Even as we are drowned by yet another avalanche of lies and cow feces that the Greek private sector bailout negotiation is going well, despite everyone knowing very well by now that various hedge funds like Saba, York and CapeView are holding the entire process hostage and the culmination will be a CDS trigger, the underlying dynamics of the Greek "bailout" once again resurface, which are and always have been all about Germany and the tensions within its various political parties. And unfortunately at this point things are looking quite bad for Greece. As Bloomberg reports, "Greece will have to exit the euro area as it struggles under a mountain of debt, unable to regain its competitiveness without having its own currency to devalue, a senior lawmaker in Chancellor Angela Merkel’s party said. The comments by Michael Fuchs, the deputy floor leader for Merkel’s Christian Democratic Union, contradict the chancellor’s stance in a sign of the domestic headwinds she faces in leading Europe’s efforts to keep the 17-member euro area intact. With the debt crisis into its third year, Merkel is due to join CDU lawmakers at a two-day policy meeting beginning tomorrow in the northern German city of Kiel." The truth hurts: "For Greece, “the problem is not whether they are capable of paying their loans -- they will not, not at all, never." So, why are we optimistic on Europe again? Oh yes, because European banks issued tons of equity and now have a capital buffer to the imminent hurricane that will be unleashed once the Greek restructuring finally enters freefall mode and the country leaves the Eurozone. No wait, that's not right: only UniCredit tried that and its stock collapsed by 50%. Must be something else then - oh yes, Italy successfully sold debt maturing in one year!
The run into Chinese Lunar New Year has again seen higher than expected Chinese demand for gold and China's voracious appetite for gold is surprising even analysts who are positive about gold. As Chinese people's disposable incomes gain and concerns grow over inflation and equity and property markets, Chinese consumers and investors are turning to gold as a long term investment hedge. There is informed speculation that commercial Chinese banks may have taken advantage of the recent price dip to build stocks of coins and bars and accumulate bullion. China's demand for physical gold bullion has rocketed past India with the country now overtaking India in the third quarter as the largest gold jewellery market according to the World Gold Council. There is also informed speculation that some of the buying was from the People's Bank of China with one analyst telling Bloomberg that “there is always the possibility that some purchases were made by the central bank.”
Payback sure is a bitch. After being demonized for everything from the tiniest tick down in the EURUSD, to blowing out spreads in CDS, to plunging stocks across the insolvent continent, hedge funds, long falsely prosecuted for everything, even stuff they patently did not do, are about to have their day in the sun, precisely in the manner we predicted back in June of last year when we posted: "Greek Bailout #2 Is Dead On Arrival: A Few Good Hedge Funds May Have Called The ECB's Bluff, And Hold The Future Of The EUR Hostage." Back then we wrote: "we may suddenly find ourselves in the biggest "activist" investor drama, in which voluntary restructuring "hold out" hedge funds will settle for Cheapest to Delivery or else demand a trillion pounds of flesh from the ECB in order to keep the eurozone afloat. In other words, the drama is about to get very, very real. And, most ironically, a tiny David is about to flip the scales on the mammoth Goliath of the ECB and hold the entire European experiment hostage..." Sure enough, we were right yet again. Ekathimerini writes: "Hedge funds are taking on the powerful International Monetary Fund over its plan to slash Greece's towering debt burden as time runs out on the talks that could sway the future of Europe's single currency. The funds have built up such a powerful positions in Greek bonds that they could derail Europe's tactic of getting banks and other bondholders to share the burden of reducing the country's debt on a voluntary basis." Oh no, they will let it happen, but first Europe will pay, with real interest, for every single incident of hedge fund bashing and abuse over the past 2 years. We estimate the final tally, to US taxpayer mind you, will be about $20 billion, to remove the "nuisance factor" of hold out hedge funds. Congratulations Europe - you have proven to be a continent full of idiot "leaders" once again.
- Italy Is Biggest Risk to Euro, Says Fitch (WSJ)
- Greek Bailout in Peril (WSJ)
- Swiss Currency Test Looms for SNB’s Jordan in Race to Replace Hildebrand (Bloomberg)
- Daley to Depart as Obama Shifts Strategy From Compromise to Confrontation (Bloomberg)
- BOE Stimulus Expansion May Not Be Enough to Revive U.K. Recovery, BCC Says (Bloomberg)
- Geithner in China to Discuss Yuan, Iran (Bloomberg)
- China Won’t See Hard Landing in 2012, Former PBOC Adviser Yu Yongding Says (Bloomberg)
- Measures to boost China financial markets (China Daily)
- Obama Panel to Watch Beijing (WSJ)
As Greek standards of living nose-dive, loans to households and businesses shrink still further, and Troika-imposed PSI discussions continue, there is one segment of the country's infrastructure that is holding up well. In a story on Zeit Online, the details of the multi-billion Euro new arms contracts are exposed as the European reach-around would be complete with IMF (US) and Europe-provided Greek bailout cash doing a full-circle into American Apache helicopters, French frigates, and German U-Boats. As the unnamed source in the article notes: "If Greece gets paid in March the next tranche of funding (€ 80 billion is expected), there is a real opportunity to conclude new arms contracts." With the country's doctors only treating emergencies, bus drivers on strike, and a dire lack of school textbooks and the country teetering on the brink of Drachmatization, perhaps our previous concerns over military coups was not so far-fetched as after the Portuguese (another obviously stressed nation), the Greeks are the largest buyers of German war weapons. It seems debt crisis talks perhaps had more quid pro quo than many expected as Euro Fighter commitments were also discussed and Greek foreign minister Droutsas points out:"Whether we like it or not, Greece is obliged to have a strong military".
According to the BBC, the issue of the Tobin Tax, which as we reported previously, had garnered some vocal proponents recently, but was never expected to be anything than mere discussion points, has gotten a firm G-20 supporter in the face of French president Nicolas Sasrkozy. And while the opposition of the US is a certainty, the recent overtures by FSA Chairman Adair Turner in which he announced he would consider a Tobin tax implementation, means the US could be all alone in its disapproval of this form of taxation.