have made themselves conspicuous of late.
Reflating the stock market has been a key facet of government reflationary measures. Rising stock prices were instrumental in boosting household and business confidence. The revival of “animal spirits” in debt and equities markets was integral to much improved sentiment - and the advancement of a bullish consensus view that economic fundamentals were sound and the recovery on sound footing. And there’s nothing like the cocktail of inflating markets, escalating confidence, and ultra-loose financial conditions to ensure the rapid emergence of speculative excess.
The financial world would be a safer place today had electronic “frequent trading” not proliferated throughout the government policy-induced stock market reflation. And financial stability was similarly not bolstered by near-zero rates having enticed over $1 TN of money market assets out to inflate global risk markets. The revival of bullish expectations, the revitalization of speculative excess and the unprecedented flow of finance into riskier assets – in the face of latent financial and economic fragility – has set the stage for another round of financial tumult – along with further investor disappointment and disillusionment.
Perhaps “purge the rottenness out of the system” is too strong. But the financial world would be a safer place today had zealous government market intervention not bailed out the crisis-imperiled “leveraged speculating community”. At one point yesterday, the Japanese yen was almost 6% higher against the dollar – and up a stunning 8% against the euro, Swedish krona and some other currencies. Those that had speculated on “carry trades” – say, borrowing in yen to finance leveraged long positions in euro-denominated Portuguese bonds – were crushed yesterday in what was likely a significant unwind of money-loosing trades.
The reemergence of “contagion” definitely makes the financial world an unstable and uncertain place in which to operate. A crisis of confidence in Greek debt led to dislocation in the market for Greece’s Credit default swap (CDS) protection - that jumped to Portugal and then quickly engulfed European CDS and beyond. Dislocation in European bonds and CDS placed significant downward pressure on the euro and upward pressure on the dollar – in the process fostering general currency market instability. Most commodities (not gold!) sank, while the emerging markets came under heavy selling pressure. Global tumult incited a flight into bunds and Treasuries, causing additional havoc for myriad other “carry trades”. Here at home, spreads between Treasury yields and higher-yielding debt instruments (i.e. MBS and corporate bonds) began to “blow out.” In short order yesterday, the yen melted up, Treasuries melted up, risk spreads widened dramatically and 2008-style deleveraging returned in full force.
Throwing Trillions at a highly-speculative and dysfunctional global financial “system” has begun to present itself somewhat as a more conspicuous failure. The Greeks and Europeans are furious. And I doubt the ECB is too impressed right now with the “inflationist” prescription of monetizing euro debt issues. Here at home, confidence is shaken but not yet broken. The dollar is well-bid and yields are low, so things could definitely be worse. There should be, however, little doubt that the sequence of Goldman Sachs testimony, violent Greek riots, the eruption of contagion risk, and a quick 1,000 point market downdraft has reversed momentum away from Greed and firmly in the direction of Fear.
Note the shooting star backtest of the PRS 133 channel (minutes before the Thursday Heist)
I posted "Fractured Fractals" during that retest, and went short 3 futures. In retrospect, wish I had played it bigger. But I have also found in the past, when taking on inordinately large positions (say 10 to 20 futures) that the market goes out it's way to punish.
Entire post with charts is found here
http://oahutrading.blogspot.com/2010/05/thursday-heist-was-telegraphed.html
It's hard to "trust" this market in any way. The bottom reversal happened in such proximity to the "limit down" market stopping rules, that it further reeks of manipulation
<a href="http://thetaildoesnotwagthedog.blogspot.com/2010/05/i-lied-i-have-to-pos...">http://thetaildoesnotwagthedog.blogspot.com/2010/05/i-lied-i-have-to-pos...
Here is the cool part, the "Fractured Fractals" post, right before the debacle.
Note the comment on the chart: "Backtest of the PRS 133 and breakout to the downside, accelerating fear", 3 futures stop set right above the PRS lower channel, worked perfectly.
Below is my first attempt at a "Movie". This shows the Thursday crash in live action. The yellow line is the PRS 133 lower channel. Note the mini-backtest and then the real backtest. No audio on this one.
The backtest of the PRS133 channel line is about halfway through the video....then the plunge.
Testing Video -- Below is HTML to Utube and at the bottom is the Utube link directly
<a href="http://www.youtube.com/watch?v=qwvH4jraumc">http://www.youtube.com/watch?v=qwvH4jraumc</a>
I think I can see it clearly now. I had a discussion with a professor some years ago, a German History professor, and we had a conversation about the EU. He said that the concept from the beginning was one of political unification, and it was just that the initial stages had to be economic.
This looks like the endgame developing.
As we go along there will be only one "solution", for the EU to fully unite politically.
The ultimate bankster threatdown, it seems. Lay down your sovereignty to the EU, and the ECB, or....very bad things will happen.
MR SARKOZY'S EUROPEAN DEBT HOLIDAY:
http://williambanzai7.blogspot.com/2010/05/mr-sarkozys-european-debt-hol...
Me thinks Skank of America bank is going to lose this game of Jenga.
http://www.youtube.com/watch?v=1hhPLl-6eko
Individual countries have to borrow to put into a fund that will bail out its own debt? It's just an international slush fund to buy bonds off the books of european banks. This has cockamamie written all over it. They don't have a plan. They haven't agreed on anything.
Hamburger = Swaps
http://www.youtube.com/watch?v=NJ6xBaZ92uA
Translation from Khazar to English: We want more money and/or time in which to rape money out of additional wallets.
Marat 'em all.
http://en.wikipedia.org/wiki/Jean-Paul_Marat
The Euro Crisis and the Euro Collapse- A run on the banks is Imminent
Today we are past the point of no return if Europeans will not come with some plan that secures hundreds of billions of Euros of PIIGS we will see a run the European banking system within weeks and possibly less.
Can the U.S, China, Japan and the Gulf states come to the rescue?
It is possible that they will do so under the IMF. In that case they might give hundreds of billions of dollars to the PIIGS in return to massive budget cuts. The riots and economic contraction resulting from the budget cuts will keep the PIIGS solvent for maybe 6 months…
But please keep in mind that it took the U.S congress weeks to pass TARP. Does anybody believe that they can act faster when regarding to foreign countries and in an election year?
It will be interesting to see what kind of scheme the Germans and the French will come with tomorrow but it is hard to see anything that will calm the markets down for more than a few days.
And if all the U. S. 50 states had different languages (put aside the cultural spreads) can you imagine how long it would have taken to pass TARP? On the other hand, it would have been just as well had it failed. Perhaps failure is the best of all possible outcomes for Europe!
Based on Sarkozky’s bluster, ECB rumours of a massive Bailout fund for 1000 Eurobanksters and the associated rumour that Helicopter Ben has reopened Swap Lines with his Eurotrash counterpart Jean-Claude Trash-it, one can be pretty sure right now they are loading the BAZOOKA for Monday morning. Cover your shorts! This could be the Ramp Job of the Millenium before the final OBLITERATION of the monetary system.
Here is the scenario. Helicopter Ben opens the Transatlantic Money Pipeline Spigot WIDE OPEN to the “Infinite” setting, the same setting they currently have on Faddie and Frennie toxic waste. Trash-it for his part disburses the endless Free Money to his 1000 closest Pigman friends, who then descend on the markets buying up everything in sight, No Price too High! In 25 minutes on Monday Morning, the Algos will trip again and the Dow will ROCKET to the MOON by 2000 points, easily outstripping the 1000 point drop on Thursday last.
Yes indeed, these guys are about to go on the biggest shopping spree of all time on the Infinite Credit Card of the Fed. They’ll go ahead and buy up every POS Bond offering from Greek Islands to the Sunny Shores of California and every Equity Stock in between.
Sadly of course, they STILL haven’t figured out how to get any of the soon to be Ballistically fired out Toilet Paper into the hands of J6P to BUY any of the stuff these companies make or pump outta da ground. They are too busy trying to fill up the debt hole with money to keep the banking system operational to bother about distributing out money to anyone else. So meanwhile, Banks in Athens will continue Burning, followed soon by banks in Portugal, followed thereafter by banks in France and Germany.
OK, back to reality. No I do NOT really think the Dow is gonna rocket up that fast, nor do I think they can BAZOOKA out the money fast enough to cover all the debt that is consuming capital right now at a fantastic pace. There are Political Repercussions with each separate debt problem that have to be hammered out before the Banksters will part with any of their freshly printed Lucre. “Austerity” measures designed to make sure they will get paid their Vigorish BEFORE J6P gets to feed his kids.
While Helicopter Ben no doubt will be slipping money to Trash-it, the CONgress Critters are antsy enough about local Obamouts already, and if it is too overt they will simply CHOKE on the idea of Obamouting all of Europe. So Helicopter Ben will try to slip out just ENOUGH money to “stabilize” the markets, not ramp them up outrageously. Delicate bizness there, because just how much is “just enough”?
At the rate things are deteriorating, the $500B or so being talked about here will be consumed in the gaping MAW of Debt in about a quarter. Maybe it gets them through the summer? No idea just how much “stay the course” fortitude Helicopter Ben has here, but after the next $500B is consumed and doesn’t do jack shit to resolve the problem, even he has to Capitulate at some point. If he doesn’t somebody will do it for him, and not in a nice way.
What this means for the markets next week is of course more Volatility, and it could go either way depending on PERCEPTIONS of whether there is enough or not enough to go up or down here. IMHO, retail Investors are going to try to leave the market in droves either way, its just too risky now. Your retail investors probably head for the relative “safety” of USTs. Which leaves only the Big Banks and the Hedge Funds playing the market, and I’m not sure even Hedge Funds will continue to play. They are composed of money from mega rich Pigmen who themselves are asking for redemptions.
If I hadn’t already done it, tomorrow I would cash in my 401K and my Money Market account regardless of the hit I took in Taxes on it. The ONLY place your money is “safe” right now is in the Bank of Sealy, where the only thing that will kill its value is Inflation, which will take at least a few months to play out and you’ll be able to see it and spend out your money as fast as you can buying Food, Guns and Ammo. Leave it in the Bank, and TOMORROW you could find your Money Market account FROZEN, or see a 30% drop in your Mutual Fund or whatever.
The markets right now are just a giant Casino, and all the Slots are rigged in favor of the Squid. It’s a pure guessing game on any given day whether liquidity will POUR down on the market from the Fed spigot, or whether the Fed will turn the spigot OFF and the market turns into a barren DESERT devoid of all liquidity.
Nobody really knows which way it will go on a given day, not even the Big Players themselves know. There is no PLAN here, its all just REACTION to what happens, and every new initiative is followed by even worse BLOWBACK. Get out NOW while you still can, then hunker down and PRAY. This monetary system is DOOMED. What comes after is anybody’s guess, but whatever it is, it ain’t gonna be pretty. Coming Soon to a Theatre Near You.
RE
RE Thanks.
@ Crab Cake;
The EU will unite politically (or any other way) the day after Lousiana annexes Switzerland...
Attila
I never said it would be successful, I think that's the end game though for TPTB. As I mentioned the final gambit is coming into view. I believe the attempt will fail miserably, much like Napoleon or Hitler storming Russia in their hubris. The plan for one world/one euro is going to go up like a cartoon cigar in their faces, and then all hell is going to break loose; IMO.
There will be just one too many "comply to the banksters or else" threats somewhere along the line, one of the countrys' populations will go truly apeshit, and then off we go into the wild blue yonder.
OT: Containment Box in Gulf Spill= Epic Fail
http://news.yahoo.com/s/ap/20100508/ap_on_bi_ge/us_gulf_oil_spill_248
Once again Bernanke demonstrates that the USA's best export is Moral Hazard.
So as not to compromise his 18 month experiment in reflation rumor has it that there is a significant US component to the ECB bailout. Apparently, there is no fucking way Ben Shalom is going to leave this up to the ECB and the IMF. All the world can now hail the Federal Reserve because they sure are bowing to its will. Oh, except the BBC mentions that Brits may yet grow a set and sit this round out. Of course with the UK coming up the outside on the whole "sovereign default" issue, one wonders how long they will actually hold out for?
From the BBC:
There is talk of the ECB providing some kind of one year repo facility (where government bonds are swapped for 12-month loans) in collaboration with the US Federal Reserve.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/05/britain_to_oppose_giant_euro_b.html
Too mean...I didn't have the heart.
cross posted from other thread
El-Erian on a critical weekend for Europe and the economyMay 08 17:32
http://ftalphaville.ft.com/blog/2010/05/08/224356/guest-post-el-erian-on...
More bad news from the gulf, the containment box did not work.
Is The Squid Surrendering?
Goldman Sachs is to "sue for peace" in the fraud trial bought by the Securities Exchange Commission and offer to admit to a lesser charge of negligence if the main charges are dropped.http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7697467/...
If I had to guess, I'd say they fully had a hand in Thursday's mega-drop, and they expect it to continue, so they're priming everybody with statements like this.
I say we're gonna finally get that drop to 500 on the S&P that most of you guys have been screaming for since last April. We might get a little relief rally on Mon. and Tues., to around 1150. But, it's fairly clear that the bias is to the downside.
(Incidentally, to you students of history out there - I remember hearing something about a similar drop a few days or a few weeks before the big one back in '87. I remember reading somewhere that there was a, like, 800 or so pt. drop in the DOW that lasted maybe 2 minutes right before the huge one. Is this true? I was just a kid back then and I can't seem to find anything to confirm this.
Overly briefly 1987:
-- High in August
-- Weds (Oct): Dow -100
-- Thurs: Dow -55
-- Fri: Dow -100
-- Long tense weekend
-- Mon: Dow -500+ (22% drop that day)
-- Tue: prototype PPT jumps in, Dow +100
Deflation comes regardless. One chart shows it.
The other chart explains the action.
Supply and demand.
Not rocket science.
http://bit.ly/1ax9Pw
I've uploaded a new DOW chart.
http://www.zerohedge.com/forum/latest-market-outlook-0
http://stockmarket618.wordpress.com