Selective Interpretation Of European Newsflow Demonstrates Ongoing QE3 Promise-Driven Risk On Confirmation BiasSubmitted by Tyler Durden on 08/31/2011 07:35 -0400
In yet another confirmation that absent some dramatic headlines which likely will not transpire due to all of Europe being on vacation, we will likely see another day of low volume levitation, is the over night split in action between stock futures and FX, which in turn demonstrates the selective interpretation of macro stories to validate any given cognitive bias. After dropping to overnight lows just above 1200, the futures are now preparing to print largely in the green following an overnight meltup driven, purportedly, by one single theme, namely that there is increasing German support of the EFSF after it was announced that that Germany's opposition Greens will approve new powers for the euro zone's bailout fund in a vote later in September, the party's parliamentary floor leader Juergen Trittin said on Wednesday. Per Reuters, Trittin was speaking after Chancellor Angela Merkel informed parliamentary floor leaders of the changes to the fund, which also supposedly would have bank recapitalization abilities, refuting all the rumors to the contrary from before. In other words, Europe has once again resorted to the old playbook where it floats one rumor then immediately turns around and refutes it to gauge market impact, as it did all though June and early July during the foreplay for the Second Greek Bailout. Yet ironically, while futures benefited from this, the EUR, which should be the biggest beneficiary of European stiblility actually fell substantially against Europe's safe haven currency, the CHF, on a 180 degree read of the just the same news flow. As Bloomberg explains, the CHF outperformed overnight in otherwise muted price action on concern regarding Germany’s willingness to expand EFSF commitment- bunds fall further after German cabinet backed measures to expand EFSF, allaying fears of further deterioration in Greece and Europe’s sovereign debt crisis and implying increased debt burden on Germany. On the other hand, Finnish reluctance to budge on the collateral issue then weighed down on the euro, negating all core risk transfer benefits.
That the European ponzi is leaps and bounds ahead of the US is well known: we have frequently succumbed to vertigo trying to chart just how interconnected Europe's financial system is at the current point where €1 in incremental capital is supposed to prop up a multi-trillion pyramid scheme. But the just released news from the Handeslblatt demonstrates that just when we thought we had seen it all, Europe once again manages to surprise us. As is by now well-known, Finland has proven to be quite a stick in the spokes of the joint-European can kicking exercise by, prudently, demanding collateral, or threatening to walk out of the second Greek bailout (that 1 year Greek bonds are trading at 60%+ yields is irrelevant). Well, here's the solution - give them collateral... in the form of insolvent Greek bank shares, which however will be "partially nationalized" as if that will suddenly push their value higher. Supposedly the Finns never clarified that the collateral has to have some liquidation "value." Oh well, better luck next time.
What's New In "Avoid Debt Destruction By Any Means" European Soap Opera Today? Additional Proof That Bank Failure's ImminentSubmitted by Reggie Middleton on 08/30/2011 10:17 -0400
Try, try, try as you might, you really cannot manipulate global markets on a sustainable basis. Italy, Portugal, Ireland and Greece are joining the ECB at the back of the class for a crash course in this lesson as I type this...
Bill Gross On "New Normal" Investing As A Failed Marriage: "What To Do When A Love Affair Goes Bad?"Submitted by Tyler Durden on 08/30/2011 08:49 -0400
- IASB criticises Greek debt writedowns (FT)
- ECB to reassess inflation risks (FT)
- Pimco's Gross rues US debt 'mistake' (FT)
- Trichet and Rehn defend Europe’s banks (FT)
- Japan Parliament Confirms Noda as Prime Minister (WSJ)
- Sino-Forest is Second Time Chan Loses Company (Bloomberg)
- US authorities assess hurricane’s aftermath (FT)
- Solar Purge Drives Weakest Into Buyouts (Bloomberg)
- Republicans to Unveil Bill to Force Major Changes at the UN (Bloomberg)
Over the past decade China has been stuck in an inventory stockpiling and mercantilist process tolling mode, even as it has been posturing about expanding its middle class. Well, the Chinese empire may be finally hinting at what the "next steps" may be. FT reports that Chinese real estate tycoon and former Chinese Central Propaganda Department official Huang Nubo, has struck a deal to acquire 300 square kilometers of "wilderness in north-east Iceland where he plans to build an eco-tourism resort and golf course." That, at least, is the party line. Nobody however is buying it: "Opponents have questioned why such a large amount of land – equal to about 0.3 per cent of Iceland’s total area – is needed to build a hotel. They warned that the project could provide cover for China’s geopolitical interests in the Atlantic island nation and Nato member." And after securing a landing area equidistant from Europe and the US, China will next proceed to purchase bits and pieces of Greece, Spain, Ireland, Portugal, etc. After all, the nouveau-IMF piper ultimately always demands his price for keeping the western world ponzi alive and running for a few more months.
Italy Trims Austerity Plans, Removes Tax Hike Proposal On High Earners, To Pursue Tax Cheats InsteadSubmitted by Tyler Durden on 08/29/2011 13:39 -0400
Italy's brief flirt with Austerity, disclosed on August 12, lasted all of 2 weeks. As Reuters reports, following a 7 hour meeting between FinMin Tremonti who has been portrayed by the media as the primary reason why Italy has recently become the target of bond vigilantes, and which in turn was forced to establish some token measures of austerity, and PM Berlusconi, the most provocative measure of the "austerity" packet have been dropped, namely the solidarity tax, which would see new taxes on high earners, as well as austerity imposed on local budgets, and instead will be replaced with new 'tax evasion' avoidance schemes. Surely this massive watering down of Italian austerity will work: just ask Greece how effective the whole crack down on tax avoidance was. At least the Piazza Navona strike cam can be dropped for now... or at least until bond vigilantes strike in Rome again, and the country does the whole austerity charade again.
Follow that bouncing ball across Europe as it eventually hits home right here on Wall Street. Why haven't we heard about this in the media or the sell side reports?
Positive comments from German Chancellor Merkel on her coalition's support towards enhancing the power of the EFSF, together with comments from Moody's that the Spanish proposed fiscal rule is credit positive for the sovereign promoted risk-appetite during the session. European equities traded higher with particular strength seen in financials after European officials dismissed a suggestion by the IMF's chief Lagarde on a mandatory recapitalisation of European banks. Elsewhere, weakness in the USD-Index provided support to EUR/USD, GBP/USD and commodity-linked currencies, however EUR did come under some pressure following lower than expected German states' CPI data. In other forex news, weakness in CHF was observed across the board, however no confirmation of any intervention has surfaced. Meanwhile, according to a document, Finland has proposed the creation of a Luxembourg-based company to hold Greek assets as security for new loans to Greece. The document further said that in case of a Greek default on the EFSF loans, ownership of holding company shares would transfer to the member states.
Greece Ups the TBTF Ante With Merger Of Alpha Bank And Eurobank, Creates Largest (Jointly Insolvent) Bank In Southeast EuropeSubmitted by Tyler Durden on 08/29/2011 07:49 -0400
As of minutes ago, the speculation that Greek Alpha Bank and Eurobank are merging, in the process creating the largest Greek bank, and first TBTF candidate, has been confirmed, leading to a 30% jump in the stock prices of both Alpha and Eurobank. Not only that, but as AP reports, "the news triggered a Greek share rally, with the benchmark General Index on the Athens bourse gaining more than nine percent in early trading. On Friday, it had hit its lowest in nearly 15 years due to concerns over the future of the country's latest rescue package. The banking sector was up nearly 20 percent, while shares in National Bank of Greece, the country's largest lender, were up 29 percent." This move, which is nothing more than an attempt to pool deposit bases at these two very troubled institutions and thus prevent a bank run, needed a back stop to be credible: sure enough here comes the Petrodollar patsy: "Qatar Investment Authority (QIA), which is already an Alpha shareholder, is expected to take a bigger stake in the new bank. QIA holds 5% of Alpha and is expected to take 15% of the merged entity." The new bank will be the biggest bank in southeastern Europe, with assets of 146bn euros ($212bn; £129bn) and 1,300 branches. Eurobank shareholders will receive five new Alpha Bank shares for every seven Eurobank shares they own. And what would a bank merger be without ridiculous talk of synergies: The banks estimate that the merger will create about 650 million euros of synergy saving per year. Naturally nobody cares about this, as long as the first stake in the Greek bid for TBTFness proceeds as planned. That this step only delays the inevitable is irrelevant: for now the buying spree must resume. We fully expect the pro forma entity to eventually subsume all other Greek banks before finally it reverse mergers with the hollow ECB shell.
German Coalition Partner CSU To Propose Bankruptcy Procedure To Kick Out Chronic Eurozone Debtor NationsSubmitted by Tyler Durden on 08/28/2011 16:51 -0400
The news out of Europe just keeps getting worse. While earlier we described how the squabbling within Merkel's own party could scuttle her political career, not to mention hopes for ongoing German funding of European bailouts, next we learn that she has not only outright rejected Finland's demands for loan collateralization out of Greece (which would in turn make Greece a selective Debtor In Possession lender, or, in other words, a prepack bankruptcy candidate 101), a move which Finland will likely balk over and very likely unilaterally exit from the second Greek bailout (remember that whole "Greek Bailout #2 is Dead on Arrival" from June 5?), but what is worse, according to Der Spiegel, tomorrow CDU coalition partner CSU will likely propose several "explosive ideas" which not only reject a common "economic government" for the eurozone (thereby slapping Sarkozy fully across the face), but also consider "creating a bankruptcy procedure to kick out of the euro countries that aren't willing to stick to the debt limits laid out in the euro zone's Stability and Growth Pact." In other words zero steps forward, and as many steps back as it takes to get us to before not only the July 22 Greek bail out, but all the way back to the beginning of the year. Only this time, the market is fully aware that both Italy and France are also on the hook: that can not be unwound with any paper.
Update: sure enough, here is Ambrose Evans-Pritchard with his own perspective on just this topic, which is oddly comparable to Zero Hedge's: "Mrs Merkel's aides say she is facing "war on every front". The next month will decide her future, Germany's destiny, and the fate of monetary union."
Every time we discuss the futility of the nth bailout of [Greece\PIIGS\Europe\the Euro] we make it all too clear (most recently here and here) that the trade off between Germany onboarding ever more peripheral financial risk in one after another all too brief attempt to prevent the implosion of European capital markets and its currency, is not only a relentless creep higher in German default risk (and lower in the German stock market, as August has so violently demonstrated) but increasing political discontent, which after claiming countless political regimes across the world, has finally settled down on one that truly matters: that of German chancellor Angela Merkel. And as Reuters reports, Merkel's disappointing response to an ever escalating set of crises, both domestic and international, means that the beginning of her end (and by implication of the Eurozone, and of the Euro) may be as soon as September 23, when the vote over the expansion of the latest and greatest European bailout lynchpin, EFSF, will take place.