Netherlands

The politics of the EU summit appear quite tense, and as JPMorgan's CIO Michael Cembalest notes, you have to wonder if this is how monetary unions are made or broken: by strong-arming the Chancellor of the country primarily expected to fund the Euro’s survival. In order to better comprehend the shenanigans, Michael provides an aerial view of the summit and how these maneuvers played out. The next move is Germany’s.

All of the time wasted on firewalls and great deceptions worked in the short term but the height of a fence does nothing to help a horse or a nation which is sick inside them. Europe has vastly overspent and tried their best to whitewash the financials of the countries and the European banks and now, and each quarter out for some time; we are going to see a worsening financial landscape for the European nations and their banks. This will not be Armageddon or the end of the world but it is going to be quite painful and have a decided impact on the United States and perhaps the scaring may be deep. In Europe that have mouthed so much nonsense for such a long period of time that they have come to believe in what they have manufactured. This is not uncommon historically but the depth and breadth of it is without comparison. Germany says one thing to placate France and Italy believes the drivel that is touted by the Netherlands and now Greece wants the ECB to forgive their $238 billion in Greek debts on the basis of a united Europe, which would bankrupt the ECB, and then it becomes clear that someone has to pay for all of this and countries start banging on the doors of the asylum to get out. Listen carefully; the banging has begun and will grow loader and more raucous during the balance of the year.

In an extended interview with Bloomberg TV, Nouriel Roubini lives up to his doom-saying reputation and goes where few have as he opines on Lieborgate that: "bankers are greedy and have been for 1000 years" and "nothing is going to change" unless there are criminal sanctions; to which he follows up - briefly silencing the interviewer, "If some people end up in jail, maybe that will teach a lesson to somebody - or somebody will hang in the streets". The professor goes on to note that the EU "summit was a failure" since markets were expecting much more and warns that without full debt mutualization, debt monetization by the ECB, or a quadrupling of the EFSF/ESM 'bazooka'; Italian and Spanish spreads will continue to blow out day after day - leading to a crisis "not in six months but in two weeks". The only entity capable of stopping this is the ECB which needs to do outright unsterilized monetization in unlimited amounts which is 'politically incorrect' to talk about and claimed to be constitutionally illegal. 2013 will be a very difficult year to find shelter as policy-makers ability to kick-the-can runs out of steam as he sees the possibility of a 'Global Perfect Storm' of a euro-zone collapse, a US double-dip, a China & EM hard-landing, and a war in the Middle East. Dr. Doom is back.

You can already see the collateral damage stemming from anemia in LIeBORgate banks... Capital Account's Lauren Lyster stimulates the conversation.

So where does this leave us, knowing that despite all the exuberant highs and depressed lows, we had ended the previous week pretty much in unchanged matter?

Well, after a 10-day period that had not one but 2 bail-outs announced, a EU summit that initially seemed to good to be true, results-wise, and then ended up just being that, and a triplet of Central Bank cuts cum QE supportive measures, things don’t look much better…

Seven out of the seventeen economies that belong to the European Union that need to be bailed out. This is 41% of the Euro-17 that is in trouble. The second indication of decline is the recessions in Europe. In fact virtually all of Europe is in a recession and while Germany has held its head above the water I think by the third or fourth quarter that she is also mired in an economic decline. Europe is 25% of the global economy and this is beginning to affect the United States as exemplified by the declining revenues and profits of many American corporations that have so far reported out this quarter. The axes of the financial markets are America, Europe and China and with Europe in serious decline and China also contracting the strings are vibrating so that all of the markets are likely to go down. Even without some cataclysmic shock, realization is coming. The debts of Europe are being paid off with ever more debt and the can kicking will find its walls and as the European recession deepens it will be felt in America and then adjustments will have to be made - as fact overbears fantasy.

Central Banks came, stood and delivered… just not much more, although the (nightly) POBC cut (1 YRS by 31 to 6% and deposits by 25bp to 3%) had not really been foreseen. Second Chinese cut in as many month, the last one having been on 07 Jun (as well just ahead of the ECB meeting, then by 25 basis points to 3.25% and 6.31%). The Chinese move was good for a small uptick, rapidly squashed by the European serving.

ECB quarter cut and BoE GBP 50bn additional QE to GBP 375bn both already in the valuation ramp-out of late.

Hmmm… Non-event.

Then came the ECB press conference…

Print, print, print as they may, central bankers will make no leeway until the true problem falls sway... ©2009-2012 the Lyrical Reggie Reg...

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“History does not repeat itself but it does rhyme.”
-Mark Twain

With the US closed, the afternoon simply dragged on with a light ROff feeling as the Periphery drifted slowly wider, France on stand-still and the Core squeezed tighter. Credit weaker with Financials giving back yesterday’s gains and more. Sudden change of mind in equities, paring morning losses loss ahead of tomorrow in very low volume.

Nothing strong, nor concrete, nor very firm, but Core EZ unease with the ESM discussions of last week, as seen by the South, is just seeping through. Opposition parties, Central Bankers, junior government partners, constitutional issues in the Northern part all seem via titbits and comments ready to sand in some of the discussions or to delay the processes. Give it another 2 weeks and everyone will have gone on holiday (despite the ECOFIN claiming to remain on stand-by).

Closing in unconvinced ROff mode and treading water ahead of tomorrow’s Spanish auction, ECB / BOE meetings and US claims numbers. EUR ticking down to low 25s Yet another not especially inspirational day to write about. Libor-gate turning into mudslinging contest, with possible further fall-outs on the industry.

“The patience of the public has been exhausted”

Despite economic miss after miss, the momentum players in the market continue unfazed, dodectupling down on Bernanke Put Double Zero, pushing stocks to new highs simply on continued hopes that something in Europe may have changed with Merkel's so-called defeat last week, even as Merkel's key CSU coalition partners voiced an open threat earlier today to no longer support Eurozone aid if there is no conditionality - supposedly Mario Monti's biggest victory (ignoring that the German constitutional court is also faced with a barrage of demands to undo the ESM), and on hopes that tomorrow the ECB will announce something more drastic than the now widely expected 25 basis point cut. In other words a hope rally, even as bonds, and FX have now diverged dramatically with the hope gripping the global stock market. And hope is good, however if it becomes an investing "strategy" total loss is virtually guaranteed. That said, perhaps for the first time ever, bonds are wrong, and stocks are right, and all the bad news has been priced in (unlike all those other times when everyone said the same, and when everyone was certain they would sell first ahead of the herd). Which brings us to the question that Citi's Steven Englander has just asked himself: "So what can go wrong?" Here is his answer (in five parts).

The Fed, by buying Treasuries is making insolvent banks even more insolvent. It is a short-term gain (liquidity) for a long-term disaster: banks need as much collateral as they can get their hands on right now. And with Treasuries rallying (raising the value of the banks' assets) any aggressive Fed program to take Treasuries out of the system would be a MAJOR step towards another solvency Crisis a la 2008.

Closing in unconvinced ROn mode. European equities taking their final lead from US peers. Peripherals pushing just the last basis points tighter. Note that these curves are finally steepening through renewed short end strength with both 2-3 YRS area down 20bp on the day. On the other hand, Core EGBs have not been driven into the wall, as one could have expected in full ROn modus. German 2 / 5 / 10s about unchanged from Friday.

Tug of war between wary optimists and tired pessimists? Glass half full or empty? Dusty diamonds, anyone?

Not a highly inspirational day to write about. Reduced volatility and very range-bound. Lack of real news flow. Action more in the financial people press, as it stands. And in EUR New Issues, as borrowers have come to learn that windows of opportunity, when seeing one, should be used. Knowing, too, that new issues will grind to an end probably as of the end of next week. Hence, EUR 7.5bn senior bank debt served in 2 days. Ce qui est pris n’est plus à prendre…

In the first of its kind action, Twitter has unveiled its first Twitter Transparency Report, in which it says that as "inspired by the great work done by our peers @Google, the primary goal of this report is to shed more light on: government requests received for user information, government requests received to withhold content, and DMCA takedown notices received from copyright holders." Is it something Americans should be concerned about? Well, with 679 out of a total of 849 user information requests by various governments, or the most by a margin of nearly 700% belonging to the US, we would say so. This also translates into 948 of all users/accounts specified. But most troubling is that Twitter has folded on a 75% of all such demands when it comes to the US government demanding information. It has provided information to only 6 other governments: Australia, Canada, Greece, Japan, Netherlands and the UK, but at a far lower "hit rate." You gotta give it to Uncle Sam: he sure can be persuasive.