"Spectacular Developments" In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole "Discovered"Submitted by Tyler Durden on 03/01/2015 12:59 -0500
Slowly, all the lies of the "recovery", all the skeletons in the closet, and all the bodies swept under the rug are emerging. Moments ago, Austrian ORF reported that there have been "spectacular developments" in the case of the Hypo Alpe Adria bad bank, also known as the Heta Asset Resolution, where an outside audit of Heta's balance sheet exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the Austrian Financial Market Authority said. The punchline: "The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or "bailed in" - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden."
If not the economy or fundamentals, and if not the Fed, which as we know is still on sabbatical after its massive QE1-2-Twist-3 $3 trillion liquidity injection, just what has pushed stocks up to jawdropping all time highs? Here, courtesy of Deutsche Bank, is the answer...
The aim of the Greek bailout was not to restore prosperity to the country's people, but to save the eurozone. Given this, the new Greek government is entirely justified in questioning the terms that the country was given. As negotiations continue (Tsipras "war" vs the initial lost "battle), the single worst outcome of the current negotiations would be Greece's submission to its creditors' demands, with few concessions in return. Default and exit from the eurozone would allow Greece to begin correcting past mistakes and putting its economy on the path to recovery and sustainable growth. At that point, the EU would be wise to follow suit, by unraveling the currency union and providing debt reduction for its most distressed economies. Only then can the EU's founding ideals be realized.
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Now that the Greek topic is back to overall debt sustainability, a few hours ago Greece Kathimerini reported that the Euro Working Group "discussed Greece’s imminent funding problems on Thursday amid mounting concern about how the country will meet its obligations next months." This follows a suggestion earlier in the day by the Greek Minister of State for Coordinating Government Operations Alekos Flambouraris that "Greece might delay payment to the International Monetary Fund if it cannot find the necessary money." But wait, how does a country "delay" a debt payment? It doesn't: "According to officials familiar with the subject. such a move would constitute a “clear default,” with consequences for a large number of other loans Greece has received."
Ponzi schemes, alleged or otherwise, can only exist as long as they generate more cash than they burn. Sadly for Herbalife, the tipping point beyond which every pyramid sheme implodes, has almost arrived. Just ask Bernie Madoff. Presenting cash from operations.
If "everything is awesome" in Greece (and Europe) then why - oh why - did Greek government bond yields surge higher today, Greek stocks tumble, Greek bank stocks (and less so bonds) collapse, and Greek CDS jump? It appears that as the euphoria relief wears off, as WSJ reports, doubts over the willingness of Greece’s left-wing government to follow its creditors’ orders on budget cuts and economic overhauls spilled into the public today. IMF's Lagarde stated that the Greek proposal "is not conveying clear enough assurances that the government intends to undertake the reforms," and even Syriza officials admitted, "it is difficult to determine how the government can fulfill its promises, including the debt write-off, with this agreement,” as doubts arise across Europe's policymakers and markets.
"Let us begin with what should be indisputable: the Eurogroup agreement that the Greek government was dragged into on Friday amounts to a headlong retreat. The memorandum regime is to be extended, the loan agreement and the totality of debt recognized, “supervision,” another word for troika rule, is to be continued under another name, and there is now little chance Syriza’s program can be implemented.... Greece will be receiving the tranche it had initially refused, but on the condition of sticking to the commitments of its predecessors.... How is it possible that, only a few weeks after the historic result of January 25, we have this countermanding of the popular mandate for the overthrow of the memorandum?"
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There was an expectation that today's receipt by the Troika of the revised Greek "reform proposal" would send risk and the EUR higher, which is probably precisely why nothing has happened so far, and US equity futures are unchanged ahead of what the HFT algos' new attention focus is today, namely Yellen's semi-annual testimony to Congress. As a result, the only thing that has seen notable strength this morning is the USD, which has surged to 119.50 against the Yen, and briefly pushed the EURUSD under 1.1300. which also means that WTI has also gone nowhere overnight and remains under $50. One wonders just what OPEC "rumor" those long crude will leak today.
When the German/Eurogroup decision came to throw either their own biggest banks, or the grandmas of a co-member nation of the currency union under the bus, they didn't even hesitate since they have control over the perfect vehicle for such tasks: the ECB (an allegedly neutral institution that in reality peddles political influence in a way that guarantees the poorer countries will always wind up footing the bill). For those of you who don’t want to wake up one day to find their own grandmas crushed under the same bus the Greek yiayia’s are under as we speak, it would be beneficial to ponder how perverse this all is, not just the isolated events but the entire underlying system that produces them. Banks are more important than people, certainly grandmas.
Well that didn't take long...
*GREECE TO SUBMIT LIST OF REFORM COMMITMENTS TO EU TOMORROW: OFFICIAL
So we are less than 3 days into the 'new deal' and Greece has missed its first deadline. We can't help but wonder if the initial draft, just as we warned, was thrown up all over by the Germans.
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If you thought the Greek tragicomedy is over, you ain't seen nothing yet, because despite the so-called Friday agreement, the immediate next step is for Greece to submit its list of reform measures to the Troika, which will almost certainly result in an immediate revulsion in Germany's finance ministry, and lead to another protracted back and forth between the Troika and Greece, which may once again well end with a Grexit, especially if the Greek liquidity situation, where bash is bleeding from both the banks and the state at a record pace, remains unhalted. It is therefore not surprising that the ongoing decline in the EURUSD since the inking of the agreement, and the fact that the pair briefly dipped below 1.13 this morning - over 100 pips below the euphoric rip on Friday - is a clear indication that the market is starting to realize that absolutely nothing is either fixed, or set in stone.