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Why The Upcoming Issuance From The European Rescue Fund Will Reveal More Dirt About Europe's Broad Insolvency

Tyler Durden's picture




 

After it was announced earlier by the EU that it would launch its first bonds under the EFSF and EFSM in January, of which €17.6 billion are slated for Ireland in 2011, and €4.9bln in 2012, it is useful to recall just what the dynamics of this last recourse fund are, and why not all is as good as the EU may want the broader population to believe. Below, we present the thoughts of Knight's Brian Yelvington who has a rather damning view of what this latest development means for the EU: "This latest band-aid solution obfuscates the issue that the EMU needs
the ability to print money and tax across member states in order to
match its common central bank and currency. There might well be a rally in spreads commensurate with what we have
seen for other band-aid like packages over the past two years.  Once the
measure has been revealed to be inadequate by the market, discussions
around size will begin to emerge.  Our view has been that the facility
was flawed from the start and we believe that view has become more
widely held during this most recent spread widening.  Future upsize
discussions will no doubt see the specter of haircuts raised again –
this time more seriously – and this will serve to push sovereign spreads
wider."
In other words, long-term bearish, short-term very bullish. Just like everything else in the battle to preserve the ponzi.

From Knight Capital:

The EU has announced that it will launch issuance out of the EFSF (European Financial Stability Facility) in January.  The EFSF was tapped for a portion of the €85B Irish bailout announced just weeks ago.  Recall the EFSF was a portion of the €750B facility conceived during the May sovereign scare around Greece (€440 in member guarantees, €250B from the IMF, and €60B from the European Financial Stability Mechanism).  The EFSF has not issued bonds before and took almost five months to receive a rating owing to its contribution style funding that depends on CDO-like ratings methodology.

Per the release, the EU will issue €60B in January out of the European Financial Stability Mechanism (EFSM) and the EFSF will issue in late January.  The EU plans five issuances in 2011, between €3-5B each with maturities of 5Y, 7Y, and 10Y and will be Euro denominated.  The EFSF may issue in currencies other than the Euro, but will have like maturities and will seek to raise up to €16.5B in 2011 and €10B in 2012.

As part of our “Three Threats, One Risk” publication in October and the ensuing presentations, we point out that the issuance of a Euro bond without a fiscal (taxation) union causes several problems for the Eurozone.  EFSF bonds are pari passu with individual countries’ own bonds, effectively cramming down traditional sovereign issues in our view.  Thus issuance out of the common facility could have the impact of crowding out traditional sovereign issuance and further squeeze peripheral funding.  We also note that IMF and other international assistance could also subordinate individual countries’ bonds, exacerbating the problem (see page 28 of the attached “Three Threats” presentation for a visual).

Further, the CDO technology that supports the EFSF means that its contribution portion of €440B is not nearly as large as it would seem.  Once a country taps its contributions are negated from the total amount available and its draw from the facility also hits the total available.  The €750B is far from adequate for the funding needs of the EMU periphery and we feel a more substantial package must be made available before the drawdowns of the EFSF reach the point cramdown of traditional issuance becomes a funding problem.  This latest band-aid solution obfuscates the issue that the EMU needs the ability to print money and tax across member states in order to match its common central bank and currency.

There might well be a rally in spreads commensurate with what we have seen for other band-aid like packages over the past two years.  Once the measure has been revealed to be inadequate by the market, discussions around size will begin to emerge.  Our view has been that the facility was flawed from the start and we believe that view has become more widely held during this most recent spread widening.  Future upsize discussions will no doubt see the specter of haircuts raised again – this time more seriously – and this will serve to push sovereign spreads wider.  Political wills will dictate what exactly occurs, but we are not convinced that extensions alone will suffice to make the region stable.  Already European policymakers have made clear that a permanent crisis mechanism may include hits to private sector creditors within their discussions around the European Stability Mechanism (ESM).

 

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Tue, 12/21/2010 - 13:00 | 821173 hedgeless_horseman
hedgeless_horseman's picture

The Federal Reserve authorized the extension through Aug. 1 of its temporary dollar liquidity swap arrangements with the European Central Bank and the central banks of Japan, Canada, Switzerland and the United Kingdom.

http://www.bloomberg.com/news/2010-12-17/stocks-rising-17-since-bernanke-disclosed-qe2-disarms-fed-s-worst-critics.html

When your only tool is more debt backed by the US taxpayer, every problem is solved with more Federal Reserve Notes

Tue, 12/21/2010 - 12:58 | 821186 RobotTrader
RobotTrader's picture

Once again, consumer stocks could care less about problems in Europe.

In fact, it seems that the worse Europe gets, consumer stocks here in the U.S. go up even faster!

New highs for Krispy Kreme.  The fund managers are really groping the low grade screamers in order to "make their year".

Meanwhile, short sellers continue to look at this action with total disgust.

Tue, 12/21/2010 - 13:03 | 821213 MonsterZero
MonsterZero's picture

new high for the 52 week, look at that 5 year... true sign of american glutony.

Tue, 12/21/2010 - 13:03 | 821216 Spalding_Smailes
Spalding_Smailes's picture

Viva' Uncle Ben the dollar is king.

Got AIG ?

Tue, 12/21/2010 - 13:10 | 821244 firstdivision
firstdivision's picture

You are correct, and it will keep going as long as the Feds tap is left in the on position.  I have been trying to figure out how the Fed will unwind its positions and liquidity programs w/o the markets falling.  My guess is that there really is no end to these Fed programs for at least 2 years.  They desperatly need the retail to jump back into the pool in order for the market levels to sustain (for a day or two). 

 

...also I do enjoy Krispy Kreme for breakfast myself.

Tue, 12/21/2010 - 13:35 | 821341 Bill Lumbergh
Bill Lumbergh's picture

Juicing futures, utilizing POMO, or anything else can certainly keep the market afloat for a while.  The so called "wealth effect" in the eyes of Benny will not only stimulate the economy but also assist with falling tax revenues at all government levels.  Of course this activity comes at a cost which will be either inflation though money printing or deflation through a complete blow-up of leveraged institutions.

P.S. - A 5 point daily gain in the S&P 500 will put us at 1,500 in about 50 trading days or the middle of March...let's see if Benny can continue the shell game that long.

Tue, 12/21/2010 - 15:01 | 821676 Captain Kink
Captain Kink's picture

I don't think the Fed will ever sell any of the purchased securities...they will let them run off over 20 years.

Tue, 12/21/2010 - 13:01 | 821206 inkt2002
inkt2002's picture

All these doom and gloom posts, while the market is passing you bye.  Sad scene.

Tue, 12/21/2010 - 13:06 | 821226 hambone
hambone's picture

Good one - "market"!!!  That's a good one.  LOL.

Tue, 12/21/2010 - 13:11 | 821251 Ivanovich
Ivanovich's picture

Hmm...passing me by.  I thought I heard that back in 2000.

 

I guess it's passing me by in the same place for the second time!

Tue, 12/21/2010 - 13:16 | 821273 inkt2002
inkt2002's picture

This was a common response in 09 and 2010.  How has it panned out?

Tue, 12/21/2010 - 14:04 | 821382 hambone
hambone's picture

Ink,

just explain what the Fed's exit plan looks like?  What it looks like as things "normalize"?  Interest rates, tax rates, Fed selling off it's abnormally high holdings, selling off toxic assets?  No longer buying T's?  How interest payments on the debt are overcome by GDP growth?  How unfunded liabilities are paid or cut in half or whatever without a significant negative to GDP either way.

If you can explain how the capital markets sustain, move modestly lower, or even advance in the face of this "normalization", I'll be a buyer.

Tue, 12/21/2010 - 14:35 | 821590 assumptionblindness
assumptionblindness's picture

Don't hold your breath while waiting for a response.  His investing philosophy is "Just buy the fucking dips!"

Tue, 12/21/2010 - 14:42 | 821619 hambone
hambone's picture

I actually hope Ink is right!  That somehow this all works.  Like a mere mortal, I cannot conceive many things and how pouring ever more debt on those least able to pay it back is among these.

But obviously, I'm no genius, no Noble winner, not even an "economist".  This is all so much more complicated and integrated than I can imagine and I hope I just fucking don't get what Ink and others get.  That I'm too stuborn or willfully ignorant or something to see it.  None of us gain from greater chaos or social upheaval.  My yound teenage kids don't need a world without jobs or hope.  I hope Ink is right but I just don't know how.

Tue, 12/21/2010 - 13:07 | 821232 curbyourrisk
curbyourrisk's picture

YET, once again our brilliant FED is extending the bank swaps with these losers!

Tue, 12/21/2010 - 13:08 | 821241 hambone
hambone's picture

As much as I loathe posters like inkt2002,

hate to throw out the what if, but what if the market is no longer a market and pullbacks are truly a thing of the past.  Imagine if you will the S&P500 simply grinding higher without end.  That the Fed has, is, and will continue to go all in.  Will buy up $3T, $5T, all $9T in T's?  Certainly means there will be no interest rate shock and certainly means interest payments will remain at historic lows.  Bond vigilantes be damned.  Will allow Congress to continue massive deficit spending so Americans don't ever get mad enough to question the nature of our system.  No hyperinflation but just continuous grinding high inflation slowly sucking the world dry.

Fed and it's minions will buy up enough stock market margin to drive prices high enough that volume is pathetic and market is easily controlled.  Any hint of a sell off is met w/ an urgent buyer in the pre-market, late day, or after hours market.  Compression of margins, slow death of the economy simply don't matter to those w/ bottomless pockets.

The $ is still the reserve currency and seems to still benefit all parties or at least no consensus to move away has been reached.  Of course, the moment this status is lost the entire paradigm is crushed and America is out on it's ass...but til then, not sure anything can stop it.  What if this is the new normal...we have arrived and this is the new world...the new economy of the 21st century?  Short of a major player wanting to tear down the current system or rock the boat, seems this can continue unabated?

Surreal, yes, but also seems to be real!  I don't say buy or sell, just acknowledge what it is - complete market capture.

Tue, 12/21/2010 - 13:15 | 821270 firstdivision
firstdivision's picture

Once you accept the fact that since 2009 that market != economy, and that the mandate is to pump, pump, pump the markets.  Then you will realize that it is logical that the market keeps going up as the economy is tanking. 

Viva la Zimbabwe!

Tue, 12/21/2010 - 15:20 | 821720 NotApplicable
NotApplicable's picture

Also like Zimbabwe, even though you are making a nominal gain, it is still a loss in purchasing power, as the game plays out in a downward spiral.

Even better here though, is that the IRS will tax your nominal gains, so you not only lose more, you finance the operation of the destruction.

Tue, 12/21/2010 - 13:24 | 821299 inkt2002
inkt2002's picture

Why would they need all that Fed help?

Corporate Profits are at an all time high.

Balance sheets are solid.

Debt is cheap

Personal Income is up.

Bad news is nothing but recycled news for the last 2 years. 

You guys sound like a bunch of sour grapes.

Tue, 12/21/2010 - 13:36 | 821351 hambone
hambone's picture

Great ? ink, why would "they" (wall street, corporations) need all that Fed help?

I accept all your points except personal income is up - but anyway your point is things are good and we are in a self sustaining recovery? 

So, why would the Fed hand out $7 to $15B daily to buy T's from PD's? 

Why do it at all? 

Why do it from PD's instead of direct from Treasury? 

Why would the gov drop taxes to lows (%) and raise spending to all time highs and run a $2T deficit in 2011? 

Why would Fed export inflation causing rising input costs w/out pricing power, wage growth, housing appreciation, or employment at home to even create true inflation? 

Why would the Fed give away $9T at the bottom of the market to largest banks and corporations in the world (not just America) at .10% (when no one else could get money) allowing them to buy up firesale assets and then claim the interests paid were a "profit" for America?

 

Tue, 12/21/2010 - 13:56 | 821422 inkt2002
inkt2002's picture

 

The way Personal income is calculated, it is up.  Fact

So, why would the Fed hand out $7 to $15B daily to buy T's from PD's?

Completely Irrelevant.  It is .01% of the daily volume on the exchange.

Why do it at all?

Why not?  What is the harm?  The realiaty is that it will have immaterial impact on growth and credit availability.  Reality is the velocity of money will naturally go up as the consumer comes back, small businsess comes back and corporations start spending their hoarded cash that they have on their balance sheets

Why would the gov drop taxes to lows (%) and raise spending to all time highs and run a $2T deficit in 2011?

Why not.  People complain when taxes are high, and now the same people are complaining that they are lowering taxes.  This tax cut will help the deficit in the long term as it will spur growth the next two years and allow the government to pay down the deficit when rates rise 2 years from now.  Expanding the defecit now when rates are low is no big deal.

Why would Fed export inflation causing rising input costs w/out pricing power, wage growth, housing appreciation, or employment at home to even create true inflation?

Because they want an orderly decline in their currency.  If they dont export inflation, the dollar will go down much faster.  Very smart move.

Why would the Fed give away $9T at the bottom of the market to largest banks and corporations in the world (not just America) at .10% (when no one else could get money) allowing them to buy up firesale assets and then claim the interests paid were a "profit" for America?

To help spur the wealth effect.  In the short term, that cheap money will help support the markets, help gain consumer and bank wealth/confidence, which will help spur lending and cutdown bank reserves.  Very smart move. 

 

Bottom line, the Fed did a perfect job from preventing the collapse and allow the market/consumer/ and banks to regain their balance.  Now they are ready to leave the nest and fly away!!!!!

 

Tue, 12/21/2010 - 14:13 | 821491 hambone
hambone's picture

Ink,

agree "they" are ready to leave the nest and fly away...it's just who "they" are we disagree on.  Consumers?  Not so much w/out wage growth above inflation, w/out further HELOC's of a half trillion annually, w/out employment (no, not trading down from full time jobs w/ bene's to part time no bene jobs).  No, consumers are left with debt and transfer payments and only by borrowing more to avoid the tax implications and/or spending decreases does this charade continue.

But banks (large variety) and market (not economy) likely will continue to find very "supportive" policies, accounting practices, printing. 

Tue, 12/21/2010 - 14:37 | 821597 Sean7k
Sean7k's picture

Personal income is down when measured in terms of dollar inflation. This is a loss of purchasing power. That is why people use statistics- you can lie with them.

Buying your own debt is irrelevant? So, if I issue a bond to myself, print the money on the bond and spend it in the economy- there is no effect? Because round here, we call that counterfeiting.

The problem with exporting inflation? Someone might decide to fight back- that is the problem with currency wars- especially when you import more than you export. Expanding the debt when the rates is low is OK? Until the rates rise.  Especially if you cannot pay the interest- because that requires taxation. 

You assume small business and consumers coming back, but the previous QE has failed to do either or create employment which normally follows inflation of the money supply. Hoarded corporate money is in international accounts trapped by a tax rate that precludes them bringing it back without a tax holiday.

With the continued disparity in the wealth between the richest 1% and all the rest- the wealth effect is a fairy tale.

The problem with cheap money is that it's cheap money- it doesn't have value thereby buying less and less.

The bottom line is the FED did what it always does- it use money inflation to transfer wealth from all classes to the bankers and corporate titans that realize how to use the money before the loss of value becomes real. The loss of value that is pinned onto the end consumers. 

The FED should be hung, drawn and quartered for the treasonous bastards that they are. Along with the complicit politicians that do their bidding. The only place they plan to fly away to are other countries that will protect the riches they have stolen from us.

Tue, 12/21/2010 - 13:37 | 821363 Bill Lumbergh
Bill Lumbergh's picture

As I always state, if the economy is so strong why does the Fed continue to keep rates at near zero levels, purchase toxic financial waste from institutions, and use POMO as a means to prop up the market and line the pockets of banks?

Tue, 12/21/2010 - 13:54 | 821415 AccreditedEYE
AccreditedEYE's picture

Ink is smoking crack. The fact that this story is even posted shows the situation is a lot worse than many people think. As for arguments: Personal income is FLAT at best. If his boy Benny succeeds in his inflation quest, it will obliterate wages. Balance sheet is solid? The consumer continues to deleverage. Corporate profits are now engineered, not earned. There ain't no top line and input costs are getting goosed daily.

Tue, 12/21/2010 - 15:00 | 821675 macholatte
macholatte's picture

It's valid to question why the Fed is doing what it is doing, to question hyperinflation or deflation and Ink's comments are also quite valid. The situation, in my world that is, has gotten very cloudy. Who to believe? The lying, cheating and stealing is grotesque. Or is it just that I'm more aware of it? The herd could care less. They got $8 more a week to spend and they're happy. They don't care that it cost them $10 more per week. Purchasing power is meaningless unless you're trying to make sense out of the "New Normal" but first you drive yourself crazy trying to figure out what that is.

Something is not quite right. It is different this time.

 

Fitch may downgrade Greece's rating

http://www.marketwatch.com/story/fitch-may-downgrade-greeces-rating-from-bbb-2010-12-21-1313440

Tue, 12/21/2010 - 16:52 | 822043 LowProfile
LowProfile's picture

And if a country could buy its own debt with no downside, why haven't they all just done it this way all along?

Wed, 12/22/2010 - 09:13 | 823516 snowball777
snowball777's picture

Then why the avalanche of insider selling, InkyDinky?

Perhaps you should suck on some CEO's "sour grapes" while you ponder.

Tue, 12/21/2010 - 13:25 | 821307 Rogerwilco
Rogerwilco's picture

@hambone

The equities "markets" are small mice compared to bonds and FX. The mice are having some fun right now as Bernanke throws them crumbs on a regular schedule. When the elephants finally get up and start dancing, the mice are well advised to leave the room.

Europe is the first elephant on the dance floor, and she's looking for a partner.

Tue, 12/21/2010 - 13:29 | 821321 inkt2002
inkt2002's picture

She has been looking for a partner for 3 years now.  No one wants to dance with her. So the crumbs will keep coming.

Tue, 12/21/2010 - 13:55 | 821421 hambone
hambone's picture

RogerWilco,

the greater the deficit congress runs, the greater the amount of money the Fed can print, the greater the T market it can buy up.  The greater the global debt market can be transferred to eternal interest and inflation payments for taxpayers to pay.  The weaker the nation states the more easily they are bought off and controlled...the weaker the oversights on the greatest among us on an extra national scene. 

Tue, 12/21/2010 - 14:04 | 821456 Rogerwilco
Rogerwilco's picture

@hambone
Trees don't grow to the sky, everything has a limit. I don't see a grand conspiracy at work, just some acts of desperation by political players. These acts are creating imbalances (equities are one example), and like all imbalances they will eventually be normalized.

Tue, 12/21/2010 - 14:27 | 821563 hambone
hambone's picture

Conspiracy or happenstance, I don't know.  Either way, agree the imbalances will be normalized but at whose expense?  At whose benefit? 

I think that this is what we are presently seeing is the transfer of all long term debts to the back of taxpayers (unfundeds, national debt, consumer, dollar devaluation) and tax payers ability to support it is continually weakened (nation states weakened).  Individuals and countries are no longer self sufficient and must give away their assets to gain their daily bread (food, energy, etc.).

This allows globalists to play countries off against one another for who will offer the cheapest labor, tax base, environmental policies, etc.  Countries become too weak to object and simply have to agree to avoid a sudden collapse (GM, AIG, etc) although it's all a slow destruction the same.

Tue, 12/21/2010 - 14:20 | 821532 Clockwork Orange
Clockwork Orange's picture

2 pizzas and 1 Ron Paul say the crumbs stop when the curtain is lifted.

Tue, 12/21/2010 - 13:41 | 821354 TheMonetaryRed
TheMonetaryRed's picture

The problem is and has been that the "market" in financial assets is controlled by a group of people that is far too small, far too rich and far too homogeneous.

This is why you read the same ideas about the same arguments being put forward at Zero Hedge and the New York Times. Zero Hedge at least questions the world's Keynesian Consensus, but all that seems to come of that is one thought repeated over and over: "It's all fake, buy gold, who cares about the consequences for society." Paul Krugman at least questions the validity of the nonsense coming out of D.C. and Fox News, but all that comes of it is one thought:  "Borrow more, spend more, worry about the financial consequences later".

Both sides of the arguments need to worry about the social and financial consequences now, but there's precious little of that discussion going on.

Meanwhile, just as you suggest, the world's major institutions don't ask "the market" what the facts are. They MAKE the facts. They ARE the facts. Every day a greater and greater percentage of financial assets (including gold) are traded on HFT servers and the expansion of HFT is faster than ever. What financial assets are "worth" is increasingly a product of a consensus among programmers all playing the same game, the same way.

They may all try to be rigorous and strictly economic in their behavior, but they can't. There are no outside rules or standards. They are all reacting to each other. Whatever direction the elite "herd" travels in, that's the direction the price goes - and that's that.

For example, oil didn't go to $140 because of demand or any other "exogenous" factor. It went to $140 because it was in the interest of a dominant group of traders that it go to $140. They didn't need to conspire. They just needed to do exactly what their buddies were doing. Stocks (and gold) are even less attached to some underlying, independent reality than oil is, so of course the S&P can keep grinding higher. And it's got nothing to do with the Fed. It's always been true. It's just easier now. 

Tue, 12/21/2010 - 14:23 | 821544 Clockwork Orange
Clockwork Orange's picture

+1   Bingo

Tue, 12/21/2010 - 14:55 | 821661 hedgeless_horseman
hedgeless_horseman's picture

This is why you read the same ideas about the same arguments being put forward at Zero Hedge and the New York Times.

Disintermediation, bitches!!!!

Show me where they print that in the NYT.

Tue, 12/21/2010 - 14:12 | 821489 Sean7k
Sean7k's picture

Seems to me that people are forgetting what happens when you print money. They are ignoring the inevitable scarcity that results as people refuse to accept money for products.

You can put any price on a stock, bond or other instrument, but it is only a price- not a value. Ultimately, all these dollars have to be used for something- from people that will accept them in trade for something.

As the US continues to produce less and less- this leads to too many dollars chasing too few products (inflation). If the holders of products refuse to accept the dollar or require larger numbers of dollars for each unit of value there will be a crisis of faith in the currency(hyperinflation). This is the same for all the global currencies- the euro and yen. 

Americans have not had to worry about scarcity in a long time (oil was a deliberate scarcity/embargo). We no longer have the option that Volker used- to raise interest rates sky high, because of the levels of debt being carried and the loss of productive capability since that time. 

Scarcity will create black markets, further crippling existing markets and government revenues. Unemployment checks may keep people quiet, but only as long as they can actually purchase something of value. You can starve people, but then you back them into a corner- and cornered animals are the most dangerous kind.

To blithely sit back and say, "the market continues to climb, if you don't get on, you are losing out" is sheer economic ignorance. Even the global system is a closed economic system. If you continue to produce currency rather than goods and services, you have too many currencies chasing too few goods. This leads to currency collapse, but this time, it will be global with very few places to hide.

Reserve currency means nothing when it becomes an abused currency. This is the lesson learned by England in the twenties and thirties. There is a good reason the pound is not tied to the euro.

The amounts presently held in financial instruments is so out of whack with production of goods and services that people could be enslaved for the next forty years without creating a REAL profit. The global GDP is probably 25 trillion when you subtract the governmental contribution (which should never be included- as it is consumption only). The debt is over a quadrillion. You have a yearly production of 25 chasing over a thousand- that's more than forty years. In a world of finite resources- that is pure, unadulterated lunacy.

Tue, 12/21/2010 - 18:09 | 822291 walküre
walküre's picture

** You can put any price on a stock, bond or other instrument, but it is only a price- not a value. Ultimately, all these dollars have to be used for something- from people that will accept them in trade for something. **

 

ONE HUNDRED PERCENT CORRECT, SPOT ON.

Which is why there is no deflation.

Tue, 12/21/2010 - 13:31 | 821333 centerline
centerline's picture

People here need to seperate "market" a la "trading" from the real economy.  Even Zimbabwe had a "great" market during it's crisis.  Nevermind though that the purchasing power of the same currency was being imploded though.  In terms of actual, useful value, the net change here is zero to negative.

Tue, 12/21/2010 - 13:33 | 821335 inkt2002
inkt2002's picture

The value was much better than the alternative of being out of the market like ZH has been touting.

Tue, 12/21/2010 - 14:01 | 821446 centerline
centerline's picture

Can't argue that at all.  I have family and friends that are loving this market from a trading point of view.  Myself, too cautious and I fully accept I have a hard time divorcing my macro-economic views from my trading perspective... so, depsite it seeming like an easy market to trade, I am probably better off on the sidelines!  LOL.

Tue, 12/21/2010 - 14:54 | 821658 Sean7k
Sean7k's picture

ZH does not tell people to be out of the market. There are posters on ZH that feel that way- usually because they believe there are better places to be. Some of them have been correct- the stock market has been a difficult trading platform since 2007. 

ZH provides a plethora of opinions and you must read and decide. You don't like doom and gloom- who does? But there have been plenty of bad stories over the last three years- yes?

Now, I have done much better on my investments out of the market than the market. The ones I have kept in the market have done well also. If you only choose to highlight the D&G, then you might be missing the great advantage of ZH- some top notch analysis and information that provides greater transparency than most other sites. The difference is, YOU have to figure it out. Which is rather like a free market, is it not?

Tue, 12/21/2010 - 13:34 | 821344 RobotTrader
RobotTrader's picture

New highs on the NY Composite.

Yep, hard to believe, but it is what it is....

More buyers than sellers.

Tue, 12/21/2010 - 13:40 | 821372 Bill Lumbergh
Bill Lumbergh's picture

"Yep, hard to believe, but it is what it is...."

Sad but true.

Tue, 12/21/2010 - 13:33 | 821346 CrashisOptimistic
CrashisOptimistic's picture

I am not quite sure why there is so much talk here of stocks.  I thought the bond markets are bigger and certainly more meaningful.

Tue, 12/21/2010 - 13:39 | 821366 Robslob
Robslob's picture

At least get it right Robo!

 

"buyer"...there...fixed.

Tue, 12/21/2010 - 13:38 | 821365 themosmitsos
themosmitsos's picture

No. That simple. The legal analysis, is absolutely spot on.

BUT

the recommended remedy suffers the same PCP-ACID-KoolAid the US's been drinking for 3yrs now. The ECB & EU has ABSOLUTELY NO INTEREST in printing it's way out, US-style [nor the potilical, legal, & monetary authority for that matter]. The EU's INTENT on forcing debt-RE-payment, which of course is contrary to the best interests of those advocating printing, ie, debt holders [large part of which are US-UK money], who want an even BIGGER piece of the pie, rather than paydown. Why? because if the EU can't force paydowns & make that option work, it's NOT the US. it has a different model, structure, & cutlure. It will throw this problem BACK TO THE BANKS & give bond holders the shaft. PERIOD. It's sound[er] money policy, & politically sellable. Different animal Europe. 10% unemployment is not viewed the same as in US, neither is 15%. Doesn't create the same panic. This is the Anglo-Saxon model's attempt to force fear into the EU, and sure, it may've worked on Greece, which is smaller. But already you can see the reaction in Ireland, which ultimately WILL shaft the bank bondholders, and you realize that when you try & bully Spain around, let alone Italy, debtholders have MORE to lose than those nations. What the fuck are they gonna do? Buy Indonesian Bonds? LOOOL. The EU is NOT Argentina, and NO amount of US-UK Anglo-Saxon money is going to force a change in the structural model of the EU--it didn't work during all the NATO "crises" for the Defense end of it, it didn't work on the political end--accept this nation & that nation, and it's not going to work here [fiscally]. And that's precisely why both sides are fighting so hard, and YES, the Americans & Brits are GUNNING for the EU so hard. Because it's an existential threat, FOR BOTH SIDES. US & UK talk a lotta smack about the EU & the Euro, but the market says it's STILL worth more than a Dollar. And that's the US-UK's problem. The EU surviving this in a manner alternative to the US's chosen path [of debt-financed "growth" (LUDICROUS)], will present global markets w/a REAL alternative to the US at PRECISELY the moment that the US begins to face it's own debt demons of $2T/yr deficits and a formal, CBO, Debt-toGDP>100%. That's where the *real* money game's gonna be.

EU won't print like US. Period. Worst case scenario, shafts all the banks, nationalizes & restructures, and leaves the US-UK hung out to dry. The only reason it's taking so long, is it'll sweep out all the current national learship in the debt-ridden nations. Like that's not gonna happen anyway.

Merry Christmas Bitchez

Tue, 12/21/2010 - 14:16 | 821512 mberry8870
mberry8870's picture

Pretty close to accurate in my view. The structural difference in the capital markets is one of the keys. Given both have massive debt and deficit problems. Market structures become more of an issue. German is going to force the bank bond holders to take a hit. That is a different issue from what we are trying to accomplish (currency devaluation).

Tue, 12/21/2010 - 18:13 | 822302 4xaddict
4xaddict's picture

+1 and Merry Christmas to you too

Tue, 12/21/2010 - 13:42 | 821374 total nonsense
total nonsense's picture

Employed But Struggling: Report Finds 1 in 3 Working Families Near Poverty

 

 

But hey everything is ok because the stock market is going up

Tue, 12/21/2010 - 13:44 | 821381 total nonsense
total nonsense's picture

Michelle Feliz, a single mother living in Boston, can't afford day care for her one-year-old son. She can't afford new clothes for her teenage daughter. Late last year, she applied for food stamps.

Unlike many Americans increasingly seeking public assistance, Feliz, 35, is employed. Yet what she earns in her job as a secretary does not cover even her most basic needs, leaving her scrambling to keep food on her table.

In the aftermath of the worst economic downturn since the Depression, much attention has been focused on the 15 million people who are officially out of work, yet even among those who have jobs, livelihoods and living standards have been substantially downgraded. Growing numbers of employed people live in near poverty, struggling to make ends meet.

Almost a third of America's working families are now considered low-income, earning less than twice the official poverty threshold, according to a report released Tuesday by the Working Poor Families Project. The recession, which has incited layoffs and wage cuts, reversed a period of improvement: Between 2007 and 2009, as the recession set in, the percentage of U.S. working families classified as low-income grew from 28 percent to more than 30 percent.

Workers who once focused on career advancement now live paycheck to paycheck. The American middle class, in effect, is eroding.

"They're no longer working actively, with a chance to advance and gain more experience and skills," said Brandon Roberts, manager of the Working Poor Families Project and a co-author of the report. "They're just putting pieces together to stay afloat, to meet basic needs."

Last year, 45 million people, including 22 million children, lived in low-income households, according to the report. As breadwinners lost jobs or suffered pay cuts, the report notes, the number of low-income families grew to 10 million last year, an increase of almost a quarter-million from 2008. The problem is worse among minorities: 43 percent of America's working families with a minority parent are low-income, the report finds, compared to 22 percent of white working families.

Tue, 12/21/2010 - 14:37 | 821593 Clockwork Orange
Clockwork Orange's picture

Whats more, Feliz is about to get pounded even more.  Only way out is asset price inflation.  Forget about the wealth effect.  If asset prices do not rise, revolution. 

Once all the pension beneficiaries show up to collect their pensions and are told the money is not there, its over.  Line up the pensioners vs. the establishment, the privates vs. the publics, and the privates vs. the establishment.  Chaos.

Thus, asset prices must go up.  No worry that $40k a year then will only buy $10k in todays goods - just shrug that off to the sheeple as inflation. 

Only two ways - ride it with your assets, or prevent it by enlightening the sheeple.  But keep it simple.

Example:  Joe owns house $200k.  Joe has mtg $100k.  On Friday.

Fed meets on weekend, expands money supply fourfold.  Joe can sell house for $800k on Monday.  Gets no more value for his money, but he can sell it for that.  Just buys neighbors house for same.

Joe's kid, having saved $15k towards his 10% $20k downpayment on a house like Joe's is screwed because Fed just turned his dollar into a quarter. 

Everyone with dollars in the bank, screwed.  Only quarters now. Uh oh.

Anyone with assets, including gold, silver, ags, and an escape house in Switzerland ... no worries.

@ink, just because there are cynics here doesn't mean where not riding the ponzi with you.  it just means we abhor the dishonesty of it and sadly await the day the shoe really drops.  i only hope we make use of the public square like they did in the old days ...

Wed, 12/22/2010 - 09:38 | 823545 snowball777
snowball777's picture

You have a valid point about it being the aggregate income of the employed (or not) that is relevant, not the number of them showing up to work on a regular basis, but...

Why did Michelle Feliz decide to have a second child she can't afford, out of wedlock, in the middle of a depression?

Where is baby-daddy and why isn't he pitching in (either with child-support or actual daycare)?

Where is the rest of Michelle's family for that matter?

Why does her daughter need "new clothes"?

Was it reasonable to expect to support a family of 3 on a secretary's salary alone?

Exactly how many self-induced wounds should we be tasked with treating in a world where contraception is cheap and readily available?

If you go for my heartstrings, you should be more prepared.

Tue, 12/21/2010 - 14:02 | 821409 Cdad
Cdad's picture

Further, the CDO technology that supports the EFSF means that its contribution portion of €440B is not nearly as large as it would seem.  Once a country taps its contributions are negated from the total amount available and its draw from the facility also hits the total available.  The €750B is far from adequate for the funding needs of the EMU periphery and we feel a more substantial package must be made available before the drawdowns of the EFSF reach the point cramdown...

Only a criminal syndicate banker type could write that, or create something like that, or....or work so freakin' hard at hiding TRUTH.

Listen, I was going to skip this article because I quite literally feel like I'm going to explode every time I read about Europe anymore...but...I had this thought.

No freakin' wonder little Miss Euro is going all Lohan.  Duh.  Well, it is hard to see some things when you are under a great big pile of coats in the closet.

So here goes...I'm going to try my hand at frontrunning. 

Tomorrow's Financial Report:

1.  Cloudy with a sure thing that little Miss Euro is going to embarrass the entire continent of Europe tomorrow after she chucks back too many mojitos during the overnight session and then emerges from the pub in the arms of a Chinese man, leans over the railing, and upchucks billions of more Euro dollars all over the place.

2.  This being true, the USD is going to emerge onto the stage as a cool stud that can have his way with anyone alive.

3.  This will cause gold to get whacked tomorrow, down to some unknown fib level, but giving Cdad the entry point he has been waiting for.

4.  Criminal Syndicate Euro bankers will try to sweet talk EVERYONE ON EARTH that this new super debt machine that they have built can wipe away 25 years of malinvestment...TO NO AVAIL...just as Tyler said.

5.  Cdad will stay under the pile of coats tomorrow, emerging once and only long enough to receive a shipment of golden coins...as the freakin' TRUTH finally emerges because everyone in Europe is just too freakin' tired to hide it anymore.

6.  Robo will post a 12 month chart of something indicating that Truth is overrated because Lies have been going higher for exactly....12 months.

7.  $9/$11 burritos pull back to $8...but folk will still suffer from them sending shares of Novartis higher.

8.  Stocks priced for Dotcom jump out of the gate all hot and bothered...but quickly pull back because everyone within the criminal syndicate known as Wall Street ALREADY OWNS THEM.

9.  Drug companies that suck at getting their new drug ideas passed by the FDA will continue to reflect ABSOLUTELY NO PRICE ACTION...which will continue to confound Cdad.

10.  Oil will start lower...and then ramp for reason only Arab Sheiks and criminal syndicate Wall Street bankers understand [completely disconnecting from all known REAL market forces]...meaning that it continues to be wise to play Whack-a-Mole with shares of the largest maker of petroshrimp...at least in the morning.

Cdad.....aka.....Dr. Frontrunner

[save that user name for me Tyler] 

P.S.

Good grief...and by that I mean I simply cannot believe how deep the crap is anymore.  I need more and higher boots...kinda like the ones little Miss Euro has been sportin' of late...if you know what I mean ;)

Tue, 12/21/2010 - 14:15 | 821501 Rogerwilco
Rogerwilco's picture

@cdad

Lol -- good stuff. I agree with most of the weather report, but I think oil will suffer the same fate as PMs in the immediate aftermath of the next reset. The USD will be the last (wobbly) domino standing.

Tue, 12/21/2010 - 13:56 | 821423 inkt2002
inkt2002's picture

The way Personal income is calculated, it is up.  Fact

So, why would the Fed hand out $7 to $15B daily to buy T's from PD's?

Completely Irrelevant.  It is .01% of the daily volume on the exchange.

Why do it at all?

Why not?  What is the harm?  The realiaty is that it will have immaterial impact on growth and credit availability.  Reality is the velocity of money will naturally go up as the consumer comes back, small businsess comes back and corporations start spending their hoarded cash that they have on their balance sheets

Why would the gov drop taxes to lows (%) and raise spending to all time highs and run a $2T deficit in 2011?

Why not.  People complain when taxes are high, and now the same people are complaining that they are lowering taxes.  This tax cut will help the deficit in the long term as it will spur growth the next two years and allow the government to pay down the deficit when rates rise 2 years from now.  Expanding the defecit now when rates are low is no big deal.

Why would Fed export inflation causing rising input costs w/out pricing power, wage growth, housing appreciation, or employment at home to even create true inflation?

Because they want an orderly decline in their currency.  If they dont export inflation, the dollar will go down much faster.  Very smart move.

Why would the Fed give away $9T at the bottom of the market to largest banks and corporations in the world (not just America) at .10% (when no one else could get money) allowing them to buy up firesale assets and then claim the interests paid were a "profit" for America?

To help spur the wealth effect.  In the short term, that cheap money will help support the markets, help gain consumer and bank wealth/confidence, which will help spur lending and cutdown bank reserves.  Very smart move. 

 

Bottom line, the Fed did a perfect job from preventing the collapse and allow the market/consumer/ and banks to regain their balance.  Now they are ready to leave the nest and fly away!!!!!

Tue, 12/21/2010 - 14:05 | 821460 total nonsense
total nonsense's picture

You have no idea what you are talking about

Tue, 12/21/2010 - 14:07 | 821470 inkt2002
inkt2002's picture

The stock market says I do.

Tue, 12/21/2010 - 14:09 | 821474 centerline
centerline's picture

xyz...  your sarcasm is showing!  

Tue, 12/21/2010 - 14:16 | 821509 total nonsense
total nonsense's picture

Why because you are bull and it has been going your way? Well if that is your point yes. The bigger picture is the world is bankrupt that the Big banks have moved there debts to Govts in the trillions of $$..Almost every state in this country is bankrupt ( who is bailing them out? ) oh and we just spent an additional $900 billion on tax cuts that will not help..these are not additional tax cuts it justs keeps things the same..there is no more money we are running dry and there is no more bailouts avaliable. 2011 the comps will be tough and things will get worse and unemployment will go higher

Wed, 12/22/2010 - 09:48 | 823554 snowball777
snowball777's picture

You don't have access to an inflation-adjusted graph do you?

 

Tue, 12/21/2010 - 14:18 | 821496 CrashisOptimistic
CrashisOptimistic's picture

 

Oil has been $90 in two of the last three years.  A first.  No one can print oil.

Money is an abstract concept and always has been, so changing the rules of money is not a violation of any law of nature.  FASB rule changes are not natural forces.  Mortgage deadbeats with all foreclosures frozen can buy Christmas gifts and it won't show in bank earnings because the rules allow them leeway to not show it.

The Fed can buy municipals next year to avoid the $200 billion state government firing spree, and they will, because it's not a violation of any law of nature.

There will be an end to it.  Oil will end it.  The physics, geology and mathematics of oil are a force of nature.  Oil, in the end, will be the answer to all those "Why not? questions.

 

Tue, 12/21/2010 - 14:33 | 821580 qussl3
qussl3's picture

Isnt oil already ending it?

As a percentage of income, oil is chewing up a larger and larger portion of income globally.

This process will be a slow grind, not a sudden crash.

 

Tue, 12/21/2010 - 14:34 | 821586 total nonsense
total nonsense's picture

Couple of headlines for you too chew on

 

     Dec. 8 (Bloomberg) -- California’s budget gap may widen to
$28.1 billion over 18 months, according to Governor-elect Jerry
Brown, who takes charge of the most-populous U.S. state next
month. A cash shortage may force the use of IOUs by July,
Controller John Chiang said.

By Terrence Dopp
     Dec. 20 (Bloomberg) -- New Jersey Governor Chris Christie
said U.S. states face a “day of reckoning” as they contend
with looming budget deficits in the wake of the longest
recession since the 1930s.

Tue, 12/21/2010 - 14:44 | 821629 inkt2002
inkt2002's picture

recycled news, but thanks for sharing.

Wed, 12/22/2010 - 09:50 | 823558 snowball777
snowball777's picture

You're right. If you weren't slick enough to get the gist the first time around, why the second attempt to remove your head from your rectum.

Tue, 12/21/2010 - 14:49 | 821601 virgilcaine
virgilcaine's picture

The declining/collapsing Euro is one big Short position. Banks have to sell everything to raise dollars.  This is going to get ugly.  

the Canary in the mine if you will, it's RISK combined in one Package.

If an unorderly decline Banks and hedge funds carried out on a stretcher.

 

 

Tue, 12/21/2010 - 18:14 | 822306 walküre
walküre's picture

The DOLLAR is the hottest potato.

Watch for the flood of Dollars coming back.

Got lifejackets?

Tue, 12/21/2010 - 14:41 | 821609 milanitaly
milanitaly's picture

Don't tell Europe people that BCE is helping PIGS in order to rescue German banks.

 

 

 

Tue, 12/21/2010 - 18:18 | 822319 walküre
walküre's picture

German banks own European debt paper issued by the PIGS.

The PIGS owe German banks.

German banks can ask for more collateral, higher debt service fees or simply convert debt into assets which the PIGS have.

Do you understand where this is going?

So many only see the downside of this equation. Start seeing the upside.

German banks could challenge the Fed.

Wed, 12/22/2010 - 09:52 | 823562 snowball777
snowball777's picture

EU-REO

Tue, 12/21/2010 - 14:51 | 821646 Saxxon
Saxxon's picture

[sigh] and here I sit, short again.

Refusing to believe it.

Tue, 12/21/2010 - 15:07 | 821691 hambone
hambone's picture

Saxxon,

my 2 cents is you and I are too bearish (or realistic).  I understand this bout myself so I split my money up and gave 1/3 of my IRA to a bullishly conservative money manager...she is doing great.  I hold 1/3 for bonds though presently sitting in cash.  1/3 is me and have been short this and that with horrific results.  Rest sits in rentals bought long ago that are cash neutral.

Guess all I can say is respect that many outcomes are possible and hedge for all...even those you nor I can envision.

Tue, 12/21/2010 - 16:22 | 821908 CrashisOptimistic
CrashisOptimistic's picture

No, pal.  Diversification will not save you.  In an Apocalypse, all cross correlations go to 1.0.  They did in Sept 2008 and they will again.

Diversification is a thing of the past, where parking in different kinds of this or that worked because "the pie" was getting bigger, so which slice you chose did not matter.

Oil won't let the pie grow anymore.  It's not a normal world.  A world of unemployment 2.5X 2005 is not normal.  A world of 0% interest rates for 3 years and counting is not normal.  Housing down 50% and no signs of recovery is not normal.  A world of FASB rules that allow a bank to report values for assets to be whatever they want them to be -- that's not normal.  A world with 50,000 quote requests and trades within 1.0 seconds is not anything we've lived in before -- and the result of that will not save a single life and carries with it no reason at all to believe it is an improvement to life in general.

You go ahead and hedge all you want.  It purchases for you peace of mind that is undeserved.  Nothing held up in Sept 2008, and it won't next time, either.

You only get two choices.  Risk, or no risk at all by not playing.  There is no third choice.

 

 

 

Tue, 12/21/2010 - 16:46 | 821998 hambone
hambone's picture

I get you but hedging is preparing for any potential outcome (PM's, stock, food/water/medicine/arms, cash, property, and being short all of it). 

Actually there is only one choice...Living is risk...there is no "riskless" option.  There is no option not to play in an environment where taxes may be raised, property confiscated, stocks / bonds ramped and crushed, PM's recalled, money hyperinflated away. 

Those who sleep soundly now are blissfully ignorant.

Wed, 12/22/2010 - 06:52 | 823445 total nonsense
total nonsense's picture

A nice sane thought process,i like it. The thing is you jump on this FED induced bubble and you will be caught just like the rest of them,remember. It falls much quicker than it gains and you will never get out in time

Tue, 12/21/2010 - 16:38 | 821980 gwar5
gwar5's picture

If the EU can sell bonds, anybody can.

Tue, 12/21/2010 - 18:13 | 822301 walküre
walküre's picture

I'm buying the bundled EURO bonds.

Europe is going to replace the US of A. Make it the US of E and carry-on.

I used to love the Dollar. Really loved spending it. Now I dread carrying it around. Euro is so much sexier. The street vendors in NYC love the Euro bills. That's how it started in Russia before the Ruble died.

 

Wed, 12/22/2010 - 09:04 | 823501 M.B. Drapier
M.B. Drapier's picture

Here's a stab at estimating the Irish banks' possible derivatives losses (now the losses of the Irish taxpayer, natch). Also, here are some brokers who recommend you buy Allied Irish Banks.

Do NOT follow this link or you will be banned from the site!