One of the recurring themes on Zero Hedge ever since the announcement of the EFSF is that in addition to onboarding contagion fears by transferring financial risk from the PIIGS to itself, Germany's ruling party, and particularly Frau Chancellor Merkel, has been on the receiving end of ever increasing popular anger at putting German wealth at risk in order to rescue lying, thieving countries like Greece and Italy, which have proven beyond a reasonable doubt, they will do none of the fiscal reforms demanded of them, yet promise the world in exchange for yet another bailout tranche, or more ECB-backstopped purchases of their debt (even Sean Corrigan would be proud of that sentence). Sure enough, today we get the latest confirmation that as national elections loom ever closer, as does the specter of a government crisis following the EFSF expansion vote some time in late September (it is fluid), the ruling CDU continues to take on water. Per Reuters: "Chancellor Angela Merkel's centre-right bloc suffered another defeat on Sunday in a regional election in Germany's poorest state, Mecklenburg-Vorpommern, with both her conservatives and their Free Democrat allies losing support. A first projection by the ARD network at 1615 GMT showed Merkel's Christian Democrats (CDU) falling to 24 percent from the 28.8 percent won in the sparsely populated state on the Baltic shore in 2006. It was the CDU's worst result ever there."
While the US was panicking over a double zero jobs report, things in Europe just fell off a cliff. As both the WSJ and Reuters report, it seems that the second Greek bailout, following repeated and consistent disappointments by Greece which has resolutely refused to comply with the terms of its fiscal austerity program, has just collapsed.And with the US closed on Monday: long a counterbalance to European risk pessimism, this week (especially with the news fro the latest FHFA onslaught against global banks) may just be the one that "it" all comes to a head. But back to Europe, and more specifically Greece, which it now appears is doomed. From the WSJ: "I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim." It is not only Greece - Italy also thought it would sneak by with getting quid pro no and continue leeching off of Europe, or specifically Germany, indefinitely, at least until the ECB said that absent Berlusconi taking austerity seriously that implicit ECB support for Italian bonds would be yanked, sending the second most indebted country in the world into a toxic debt tailspin. And so it comes that after 2 years of waffling, Europe finally realizes that the piper always eventually gets paid. Alas, it is now far too late.
Little surprise to the payroll report on Wall Street, which is now united in its call that the only option is for the Fed to do more QEn+1
- White House sharply cuts U.S. growth forecast (Reuters)
- U.S. judge pans rush in BofA $8.5 billion mortgage pact (Reuters)
- Italy cobbles together austerity compromise (FT)
- Fresh Scrutiny of BofA (WSJ)
- Fed asks BofA to list contingency plan: report (Reuters)
- Germany backs calls to widen IMF currency basket (FT)
- U.K. Warns Scotland on Costs of a Split (WSJ)
- U.S. Is Set to Sue a Dozen Big Banks Over Mortgages (NYT)
- US Deficit forecast falls below estimates (FT)
Today, the President of the ECB, Jean- Claude Trichet did not rule out a gold backed euro bond in an interview with ‘Il Sole 24 Ore’ published on the ECB’s website. The comments were a response to former Italian Prime Minister Romano Prodi who proposed - in Italian national daily business newspaper ‘Il Sole 24 Ore’ last week - the creation of a euro bond backed by member states’ gold reserves. Prodi was President of the European Commission from 1999 to 2004. Trichet was asked about “the creation of a fund guaranteed by the gold reserves of countries that would issue bonds to buy back national debt and make new investments.” Trichet did not answer the question directly but said “at this stage, we have the EFSF bonds, which are bonds with a European signature. The main message of the ECB Governing Council to governments is to implement rapidly, fully, comprehensively the decisions taken by the European heads of state and government on 21 July.” Separately the Central Bank of Ireland has said that it will not disclose whether the gold reserves of Ireland (a paltry 6 tonnes) have been swapped or loaned out or had any other receivable status recorded against them (see Commentary below). A senior administrative officer for financial control at the Central Bank of Ireland responded to an inquiry regarding the custody and ownership of Ireland’s gold reserves: “The bank is not, however, in a position to provide further information, nor to outline its investment strategy in relation to the gold holdings.”
The crusade against High Frequency Trading which Zero Hedge started well over two years ago, is now coming to an end. Reuters reports that U.S. securities regulators have "taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes." As everyone knows, the only thing of value within the sub-penny scalping HFT universe are the odd nuances in computer code. Which is why its supreme and undisputed secrecy is sacrosanct. As soon as anyone, especially a regulator, has a whiff of understanding how any given algorithm works, it becomes the equivalent of collapsing the wave function: observing the HFT theft-scalping duality in action eliminates the Schrodinger equation associated with any simplistic algo and collapses its "wave function" to a worthless series of ones and zeros. Said otherwise, this is the end for HFT.
Retaliation: Greek Budget Expert Fired For Opposing Europe, Telling The Truth About Country's InsolvencySubmitted by Tyler Durden on 09/01/2011 18:16 -0500
Yesterday we made an amusing contrast between the lies of European insolvent state annexator general Olli Rehn who said that "Greece’s debt is on a “durable declining path” and new projections will show that the second rescue program reduces net liabilities, European Union Economic and Monetary Commissioner Olli Rehn said" and the truth uttered by Greek budget committee head Stella-Savva Balfousia, who said "Greece's debt has run out of control and government policies are failing to restore finances." Guess which one just got the axe. No this is not a trick question. And if you said prematurely terminated Devan Sherma you get half a point, because as the more observant out there may have noticed, the only benefit for blowing the whistle these days is immediate and irrevocable termination from both one's high profile job, and the status quo.
- Obama to address Congress on September 8 (Reuters)
- China Says Fighting Inflation Is Priority (WSJ)
- Katia a hurricane; another storm likely in Gulf (Reuters)
- IMF and eurozone clash over estimates (FT)
- Japan’s New Leader Oversaw Biggest Intervention Since 2004 (WaPo)
- Asia feels impact of global slowdown (FT)
- Germany's Resiliency Buoys Europe (WSJ)
- EU Reaches Deal to Expand Syria Sanctions (WSJ)
- Goldman Takes Dark View in Private Note (WSJ) or is the European bailout really $1 trillion?
August was a very turbulent month for markets with equities falling sharply and commodities mixed on Eurozone and US sovereign debt concerns and concerns about the health of the US and global economy. For many markets, Augusts’ savage sell-off has been the worst since the October following Lehman Brothers’ implosion and investors diversified into havens such as high credit government bonds and gold. Gold again proved its safe haven status recording strong gains in the face of turbulent markets globally.
Brazil Central Bank Unexpectedly Cuts Its Overnight Rate To 12.0% From 12.5% Following Observations Of "Substantial Economic Deterioration"Submitted by Tyler Durden on 08/31/2011 19:11 -0500
In a shocking move, one which is sure to reverberate around the Developing and certainly Developed World, the Brazilian Central Bank just announced that it was cutting its Selic (overnight lending) rate from 12.5% to 12.0%, citing "substantial economic deterioration" - something that not one of the 62 analysts covering Brazil had anticipated. It seems that following over a year of small arms fire FX intervention sniping, Brazil has finally reevaluated its growth prospects, and instead of dealing with the inflow of capital on a piecemeal basis by buying dollars daily - a move which has not worked at all, has decided to cut off flows at the stem. This is most likely the first of many rate cuts by Brazil which is obviously anticipating a major growth contraction in China, and as a result we expect the the other BRICs will very soon reevaluate their stance vis-a-vis being the remaining target of global capital flows. Ironically, up until now it was mostly the developed (read bankrupt) world that was devaluing its currencies... Well, make way for the new kids on the block because this is about to get interesting.
Every now and then it is easy to forget that the one or two "better than expected" data points blasted by flashing headlines do nothing that merely mask what is an otherwise quite deplorable and deteriorating reality. For the disconnect between America and the rest of the world look no further than this chart showing the dramatic divergence between the DJIA, which has just gone positive for the year, and every other major global stock market. Yet for those who require a narrative to go with their numbers, here is The Economic Collapse with the latest of their traditionally comprehensive bulletins, this time summarizing the "25 signs that the financial world is about to hit the big red panic button."
Well the second Greek bailout lasted all of... 5 weeks. Time for Bailout #3?
- EC PRESIDENT BARROSO SAYS WORKING ON NEW GREEK PROGRAM
- BARROSO SAYS EC REVIEWING WITH ECB AND IMF GREEK FIN. ASSIST
In the meantime, we learn that while two broke Greek banks just merged to create a bigger broke bank, the country's 4th largest bank admitted to resorting to the last ditch liquidity program discussed on Zero Hedge a week ago.