Greece

The "China Bails Out Europe" Rumor Is Back

It's been a while since the ridiculous "China bails out Europe" rumor made the scene: in fact, the last time we can find with definitive confirmation was back in September of 2011, just before the bottom fell out of Europe, and when the FT, based on "anonymous sources" tripped over itself to report that "[insert European country] is in talks with China to buy bonds, assets." Sure enough, now that Merkel came, and saw, but hardly conquered Beijing, it is the turn of China's Wen Jiabao to add his 10 pips to the EURUSD rumormill: Reuters reports: "China is prepared to buy more EU government bonds amid a worsening European debt crisis that is dragging on the world economy, Premier Wen Jiabao said, in the strongest sign of support for its biggest trading partner in months." Naturally, considering how often this rumor (re)appeared in the past it will be excusable if nobody but the dumbest vacuum tubes fall for it this time, especially considering that the Chinese economy itself is going down in flames faster than the October Iron Ore contract. And lest there be any confusion, China's commitment is about as definitive as a Best Buy LBO "preunderwritten" with a Jefferies highly confident letter: "China is willing, on condition of fully evaluating the risks, to continue to invest in the euro zone sovereign debt market, and strengthen communication and discussion with the European Union, the European Central Bank the IMF and other key countries to support the indebted euro zone countries in overcoming hardships," [Wen] said after meeting Merkel." Ah, conditional aid. The kind that gets Mario Monti to break out the petulant ex-Goldman child act and refuse to leave the Belgian catered dining room until the beggees succumb to his technocratic platitudes. Needless to say, we'll believe China's "continued" investment in Europe when we see it.

Place Your Bets

The Chinese Stock Markets are returning to the lows of 2009 and the Europe is mired in a recession. The American Stock Markets are not far off their highs and we do not think this will continue. Mark Grant is quite negative, for all kinds of reasons, about our equity markets now and would be taking profits and returning to the more assured bets of getting yield from bonds and not from dividends. A dividend may be reduced or cancelled by the wave of some Boards’ hand one afternoon while senior debt cannot be cancelled without the company or the municipality going into bankruptcy so that the top of the capital structure is far safer than relying upon dividends for income. In the next sixty days we are faced with Greece, Portugal, Spain, Italy and ECB issues that are quite serious both economically and politically. You may think what you like but there is a lot of risk on the table; of that you may be assured. When someone says, “Buddy can you spare a dime” we would like to be the one being asked and not the one doing the asking. It is here where we stand and wait.

Fingerboning Escalates: Buba Strikes Back To Draghi OpEd With Weidmann Interview

The first shot in the fingerboning wars (a key step up from mere jawboning) has barely been fired following Draghi's earlier OpEd in Zeit (posted here in its entirety), when the Bundesbank already had its response ready for print in the form of yet another interview with its head, Jens Weidmann, who says nothing new or unexpected, but merely emphasizes that no matter how loud the chatter, how empty the promises, or how hollow the bluffing, Germany's response continues to be, especially after today's higher than expected inflation across the country, 9, 9 and once again, 9. Perhaps the most notable part of the interview is Weidmann's comparison between the ECB and the Fed, and why one is allowed to monetize bonds, while the other shouldn't be: "The Fed is not bailing out a cash-strapped country. It's also not distributing risks among the taxpayers of individual countries. It's purchasing bonds issued by a central government with an excellent credit rating. It doesn't touch Californian bonds or bonds from other US states. That's completely different from what we have in Europe....When the central banks of the euro zone purchase the sovereign bonds of individual countries, these bonds end up on the Eurosystem's balance sheet. Ultimately the taxpayers of all other countries have to take responsibility for this. In democracies, it's the parliaments that should decide on such a far-reaching collectivization of risks, and not the central banks." Of course, when the wealth of the status quo is at risk, such trivialities as democracies are promptly brushed by the sideline...

Judgment Day For The Euro And What's At Stake

Europe and the world are eagerly awaiting the decision of Germany’s Constitutional Court on September 12 regarding the European Stability Mechanism (ESM), the proposed permanent successor to the eurozone’s current emergency lender, the European Financial Stability Mechanism. The Court must rule on German plaintiffs’ claim that legislation to establish the ESM would violate Germany’s Grundgesetz (Basic Law). Nobody knows how the Constitutional Court will rule on these objections. It is good that the Court’s decisions cannot be forecast, and even better that the Court cannot be lobbied or petitioned. The European Union can be based only on the rule of law. If those in power can break its rules on a case-by-case basis, the EU will never develop into the stable construct that is a prerequisite for peace and prosperity.

Guest Post: China's Difficult Choice

Over the weekend, we pointed out that the old mechanism for the People’s Bank of China to expand its balance sheet and create base money has been broken by new funds flow pattern, and it will sooner or later require some sort of large scale asset purchases programme a.k.a. quantitative easing to offset the impact of the broken mechanism (after other tools such as cutting RRR reach their limits). However, we also mentioned that as the private sector is currently quite overstretched and will start the deleveraging process (if they have not already started), and that would render traditional monetary tools useless, and quantitative easing ineffective. And that would necessitate deficit spending at both local and central government levels. If we have read the social mood correctly that China might be more pro-austerity than pro-Keynesian, and if policymakers indeed share that view, then the consequence in the near term could be rather grim. The delay in stimulus as well as the small size of it so far has already done damage, if you like. The economy is already on course to a hard landing.

Frontrunning: August 28

  • Ringing endorsement: Lithuania to Adopt Euro When Europe Is Ready, Kubilius Says (Bloomberg)
  • Credit Agricole net plunges 67% on losses in Greece and a writedown of its stake in Intesa Sanpaolo SpA (Bloomberg)
  • Europe finally starting to smell the coffee: ECB Urging Weaker Basel Liquidity Rule on Crisis Concerns (Bloomberg)
  • Japan Cuts Economic Assessment (Reuters)
  • France’s Leclerc Stores to Sell Fuel at Cost, Chairman Says (Bloomberg)
  • China Eyes Ways to Broaden Yuan’s Use (WSJ)
  • Berlin and Paris forge union over crisis (FT)
  • Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion (Bloomberg)
  • Republicans showcase Romney as storm clouds convention (Reuters)
  • ECB official seeks to ease bond fears (FT)
  • German at European Central Bank at Odds With Country’s Policy Makers (NYT)

With September Knocking, Here Is An Annotated European Event Calendar

By now everyone is well aware that the payback for the absolute zero that was August in terms of newsflow and events, the first quiet August in three years, will be September, which as we and others dubbed, will be "Crunchtime" for Europe. And with September now just days away, and with the transitionary Jackson Hole forum virtually assured to be the latest dud, with Draghi surprisingly bowing out at the last minute (even as Buba's Jens Weidmann is still set to attend), and with Bernanke guaranteed to do nothing more than just jawbone some more without real action, the time to refresh on what to expect over the next 30 days has come, courtesy of this annotated calendar from SocGen.

Draghi To Miss Jackson Hole Forum; All Rumors Now To Focus On ECB September 6 Meeting

With the market realization slowly dawning that Bernanke will not announce anything of note at this year's Jackson Hole meeting, especially with the NFP number following the symposium expected to demonstrate another improvement in the economy, and ahead of the FOMC meeting in the second week of September, many hopes were resting on the shoulders of Draghi, whose ECB has now become a backup option when it comes to jawboning markets higher on empty promises. It is the same ECB which is also expected to announce something, anything on September 6, or else the market will really get angry after "believing" Draghi back in July as he said, and not delivering anything for two months straight. At this point however, the Jackson Hole meeting appears to be a complete dud because as was just reported, Mario Draghi, who was previously scheduled to speak on August 30, has decided to skip the meeting entirely. According to Bloomberg, citing an ECB official, Draghi won’t be attending Jackson Hole forum this year, and the reason given is "due to workload in coming days."

Spain's Economic Collapse Results In Whopping 5% Deposit Outflow In July

Yesterday, Spain was kind enough to advise those who track its economy, that things in 2010 and 2011 were in fact worse than had been reported, following an adjustment to both 2010 and 2011 GDP "historical" data. Today, we learn that Q2 data (also pending further downward adjustments), contracted by 0.4% sequentially in Q2, in line with expectations, but somehow, and we have to figure out the math on this, the drop on a Year over Year basis was far worse than expected, printing at -1.3% on expectations of just a -1.0% decline. However, while its economic collapse is well known by all, the surprise came in the deposits department which imploded by a whopping 5% in July, plunging to 1.509 trillion euros at end-July from 1.583 trillion in the previous month. Keep in mind this is after the June 29 European summit which supposedly fixed everything. Turns out it didn't, and the people are no longer stupid enough to believe anything Europe's pathological liar politicians spew.The good news: Greek deposits saw a dead cat bounce after collapsing by ridiculous amounts in the past several years: at this point anyone who puts their money in Greek banks must surely realize that the probability of getting even one cent back is equal odds with going to Vegas and at least having a good time while watching one's money burn.

Summer Is Over With A Bang As Bomb Explodes Outside Greek Bank

If the unofficial end of the European summer season comes with the return of those 9-saying Germans who dash every carefully laid plan to stuff German taxpayers with the European bailout bill for the second year running, the official end is when the Greeks come back from their German-sponsored two week vacation in the Cyclades (soon to be known as Nieder-Niedersachsen) and start bombing things. Which is precisely what happened two hours ago. From Reuters: "A makeshift bomb exploded outside a National Bank of Greece branch in Athens early on Tuesday, causing minor damage but no injuries, police said. Windows were smashed and four parked cars suffered minor damage in the blast, which took place about 4 a.m (0100 GMT) in the western suburb of Ilion." Luckily nobody was hurt. However, it would not look good on the front page of German papers that the general Greek population is not ungrateful for the continued ECB recycling of ponzi cash, but has decided to take out an ATM machine or two, which is why... "We suspect it is linked to terrorism," said a police official who declined to be named. Sure enough, when all else fails, blame something: Bush, a glitch, or terrorism.