Greece Fulfills Its BoomBustBlog Derived Destiny - Shows This Time Really Isn't All That Different After All!!!Submitted by Reggie Middleton on 08/21/2012 14:33 -0400
If this doesn't piss at least a 20% of you off, and scare the remaining 8% into reading the next installment, then I obviously haven't been doing my job. Alas, I'm pretty good at what I do!
We're doomed, doomed, I tell you.
Rule #1 that is cast in stone is "Preservation of Capital." There is certainly a place for some speculation at the edges but you do not, ever, put the core of your capital at risk. You may believe what you like about Europe. You may be wildly optimistic or incredibly pessimistic but what cannot be denied is that tremendous risk is currently present and that things could go wildly erratic in one direction or another. Economics, outside of the classroom, never exists without its cousin politics but the political considerations are now so huge and the money at stake is now so large that the sheer size of the capital on the table should and ultimately will give everyone pause. We are about to arrive at moments where the notion of "muddling through" will no longer be possible.
Tuesday has see little in the way of macroeconomic data, and much focus so far has remained on speculation over whether the ECB will buy periphery debt. Comments from the German ECB representative Jorge Asmussen overnight that he backs the ECB buying periphery debt as a means to prevent the "disintegration of the Euro", a seeming change in stance given that the Bundesbank continues to opposed such measures, lifted risk assets in early trade. As such, the Spanish and Italian spreads over the benchmark Bund are seen tighter by 12.9bps and 14.4bps on the day. Spain's 12- and 18-month T-bill was also well received, the country selling slightly more than the indicative range at EUR 4.512bln, with lower yields, though only the 18-month had a stronger bid/cover. Both the Spanish and the Italian 2-year yields have declined to lows last seen in May of this year. Similarly, two separate comments from German Christian Democratic Union (CDU) lawmakers concerning Greece and the possibility of making "small concessions" for the country so long as they lie within the existing programme also boosted risk appetite, as the probability of a Greek exit looks much less likely if it has the full support of Germany. Elsewhere, the UK unexpectedly posted a budget deficit in July as corporation tax receipts plunged, though this was slightly skewed due to the closure of Total's Elgin gas field in the North Sea. Today also saw UK CBI orders for August plunge, with the industrial order book balance at its lowest this year led by a weakening in the consumer goods sector.
- German central bank warns country’s financial health not a given (WaPo)
- Secret Libor Committee Clings to Anonymity After Rigging Scandal (Bloomberg)
- Peru Declares State of Emergency to Quell Violent Mining Protests (Dow Jones)
- Euro-Area Economic Adjustment Only Half Complete, Moody’s Says (Bloomberg)
- Wall Street Leaderless in Rules Fight as Dimon Diminished (Bloomberg)
- China Swaps Drop From Three-Month High as PBOC Adds Record Cash (Bloomberg)
- China invest $1 billion in U.S. Cheniere's LNG plant, Blackstone to act as intermediary buffer (FT, Reuters)
- Romney Offers Lukewarm Support for Fed Audit - Hilsenrath (WSJ)
- U.K. Unexpectedly Posts Deficit as Corporation Taxes Plunge (Bloomberg)
- Obama issues military threat to Syria (FT)
- Merkel Allies Signal Concessions on Greece Before Samaras Visit (Bloomberg)
- Chinese banks warned of foreign exchange risks (China Daily)
By now it should be painfully clear to involved that the Greek economy is nothing but a zombie, whose funding shortfalls and other deficit needs are sustained each month only courtesy of constantly new and improved "financial engineering" ponzi creations out of the ECB, the ELA, and other interlinked funding mechanisms which are merely a transfer of German cash into empty peripheral coffers. And while the attention of the world has moved on, at least for the time being, from the small country which has been left for dead with the assumption that Europe will do the bare minimum to keep it alive, but not more, Greece once again reminds us that not only does it still pretend to be alive, but that the zombie is getting hungry, and want to eat.
Why doesn't anyone see this ass contagion?
My point with all of this, is that we’ve just witnessed Mario Draghi’s “bazooka” moment. Remember back in 2008, when Hank Paulson claimed that it he made a big enough monetary intervention threat that the markets would somehow correct themselves? Well, we know how that turned out (the markets called his bluff and the Crash happened).
Buffett Joins Team Whitney; Sees Muni Pain Ahead As He Unwinds Half Of His Bullish CDS Exposure PrematurelySubmitted by Tyler Durden on 08/20/2012 21:42 -0400
Just under two years ago, Meredith Whitney made a much maligned, if very vocal call, that hundreds of US municipalities will file for bankruptcy. She also put a timestamp on the call, which in retrospect was her downfall, because while she will ultimately proven 100% correct about the actual event, the fact that she was off temporally (making it seem like a trading call instead of a fundamental observation) merely had a dilutive impact of the statement. As a result she was initially taken seriously, causing a big hit to the muni market, only to be largely ignored subsequently even following several prominent California bankruptcies. This is all about to change as none other than Warren Buffett has slashed half of his entire municipal exposure, in what the WSJ has dubbed a "red flag" for the municipal-bond market. Perhaps another way of calling it is the second coming of Meredith Whitney's muni call, this time however from an institutionalized permabull.
It is hard to find fiscal situations that are worse than Japan's. The gross government debt/GDP ratio, at more than 200%, is the worst among the major developed economies. Yet yields on Japanese government bonds (JGBs) have not only been among the lowest, they have also been stable, even during the recent deterioration during the European debt crisis. This apparent contravention of the laws of economics is both an enigma for foreign investors and the reason for them to expect fiscal collapse as a result of a sharp rise in selling pressure in the JGB market. As Goldman notes, the European debt crisis has led to an increase in market sensitivity to sovereign risk in general and questions remain on when to expect the tensions in the JGB market and the fiscal deficit to reach a breaking point in Japan. In the following 14 charts, we explore the sustainability of fiscal deficit financing in Japan and Goldman addresses the JGB puzzles.
A key sticking point in the ongoing presidential debate is what happens to US tax rates, either for just those making over an arbitrary $250,000/year, aka "the rich", or for everyone. To put this debate into perspective, here is a chart that shows how over the past 20 years the US funding needs (demonstrated previously here), have been met in terms of the only two components of US funding - tax revenue and debt issuance.
Around 1000 people per day are still losing their jobs in Greece with the percentage of the population not working now uncomfortably larger than those who are employed. This is creating drastic - or perhaps more aptly philosophical - reflections by its people. As the BBC reports, the feeling in Greece is that a "whole generation is on hold" and there is a growing trend towards the creation self-sustaining eco-communities - free of the ties of money and modern civilization. "What others saw as a global economic crisis, [Greeks] saw as a crisis of civilization" and so they are trying something different, growing their own food, bartering with one another, and exchanging surpluses with other villages. The community calls itself "Free and Real" - an acronym for Freedom of Resources for Everyone, Respect, Equality, Awareness and Learning - and it is growing as a stunning 76% of Greeks would like to emigrate. The positivist angle notes that the Greek crisis is not all bad as it shows the lives we are leading are not working and Greeks can "begin to look for alternatives." Everyone is stressed; but "Being able to work is a basic human right in a civilized society, if the government won't provide us with it then we will have to fight for it."
A weekend article from Der Spiegel has been the centre of must attention this morning amid a light economic calendar on both sides of the pond. The article reported that the ECB would set limits to the yields of periphery country debt and intervene should these limits be breached. This weighed on the German Bund from the Eurex open and saw the Spanish curve trade lower by 25bps to 35b ps, as well as buoying the EUR currency and riskier assets in early trade. Risk-on moves in EUR and DAX futures were retraced as the ECB denied these reports, saying that it was misleading to report on decisions not yet taken, though it will act within its mandate. A German finance ministry spokesman also denied all knowledge of the reports a short while before hand. Furthermore, the latest monthly bulletin from the Bundesbank that once again reiterated the disapproving German stance toward the ECB's controversial bond-buying programme also dampened the mood.
Buy everything I say without limit. Leverage each purchase to the maximum allowed under the law. The markets will only go up and not down and 100,000 is the next stop for the S&P. It is to be Dow without Jones, assets without liabilities and wealth without poverty. The Middle Class has been evacuated and everyone is wealthy beyond belief. It is just there, of course, that the truth lies in this merry old land, “beyond belief.”
"I like fantasy---it wakes up the brain cells.”
- Dr. Seuss
- Caterpillar warns on global uncertainty (FT)
- Only 3 years behind the curve as usual: Moody’s warns on California city defaults (FT)
- Monti Says ‘Tragedy’ If Euro Became a Factor of Disruption (Bloomberg) - the same Monti whose disruptive comments recently enraged Germany?
- China Home Prices Climb in More Cities Prompting Policy Concerns (Bloomberg)
- China's Big Four boost new bank loans in Aug first half (Reuters)
- EU Leaders Plan Shuttle Talks to Bolster Greece (Bloomberg)
- US rule set to slash cars’ fuel use (FT)
- Spain Seeks Commitment From Central Bank on Bond Buys (WSJ)... and preferably completely unconditional
- Finnish Euro Doubts Hide Business Plea to Commit to Currency (Bloomberg)