• Tim Knight from...
    09/19/2014 - 20:15
    I was originally going to title this post "Jackie DeAngelis Must Die", but I thought she might take it the wrong way.

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ECB's Weidmann Spoils The Party: Says Leveraging EFSF Violation Of EU Treaty, Warns Of Hyperinflation

Trust the Germans in the ECB (those who have not yet resigned that is) in this case Jesn Weidmann, to come in and spoil the party:

  • Weidmann, speaking in Berlin, says hyperinflation shows why monetizing debt wrong
  • Prohibition on monetary financing an important achievement.
  • Euro treaty rightly forbids monetary financing
  • Stable prices should be key goal of ECB
  • Leveraging EFSF with currency reserves prohibited
  • Says monetary analysis may gain importance at ECB

And for all our MMT friends:

  • "One of the severest forms of monetary policy being roped in for fiscal purposes is monetary financing, in colloquial terms also known as the financing of public debt via the money printing press:” Weidmann
  • Pohibition of monetary financing in the euro area “is one of the most important achievements in central banking” and "specifically for Germany, it is also a key lesson from the experience of hyperinflation after World War I"

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Berlusconi Wins Budget Vote As Opposition Abstains

Meet the new boss: same as the old boss:


What is notable is that Berlusconi has now lost his majority. Sure enough:


What this means is not quite clear but the EURUSD is not too happy for now.

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Watch The Italian Parliament 2010 Budget Vote Live

As was noted previously (here and here), today's Italian parliament vote on the 2010 Italian budget (yes, like the US they are almost up to date with real time running budgets) will be of notable significance for Berlusconi, Italy, its sovereign bonds and Europe. And the vote has just been open by the Assemblea speaker.. Also attached is the roll call of the key players and potential Berlusconi successors should the billionaire PM step down.

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Half-Life Of Latest BOJ Intervention - One Week

What does over $200 billion in intervention money get you these days? Not much: a half-life of 7 days as it turns out. Following a series of disastrous interventions by the Japanese Central Bank in the past two years, the latest and greatest, aka the Halloween shorts massacre, has now retraced 50% of the move to the USDJPY highs, which appears to be a notable stop loss barrier, and which the Japanese FinMin and central bank will defend at all costs. It would not surprise us if the BOJ were forced to throw far more good money after bad to pretend it has things under control, if the 77.60 barrier is taken out. And after all, all those USD and EUR purchased with the intervention proceeds were a boon to Europe: after all Japan (in the complete absence of China) bought a whopping... €300 million of the latest €3 billion EFSF issue. We expect to see market conventional wisdom to switch from China to Japan as being Europe's secret bailout Santa in a few short minutes.

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Egan Jones On Europe's EUR2.5 Trillion Hole

Sean Egan, of Egan Jones, appeared on CNBC's Squawk Box this morning to pay penance for his truthiness and daring to open investor's eyes to the reality we are facing. The two main topics of discussion were the European crisis and, of course, Jefferies. Egan hushes the CNBCers when he describes the three solutions for Europe's problems - which really boils down to one of restructuring and/or printing when faced with reality - and points to a EUR2.5tn hole that needs to be filled at least. Of course, the discussion of Europe's sovereign shackles led to demands from the Kernan, Sorkin, and MCC for their pound of flesh over Egan's call on JEF but the rater defended his call with simple logic as another guest host questioned how Egan expects JEF's business model to be viable at lower than 13x leverage - great question.

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Art Cashin Exposes The Fracture Within The #OWS Movement

One can always rely on Art Cashin and the Friends Of The Fermentation (FoF) to provide a novel perspective on pretty much everything.

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The Federal Reserve's Protectorate Expands By One: L-Pap Is Officially In Charge

This is not news, and was already broken over the weekend, but at least now it is official.


That said, while the EURUSD is obviously delighted that the ECB has just placed its first proxy to head a sovereign nation, perhaps PM is not quite the right title: how about Federal Reserve Viceroy for the Aegeo-Turkish region; or Annexation Tzar for the ECB. As a reminder, L-Pap's profile can be found here.

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Berlusconi's Last Stand

Open Europe has today published a note on the dramatically evolving situation in Italy, with new estimates on how much the rising bond yields could cost the Italian government and an assessment of the current political situation.

Key points:

  • Berlusconi’s majority in the lower house of the Italian parliament remains uncertain;
  • If Berlusconi falls, the best option for Italy and the eurozone would be a national unity government with a strong backing in Italian parliament;
  • Italy could face an extra €28bn in interest payments over the next three years, potentially wiping out almost half of the projected €60bn budget savings by 2014;
  • Italy needs widespread institutional as well as economic reforms if it is to return to economic growth.

This morning, Italian 10 year borrowing costs reached a record 6.74%, very close to the 7% threshold which financial markets see as broadly unsustainable (and which therefore often results in a self-fulfilling solvency crisis and possibly a bailout). Similar increases have been seen across the board for Italian debt of all maturities. Worryingly, short-term debt is becoming increasingly expensive (the yield curve is flattening) a sign that investors see increased risk in short-term lending (something seen in the other countries which accepted bailouts).

However, rumours of Berlusconi’s resignation triggered a rebound-effect on the stock markets yesterday. There should be no doubt that although Italy’s difficulties will not be resolved if Berlusconi goes, he is definitely a big part of the problem. So will Berlusconi resign, and what will it mean for Italy and the eurozone?

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Tranched EFSF - Or TARP Lite

The EU is getting closer to having two actual alternatives for EFSF on the table. Partial Protection Certificate (PPC) - the goal of which is to reduce coupons on bond issues - and Co-Investment Funds (CIF) which create a levered vehicle for purchasing/supporting secondary bonds. CIF’s seem to have a better chance of working, though they will require not only cheap EFSF money at the first loss part of the capital structure, but also some “dumb” money at the senior part of the capital structure.  If they get enough of that, they can create some compelling value for “mezz” investors. This is not TALF.  TALF was a much better deal for outside investors.  The range of assets the investor could choose from was broad.  Most fund managers believed they were “cheap” but couldn’t come up with the capital to invest, or handle the downside. TALF was a great opportunity.  CIF’s may create some interesting opportunities, and are at the very least flexible enough, that investors could have a discussion, but they are nowhere near as appealing as TALF was.

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Guest Post: The True Intrinsic Value of Euro 'Money'

Ever wondered about the true intrinsic value of Euro banknotes? Prudent Investor blog reader Kurt Lindlgruber from Austria sent me this pragmatic approach, pulling up the calorific value of such notes once they have lost their purchasing power as did all fiat currencies in history. Lindlgruber's calculations contradict French philosopher Voltaire's famous quote that 'Paper money will always return to its intrinsic value. Nothing.' It is not all that bad. Your soon-to-be worthless Euros will at least keep you warm for a few minutes.

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Ryanair Offers Berlusconi A Chance To "Escape" From It All

Ryanair has demonstrated masterfully how one can take an abysmal situation (the Italian head's upcoming urgent planning for one-way departure options from Italy, following the inevitable collapse of the Italian bond market) and spin it to one's promotional advantage. Today, the Italian website of Ryanair carries those two things nearest and dearest to Silvio's heart: "escape" opportunities and "charity" catalogues.

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Daily US Opening News And Market Re-Cap: November 8

  • Financials received a boost after Societe Generale reported a decline in their exposure to PIIGS nations, together with positive corporate earnings from Lloyds Banking Group
  • According to a government source, Greece’s two major parties have not reached a deal yet on coalition government. However, according to a minister, the Greek PM has said farewell at the cabinet meeting, and has told the cabinet that by tonight he will probably have settled the name of the new PM
  • According to reports, Italy’s main opposition parties will abstain in today’s vote. Also, Italy's Northern League leader Bossi asked Berlusconi to resign
  • Bank of Canada governor Carney said the BoC stands ready to reactivate its extraordinary liquidity facilities if needed, adding that European bank deleveraging could trigger sharp swings in global liquidity
  • SNB’s Jordan said that CHF is overvalued, however he also commented that it would be wrong to engage in a competitive devaluation of the currency

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US Mint Gold Coin Data And Research Casts Doubt On ‘Gold Bubble’

US Mint gold coin sales fell in October leading to further speculation that this was another sign that the gold bull market was over. Rather than idle speculation it is important to look at the facts and analyse them. Dr Constantin Gurdgiev, a non Executive member of the GoldCore Investment Committee, has analysed the data re US Mint coin sales in October and has looked at them in their important historical context going back to 1987. The data since 1987 until today and the evidence from the US Mint regarding the behaviourally anchored, long term demand for gold coins as wealth preservation tool for retail investors does not support the view of dramatic over buying of gold or piling into gold by ‘Joe Public’, the shoeshine boys or the fabled speculatively crazed retail investor that some commentators suggest is happening today. The man and woman in the street in the western world continues to be a bigger seller of gold (jewellery into scrap) than buyer as seen in the western world phenomenon that is ‘cash for gold’.

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Frontrunning: November 8

  • Japan Bought 300 Million Euro Worth of EFSF Bonds, Official Says (Bloomberg) - don't spend it all at once boys
  • Italian Vote Will Test Berlusconi’s Majority (Bloomberg)
  • BOJ Should Seek 10-Fold Easing, Yen at 100, Ex-Board Member Says (Bloomberg)
  • France unveils five-year €65bn savings plan (FT)
  • China’s exporters see slowing growth (MarketWatch)
  • Financing Markets Tighten Spigots (WSJ)
  • MPs demand ‘radical overhaul’ of BOE (FT)
  • Obama to attend Asian economic summits (WaPo)
  • China wealth fund prepares to restructure (MarketWatch)
  • Schapiro Floats Money-Fund Fix (WSJ)

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Italy: The Final Countdown (With A Credit Suisse Voiceover)

Yesterday, when describing the situation in Europe, Robert Rennie, chief currency strategist in Sydney at Westpac said, "with Italy we’re talking about the third-largest government bond market in the world going into a meltdown situation." That meltdown situation could commence as soon as a few hours from now when the 2010 budget review is voted on. Here is Credit Suisse Giovanni Zanni summarizing the probability outcome matrix for Italy between today's key vote and the November 15 multi-year budget votes, both of which are implicit votes of confidence in Italian PM Silvio Berlusconi, whose position over the past month or so has been controversial, to say the least. In summary the outcome probability is as follows: no elections and new "national unity" government: 30%; no elections and broad center-right coalition government: 30%; early elections: 30%; and Berlusconi stays: 10%.

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