A Great Victory For Windmills

There are two countries that are going to give you a whopper of a headache in the coming months. We are leaving Greece to the side for a moment because that country could provide a heart attack and necessitate bypass surgery as the Troika fiddles while Athens burns. We are just waiting to see what is agreed to for Greece and then how the citizens of that country respond but the home of Democracy is not the only place that could ratchet out of control; keep your eyes on Spain and France. Yes, France, while no one has paid particular attention to the antics in Paris and Monsieur Hollande scurries about siding with the troubled nations and advocating a 75% tax burden and leaving Berlin to wallow in schemes of their own making; they are on the verge of getting in real trouble. Furthermore, they say that beauty is in the eye of the beholder, and in my eyes, the finances of Spain are one ugly mess of spoiled tapas. We recall Prime Minister Rajoy’s “A great victory for Europe speech” and we state that the last time Europe had such a victory it was at Waterloo!

Sovereign Self-Interest Versus European Hegemony

There were moments yesterday when it felt we stood at the edge of the abyss preparing to take a giant leap forwards. Apparently Draghi did a great job meeting German legislators yesterday; Greece is being touted as a crisis averted - if you believe all the guff; and more of the same from Spain. However, it does feel the crisis is developing in some new directions. Until recently it’s been about sovereigns and banks – but now we’re seeing corporates struggle. There is a general consensus France had no choice but the bailout Peugeot’s finance arm PSA. So why are the problems of the French car industry so important for the Euro? If French industrial policy is founded on preserving the country’s manufacturing base is that really something German/Finish/Dutch taxpayers could have been bailing out through a single European banking union. Perhaps not! These are national choices that illustrate sovereign self interest not European hegemony. We simply ask the question how is Europe supposed to move towards closer Union when national interest remains paramount?

Guest Post: Secession Fever Sweeping Europe Meaningless Without Debt Repudiation

While regional independence is superior to both the failing European Union and the façade of special interest controlled democracy, one further action should taken by any jurisdictions that choose secession: Newly restored sovereign nations should repudiate their share of the illegitimate sovereign debt when they exit existing unions and nation-states. Created by distant banking elites buying national politicians and parliaments to load up on sovereign debts that can never be paid off, this massive national debt load is illegitimate and destructive to existing and new national economies. Governments have three ways to deal with debt loads of this magnitude: The first is hyperinflation designed to destroy the payoff value of the debt, second is the official repudiation of the debt or third, a combination of both options. Attempting to hold the bankers accountable is not an option. The first nations to repudiate sovereign debt will have the advantage; and as nations undertake this endeavor, they should keep this in mind: All government bureaucracies grow until contained, taxes rise until curtailed and politicians borrow and seek power until thrown out of office.

The European Nash Dis-equilibrium Through The Eyes Of A Greek

In a somewhat mind-blowing 'gotcha' this evening (that we saw coming from the moment the words left his lips), the Greek finance minister has been forced to admit he's a lying cheat drop claims that he had secured a two-year extension for debt repayments and an agreement with creditors over EUR13.5bn in proposed austerity measures - because HE HADN'T! As The Guardian reports, Stournaras played to stereotype perfectly (the Greeks only got in the euro thanks to off-market currency swaps to reduce debt optics off-balance sheet) by lying once again (if you lie big enough it has to stock, right?). The U-turn - which he was forced to make after Germany denied the deal (yes Zee Germans again the only ones that anyone should be listening to) - caused chaotic scenes in parliament. As we have vociferously described, and Mr. Panos confirmed, the leverage is all with the Greeks (as much as the world does not want to admit it) as one Greek official said (frighteningly honestly!):

"Even if the troika give us a negative report, what are they going to do? Are they really going to not give us the installment [to keep Greece's economy afloat] two weeks before the US elections, with everything that entails – default, bankruptcy, global market turmoil? These labour reforms will turn our country into Bangladesh. They have no fiscal benefit and will actually derail the adjustment program. The political system will collapse if we impose them. The troika is demanding that we commit suicide!"


Greece Is Not Spain - But Is It Eastman Kodak?

With Greece making headlines with extensions rumors (from the Greeks) and denials (from the Germans), we continue to hear of the resurgence in the Greek stock market. It must mean something after all - its up almost 90% in the last few months! The following two charts may give those who 'believe' a little pause for thought as the Athens Stock Index was down 91% from its 2007 highs before it rebounded and we remind those 'option' buyers that Eastman Kodak had fallen 93.5% from its highs before rebounding a remarkable 300% off the March 2009 lows, before giving up all of that into bankruptcy just a few short years later. Recency bias is a behavioral instinct that this market has become beholden to - but perhaps a step back might enable a little more perspective on just where we are.

Phoenix Capital Research's picture


I realize that the situation in Europe can be very confusing. Aside from the fact that we’re dealing with over 20 different countries all with their own respective economies and debt issues, we also have the European Central Bank and the numerous bailouts and bailout funds (the LTRO 1 and 2, the EFSF, the ESM and now the OMT) to keep track of.


It Is Time To Pare Back

Printing trumped the European recession until the spigots were either turned off or became ineffective. What else is that you can promise the markets after “limitless” and “uncapped” play out? With short rates at just above Zero, with everything promised now except the kitchen sink and with the economies in a major part of Europe falling into the abyss where is it that you think we are going besides down? I would argue that the central banks did what they could, delayed the inevitable but that it was always a question of when and not if before earnings turned grim and the markets reversed.

Hyper Mario Draghi Speaks

The Goldman pro-inflation emissary is now in Berlin. We can only hope he is not using a wheelbarrow as a pedestal. Here are his quotes...

Buy Athenian Bottle, Rag, And Petrol Futures

No surprise Europe remains highly vulnerable to sudden sentiment shifts. How to stablise it? The usual smoke & mirrors are conveying what might or might not be good news on Greece [since denied]. The crisis in Europe may be contained, but it clearly isn't solved. "Europe is like an overweight dinosaur on a crash diet, that's got really really bad toothache with not a dentist in sight." But But But.. yesterday's ructions weren't just about the political shenanigans that pass for markets these days. There are deep undercurrents roiling these placid markets. All of which leads us to wondering what happens next? If this continues what hope for next year? Low low yields and global economic depression? Boy scout time...

Daily US Opening News And Market Re-Cap: October 24

After absorbing the latest PMI reports from Europe, as well as yet another disappointing German IFO survey which in turn was followed by a sharp rise in volatility, saw equity markets in Europe print lows of the day. However ever since, equities staged an impressive recovery and are now in positive territory, supported by investors looking to capitalise on oversold conditions and in part by short-positions being squeezed. The sharp and unpredictable mood swings resemble one suffering manic depression and it remains to be seen whether stocks will be able to hold onto gains. The move higher in stocks has been led by the tech sector, which has been one of the worst performing sectors over the recent weeks. Looking elsewhere, EUR underperformed its peers, largely driven by a lower EUR/GBP (by-product of deterioration in EU credit markets, as well as good sized buying by a UK bank in GBP/USD).

Total Confusion: Greece Says Troika Agreement Reached, Germany Says "Nein"

What better way to start the morning for EUR trading algobots (which at last check account for 50% of the volume and rising) than with a bout of total confusion over the Greek bailout (non) extension. On one hand we have the Greek FinMin Stournaras saying a two year grace period has been reached - something which the European core has said is not standalone, and which will need much more bailout cash, and on the other we once again have Germany flat out denying this report, saying the official Troika reports has not been completed, and that Greece is expected to show deviations from the fiscal plan. From Kathimerini: "Finance Minister Yannis Stournaras has informed journalists that there is an agreement between the Greek government and the troika on all aspects of the austerity and reform program and the coalition is likely to be in a position to submit the measures to Parliament by the end of the week.  “The package has been sealed,” Stournaras is reported to have told journalists, less than 24 hours after coalition partners Democratic Left and PASOK expressed objections to some aspects of the measures."  And yet, moments ago, headlines blast that GERMANY DEP FINMIN:TROIKA REPORT ON GREECE NOT YET FINISHED and GREEK REPORT TO SHOW DEVIANCE FROM AGREED GOALS, KAMPETER SAYS. Go figure it out.

Overnight Sentiment: A Tale Of Chinese And European PMIs... And Greece

There were two major datapoints overnight: the first one came out early in the session, when the Chinese Flash HSBC PMI (not the official one), printed in contraction territory for a 12th consecutive month but jumped sufficiently to 3 month highs to give the algobots hope that China may be turning (it isn't: China, like the US has a major political event early November and all its data is more manipulated than ever). Regardless, this sent future rising to session highs until virtually yesterday's entire gap down was eliminated. The euphoria continued until several hours later we got composite European (as well as the most important German PMI data, and to far less relevant extent France, which always has been the dynamo in European economic growth), manufacturing and services PMI, both of which missed expectations or declined substantially, reaffirming that the German economy is getting dragged down more and more into recession even as continues funding the rescue of the periphery. As the chart from Markit below shows, German PMI is hinting at a solidly negative German GDP print, further confirmed by the German IFO business print which came at 100, a drop from 101.4 and below expectations of 101.6. Other secondary macroeconomic data was just as bad, which explains why futures are now well on their way to dropping back to their lows. Finally, today we get the FOMC statement, which will be much ado about nothing, and will merely serve as an appetizer to the December FOMC meeting, when Goldman (and Zero Hedge) now expected the Fed to expand unsterilized monthly monetization to increase from $40 billion to $85 billion (more on the shortly). Yet perhaps the biggest shift in mood has been coming out of our old friend Greece, where Troika negotiations, largely under the radar, are progressing from bad to worse, where the bond buyback plan was scuttled last night (as ZH reported sending Greek bonds 70 bps wider on the day and rising), and where the probability of another flash election, which can crash the precarious European balance in an instant, is rising with each passing day.

A Mushroom Cloudy Future: In 2016 Japan, Net Debt Per Capita Will Be $140,000

Sometimes you just have to laugh; or else committing harakiri comes dangerously close to mind. Japan's increasingly terrifying fiscal situation combined with a central bank that is rapidly becoming the laughing stock of the world (though all the other central banks are merely mimicking its actions) is becoming so self-referential (with its almost total domestic ownership of government debt), so short-termist (with its dramatically high short-term funding requirements constantly rolling), and demographically challenged (with its elderly almost entirely reliant upon government transfer payments) that it is hard to comprehend how much longer this farce can carry on. We have previously discussed Japan's WTF charts, but the following collection from Deutsche Bank's Torsten Slok must be seen to be believed. For now - the problem in a nutshell is government-debt per working-age person in Japan will be $140,000 in 2016 - almost triple the rest of the G7.