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Thin Ice
I’m not surprised that the halo effect of political changes in Italy and Greece had a very short half-life. Why would it? Nothing has changed.
I’m not surprised that the contagion has worked its way to France. After all, the ECB intervention policy insures that France becomes a target. “If you can't sell Italy, sell France”, is the market’s response.
But I’m absolutely blown out by the pace of things. France’s bonds are being devalued on a daily basis. Italy has been functionally shut out of the new issue market. Market liquidity has dried up. What were once routine transactions are now difficult to price. E100mm bond transactions for France and Italy were normal; today E25mm is a market amount.
What is becoming scarily clear is that there is no more announcements coming that are going to make a difference. All the news is out on expanding the EFSF. The only thing that could reverse this tide is an agreement to “federalize” the debts of Europe. This would leave Germany (massively) on the hook. There is zero chance of this happening.
The central question that the market will ask and answer in the next few weeks is whether France can withstand the onslaught. The ECB will not intervene in the French market. Will debt capital continue to move out of France? Two charts. One says France is probably okay. The other says we are headed for a hard landing.
These numbers (CIA) are a year old but they tell the story. Italy had $2.1T of public sector debt (119% of GDP) while France had only $1.8T of debt (82% of GDP). Looking at this it’s understandable why Italy is in trouble. But it does not explain why France should have a problem. This chart is the reason that there could be an issue:
On this basis France has double the debt of Italy. I call this the Money Center Bank Syndrome. The banks have debt outside their borders (they have assets too). This debt is getting sucked into the French government bond market as world investors trim exposure to the country (“If you can’t reduce exposure to the banks, sell government bonds”).
Italy and France have an average debt maturity of ~7 years. There is a total of $3T. The market value of this stock of debt has fallen by about $200b since October 1st. This is not a loss that will be recorded on anyone’s books (except the likes of MFG) but it does cause a strain on funding as the repo value has fallen.
Remember that all night conference by the EU deciders on October 26th? Central to that meeting was the commitment that the EU banks would undergo a recapitalization of E106b ($150b) by June 30 2012. The EU banks have had their assets impaired by at least that amount in just the past two months.
That all night meeting was just a joke! Anyone who trusts these people are making a mistake.
The Merkozy’s of Europe will be making “calming” statements over the next few days. We are dangerously close to a death spiral, and they know it. But they have nothing on their shelf but words. I don’t think this will prove to be enough.
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maybe I can sell you my book...just guessing. )
http://www.falakpema.com/buythebook.html
Not exactly about finance; but it is historically relevant IMHO.
so this is bullish, right?
what about you?
mustard seeds mustard seeds..bullshit
You forgot "green shoots" and "soft landings", not to mention "the subprime crisis will not spread to the broader economy".
Don't forget "soft patch" and "unexpectedly" which was the most used adjective of the media for 3 years in a row. It was an unepectedly soft ,soft patch, that occured prior to the green shoots recovery which has been unexpectedly slow. So slow, that some have had unexpected difficulty distinguishing the green shoots recovery from an economic depression.
And how could we possibly forget about the "jobless recovery" that we are supposedly currently enjoying, and about which the mainstream (corporate-controlled) media continues to regale us, all evidence to the contrary? (aside from the part about "jobless", anyway).
Curiously ... the European Union has $13.7T in debt from this table and yet each member has debt listed above which totals $25T ... and that's just the few EU members of the 27 available added together.
So ... if the EU has close to $30T in debt and the estimated GDP of the EU is about $14T ... I guess everything will be better once they are leveraged 3:1 and have $45T in debt to $17T GDP?
I LOVE the new & improved math & science of the new world order.
The new math is based on magic and spells and the new science eliminates gravity all together.
Pretty handy stuff they got there ...
I'm guessing French debt held in Germany is external for French debt purposes, but not for EU purposes.
Game On till June. LOL Where the hell do I park my Cash.
Already got PMs and will buy more on Pullback.
But will not buy all PMs.............or should I ? Hmmmmm
fertile land- chemically clean.
Plus seeds, MREs, water source, water filtration, hunting gear, defensive weapons, heating fuel.
And a hot tub. Gotta have a hot tub.
Don't forget booze, lots and lots of booze. Tobacco too. A dairy cow would be handy as well. A few like minded, hardy, and skilled compadres may be essential.
Remember, that booze doesn't go bad, never goes down in price (taxes) and will be good for barter!
Great post - thanks as always Bruce.
Germany recently approved allowing members to exit the Eurozone. What a suprise if they (Germany) were the ones to exit and restore the Deutschmark. The Deutschmark would immediately have strength and represent a flight to quality (like the Swiss Franc). Once detached from the Euro, this would allow the Euro to substantially devalue. Hyperinflation. Ugly yes, but it would be one way to solve the contagious Euro debt, without sticking it to Germany.
Why wouldn't the rest of Europe simply default on bonds owned by Germany? Create the Neo-euro currency and start over.
But that's a severe recession in Germany. It is an export driven economy. A really strong DM would kill their economy and they know it.
I don't see how this ends without Germany printing money (or participating in it if they stay in the Euro).
Germany isn't playing chicken with the EU. They are playing with the IMF.
Funny money banker derivatives. It's all funny money. Get you some brass n' lead, food and water. To try and stave off the hungry rabid Obama voters.
Unprecadented exciting times we live in. Alot of us will die. But you have to go sometime.
Death spiral.
I don't doubt it. But how does a sovereign -- die? What does that look like?
Hyperinflation must be the simple answer. But what does hyperinflation look like?
Wiemar Germany, of course. Which was really bad. But for all that Wiemar Europe sounds perfectly lethal to me.
Their Banksters didn't make out too well!
In order for a sovereign to hyperinflate, it needs its own currency. Next question?
Somalia or Afghanistan might be closer to the reality.
zimbabwe , hungary, has happened several times throughout history. Not pretty, but something has to give eventually
It has happened not just "several" times, but MANY times throughout recent history. In fact, an often-overlooked fact is that over the past century, almost EVERY country in the world (aside from the Anglosphere nations) has experienced hyperinflation or currency collapse at least once, and many of them several times. And said hyperinflations and/or currency collapses need not progress to the ultimate Weimar extreme extent to drastically diminish or effectively destroy the savings (and standards of living) of the citizens involved --- does it REALLY matter that much if a hyperinflation results in a currency "only" depreciating by 90%, vs. 99.99999999%?
It is sounding like Bruce doesn't think the can can be kicked much longer.
Greece is defacto bankrupt. If they do not get their promised dose next month, the country will be paralized as no one sells them fuel on credit except Iran.
Next month, pensions, salaries, contractors etc. will not be paid. The drachma is already printed and ready to roll. The best thing that can happen to Greece is for Italy, Spain or Portugal to default first.
The dominos are ready. the ECB will either print or it will let them go. In the first choice gold to $5k, in the second choice, the banks are doomed. The domed banks will need Bernank to prop them by printing and the end result will also be gold to $10k
I make a calculated bet that it will happen after Christmas new year holidays. The banksters will decsent to st. Barts with their yachts full of PM's, whores and coke and come back and say it was unexpected.
Let's watch...
Surely Sarko can reduce external exposure now that he's conquered Libya and liberated its assets?
what is amusing is to see that USD bonds are not blowing out... what makes the market think USD bonds are worth more than euro bonds? There is no logic or truth in this market.
Easy answer, FP, is that we have GS on our side, and everyone knows they do God's work for him (or her). That's why squids were created...to wrap their protective tentacles around the good old USofA and protect us from harm.
that was the mantra of the romans and their legions...good luck!
After their fall, the Italians never managed to unite, even to this day! WHat a price for having been top dog for 500 years; longer than the US top dog hegemony by the looks of it.
"Roma eterna est", indeed.
It sucks to be a citizen of a failing global hegemon drowning in its own hubris and ignorance. But it is increasingly less difficult to recognize the fact that my own personal interests, and those of almost all of my fellow USAians, are NOT congruent or coincident with those of the criminal, sociopathic, parasitic power elite of this country.
There is logic... or normalcy bias at least.
The USD is where everyone runs to when there is a known, or known unknown, problem. It worked every time in the past and in the near future there's no other option available in quantities to face a crisis scenario.
How has it in fact "worked", when the dollar is CONTINUALLY undergoing depreciation, and faces everything that the euro currently faces, and more? Just who is suffering from center-thinking (your poorly-named "normalcy bias") here?
What you fail to appreciate is that, for most investors and savers, there will be NO option, period, in a crisis scenario. Only those who put their savings into hard assets (gold, silver, platinum, land, basic businesses and industries, etc.), and who take such action early enough in the process, will be buffered from the coming monetary and financial shitstorm.
Don't be such a dick. That "eat gold" troll must have got your panties in a bunch.
Better to be a dick than a pussy --- or an ass.
The people with foresight will declare themselves as the "new one percent".
Two things:
Your comment is just a misunderstanding of what I wrote.
And your original comment was just a parroting of a common mainstream, pro-Establishment financial falsehood. NO fiat currency, even and especially the US dollar, is in the end going to be any sort of "safe haven" from the collapse of the status-quo financial and monetary paradigm, and if you truly believe that it will, then you are utterly clueless.
...just a parroting of a common mainstream, pro-Establishment...
owww, you lost your cardboard tent at Zuccotti, poor baby. LOL
Enjoy the "safe haven" of your pile of green paper as it loses 75-95% of its value over the coming few years.
Its Darwin's Survival of the Fittest.
Predators.
No wonder they shut down #ows. European bonds and sov debt is imploding and once it reaches US shores, it will be epic (and lulzy).
If there is a war it will drag on as long as it takes to create the new world order...just sayin
for the last 95 years everything is going exactly as planned.
this is factually wrong according to official statistics in France. If you count the official government sector debt in their statistics it is lower than Italy, in absolute and % of GDP terms. Just saying...your statistics come from Mars or from Venus?
If this includes private sector debt, it would be interesting to have private/public split. Also the 15 T level of external debt looks small for USA if it includes private sector.
falak,'
Also the 15 T level of external debt looks small for USA if it includes private sector.
Not one dime.