France

Complete, and total, idiocy

• DJ REPORT EFSF FIREPOWER TO REACH EUR2T "TOTALLY WRONG"-SOURCE
• DJ EU Source: No EFSF Deal Til Friday, EUR2T Number 'Simplistic'

Beyond words.

The Eurozone debt crisis gets worse. Bankers interfere. And the truth comes out: "The dreams to see the crisis ended by Monday couldn't be realized," says the German government.

This is not what Europe needed, 6 days ahead of the G20 ultimatum's expiration for Europe to somehow fix itself, and hours after Deutsche Bank said the rating agencies may go ahead and put France on downgrade review. Just out "Moody's notes that the government's financial strength has weakened, as it has for other euro area sovereigns, because the global financial and economic crisis has led to a deterioration in French government debt metrics -- which are now among the weakest of France's Aaa peers." As for the timing... "Over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures, while taking into account any potential adverse economic or financial market developments."

First we have Credit Suisse saying 66 European banks will fail the 3rd stress test, and will need hundreds of billions in fresh capital, something the market ignored entirely last week but may want to reevaluate now that the idiocy appears to have subsided. And now, inexplicably, we have Deutsche Bank warning that France may well be put on downgrade review by year end. "We highlight in this note that the French corporate sector is already financially stretched, with poor profitability and large borrowing requirements. We consider that the deterioration in economic conditions is now creating a distinct risk that France could be put under “negative watch” by the rating agencies before the end of this year. We think that France has the wherewithal to react to such an outcome and could avoid an outright downgrade by taking corrective measures quickly, but this naturally would be a very sensitive political decision a few months before a major election." Why either Credit Suisse or Deutsche Bank would jeopardize their own existence by telling the truth, we have no idea. If either of these two banks believe they can survive a vigilante attack on French spreads, and the subsequent shift of contagion to none other than Germany, we wish them all the best. Yet that is precisely what will likely happen, especially now that the market can no longer pull the trick it did for the past two weeks, and stick its head deep in the sand of complete factual avoidance.

In our previous post we warned, indirectly through the IMF, that the biggest risk for Europe is the inability to reach consensus over anything from the most complicated, to the simplest matter. As noted previously, one of the main initial drivers of the market surge which has since translated into yet another short covering rally of epic proportions was the belief that Europe can actually come together in agreement over the simplest thing - like its own survival. Alas, it appears even that is not the case. As Bloomberg reports, "Germany and France are at odds over whether the European Financial Stability Facility should have limits on government bond purchases, Handelsblatt reported, citing an unidentified high-ranking European Union diplomat. France doesn’t want to restrict the EFSF on how much of its funds it can use for such purchases, the newspaper said in a preview of an article to appear in tomorrow’s edition. Germany wants to limit the amount EFSF can spend for bonds per country and is also considering whether there should be a time limit for bond purchases, Handelsblatt said." Said otherwise, here comes the latest cause of discord within Europe. Unfortunately, it also means that any rumor, innuendo and speculation that Europe has finally reached a coherent union over its own bailout can be promptly discarded. As if there was ever any doubt in the first place.

There are three phrases the market never wants to hear. Ever. They are "contingency", "just in case", and "only." Alas, it just got all three of them in an article just released by French Le Figaro which, per Bloomberg, has disclosed that "France has been working for a number of days on a plan that would allow the state to take a stake in the country’s financial institutions if needed, Le Figaro reports, citing a source. The plan, the article continues, is being prepared “just in case” it’s needed and only 2 or 3 banks may be affected under plan." So, let's get this straight: France has scrambled to put together a nationalization plan to bail out just "2 or 3" banks, "if needed"... Uhhh, all we can say to this is, LEEEEEEEROOYYYYYYY JENKINS. Although the person we would most love to hear say it, is the person who until two months ago was the French minister of finance and currently head of the world's most irrelevant and disorganized organization.

We won't comment on the supreme imbecility of being able to predict something as amorphous as a recession in decile increments, but for what it's worth, here it is. Just out from the crack Goldman tag team of Hatzius and Dominic Wilson, who usually don't work together unless they have to make some big statement: "We now see the risk of a renewed US recession as around 40%." (this was 30% before - expect every other Wall Street idiot to follow suit with an identical prediction). Also, those wondering if Goldman is content with getting shut out on its IOER cut demand, we have the answer: no. To wit: "We expect additional easing of monetary policy beyond the ‘operation twist’ announced recently, although this may not come until sometime in the first half of 2012. In addition, the market’s focus on changes in the Fed’s guidance on future policies - including a greater emphasis on the employment part of the ‘dual mandate’ and/or a temporarily higher inflation target - is likely to intensify." Lastly, as relates to the saving grace in Europe, little surprise there - Goldman, whose plant Mario Draghi is about to take over the ECB, expects the very same ECB to open the spigots: "The increase in financial risk is likely to lead the European Central Bank to ease its liquidity policies further this month, and the economic weakness will probably result in a cut in the repo rate by 50bp to 1% by December." As for European economic prospects, well, sacrifices will be made: "we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery." And with a former Goldmanite about to take over the European money issuance authority, we have a bad feeling about what will transpire in Europe after October 31, when Trichet finally exits stage left.

"We're not doing this for the Greeks, but for us," said Angela Merkel amidst a cacophony of doomsday scenarios. It's all about propping up German banks and exporters. For the French, however, the European debt crisis doesn't seem to exist.

The bank that Napoleon created, and which will very shortly be in every major newspaper's headlines,  certainly believes in the ideology of Keeping It Simple Stupid. Presenting the Banque De Paris Org Chart.

It's just getting plain idiotic in France and Europe. After last week the global stock market soared (then crashed) on two separate micro-occasions (since everything is now measured in HFT time) following rumors first from the FT then from someone we don't even remember who, that French banks would be recapitalized, here comes the strawman reset for the next 24hours. From Reuters: "French banks are solid and can face any risk from their exposure to Greek sovereign debt, the head of the Bank of France, Christian Noyer, told a French newspaper, adding that there was no secret plan in place to recapitalise them." Well, no, they are not. Just ask the Chinese. Or Siemens. But at least this latest refutation gives France hope that when BNP, SocGen and CA are all down 15%, leaking this same rumor for the third time, may provide a short-term temporary boost. Alas, not even the vacuum-tube controlled market is that dumb.

Update: NO CONTAMINATION FROM EXPLOSION AT FRENCH MARCOULE NUCLEAR SITE - FRENCH POLICE: RTRS... hopefully the accuracy here is better than at Fukushima

The following story is very fluid and we are following closely. Minutes earlier shares of french EDF have come under selling pressure following broad headlines of a explosion at a French nuclear power plant. Here is what we have found so far...

Two weeks ago when expanding its debt monetizing vehicle, the SMP, to include the debt of Spain and Italy, one of the few appeasements offered to the public by "Europe" was the resolute demand that a transaction tax, aka Tobin, be enacted immediately if not sooner. Today, about two weeks later, the same behemoths of European structural stability, Germany and France, hoping the general public has largely forgotten all that was said in mid-August, has come out with the generous announcement that... they will propose a financial transaction tax. It is unclear if sometime between the first proposal and today's, Merkozy dropped the demand for Tobin Taxation, in order for it to be priced in once again as an indication of the fiscal prudence of the European leaders. And if so, will the market respond like it did last time around and plunge by 5-10%?

Earlier today, German financial regulator Bafin roundly smacked down Christine Lagarde's Jackson Hole proposal to use the EFSF as a bank recapitalization vehicle (as we noted over the weekend, it already has its hands full with merely keeping Italy afloat). Now it is France's turn to be indignant:

• BANK OF FRANCE'S NOYER SAYS DOES NOT UNDERSTAND IMF LAGARDE'S RECENT CALL FOR EU BANK RECAPITALISATIONS
• BANK OF FRANCE'S NOYER SAYS MAYBE LAGARDE WAS BADLY INFORMED BY IMF STAFF ON BANK RECAPITALISATIONS
• BANK OF FRANCE'S NOYER SAYS SEES NO REASON TO WORRY ABOUT FRENCH BANKS
• BANK OF FRANCE'S NOYER SAYS SPECULATION ABOUT POSSIBLE FRENCH DEBT DOWNGRADE IS AN "ABSURD RUMOUR"
• BANK OF FRANCE'S NOYER SAYS CONSTITUTIONAL DEFICIT LIMIT WOULD BE COMMON SENSE

Kiss the free market goodbye. Spain's and France's regulator have both just announced that the short selling ban, which was supposed to expire tomorrow, has now been extended until the end of September 30, and November 11, respectively. Add to this Belgium and Greece whose regulators announced they will lift its own short selling ban "when conditions allow", or some time in October, in and we can pretty much be confident that the European market rout seen earlier is due to someone leaking the news that price discovery in Europe is now officially over.

As we predicted earlier, following the disappointing announcement out of the SNB overnight, now it is the Swiss government's turn to make it clear that nothing good will happen for USDCHF and EUCHF longs following a 9 sigma move higher in the past week. As a result, the EURCHF promptly took out another 200 pips in the past hour and tumbled as soon as Switzerland's Widmer-Schlumpf said that the Franc is a matter for the SNB, not a matter for politicians, and that it is up to the SNB to decide on the CHF target, throwing the ball of responsibility back in Philipp's court, and making sure that all the CHF pairs retest all time lows in the very near future. Because, just as eurobonds are the last ditch option for the eurozone, so a CHF peg is the last option for the SNB before ongoing pressures in the eurozone push the CHF to parity with the EUR, in the process bankrupting the CHF, and destroying the country's export sector.