Copenhagen

The Full Math Behind The "Expanded" European Bailout Fund

As noted earlier, futures this morning are higher despite a plethora of economic misses (and despite 57% of March US data missing as per DB), simply on regurgitated headlines of an "expanded" European €7/800 billion bailout fund. There is one problem with this: the headlines are all wrong, as none apparently have taken the time to do the math. Which, courtesy of think tank OpenEurope, is as follows: "The real amount of cash that is still available to back stop struggling states, should it come to that, is only around €500bn." Of course, that would hardly be headline inspiring: recall that that is simply the full size of the ESM as is. But even that number will hardly ever be attained, and the ECB will have to step in long before Europe needs anything close to a full drawdown: "The problem here is that if it’s too big and terrible to ever be used, it’s likely that it won’t ever be used. Even jittery markets will be able to figure out that a large fund which would damage French and German credit ratings if ever extended will never be fully tapped. So clearly some circular logic at play. And let's not forget that it’s still far too small to save Italy and Spain should if worse come to worse." Circular logic? Check. Another check kiting scheme? Check. Spain and Italy still out in the cold? Check. Conclusion -> buy EURUSD, and thus the ES, which has now recoupled with every uptick in the pair, but not downtick.

Gold Rises And Silver Surges In Q1 2012 - Fiat Currency Devaluation Continues

Gold has been trading in a tight box around $1,660/oz today, as eurozone finance ministers meet in Copenhagen to discuss the scale of the permanent “bailout fund” set for July. Gold has been stuck in range of roughly $1,630/oz to $1,700/oz in recent weeks as risk appetite has returned after the latest European debt “solution” which saw the battered can kicked down the shortening road once again. Nothing has been solved with regard to the European debt crisis, and debt crises in Japan, the UK and the US now loom. The misguided panacea of heaping debt upon debt and shifting debt onto government balance sheets, debt monetisation and currency debasement is leading to continuing currency devaluations internationally. Despite this or maybe because of this - risk appetite returned with a vengeance as evidenced in equities internationally rising to multi-month and multi-year highs and the slight weakness in gold in March. So far in 2012, gold has performed well and is set to end the first quarter in 2012 with gains in all major currencies. Gold is 6.3% higher in US dollars, 3.2% higher in euros, 3.1% higher in pounds, 2.25% higher in Swiss francs and 12% higher in Japanese yen which fell sharply in the quarter.

Europe Leaks It Will Fix Crushing Debt Problem With €940 Billion Of More EFSFESM Debt

We were delighted to see that the old headline scanning algos are still in charge of the FX market following "news", which were not even news, having been expected by absolutely everyone, that the EU is about to propose an expansion of Europe's bailout fund to a total of €940 billion for one year, by merging the €440 billion EFSF and €500 billion ESM - leading to a very transitory spike in the EURUSD. From Bloomberg: "European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement written for finance ministers. The euro-area finance chiefs will probably decide at a meeting in Copenhagen March 30 to run the 500 billion-euro permanent European Stability Mechanism alongside the 200 billion euros committed by the temporary fund, a European official told reporters earlier today in Brussels. Beyond that, they are also set to allow the temporary fund’s unused 240 billion euros to be tapped until mid-2013 “in exceptional circumstances following a unanimous decision of euro-area heads of state or government notably in case the ESM capacity would prove insufficient,” according to the draft dated March 23 and obtained by Bloomberg News." Three  things here: 1) Of the bombastic €940 billion in headline bailout money, only €300 billion or so will actually be available (sorry PIIGS - you can't bail out the PIIGS, also a third of the EFSF money is already tied up); 2) Europe is already preparing for the fade of the impact of the LTRO, which as pointed out earlier, has not only peaked, but courtesy of the LTRO stigma, which we suggested months ago to trade by going long non-LTRO banks and shorting-LTRO recipients, is starting to hurt all those firms who thought, foolishly, that the market would not go after them. They were wrong. And now Draghi is also boxed in an runaway inflation corner. And 3) Europe is back to the old mode of thinking that more debt will fix debt, even as the banking sector is forced to delever ahead of Basel III and due to shareholder requirements. This simply means that the eye of the hurricane over Europe's sovereign debt is about to pass. Those who miss 7% yields on BTPs won't have long to wait. Reality is once again starting to reassert itself.

Germany Wants New European Constitution: "There Are New Centers Of Power In The World."

Germany wants to "reignite a debate over creating an EU constitution to strengthen the bloc's ability to fight off financial troubles and counter-balance the rising influence of emerging economies". Guido Westerwelle noted that Germany EU leaders "need a new constitution... as there are new centers of power in the world." A key change that Germany wants for instance is an amendment to incorporate tighter regional oversight of government spending and allow the EU court of Justice to strike down Spain's a member's laws if they violated fiscal discipline. Here comes the 'Pro-Quo' to the Greek Bailout 'Quid'!

Timeline For Greece Following Today's FinMin Meeting

Today's FinMin meeting in Brussels is supposed to be "the one", as Greece's fate is finally decided, and Belgian caterers are forced to apply to the EFSF for a bailout (or maybe China will roll them up?) as prospects for further local summits, meetings, shindigs, tete-a-tetes, teleconferences and what nots are severely curtailed. Maybe - maybe not. We will reserve judgment until the end of the day, because, as shocking as it may sound, Europe is not the best when it comes to making decisions on short notice. Or any decisions for that matter. Especially ones which leave Greece in the same predicament as before, and when the country will certainly need more bailouts down the road, because "cutting" debt down to only 129% of GDP does leave some things lacking. In the meantime, assuming everything goes according to status quo plan, here is a timeline and breakdown of events in the aftermath of today's meeting.

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Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,” said the single currency will survive for now, even as he bets Greece quits within a year.

“With the exception of Greece leaving, I don’t think the whole thing is going to fall apart anytime soon,” Feldstein said in a Nov. 14 telephone interview. “The Greek situation is impossible.”

 

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Bond dumping and Berlusconi

BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis.

BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year.

So Much For Dreams, Hopes And The European Way: Schaeuble, Merkel Warn EU Summit To Be A Dud

Nobody could have foreseen this, nobody, certainly not the vacuum tubes who took the S&P for a ride for nearly 150 points. As Reuters reports, "the euro fell to a session low versus the dollar on Monday after comments from German Finance Minister Wolfgang Schaeuble saying the EU summit would not present a definitive solution to the euro zone debt crisis prompted investors to sell the single currency." No, that's not true, it's impossible. You mean all those hopes... Dashed? "A Bundesbank report saying the German economic outlook had deteriorated further also curbed some of the market optimism that had helped push the euro to a one-month high earlier in the session. The euro hit a session low of $1.3824 before recovering slightly to last trade down 0.3 percent on the day at $1.3840." And since the EURUSD and stocks trade as one... You know the rest.

Grimsvotn Ash To Reach UK Tuesday, Civil Aviation Authority Sees "Likely Disruption" To Flights; France, Spain Next

Call it Eyjafjallajokull part two, or, more pronouncedly, Grimsvotn part one. Just like last year, when the unpronounceable Icelandic volcano erupted and covered Europe in ash, grounding flights for about a week, so the 2011 vintage of Icelandic pyroclastic goodyness, contrary to "expert" predictions, is about to cause widespread havoc within European air traffic control. According to Eurocontrol, The European Organisation for the Safety of Air Navigation, whose twitter account is about to become all the rage all over again, "By 08:00 CET #gromsvotn #ashcloud to cover Scotland." In other words, expect massive plane delays, outright cancellations and another round of completely unexpected losses for airline carriers.

Gold Robust Despite Death of Bin Laden, Geopolitical Risk Remains Elevated due to MENA And Increasingly Pakistan

The Bin Laden death will likely prove to be a brief, but welcome, distraction for the Obama administration and other governments who are confronting an extremely difficult economic situation with deepening inflation, the euro zone debt crisis and the deteriorating economic situation and nuclear catastrophe in Japan. Gold is a barometer and is sensing that the Bin Laden death and burial at sea is a mere sideshow when compared to the real macroeconomic, monetary and geopolitical risk facing the world today. Even at these price levels, demand for gold remains robust, particularly in India (see News), China and Asia.Silver remains vulnerable to further short term weakness and the concentrated shorts may attempt to press their advantage after the CME raised margins once again. However, the very sound supply demand fundamentals mean that long term physical buy and hold buyers will continue to be rewarded. Leveraged speculation should as ever be avoided with gold and particularly silver as intervention and manipulation can result in short term sharp price drops which can wipe out those trading with margin or leverage. Bullion buyers buying with cash and not debt are not subject to these losses and are thus “strong hands” who can ride out price pullbacks and be rewarded for their long term prudence.