...You will need it. The EURUSD has officially confirmed the much dreaded "Insane YoYo" formation. As a reminder the last time we had a dreaded chart spotting (The Hindenburg Omen from August 12, 2010), the Fed was forced to launch QE2 two weeks later. On a more serious note, the imminent announcement of a favorable Troica report on Greece will likely send the pair up 100 pips.
Here are the key scheduled events over the next several months in Europe. These are the known events. Uknown ones, such as the expulsion of Greece, or the unwind of the monetary experiment, a revolution here and there, are obviously not noted.
In addition to the weak NFP number expected today which should put further pressure on a dollar, already trading at a several week low, Greek Ta Nea reports that the catalytic announcement by the Troika on the Greek economy is expected to come out later today. Unlike previous rumors that Greece was expected to miss every bailout parameter, the rumor this time is that the report will show a "mixed picture" meaning that the market is supposed to believe that there is a risk that the next tranche, worth €12 billon, of Greece's current E110 billion aid package, may not be disbursed. Of course it will be: the last thing Europe's bankers will do, especially after all the recent posturing, is to shoot themselves in the foot, and before the weekend at that. As a result we expect a double whammy of USD hits, which however will mean that the EURUSD will soon be back to levels that are high enough (1.46-1.48) that will make the announcement of QE3 problematic, as the next step lower in the USD would likely lead to a EURUSD of 1.70-1.80.
The idea of turning the EU into a Bankster's Paradise (where you lose sovereignty to your creditors) slapped the Dollar down to it's lows of the day and boosted the EU markets and US futures and gave us our re-shorting opportunity on oil.
This morning, amidst news of Moodys cutting Greece's debt rating to Caa1, I came across a phrase I wish I'd thought of first, reading through a friend's morning commentary. The phrase? "Too Stupid to Stop". According to Bill Blain, Senior Director at Newedge in London, and self-professed Euro skeptic, "'Too Stupid to Stop' is based on politicians behaving as rational maximisers of their electoral objectives." He was referring to the real reason behind all the bank-demanded bailout loans for austerity measures throughout Europe. In the United States, that mantra can be extended to include appointed officials, like Treasury Secretary, Tim Geithner (still not admitting our record debt increase came directly from the $4 trillion worth of Treasury issuance and other forms of assistance extended to our banking system since late 2008, as we endure his stomach-churning 'show-begging' to the GOP for a debt cap raise) and Fed Chairman, Ben Bernanke (ditto). It also, of course, applies to congress people whose political survival depends on corporate and bank contributions and financial support, the ones that believe the Dodd-Frank bill changes anything. Rather than considering how governments have systematically done, and continue to do, the wrong (as in immoral, unfair, and uneconomically sound) thing by trying to preserve banks, any politicians possessing the ability to think independently (an oxymoron, I know) should be asking themselves instead, how clever they could be about closing them down. Take a cue from Iceland. But, the 'Too Stupid to Stop" behavior, prevents this from occurring.
Moody's Says It Expects To Place US Rating For Downgrade Review If No Progress On Increasing Statutory Debt LimitSubmitted by Tyler Durden on 06/02/2011 13:31 -0400
From Moodys, which now appears to have been hacked by Greece (in what may or may not be considered an act of war): "If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating....Although Moody's fully expected political wrangling prior to an increase
in the statutory debt limit, the degree of entrenchment into
conflicting positions has exceeded expectations. The heightened
polarization over the debt limit has increased the odds of a short-lived
default. If this situation remains unchanged in coming weeks, Moody's
will place the rating under review." Translation: unless America promises to increase its total debt to 120% of GDP in one year, the current debt which is just under 100% will be downgraded.
These seem to be becoming quite popular lately: This particular one was titled: "Let them buy bonds." We are waiting to see how it will be revised following today's wonderful "Bailout #2" news.
Done Deal: Reuters Reports New Greek 3 Year "Adjustment Plan" Has Been Agreed On, Can Kicked For Another 3 YearsSubmitted by Tyler Durden on 06/02/2011 12:49 -0400
Just out from Reuters:
- According to a source, programme will involve new international funding to mid-2014, apportionment yet to be agreed
- According to a source senior Eurozone officials agree in principle on new 3-year adjustment plan for Greece
- According to a source, private sector involvement will be limited to avoid a credit event
Congratulations Europe: you just screwed your taxpayers, but at least bought your insolvent banks 3 more years of bizarro world existence.
- Fed mouthpiece Hilsenrath speaks: No QE3 for now - Fed Holds Steady as Economy Slows (WSJ)
- Fed May Signal Balance Sheet Will Stay at Record (Bloomberg)
- Fed Owes U.S. Stakeholders Accounting on Loans as People’s Bank (Bloomberg)
- China will have to tackle local govt debt (Reuters)
- Biggest HFT firm in the world to sell HFT counter-measures: Getco Expands Client Business, Offers Algorithm to Funds (Bloomberg)
- Greece Is in Line For a New Loan (WSJ)
- E.coli outbreak in Europe caused by new toxic strain (Reuters)
- The Chanos thesis is delayed: Banking regulator plans to shift 2-3 trillion yuan ($300-$470 billion) in debt off the books of local governments (Shanghai Daily)
- Kan: Ready to Step Down After Finishing Quake Work (WSJ)
COMEX Registered Silver Bullion Inventories Fall Sharp 38.5% in Two Weeks – Risk of COMEX Silver Default RemainsSubmitted by Tyler Durden on 06/02/2011 07:35 -0400
Spot gold and silver prices rose slightly again this morning after hitting a one-month high yesterday as equity markets internationally came under selling pressure. The Moody's downgrade of Greece and worryingly poor US economic data again pushed investors to seek the safe haven of bullion. Gold reached new record nominal highs in sterling yesterday (£945.62/oz) as the pound fell on concerns about the UK economy. The supply situation in the silver market gets more interesting by the day. Registered COMEX silver inventories have fallen to multiyear lows at 29,631,268 ounces. In the last 5 days they fell from 32,132,903 ounces to Tuesday’s holdings of 29,631,268 ounces. As can be seen in the table below registered silver inventories fell every single day last week leading to a sharp fall of 8.4% in 5 days. Registered silver inventories are down a sharp 38.5% in just two weeks – from 41,044,280 to 29,631,268. The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real. However it would be very difficult to corner the silver market due to the very small nature of the silver bullion market. A COMEX default remains a risk as does a massive short squeeze which could see silver surge as it did in the 1970s and again recently leading to silver targeting the inflation adjusted record high of $140/oz.
Following years of inactivity it has now become cool to be the first rating agency to pull the trigger on another insolvent sovereign. After yesterday's downgrade of Greece by Moody's to Caa1, today Dagong decided to one up its American counterparts and downgrade the country with the 250% debt/GDP: Japan. From Xinhua: "Chinese ratings provider Dagong Global Credit Rating Co. Ltd., on Thursday cut its rating for Japan's local and foreign currency sovereign credit by one level to A+ and AA- respectively. The rating agency said the downgrade took into consideration Japan's political situation, economy, fiscal revenue and expenditure, as well as debt revenue. Expecting a mild recovery of the Japanese economy and no significant deterioration of Japan's sovereign debt financing within the next 12 months, Dagong put the country's credit outlook as "stable."" As Richard Koo noted yesterday, the probability that the Japnese economic situation will deteriorate absent stimulus is very high. Unfortunately, the problem is that since there is little to no spare money available "out there" the ability to kick the can down the road with another Keynesian band aid is severly limited. Expect to see many more downgrades of Japan, and not just Dagong, before the year is over.
Euro Jumps, Risk Is Bid, Following Strong Spanish Bond Auctions, Trichet Promises For EU Finance MinistrySubmitted by Tyler Durden on 06/02/2011 07:06 -0400
Risk is solidly bid this morning as the EURUSD has jumped to overnight highs of just under 1.45, and the DXY has just dropped to a one month low, following two Spanish bond auctions which saw yields surge yet came at far higher bids to cover than previously. From Reuters: "Spain saw strong demand for 3.95 billion euros ($5.67 billion) of medium-term bonds on Thursday, though a broad drop in risk appetite and lingering uncertainty over how talks on fresh aid for Greece will pan out kept yields high. In a litmus test of investor appetite for peripheral euro zone debt as policymakers thrash out a plan to avert a Greek default, the 2014 bond, with a 3.4 percent coupon, sold 2.75 billion euros at an average yield of 4.037 percent. That compared with 3.568 percent at the previous auction in April, while the bid to cover rate rose to 2.5 compared with 1.8. The 2015 bond, last issued in September of last year and with a coupon of 3 percent, sold 1.2 billion euros at an average yield of 4.230 percent, slightly lower than yields on the secondary market. The bond was 2.9 times subscribed after being 1.6 times subscribed at its last auction. "Since the (2014) launch early April, we've had an escalation on the peripheral side, so a firm selling since then, which is why (the yield) jumped so much," economist at 4Cast Jo Tomkins said. "You'll see plenty of buyers coming in at that level, especially since the Greek deal seems to be moving in a positive direction." Also adding to the risk appetite are statements from Trichet that in the longer term, he could suggest forming a finance ministry of the European Union, adding there is no crisis in the EUR. Lastly, he added that if aid programs fail, as a second stage he could consider deeper integration of economic policy, more central command of domestic policies. Of course they will: once all is plundered, the ECB will become the defacto "protector" of its colonies. And falling solidly into the trap is Greece where according to a government source the privatization plans may run faster than expected.
As the great Yogi says: "It ain't over 'till it's over" but May is now officially over and it was, in fact, a down month, despite the TREMENDOUS effort that was made in the past week to keep it from being a 5% loss.
Next up: Greece begins criminal proceedings against the rating agency for character defamantion and libel (or is that slander?). Also, Belgium is next. Yet most importantly, there is no mention in the downgrade if the "Vienna plan" currently contemplated, or the latest zany "debt rolling" proposal constitutes an Event Of Default, meaning the market will have even more uncertaintly to grapple with. From Moody's "The main triggers for today's downgrade are as follows: 1. The increased risk that Greece will fail to stabilise its debt position, without a debt restructuring, in light of (1) the ever-increasing scale of the implementation challenges facing the government, (2) the country's highly uncertain growth prospects and (3) a track record of underperformance against budget consolidation targets. 2. The increased likelihood that Greece's supporters (the IMF, ECB and the EU Commission, together known as the "Troika") will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support. Taken together, these risks imply at least an even chance of default over the rating horizon. Moody's points out that, over five-year investment horizons, around 50% of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt service requirements on a timely basis, while around 50% have defaulted."
Richard Koo Calls For, Surprise, More Reconstruction Stimulus To Prevent Japan's Natural Disaster From Becoming A Man-Made CalamitySubmitted by Tyler Durden on 06/01/2011 13:52 -0400
Richard Koo is back with his latest piece titled, not surprisingly, that "Fiscal Consolidation is Not the Answer" - alas, a decimated by (previously secret) debt European continent, and even America, is rapidly starting to disagree with this assessment, which stems from the faulty assumption that the economic "balance" achieved after 30 years of endless balance sheet expansion courtesy of ever declining interest rates is sustainable. Hint: it isn't. And until the world realizes that it is precisely this Fiscal Consolidation that is the answer, we will continue seeing bankers sell bits and pieces of Greece to each other, transfer payments in the US from the government ending up straight in Wall Street pockets, and broadly the Big getting Ever Bigger to Fail. Yet for those who still believe (Krugman) that one last hit is all it takes and after that it will be better, here is Koo's summary, on why Japan, which we continue to believe is the key macroeconomic variable over the near term, may be in very deep trouble unless it commences yet another (what number is that, #20, #50, is anyone even keeping score?) round of fiscal or monetary stimulus: "Fortunately for the Kan administration, Japanese institutional investors have been dealing with this surplus of private savings on a daily basis for more than 15 years and understand its macroeconomic implications. It is only because of their calm and calculated response to these conditions that the yield on 10-year JGBs remains at 1.2%. To prevent this natural disaster from becoming a man-made calamity (ie a recession), the government needs to push ahead with reconstruction efforts. With private savings surging, the necessary funds can be borrowed for now. Later, once businesses and households start looking to the future, funding can and should be shifted to tax hikes and budget reshuffles." That is the conventional wisdom. For all those who wish to read what will happen if and when Japan continues on this unsustainable path of converting private savings into public funding without regard for demographics, please read Dylan Grice (here, here and here).