- Regulators irate at NY action against Standard Chartered (Reuters)
- Recession Generation Opts To Rent Not Buy Houses To Cars (Bloomberg)
- Egypt launches air strikes on militants in Sinai (Reuters)
- Loan-Shark Lending Surge Feared In Japan (Bloomberg)
- US seeks $3bn for Sudan oil deal (FT)
- Home Prices Climb as Supply Dwindles (WSJ)... not really- just money laundering in the form of ultra luxury home purchases soars
- A lifeline is thrown to the periphery - Smaghi (FT)
- Standard and Who? Greece Credit-Rating Outlook Lowered by S&P as Economy Weakens (Bloomberg)
- BOE Cuts Growth Forecast, Sees Inflation Below Goal in Two Years (Bloomberg)
- S&P Takes CreditWatch Actions On Four Spanish Banks (Reuters)
- Japan Gets Reprieve as Drop in Oil Eases Trade Impact (Bloomberg)
While the surging unemployment rates across Europe are the most troublesome for politicians (and the extreme youth unemployment even more so), if we take a closer and more 'local' view of the stress, it is interestingly more regional than national. While Spain and Greece stand out, the unemployment rate, as analyzed in the chart below by Flute Thoughts blog, does not follow national borders. Northern Italy, for example, seems to have more in common with the German-speaking regions of Europe than with Southern Italy; France appears more peripheral than core; and the former eastern Germany still has not caught up with the west (so much for fiscal integration). Eastern Europe also has some striking differences as we suspect the ovals are slowly collapsing in on themselves as the reality of lower revenues from more unemployed procyclically pulls the euro-zone into depression.
Two weeks ago we noted the transmission channels that Mr. Draghi had pointed out having become broken, clearly enunciating the chasm that is developing in the interbank market. Goldman's Huw Pill takes this a step further and notes a 'red line' - running along the Pyrenees and the Alps - that has descended with banks south of this line having difficulty accessing Euro interbank markets, whereas banks north of that line remain better integrated and retain market access. This is the exact segmentation that Draghi worries is interfering with policy transmission (and thus affecting macroeconomic outcomes - in his view). Banks in the periphery have been 'red-lined' and while last week's ECB announcements initiated a policy response to this segmentation, the obvious (to anyone who actually comprehends the situation) reality is that ECB purchases of government bonds does not eliminate this 'red line'; only convincing markets through fundamental adjustment (fiscal consolidation, structural reform, and institutional building) will the red-line be lifted. This is highly improbable in the short-term and means an expectation of more direct intervention in bank funding markets (with all its encumbrance) will occur soon enough (and perhaps that is why European financial credit is underperforming).
Moments ago, members of the Greek government, which likely won't last long once the thorny issue of "math" returns and not even selling Bills to local banks (which promptly repo said Bills back to the Greek central bank) so the country can fund its payment to the ECB via an ECB guaranteed ELA payment from a Greek central Bank (confused yet) satisfies the New Normal ponzi math, made a strong statement: the country will not let any more public workers go:
- VENIZELOS SAYS STICKS TO PLEDGE NO LAYOFFS IN PUBLIC SECTOR
- KOUVELIS SAYS CAN'T ADD MORE UNEMPLOYED TO RANKS
The reason for this pledge is obvious: the last thing the country's new rulers need is more anger in the ranks as people demand a new government, which in turn will bring back Drachma redenomination risk. So what is the Greek solution instead? Simple: enter the labor pool, or the Greek version of the Permanent Paid Vacation, or akin to America's 99 weeks of unemployment benefits.
To be correct, it is a series of games of chicken, as next to the different sovereigns, the ESM/ESFS, the ECB, and why not the IMF, below the sovereigns there are the regions, be it in Spain or, as it stands, in Germany.
The idea of “collapse”, social and financial, comes with an incredible array of hypothetical consequences ranging from public dissent and martial law, to the complete disintegration of infrastructure and the devolution of mankind into a swarm of mindless arm chewing cannibals. In an age of television nirvana and cinema overload, I have found that the collective unconscious of our culture has now defined what collapse is based only on the most narrow of extremes. If they aren’t being hunted down by machete wielding looters or swastika wearing jackboots, then the average American dupe figures that the country is not in much danger. Hollywood fantasy has blinded us to the tangible crises at our doorstep. In 2012, we still await that trigger event, which I believe will be the announcement of QE3 (or any unlimited stimulus program regardless of title), and the final debasement of the dollar. At the beginning of this year, I pointed out that we were likely to see such an announcement before 2012 was out, and it would seem that the private Federal Reserve is right on track. Last month, the Fed announced that it was formulating a plan to “expand its tool kit”.
The tin man is now living at the bank in Frankfurt and he has received the Wall Street certificate for his brain which promises much and is short on delivery but that is what he learned. The Munchkins are all out on the yellow brick road and off to see someone or another and are presently mired in the poppy fields where they are having flower induced dreams of unlimited money, no responsibility and the Wizard, now living in Florida with Toto’s cousins Princess and Mr. Trooper, is finding great amusement with the antics of it all and reminds everyone that a horse of a different color will be a staring figure in the next act of the play as the poppy fields are left behind and the gates of the not quite so Emerald City come into view.
- Standard Chartered Falls Most in 24 Years on U.S. Iran Probe (Bloomberg)
- Iran accusations wipe $15 billion off StanChart shares (Reuters)
- Hilsenrath tells us that Fed Official Calls for Open-Ended Bond Buying (WSJ) - shocking indeed
- German opposition backs fiscal union, demands constitutional change and referendum (FT)
- Gary Gensler speaks: Libor, Naked and Exposed (NYT)
- IMF Pushes Europe to Ease Greek Burden (WSJ)
- Second TSE System Error in Seven Months Halts Derivatives (Bloomberg)
- Rice Hoard Offers World Respite as Food Costs Surge (Bloomberg)
- UK coalition in crisis over parliamentary reform (Reuters)
- Ethics probe could deal losing hand to Nevada Democrat (Reuters)
The ear-piercing screech of the German export machinery as it down-shifts....
In simple terms Europe is a HUGE deal for everyone. We’re not talking about some distant region far off in the distance that we will watch go down from our decks. We’re talking about systemic risk on a scale that would make 2008 look tiny in comparison.
Europe's Question Of Today: “If They Will Fund And How?”; The Question Of Tomorrow “Can They Afford It?”Submitted by Tyler Durden on 08/06/2012 06:56 -0500
Never forget; there are two sides to the European fiscal proposition. There are the funding nations and the borrowing nations and I suggest that the focus of the markets will soon turn to the funding countries and their capacity to provide capital without endangering themselves. I think the attention of the markets is about to turn to Germany and France, the largest components of the European Union, and with GDP’s of $3.2 trillion and $2.77 trillion respectively the question is going to come around to just how much these two countries can support without sending themselves into a serious economic quagmire. The EU officially recognized sovereign debt of Greece is now 22.33% of the GDP of Germany and 25.80% of the GDP of France. The banks in Europe dwarf the sovereigns with balance sheets three times larger than of all of the EU nations and with Spain having now fallen and Italy about to go; just how much that can be afforded is quickly coming into the focus of many money managers.
The very vocal head of the world's largest bond fund has long been critical of the global ponzi system better known as the "capital markets." Now, finally, he shifts his attention to Europe, where the interests of his parent - Europe's largest insurance company Allianz are near and dear to the heart, and deconstructs not only the biggest challenge facing Europe: getting access to your money, but also the fatal flaws that will make achieving this now impossible. To wit: "Psst! Investors – do you wanna know a secret? Do you wanna know what Angela Merkel, François Hollande, Christine Lagarde and Mario Draghi all share in common? They want your money!" .... but... "private investors are balking – and for what it seems are good reasons – because policy makers’ efforts have been, until now, a day late and a euro short, or more accurately, years late and a trillion euros short." And so they will continue failing ever upward, as permissive monetary policy which allows failed fiscal policy to be perpetuated, will do nothing about fixing the underlying problems facing the insolvent continent. Then one day, the ECB, whose credibility was already massively shaken last week, will be exposed for the naked emperor it is. Only then will Europe's politicians finally sit down and begin doing the right thing. It will be too late.
- Monti Warns of Euro Breakup as Tussle Over Spain Aid Hardens (Businessweek)
- Italy doesn't need German cash, Monti tells Germans (Reuters) - at least we know who needs whose cash...
- Spain has time to Wait for Clarity on EU Aid -Econ Min (Reuters) - which came first: the Spanish bailout request or the denial to need a Bailout request? Ask the Spanish 2 year...
- Bundesbank Weidmann’s opposition to a proposed new wave of ECB bond purchases has support of Merkel’s CDU - Volker Kauder
- China media tell U.S. to "shut up" over South China Sea tensions (Reuters)
- Top Chinese Leaders Gather in Annual Summer Conclave (WSJ)
- Greece Agrees With Troika on Need to Strengthen Policy (Bloomberg)
- Coeure Says ECB Should Look at Getting Loans Into Real Economy (Bloomberg)
- Italy Central Banker Sees Potential Rate Cut as Euro Economy Slows (WSJ)
- A Dose of Dr. Draghi's 'Whatever It Takes' (WSJ)
- Greek bank head sent savings abroad (FT)
Even as the ECB is desperately doing its best to stick a finger in every hole in the leaking European dam, in which just like in the US failed monetary policy is a substitute for sound fiscal one, and in which the pattern of interventions and cause and effect will now follow that of Japan until the bitter end, others are not waiting around to see the results. Reuters reports that Royal Dutch Shell is pulling some of its funds out of European banks "over fears stirred by the euro zone's mounting debt crisis, The Times reported on Monday." And shell is not the only one: more and more institutional are actively preparing to lock up their cash on a moment's notice, an eventuality which can be seen best at the ECB itself, where deposits with the ECB (collecting 0.00%), dropped to just €300 billion the lowest since 2011, while the ready for withdrawal current account saw holdings rise to a record €550 billion overnight, a €20 billion increase overnight. And so the cycle repeats anew, and Gresham's law rises to the surface, as bad money pushes out good money, and in return the situation deteriorates once more, until the next time much more than just harsh language out of the ECB will be needed just to preserve the status quo.
After last week's event-a-palooza, where the headlines, the spin, the erroneous HFT trading, and the propaganda (Draghi is too cold; Draghi is too hot; Draghi is just right) just refused to stop, we finally enter the summer proper where all of Europe is on vacation, as is congress. Add on top of this a very light macro event week and an earnings season which has seen the bulk of companies already report, and we expect the volume in the coming 5 days to be among the lowest recorded in 2012, and thus in the past decade. Which of course means that the cannibalization among the market makers will continue as more and more firms succumb to "trading anomalies."