By the look of things, French youth are celebrating Hollande’s victory by picking up all of their friends and then driving up and down the streets honking their horns incessantly. Most cars were packed to the brim with passengers hanging out of every window and even the sunroof waving French flags, singing, or simply yelling pro-Hollande slogans.
Germany's DAX is the hardest hit so far of the major European equity markets (futures) with a drop of over 2.2% (underperforming the French CAC40 -1.5% for now). The EuroSTOXX 50 is down 2% and reflects the general state of affairs in European equity markets as they open - which is a little worse than the S&P futures market's move since the European close on Friday. European credit markets are very quiet and illiquid thanks to the UK's May-Day celebrations (and its position as hub for CDS market-making) but sovereign bonds are trading across mainland Europe and are being sold relatively hard so far. Spain, Italy, and Greece are underperforming with the former two pushing towards recent wide spreads even if yields remain off recent highs. EURUSD rallied a little off its overnight lows as Europe opens but has started to give back some of those gains. As the cash markets open there is some buying-the-dip pressure in stocks - even as govvies remain offered while financials remain under significant pressure. US equity futures and Treasuries remain in sync as ES limps a little higher off overnight lows.
With Citigroup raising the odds of a Greece exit from the Euro to between 50 and 75% in the next 12-18 months, it is perhaps worth reflecting on just what is holding them back and where Europe goes next. There has been and will continue to be much written on the faulty premise or failed-experiment of the Euro and using George Soros' recent less-than-sanguine discussion (at the INET conference as we noted here) of Europe in general (how did they get here? exactly where are they? and what are the scenarios going forward?) Gordon T Long and John Rubino expand on these thoughts in a must-watch-before-you-hit-the-BTFD-button clip this week. If there was a dummies guide to Europe's problems, this is it - plain and simple - and as this weekend's elections perhaps reflect "when you borrow too much money as a nation - you become ungovernable - as there is no painless way out."
Two big events down, many, many others more left to go. Below is a full European event calendar for the rest of May and June. Just like in 2011, Europe got unhinged around this time and things peaked by November when only a coordinated global intervention saved the world courtesy of $1.3 trillion from the ECB, expanded FX swaps from the Fed and a PBOC rate cut. Only unlike in 2011, with Silvio and Sarko both now gone, the roster of political scapegoats is getting very, very thin. Whose head wil the vigilantes demand next? We will find out over the summer and fall, which promise to be even more exciting than last year.
While clearly dramatic, the outcome of the French presidential election was very much anticipated and at this point the only real question is how many promises will Hollande reneg on before the week is over: if Berlusconi is any indication, all it will take is for OAT yields to spike by 20-30% and all shall be well for the status quo. Greece, on the other hand, where as we said the people have lost everything so are free to do anything, just did more or less that, and have shocked Europe with an outcome which as we warned could result in the lack of a pro-bailout coalition government, which means no IMF aid, which means "no bailout for the Greek people", which means no bailout for European banks under the guise of a Greek DIP loan. And with 63% of precincts reporting, ND + Pasok have 153 as of this moment which is enough for a majority although paradoxically the anti-bailout parties will have among them nearly 60% of the finaly vote which means they could form an anti-bailout coalition if they buried their diferences. Finally, there is still time, so for all those curious if the two Greek parties will be able to form an all important coalition government, can keep track of the vote count in real time at the link below.
The only saving grace of the earlier horrendous Greek parliamentary vote was that, based on very preliminary results New Democracy and Pasok would be able to form a coalition government with precisely 151 seats needed in parliament to give them status quo powers. However, according to a more recent re-rack of the votes (New Democracy 18.9%, 108 seats, Pasok 13.4%, 41 seats, Syrizia: 16.6%, 51 seats, and all others), this assumption is now in jeopardy as the two pro-bailout parties will have just 149 seats in the new parliament, or not even a full majority. Why is this problematic? Because virtually every other party in the new parliament, and there may be up to 10 there including the New Dawn, have voiced their opposition to the bailout of Greece, which as everyone knows is merely a bailout of Europe's insolvent banks using Greek taxpayer funds as a conduit. And, adding insult to injury, Reuters now reports that "Greek leftist leader calls for anti-bailout coalition." It appears that finally, after many years of delays, the anti "bailout" genie is finally out of bottle...
And so one more tumbles to the popular wave of anger and discontent.
Francois Hollande wins 51.9% of the vote according to exit polls
The 57-year-old Hollande got about 52 percent against about 48 percent for Sarkozy, according to estimates by pollsters CSA and Harris Interactive
Nicholas Sarzkoy concedes defeat in presidential election to Francois Hollande
First Official Greek Exit Polls: Pro-Bailout Parties Plunge; Anti-Bailout Radical Left, Neo-Nazis SoarSubmitted by Tyler Durden on 05/06/2012 12:08 -0400
As we expected, the previous unofficial poll forecasts were total rubbish, and according to exit polls from NET TV, the results are as follows:
- New Democracy: 17-20%
- Pasok: 14-17%
- In a stunner, Syrizia, or the coalition of the radical left - a vehement anti-Bailout party - gets more votes than the ruling PASOK party: 15.5%-18.5%
- Independent Greeks: 10-12%
- Finally, and not surprisingly in the aftermath of the French results, the ultra right Golden Dawn gets 6-8% of the vote and will make it into Parliament
Tallied across, up to 60% of the new parliament will be anti-bailout (at least according to exit polls), and hence "Domino toppling." Good luck with that pro-bailout coalition government. Needless to say these results are very ugly and make any prospect of a pro-bailout coalition cabinet virtually impossible. Suddenly the fate of the European experiment is in the hands of the ultra right and the far left - yup, Neo-Nazis will determine the future of Europe. How quaint... again - congratulations Europe.
And from one presidential election, we go to the other even more crucial parliamentary election, in Greece, where courtesy of Planet-Greece we have the first unofficial exit polls. Since these numbers differ massively with what opinion polls predicted as recently as 2 weeks ago, and indicate the status quo is likely to persist, we urge everyone to take these with a huge grain of salt.
While most will be following what appears to be an almost certain Hollande victory in the French presidential runoff elections tomorrow (InTrade odds around 10%), it is very likely that the Greek election will have a greater acute impact on the political and financial facade of Europe, especially in the short term. As we noted in what we dubbed our first (of many) Greek election previews, the biggest problem facing the new political regime will be its near certain inability to form a coalition government (with just 32.6% of the vote going to PASOK and New Democracy) that does not undo most of what has been achieved through popular sweat and tears over the past 2 years to assist Europe's bankers in transferring what little Greek wealth remains to fund the insolvent European bank balance sheets. This in turn could begin the latest cascading contagion waterfall, which coupled with an anti-austerity drive emanating from a newly socialist France will threaten to topple Angela Merkel's carefully constructed European hegemony.
Europe is about to begin its "Audacity of Hope" moment. I'm not sure how markets will react on Monday to the various results. My best guess is that after an initial sell-off we see a rebound. European politicians will start to say the "right" things about working with the new governments. "Growth" will be the most commonly used word. Equities “LOVE” growth. If there is one thing equity markets love, it is the talk of growth, stimulus, of more money being spent. .. Why is everyone so willing to believe Europe can achieve growth? Let's assume that no one ever tried for growth before (though seriously, most policies implement in past 15 years had growth as at least part of the rationale). What experience does Hollande have in creating growth? If growth opportunities are so easy to spot and identity why do we pay 2 and 20 to hedge funds and private equity?... That is the harsh reality. Identifying opportunities just isn't that easy. Figuring out what projects will generate returns that pay for themselves is difficult. A political body with many competing agendas is hardly likely to do better than companies whose whole goal is to find growth opportunities. Corporations have no shortage of cash right now, they have a shortage of growth ideas. .. "Growth" which is really just code for spending, will be a failure. The credit markets will see it sooner than equities, but equities will eventually see it too. Saying you are going to become an actress is really easy. Moving to L.A. in an effort to become an actress is a bit more difficult but still relatively easy. Becoming an actress is really hard! Growth won't buy years. It might not even buy months. Like so much else through the entire crisis, the markets are willing to suspend their disbelief on the back of attractive headlines. In the end, the actual plans disappoint. Not because the politicians aren't good at making plans, but because the original announcements never had a chance of being implement and the suspension of disbelief (or critical thinking) was the market's real mistake.
One month later the purge is over: "Norway’s sovereign wealth fund sold all its Irish and Portuguese government bonds after rejecting the Greek debt swap and warned that Europe faces considerable challenges." Wait, what's that? The Eurozone's political strongarming (think Steve Rattner and GM) was unable to force the world's most powerful sovereign wealth fund into agreeing to what was essentially extortion when bank after bank noted how delighted they are to be bent over and take an 80% writedown on their Greek holdings. Stunning. But at least we now know who will be suing Greece shortly in an attempt to recoup par value of their strong law bonds: grab the popcorn - Norway vs Greece will be quite a spectacle. As for their dump of Irish and Portuguese bonds, no surprise there: fool me once (in perpetuity) shame on me, fool me twice, shame on Dan Loeb... who was buying everything Norway was selling. We wonder who ends up right.
Will Europe's Collapse Recreate The Wealth Boom That Followed The Great Depression? We Say YES & Investigate How!Submitted by Reggie Middleton on 05/04/2012 12:12 -0400
Arguably, more millionaire money was made during the Great Depression than at any time in history. Well, if that's true then it looks as if history may be poised to repeat itself. The question is, who will be ready?
Gold is down 1.6% on the week. The gold market has seen peculiar, lack lustre, low volume trading this week punctuated with sudden, oddly timed, very large sell orders. This leads to quick price falls followed either by slow, gradual recovery or a sharp bounce, prior to next bout of strangely timed sudden large sell orders.
This was clearly seen by the mysterious and massive $1.24 billion ‘Goldfinger’ trade on Monday.
But the system is gummed up.