Slovakia On Why It Votes "No" To EFSF Expansion: "The Greatest Threat To The Euro Is The Bailout Fund Itself"Submitted by Tyler Durden on 10/09/2011 12:17 -0400
Yesterday we reported that tiny Slovakia's refusal to ratify the expansion of the EFSF 2.0 (even though a 4.0 version will be required this week after the "Dexia-event"), may throw the Eurozone into a tailspin as all 17 countries have to agree to agree to kick the can down the road: even one defector kills the entire Swiss Watch plan. Yet an interview conducted between German Spiegel and Slovakia party head Richard Sulik confirms that tiny does not mean irrelevant, and certainly not stupid. In fact, just the opposite: his words are precisely what the heads ot the bigger and far less credible countries should be saying. Alas they are not. Which is precisely why the euro is doomed.
A good deal of leverage has been shaken out of the system, of that there can be little doubt. Markets became horribly oversold and are now reacting accordingly and, in such conditions of these, when underlying conviction is absent and the reservoirs of both financial and reputational capital are so scanty, such reverses can be violent indeed, so being bearish is not operationally straightforward, even if being bullish seems perverse. Whether the present bounce is any more than a temporary relief, must however, remain in doubt while the underlying weaknesses lie unaddressed and the treatment prescribed for them are so palpably toxic in their side-effects. At least we have the weekend to ponder it.
Could more conspiratorial environmentalistas’ interpretations of our times be correct, that is, someone has been putting something in the water and we are all being lobotomized, even without major brain surgery? You could make the case this week. Much of the world’s leadership, even though presumably suckling their bottled water, exhibits all the manifestations of imbibing something adversely affecting the normal cognitive processes
Today, the CDS market is highly efficient. It is both liquid and ringing with endorsement for Morgan Stanley. It is clear that the credit analysts, who once again are good predictors of the future, have done their homework and decided that Morgan Stanley is safe. What I find "interesting" is that earlier this week, the CDS market was full of manipulative bears who were attacking an otherwise great company, that CDS was extremely illiquid, that you couldn't rely on the pricing, and that spread widening was forcing additional hedging. Well, the CDS market is still populated by the same people as it was earlier in the week, it is no more or no less liquid.
The rally has been strong across many products, but once again has all the signs of a short squeeze rally. The weakest and most beaten up sectors and names have performed the best. Anything that was a "hedge" tool, has also outperformed. This rally seems overdone. European stocks and credit are sluggish today. The data, while not bad, seems priced in already, and being long because "Europe gets it" is risky, because even if they finally get it, do they still have the resources to fix it, or a system that is simple enough to let them agree on how to fix it? I am dubious, and at 1080 was willing to give some benefit of the doubt to the EU, but at 1170, I am happy to bet against them.
The freedom to choose the form of money we can use in our daily lives is inseparable from the ability to live one’s life as a free man and a free woman. Monetary freedom is inseparable from all other inalienable freedoms we possess in this life. What we have today is monetary enslavement. In 1792, Alexander Hamilton equated essential freedoms with the preservation of the purchasing power of all money and passed into law a Coinage Act that punished anyone that deliberately debased the value of coins with death. In 2011, the citizens of Utah give us The Utah Monetary Declaration. If we wish to stand in solidarity with our brothers and sisters around the world in restoring our essential freedoms, the first pro-active step every citizen in this world must take is to research and learn why the debasement of monetary value is a direct attack on the freedoms of every citizen of every district, every province and every state in every country in the world.
Risk aversion has again dominated the European session in what is becoming a familiar theme. The postponement of the decision on the next Greek aid tranche weighed heavily on sentiment which was compounded by several other factors. Goldman Sachs cut their forecasts for global growth saying they expected the Euro-area to experience a “mild recession” and this was later echoed by S&P who also noted they see a 40% chance that Western Europe would experience a recession. Developments in the financial sector have been in focus with Dexia shares at one point falling 30% after reports that its exposure to troubled Eurozone sovereign debt amounts to more than its entire equity base, with the French finance minister having to say that France and Belgium will guarantee the banks creditors. Furthermore, Deutsche Bank cut their 2011 forecast for their core business area saying that Q3 results for this year will be significantly lower than forecast; the banks shares fell 8% before bouncing with the DAX index lagging its European peers. Elsewhere, there were solid government debt auctions from Austria and Belgium while the Italian government bond yield spread over Bunds tightened due to renewed market talk that the SMP was again buying in the Italian curve. Moving into the North American session the key data will be the Durable Goods and Factory Orders, while comments will be anticipated from both ECB’s Trichet and Fed’s Bernanke. Later into the session there will second round of Operation Twist purchases from the Fed while the Belgian cabinet will hold an emergency meeting to discuss the Dexia situation.
On Friday, as pertains to Dexia, a name that suddenly everyone is talking about yet which nobody except for this blog covered back in May, we predicted that "We expect a partial or complete nationalization to be announced imminently, which in addition to all other side effects, would lead in a Bear Stearnsing of all accrued profit." Sure enough overnight we got the following announcement from the French and Belgian Finance ministers: "As part of the restructuring of Dexia, the Belgian and French, in conjunction with central banks will take all necessary measures to ensure the safety of depositors and creditors. To this end, they undertake to guarantee to bring their financing raised by Dexia." Translation: Partial nationalization. And with 5 year CDS ripping in a good 6-8 point upfront, bid at about 26 points at last check, down from 35 on Monday, getting out while the getting was good sure seems like a good idea. Alas, none of this will be any consolation to equity longs, whose value has just dropped over 20%, as this is nothing but a repeat of Bear Stearns. We repeat that at the end of the day, Dexia CDS will trade just wide of Belgian default risk, which we in turn expect to soar in the coming hours.
All you need to read. (a little late today)
Greek Banana Republic Status Upgraded To AAA After Sit-Ins At Eight Ministries Prevent Troika InspectionsSubmitted by Tyler Durden on 09/30/2011 05:46 -0400
A day after we learned that the Greece tragicomedy just gets better and better after it had run out of ink to print tax forms, and hence is unable to collect taxes, and were forced to got over a minute long bout of hysterical laughter having learned that Greece plans on refinancing its rolling debt (which trades at over 100%) with Century Bonds, no seriously and this under the sage advice of BNP Paribas, Deutsche Bank, HSBC and Lazard, we now get the latest update in this progression of relentless Banana Republic upgrades after learning that the Troika is unable to conduct its much needed inspections of Greek deficit cut progress due to sit ins by protesting government workers at 8 ministries. From Kathimerini: "The troika has been in Athens since Wednesday but its monitoring of Greek finances is running into a variety of problems, as besides the disagreement with the government on a number of issues, the representatives of the country’s international creditors had to deal with sit-ins at the building they were about to visit on Thursday. Public sector employees blocked the entrance to the Finance Ministry and the Hellenic Statistical Authority (ELSTAT) in protest at the planned measure of putting thousands of them on labor standby status." Seriously what else? News that government workers start shredding debt indentures for fun? In the meantime the Troika is having official meetings with what's left of the government at the local Starbucks...