The first piece of red herring news out of Europe is already on the tape, after Reuters reports that 15 out of 91 banks are expected to fail the second round of stress tests: "Up to one in six European banks is set to fail an EU-wide financial health check, according to euro zone sources close to the stress-testing, as officials scramble to set up backstops for those at risk. Euro zone sources said the European Banking Authority is set to announce within weeks that between 10 and 15 of the 91 banks being tested had failed the tests, with casualties expected in Greece, Germany, Portugal and Spain. In the drive to ensure the credibility of the bank assessments, the European Banking Authority (EBA), which runs the tests and the European Central Bank, which sets the macroeconomic scenarios, are pushing for a higher number of banks to fail than last year's seven. "How many do we expect to fail? I would say 10 to 15," said one senior euro zone central banking source." Of course, the reason why this is total non-news is that while the EBA will huff and puff, the end result, just like last year, will be absolutely no failures, as Europe has no failsafe mechanisms to deal with the aftereffects of a bank failure chain reaction. Expect futures, which dipped briefly on this news to more than rebound, as this merely confirms that the ECB will inject even more money to keep the SS Ponzi afloat for a few more months.
It's time for your daily Syntagma (not to be confused with Stigmata...yet) square live video feed, where things already are starting to have a far more violent tone compared to the primarily peaceful protests so far this year, courtesy of a substantially larger police presence as over 5,000 cops are expected to join the festivities. The protest marks the first day of the previously reported 48 hour general strike which will culminate with tomorrow's decision on the 5 year mid-term austerity plan.
Despite UK inflation being 4.5% in May, more than twice the Bank of England's target, the BOE’s Posen’s ultra dovish comments are leading to speculation that zero percent interest rates and ultra loose monetary policy will continue for the foreseeable future. This poses risks to those on fixed incomes in the UK, savers, the poor and the elderly, and to countries that export to the UK such as Ireland. Posen said that the Bank of International Settlements (BIS) call for central banks to raise interest rates was “nonsense”. Posen also said there is little risk of a repeat of 1970s-style stagflation. His comments are odd given the fact that the UK is already experiencing high inflation and declining economic growth and looks on the verge of a contraction in economic growth and another recession and possibly a depression. Posen’s lack of appreciation of the real risk of inflation and stagflation both of which the UK is already experiencing leave him open to the accusation that he is talking “nonsense”. These real risks and the BOE’s ultra loose monetary policy will likely result in sterling continuing to weaken in the coming months.
The world is awash in garbage debt. The only reason the banks and others haven’t taken the “hit” that they NEED to take is because they’ve bought out the politicians. Put another way, we are seeing clearly that the two primary principles of the West (capitalism and democracy) have both become jokes: alleged “capitalists” like the banks don’t ever actually see losses for mistakes and “democratically elected” leaders are in fact owned outright by the banks via donations/ bribes.
The latest target of Operation Anonymous, which following the dissolution of LulzSec is the last substantial non-amorphous hacker collective left out there, could lead to some substantialgeopolitical fallout. That is because the target of the just announced upcoming DDOS attack is none other than the Israeli Parliament, the Knesset, and while Israel has allegedly been happy to dispense hack attacks in the past, the onslaught on the Iranian nuclear power plant courtesy of the Stuxnet virus coming to mind, we doubt it will as happy to be seen on the receiving end of decentralized computer warfare. Either way, with the world focusing on Greece tomorrow, this development, and specifically what form of retaliation Israel adopts, will be yet another important factor to keep track of over the next 24 hours.
Confused about the latest attempt by an insolvent French banking cartel to sugarcoat what they are doing in Greece? Don't be. After all this is nothing but a repeat of a failed idea first floated back in October 2007, when a Super SIV was supposed to shore up the hundreds of billions of toxic subprime debt while packaging it in a tidy off-balance sheet little packet. Presenting the MLEC part deux. And yes. Back then the idea crashed and burned because it was understood it would be a total disaster. If it passes beyond the production stage this time, it really is game over for the ponzi extend and pretend brigade.
Xerxes Blankfein's attempts to auction off Athens' monuments appear to have met with a resilient match in the face of the communist affiliated Spartans who have now covered the Parthenon with slogans that read: "The peoples have the power and never surrender - Organise - Counterattack." For indications of just what this "organized counterattack" will look like keep an eye on livestreams from Syntagma tomorrow, when the stakes will be far higher than during last week's vote of confidence.
There are a variety of consensus views floating around the Mainstream Media and the blogosphere. The two sets of consensus don't align on much, as might be expected: the financial MSM is still spouting the Federal Reserve/Wall Street's "happy story" about how the recovery is weak but muddling forward with "uneven growth" (i.e. someone else got laid off, you still have a job) but corporate profits (the only metric of "growth" that counts) will still be rising forever (as usual). The financial blogosphere consensus is more or less that the fiscal-stimulus/Fed-goosed "recovery" is obviously rolling over here, and since inflation and fear are baked in, gold will continue its steady climb towards $3,000 an ounce and beyond. Oil, meanwhile, is poised to rise as suppliers either lose production to depletion or ratchet production down to support prices. We all know about confirmation bias, the tendency to seek evidence which supports our views after they have hardened into conviction...Which leads me to play Devil's Advocate: what if both consensus camps are wrong?
Just out from Reuters:
- EU WORKING ON CONTINGENCY PLAN IN CASE PARLIAMENT REJECTS AUSTERITY PLAN
- SEVERAL OPTIONS FOR GREEK CONTINGENCY PLAN RULED OUT, INCLUDING EU BRIDGING LOAN - SOURCES
- ONE OPTION IN CONTINGENCY PLAN WOULD BE FOR A THIRD PARTY TO EXTEND A NEW LOAN TO GREECE
But, but, didn't Schaeuble just say there is no "Plan B"... or was that just the now traditional weekend lie to get the EURUSD to spike higher on nothing but an endless barrage of lies. In other news, here comes the (heavily collateralized) Greek Debtor in Possession loan we predicted a month ago.
We have long been warning that by fat the biggest risk to the Greek banking system is not whether or not its retains its access to the ECB funding window (it will, probably even in the case of a Greek bankruptcy through covert pathways), but domestic confidence in the financial institutions as expressed by deposits, or rather, the lack thereof. Today, as part of its Weekly Credit Outlook, Moody's issued for the first time a very stark warning that should the rate of attrition in domestic deposits (and to see where these are going merely look at the daily EURCHF chart) persist, or accelerate, the results would be disastrous. To wit: "a sustained decline of deposits by more than 35% (roughly equal to
the consolidated banking system’s liquid assets and ECB funding
availability) within a short period of time, would cause a severe
shortage of cash among banks." Bottom line, it is unclear if even the existing deterioration in the deposit base can ever be undone due to the banks unprecedented reliance on the ECB for day to day funding, now that the bulk of domestic Greek capital is stashed away, safely, somewhere in the Swiss Alps: "With the decline in customer deposits, we expect Greek banks to find it increasingly challenging to reduce their ECB funding dependence, which is their primary objective based on their funding plans committed to the Central Bank of Greece."
Hey Mr. & Mrs. investment committee members, here's a strong investment idea. Let's take 30% of our money off of the table after losing 48% of it already, and reinvest 70% of it back into the original investment pool, but this time accept 20% in equity risk just as the country we're investing in is about to undergo a nasty, self-imposed austerity driven recession while our new fixed income position is subordinated in real time by the IMF, and soon likely to trade underwater just about as quickly. Now, where's my damn bonus??? I have an appointment with the Azimut dealer!
- Uncertainty persisted over the outcome of Greece’s 5-Year austerity package vote in the Parliament on Wednesday as lawmakers continued to switch sides
- French Finance Minister Lagarde said that the government has a first draft for a deal with French banks on a Greek debt rollover
- According to ING, Fitch could downgrade Italy after Moody’s placed the country’s sovereign rating on watch negative earlier this month
- According to the Bank for International Settlements, global interest rates must rise to avoid high inflation becoming entrenched
- China Auditor Warns of Risk on Local Debt (Reuters)
- Germany's Weber Slams Rescue Efforts (WSJ)
- Papandreou Faces Showdown on Austerity (Bloomberg)
- Obama to meet Senate leaders, keep debt talks alive (Reuters)
- Deutsche Bank, UniCredit May Have to Raise Additional Capital After Basel(Bloomberg)
- China to stimulate domestic demand: Wen (Reuters)
- Outflows a 'Major' Risk for Greek Banks (WSJ)
- Brussels eyes Tobin tax to aid EU coffers (FT)
- Threat of $100bn hit if US top rating lost (FT)
- Fed Seen Buying $25 Billion a Month in Treasuries After QE2 Comes to End (Bloomberg)
George Soros, Chairman of Soros Fund Management and famous for breaking the Bank of England in 1992, has warned that "we are on the verge of an economic collapse which starts, let's say, in Greece but it could easily spread." The 80-year-old investor said that the “financial system remains extremely vulnerable." Soros added that "there are fundamental flaws that need to be corrected." The core flaw, says Soros, is that the euro is not backed by a political union or joint treasury, so when something goes wrong with a participating country, there is "no provision for correction." Soros said that it is "probably inevitable" that highly indebted countries will be given a way to quit the euro. Gold has been the strongest currency in the world in recent years and all major fiat currencies, including the Swiss franc, have fallen against it. Should Greece revert to drachmas, Ireland to punts, Spain to pesetas, Italy to lira and Portugal to escudos, these countries would suffer massive inflation and the price of gold would surge in terms of these local currencies.
Germans Turn Sour On Greece, As Majority Now Against Bailout, Force Merkel To Commence Political Concessions, Tax CutsSubmitted by Tyler Durden on 06/27/2011 06:18 -0500
That Greeks are massively against being "bailed out" in a circular process whereby Europe's bankers rescue Europe's bankers, using Athens as an intermediary is no surprise. What is perhaps also not surprising is that German, or the citizens of the country to truly benefit the most from the "rescue" are also very much against this bailout. According to Goldman's Dirk Schumacher, a poll published in FAS newspaper this Sunday showed that a majority of the surveyed were against any further financial help. Back in May, a slim majority was still in favour of additional support for Greece. The poll also asked how the Euro's future would be assessed: some 71% voiced 'doubts' or 'no trust' or 'no future' for the Euro. Meanwhile, the discussion between the finance ministry and banks about a roll-over of maturing debt continues. The German finance ministry expects banks to make specific proposals during the course of the week. Finance minister Schäuble rejected again the idea of any financial incentives for banks to participate in a roll-over, arguing that banks would have a strong interest themselves to stabilise the situation. The finance minister also said that governments would take preparations for the case of a Greek default if the Greek parliament were to reject the new austerity package this week: "We need to make sure that the contagion risk for the financial system and other Euro-area countries remains low".