So after one year of beating around the bush, it is finally made clear that, as many were expecting all along, the ultimate goal of the Greek "bailouts" is nothing short of the state's (partial for now) annexation by Europe. According to an FT breaking news article, "European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens. People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures." Thus Greece is faced with the banker win-win choice, of not only abandoning sovereignty, a first in modern "democratic" history, in the pursuit of "Greek" policies that are beneficial for Europe, or not get a bailout, which would only serve to prevent senior bondholder impairments. How could Greek leaders and its population possibly not accept such an attractive option which either leaves the country as another Olli Rehn protectorate, or forces it to not bailout Europe's overleveraged banker class. In essence Europe is now convinced, just like Hank Paulson was on September 14, 2008, that the downstream effects from letting Greece implode are manageable. But the key development is that the Greek bankruptcy, which from the beginning, and as Peter Tchir's note below demonstrates, was always simply a Greek choice, was just made that much easier.
Who needs birds and stones when you have an insolvent fiat-based world and a IMF head fond of single (and/or) double-dipping. If anyone is still confused about the ritual sacrifice of the head of the world's bailout organization (if only on paper), here is Bill Buckler explaining how the immaculate timing of DSK's being dragged out of a plane and made into a full blown media farce achieved two very substantial targets: "First, it removes the “international” aspect of the moves the EU is
making to damp down the ongoing Greek (and others) debt crisis. That
turns the “sovereign debt crisis” into a strictly European problem and
makes sure the headlines keep coming. Second, the stoush of who the next
IMF head will be is now predicted to last until (at least) June 30.
This takes the spotlight off the winding down of the Fed’s QE2, which is
scheduled to end on - that’s right - June 30." David Copperfield would be so proud...
The first confirmation of protests expected to sweep across Europe tonight from Greece to Spain, France and Italy comes from Syntagma square where up to 100,000 people are protesting at this moment. Ekathimerini reports: "Greeks inspired by the Spanish “Indignant” or “Indignados” movement held their largest protest so far in Athens on Sunday, which some estimates put as high as 100,000 people, although a more accurate assesment seemed to be that those taking part exceeded 30,000. No official figure was given for the number of people packing into Syntagma Square in front of Parliament but it was clear that the protest was by far the largest since the movement began on Wednesday." For now the Greek protest is peaceful, but with the US on vacation, and the EURUSD about to be very volatile, we urge readers to follow the real time update at the following live webcast.
Another indicator of what the US "recovery" looks like come courtesy of the Chicago Fed National Activity Index. As can be seen in the chart below, one can only wonder just what recovery the US would have if it did not spend $3 trillion to kickstart the virtuous (or better make that virtual) economic cycle when it did. And by the looks of facts (and not Tim Geithner spin), the downward inflection point has now arrived. Next up: another $1-1.5 trillion in monetary stimulus, although admittedly in a form that may be slightly different from the LSAPs we have all grown used to love and expect each and every day at 11:00 am EST.
All the talk about a dollar currency crisis is getting ahead of itself. Quoting Mises won’t make it happen overnight. It takes years, even decades for a reserve currency to dissipate. Instead of wholesale collapse, the most likely outcome is a steady decline in the dollar over an extended period of time. Of course there is a tail possibility of a collapse, and that is why hedges exist. But the high likelihood trend is persistent policy action to drive the dollar lower with respect the United States trading partners’ currencies, combined with a decline in the dollar’s use as a vehicle currency. This means serious dollar weakness for the next three years (or more), but not collapse.
Carl Icahn Confesses That The "System Is Not Working Properly", Warns Of Another "Major Problem" ComingSubmitted by Tyler Durden on 05/29/2011 - 13:54
Confirming our ongoing observations that the pursuit of leveraged beta is the only game in town ("Levered Beta Uber Alles: NYSE Borse Margin Debt Jumps To Three Year Highs, Investor Net Worth Remains At Record Lows") is this surprising confession by hedge fund titan Carl Icahn, who not only warns that the levels of leverage achieved in the current centrally planned regime is as bad as it ever was, and that some form of Glass-Steagall should return, but that, stated simply, the entire "system is not working properly." His warning, stated in a very politically correct fashion, is that "there could be another major problem" either next week, or next year. Which is not surprising: after all not only has anything changed, but the very same drivers of risk that nearly crashed capitalism in Q3 2008, are back and arguably stronger than ever. That the Fed is the last recourse mechanism preventing an all out systemic wipe out probably should not be a source of comfort to anyone. In the end, the Fed, as any other authoritarian institution promoting central planning, will always lose.
Brian Sack And The Robots Claim Another Market Neutral Victim As The Market Continues To Reward Only FailureSubmitted by Tyler Durden on 05/29/2011 - 13:04
While it may not be Duquesne or Shumway or even Icahn, it is merely the latest in a string of hedge fund closures, in this case market neutral, thus without a long or short bias, that was just put ouf of business by the ongoing streak of market surreality courtesy of $5+ billion in daily average POMOs, and the complete dominance of momentum driven, algo sponsored and robot implemented market strategies. The pioneer James Advantage Market Neutral Fund is now closing. "We have some important news to pass along on the James Advantage Market Neutral Fund (JAMNX). We have decided to close the Fund before June 30, 2011. While it was one of the first Market Neutral mutual funds to come out in 1998, times have changed and the investment approach has not been accomplishing what we originally intended." Chalk one for robot assisted central planning. And confirming that the "market" no longer rewards "quality" companies and merely encourages failure (thank you Uncle Fed) are the latest observations from Barclays's Matt Rothman: "Despite the retrenchment last week, in quant land the euphoria gripping
the market has manifested itself in a continuing struggle for High
Quality companies. Our long/short Quality index last month turned in
notable underperformance, returning -1.64%. As this index generally runs
at approximately 1/3rd the volatility of broader market indices such as
the SPX, this underperformance is eye-opening to us. We were hoping that earnings season and the ensuing news by just a
few companies might have been responsible for the strong
underperformance of Quality – that it was a few outlier stocks, a few
big names that drove our index down. Unfortunately, this is not the
case. Quality as style just failed...This is the second worst monthly stock picking performance for Quality since we launched our model in July 2007... To see large stable companies, with solid profit margins, strong
balance sheets and repeatable earnings underperform in this manner month
after month now is distressing." Someone please inform the Chairsatan that he has flipped the core premise of the stock market 180 degrees upside down...
Lately analysts have been stumbling all over themselves to raise estimates for earnings growth over the coming quarters based on recent earnings announcements by various companies. However, one of the things that should be paid attention to, besides rising input prices and weakening economic variables, is the Year Over Year Change (YOY %) in corporate profit margins...The evidence is mounting that corporate profits are under attack due to rising input costs through high commodity prices, weakening support from the consumer and an overall weakening state of manufacturing and employment completing the feedback loop into the domestic economy. While economists are still predicting just a slowdown in the economy before a reacceleration - my thoughts, as stated before, is that we will either see close to zero economic growth by the end of the summer or QE 3.
Europe Goes From Worse To Horrible: Ireland Broker Than Expected, Greece Mulls Splitting Up Into "Good" And "Bad" GreeceSubmitted by Tyler Durden on 05/29/2011 - 11:41
Greece hasn't even filed for bankruptcy yet and the "unexpected" consequences are already coming. In comments to The Sunday Times newspaper, Irish Transport Minister Leo Varadkar said the country will likely need another "unexpected" loan from the troica, after he became the first cabinet member to cast doubt in public on Ireland's ability to raise cash. In other words once on the temporary bailout wagon, always on the temporary bailout gain. Reuters reports: "I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying. "It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view." We wonder how German taxpayers will fell now that they realize they have not one, not two, but three (and soon 5 or more) heroin addicts they need to clean, wash, scrub, and feed on a monthly basis (with their, and US money, but Americans continue to not care that the biggest source of capital for the IMF is them). And speaking of ground zero, Greece is now scrambling after the Independent said that even Sarkozy is now prepared to let the Greek chips falls where they may. Following earlier news that the troika believes that the privatization plan it itself set up is not ambitious enough, Greece which now realizes that Germany, the EU, IMF, and Franch all are prepared to let it go, the country is now coming up with last ditch ideas faster than a speeding bullet: according to Reuters: "A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers." Of course since it is toxic Greek sovereign bonds we are talking about, this implies that the country will somehow be split into a "good" and "bad" version of itself. And who thought financial innovation only comes out of the US.
That insider trading in Washignton occurs with a greater frequency than at Galleon is no secret. Courtesy of various loopholes, members of both the House and Senate have long been allowed to trade on inside information, something that grabbed the media's attention when back in November 2005 someone, somewhere sent the stock of USG Corp., W.R. Grace & Co., and Crown Holdings higher even though there was no public information. Only later would it become known that then-Senate Majority Leader Bill Frist would deliver a speech announcing new legislation to relieve companies of asbestos litigation. Subsequent studies (such as Ziobrowski et al's 2004 paper “Abnormal Returns from the Common Stock Investments of the United States Senate.”) confirmed substantial market outperformance by members of Senate. A few days ago, Ziobrowski et al, have released a follow up study "Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives" which confirms that not only do congressional critters consistently outperform the market, but does a granular analysis of just who it is in congress that should consider leaving the public arena, and raising capital to start their own hedge fund: simply said, junior, democratic congressmen beat the market by roughly the same amount, with the same consistency (and probably with the same Sharpe ratio) that allows SAC to charge 3% and 35%.
While we have recently seen various fundamentally driven predictions for the S&P going back to its 1994 level of ~400 (most recently from Albert Edwards and Russell Napier), few charts predict a comparable major retracement in the key equity index. And while it is not quite a variant of the Kondratieff Wave chart familiar to most, this chart courtesy of Sean Corrigan shows the historical 33 year peak to trough frequency of the S&P, emphasizing the cyclical periodicity observed in market cycles. The chart predicts the next 33 year low to occur some time in late 2015, taking the S&P to the proverbial 400 level. As Corrigan observes: "A third, post-94 Bubble-era decline of -50% would unwind all of that move and half the log rise of the Great Bull Market (something the '49-'68 move did) and return to both the mid-1960's highs and Fib retrace the whole post - WWII move. Doing this by late 2015 would preserve the 33 year span."
Debt is slavery… or at least indentured servitude of the worst kind. That looming mortgage, the high interest credit card debt, the short-term car loan– these are the forces that keep people from breaking free and taking action. Ironically, debt begets more debt. According to FinAid, the average US student loan debt for a four-year private university graduate is nearly $36,000, and $24,000 for public. Throw in that first car loan and maybe a mortgage, and suddenly you’re staring at hundreds of thousands of dollars in demoralizing claims on your future income. At this point, most people figure… ‘hey, I’m already in debt up to my nose, might as well get in up to my eyeballs and buy a new plasma screen on credit.’ Debt is an enormous psychological burden that influences life’s major decisions. It’s why so many people stay committed to jobs that are unfulfilling in cities they detest under conditions they find disheartening. Nobody wants to rock the boat too much… take too many risks and you could lose your job, and hence the ability to make those monthly payments. This familiar story has been playing out across the developed world for years. This is not an ill, however, that exclusively affects individuals and families. Even at the macro level, debt has the power to subjugate entire nations to the whims of their creditors. Enter the IMF.
Spiegel Greek Hit Piece #2: Bailout Troika Finds "Greece Missed All Fiscal Targets" - Next Steps: Game Over?Submitted by Tyler Durden on 05/28/2011 - 14:04
Germany's Der Spiegel seems hell bent on getting sued to hell and back by Greece. After a few weeks ago it "broke" the news of a secret meeting that would consider the expulsion of the country from the Eurozone, it is once again stirring passions with an article claiming that Greece has missed all fiscal targets agreed under its bailout plan, according to a mission from an international inspection team, putting further funding for Athens at risk, Reuters summarizes. "The troika (aka the International Monetary Fund, the European Commission and the European Central Bank) asserts in its report to be presented next week that Greece had missed all its agreed fiscal targets," weekly Spiegel magazine reported in a prerelease. In other words, this could be the political game over for Greece, whose fate as has been disclosed recently, is intimately tied with the perception that it is following the troika's demands for fiscal change. If the three key bailout institutions are already leaking that Greece is done, next week could well be the beginning of the end for the €. In about 48 hours, even as America is enjoying a Monday off (or precisely because to that, to avoid a market panic), the European market could be digesting a very bitter pill of testing just how well pre-provisioned all those German, French and Dutch banks really are.
You read his weekly articles on Zero Hedge, now here if your chance to listen to Mike Krieger interviewed by Future Money Trends. Among the now topical issues discussed are the debt ceiling, QE3, geopolitical instability, US and global economies, $100 silver (as well as the recenty take down of the metal), market manipulation and much more, as well s Krieger's several proposed scenarios for the future.
More Political Capture: Goldman Hires Top Republican Fed Transparency Foe; Spends More Time With SEC Than Any Other BankSubmitted by Tyler Durden on 05/28/2011 - 12:55
The name Judd Gregg is not new to Zero Hedge readers. Back in the 2009-2010 battle for Fed transparency, which continues to be only fractionally on the way to being won, Gregg, who then served as the top Republican on the Budget Committee and a member of the Banking Committee, said that "opponents of Federal Reserve Chairman Ben Bernanke's second term are
guilty of "pandering populism"." Odd that these populism panderers, of which Zero Hedge was a proud member, ultimately succeeded in not only getting a one time Fed audit, but also won the legal case initiated by Mark Pittman to expose the Fed's dirty laundry, without which we would not know that not only did the Fed bail out primarily foreign investment banks during the financial crisis, but also that the biggest user of the Fed's somewhat secret Short Term Open Market Operations facility, also known as a 0.01% subsidy, was none other than Goldman Sachs, contrary to the firm's sworn statements that it did not really need bailing out. Gregg continued: "There's a lot of populism going on in this country right now, and I'm tired of it." Gregg warned that the growing tide of populism would threaten some of the most central institutions to the economy's recovery. "What it's going to do is burn down some of the institutions which are critical to us as a nation and as an economy to recover and create jobs," he warned." It was therefore only a matter of time that Gregg, following the end of his political career, has decided to step down, and work for one of these "central institutions to the economy's recovery" - Goldman Sachs. As such we present the list of companies that courtesy of their "top contributor" status with the senator over the years, are about to get preferential treatment from Goldman's sell side analysts, and see a prompt upgrade to Buy and/or Conviction Buy list in the near term. After all there is no such thing as squid-pro-zero in a world controlled by Wall Street's institutions "central to the economy's recovery."