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Stick A Fork In It: 10 Year Greek Spread Hits Record 470 bps, 3 Year At 652 bps
The crisis everyone forgot just got worse than ever. And now that European and IMF rescuers are unable to get to Greece by air, courtesy of Iceland's floating fiberglass factory, Greek 3 year just hit an all time record wide spread of 652 bps, even as the 10 Year is trading a 470 bps to Bunds or a 7.8% yield. Sorry G-Pap, no more guns or fire extinguishers.
And here are some more thoughts on the volcanic consequences from Goldman's Erik Nielsen and the European team:
Following my very first thoughts yesterday on the possible effects on the European economies of the eruption of Iceland’s Eyjafjallajökull volcano, here are some further considerations:
Update: Some 63,000 flights have been cancelled during the last four days, and more than 300 European airports remain closed. IATA estimates that the cost the airline industry to be some €220 million a day. Some airlines undertook several test flights over the weekend without incidents. Yesterday, the airline industry asked the authorities to lift restrictions. According to Bloomberg, BMW said today that they may be forced to halt production at its U.S. factory (where they produce the X5 and X6 models) if the volcanic ash cloud stops trans-Atlantic flights for another two days.
If the disruption to the airline industry will be contained to about a week, i.e. until around Wednesday, then we expect the total effect on the economies to be minimal with only a marginal knock to Q2 GDP. Air transport is 0.2% of gross valued added (GVA) in the Euro-zone (0.4% in the UK), while land transport is 2.5%, and water transport is 0.3%. As I suggested yesterday, a temporary hit to air freight should be broadly offset by increased use of the other modes of transport (as indeed is happening now). Likewise for hotels and restaurants (3% of GVA), where a short term disruption should be broadly neutral.
The possibly most comparable historical event was the 9/11 attacks, which closed U.S. airspace for 3 days. Importantly, however,9/11 was both a shock to the supply of air traffic and a severe psychological shock to demand of a whole host of services (and many goods) as the population reacted to the horrific events. Following 9/11, U.S. airlines (which were already in dire financial condition) lost $1.4 billion in revenues, and needed a $15 billion bailout package by the federal government. In the aftermath, losses continued as passengers substituted away from air travel. On a more macro level, US goods and services exports fell 8%mom (seasonally adjusted) in Sep 2001. The U.S. economy had been in recession since March of that year, but even the cumulative decline in exports during that period had been only 7.3%. There was no large export rebound in subsequent months, so the net quarterly effect was a large negative. Imports fell by 3.5% in Sep, similarly without a noticeable rebound.
If the flight ban were to be extended for weeks (or months) then we expect to see a very serious knock to our Q2 GDP forecast before business conferences and vacations get rescheduled closer to home (with video links when necessary). If so, we would see the biggest damage to GDP in Q2, followed by less severe - but still measurable - damage in following quarters until we return to normal. Also, production and distribution of goods usually transported by air - including "light weight, high value" stuff like many pharma products as well as fresh fruit etc - will suffer because it'll either take substantial time to sort out their ground transportation, or it'll be impossible all together. There are indeed already stories of trouble for overseas producers of fresh produce usually being flown into Europe.
And what if it spreads to the “big one”? Historically, eruptions of Eyjafjallajökull have often preceded eruptions by the bigger Mount Katla because there apparently are “eruptions channels” between the two. Katla’s last eruption was in 1918. Environmentalists believe that an eruption by Katla could lead to the melting of glaciers and flooding in Iceland as well as greater and more dense clouds down over Europe causing a negative impact on several sectors, particularly agriculture. The Geological office of the U.S. Interior Department says that “ash fall can have serious detrimental effects on agricultural crops and livestock depending mainly on ash thickness, the type and growing condition of a crop.”
Importantly, whatever the exact scale of the disruption, all indications so far suggest that the shock is (and would be) broadly equal to supply and demand, which means that while there could be important effects on equities (particularly between sectors), there is no reason to think this will impact monetary policy.
The European Team
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Yep, and here come the airlines looking for bailouts already claiming the volcano caused it. LOL I said a year ago the airlines would be next looking for the bailout and low and behold here they come already.
No longer risk of Greece or other .gov.eu default, techically, if caused by an Act of God? Anyone seen the offering memos in question? Is there an Act of God clause?
If so, who wants to wager G-Pap has been praying to Hades, Greek god of Volcanoes?
I propose that CNBS settle everyone's nerves by having Jim Cramer produce his show from the base of Mount Katla for the next year. Liesman should also give his analysis from the CNBS Mount Katla studio.
I wish Mr. Cramer nothing but the future he has chosen. I have used and will continue to use Jimbo in my work when I talk about ethics in life choices and how powerful what you wish for really is.
Jim has also been brutally honest at times concerning the nature of market today. A confirmed glimpse into that reality might otherwise not be possible. One can grin and think that he might be lying about even that. /snark/
+100000
Expect the volcano to be used as an explanation for all ills served cold to chumps in the market. Anything to avert eyes from systemic malfeasance.
'systemic malfeasance...'
I like that term...
Katla is definitely waking up, here is a link to seismic sensors around the volcano;
http://hraun.vedur.is/ja/Katla2009/stodvaplott.html
Na, looks like it is just sucking in some retail longs before dropping back down to the 20 eon MA.
+7 on the Richter scale.
Maybe the Black Swan for the collapse of the rickety overleveraged global economy is an Icelandic volcano that simply refuses to stop spewing ash for 20 years straight. And here we were busy looking at the S&P and Fibonacci numbers, when all we had to do was look out a window in Reykjavik.
ya, the Earth Mother says, "No you &*(^%ers, I am Tyler Durden!"
It would be poetic justice considering what European bankers did to the people of Iceland.
another volcano looks to be awakening as well
this rate no one will be flying anywhere'
http://www.google.com/hostednews/afp/article/ALeqM5jDH8YT4kKnraFPzDl3Np3...
maybe 2012 IS going to be a big deal
I'm sure they are making more of this ash cloud than they need to so they CAN use it as an excuse for the market to crash
b
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OT
I have a question. Why is it that all of the sudden all the attention of international money community is focused on France. I have been re-reading some material concerning French exposure to more vulnerable economic areas [i.e those areas which have suffered the most during the meltdown of 07 and 08] and found absolutely nothing that would indicate there is a problem in French banks or that the capital and loans of French banks have lost one single cent of their original value [i know they did; it was a death spiral which even caught the living in its whirl]. Also all economic indicators such as capital exposure-2-GDP ratio are well below the European average. It feels like the [upcoming] attack on France is a synthetic and purely artificial coordinated effort to shake, yet one more, of the Club Med countries into accepting international banking framework or it could be nothing more than a strategic decision made my the ECB to consolidate EMU countries in order to prevent them of causing any more market turmoil like we have seen with Greece and Germany situation. Yet rarely, if at all, are the pundits talking about the disastrous situation in the UK which is being well hidden for almost 2 years now via Quantitative Easing.
If i would have to engineer a financial attack on a country I would chose the UK given that ALL economic and mathematical indicators point to it as being the weakest of the top 5 EU economies, closely followed by Italy and over-built Spain.
But again as the money hub of the [future] Anglo American Order the other side of the Atlantic Ocean can not be seen ass fucking their comrades while in trenches.
If France falls victim to nothing more than a speculative and purely imagined attack the like of Greece I would expect nothing more than a public referendum [translation; burning down of Paris by angry mobs] on France exiting EMU or maybe even EU.
It does seem odd. I've read France has higher roll-over risk, and French banks have more than their fair share of exposure to Greek debt. But looking at Reggie's charts the French numbers don't stand out as the next likely candidate.
France itself is not in trouble. It's French banks, which have the largest exposures to the unpayable debts of the PIIGS. So the French government, in trying to contain the PIIGS meltdown, is really trying to rescue its own banks with money from other countries. That is why the CDS speculators are now circling Paris like vultures.
courtesy of Iceland's floating fiberglass factory
Thanks for the mid-morning laugh.
All that is true, but now that we have modern technology and the internet, it should be fixable. </humor>
Let me explain a little further by what is meant by the term: Systemic failure is a design feature of the credit-money system. At its heart, it means exponential math dictates that compounding principle+interest will (eventually) outrun loan serviceability.
These basic principles are very old; recognized by various civilization thousands of years ago. In fact, the ancient Hebrew word for "usury" is "neshek," meaning literally "a bite". The poison starts slowly, almost unnoticeable, until it spreads and consumes the entire body.
So what does this have to do with the volcano? Simple - when a debt is incurred, it is almost always under conditions where future projections are quite optimistic. For the individual (eg mortgages), future considerations of possible job losses, health, illness, or other setbacks seem to be summarily dismissed.
So too national/global economies - there isn't any buffer for the types of natural events we see occurring today. But unfortunately, compounding interest keeps accruing automatically in an unthinking, unemotional & relentless process, regardless of any particular underlying economic conditions.
This is what the ancients were warning about across the ages: it all looks great within a 1, 5 even 10 year window, but then the inevitable hits come at 15, 25, 35, 50 years. These might seem like long time lines to most, but to the power-elite schooled from the beginning to understand the truth, it all fits within their planned designs.
This process, which has been repeated countless times over thousands of years, always ends when productive assets & real property pledged as collateral are forfeited, and the borrowers are reduced to a state of debt peonage.
We all seem to be waiting for a precipitating event, perhaps a natural disaster like the volcano, that will finally unleash the last stage(s) of the awful truth about our credit-money system. Perhaps people thousands of years from today will pass note about some long-forgotten civilization that discovered the truth the hard way.
B9K9,
As a relatively new poster, but historical lurker at ZH, I have finally grasped your ideas and they make a ton of sense. I ran a SS the other day and one can easily see the hazards of the debt trap you explain, once you start paying interest with borrowed money the end is just a matter of time. The last chapter has already been written for the USA, it is just a matter of the details.
One of your previous posts talked about the endgame, where us/our offspring refuse to accept the debts foisted upon them by their parents and “default”. The ensuing chaos and ultimate war is the natural reaction when people are seriously wronged. It is also easy political gamesmanship to gain power by blaming those who have “perpetrated” the wrong, either the country, a group or other.
I was trying to do some historical research to find where in history this same/similar scenario has occurred previously. I do not doubt that it has in the least, but it would be valuable to study how/where else this situation has occurred. Are you aware of any books/articles that discuss this issue? Not surprising that they are hard to find … J
It also seems there is an opportunity for you to write a very interesting best seller!
Txs, sschu
"The Geological office of the U.S. Interior Department says that “ash fall can have serious detrimental effects on agricultural crops and livestock depending mainly on ash thickness, the type and growing condition of a crop.”
...Canned food bitches
Life imitating Cormac McCarthy
Shopping-cart-replacement parts, bitches!!!!!!!!!!
when I see the actions of the euro moving against the greek spread I think central bank intervention
I don't know what to think of this. Is the global economy so dependent on technology that any little interruption causes massive dislocation? Or is BMW just looking for a convenient excuse to halt production for awhile due to lousy sales but they don't want to say "lousy sales?"
Yes the global economy is that intertwined.
Allow me to digress. Even though the core parts of this study have been declassified I am going to skip specific details just because I don't want to feed any nutcases with wild ideas. But, there are certain components of the United States infrastructure that are manufactured in exactly two places in the world, and neither is in the United States. Further, existing demand on a global scale for these pieces of infrastructure is so small that production facilities in both locations are very limited and the rate of production basically equals maintenance replacement rates globally.
This was noted in a DoD terrorism study a few decades ago that concluded that careful targeting of this portion of the US infrastructure could shut down the entire country for 18-36 months. Now you tell me what a shut down USA would look like after 18-36 months. And I mean totally shut down, 19th century living style shutdown, no power, no sanitation facilities, no clean water.
Worse, even though these weaknesses were identified decades ago, nothing has been done about them in the intervening years. Hell, I could distribute 100 guys in 50 pickup trucks with the right materials and they would never even be challenged, let alone caught, and with 24 hours the US would be dead in the water.
Another example - do you remember the fire that happened in the DRAM chip facility in Japan a few years ago (late 90s I believe) and how RAM prices worldwide went through the roof? There are literally a handful of memory manufacturers in the world, yet the entire world relies on computers and computer memory now.
Oh come on, don't be so mysterious. You could at least identify what these "components of the U.S. infrastructure" are so we readers could properly evaluate whether the concern is justified. Without that information, your post is useless dramatics.
I could, but I won't.
The point remains that technological society is highly interconnected and interdependent and can be demonstrated from other incidents as well, just like the DRAM fab facility fire.
Hmmm, critical to our way of life? Limited supply? I'd bet it's . . . large electrical transformers.
http://www.empcommission.org/
(Either that, or iPads.)
You know what. Fuck large electrical transformers. One good thing came out this. You can buy a 600 dollar solar charge controller and get 10 60 watt panels for 1400 shipped, throw in 400 bucks worth of batteries and you got enough juice to survive without losing too many amenities.
Forget chinese solar stocks. 60 watt kaneka japanese panels are looking hot at 120 a pop.
http://www.altestore.com/store/
It probably has to do with their supply chain structure. My guess is they only maintain enough inventory to continue production for 2-3 days.
"Importantly, whatever the exact scale of the disruption, all indications so far suggest that the shock is (and would be) broadly equal to supply and demand..., there is no reason to think this will impact monetary policy".
Bulletin: Billions die, are maimed and burned beyond recognition, but thanks be to God, there is no change in monetary policy.
What in the cornbread hell do these people use for brains? How can they believe that manipulating fiat currency always and forever trumps anything and everything that happens in the real world?