Greece

Frontrunning: August 20

  • Caterpillar warns on global uncertainty (FT)
  • Only 3 years behind the curve as usual: Moody’s warns on California city defaults (FT)
  • Monti Says ‘Tragedy’ If Euro Became a Factor of Disruption (Bloomberg) - the same Monti whose disruptive comments recently enraged Germany?
  • China Home Prices Climb in More Cities Prompting Policy Concerns (Bloomberg)
  • China's Big Four boost new bank loans in Aug first half (Reuters)
  • EU Leaders Plan Shuttle Talks to Bolster Greece (Bloomberg)
  • US rule set to slash cars’ fuel use (FT)
  • Spain Seeks Commitment From Central Bank on Bond Buys (WSJ)... and preferably completely unconditional
  • Finnish Euro Doubts Hide Business Plea to Commit to Currency (Bloomberg)

Analysts Respond To "Unsourced" Reports Of Open-Ended ECB Monetization

For whatever reason, yesterday's unsourced Spiegel report that the ECB is actually contemplating open-ended monetization with arbitrary yield targets on various European nations is the talk of the town, if only for a few more hours until, just like last year, the proposal is summarily dismissed, only to be reincarnated once Spanish yields pass north of 8% again. In the meantime, it has allowed those very well paid sell-side strategists to present their erudite opinions, which naturally do not matter in the grand (and not so grand) scheme of things as long as Germany sticks to the 9-9-9 plan.

In The Aftermath Of The Greek Blue Light Precedent: Belize Demands Half Off On Its Debt... Or Else

"Greece set a precedent for 'Here's what you're going to get, take it or leave it'" is how the WSJ summarizes an analyst's 'shocked' thoughts on the growing game of 'call my bluff' being played among beggars being choosers. Belize is surprise surprise running out of money to pay its debts and is insisting that creditors forgive 45% of what they are owed - OR allow it to delay any debt payments for 15 years (yes, seriously, read that again) - leaving a default on the country's $543.8mm almost inevitable. Three things stand out to us: 1) the nation's government shunned bondholders by simply posting a note on its website that it would be 'skipping a payment' as opposed to telling creditors directly; 2) none other than 'Long GGBs are the slam-dunk trade-of-the-year' Greylock Capital are "mystified" that yet another trade has gone pear-shaped adding that they are "sure every country could benefit from not paying their debt but this isn't the way to do it!"; and 3) this would be one of the worst restructuring terms ever as the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms - especially given that: "Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay,"

54-Year-Old Italian Dies After Self-Immolating In Front Of Parliament

First Tunisia, then Greece, now Italy (the same Italy where the economy is "picking up" where yields are "stable", and where much "progress" is being made). From Reuters: "A 54-year-old man died on Sunday after setting himself on fire outside the Italian parliament last week to highlight his struggle with unemployment, police said. Angelo di Carlo suffered 85 percent burns after the incident in front of the lower house of parliament - the Chamber of Deputies - in central Rome during the early hours of August 11, Italian media reported. Police on duty nearby put out the flames with fire extinguishers and took him to hospital. The widower was facing economic difficulties after losing his job and had struggled for years before that with temporary work contracts that offered little protection or benefits, according to media reports...Di Carlo's death is the latest in a wave of highly publicized suicides linked to financial woes in recent months which have highlighted the human cost of the country's economic crisis."

"The Euro Crisis May Last 20 Years" - The European Headlines Are Back

In Europe, the "no news" vacation for the past month was great news. The news is back... As is Merkel.

  • "The Euro Crisis May Last 20 Years" - Welt
  • German finmin: no new aid programme for Greece - Reuters
  • Westerwelle Opposes Relaxing Greek Aid Terms: Tagesspiegel
  • Euro Countries Plan Strategies to Prevent Break-Up: Sueddeutsche (via Bloomberg)
  • Deutsche Bank Among Four Said to Be in U.S. Laundering Probe - Bloomberg
  • Bundesbank Vice-Head Opposes Schaeuble’s Banking Proposal: WiWo (via Bloomberg)
  • Westerwelle Opposes Relaxing Greek Aid Terms: Tagesspiegel
  • German Industry Group Head says No Place In Greece For Eurozone: WiWo  (via Bloomberg)
  • German Taxpayer Association Head Criticises ESM: Euro am Sonntag (via Bloomberg)
  • Spain says there must be no limit set on ECB bond buying - RTRS
  • France Favors Greece Rescue Package, Opposing Germany: Welt (via Bloomberg)

Guest Post: When the Weakest Critical Part Fails, the Machine Breaks Down

When financialization fails, the consumerist economy dies. This is what is happening in Greece, and is starting to happen in Spain and Italy. The central banks and Central States are attempting resuscitation by issuing credit that is freed from the constraints of collateral. The basic idea here is that if credit based on collateral has failed, then let's replace it with credit backed by phantom assets, i.e. illusory collateral. In essence, the financialization system has shifted to the realm of fantasy, where we (taxpayers, people who took out student loans, homeowners continuing to make payments on underwater mortgages, etc.) are paying very real interest on illusory debt backed by nothing. Once this flimsy con unravels, the credibility of all institutions that participated in the con will be irrevocably destroyed. This includes the European Central Bank (ECB), the Federal Reserve, the E.U., "too big to fail" banks, and so on down the financialization line of dominoes. Once credit ceases to expand, asset bubbles pop and consumerism grinds to a halt

Finns Prepare For Euro's End: "Deeply Suspicious" of EU's 'Gang of Four'

While not advocating the break-up of the Euro-zone, Finland's foreign minister Erkki Tuomioja told the Daily Telegraph this evening that "it is only a matter of time". In a somewhat stunning show of truthiness, perhaps the first cracks in Europe's Nash Equilibrium are starting to show through following Monti's 'threats', Draghi's 'promises', and Merkel's 'well, nothings'. The Finn continues, via Reuters, "Either the south or the north will break away because this currency strait-jacket is causing misery for millions and destroying Europe's future." Finland, which has a veto that could be used to block any new bailout measures, has already stirred the pot unilaterally by demanding collateral from Greece and Spain, is quite clear in its view that Europe "is a total catastrophe" but adds that no-one wants to be first to get out of the Euro and take all the blame. Insisting that the break-up of the Euro does not mean the end of the European Union, Tuomioja believes "it could make the EU function better," but comments that he is deeply suspicious of the 'gang of four' - which includes Draghi - with regard his promises (especially ESM seniority) adding that he "does not trust these people."

Phoenix Capital Research's picture

 

The US is clearly heading into another recession in the context of a larger depression. And it’s doing this while in the worst economic shape in its post-WWII history. We’ve never once entered a recession when the average duration of unemployment is at an all time high, industrial production has failed to break above its previous peak, and food stamp usage is at a record high. We’ve never done this.

Guest Post: What To Do When Every Market Is Manipulated

What do the following have in common? LIBOR, Bernie Madoff, MF Global, Peregrine Financial, zero-percent interest rates, the Social Security and Medicare entitlement funds, many state and municipal pension funds, mark-to-model asset values, quote stuffing and high frequency trading (HFT), and debt-based money? The answer is that every single thing in that list is an example of market rigging, fraud, or both. How are we supposed to make decisions in today’s rigged and often fraudulent market environment? Where should you put your money if you don’t know where the risks lie? How does one control risk when control fraud runs rampant? Unfortunately, there are no perfect answers to these questions. Instead, the task is to recognize what sort of world we happen to live in today and adjust one’s actions to the realities as they happen to be. The purpose of this report is not to stir up resentment or anger -- although those are perfectly valid responses to the abuses we are forced to live with -- but to simply acknowledge the landscape as it is so that we can make informed decisions.

"The Disease Is Incurable"

One of the reasons that Europe is so difficult to assess is the tremendous amount of jargon and hype that comes pouring out from all across the Continent. Each separate nation sends out stuff and then Brussels sends out their fluff and then the ECB makes proclamations and there is no harmonization as each group has its own distinct platform. We are bombarded daily with national interests, Federal interests and finally an ECB that supposedly is beholden to no one but is, in fact, beholden to everyone and especially Germany as the paymaster. Almost every day there is a new bandwagon to jump on and a new disappointment to be found some days later as one plan after another does not come to fruition. So to make sense of it all you have to stop, come to a full halt and give due consideration to the totality of what is happening in Europe.

Frontrunning: August 16

  • JPMorgan provided rescue financing to Knight (WSJ)
  • HSBC hands U.S. more staff names in tax evasion probe (Reuters), HSBC, Credit Suisse Sacrifice Employees to U.S., Lawyers Say (BBG)
  • Hong Kong shares slide to two-week closing low, China weak (Reuters)
  • Israel Would Strike Iran to Gain a Delay, Oren Says (Businessweek)
  • Britain 'threatened to storm Ecuador's London embassy' to arrest Julian Assange (AP)
  • You have now entered the collateral-free zone: Spain Said to Speed EU Bank Bailout on Collateral Limits (BBG)
  • China Can Meet Growth Target on Positive Signs, Wen Says (BBG)
  • Risk Builds as Junk Bonds Boom (NYT)
  • Berlin maintains firm line on Greece (FT)
  • Brazil unveils $66bn stimulus plan (FT)

Overnight Review And A Look At Today's Snoozefest

As Goldman observed last night, the "metaboring" meme continues, as things go from boringer to boringest. Nothing notable has happened overnight. Some things that did happen was news that Spain is about to receive an emergency disbursement from its €100 billion euro bank bailout because of restriction imposed by the ECB on bank borrowings; Italian banks announced plans to dispose of more bad loans to avoid "potentially bigger losses" (to whom? the ECB?), non-voting Fed member Kocherlakota saying that cutting IOER would have a minimal impact (are you paying attention former visiting Fed advisor David "the Fed will bail everyone out always and forever" Zervos), UK retail sales coming in stronger on bigger gas and food purchases (so aside from being ignored for inflation purposes these are useful when extrapolating economic "growth"), July Eurozone inflation coming in just as expected unchanged at 2.4% Y/Y, China FDI collapsing 8.7% as data revealed the longest run of declining inward investment growth in China since the 2008-09 financial crisis sending local markets to 2 week lows as the MOFCOM said the country's 2H export outlook will be even more grim and Premier Wen said easing inflation (not in food) allows for more room to adjust monetary policy, a statement that had zero impact on domestic stocks. As a result we have seen minimal flattening in Spanish and Italian 2s10s, and a continued gradual drift lower in the EURUSD. And this, aside from another week of initial claims that will have the prior week's data revised higher, and a Philly Fed, may be as good as it gets, as volume is set to plumb another multi-year low, and with the 2s10s flattening again, guarantees that bank profits in Q3 will be atrocious, forcing banks to fire even more (or cause various unnamed market makers to accidentally activate 1000x buy algos).

41 Years After The Death Of The Gold Standard, A Look At "How We Ended Up In This Economic Purgatory"

As we await the latest developments out of the Eurozone and Washington, JPMorgan's Kenneth Landon takes a moment to look back on this very important day in history. If you want to understand current events, then you first have to understand history. How did we get here? More specifically for financial markets, how did we end up in this mess -- this economic purgatory? This being August 15, 2012, students of the history of monetary economics no doubt are aware that this is the 41th Anniversary of the breakdown of Bretton Woods. It was on this day 41 years ago that President Nixon defaulted on the promise to exchange gold for paper dollars presented for exchange by foreign central banks. The crisis in confidence that we observe today resulted from cumulative effects of those measures.