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

Tyler Durden's picture

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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

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.

MonsterZero's picture

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

Spalding_Smailes's picture

Viva' Uncle Ben the dollar is king.

Got AIG ?

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.

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.

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.

inkt2002's picture

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

hambone's picture

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

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!

inkt2002's picture

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

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.

assumptionblindness's picture

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

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.

curbyourrisk's picture

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

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.

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!

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.

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.

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?

 

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!!!!!

 

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. 

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.

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?

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.

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

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?

snowball777's picture

Then why the avalanche of insider selling, InkyDinky?

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

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.

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.

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. 

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.

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.

Clockwork Orange's picture

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

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. 

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.

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.

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.

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.

inkt2002's picture

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

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.

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?

RobotTrader's picture

New highs on the NY Composite.

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

More buyers than sellers.

Bill Lumbergh's picture

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

Sad but true.

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.

Robslob's picture

At least get it right Robo!

 

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

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

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).

4xaddict's picture

+1 and Merry Christmas to you too