International Monetary Fund
Don't hold your breath on this one.
Still confused about why nobody is calling the EFSF expansion Europe's TARP, aside from the fact that this latest European bailout is exactly Europe's TARP? Need a one page summary tearsheet on the European Council Decision as pertains to Greece now and all the other European countries later? Have no fear, because Goldman's Francesco Garzarelli is here again, explaining all you need to know about the ongoing taxpayer-to-insolvent nation-to-bank capital transfer.
The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDPSubmitted by Tyler Durden on 07/21/2011 18:03 -0500
Wouldn't you be angry if you woke up to realize that Europe's bureaucrats have pledged between a third and a half of your GDP to continue providing lavish socialist entitlement benefits to the citizens of peripheral European countries who have for years lied about their deficit, not paid taxes, and levered themselves into fiscal oblivion?
Proof That Europe Is Primed For A Lehman Brothers-Style Bank Bust, But Likely On A Much Larger Scale!!!Submitted by Reggie Middleton on 07/21/2011 12:24 -0500
Recent history shows us what happens when you borrow short and lend long against assets that have been halved in value, hasn't it? Guess who hasn't been to (very recent) history class...
There is only one section of the proposed European Bailout draft statement that is relevant to traders: Section 7, bullet 3 which says: "To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States." Everything else is noise. Europe just legalized its own Plunge Protection Team and off balance sheet Quantitative Easing program with one signature. Good luck trading in this, or any, market which even the politicians now admit is nothing more than a central banking policy tool.
Strength was observed in European equities, led by financials, in early trade on the back of news that France and Germany had agreed on an accord ahead of the Eurozone leaders' summit on Greece and PSI. However, later in the session it became increasing apparent that EU leaders may opt for a selective default on the Greek debt, which resulted in equities moving back in negative territory, and weighed on the EUR. Weakness in equities supported Bunds and also observed some widening in the Italian/German and Spanish/German 10-year government bond yield spreads, after EU's Juncker said that selective default for Greece is a possibility. Elsewhere, EUR/USD came under further pressure on the back of weaker than expected manufacturing and services PMI figures from core Eurozone countries such as Germany and France, and as the USD-Index gained strength as the session progressed. Also, GBP/USD moved up around 30 pips following higher than expected retail sales data from the UK. Moving forward, markets look ahead to key economic data from the US in the form of jobless claims figures, house price index, leading indicators, and Philadelphia Fed. In fixed income, 2-, 5-, and 7-year Note refunding announcements, together with USD 13bln 10-year TIPS auction are scheduled for later in the session. US corporate earnings from the likes of Microsoft, and AT&T will also be keenly watched, whereas markets will keep a close eye on the outcome of the Eurozone leaders' summit.
For what it's worth, and probably not much, here is Goldman's Francisco Garzarelli on why it is "Decision Time or bust" for Europe. With the just commenced summit, the market has very high expectations of a favorable outcome. Should the proposed resolution end up being disappointing, and it likely will upon a close read between the lines as it can not possibly be anything more than merely another can kicking exercise, look for the EUR to tumble after this final relief rally. From GS: "We said at the start of the week that Euro-zone bond markets would be volatile, caught between attractive valuations and expectations of a deal, and the uncertainties surrounding PSI. On light flows, some of the sell-off has reversed over the past 48 hours. If our baseline case above plays out, we would expect more upside and almost all of the widening in intra-EMU spreads seen since Moody’s downgrade of Portugal could be corrected. We doubt we will see more upside than that, at least for a while. It will take some time for the new policies to be articulated and implemented, and all decisions taken today will need to be put before national Parliaments, probably at the start of September. Moreover, concerns over the pace of global growth remain in the background weighing on weaker borrowers. Last but not least, investors have been heavily affected by recent events and thus may want to reduce risk in a recovering market."
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Remember how ole' Ronnie bankrupted the Evil Empire by forcing them to build ever more and more nukes, leading to the collapse of the communist empire and unleashing a whole lot of upscale Wall Street prostitution rings in the process? Maybe the CIA can do the same back home, because if the Russian "post default" debt/GDP is any indication perhaps it is time Regan's ghost gave the order to bankrupt none other than the "good empire": the good old US of A. Here is Russian debt/GDP, based on CIA historical data and IMF projections. No "Kolhoz of 6" in Moscow any time soon.
Morgan Stanley, traditionally the second most Kool-aidy bank on Wall Street, just after Deutsche Bank (and specifically the Germans' head economist) begins its latest report on the challenges facing the "global central bank" on a rather downbeat note: "Slowing growth is threatening the creditless, jobless recovery in the US and the Fed stands ready to act. The European flu has flared up and the risks to the ECB’s strategy of normalising policy have risen markedly. And emerging market central banks are balancing domestic growth against downside risks to developed market economies as they keep policy from becoming restrictive or even tightening too quickly. The world today appears to be in an eerily similar place to mid-2010." Hmm, where have we heard this 2011=2010 theme before... Anyway, it gets worse: "there are some important differences too. This time, the US and euro area economies are facing downside risks to growth just as normalising monetary policy is slowing EM economies down too. A year ago, EM monetary policy was still stimulative and domestic demand growth was encouraged as output gaps were still negative. The risks to global growth today are thus broader now than they were last year. At the same time, the thresholds for central banks to ease appear to be higher this year too. Rising core inflation in the US, elevated inflation in the euro area and a recent battle with inflation in the EM world all make it difficult for central banks to abruptly reverse the direction of policy. A look at the challenges facing DM and EM central banks has the Fed, the ECB and the RBA facing the biggest downside risks to growth in the DM world while the ECB (again), the BoE and the Riksbank face immediate inflation concerns. In the EM world, central bankers have no time to rest despite a recent victorious battle with that old enemy, inflation. European contagion and weaker global growth should keep policy-makers there on their toes for the next few months." Indeed it should, but with so many central bank actors, each of which experiencing their own set of unique challenges, who can keep track of all the often times opposing responses that the central planners are presented with? Well, courtesy of this handy, dandy tearsheet from MS, now you can too.
Economics Professor: "[We’ll Have] a Never-Ending Depression Unless We Repudiate the Debt, Which Never Should Have Been Extended In The First Place"Submitted by George Washington on 07/20/2011 11:01 -0500
There's regular debt honestly incurred - which people shouldn't be deadbeats on. We should be responsible and repay our debts! Tut then there's "odious" debt ... a different animal altogether
- Proposals Emerge to Curb Greek Debt Load (WSJ)
- IMF Warns Euro-Zone Crisis Risks Global Spillover (WSJ)
- Senators craft potential escape from default (FT)
- In response to Geithner's Op-ed: Little to celebrate on Dodd-Frank’s birthday (FT)
- IEA not decided on second oil release – Tanaka (Reuters)
- Papandreou Sees Make-or-Break Time in Crisis on Eve of Summit (Bloomberg)
- Alan Beattie: Let Europe pay for its policy failures (FT)
- Berlin and Moscow leaders foster trade ties (FT)
- China's moderating growth to aid inflation fight (Reuters)
- Give Greece What It Deserves: Communism (Forbes)
- IMF Signals BOJ Could Buy More Assets as Price Outlooks Diverge (Bloomberg)
- Joke Is on China as U.S.’s AAA Becomes Laughable (Bloomberg)
European equities traded higher during the session, led by financials, as markets look ahead to a key Eurozone leaders' summit tomorrow in anticipation of clarity over the implementation of Greece's second bailout package. Equities received further support following comments from sources that the EU is expected to weigh enabling the EFSF to recapitalise banks, and to buy bonds in secondary market. Strength in equities weighed on Bunds, whereas the Eurozone peripheral 10-year government bond yield spreads narrowed across the board. The USD-Index remained in negative territory, amid risk-appetite, which in turn supported EUR/USD and GBP/USD, whereas the latter received further strength following the release of the BoE's July minutes, which showed that the MPC members didn't change their stance on further monetary easing from last month. Also, strength was observed in the CHF, in early European session, partly on the back of news that China's CNOOC has agreed to buy OPTI Canada for approximately USD 2.1bln. Moving forward, markets look ahead to economic data from the US in the form of existing home sales, and DOE oil inventories figures. Markets will also keep a close eye on quarterly corporate earnings results from the likes of Intel, and Qualcomm among many others.
All Relevant News by www.thetrader.se
First Spain's Castilla La Mancha region was the first to announce it had "discovered" major debt ceiling holes, now it is Portugal's turn. The Telegraph informs that "Portugal's new leader Pedro Passos Coelho has told the nation to brace for further austerity measures after his government discovered a "colossal" €2bn (£1.7bn) hole in the public accounts left by the outgoing Socialists." And while it answers our immediate question "who's next" it certainly does not provide an answer to who's last. Because as more and more governments are changed, more and more such "discoveries" will be announced, but luckily for Europe (and then America), there are far more pressing issues that distract the populace than discoveries than in the past would have led to popular backlash. Concurrently, Portugal joins Greece in indicating that beggars can most certainly be choosers: "Mr Passos Coelho also appeared to caution the European authorities that his government will not tolerate heavy-handed interference in the country. "We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and let Europe govern Portugal," he told a party gathering." And while short-termism reigns across capital markets at least for a few more hours, the reality is that there is simply not enough money out there to plug each and every hole as it is uncovered. But that will take the market a few weeks to months to realize.