Germany will leave the Euro the moment that the EU Crisis spreads to France. At that point any discussion of EU bailouts is pointless, as the very countries needing aid (France, Italy, Spain, and Greece) account for 53% of the ESM’s funding.
- Most Germans Reject Ceding Sovereignty to EU, Stern Poll Shows (Bloomberg)
- How Stockton went broke: A 15-year spending binge (Reuters)
- Manchester United Shoots for $100 Million IPO (WSJ)... with 4x leverage and Jefferies as underwriter
- Iran says can destroy U.S. bases "minutes after attack" (Reuters)
- Poison claims spark call for Arafat exhumation (FT)
- Diamond Would Be Catch for Investment, Private Equity (Bloomberg)
- Investors may shun big Libor lawsuit and go it alone (Reuters)
- New Particle Found, Consistent With Higgs Boson (WSJ)
- Chinese riot police clash with protesters (FT)
- Euro-Area June Manufacturing, Services Output Contracts (Bloomberg)
- Utilities Struggle to Restore Power in East (WSJ)
- Dark economic clouds gather anew over Obama campaign (Reuters)
“The patience of the public has been exhausted”
Despite economic miss after miss, the momentum players in the market continue unfazed, dodectupling down on Bernanke Put Double Zero, pushing stocks to new highs simply on continued hopes that something in Europe may have changed with Merkel's so-called defeat last week, even as Merkel's key CSU coalition partners voiced an open threat earlier today to no longer support Eurozone aid if there is no conditionality - supposedly Mario Monti's biggest victory (ignoring that the German constitutional court is also faced with a barrage of demands to undo the ESM), and on hopes that tomorrow the ECB will announce something more drastic than the now widely expected 25 basis point cut. In other words a hope rally, even as bonds, and FX have now diverged dramatically with the hope gripping the global stock market. And hope is good, however if it becomes an investing "strategy" total loss is virtually guaranteed. That said, perhaps for the first time ever, bonds are wrong, and stocks are right, and all the bad news has been priced in (unlike all those other times when everyone said the same, and when everyone was certain they would sell first ahead of the herd). Which brings us to the question that Citi's Steven Englander has just asked himself: "So what can go wrong?" Here is his answer (in five parts).
The Fed, by buying Treasuries is making insolvent banks even more insolvent. It is a short-term gain (liquidity) for a long-term disaster: banks need as much collateral as they can get their hands on right now. And with Treasuries rallying (raising the value of the banks' assets) any aggressive Fed program to take Treasuries out of the system would be a MAJOR step towards another solvency Crisis a la 2008.
Local Governments Which Entered Into Interest Rate Swaps Got Scalped
Closing in unconvinced ROn mode. European equities taking their final lead from US peers. Peripherals pushing just the last basis points tighter. Note that these curves are finally steepening through renewed short end strength with both 2-3 YRS area down 20bp on the day. On the other hand, Core EGBs have not been driven into the wall, as one could have expected in full ROn modus. German 2 / 5 / 10s about unchanged from Friday.
Tug of war between wary optimists and tired pessimists? Glass half full or empty? Dusty diamonds, anyone?
Not a highly inspirational day to write about. Reduced volatility and very range-bound. Lack of real news flow. Action more in the financial people press, as it stands. And in EUR New Issues, as borrowers have come to learn that windows of opportunity, when seeing one, should be used. Knowing, too, that new issues will grind to an end probably as of the end of next week. Hence, EUR 7.5bn senior bank debt served in 2 days. Ce qui est pris n’est plus à prendre…
I don’t know, in my rather straight down the middle Kansas City mind I prefer a reality where one plus one is two and not where some European auditor, when asked about the sum of one plus one says, “What number would you like?” This was the way of it in “Alice in Wonderland” of course as the meaning of the word was determined by the speaker but this is not a wise path to be followed by an investor. Recently I wrote about Firewalls and the hocus pocus of their being touted as the cure-all for Europe. Europe missed the train on this one altogether as no amount of money, either pledged or funded, will do one thing to help the worsening financial crisis of the countries in Europe. You may think of the nations of Europe as horses in a corral. What is the value of a bigger and bigger fence that surrounds them if the horses are full of cancer? The fence, of whatever size, does nothing and I mean nothing to help the sickness of the horses. Europe is battling with windmills when they should be addressing the financial health of each country. “The horses are sick,” I say, “forget fiddling with the fence.”
Let’s face it – Europe is a cool place. In addition to being cool, Europe is also without a doubt the most creative and imaginative place outside of Middle Earth. Its ability to consistently baffle itself certainly warrants valuable space in IceCap’s global market outlooks. Financially speaking, Europe is broke - it no longer works. Figuratively speaking, Europe has entered its golden age. Unworkable solutions dreamt by an unworkable political system is consuming all real and electronic ink known to mankind. A day doesn’t go bye where local newspapers are not bursting with news on Greece, Spain and their Euro-cousins. This sudden love-in with Europe has surely removed America from the global spotlight. But, be patient as this will change later during the year. To demonstrate the absurdity of this place called Europe, one has to understand nothing else except the legalities behind Europe’s rules for selling cabbage to each other.
A worldwide phenomenon – just as the slowdown is cascading around the globe.
Twitter Reports 679 US Government User Information Requests In The First Half Of 2012, Folding On 75% Of ThemSubmitted by Tyler Durden on 07/02/2012 17:09 -0400
In the first of its kind action, Twitter has unveiled its first Twitter Transparency Report, in which it says that as "inspired by the great work done by our peers @Google, the primary goal of this report is to shed more light on: government requests received for user information, government requests received to withhold content, and DMCA takedown notices received from copyright holders." Is it something Americans should be concerned about? Well, with 679 out of a total of 849 user information requests by various governments, or the most by a margin of nearly 700% belonging to the US, we would say so. This also translates into 948 of all users/accounts specified. But most troubling is that Twitter has folded on a 75% of all such demands when it comes to the US government demanding information. It has provided information to only 6 other governments: Australia, Canada, Greece, Japan, Netherlands and the UK, but at a far lower "hit rate." You gotta give it to Uncle Sam: he sure can be persuasive.
While conflicts within and with the Middle East region are still among the top global risks, the paradigm has definitively shifted to China and Europe.
In line with our views on Europe's endgame, Marc Faber opined on Bloomberg TV this morning that if he "was running Germany, [he] would have abandoned the eurozone last week". We suspect that given the lack of real steps forward and no additional exposure (as yet) for Germany that they can hang on a little longer before they reach the final phase of the game-theoretically optimal exit (that Credit Suisse and us share) of a mercantilist GERxit occurring sooner than many think (benefiting from deposit inflows and low-EUR-based high profitability from exports for as long as possible and not a moment longer). The "cosmetic fix" of this latest summit, as Faber calls it, simply does not solve the fundamental problem of over-investment in the euro-zone. He is bottom-fishing in some European equities (though avoiding banks) and is not long the Euro here as he sees the modest rally in risk assets in Europe as merely a reflection of illiquidity and a grossly oversold market reverting on 'not a total disaster' though he reminds us early on that "pooling 100 sick banks does not make them healthy."
Given Friday’s announcements and subsequent rally, the relative dearth of weekend snippets and analyses seems a little surprising.
Consequently, the real question is: “when does Germany and the rest of the EU stop picking up the tab for Greece?” Judging from the above survey in which even the French and Italians now think Greece should leave the EU if it doesn’t start paying its bills, it won’t be long: Greece will need another €16 billion in financing if the EU accepts its request for another extension (yes, this would be the third bailout).