International Monetary Fund

(The most) bankrupt countries to bail out bankrupt countries. And taxpayers get to foot the bill.

Back in early February, the ECB's Margio Draghi told a naive world when discussing the implication of taking LTRO bailout aid, that “There is no stigma whatsoever on these facilities." We accused him of lying. Additionally, we also suggested to put one's money where Draghi's lies are, and to go long non-LTRO banks, while shorting LTRO recipients. In two short months the spread on that trade has doubled (see below), which intuitively is not surprising: after all, as a former Goldmanite (and according to some - current), Draghi is merely treating Europe's taxpayers like the muppets they are. As such, fading anything he says should come as naturally as Stolpering each and every FX trade. Yet what that little incident shows is that despite all their attempts otherwise, the central planners can not contain every single natural consequences of their artificial and destructive actions. Today, we see learn that the same Stigma we warned about, and that Draghi said does not exist, is starting to spread away from just the bailed out banks (becuase we now know that the LTRO was merely a QE-like bailout of several insolvent Italian and Spanish banks), and to sovereigns. From Bloomberg: "Germany’s Bundesbank is the first of the 17 euro-area central banks to refuse to accept as collateral bank bonds guaranteed by member states receiving aid from the European Union and the International Monetary Fund, Frankfurter Allgemeine Zeitung reported." And where Buba goes, everyone else is soon to follow. And what happens then? Since it is inevitable that Spain and Italy will be next on the bailout wagon, what happens when over $2 trillion in bonds suddenly become ineligible for cash collateral from the only solvent central bank in the world (aside for that modest, little TARGET2 issue of course). Will it force the ECB to be ever more lenient with collateral, and how long until the plebs finally realize that the ECB has been doing nothing but outright printing in the past 5 months? What happens to inflationary expectations then?

All you need to read and more.

All you need to read and more.

All you need to read and some more.

Dallas Fed Confirms that Big, Insolvent Banks Are Killing Our Economy ... and Democracy

The global economy remains on shaky ground.  China’s manufacturing activity contracted for its 5th straight month, the US recovery is still very early to call, and the euro zone debt crisis may not be finished. Eurozone PMI data is due later today which will show how the economy is doing after Greece averted default earlier this month. Thomson Reuters GFMS have said that gold at $2,000/oz is possible - possibly in late 2012 or early 2013. Thomson Reuters GFMS Global Head of metals analytics, Philip Klapwijk, featured on Insider this morning and advised investors to "buy this gold dip”.  Gold should be bought on this correction especially if we go lower still as we may need a shake-out of "less-committed investors." Klapwijk suggested that a brief dip below $1,600 is on the cards but the global macro environment still favours investment, notably zero-to-negative real interest rates and he would not rule out further easing by either the ECB or the Fed before year end.

All you need to read.

Over the past few month we have made it expressly clear that as part of its bailout of European banks, all Greek "bailout" funding in the form of super senior first lien debt funded by the Troika (since the Greek balance sheet now has 7 distinct debt classes), which counts the IMF among its backers, which in turn means you, US taxpayers, will go to European banks and most importantly, that most undercapitalized hedge fund of all, the ECB, LLC. Said funding has now officially commenced. There are those Greeks who may read the following headline from Reuters with delight "Greece receives first tranche of new bailout aid", at least until they get to the following part: "Greece  has received the first 7.5 billion euros of aid from its new EU/IMF  bailout, with the bulk of the payment going to repay bonds held by the  euro zone's central banks, government officials said on Tuesday." So while the Greek may particularly care that not only will they not see much if any of the actual bailout cash, and in fact will soon have to start using their gold to fill the capital shortfall as reported here, we are curious what the response will be from US taxpayers, who are on the hook for about 17% of IMF funding, as the money starts trickling in, however not for some old-fashioned concepts such as stimulating jobs, but simply to indirectly, with Greece as a conduit, bailout Europe's insolvent central banks.

All you need to read.

The money for Greece has not yet been wired, and already a deeper dive into the previously released Troika report shows  what is glaringly obvious to anyone who follows the actual collapse of the Greek economy: that the country is already on course to miss its budget targets for the immediate future (for insane EU assumptions on what the Greek economy should look like through the lens of a Eurocrat, see our chart of the day). The Telegraph reports: "Athens has probably cut spending enough to bring its primary deficit down to 1.5pc this year as agreed. But "current projections reveal large fiscal gaps in 2013-14" according to a leaked draft report by the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF). In its report, the troika said Athens will have to impose further fiscal cuts of as much as 5.5pc of GDP to meet next year's targets." And while Europe may be terminally fixed, translated this means that the aborigines of the southern colony of Bavaria Sachs will see their wages cut even more, and even more people will be unemployed soon just to appears the first lien debt holders. This in a country of 10.8 million where just 36% of the population works. So Greece, which today received a rare bit of highly irrelevant but good news, when Fitch became the first rating agency to upgrade the country's credit rating from Default to B- (even as its new bonds saw their yield surge to 19% on the second day of trading), will in a few short months be forced to once again deal with even more consequences of being the proud recipient of the inverted European bailout, whereby the country's gold is used to fund Eurobank capital shortfalls.

The last time we plotted European youth unemployment in what was dubbed "Europe's scariest chart" we were surprised to discover that when it comes to "Arab Spring inspiring" youth unemployment, Spain was actually worse off than even (now officially broke) Greece, whose young adult unemployment at the time was only just better compared to that... of the United States. Luckily, following the latest economic (yes, we laughed too) update from Greece, it is safe to say that things are back to normal, as Greek youth unemployment is officially the second one in Europe after Spain to surpass 50%. In other words, Europe's scariest chart just got even scarier.

The irony is not lost on us that Bloomberg is reporting that KA Finanz, an Austrian bad-bank supported by the Austrian government, faces as much as a €1 billion need for funding to cover its exposures to Greek CDS (coughcreditanstaltcough). In a statement this morning, which we noted in a tweet, the bank noted "activation of the CDS with an assumed loss ratio of about 80% would mean an additional provisioning charge of EUR 423.6 million". KA Finanz's total amount of Greek CDS exposure is around EUR1bn. What is shocking and should be of great concern is that we have been led to believe that very little net cash will change hands on the basis of the $3.2bn net aggregate market exposure. This was based on the now false premise that variation margin was maintained and transferred throughout the process (as we note below from recent IMF filings). What appears to have happened is that dealer to dealer variation margin has been, let's say, less rigorous as perhaps all collateral was netted up across all exposures (or simply ignored on the basis of government backstops). The far bigger question then is: are banks simply marking ALL sovereign CDS at par, and not paying off cash to other dealers? Remember it only takes one counterparty in the chain to turn net into gross and quality collateral seems tied up a little right now at the ECB (or with margin calls).

All you need to read.

Following up on Peter's summary of the if-then conditional analyses to be conducted concurrently by various classes of Greek bondholders ahead of Thursday's PSI deadline (even as Bingham is rapidly organizing a Greek ad hoc 'holdout' committee to stop the PSI), here is some news that may obviate pretty much everything, and goes back to our warning from January, namely that despite all the sturm und drang, media fanfare, and threats from former Goldman-cum-JPM bankers, the hedge funds will 'just say no' and courtesy of basis packages (yes, the fact that Greek CDS soared to a record 76 pts upfront on Friday indicates more buyers than sellers) hold out for par recoveries in court: they would be idiots (or have a gun at their head) not to do so. To wit from Bloomberg: "Greece may fail to garner enough investors to participate in a voluntary writedown of its debt, Der Spiegel magazine reported, citing unnamed officials at the European Central Bank. A second Greek bailout is partly tied to investors’ agreeing to the writedown by a March 8 deadline." Remember that Germany has made it very, very, very explicit that if the PSI fails, the bailout is off... just as they have planned from the get go.