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Sarkozy Will Get “Stuffed”
It appears that the markets are in for some action next week. The EU
leaders have pledged to put a package of measures on the table for the
market to absorb by Sunday evening.
There are no details of what may be coming as of yet. This is happening
so fast that I doubt they actually have a plan. What plans they will
come up with are all going to be short term fixes for the excessive
volatility we have seen.
We know from an article by Jon Hilsenrath at the WSJ that the US Fed has
opened existing swap lines to the ECB. This means that intervention in
the currency markets is coming. I wrote about this last week. My
thinking is the same today. If the ECB has a “Go it alone”
plan to intervene in the FX markets it will not work for long. Only
coordinated intervention including BOE and the US Fed will have anything
but a short-term impact. Therefore it is critical to see who is going
to be involved come Monday.
There a number of news leaks that suggest that a Euro 600 billion
emergency lending facility will be put in place to support Europe’s
1,000 banks that are in need of some “Fast Cash”. This is
terrible news. This just confirms that those same banks were facing a
liquidity crisis at week's end (AKA- A run on the bank). While E600b is a
big amount of money it is a drop in the bucket when it comes to the
total funding requirements in Europe. The question will quickly arise, “What
happens when the 600B is gone?” This is quite different from
the TARP approach where equity was thrown at the banks. That equity had a
10-15X’s leverage affect. This is just a new funding source. It does
nothing to address the quality of the assets being funded.
What is missing from the leaks from the EU is a plan to buy distressed
sovereign debt in the public market to absorb the excess supply and beef
up prices. We know there is pressure from the Banks to have this
happen. They are sitting on underwater sovereign bonds. These are public
securities with a massive float. I don’t think the ECB has the
resources to make much of a dent in the bond market. It is much bigger
than they are. If they drive the prices of sovereign debt higher it is
likely that they will get offers for more than they could possibly buy.
There may be some demand from global investors for Spanish debt at 6%;
there will be no private demand if the rate is artificially set at 4%.
The higher they drive up bonds the more sellers they will meet.
On the issue of buybacks one has to ask, “Where will they get the
money?” A credible buyback would have to start at Euro 500b. Is
Germany going to backstop that? I can’t believe that they will. If they
do, their debt cost will just rise and nothing will have been
accomplished. My worst fear is that in order to finance the buy ins they
look to the Federal Reserve Bank in NY to provide dollar based funding.
I don’t think that America has yet woken up to the fact that our share
of the Greek bailout is ~$20b (via the IMF quota). When we learn that
the Fed is funding Europe with big money there will be a backlash. The
Fed is already in hot water for their easy money policy. A $500b loan to
Europe by the Fed will not go over too well with the folks in America.
If something like this were agreed to over the weekend and we wake up on
Monday with a new bailout there will be a very sharp reaction. Several in D.C. (Grayson) will attempt to stop it. Bernanke understands this,
Geithner does as well (maybe). A new Marshall Plan for Europe is simply
not in the cards. If that is what is attempted it will fail miserably.
The most likely outcome will be that the US is rapidly sucked into the
European sovereign debt crisis.
There is some very clear anger being voiced from the leaders in Europe.
French President Sarkozy stuck his foot deeply in his (mouth) on Friday
night with these words:
“We will confront speculators
mercilessly. They will know once and for all what lies in store for
them.”
In my view this was a stupid move. He is saying, “Come on
speculators, I will take you all on and crush you!” He has not
one chance in a 1,000 to achieve that. His words prove that he has no
idea what he is talking about. This not a matter of evil speculators and
their evil tools (CDS). This is about massive fiscal imbalances that
everyone understands are unsustainable. Borrowing more to fix the
problem will be the end game for Europe.
It is likely that as a result of what will be forthcoming there
will be some very big swings in market prices on Monday. The Vol. will
be going up, not down. The initial result will, no doubt, be a backup in
many markets. The Euro will be higher, European sovereign bonds will
trade higher; maybe even equities could catch a bid. But the critical
question will be, “For how long?” Depending on the resolve
of those in charge this could last for a bit. At least a week and more
likely a month. But it is doomed to failure. Should we get to June and
the benefits of these emergency steps wane there will be yet another
crisis. The bonds will fall again as will the Euro. When that happens
there will be no second bailout. Sometime in the next two months we will
hear that great sucking noise again. And when it is heard there will be
no stopping it.
Get your seat belt on speculators. You are about to be attacked. This
will be a lifetime opportunity to make money. For investors, stay clear
of this. There is nothing but risk and downside. “Risk off” is
the right place to be if you don’t have a helmet on. I can’t wait.
»
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Come on, Germans have not yet even attacked :) Seriously, I am truly scared. This wildfire could burn a lot of innocent people and there will be dire consequences.
First, the euro might collapse but it will be followed by dollar collapse once the investors realize that USA is equally fubared or maybe even worse.
"I don’t think that America has yet woken up to the fact that our share of the Greek bailout is ~$20b (via the IMF quota)."
The IMF share of the Greece bailout is 40B. We're putting in 17% which is ~7B.
They are going to bluff fight in may. The real fight begins in june. PPT will hold all this month from what I can see. But europe will eat every last ounce of sellable gold this month which makes dollars currency crisis the mother next month.
I've uploaded a new DOW chart.
http://www.zerohedge.com/forum/latest-market-outlook-0
http://stockmarket618.wordpress.com
Didn't really read the article but the markets about to bounce for a week- yes it's a reaction to the panic and a sticking plaster on Greece's woes. After the summer rally, the game is up. The stock market rallied after Lehman/Bear- a lagging indicator driven by dumb money.
Can someone answer me please? Is this going to be an inflationary depression or a deflationary depression.?? There are so many people that believe the elite (money, TPTB, bankers) understand and engineered this thing and have done it before as in the 1930's depression. Or is this thing more complex now? Are CDS's so new?? I never heard of CDS's before September 2008.
I'm just trying to figure out how to take advantage of my own crisis here.
I'm pretty tired of the "dance , monkey, dance" routine, myself.
This Fed Funny Money has only lasted as long as it has because they have gone to great lengths to maintain an illusion that their paper is as good as gold ( greenie alluded to this in some of his speeches). The paper has to viewed as valuable , something sheeple have to work hard to get. There must be a lot of fighting over budgets and deficits and stuff - all to maintain the illusion of something that is valuable and scarce.
Now - they are well on their way to destroying the illusion. You see - sheeple will soon realize that when bansters blow up their coffers are replaced with Vapor Money instantaneosly - with no one breaking a sweat. Govts debts are increased without limit - financed by Bennie Mae. Not a problem. Except - Big Problem - they are destroying the illusion. Sheeple might just latch on tp the idea that Bennie Bucks are crap - they can be created in unlimited quantities with no constraints. That the favored friends& relatives can get their hands on virtually unlimited quantities of the Fictious Money. That is not good. That is the beginning of the end.
Hulk , If united nation troops show up on our turf.... ( USA )
they won't go home alive... After we shoot them , we will cut
off their heads and put them in a pile... like bowling balls..
I think folks underestimate the massive amount of firepower that exists in this country.
Lots of excellent training available too, frontsight being one:
http://www.frontsight.com/landingpg-1.asp?src=gaw&kw=frontsight&gclid=CLaoq9-3xaECFQyjiQodKWfyjQ
Good article Bruce , written in a way we can all understand...
It looks like the banks and the bond markets in Europe are
risky to be in... When panic sets in more .. Gold and Silver
will go to the moon....
Which brings me to the central issue of modern Vapor Money and the Bennie Mae issue. These central bankers seem to believe their main task is psychologic manipulation of crowd behavior. They are morons and will fail miserably.
sadly, they've done amazingly well to date. amazingly well.
Human happiness, depression, elation are not met by an equal and opposite forced. No one gains if I am depressed - more likely I will infect a few others and depress them too. No conservation laws here ! So in a fit of depression I dump my 100 shares of P&G for $40 - I have temporarily wiped out several billions off the market cap. Holders of P&G have "lost" several billions of dollars - who gained the billions? Nobody.
Money - is a socialphenomenon - like wars. Is war a zero sum game? Whatwe have are episodes of euphoria followed by episodes of distress. History is noy physics. laplace was a moron.
the EU can legislate away all bets, make them illegal but obama's mates get burned and start deleveraging in the US. but people have to stop believing in government and their money or otherwise with them all colluding any level of debt is sustainable even when it is only serviceable by even more debt. US's printed swaps with sovereigns is also still a gun in the pocket. nobody other than the populace that is getting loaded with future liability has any interest in dragging wonderland down
If its desired to eliminate speculation in derivatives like CDS a simple rule will suffice: one can only buy a CDS if one owns the underlying bond and one can only sell CDS if one has sufficient collateral/margin reserve to pay claims. The same rule could apply to equity options-one can only buy puts or sell calls on stocks one owns. Thus, no naked derivatives, would be honored in a credit event/default. This gets rid of the leverage problem and restores the original purpose of derivatives or options-hedging or insurance. Its interesting that Soros, speculator supreme, made this suggestion on CDS in an editorial in the WSJ a few months back. Very simple and very obvious.
Yes we could do these things. It would mean a collapse of liquidity on a global basis but you don't care. Remember that 20 minutes on Thursday where liquidity dissapeared for a few seconds? That is what will happen when you take the liquidity providers away. The system will break down quickly.
The Fragility of the system is absurd - redundancy is the hallmark of a functioning market , body or ecosystem.
The natural world would not tolerate such dysfunctional flora and fauna , therefore this market which is based on systems which are geared for maximum profit with almost zero capital will not last too long in this jungle.
The Euros might attack the speculators, but this will prove as meaningful as winning a big pot at the poker table on the Titanic---after the last lifeboat has pulled away. (The Titanic is at the heart of half the world's analogies. Such a legacy!)
My guess is they will allow CDS writers to repudiate, and in a worst case move might freeze or even seize bank accounts of hedge funds if any are within Eurotopia. I also suspect that the Cohens and Tudors and Bacons and Soros of the world have already taken steps to insulate themselves from some of these eventualities. Governments may set the rules, but the world's brainpower is hardly concentrated in the seats of political power. As Exhibit 1, I give you Maxine Waters.
And speaking of parasites, I think the Euro leadership---and US and Asian leadership for that matter---are as drug resistant as even the most ruthless hedge fund manager. The latter, however, never held themselves out as public servants.
How much time can they buy? What's the bid/ask on a second?
I think you underestimate what governments could do.
They could issue currency controls, withdrawal limits, freeze
the assets and stop the trading completely. Hedge funds will
be soon dealt with and it might not be a pretty sight...
It's interesting to call the market activity in CDS as "speculative". The fact is, the CDS traders are actually trading on the fundamentals right out of the textbooks! These countries have too much debt and no way to pay for it. That's an easy one in my book.
"Speculative" is riding the US stock market, irrespective of index. A stock market built on yet another bubble. A stock market rising at a time of 18% unemployment and corporate earnings growth built on cost savings and not on revenue growth. That's speculative with a capital S.
What a bunch of clowns. It makes me want to cry.
I've always been partial to Upperclass Twit of the Year.
http://www.youtube.com/watch?v=TSqkdcT25ss
"A $500b loan to Europe by the Fed will not go over too well with the folks in America"
Its only a "loan" if they pay it back with interest, this isn't a "loan", its a gift.
Or will they pay us back with bad FNM paper?
The markets should capitulate massively next week.
Sarkozy is an idiot and so is his brother.
Mr. LH - off-topic, but ... a while ago, you were posted some intresting thoughts about trinities. I was surprised you missed this one from (I think) 10k years ago. Vishnu Krishna Shiva - Father Son Holy Ghost.
I had to get a ZH ID so I could share same.
The trinity is in the eyes of the father and the mother; the son/daughter is beholden. We know ourselves and truth. The truth is ever present. Make no mistake, you are correct, every culture, every man, woman, and child has love in their souls.
DCRB - I enjoy your posts, but dude - get out of the condo.
http://www.youtube.com/watch?v=Mbk81X6WHA4
Att; Hulk , there are many retired Army guys that know how to
stop a tank.. along with many pissed of Marines ..
Watch the movie Private Ryan ..
LOL, we are the pissed off Marines JimboJammer!
As I have stated before, on the drunken family get togethers, the ones were we end up shooting at each other with shotguns (true story. Alcohol bad. Alcohol + chainsaws = badder. Alcohol + weapons = baddest)we all came to the conclusion that under no circumstances would we ever fire on, or attack in any way, innocent civilians.
So I don't take the tank/apache/F15 scenario seriously.None of us are officers, all grunts,but my belief is that there would be a military coup before our own military would roll tanks on our own land...
i would sure hope so.
http://oathkeepers.org/oath/ ...
(borrowed from somewhere around here. this may be the best investment of the decade. pass it on.)
Amen...
Sticky bomb the treads, or storm the hatch in a tight enclosed space and molotov cocktail down the hole.
When the tanks are rolling though you'll find me in a canoe out E TX way, or Louisiana, doing some quaity fishing. Got trotline?
.
We're not bailing out the damned ECB. It's just a currency swap. You guys are acting as if this paper is real money
In the days of the gold coin standard (see latin union) there would have been no point in exchanging US dollars/Canadian/GBPounds/FFR/CHF/Drachma/ Lira, etcetera between the countries. It didn't matter a bit whether one had gold coin in any of the countries as it was a simple ratio to figure any differences. If the peaceniks forced the gombits to remain on the coin standard therewould have been no WW1/WW2.
Life would have been dull as a currency trader under the gold coin standard. There was no need for currency trading then.
Greeks need real money. What kind of currency swap are you suggesting to acieve this and where does the principal come from?
Currency swap is to prevent liquidity problems attributable to shortage of US dollars, so euros are swapped for an "equivalent" value of USDs.
Think of it as a party of banks where suddenly no one wants the green M&Ms, just the red ones. And red ones are scarce, and hard to find in the bowls on the coffee tables. The Fed is supplying big bags of red M&Ms in trade for bags of green ones, in the belief that at some point the green ones will again be thought of as delicious and tasty treats. Now, if it turns out that everyone decides the green ones are poison, we'll be screwed. Then again, the cost to produce the red ones was about the same as the cost to produce the green ones: zero.
ECB can print EUROS why do they need a currency swap with the FED for dollars?
I guess because Euros are green M&Ms.
http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html
All this trouble coming to a Head ... at the same time the
Comex is about to run out of Silver and Gold ....
It is better to be 1 week early ... than 1 day late....
Heck, I'd rather be 5 years early than 1 day late.
MR SARKOZY'S EUROPEAN DEBT HOLIDAY:
http://williambanzai7.blogspot.com/2010/05/mr-sarkozys-european-debt-hol...
EVERYBODY must get stuffed!
“We will confront speculators mercilessly. They will know once and for all what lies in store for them.”
Since the dawn of time, politicians have a 0 - 1000 record fighting the markets, yet they keep on trying. I guess it is easy to fight losing battles with other peoples' money.
That's right, all you speculators that think that Greece and Europe will survive this debacle, and that the bonds are cheap, get ready to have your faces ripped off!
Sarkozy is an idiot. There are speculators on both sides of the table.
Why do they always forget that part?
I expect the Germans are burning the midnight oil planning on getting their "Mark" up and running before the end of this calendar year. They have got to be shaking their heads at all of this EU stupidity. Keep an eye on the Northern Europeans.
When the Greeks decide they've been "done over"; and they're not having it anymore, they break a couple of windows and wave their hands and shout; when the Germans decide they've been "done over" ; boy oh boy. It's Katy bar the door time. Be careful what you wish for.
German gold-bug website Hartgeld.com has several letters to the editor that prices in Germany are labeled in German Marks again after the Mark was exchanged for Euros years ago. Price quoting in Marks was unheared of in the last years; now it is back.
Othr rumours published on that site point to a possible re-issuance of the Mark next weekend.