Greece

Frontrunning: August 23

  • Australian minister says resources boom is over (Reuters)
  • China dismisses reports of lost gold reserves (China Daily) - so China really did lose 80 tons of gold.
  • Inconceivable: Former JPM CEO and Chairman William B Harrison Jr come out "In Defense Of Big Banks"
  • Qantas Cancels 787 Order After Posting Annual Net Loss (Bloomberg)
  • EU Official Says Crisis is Eroding Influence (WSJ)
  • Greece Faces New Pressure on Cuts (WSJ)
  • Philippines' black market is China's golden connection (Reuters)
  • Hollande government responds to criticism (FT)
  • LG Display Starts Touch Screens Output Before New IPhone (Bloomberg)
  • Greek Crisis Evasion to Fore as Merkel Hosts Hollande in Berlin (Bloomberg)
  • Stakes rise as US warned of double-dip (FT)
  • Brazil’s Richest Woman Unmasked With $13 Billion Fortune (Bloomberg)

Citi Sees Greek Exit As Soon As September

"Prolonged economic weakness will persist - especially in the peripheral countries - with further periods of intense financial market stress" is how Citi's Willem Buiter's economics team sees the future in Europe. While they continue to believe that the probability of a Greece exit from the Euro is around 90% in the next 12-18 months; but more critically it is increasingly likely in the next six months - conceivably as soon as September/October depending on the TROIKA  report. There is a crucial series of meetings and events in coming weeks and while they believe that the ECB's conditional bond-buying (and ESM/EFSF) may help avoid a 'Lehman moment' around the GRExit, they believe that there will still be considerably capital flight out of periphery assets should it occur. The reason being simply that even if funding costs were reduced, the current mix of fiscal austerity and supply-side reform will not return any periphery country to a sustainable fiscal path in coming years.

The Truth Behind Juncker's Lies: In The Second Largest Greek City, 1250 Companies Have Shuttered In 2012

European viceroy of various neo-colonial territories Jean-Claude Juncker, best known for being a self-professed pathological liar, just concluded a press conference in which he did what he does best: lie. Here is a sampling of the soundbites along with our commentary:

  • EU'S JUNCKER SAYS TRUTH IS GREECE SUFFERS CREDIBILITY CRISIS - coming from a pathological liar, this one is our favorite
  • EU'S JUNCKER SAYS CONVINCED GOVERNMENT WILL TAKE ALL MEASURES. "all measures" = "all gold"
  • EU'S JUNCKER: FULLY CONFIDENT GOVERNMENT TO TAKE ALL EFFORTS "all efforts" = "all gold"
  • EU'S JUNCKER SAYS GREECE MUST OPEN UP CLOSED PROFESSIONS.  Chimneysweep? Bootblack? Telegraph Operator? Tax Collector? Prosecutor? Uncorrupted muppet?
  • EU'S JUNCKER SAYS BALL IS IN GREEK COURT; IS LAST CHANCE. The ball will be repoed to the ECB shortly
  • EU'S JUNCKER SAYS NOT SAYING THERE WON'T EVER BE A 3RD PROGRAM or 33rd program
  • EU'S JUNCKER SAYS GREEK EURO EXIT WOULD BE RISK TO EURO AREA and Obama's reelections
  • EU'S JUNCKER SAYS BALL IS IN GREEK COURT; not for long: ball will soon be repoed to the ECB

And much more propaganda. Here is the truth. According to Greek Thema, in Thessaloniki, the second-largest city in Greece, so far in 2012, an unprecedented 1,250 companies have shut down. This means no jobs, no tax revenues, no money in circulation. A complete and total economic collapse.

The Gathering Storm

The easy choices are now behind us and the hard choices are in front of us and wild speculations hanging upon the syllables uttered by Mr. Draghi may bring disastrous results. In a very real sense Ms. Merkel is going to be hanged if she does and hanged if she doesn’t and it is quite difficult to find a safe place to stand when on the platform where the noose and executioner resides. The present situation has one certainty, one block of bedrock upon which you may plant your feet and that is that a storm is coming; of that you may be sure.

Daily US Opening News And Market Re-Cap: August 22

European bourses are down at the North American crossover, all ten sectors in the red, on thin volumes and a distinct lack of data and news flow from the EU and the UK. The risk-off tone in part attributed to the much wider than expected Japanese trade deficit for July, whose exports also fell the most in six months, raising investor concern once again that Asian economy as a whole is stalling. Elsewhere, investor caution over the Greek debt crisis is once again mounting, as EU’s Juncker visits Athens today to meet with the Greek PM Samaras. Overnight it was reported that Greece would present EUR 13.5bln in budget cuts today, higher than the previous EUR 11.5bln, and whilst the country is not asking for more money, Samaras might request more time to implement them. Lawmakers in Netherlands remain critical of providing more aid for the country and continue to push for more reforms, such as spending cuts and privatization, with the Dutch Finance Minister de Jaeger commenting earlier that it is not a good idea for Greece to get more time.

Frontrunning: August 22

  • Merkel's Dilemma: Risk Euro Zone or Her Government (WSJ)... as first suggest by ZH 2 months ago, with only one resolution: referendum
  • Russia warns West over Syria after Obama threats (Reuters)
  • Consider keeping Bernanke, Romney adviser Glenn Hubbard says (Reuters)... Glenn Hubbard is the star of the movie Inside Job
  • Spain Deficit Goals at Risk as Cuts Consensus Fades (Bloomberg)
  • Czech Austerity Revolt Threatens Cabinet as Slump Bites (Bloomberg)
  • Greek cuts to be deeper than trailed (FT)
  • Akin rebuffs Romney, Republican calls to quit Senate race (Reuters)
  • Obama Leads Romney in Poll Showing Disdain for Congress (Bloomberg)
  • Greece needs more time to reform, PM Samaras tells paper (Reuters)
  • UK banks face scandal over toxic insurance products (Reuters)
  • Iceland Shelves Monetary Tightening as Krona Seen Appreciating (Bloomberg)
  • India Considers $35 Billion Debt Revamp After Biggest Blackout (Bloomberg)

Overnight Sentiment: Back To Zombie Mode

Hopes that today may finally see an increase in trading volatility and volume following yesterday's reversal session will likely be dashed as the event wasteland on the horizon continues for the third day in a row. As DB explains, the FOMC meeting minutes and Juncker’s visit to Athens are likely the two main sources for key headlines today. While backward looking and certainly predating Lockhart's hawkish comments from yesterday, the FOMC minutes today are expected to shed further light on the kind of policy currently under consideration and the economic conditions required before easing is warranted. One thing that will not be discussed is the circularity of launching more QE even as gas prices have never been higher on this day in history, soy and corn are back at all time highs, and the market trading at multi-year highs. As repeatedly explained before, the option for the FOMC include pushing out the targeted exit date for fed funds, providing “exit guidance” on balance sheet measures (i.e. asset sales), various mixes of additional balance sheet expansion (including the possibility of an open-ended QE program) and  cutting interest on reserves. It is virtually certain that none of these will be enacted at the Jackson Hole meeting in one week, 2 months ahead of the presidential election, but hope springs eternal.

Guest Post: Greeks Want To Stay In The Euro? Why Don’t They Move To Germany?

The fact that labour mobility is low in Europe is indicative of a fundamental problem. In any currency union or integrated economy it is necessary that there is enough mobility that people can emigrate from places where there is excess labour (the periphery) to places where labour is in short supply. Now, there is free movement in Europe, which is an essential prerequisite to a currency union. But the people themselves don’t seem to care for utilising it. Why? I can theorise a few potential reasons people wouldn’t want to move — displacement from friends and family, moving costs, local attachment.  Yet none of those reasons are inapplicable to the United States. However there are two reasons which do not apply in the United States — language barriers and national loyalty. It is those reasons, I would suggest, that are preventing Europe from really functioning as a single economy with a higher rate of labour mobility. The people who built the Euro realised that such problems existed, but decided to adopt a cross-that-bridge-when-we-come-to-it approach. But long-term and deep-seated issues like language barriers and nationalistic sentiment cannot simply be eroded away in a day with an economic policy instrument. No bond-buying bazooka can smooth the underlying reality that Europe — unlike the United States — is not a single country.

What Happened After Europe's Last Three Currency "Unions" Collapsed

It may come as a surprise to some of our younger readers, that the Eurozone, and its associated currency, is merely the latest in a long series of failed attempts to create a European currency union and a common currency. Three of the most notable predecessors to the EUR include the Hapsburg Empire, the Soviet Union, and Yugoslavia. Obviously, these no longer exist. Just as obvious, all of these unions, having spent time, energy, money, and effort to change the culture and traditions of member countries and to perpetuate said unions, had no desire, just like Brussels nowadays, to see these unions implode. The question then is: what happened after these multi-nation currency unions fails. VOX kindly answers: "they all ended with disastrous hyperinflation."

The Odds At 90%

Rule #1 that is cast in stone is "Preservation of Capital." There is certainly a place for some speculation at the edges but you do not, ever, put the core of your capital at risk. You may believe what you like about Europe. You may be wildly optimistic or incredibly pessimistic but what cannot be denied is that tremendous risk is currently present and that things could go wildly erratic in one direction or another. Economics, outside of the classroom, never exists without its cousin politics but the political considerations are now so huge and the money at stake is now so large that the sheer size of the capital on the table should and ultimately will give everyone pause. We are about to arrive at moments where the notion of "muddling through" will no longer be possible.

Daily US Opening News And Market Re-Cap: August 21

Tuesday has see little in the way of macroeconomic data, and much focus so far has remained on speculation over whether the ECB will buy periphery debt. Comments from the German ECB representative Jorge Asmussen overnight that he backs the ECB buying periphery debt as a means to prevent the "disintegration of the Euro", a seeming change in stance given that the Bundesbank continues to opposed such measures, lifted risk assets in early trade. As such, the Spanish and Italian spreads over the benchmark Bund are seen tighter by 12.9bps and 14.4bps on the day. Spain's 12- and 18-month T-bill was also well received, the country selling slightly more than the indicative range at EUR 4.512bln, with lower yields, though only the 18-month had a stronger bid/cover. Both the Spanish and the Italian 2-year yields have declined to lows last seen in May of this year. Similarly, two separate comments from German Christian Democratic Union (CDU) lawmakers concerning Greece and the possibility of making "small concessions" for the country so long as they lie within the existing programme also boosted risk appetite, as the probability of a Greek exit looks much less likely if it has the full support of Germany. Elsewhere, the UK unexpectedly posted a budget deficit in July as corporation tax receipts plunged, though this was slightly skewed due to the closure of Total's Elgin gas field in the North Sea. Today also saw UK CBI orders for August plunge, with the industrial order book balance at its lowest this year led by a weakening in the consumer goods sector.