The Unwind Begins: Eurogroup President Juncker Redirects From A Broke Europe By Throwing US And Japan Under The Insolvency Bus: "The Debt Level Of The USA Is Disastrous"Submitted by Tyler Durden on 06/11/2011 14:32 -0400
The first rule of media (especially when dealing with an idiot audience that has a 7 second attention span): when all else fails, redirect. That's precisely what Eurogroup president, and certified, sanctimonious, pompous liar, Jean-Claude Juncker just did today, as it is becoming increasingly clear that nobody in Europe has any clue just what the Greek bailout #2 will look like now that the ECB and Germany are at polar opposites on how to proceed, the ECB thinks it is a rating agency and can dictate what an Event of Default is, and German bankers are willing to cede to private involvement in the bailout, but in a way that is voluntary. The problem is that these three are very much mutually exclusive. So what does Juncker go ahead and do - he redirects to highlighting the problems of the US: "The debt level of the USA is disastrous," Mr. Juncker said. "The real problem is that no one can explain well why the euro zone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the euro zone are substantially better than those of the U.S. or Japanese economy." That may well be the defining moment: by now everyone knows that the global economy is a massive pyramid scheme. Yet to this point, those in control have at least kept their mouths shut. However, when in order to explain one's insolvency, those at the very top of the control pyramid have no other choice than to point out just how broke others are (when in reality it is all one big, interconnected, "globalized" and truly insolvent Ponzi), then the unwind has begin.
Many have asked for it, so here it is: the full list of gentlemen (and ladies) attending this year's Bilderberg conference. Some wonder if like in previous years, when following the group's 2009 and 2010 meetings in Greece and Spain, the host countries have subsequently had to deal with some sad episodes of sovereign insolvency, if 2011 host Switzerland, despite its ironclad Swiss National Bank (except for all those dollars on the balance sheet of course) may be next...
From Greek website Capital: "George Papandreou said that reforms on the political system or the public administration need the voting of Greek people through referendums. Furthermore, he stated that “the road will be difficult but we must endure the pain”, adding that he is determined to proceed with all the necessary changes to make the country’s debt sustainable."
Eurocalypse Cometh! Principal Haircuts, Serial Bailouts, ECB Insolvent! Disruptive Sound Of Dominoes In Background Going “Click, Clack”! Fundamental Investing Is Back!Submitted by Reggie Middleton on 06/10/2011 11:00 -0400
The near 100% equity run up at the height of the correction was easily seen by my and my staff, but I severely underestimated the breadth and depth of this synthetically contrived, central bank centrally planned, bear market rally (which is essentially what has been called a "recovery" of late).
- Germany Digs In On Greek Debt Restructuring (Bloomberg)
- Libya emerges as Opec's big winner (FT)
- Athens approves four-year austerity package (FT)
- Germany sticks to demand for Greek bond swap (Reuters)
- Fed said to consider expansion of capital reviews (Bloomberg)
- Ally Financial delaying IPO (Reuters)
- Tokyo Riot Squad to Safeguard Tepco Meeting (Bloomberg)
- Christine Lagarde's victory a "done deal" says IMF rival (Telegraph)
- Jamie Dimon's faulty capital requirement math (Simon Johnson)
Something quite disturbing happened during today's latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale. Suddenly, the Fed's attempts to sale piecemeal portions of the $31 billion Maiden Lane II portfolio that was offered to be repurchased by AIG, and subsequently was offered for open auction as Zero Hedge first suggested, is starting to backfire, after a month ago several traders complained that instead of "dribbling" out small piece of the portfolio (the previous average auction block notional for sale was under $1 billion). As per Housing Wire from May 17, which cited a complaint by an MBS trader: "if you charge ahead and bleed out one or two lists a week for the next
10 to 12 weeks, prices will continue to go lower, and in the interest of
maximizing value for the taxpayer, I think it is time to re-engage the
large portfolio bid you had or make available to other counterparties
the ability to bid large chunks of what you have left to sell." Well, the trader got what he wanted... And in the process may have blown up the credit market. As Bloomberg reports, "Federal Reserve auctions of mortgage securities that the central bank assumed in the rescue of American International Group Inc. are fueling a selloff in credit markets as Wall Street rushes to hedge against losses on stockpiled debt." Sure enough, someone focusing on the equity market may be completely oblivious to the devastation that has been unleashed on HY and IG traders: "Declines in credit-default swaps indexes used to protect against losses on subprime housing debt and commercial mortgages accelerated this month, reaching almost 20 percent in the past five weeks as the cost of the insurance climbs, according to Markit Group Ltd. The plunge this week started infecting everything from junk bonds to the debt of financial companies." And while as Bloomberg points out that there is a confluence of technical and fundamental factors affecting credit sentiment, "You almost have a perfect storm of events,” said Shah of AllianceBernstein. “You have both the fundamental justifications for the market going lower and you have the technicals being created by Maiden Lane” there is a far scarier implication. If dealers and funds are unable to handle a mere $31 billion MBS portfolio disposition, and its weekly sale (think of its as a reverse repo) is starting to cause massive ripples in the bond market, just what will happen when dealers are forced to hold back the tens of billions in weekly bond auctions they freely flip back to the Fed now. In other words, is the credit market on the verge of a oversaturation implosion (hence the title)?
Stocks outperformed credit at the index level today but there was a significant shift in internals in corporate credit that provides the context for continued weakness in risk assets.
On the rare occasion that I’m bored, I like to watch 24-hour news television for entertainment. It’s hilarious watching the talking heads spin out of control in apoplectic fits when they’re essentially arguing the same point; they might be from different parties, but they’re merely battling over small details of the same government-sponsored solution. Recently I caught one of these talking head financial experts on TV arguing about debt levels in the United States. He was saying that the US debt doesn’t matter all that much because the US government has so many assets to offset its debt. For example, he suggested that things like the highway system, national parks, and strategic petroleum reserve would more than offset America’s liabilities, so the looming national debt isn’t such a big deal after all. He couldn’t have been more wrong.
Just like last year when the first bailout of Greece was met with significant opposition by German constitutional professors, the constitutionality of the upcoming bailout #2 is about to be questioned. Only this time it does not come from powerless academic but from the very top: the Federal Constitutional Court. From Frankfurter Allgemeine (google translated): "The federal government has to explain how the measures are compatible with the Basic Law....The government will have to justify before the court how the measures conform to the stabilization of the European currency with the Basic Law, and possibly with European law. It was originally envisaged in the Second Senate to negotiate in private. But this stance has apparently changed in the course of the discussions." As expected, the fine legal print is once again about to throw a major monkey wrench in the ongoing usurpation of constitutional right by the banking syndicate.
Over A Year After Being Dismissed As Sensationalist For Questioning the ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What!Submitted by Reggie Middleton on 06/09/2011 10:08 -0400
I warned that the attempt to centrally plan 16 economies in concert, by force nonetheless, would result in the Eurocalypse (that's a Reggie Middleton copyrighted term)! As is customary with warnings of common sense against unbridled, optimistic BULL(ishness), I was dismissed as being sensationalist. Well, as Malcom X is known as saying, "The chickens are coming home to roost!"
Wondering what lit a fire under the EURUSD? Wonder no more, courtesy of Reuters:
- New bailout for Greece likely to total about EUR 120bln according to Eurozone sources
- New bailout may comprise EUR 30bln from private sector, EUR 30bln from privatisations, up to EUR 60bln from EU/IMF
- Remaining loans from initial Greek bailout would be disbursed alongside new bailout, according to Eurozone sources
And yes, as predicted the final amount will be far greater than previous expectations of under €100 billion.
Trichet: "Strong Vigilance" Needed, ECB Raises 2011 Inflation Range From 2.0%-2.6% To 2.5% to 2.7%; July 1.50% Rate Hike ComingSubmitted by Tyler Durden on 06/09/2011 08:42 -0400
Soundbites from the Trichet conference:
- TRICHET: ECB SEES "UPWARD PRESSURE" ON EURO AREA INFLATION
- TRICHET: "STRONG VIGILANCE" NEEDED ON INFLATION RISKS; ECB WILL ACT IN FIRM AND TIMELY MANNER; ECONOMIC UNCERTAINTY REMAINS "ELEVATED"
- SEES 2011 INFLATION AT 2.5% TO 2.7% VS PREV 2.0% TO 2.6% *TRICHET SAYS HIGHER INFLATION FORECASTS REFLECT ENERGY COSTS
- TRICHET: COMMODITY, ENERGY COSTS DRIVING PRICE PRESSURES; UNDERLYING PACE OF MONETARY EXPANSION RECOVERING
- TRICHET: UNDERLYING PACE OF MONETARY EXPANSION RECOVERING; MONETARY STANCE IS "ACCOMODATIVE"
- TRICEHT: GREECE NEEDING ABOUT EU45B OF NEW LOANS; GREECE WILL GET EU57B OF LOANS UNTAPPED FROM 2010; RAISE EU30B FROM ASSET SALES THRU '14
- TRICHET: ECB TO SECURE FIRM ANCHORING OF PRICE EXPECTATIONS; ECB "WILL DO ALL THAT IS NEEDED" ON INFLATION
- TRICHET: NON-STANDARD MEASURES ARE TEMPORARY
- TRICHET: ECB TO KEEP FIXED RATE ALLOTMENT TENDER FOR 3 MONTH LTRO OPERATIONS FOR Q3
- TRICHET: ECONOMIC ACTIVITY EXPECTED TO BE SOMEWHAT DAMPENED BY BALANCE SHEET ADJUSTMENT
The EURUSD chart looks like an EKG
The ECB's press conference, which lately has been seeing rather aggressive questions from the press corps (especially if the Finns are present like last time) and very rambling non-answers from Trichet can be followed live below. Expect to see some volatility in the EUR as a result of Trichet's carefully chosen words. Once again, the keyword of note is "vigilance."
European CDS is wider across the board. SOVX is 203 which is 4 wider on the day, and liquidity seems to have broken down completely as I'm seeing 3 bp bid/offer spreads rather than the more customary 2 bps. That is after it widened 10 bps yesterday. Fins at 163 (+4 on day) and Fin Subs 279 (+12 on the day) are also trading extremely poorly. Fin Subs, although fairly illiquid deserve special mention. They were 15 wider yesterday and although it is hard to tell with the rolls, it looks like they are almost at the widest levels of last March at the height of the first time the market noticed the sovereign debt crisis. The sovereign bond market looks to be in rough shape as well. Greek 10 year bonds are back below 54 on a price basis (16.35% yield). They have given up most of the late May gains. It rallied on the comments that the EU wanted a plan to bailout Greece again. It is fading on the fact that in spite of wanting a plan, it seems very difficult to come up with a workable plan.
The key news today is not out of the US, but out of Europe, where the ECB will shortly announce that it will hold its main refinanincing rate flat at 1.25% (in line with the BOE's just announced "unchanged" decision, keeping rates flat at 0.5%), though what everyone will focus on is what will be said in the news conference following the decision, where the key phrase is "Strong Vigilance", whose utterance will send the EURUSD much higher on expectations for another 0.25% hike in July. It will also mean that inflation in the Eurozone continues to run up and is still largely out of control, as stagflation threatens not only the UK, but the core of Europe as well. From Reuters: "The ECB is expected to use higher staff inflation forecasts, to be published during Thursday's post-policy meeting news conference, as justification for higher interest rates to come -- probably starting with a rise to 1.50 percent next month. The ECB's Governing Council began meeting at 0700 GMT. The bank raised its main refinancing rate to 1.25 percent from 1.0 percent in April, its first tightening in two years. In the post-meeting news conference, ECB President Jean-Claude Trichet is expected to say the bank will exercise "strong vigilance" over price pressures, using a phrase that in the past signalled a hike was a month away. He used that code in March to flag April's rate rise." There is also a very minor chance that the ECB will hike rates today: "Firming cost pressures -- euro zone producer prices rose by more than expected in April -- mean a rate rise cannot be ruled out this month though the ECB's decision not to signal a hike makes it very unlikely. "I don't think the door to a hike in June is completely closed but given that the ECB has historically pre-announced a rate hike, a hike in June would be a surprise and would assume a change in communication strategy," said Nick Matthews at RBS." The problem is that every incremental rate hike simply means that the interlocked PIIGS markets will be further locked out of markets, as short term funding rates continue rising ever higher: the irony, stated simply, is that by fighting inflation for the healthy countries, the ECB is making the unhealthy ones even worse.