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Frontrunning: May 31

  • Emerging states working on IMF candidate: South Africa (Reuters)
  • Berlin Considers a Shift on Greek Debt (WSJ)
  • Housing Sales in China Seen To Fall Over 10% (Shanghai Daily)
  • Greece may run out of funds within weeks (Independent)
  • Lagarde, on Visit to Brazil, Vows Speedy IMF Reforms (WSJ)
  • BlackRock’s Fink Says Europe Problems Go ‘Way Beyond’ Greece (Bloomberg)
  • Libya's Goldman Dalliance Ends in Losses, Acrimony (WSJ), or how Goldman lost 98% of Libya laundered money, offered Libya the chance to become one of its biggest shareholders
  • Australia Fund Says No to Euro-Zone Rescue Bonds (WSJ)
  • Saudi-Iran Feud Draws Sectarian Line Across Mideast Oilfields (Bloomberg)

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Dollar And Yen Fall - Moody’s Warns Of Japan Downgrade & UN Warns of Risk Of “Collapse” Of Dollar

The euro climbed to a three-week high versus the dollar on speculation Germany and other European nations may pledge more funds to bankrupt Greece and favourable German economic data. This is more a reflection of dollar weakness rather than any great confidence in the euro. The euro at €1,068/oz remains under pressure versus gold and is less than 2% from record nominal highs at €1,088/oz. While the focus, has of late, been on the increasingly ‘unsingle’ single currency, news overnight shows how there are also substantial risks posed to the yen. Moody’s have warned that they may have to downgrade Japan and have warned of a “tipping point” which may lead to a government funding crisis for heavily indebted Japan. The United Nations warned on Wednesday of a possible crisis of confidence in, and even a "collapse" of, the U.S. dollar if its value against other currencies continued to decline. The UN’s mid-year review of the world economy did not get covered widely. The UN economic division said that a crisis of confidence in the dollar, stemming from the falling value of foreign dollar holdings, would imperil the global financial system. This trend, it said, had recently been driven in part by interest rate differentials between the U.S. and other major economies (see table above) and growing concern about the sustainability of the U.S. public debt, half of which is held by foreigners including the Chinese government.


Tyler Durden's picture

Germany Humiliates Itself By Conceding To A Second Greek Bailout, EUR Predictably Jumps Briefly

Like clockwork, hours before the US market reopens, we get another Greece bailout. Since last week's Chinese white knight "rescue" of Portugal helped the EUR for about 18 hours, it is now time to get the biggest guns possible out: the WSJ reports that Germany, contrary to populist demand which has indicated that another German bailout of Greece would mean the end of Angela Merkel, has decided to allow Greek bailout round two to proceed. Per the WSJ: "Germany is considering dropping its push for an early rescheduling of
Greek bonds in order to facilitate a new package of aid loans for
Greece, according to people familiar with the matter.Berlin's concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece's funding needs before the indebted country runs out of cash in mid-July." The end result: the EURUSD surged by 70 pips from the closing print of 1.4270 to a high of 1.4350, although the half life of even that innuendo appears to have peaked and the pair is now on the way down, as it does absolutely nothing, except to destroy any credibility Merkel may have had, to resolve the impasse which is that, well, Greece is bankrupt.


Tyler Durden's picture

Despite Preemptive Gold Margin Hike In Shanghai, Gold Is Poised To Close May Near Record On Sovereign Risk Worries

After a near epic margin driven collapse in silver, which appears to have been largely forgotten as the metal has resumed it upward climb, it is gold which has once again regained the crown in the fiat substitute race. As Reuters reports: "The speculators are coming back, mainly driven by the European debt crisis," said a Singapore-based trader. "Gold is likely to slowly move up during the summer unless we see big headlines, such as the U.S. raising interest rates earlier than expected." Of course, where some see "speculators" others see rational investors who are already discounting the inevitable next step by the central planner cartel, which forced to deal with a slowing economy will have no choice but to inflate the global adjusted monetary base (and dilute outstanding fiat) by another several hundred billion. Elsewhere, in preparation for another gold breakout, the Shanghai Gold Exchange hiked gold and silver margins once again, this time preemptively. "The Shanghai Gold Exchange said
on Monday it will raise margin requirements on gold forward
contracts to 12 percent from 10 percent from the June 2
settlement, a move to help ward off excessive volatility in
global markets during the Dragon Boat Festival holiday on June
6. The bourse will also hike silver forward contracts to 17
percent from 15 percent. It will also set gold daily trade
limits to 9 percent and silver at 12 percent from June 3."
Still, the gold fixing at the close of NYMEX trading was $1,539.1, $30 away from all time nominal highs. Incidentally, would it be too much to ask of the exchanges to provide the general public with just what the formula is that they use to make their margin hike (and, reduction) decisions? They would be amazed how quickly any allegations of collusion with the administration would disappear if only a little transparency was introduced to the "system."


Tyler Durden's picture

Guest Post: Destructive Capability Is No Substitute For Freedom

Our descendents will surely look back on this time and wonder how we could have been so foolish– to let these people rob our freedoms; destroy our economies; kill foreigners on their home soil; and shower themselves with Peace Prize medals… all while keeping society quietly subdued with games, tricks, and bombastic patriotism. They tell us to wave the flag, to buy yellow ribbon bumper stickers, and to remember the fallen on days like today. Truthfully, though, the memories of the fallen would be much better honored if the government quit making more of them… and stopped destroying the freedom that they supposedly died to defend.


Tyler Durden's picture

CIA Warns Of A Greek Military Coup, Rebellion, If Austerity Intensifies

Turkish daily Hurriyet, which paraphrases German Bild, which in turn references a CIA report, warns that Greece could face a military coup if the "tough austerity measures and the dire situation" escalate any further. On the other hand, one can avoid this belabored hypertextual chain and simply look at what happens practically every day on Syntagma square where yet again we are witnessing record numbers of people protest against what everyone now realizes is a dead end regime (luckily, in a peaceful manner, for now). More Captain Obviousness (thank you Grant Williams) from Hurriyet: "According to the CIA report, ongoing street protests in crisis-hit Greece could turn into escalated violence and a rebellion and the Greek government could lose control, said Bild. The newspaper said the CIA report talks of a possible military coup if the situation becomes more serious and uncontrolled." Luckily, following last year's Athens mob-inspired flash crash, and 2011's MENA revolutions, the market is rather desensitized to this sort of thing, and nothing short of fat-finger driven invasion of Greece by Turkey, in its humanitarian bid to reestablish the Ottoman Empire 2.0, could dent the /ES or EURUSD by more than 0.01%.


Tyler Durden's picture

EU Holds Unannounced Emergency Talks With Greece Over Weekend To Draft Second Bailout As Two Year Greek Bonds Pass 26%

Another weekend, another secret, and failed, meeting between the EU and Greece to find a bailout solution that simply does not exist. Reuters reports that while America was out camping, barbecuing and all around vacationing, the European Union was feverishly working on a second bailout package, holding another round of emergency talks with the Greek government, to prevent a June 29 default by Greece when money runs out. Alas, it is now too late: with austerity protests now a daily event, the political opposition has the upper hand and it seems that Greece's conservative opposition has demanded lower taxes as a condition for reaching a political consensus with the Socialist government on further austerity measures, a move which Brussels would not agree to, since unlike in America, cutting revenues does not lead to an reduction in the deficit, and anyone with a 2nd grader's education is aware of it. Punctuating that Europe's idealist unitary vision is about to be torn to shreds, even as the US and UK are out for the day, is the Greek 10-year Bund spread which rose by 20 basis points to 1,387 while two-year yields were up 58 bps to 26.23%.


Tyler Durden's picture

EU Debt Contamination Deepens In Greece, Portugal And Ireland - Gold Just 2% From Record Nominal High

Gold and silver are flat in US dollars but higher in euros this morning. Trade is thin with the UK and US markets closed for spring holidays. Gold and silver were 1.75% and 8% higher last week and the precious metals and especially gold appear to be on solid footing due to the continuing debt crisis in Europe and concerns about a slowdown in the US and global economy. Despite gold being only some 2% away from the record nominal highs seen at the end of April ($1,563.70/oz), sentiment remains lackluster at best with little or no coverage of gold in the international financial press and media over the weekend. In the last two weeks we have experienced a lot of sell orders and the ratio of sell to buy orders has been the highest since our foundation in 2003. Value buyers emerged last week but much of the buying was by existing clients adding to their holdings. The threat of sovereign default and contagion increases by the day.


Tyler Durden's picture

The Greek "Ultimatum": Bailout (For The Bankers) And (Loss Of) Sovereignty

So after one year of beating around the bush, it is finally made clear that, as many were expecting all along, the ultimate goal of the Greek "bailouts" is nothing short of the state's (partial for now) annexation by Europe. According to an FT breaking news article, "European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens. People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures." Thus Greece is faced with the banker win-win choice, of not only abandoning sovereignty, a first in modern "democratic" history, in the pursuit of "Greek" policies that are beneficial for Europe, or not get a bailout, which would only serve to prevent senior bondholder impairments. How could Greek leaders and its population possibly not accept such an attractive option which either leaves the country as another Olli Rehn protectorate, or forces it to not bailout Europe's overleveraged banker class. In essence Europe is now convinced, just like Hank Paulson was on September 14, 2008, that the downstream effects from letting Greece implode are manageable. But the key development is that the Greek bankruptcy, which from the beginning, and as Peter Tchir's note below demonstrates, was always simply a Greek choice, was just made that much easier.


Leo Kolivakis's picture

All Roads Lead to Athens?

Prime Minister Stephen Harper brought a message from Canadian politics to his Greek counterpart Saturday. But is it the right message?


Tyler Durden's picture

100,000 Protesting In Athens Right Now

The first confirmation of protests expected to sweep across Europe tonight from Greece to Spain, France and Italy comes from Syntagma square where up to 100,000 people are protesting at this moment. Ekathimerini reports: "Greeks inspired by the Spanish “Indignant” or “Indignados” movement held their largest protest so far in Athens on Sunday, which some estimates put as high as 100,000 people, although a more accurate assesment seemed to be that those taking part exceeded 30,000. No official figure was given for the number of people packing into Syntagma Square in front of Parliament but it was clear that the protest was by far the largest since the movement began on Wednesday." For now the Greek protest is peaceful, but with the US on vacation, and the EURUSD about to be very volatile, we urge readers to follow the real time update at the following live webcast.


Tyler Durden's picture

Europe Goes From Worse To Horrible: Ireland Broker Than Expected, Greece Mulls Splitting Up Into "Good" And "Bad" Greece

Greece hasn't even filed for bankruptcy yet and the "unexpected" consequences are already coming. In comments to The Sunday Times newspaper, Irish Transport Minister Leo Varadkar said the country will likely need another "unexpected" loan from the troica, after he became the first cabinet member to cast doubt in public on Ireland's ability to raise cash. In other words once on the temporary bailout wagon, always on the temporary bailout gain. Reuters reports: "I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying. "It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view." We wonder how German taxpayers will fell now that they realize they have not one, not two, but three (and soon 5 or more) heroin addicts they need to clean, wash, scrub, and feed on a monthly basis (with their, and US money, but Americans continue to not care that the biggest source of capital for the IMF is them). And speaking of ground zero, Greece is now scrambling after the Independent said that even Sarkozy is now prepared to let the Greek chips falls where they may. Following earlier news that the troika believes that the privatization plan it itself set up is not ambitious enough, Greece which now realizes that Germany, the EU, IMF, and Franch all are prepared to let it go, the country is now coming up with last ditch ideas faster than a speeding bullet: according to Reuters: "A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers." Of course since it is toxic Greek sovereign bonds we are talking about, this implies that the country will somehow be split into a "good" and "bad" version of itself. And who thought financial innovation only comes out of the US.


Tyler Durden's picture

Guest Post: Bankrupt Nations Try To Stop The Future From Happening, Fail

Debt is slavery… or at least indentured servitude of the worst kind. That looming mortgage, the high interest credit card debt, the short-term car loan– these are the forces that keep people from breaking free and taking action. Ironically, debt begets more debt. According to FinAid, the average US student loan debt for a four-year private university graduate is nearly $36,000, and $24,000 for public. Throw in that first car loan and maybe a mortgage, and suddenly you’re staring at hundreds of thousands of dollars in demoralizing claims on your future income. At this point, most people figure… ‘hey, I’m already in debt up to my nose, might as well get in up to my eyeballs and buy a new plasma screen on credit.’ Debt is an enormous psychological burden that influences life’s major decisions. It’s why so many people stay committed to jobs that are unfulfilling in cities they detest under conditions they find disheartening. Nobody wants to rock the boat too much… take too many risks and you could lose your job, and hence the ability to make those monthly payments. This familiar story has been playing out across the developed world for years. This is not an ill, however, that exclusively affects individuals and families. Even at the macro level, debt has the power to subjugate entire nations to the whims of their creditors. Enter the IMF.


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Spiegel Greek Hit Piece #2: Bailout Troika Finds "Greece Missed All Fiscal Targets" - Next Steps: Game Over?

Germany's Der Spiegel seems hell bent on getting sued to hell and back by Greece. After a few weeks ago it "broke" the news of a secret meeting that would consider the expulsion of the country from the Eurozone, it is once again stirring passions with an article claiming that Greece has missed all fiscal targets agreed under its bailout plan, according to a mission from an international inspection team, putting further funding for Athens at risk, Reuters summarizes. "The troika (aka the International Monetary Fund, the European Commission and the European Central Bank) asserts in its report to be presented next week that Greece had missed all its agreed fiscal targets," weekly Spiegel magazine reported in a prerelease. In other words, this could be the political game over for Greece, whose fate as has been disclosed recently, is intimately tied with the perception that it is following the troika's demands for fiscal change. If the three key bailout institutions are already leaking that Greece is done, next week could well be the beginning of the end for the €. In about 48 hours, even as America is enjoying a Monday off (or precisely because to that, to avoid a market panic), the European market could be digesting a very bitter pill of testing just how well pre-provisioned all those German, French and Dutch banks really are.


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Guest Post: America Will Not Survive Without Alternative Markets

Commerce is the lifeblood of a nation. Without the free flow of trade, without financial adaptability, without intuitive markets driven by the natural currents of supply, demand, and innovation, cultures stagnate, countries whither, and one generation after the next finds itself deeper in the somber doldrums of economic disintegration. In an environment of transparency, honesty, and the absence of monopoly (government or corporate), on the rare occasions in history that these conditions are actually present in one place at one time, we often see an explosion of prosperity and true wealth creation. When local, decentralized markets are given precedence over subversive elitist leviathans like mercantilism or globalism, a wellspring of abundance bursts forward. Free people, building true free markets that serve the specific needs of individual communities and insulating the overall economy from systemic collapse; this has always been the wave of the future. Not “integration”, “harmonization”, or some fantastical nonsensical “global village” administrated by a faceless unaccountable transnational entity like the IMF, infested with sociopathic maid raping euro-trolls. Unfortunately, average Americans today have grown far too accustomed to having their commerce, and thus their livelihoods, micromanaged for them. The bottom line is, if the daily fiscal life of the average American were to deviate from today’s norm even slightly, the results would be devastating. There is no flexibility in our current system. All is rigid and fragile. There is no backup plan.


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