Greece

Spot The Difference

The public furore over the closure of state TV in Greece will likely be nothing compared to the glaring similarities of the new Greek state TV to the Russian broadcasting channel of Mikhail Gorbachev. It seems the Russian influence in Cyprus has leaked into its close neighbor as the following two images suggest.

European Bonds And Stocks Slide From Bernanke Opening Exuberance

It seems the early exuberance that Bernanke's utterings caused in world markets was faded non-stop in Europe. European bonds and stocks saw their best levels of the day at the open and never saw them again. Greece and Portugal underperformed their peers; Italian stocks actually closed lower on the day and while bonds did stage a comeback into the close, they all closed the day wider from yesterday. EURUSD was the big story - its biggest shift since January 2011 (with a 450 pip swing) - but as the day wore on the USD clambered back some strength (even as US equities ignored its retracement).

Greek Unemployment, Non-Performing Loans Soar To Fresh Record Highs

It wouldn't be the new normal if the collapse in Q2 US GDP to sub-1% wasn't met by a new record high in the Dow Jones. And it certainly wouldn't be the new abnormal if a day of resplendent green in European bourses didn't have some "matching" economic news out of that perpetual reminder that Keynesianism in the end always fails: Greece. Luckily, validating that all is unwell and stocks can proceed to soar to record highs unbothered, on one hand the Greek Statistics Office reported that Greek unemployment in April just rose to a new all time high of 26.9%, up from 26.8% in March, and up from 23.1% a year ago, while Kathimerini reports that Non-performing loans: those perpetual thorns of insolvency in bank balance sheets, just surged to €66 billion, amounting to a whopping 29% at the end of March from a "manageable" 24.2% at end-December. That's a ridiculous 20% increase in total NPLs in three months that was only exposed due to the Troika's stress testing! Just how atrocious is the reality on European bank books anyway?

Market Recap

  • Risk on assets supported by yesterday's speech by Bernanke, who said that highly accommodative policy needed for the foreseeable future and that current unemployment of 7.6%, if anything, overstates health of US labour market.
  • ECB's Weidmann said that the ECB has not tied itself to the mast with forward guidance, which does not rule out rate hikes when inflationary pressures emerge.
  • The BoJ kept their monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base.

Frontrunning: July 11

  • Bernanke Supports Continuing Stimulus Amid Debate Over QE (BBG)
  • Portugal president wants 'salvation' deal, including opposition (Reuters)
  • Egypt has less than two months imported wheat left - ex-minister (Reuters)
  • A rise in long-term interest rates is creating challenges and opportunities for the largest U.S. banks. (WSJ)
  • BoJ says Japanese economy is ‘recovering’ (FT)
  • More Chinese cities likely to curb auto sales (Reuters)
  • PC Shipments Fall for 5th Quarter (BBG)
  • Property Crushes Hedge Funds in Alternative Markets (BBG)
  • New aid gives Greece summer respite before showdown (Reuters)
  • Rajoy Punishes Exporters Sustaining Spain’s Economy (BBG)
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Why The EU Has Failed

It has all gone belly up if we look at the EU and we are honest. Yes, they might be trying to paper of the cracks and yes they might be shoving some super strong glue in their to stop everyone pulling in different directions, but if they are really truthful about it, the EU28 (now that Croatia has become a member since July 1st 2013)

Spain's Slush Fund Scandal

According to a recent report in the FT, the former treasurer of Spain's ruling Popular Party, Luis Bárcenas, has claimed in an interview that the party has been in breach of Spain's campaign finance laws for a minimum of 20 years. Presumably he was moved to talk because he was the one who got caught and is expected to fall on his sword. Now that he is facing a lengthy prison sentence, he no longer has a reason to clam up. Incidentally, no-one in Spain was surprised to learn what he had to say. What we are seeing here is actually a strong parallel to Greece. The EU has been complaining about the Greek government's inability to collect taxes, without considering that Greek tax payers may have very good reason to pay as little as possible to the corrupt apparatus installed by the ruling class. As a Greek shipowner told a journalist when asked why he thought it was fine that rich shipowners are tax-exempt in Greece: “Would you want to pay money to Al Capone?” Pause. “Me neither.” Finally, as the bankruptcy of the Western welfare/warfare states becomes more glaringly evident, even stronger growth of the informal economy seems likely to ensue.

11 Signs That Italy Is Descending Into A Full-Blown Economic Depression

When you get into too much debt, really bad things start to happen.  Sadly, that is exactly what is happening to Italy right now.  Harsh austerity measures are causing the Italian economy to slow down even more than it was previously.  And yet even with all of the (supposed) austerity measures, the Italian government just continues to rack up even more debt.  This is the exact same path that we watched Greece go down. But if Italy collapses economically, it is going to be a far bigger deal than what happened in Greece.  Italy is the ninth largest economy on the entire planet.

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What’s Austerity?

As the EU agrees to fund another bailout deal to help Greece rise from the ashes, providing them with another $8.7 billion in financial aid, the question that begs an answer is: will this have any effect on the austerity that is being imposed on the country. Throwing good money after bad?

Charles Gave: So Here We Are...

  • China, the single biggest contributor to global growth over the past decade, slowing markedly.
  • World trade now flirting with recession.
  • OECD industrial production in negative territory YoY.
  • Southern Europe showing renewed signs of political tensions as unemployment continues its relentless march higher and tax receipts continue to collapse.
  • Short-term interest rates almost everywhere around the world that are unable to go any lower, even as real rates start to creep higher.
  • Valuations on most equity markets that are nowhere near distressed (except perhaps for the BRICS?).
  • A World MSCI that has now just dipped below its six month moving average.
  • A diffusion index of global equity markets that is flashing dark amber.
  • Margins in the US at record highs and likely to come under pressure, if only because of the rising dollar.

Alcoa's "Tapered" Earnings Beat Sets Bullish Global Mood

Overnight news began in China where the CPI came in 2.7% versus consensus of 2.5% although PPI continues to decline at a faster pace than expected (-2.7% v -2.6%). While nobody believes the actual print, that the PBOC is telegraphing an inflationary "leak" shows its willingness to continue with pro-tightening measures which is why despite an Alcoa "beat", the SHCOMP was up only 0.37%. Elsewhere in China, Bloomberg news quoting Xinhua said that some district governments of Ordos of Inner Mongolia is struggling with finances and had to borrow money from companies to pay salaries of municipal employees. Ordos is the infamous "ghost town" spurred by the mining boom in Inner Mongolia. The Bloomberg article noted that Ordos local government entities have CNY240bn of debt versus CNY37.5 billion of revenue last year.  And while the Alcoa "beat", helped handily by a hilariously "tapered" consensus into reporting day, did little for China it was the catalyst that pushed global stocks higher worldwide.

Greece Calls Europe's Bluff Again, Gets More Money

Five days ago the latest episode of the endless "Europe pays Greece to pay Europe" charade played out when the Eurozone gave Greece its latest three-day "ultimatum" to fix itself or else. Obviously, Greece did not fix itself, but since the three day ultimatum ran out two days ago, and since the BBG ticker for the Greek currency is still not XGD, one can assume that the latest European bluff, especially one coming 2 months before Merkel's reelection when nothing is allowed to disturb the precarious European house of insolvent cards, was just that: a bluff.

Europe's Cleanest Dirty Shirt Sees Exports Collapse & Production Plunge

Just when the jawboning from Europe is reaching its climax that Portugal is fixed again, Greece is fixed, and the core is showing green shoots from the near-depression, Germany (the corest of the core) comes out with its worst exports data since 2009. While imports remained stable - suggesting domestic demand is sustained for now - YoY export growth collapsed 3.2%, the worst tumble since November 2009 "illustrating that Germany's economy still has difficulties shifting into higher gear." The details are a horror-story. Exports to the euro-zone, where 40% of Germany's exports are sent, fell by a stunning 9.6% (while exports to the rest of the world dropped 1.6%). To add to the misery for the 'things are getting better' crowd, Germany's industrial production data missed expectations are dropped back into the negative YoY following the 'hope' inspiring positive YoY print in April that signaled all-is-well. Of course, none of that matters, the DAX is up a stunning 2.4% today on the back of this dismal-is-great data. So much for those green shoots...

Earnings Seasons Kicks Off With Another US Futures Ramp

The central bank "reason" goal-seeked for today's US overnight ramp - because it sure wasn't fundamentals with both German exports (-2.4%, Exp. +0.1%) and Industrial Production (-1.0%, Exp. -0.5%) missing - was the weekend Spiegel story that despite the unanimous decision by the ECB last week to keep rates unchanged, ECB chief economist Peter Praet and Mario Draghi himself had insisted on a 25 bps rate cut. They were, however, stopped by seven council members from the northern euro states, including Weidmann, Knot and Asmussen. As a result, Draghi was steamrolled in the final vote. Yet somehow this is bullish for risk, pushing equity futures higher and peripheral debt spreads lower, even as the EURUSD has drifted higher. Of course, one can't have an even more dovish ECB as a risk on catalyst alongside a rising Euro, but who cares about news, fundamentals, or logic at this point. All that matters is that US futures are higher, which was especially needed following yet another rout in the Shanghai Composite which dropped 2.44% back under 2,000 following news that China's Finance Ministry has told central government agencies to cut expenditures by 5% this year, and a 1.4% drop in the PenNikkeiStock225 on a weaker USDJPY. Remember: all is well in the global economy (whose forecast is about to be cut by the IMF) if the US is generating a record number of part-time jobs.