While it is still early in the overnight session, initial indications are for a full spectrum Risk Off market. In fact, S&P 500 futures (ES) have not fallen this fast over a two- or three-day period since the third week of November last year. As many may remember - a few days of drops like this took ES from 1260 to 1136 in a week but more importantly was followed very quickly by a massive and coordinated Central Bank intervention that ripped ES over 6% higher in an overnight session - sparking the entire rally of the last six months as it appeared the central bank put strike had been dragged higher. Admittedly the two-day fall so far (while the largest in almost six months) is still small in context, it would appear the world is waking up to the true event risks of a debt-saturated fiat system going through its death throes. Back of the envelope would suggest we need to drop to 1285 or so on the S&P before the same kind of hit-the-big-red-central-bank-panic-button kind of move comes into play. Sure enough, Gold is only very modestly lower (-$3 at $1640) so far in the face of a rip higher in USD and broad liquidation everywhere else - perhaps the patience of sound money will be paid off once again.
While clearly dramatic, the outcome of the French presidential election was very much anticipated and at this point the only real question is how many promises will Hollande reneg on before the week is over: if Berlusconi is any indication, all it will take is for OAT yields to spike by 20-30% and all shall be well for the status quo. Greece, on the other hand, where as we said the people have lost everything so are free to do anything, just did more or less that, and have shocked Europe with an outcome which as we warned could result in the lack of a pro-bailout coalition government, which means no IMF aid, which means "no bailout for the Greek people", which means no bailout for European banks under the guise of a Greek DIP loan. And with 63% of precincts reporting, ND + Pasok have 153 as of this moment which is enough for a majority although paradoxically the anti-bailout parties will have among them nearly 60% of the finaly vote which means they could form an anti-bailout coalition if they buried their diferences. Finally, there is still time, so for all those curious if the two Greek parties will be able to form an all important coalition government, can keep track of the vote count in real time at the link below.
UPDATE: EURUSD just broke down through 1.30 to 3-month lows and WTI opened with a $95 handle - lowest of the year and < 200DMA.
S&P 500 e-mini futures (ES) just opened down over 11pts from Friday's close and have traded below the 4/10 and 4/23 lows to trade back to their lowest since 3/8 taking out the 1350 stops. The EUR is at its lowest against the GBP since Nov 2008, closing in in the first sub-1.30 print since 4/16 with a little more pain taking us to 4-month lows in EURUSD (now within 20pips of 4-month lows). Gold and Silver (spot) are modestly lower relative to the 0.4% raise in the USD. Treasuries are not open yet but broad risk assets imply a considerably lower print for ES in the mid-1320s at current prices. WTI has opened with a $95 handle crossing its 200DMA to its lowest since 12/20.
The only saving grace of the earlier horrendous Greek parliamentary vote was that, based on very preliminary results New Democracy and Pasok would be able to form a coalition government with precisely 151 seats needed in parliament to give them status quo powers. However, according to a more recent re-rack of the votes (New Democracy 18.9%, 108 seats, Pasok 13.4%, 41 seats, Syrizia: 16.6%, 51 seats, and all others), this assumption is now in jeopardy as the two pro-bailout parties will have just 149 seats in the new parliament, or not even a full majority. Why is this problematic? Because virtually every other party in the new parliament, and there may be up to 10 there including the New Dawn, have voiced their opposition to the bailout of Greece, which as everyone knows is merely a bailout of Europe's insolvent banks using Greek taxpayer funds as a conduit. And, adding insult to injury, Reuters now reports that "Greek leftist leader calls for anti-bailout coalition." It appears that finally, after many years of delays, the anti "bailout" genie is finally out of bottle...
When the situation gets so ridiculous not even TheOnion is fit to describe it, in walks Sasha Baron Cohen and puts everything back into perspective.
And so one more tumbles to the popular wave of anger and discontent.
Francois Hollande wins 51.9% of the vote according to exit polls
The 57-year-old Hollande got about 52 percent against about 48 percent for Sarkozy, according to estimates by pollsters CSA and Harris Interactive
Nicholas Sarzkoy concedes defeat in presidential election to Francois Hollande
First Official Greek Exit Polls: Pro-Bailout Parties Plunge; Anti-Bailout Radical Left, Neo-Nazis SoarSubmitted by Tyler Durden on 05/06/2012 - 12:08
As we expected, the previous unofficial poll forecasts were total rubbish, and according to exit polls from NET TV, the results are as follows:
- New Democracy: 17-20%
- Pasok: 14-17%
- In a stunner, Syrizia, or the coalition of the radical left - a vehement anti-Bailout party - gets more votes than the ruling PASOK party: 15.5%-18.5%
- Independent Greeks: 10-12%
- Finally, and not surprisingly in the aftermath of the French results, the ultra right Golden Dawn gets 6-8% of the vote and will make it into Parliament
Tallied across, up to 60% of the new parliament will be anti-bailout (at least according to exit polls), and hence "Domino toppling." Good luck with that pro-bailout coalition government. Needless to say these results are very ugly and make any prospect of a pro-bailout coalition cabinet virtually impossible. Suddenly the fate of the European experiment is in the hands of the ultra right and the far left - yup, Neo-Nazis will determine the future of Europe. How quaint... again - congratulations Europe.
According to Reuters, Italy is going to propose to the European Union that they should exempt borrowing used to pay their commercial obligations from their calculation of public debt. Monti, the article states, is also going to propose exempting the counting of public debt used for investments. You may be sure that Italy’s $211 billion of derivatives will now be entitled an “investment.” Now all of this will lower Italy’s debt to GDP ratio which is the real reason for these proposals and so even worse falsified numbers can be handed out to the Press in hopes that money will be invested in Italy based upon not just inaccurate but offically countenanced manufactured data. This way not only the debt to GDP ratio can be falsified but the growth numbers, the fiscal targets and a raft of other numbers that will no longer be real but just a systemic figment of Europe’s imagination.
And from one presidential election, we go to the other even more crucial parliamentary election, in Greece, where courtesy of Planet-Greece we have the first unofficial exit polls. Since these numbers differ massively with what opinion polls predicted as recently as 2 weeks ago, and indicate the status quo is likely to persist, we urge everyone to take these with a huge grain of salt.
The second round of the French presidential election is by now well underway, with just 5 hours left in the voting day, a 30.66% voter turnout by noon (compared to 34.11% in the runoff round in 2007) according to the Ministry of the Interior, and in which the first exit polls give Hollande an expected 52.5-53% lead over Sarkozy. While not much can be disclosed by law until polling stations close at 8pm, our French speaking readers can find the best live blog of the election at Le Figaro, while for everyone else we recommend the following live feed of France24 TV in English with the best election coverage. At this point one thing is certain: it will take either a miracle, or Diebold, to prevent the official launch of Horkel (which we are more partial to, as we coined it, than Merlande), or in those rare occasions when the media establishment has has enough of being lied to, Merde.
While most will be following what appears to be an almost certain Hollande victory in the French presidential runoff elections tomorrow (InTrade odds around 10%), it is very likely that the Greek election will have a greater acute impact on the political and financial facade of Europe, especially in the short term. As we noted in what we dubbed our first (of many) Greek election previews, the biggest problem facing the new political regime will be its near certain inability to form a coalition government (with just 32.6% of the vote going to PASOK and New Democracy) that does not undo most of what has been achieved through popular sweat and tears over the past 2 years to assist Europe's bankers in transferring what little Greek wealth remains to fund the insolvent European bank balance sheets. This in turn could begin the latest cascading contagion waterfall, which coupled with an anti-austerity drive emanating from a newly socialist France will threaten to topple Angela Merkel's carefully constructed European hegemony.
Stocks are currently priced for a 10% growth rate which makes bonds a safer investment in the current environment which cannot deliver 10% rates of returns. We are no longer in the era of capital appreciation and growth. The “baby boomers” are driving the demand for income which will keep pressure on finding yield which in turn reduces buying pressure on stocks. This is why even with the current stock market rally since the 2009 lows - equity funds have seen continual outflows. The “Capital Preservation” crowd will continue to grow relative to the “Capital Appreciation” crowd.... According to the recent McKinsey study the debt deleveraging cycles, in normal historical recessionary cycles, lasted on average six to seven years, with total debt as a percentage of GDP declining by roughly 25 percent. More importantly, while GDP contracted in the initial years of the deleveraging cycle it rebounded in the later years.
The trouble is that war is a great excuse for weapons contractors to make lots of money, and weapons contractors happily fund war-mongering politicians into power. That’s the self-perpetuating military industrial complex. So the problem then lies in differentiating the necessary actions from the unnecessary. I propose a simple heuristic for this purpose, one that if introduced would also render the war-mongering politician — the Congressman who votes to authorise, or the President who signs the authorisation into law — personally responsible:
If you start a war, you have to fight. If you cannot fight, then your nearest fit relative has to fight.