Italy

More reasons why quality blogs should be staple fodder for those who are serious about real information and analysis. Now reporters, editors, bankers, analysts, managers, politicos & regulators frequent blogs. Do you wonder why?

All your questions about the historic European downgrade should be answered after reading the following FAQ. Or so S&P believes. Ironically, it does an admirable job, because the following presentation successfully manages to negate years of endless lies and propaganda by Europe's incompetent and corrupt klepocrarts, and lays out the true terrifying perspective currently splayed out before the eurozone better than most analyses we have seen to date. Namely that the failed experiment is coming to an end. And since the Eurozone's idiotic foundation was laid out by the same breed of central planning academic wizards who thought that Keynesianism was a great idea (and continue to determine the fate of the world out of their small corner office in the Marriner Eccles building), the imminent downfall of Europe will only precipitate the final unraveling of the shaman "economic" religion that has taken the world to the brink of utter financial collapse and, gradually, world war.

Not sure why they felt the need to wait until 430 since most of it was leaked already. Germany back to stable outlook is good. Austria and France chance EFSF but guess that is what LTRO is for. Italy and Portugal would be in trouble in the real world but so long as ECB views them as money good the countries and banks can keep printing money (sorry use LTRO). Roughly in line with expectations. I think the need to redo the EFSF and ESM concept is an issue that will need to be digested. Is BBB+ for Italy and junk for Portugal enough to cause some collateral provisions to be triggered or force some sellers? I don't think it will in any meaningful way but needs to be watched. I'm surprised Belgium got by but then again it is a rating agency.

It only took a few years, but we can finally move from A to B:

• ITALY CUT TWO LEVELS TO BBB+ BY S&P, EU OFFICIAL SAYS

Somehow ItBBB+ly doesn't quite have the same ring to it... Oh well, it will still work as pristine collateral with the ECB.

If I understand the process in Europe correctly, S&P has to provide 24 hour notice to the countries if they are going to change their ratings.  S&P has Italy as A1 on negative watch.  Moody's is A2 with outlook negative.  So S&P has Italy higher rated, so it would be weird if they didn't downgrade them.  But if they downgrade them, and they notified Italy, did they just sell bonds to the public while hiding material information?

Now that a "few good hedge funds" have finally made CDS a credible instrument all over again but trampling all over ISDA putrid, corrupt and meaningless corpse, here is an update of Eurozone CDS.

For months in a row, the core propaganda meme seeking to drag lambs into the ponzi, has been one of "ignore Europe - it is irrelevant." Naturally this "narrative" was primarily spread by expendable C-grade media elements whose careers will promptly terminate once this latest episode of artificial "decoupling" is over, as we have been warning for months (at a cost to the S&P of over 200 points). And judging by today's US Trade Balance, which came in at a whopping $47.8 billion on expectations of $45 billion, the widest gap since June, which was driven due a plunge in European exports as the European economy is shriveling in the grips of what is about to be a doozy of a recession, it may be time to polish those resumes as the inevitable decoupling approaches with every passing hour. Yet one of the best comments on what Europe really means for the world comes from none other than Bank of America. While we have discussed previously that BAC is doing its best to crush the market and to precipitate QE3, thus like everyone else, always having an agenda in its message, what it is saying is spot on. And it is as follows: "Europe matters, according to the most oft-heard arguments, because of its size and the euro’s reserve currency status. The Euro area’s systemic relevance (both in trade and financial terms) means that its governance crisis is a global menace. This narrative portrays Europe as a self-contained shock emitter, with the rest of the world cast as innocent bystander. Rather, much like the Lehman bust, the current Euro area crisis may be a symptom of faulty globalized finance. Europe is rightly being held to account for fiscal mismanagement, but there may be bigger cracks in the background." Spot on, and it gets even worse, which we urge everyone who still doesn't grasp the linkages between Europe and the US to read on.

European Indices are trading up at the midpoint of the session following strong performance from financials, however, Italian bond auction results dampened this effect after failing to replicate the success of the Spanish bond auction yesterday with relatively lacklustre demand. There has been market talk that this lull in demand for Italian bonds is due to technical error preventing some participants from bidding in the auction, but this still remains unconfirmed. Heading into the North American open, fixed income futures are still trading higher on the day having seen the Bund touch on a fresh session high and with peripheral 10-year government bond yield spreads widening ahead of the treasury pit open. Markets now anticipate the release of US trade balance figures and The University of Michigan confidence report.

Italy has “successful” bond auction and for all intents and purposes, JPM misses earnings. Stocks failed to respond to a “successful” Italian bond auction. The market isn’t giving them much credit for placing bonds that mostly mature in the timeframe covered by LTRO. The auction results are good, but the market is taking a wait and see attitude towards them as everyone is fully aware of how much LTRO money is out there, that Italian banks in particular issued bonds to themselves to get financing and are “indebted” to the government and ECB (in more ways than one).

• China’s Forex Reserves Drop for First Quarter Since 1998 (Bloomberg) - explains the sell off in USTs in the Custody Account
• Greek Euro Exit Weighed By German Lawmakers, Seen as Manageable (Bloomberg)
• Greek bondholders say time running out (FT)
• Housing policy to continue (China Daily)
• Switzerland’s Central Bank Returns to Profit (Reuters)
• US sanctions Chinese oil trader (FT)
• Obama Starts Clock for Congress to Vote on Raising Federal Debt Ceiling (Bloomberg)
• Turkey defiant on Iran sanctions (FT)
• ECB’s Draghi Says Weapons Working in Debt Crisis (Bloomberg)
• Greece to pass law that could force creditors in bond swap (Reuters)

All you need to read.

The EU, in its current form, is most certainly in its final chapter as both the political environment and market conditions have rendered all proposed “solutions” to the crisis moot.

UPDATE: Oil Sub $100.

And so the escalation ends, if only for the time being, as Iran chalks a (Pyrrhic?) victory.

• EU IRAN OIL EMBARGO SAID TO BE LIKELY DELAYED BY SIX MONTHS

Why? Because the world slowly realized that the potential surge in oil prices would tip a world already on the verge of a recession even deeper into economic contraction. Not rocket science, but certainly something the US president apparently has been unable to comprehend, especially if hoping that he would merely transfer exports from Iran to his close ally Saudi Arabia which would cement its European market monopoly even further. Or, perhaps, someone just explained to Obama that Embargo in January + QE3 in March = No Reelection...

In other news, crude is now dumping.

In plain terms, both the IMF and Germany have stated they will help Greece if and only if Greece agrees to various measures… which they KNOW Greece cannot agree to. And so the Greek issue has become a kind of “hot potato” that no one wants to keep holding. Meanwhile, every day that this issues doesn’t get solved, the EU as a whole moves closer to systemic failure.

Imagine pensions not paying retiree funds, insurers not paying claims, and banks collapsing everywhere. Sounds like fun? I will be discussing this live on RT's Capital Account with the lusciously locquacious Lauryn Lyster at 4:30pm.