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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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I am not a financial guy but this my take. When the Fed/Banks issue credit there is a multiplication factor of around 15, but no real money passes hands. $1 magically becomes $15. However to service the "credit/debt" real money has to be used. The problem in Europe/US is that there is not enough real money to service all the obligations. I agree that issuing more debt will not help. I believe that there are only 2 possibilities:
1. Print more money.
2. Reduce the debt by writing it off.
Is there another way?
Basically there is no free lunch and one can not create money out of thin air. In the old days before the printing press countries went to war to enrich themselves. Maybe we are returning to those days.
Giving banks money in exchange for worthless assets (see Maiden Lane) is in reality writing the debt off by transferring it to your kids, grand-kids and great grand kids - they'll have every right to pull the plug on our generation.
I suspect the Americans and the British will give the EU just enough rope to hang themselves.
Do you honestly feel that Brussels will show all their cards and present an honest case of their financial mismanagement? If they do, wouldn't they open themselves to geo-political blackmail once this crisis passes? If they don't present an honest scenario, I expect in a strategic sense the Americans and British would accept the EU "pie-in-the-sky analysis". That action would result in the EU shortchanging their position. We are dealing with the EU mentality here.
Where would the smart EU money go? America, Britain, or China, Russia, Brazil and Argentina?
Two months sounds about right...
Where would the money go? Gold and Silver. Brazil and Australia. Not so smart money, USA; (conventional thinking).
Gold.....
Why should we finance unsustainable consumerist ponzi economies
We have the Gold so why not increase or at least maintain our internal wealth by sending Gold to the moon.
We're a digital world. I think gold's time has passed. Various governments have expropriated gold in the past. I expect they will expropriate it or tax it heavily in the future. If you can't use gold for everyday transactions, what good is it? It will always have investment value but I don't see anyone going to Walmart and paying in gold.
I think in a digital world, the new "gold" is "equity shares or other digital financial investments". Digitally, you are fully invested all the time in strategic investments that are difficult to expropriate or tax. If the governments tax the heck out of "investor equity" companies layoff "democratic voters" or lobby for regime change.
"If you can't use gold for everyday transactions, what good is it? It will always have investment value but I don't see anyone going to Walmart and paying in gold."
Another clueless motherfucker... ever look at a POG chart. BTW, thanks alot of the WMT perspective.
DosZap, if the system breaks down that far, lead is worth more than gold. One ounce of lead will get you all the gold your "customer" has. I've grown up in rural Canada. I suspect it is the same as rural America, Australia, Ireland, New Zealand, England, Scotland, France, Poland, etc., etc., etc. We've had immigrants from all over. One thing I know is you don't walk into a strange community and throw your weight around. They will be polite but if the system breaks to the point you describe, community will be all that matters.
As for the thought that a crew can drive out from the city and perform a "dynamic entry"... well they might do it once. Chances are they are dealt with on their exit. It's a long way back to the city. Spending your time in the community after doing them harm is not a "life enhancing decision".
Bringin'It, financial regulation is the new political grail. Any political party that campaigns on this over the next 50-80 years will win approval from the voters. In the past we had healthcare, racism etc as the political grails that democracies argued over. The game has changed. Welcome to the Tea Party world. They are the future.
The stock market will be around long after we are gone. It's survived famines, revolutions, global wars, crime, pestilence, CNBC, etc. The name of the game is to figure out the changing themes in the changing world. This is what Naisbitt wrote about with his "megatrends" books back in the 80's. The gold goes to those who stay one step ahead of the crowd.
Regarding energy shortages, research thorium and nuclear energy. If they can find a structural material that will allow a molten salt reactor to last 50-80 years, we may have one solution to our energy problem. Nuclear power will be used to run desalinzation plants and other fertilizer plants in the future. Nuclear energy can be used to convert coal to diesel. Energy intensive food production is the future and nuclear power is the low cost source, net capital costs.
Look at copper. If you are switching from a petroleum based economy to an electrical based economy, you will need copper. Copper could become the new gold. Go to Mises.org and research copper prices back in Germany during the '20s. That was a big move. Today, copper has performed better than gold has.
Your digital world sounds fascinating, but how does it hold up under energy rationing, black outs or solar storms? How do you spend it during a crisis the likes of Katrina?
If you can't physically hold it and understand it's intrinsic value then it doesn't have real value. That goes for paper "gold" as well. There isn't enough physical gold to cover the paper "gold" held and traded today. In effect they're just IOUs. Redeemable while supplies last.
You're right, Wal-mart doesn't accept gold for payment, because of the legal tender laws in place. But the fact that you shop at Wal-mart reveals that you don't understand the negative impact international corporations have on local communities, and naively support the degradation of your own community. In this case it might be wise to turn to man's best friend to understand the impact of your investment and spending decisions. Even dogs don't poop in their food dish...
The central banks are printing money expecting growth in all those traditional instruments such as stocks they have grown to recognize as wealth indicators.
Yet it is impossible to create real wealth in a world of stagnant energy growth - this dead money will follow a dead inert metal that symbolises wealth -Gold
If there was a major drive towards efficiency and development of new energy sources I would be more Positive but I don't see it so I ain't.
you'd probably find bullionvault.com interesting; headquartered in London they sell vaulted Gold and Silver. I agree with your thesis that the money will flow into gold and silver; this is a small movement now which, at least at this time, is also slowly increasing in size; (on-going bull market).
I just watched this TYT video that someone posed earlier. Now I'm pissed.
http://www.youtube.com/watch?v=d8-JXhzXdSU&playnext_from=TL&videos=6QrAd...
How do you have faith in this digital-video game you're playing? Speculation/trading is one thing, but going long digital blips is the trap with the pungee sticks that most of the world has now fallen into.
difficult to expropriate or tax. - Come on - This is a joke right?
Canuckle - in a digital world - In a digital world, the problem is who's minding the ledger. The fiat game is a crooked game that always gets abused until it topples.
"equity shares or other digital financial investments" - Right. good luck with that. I've been out of that since the dot com crash and doing fine and sleep well thanks.
Canuckle,
Black market, melting it down,barter.............off the grid,not traceable(unless sold to Dealers).
Gld/Slv, have been money since the dawn of man,,,,,,,,,,,I do not care what system, nor Empire.
20 chickens = 1 pig, 5 pigs = 1 cow, ....... Got Food?
What's the pig/goat ratio in your area? I'm chicken-goat production kind of guy less real estate needed and goats have personalities. Milk, for obvious reasons (make soap with the leftovers); eggs provide every nutrient necessary for life save vitamin C - boil pine needles for a broth to keep your teeth from falling out.
Make sure you get more than one goat. Herd animals don't like to be alone. Kind of like humans.
Speaking from a European perspective - the reason the FED is/was bailing out the European banks is because you guys have the worlds reserve currency.
You could argue the FED was trying to keep the Atlantic alliance together but I believe this is doomed as globalisation has reached its zenith at least for the next few decades.
The size of the world resourse pie is no longer getting bigger yet the American policey is to expand without solving any of its internal problems.
Since the American / Chinese currency is expanding to eat more resources the other advanced economies of Japan and Europe are going on a crash diet.
The FEDS actions via the AIG conduit were mere scraps when compared to the expansionary fiscal monetary three course meal that China /America is eating.
I believe Europe's only option is to shut out capital and goods and do something similar to what the British Empire did in the 30s - all we need is a secure oil supply and a large expeditionary army.
Ah shit.
I'm not sure globalization is dead. But it certainly will face a serious challenge in the next few years.
Public backlash from the Fed bailing out Europe? I doubt it. So long as the Unemployment checks and govt handouts keep coming. How many banks failed Friday? Bank failure rates are increasing but its a minor news item. People are numb to bailouts. The Fed doesnt even have to admit bailing out other countries, hell we the taxpayers just bailed out Greece and the sheeple could care less.
CNBC, and the news services, who have gotten rid of the fairness doctrine, will exercise their freedom to continue to be the lapdogs of govt policy.
Nope no public demonstrations, no auditing of the Fed, probably not even a token congressional hearing.
Bernake will "fix" that euro, and the media will report the pigs as "fixed" and bastille day will have to wait.
Im long banks and I scooped up some TSL (chinese solar, Leo would be proud) on Friday, before any announcement of the pigs being fixed. I figured Ben wouldnt let that pesky dollar rise above monopoly money for long.
Everything comes up roses next week (Greek riots? who cares) and this little hal-9000 cyber dip will test its bottom maybe one more time and in a matter of weeks its "RISK-ON!!!".
Nice shiny new highs in the markets are reached this Summer until the central banks and the Fed run out of silver bullets. Then things start getting a little dicey. Right now, everyone thinks the Fed and ECB can print more money than the world can lose.
As Johnny Cash said "I dont like it but I guess things happen that way"
Bullshit. The problem with your post is that the current is only held together by confidence in the powers that be that they can keep the game going longer and that confidence is melting like an ice cube in Arizona. The market is going to call all bluffs and "jawboning" will not keep the wolves at bay.
+10
Johnny cash also said " I can hear the train comming, its comming round the bend, I aint seen the sunshine, In I dont know when"
dupe
Also "I fell into a burnin' ring of fire...I went down, down, down, and the flames went higher...and it burns, burns, burns...the ring of fire...the ring of fire."
Put up the capital walls - we will then see which continent can survive without extracting a surplus from each other.
There is enough internal savings to finance vital stuff in Europe - Ireland will suffer disproportionately because of its divided loyalties but we are now coming to a end of this era of globalisation and we will have to deal with it sooner rather then later.
I think on Sunday we make one more big step toward globalization. If this one does not work then your 'later' will be 'sooner'.
Bruce it takes a lot of oil to keep this globe together , you can print all the money you want and it won't mean jack shit.
I think we are on the precipice here - the conservative monetary approach to this crisis has been the most disappointing aspect of this fiasco for me.
Our leaders are central bankers and all the see are fictional balance sheets and compound interest equations - I fear that they have no concept of the physical world.
Physical world! Bingo!
I think most people in general have no concept of this. Inertia, gravity, mass, temperature, space...lost concepts. Everything is provided by the food conveyor.
Speculators would be well advised to remember who owns the guns.
those who own guns need to remember who owns the tanks
People cannot live in tanks....................
Also, you can't eat a tank. You can't use it to buy food at the store . . .
cartonero - that was funny. tnx.
You could use it to blow the doors off the food store. Anything left...
On second thought, just turn it into a drive-thru
Thats why I bought a can of tank be gone. Its on sale this weekend...
And they had better not rumble through my cornfield either. that will really piss me off and I may just have to use 2 cans of tank be gone...
I'm going to see if I can convince the condo association here to by some of that tank be gone stuff too...
Dont worry, speculators speculate over guns too...
As to all that cheap talks about curbing speculation, nothing can curb speculation.
Neither loud-mouthed politicians like Mr. Sarkozy. Neither other speculators like FED and co. Speculation can be hidden by abundancy. Never got rid of.
I have no illusions that speculation can be eliminated. But some specific speculators can be. I expect eventually some will be, either as an example to others or, more likely, to show the masses the state is doing something about it.
the fat lady has sung
sinclairs mine set
The name of the "Roulette Wheel" is Credit Default Swaps. It does not matter what the G-7 or the G-20 does. It does not matter what the IMF, ECB and Fed under a beard do. Mrs. Merkel’s foolish political strategy fits right into the equation.
CDS are going to take down every major currency, making trillions for the players. It will in time turn on the USA as it is already operating against the financially weaker Illinois and New York debt.
The dollar, as it gains ground due to the mirror image of the euro, becomes weaker and weaker due to overvaluation with no fundamental legs. The dollar’s time will come.
The OTC derivative credit default swap is about to clean the clock of the world. Der Spiegel is right but the debt is there. It will not go away but only grow bigger. The situation is in the cross hairs of the richest people on the planet hell bent on getting richer. That is the message of the Dow dropping 1000 points regardless of how it happened.
Nothing the G-7 or G-20 does will stop the predetermined avalanche in the world of fiat currency. Armstrong is right in that when it comes time for the great coming apart it will be akin to the Big Bang.
You are either ready now, or there will be no chance of readiness. Right now ready means gold and gold equivalents. The last currencies to be attacked will be the Cando and the Swiss Franc.
M. Sarkozy is just trying to deflect blame because, as El-Erian points out - there will be winners (few) and losers (many) WW as the descent into la merde continues. He observes that Germany will be one of the winners, which sans doute will make France just a bit unhappy!
Why would the Europeans want to push up the Euro? It is still overvalued by many measures and getting back to say, parity, would certainly provide some relief to the PIGS problem. I can see why Bernanke might be in a panic - a stronger Dollar is not good for HIS plans. If Sarkozy was really clever - he would raise expectations of some massive intervention - this will lead to a short covering rally for a day or two. Then the most likely damp squib of a plan will become obvious and the Euro will continue marching towards its destiny.
As far a s tactics - in order for the Europeans to push up the Euro, they would need to buy Euros and sell Dollars. Where are they gonna get a huge new supply of Dollars to sell? I suspect Bernanke will need to be a little coy abou providing it given all the scrutiny at present.
strong dollar is going to toast profits at international companies based in US which have survived mostly by getting lean and selling more to foreigners while US markets at best flat with 2009 income...and foreigners will be less likely to buy our carcasses (assets) for a little while...sounds like my hurt pie for everyone
So they can buy cheap apartments on the Upper East Side...
We're in the endgame folks.
Shoot straight you bastards, don't make a mess of it.
- Breaker Morant
http://www.youtube.com/watch?v=BI7KJnRlsS4
Only a few heads to be cut off before the final quickening...
I wish I had the know how to doctor this with Benny B's face....
Highlander - The Final Quickening
http://www.youtube.com/watch?v=4AoOa-Fz2kw
There can be only on one!
Absolutely. A blind, deaf and dumb man could have seen it coming too...
Wonder what that makes the Wankster?
It is American gold. They are only leasing it.
It seems rather unfortunate therefore, that the Germans agreed to keep their gold in the US for safe keeping.
As a result of a previously unknown anti-alchemic process, this has become tungsten...