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Act II Begins
From Peter Tchir of TF Market Advisors
Act II Begins
The intermission is over and now we get to the heart of the matter.
ECB
We will get some actual information this morning. The ECB will cut rates, 25 bps at a minimum and possibly 50 bps. That isn’t news and is priced in. Any pop on a 25 bp cut is likely to be retraced quickly. A 50 bp cut could have a more lasting impact.
The ECB may or may not announce new lending programs for banks. They probably will, but no one really cares. They are already clearly the lender of only resort for many banks and they aren’t going to cut those guys loose. Does it make a big difference that a bank has to constantly roll short maturity positions with the ECB rather than being able to get a longer loan? Not really since not once has the ECB not rolled or extended or grew a program that was being used. Some may say it is a big deal, but the reality is the short term programs were already going to be constantly rolled so don’t get excited about more ways to let banks fund themselves at the ECB.
SMP. This is where all the focus will be. Will Draghi give the market the QE it is begging for? I would be shocked if we see any strong statement here. The best the market can hope for is indications that the ECB is reviewing its policy and is watching the treaty negotiations closely. If he talks down the possibility of intervention on a grander scale, expect the market to react very poorly. Ultimately, the market has pinned its hopes primarily on ECB throwing in the towel and printing. In the end, I expect his statements to be neutral on this. He won’t rule out the possibility, but will not commit to it at this time.
Treaty
The leaders pretty much have to cobble together some form of agreement. If they don’t reach an “agreement” the market will likely sell off 5% or more pretty quickly. We were at 1150 2 weeks ago when Europe was back to no plan, so that would be a pretty obvious target if they can’t reach an agreement this week. If they reach an agreement, the market is likely to move up a bit (1-2%), the bulls will be dancing in the street shouting out that Europe is fixed and gets it. The bears will point out that the agreement is a long way from being implemented and is unlikely to ever actually be followed. In either case, it doesn’t make a difference.
The moment a treaty agreement is announced (assuming it is) the market will turn its attention to the ECB, IMF, and Fed. The market will be desperately hoping that the ECB immediately follows up the “successful” treaty summit with a new and fresh commitment to become lender of last resort for sovereigns. Expect disappointment. Draghi may be a dove, but he seems focused on banks (which is his primary mandate) and is unlikely to implement a new, and in Europe, revolutionary policy. The markets will test their resolve. Italian and Spanish bonds aren’t trading so well because anything has been fixed or because the market cares about treaties. The bonds rallied hard because the ECB was in the market and no one wanted to take a chance that a treaty agreement would be the excuse the ECB needed to ramp up its purchases. Without aggressive ECB action, Italian and Spanish bonds will decline in price, and renewed fears will hit all risk assets.
The market is looking to the IMF to play a bigger role. The IMF resources are limited. I thought their resources were under €400 billion, but it looks like they may have some provisions they can use to get to €600 billion in theory. Where they will actually get the money is a question. The EU members are really going to contribute money? The US is going to borrow money to make its payments? The IMF will try and borrow from the ECB? Without aggressive ECB action, the IMF will likely have a very limited response. The “save yourself” crowd will be more than justified in their reluctance to bail out a Europe that won’t help itself. China doesn’t want to spend their reserves on loans to Europe – they want companies and hard assets. The US can’t spend money on its own citizens but can borrow to save Europe. The IMF solution is again very likely to disappoint and will raise the question of how the IMF will get the funds. Can the ECB really lend to them without printing? How much money can the ECB come up with and pretend that it isn’t printing money? Will countries not honor their quotas?
The Fed will likely continue to play nice. The reality is that they need the European banks to have access to cheap dollars so that they don’t sell USD denominated assets as part of their ongoing balance sheet restructuring. The Fed is weighing various QE options (from all reports) but I think this is likely to get pushed to next year. If the ECB comes out strong, the Fed may accelerate their efforts to make it appear globally co-ordinated and in the hopes that the ECB and Fed programs would be synergistic and that together the benefits would be even greater than if enacted individually. Expect continued dovish comments from the Fed and some possibility that they surprise the market in a positive way.
EFSF – what happened to the €1 trillion? As far as I can tell it is largely gone. Plans to leverage it up seem to have failed. The EFSF may come alive again, but I’m doubtful that the actual size of the EFSF plus IMF programs will reach €1 trillion.
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Act II scene 389... Rumors
Act II scene 389...with no script....they only have hired the caterers...
No script, just improv at its finest.
Cue Drew Carry and his pack of comedians! We really need the laughs! Where are the weird props?!
funny how the markets react well to being bailed out, interesting how the people act the opposite. there is no phrase I hate more than the market, because it makes it sound qas if it isn't made up of predominaantly wealthy welf interested parties. after all they contol the most nassets. hence when people use the phrase market, it should be substituted for wealthy self interested individuals.
Mario's 100% rate cuting record continues...
good article, we will find out shortly if it is true
do i watch corzine and get drunk or ecb and puke...i'm confused
Ughh. You would think that if they haven't come up with a new solution by now they never will. Whatever comes at this point will be a cobbled together bazooka-ed up mish mash that will ultimately fall apart.
The global economies run to support the banking cartel at the expense of the public. This must end and the people need to wake up to the behavior of Bernanke and his counterparts in Europe. I say, let all the banks fail, nationalize them, take those who misled the country into custody and liquidate their bad debt. That is the only solution to this mess. Band Aids did not work in the US and will not work in Europe.
i love what you wrote but does that make both of us terrorists now?
Keep up the good work Tyler and co, you are writing history!
"Act II Begins"
Did I miss Act I ? ...nothing seemed to happen!
I thought I slept through act I, but kept having these nightmares. Good thing I woke up for act II, or did I?
Oh... Let me fill you in...
Act I was about a man named Henry Paulson telling the US congress that if they do not give money to the bankers, that they wil destroy everything. I am assuming that the plan included sharks with laser beams on their heads, but I am not entirely sure because "destroying everything" never happened (at least not yet).
Act II is about the "market" telling all of the people of the euro that if they do not give up their rights and freedoms, that they will destroy everything. The sharks are being trained on those laser beams as we speak.
..
Not to be a spoiler... But Act V will be about the entire financial oligarch being destroyed with some suffering bodily hard by a few of societies crazies... It also includes notable events such as a man named Warren Buffet having his little house foreclosed on while he blames all of his lifes troubles on a mistress named Becky Quick, as well as a man named Jamie Dimon jumping on a plane to the small island while saying incoherent phrases such as "screw you guys, im the greatest bankster of all times!!.. Peace... Im out of here"...
LOL- can "treaty" all they want, but until someone figures out how to get the Greeks and Italians to pay their taxes- or better yet, to create GDP to PAY taxes- then any treaty is just mental masturbation......
IMF has always deplyed capital after restructuring, deploing pre restructuring of debt is gonna be a suicide. I'm sure donor nations will be thrilled. Excuse for somebody to bomb somebody i'm sure
Governments can make treaties, banks can manipulate lending, and many teeth can be gnashed over this unending soap opera, but here is what really matters, when the people and the companies they work for and run lose faith in the euro then it is all over.
Tesco plans for eurozone break-up Tesco is shifting its currency exposure, holding cash and refusing to sign long-term supply contracts in the face of the eurozone crisis.http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8943029/Tesco-plans-for-eurozone-break-up.html
This is very much like WalMart saying they were positioned for a dollar collapse, when the largest retailer in Britain says they have no faith in the continued viability of the euro then you know end times are closing in for the EMU.
Excellent synopsis and I expect bond prices to rise again next week precipitating the need to announce another summit
A transfer union is DOA with the northern nations public who will reject it. A eurobond that punishes the people of the PIIGS with more austerity will fail with the public in those nations. And the markets are done with both as demonstrated by punishing ever more nations and can be seen in the threat to downgrade all 17 nations and every euro based bank. If the ECB prints Germany or one and maybe more northern nations head for the exits in spite of will of the iron chancellor and her French lap dog, if the USA prints and floods them with bucks via the IMF as a proxy for the ECB it will make no difference economically who prints if in the end there is massive printing.
It is like a hall of mirrors. There is no solution that does not bring disastrous consequences, for both populations and bankers, but so far all actions taken have been the ones hardest on people and least difficult for bankers. Eventually that will change, and I think the people of either Greece or of Ireland will be the ones to get a little vigilante justice even up to the point of withdrawing from the EU. Not just the EMU mind you, if TPTB admit it was a failed experiment and dump the euro in a return to native currencies the EU can be salvaged in it's basic form, but if they keep pushing to keep this dead thing alive on life support they will so damage the people that EU's continued viability is questionable at this point. That really would be a disaster of epic scale.
The deal Merkozy is pushing is a eurobond without printing, one with extreme rigid budgetary rules that will inflict heavy pain upon those who cannot reasonably follow the dictates of Berlin and which benefits only the ten largest banks in Europe. There is no chance any such treaty changes will be approved in those nations needing relief from the single currency one size fits all straight jacket. So Merkozy thinks they can push the treaty changes through without a single vote cast in referenda. Here is what is at stake:
"Germany had wanted the European Court of Justice to have the authority to sanction repeated budget offenders, but France was cool to that idea. So the suggestion is for the court to verify states meet the obligation of introducing a so-called "golden rule" into their legislation, requiring a balanced budget. This way, eurozone debt levels could be brought back within a fixed threshold. Sanctions would be automatic and immediate and Brussels could be given guardianship of countries in dire straits.
Special powers too could be conferred on a European commissioner to step in and intervene directly in national budgets when deemed necessary." http://news.ph.msn.com/business/article.aspx?cp-documented=5635023
I cannot speak for Portugal, Spain, Greece, Italy, or other nations, but as an Irish citizen I promise you that ain't a gonna fly in the old country.
This will fail anyway, here is what the options for this punishing treaty change: The European Commission and Van Rompuy see a quick light option to the fore for the most urgent changes -- a deal during the summit to amend Protocol 12 of the Lisbon Treaty which would speedily reassure the markets. It would need approval by parliaments and would take two to three months in all.
But Germany, which has an almost religious belief in the constitution, is opposed because it would not enable tougher automatic sanctions against debt and deficit offenders.
Carving into stone quasi-automatic sanctions against sinners would require a "limited" treaty amendment of Article 136 that would take up to two years to implement. It would stunt a country's ability to wriggle out of sanctions by changing voting procedures and bolster the Commission's right to meddle in national budget plans.
Q: What does Germany want?
A: Germany is digging in its heels for the second longer option. But if this is rejected by the 27 leaders or gets bogged down in political haggling, then it could be put to the 17 eurozone nations under a simpler intergovernmental procedure likely to lead to a two-speed Europe.
And then there is London, it is not going along with any of this if there are not serious protections for The City of London.
All in all this may seem to some to be the turning point where the EMU gets serious and acts decisively to fix their problems, but the EMU cannot BE fixed because it is fundamentally and fatally flawed from the start. What Berlin really wants no nation will submit to without foreign troops on their soil. What the rest of Europe needs for survival Berlin will never allow. Eventually everyone is going to see this, till then it is Act II, scene 16, take 455.
I thought the plan was that any deal would not be radified by votes... Its an efficientcy thing... I mean look at all the time and money saved by not having to inconvience people and/or politicians to have to think about such things... Nope, just keep that football game on, enjoy your life (or whatever is left of it), and let the banksters do all of that hard work for you.. Dont thank them, and certainly do not thank Goldman. They are simply doing God's work...
The Irish constitution requires a referendum when original terms of a treaty are changed. The Treaty of Lisbon was subject to such and changes to that treaty will be also if they have a significant impact on the Irish state.
"The Government is obliged under the Crotty judgment of the Supreme Court to conduct a referendum on any measure which exceeds the essential scope or objectives of existing treaty provisions."
The Eurocrats say they are not changing Article 126 only the way it is implemented, but it is not the wording that the Irish supreme court will worry about but the implications. At the very least a constitutional challenge to the treaty would take a long time to wade through and the entire matter of changes are that there is a banking emergency which is above all time sensitive. Meaning this will be crammed down PIIGS, not just Ireland, throats effective immediately if Merkozy gets away with it. And please do not underestimate the power being usurped here, this is very much the same as the US government stepping in with troops in the deep south to force racial integration, but where the USA had the authority under the constitution as well as the moral authority to do what was right for the people, the EMU has neither, they seek to gut not only the national sovereignty but the EU's own constitutional icons for the benefit of the 1% and their banks.
The Irish had an election this year and punished the party that did this to them by making the state responsible for bankster theft, the oldest and most powerful party in Ireland that has run the country pretty much without pause since the country won independence from Great Britain was all but destroyed, rendered a footnote in Irish history in a single vote. What do you think they will do to Enda Kenny and his party if Merkozy gets away with this? There will be a referendum on this, or there will be a referendum on leaving the EU entirely.
Good comment. But what is your proposal to solve this mess?
I see no other way out of the messes but a return to individual currencies with monetary policy set by each central bank as it used to be, end the EMU, though the time for this is running out and it may already be too late.
And I think I understand why the Financial Axis powers of Merkozy are resisting, ending the euro will perforce end euro denominated debts and that would bring about what Germany fears the most, chaos, nothing valued in euro will mean anything until a new value is established in local, and this will trigger inflation they cannot control. The creditors that have over the years accepted a steeply overvalued euro for goods (China) or oil (everyone that sells oil and gas particularly Russia) are not going to be any too happy to accept local currencies that will without any question be devalued over time. Prices for all imports will reflect a surcharge to help offset losses on prior euro denominated sales and debt. This will have a double impact since higher prices = lower ForEx values, means higher prices = lower sales for major exporters. Germany will experience inflation even as exporters must demand higher prices and lose market share.
But, as bad as that result is there also is no way around it. And German concerns though valid must be seen through the lens of the benefits of monetary union which have suited their mercantilist needs at the expense of the rest of Europe for 12 years now. Wow, seems like a lot longer eh?
The likely solution is that each country return to their own currency with internal devaluation and external promise to repay their fair share of euro debt to suppliers at an exchange rate that is tied to something they both agree upon, like the dollar, but nations like Ireland can and should repudiate all foreign bank debt unrelated to importation of goods. That de facto peg would be temporary. Some nations could still remain voluntarily banded together in a currency peg to the Dmark, but I do not think even that will work long because at root (one major tap root anyway) the problem is overleveraged banks and the northern nations are in just as much trouble as anyone else. That is German banks are as insolvent as any others in the sense that there is no amount of time and growth that can deleverage them.
For those of you that are utterly exasperated by this whole histrionic pseudodrama that never seems to end, just a little more patience please, it will be over by spring. The markets have spoken, any hope of fixing the EMU/euro ended with the "voluntary 50% haircut in Greece." Cute name for a dastardly act, haircut rather than default. My only fear about it all is this, I say with sinking dread, Geithner steps in with a proposal for all G20 nations to impose a new SDR currency on the world as a new reserve that will put banksters in complete control of all economic and tax policy in the advanced nations and thus the planet. I know he is nothing more than the mouthpiece of the banksters, but could they have chosen a more slimy hack to represent themselves? External rescue with guarantees of success all for the low low price of a little sovereignty.
Sanctions would be automatic and immediate and Brussels could be given guardianship of countries in dire straits.
Special powers too could be conferred on a European commissioner to step in and intervene directly in national budgets when deemed necessary."
.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,.,
All I can think when I see those words is SHIT SHIT SHIT SHIT SHIT!
A direct takeover of whole nations by bankster elites who are in a position to sink national budgets with accounting gimmicks and thus automatically take over those nations, including their tax policies, pension schemes, national health budgets, retirement and pension benefits, road repairs, every aspect of life has a monetary cost/value associated with it and now control will be handed over to bankers who will by law be allowed put their own greedy self interests above the citizens of all nations. One success for them will mean it spreads like wildfire through the G20.
Consider, Ireland had NO external debt prior to the asshole Taoiseach caving in to Merkozy demands that he put the Irish taxpayers on the hook for bank debts owed to EU banksters. He did it in spite of knowing the consequences would be his own political suicide and also knew it would probably kill his party which ran Ireland for 60 years. It did too. But, they put a gun to his head and a debt free Ireland was saddled with hundreds of billions. They went from one of the richest nations per capita with the highest growth rate in Europe to one of the poorest with a single signature by their leader.
This is the end game coup by the illuminati banksters and we woke too late. Anyone that thinks this can be changed with revolution and resistance or firepower has not been paying attention. There will be no winning against their collective power now. Free advice, send your kids to college for a degree in Chicago school finance with a major in Keynesian economics, and a minor in Mandarin or Cantonese. Just don't plan to pay cash for that education because only debt in the new Luciferian world will be accepted.
So i, is gold still a good idea to buy?...it's tanking
if it gets in the lower $1,5k range, buy as much of the hard asset as possible - use that as benchmark - and if your/we are really lucky, and it goes lower - buy with all your might
jmo
Bloomberg headline: "ECB May Dig Deeper Into Crisis Toolbox as Leaders Mark ‘Date With Destiny’"
What does digging deeper into the toolbox mean? You can't make this shit up. The Italian anarchist org is on to something.