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European Summary
From Peter Tchir of TF Market Advisors
European Summary
Greece
Some new government is in the works. It will say and do whatever it can to get the next tranche of IMF/EU money. Somehow this is being cheered as good news. The reality is far worse. Greek banks issued over €6 billion of government guaranteed debt. Who in their right mind would buy Greek bank debt guaranteed by the Greek government? Well, no one, of course, so they post it at the ECB as collateral! Yes, the Greek banks are able to get money from the ECB by issuing bonds guaranteed by the Greek government. The best part is that the guarantees don’t count in the debt to GDP calculations of Greece. I would say this borders on insanity, but it goes beyond that. I thought the ECB sovereign positions were bad enough, but how much will they lose when Greece defaults?
And Greece will default. The new “unity” government will do and say all the right things for now, but I think we have entered into a new phase where bankruptcy is a real option. The EU, in their infinite wisdom, is actually hastening the process with all their threats. The bulk of the IMF/EU bailout payments is immediately repaid to the banks of the EU, so it is not a huge direct benefit to Greece. Suddenly, people are analyzing what a post default Greece could look like – and it is not apocalyptic. The new Drachma, if they go that route, could be strong, especially if they default and repudiate rather than re-denominate. The talk about creating some Eurozone rules for dealing with sovereign bankruptcy should be enough to make Greeks realize there are currently no rules, and if they just stop paying, nothing much can be done to them.
Greece is just entering a new phase, one where it is finally willing to consider all options, and what is best for Greece.
IIF
Still no actual proposal on what a 50% “haircut” for Greece is. Dallara seems happy to comment – about the “progress” being made, but also on a wide variety of other subjects. Some guy named Tran is being quoted frequently as well recently. Noticeably absent is Mr. Ackerman. Not a single quotation of his that I can find since the deal was announced. Maybe as CEO of DB he feels it would be inappropriate to try and influence the outcome. Maybe as the most respected senior member of the IIF who has a real job, he is trying to distance himself from their games and attempts to capitalize from the situation? Something seems very strange here, though it has been encouraging that some banks are finally taking decent sized write-downs on their Greek exposure.
Belgium and Dexia
For a bank that was “bailed” out, the senior CDS still trades around 600 bps and the sub CDS is still over 30 points up front. Yes, I too forgot to read the documentation of what the bailout actually was or did. It seems the market isn’t that convinced the bailout is for real. Is it possible that the bailout terms are actually pretty weak? The answer is yes, and I’m just annoyed I didn’t spend more time digging for details about what has been done.
Italy
A total mess. 2 year Italian government bonds traded north of 6% yield today. The curve is flattening, and only avoiding aversion, because there is no bid for longer dated paper either. This is bad, and Italy was supposed to be saved by all the schemes and ploys of the EU the past month. The Italian politicians are in denial and anger mode. Soon they will say the right things, but the market will likely shrug that off, since absolutely no willingness or effort to change things has been in evidence.
The Italian banking sector could see another big leg down. Italy, may be too big to fail (possibly too big to save), but at some point, some banks may have to be sacrificed. Doing more work on this, but if the sovereign debt is yielding 6%, how are the banks going to fund themselves? As massive holders of Italian government bonds, how will they sell assets to reduce their funding needs without eating through their capital? It would also be a lot harder for the EU to manipulate the situation to avoid a Credit Event on banks. More coming on this topic, but for now, everything in Italy looks bad, and the deterioration is actually accelerating.
Portugal
The ECB is financing the Portuguese banks to the tune of €45.5 billion Euros. Once again, this is separate from their sovereign debt holdings. Maybe the ECB can get some extra money by allowing reality TV to film its investment process. It could run between Pawn Brokers and hoarders. How much is Germany ultimately going to have to pay for these positions when they go bad, or will all of Europe experience hyperinflation when the ECB prints? Portuguese 2 year bonds are trading at 80% of par to yield 19%. The potential EFSF first loss of 25% may not be enough to encourage investors to buy new Portuguese 2 year paper, let alone 5 year paper, where the existing bonds trade below 65%. You can get 35% first loss coverage by just buying bonds in the open market at 65.
Spain
Banco de Valencia was suspended from trading in Madrid today. It needs about €600 million of capital. The country has its own problems, but the banking system in Spain is feeble and they have still never accepted the losses from the property bust. The banking system is worse relative to the sovereign than in Italy, so expect problems to materialize here first, but it is not a good sign for Italian banks either.
EFSF
I wrote about that this weekend. Nothing new to add since no new facts have been revealed about the bigger plans. A new 10 year deal was priced today, cheap to the old 10 year. It is good that they sucked it up and issued, but it is not coming at a great level, and this is still a nice straightforward note, not the 25% first loss thing they are hoping to use in the future.
Russia
So, the IMF is working to get more money out of Russia. The best part about including Russia is any need to be politically correct, is off the table. The Russians, if nothing else, are direct and hold a grudge. The leaders may say a lot, and may even have a lot of money, but the average Russian is still poor, has horrible work conditions, and remembers that 25 million Soviets were killed in World War II. There was a battle for Stalingrad, but no equivalent battle in France. The most resistance the French put up was “Mon Dieu, no, no, you would like my neighbor’s chateau would make a much better headquarters than mine”. The limited direct resistance is even more interesting when compared to the years of complex planning meant to stop such an invasion (Maginot Line = EFSF?). Not only that, but the last time the French sent a short leader into Russia, it wasn’t a pleasant experience for anyone involved. I think that also started roughly in November. Russia may decide to do more, but I wouldn’t bet too much on that at this stage, though, they are suckers for women in high heels. They have told her they would pledge higher membership quotas. I am not sure if that means more money for the IMF or just Russia will pay a higher percentage of existing commitments? If it is for more money, it will be interesting to see how congress reacts to demands for another tranche of loans/commitments. It will also be interesting to see what the IMF is proposing. Maybe collateral is back on the table? Which the IMF and Russians would like, but not so sure the recipients would want to provide – remember, default isn’t that bad while bondholders have no rights, it becomes a worse option as you give the bondholders some rights.
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In this mad as a hatter world we live in where every morning I turn on CNBC and fall through the looking glass only to find tweedle dee and tweedle dum are setting in place the new plan to save Europe ...
... really? this is the best we can do? ... I guess I just don't do enough drugs ...
'I guess I just don't do enough drugs ...'
Ummm... I'm sorry... I guess?
bdc_63 has been here a week and s/he's not properly self-medicated? yet?
plus, s/he turns on CNBC in the morning!
no wonder his/her comments suck!
how hopeless can a shitheaded moron get?
prob'ly drinks fuking de-caf, too!
grrrraaarhhhhggghhhrrrrhhh, BiCheZ!
Try some Russian Crocodile!!
http://www.youtube.com/watch?v=_Yfd_7jrnMk
http://www.youtube.com/watch?v=cM6v-43-1PU
http://www.youtube.com/watch?v=mxPXxos_BNw
NOW THAT'S SOME SCARY SHIT!!
Ugh! That's seriously GROSS.
Must erase image
Yecch. Where did I put the mental floss ???
Portugal unspoken...telling
Lets pretend you have no position or axe in any market - with the discussion presented above WTF would you even be involved in this world wide shell game? GET THE FUCK OUT would be your only objective conclusion....
I agree ... the only safe place to be in this market is on the sidelines
Either way you dice any of this, Russia comes out on top. Mother Nature seems to smile on her profligate abuser, Mother Russia.
uhm ...what?
too much vodka (and so early in the day)
If you eat some nuts with the vodka, it counts as a breakfast ;)
looks like somebody doesn't like nuts....
Nuts on the nuts. It's dried fishes and pickled hard boiled eggs.
Forgot that allegory only works with grown-ups. Redo: As Europe implodes and tries to take Germany down with it, Russia will sit on the sidelines accumulating gold and redoubling its natural resource extraction infrastructure. They will emerge as the hegemons of Europe from a supply perspective and their only obstacle is their old nemesis, the Bosch. If Southern Europe ends up lashing Germany to the mast, the Russians will have won their multi-century long struggle to make themselves the most revelvant European economic power. Despite their gratutious abuse of their land, the land still yields up the bounty needed to sustain Russia through this century - an ironic situation if I do say so.
I can't seem to get that Steve Winwood song out of my head.
Towns without names all look the same, I hear crying
Paris to Spain, countries in pain
Caught up in flight, feeling the sight, Europe dying
Down on the night train, I feel the starlight steal away
Use up a lifetime looking for the break of day
http://www.youtube.com/watch?v=4e6gH4yUl2k
hey, thxz!
Freewheelin_Franklin + steve winwood = abt as good as it gets!
If they push Italy into IMF/EFSF they will have stepped on a land-mine.
"The curve is flattening, and only avoiding aversion, because there is no bid for longer dated paper either. "
Freudian slip. Inversion I guess, though aversion is waaaaay better.
French bashing seems such an easy thing to do today but remember that France lost 1.6 Million men in action in WW1 or 4.29% of its population. US lost 117k or 0.13% in ww1 and 418k in ww2 or 0.32% of its population. France lost more men in WW2 than the US or 567k for obvious reasons as they lost the battle but not the war - thanks to Britain and the USA for which they are eternally thankful. Trust me, no one in France, with a good memory is thinking about adopting German as the national language. Better look at the real numbers before dishonoring the ones who have fallen for wathever reason during wars.
...and they make lovely wine and cheese, and the language sounds great, and the girls are pretty, and and and .....
SO WHAT! they are in debt up to their lower lips and have not balanced a budget since 1974
Sarkozy's main regret is that the term Napolean Complex already exists....what sort of a character would be considered to have a Sarkozy complex?
Sarkozy complex-- A mixed type of Napolen complex whereby the individual in certain circumstances, when he perceives that circumstances allow him to have an upper hand, assumes the pose of the conqueror. "I am GREAT. Did you see my wife. She's hot, right? So you can ignore the fact that I am a small in mind, sniveling fellow and see how GREAT I am." In other circumstances, however, the individual believes that his only path to power is to flatter and bow to a more powerful interest. Notice how differently Mr. Sarkozy acts with Mr. Obama than he does with the "little" Europeans... I cannot comment on the relationship with Merkel as the thought of the two together turns my stomach. Merkozy. Yuck.
In 89 Gorbatjov visited Paris and London get a loan of 6 billion dollars to save the country from going bust. 6!!!
Our leaders laughed if off and a few months later, the CCCP broke up.
Now I wonder if the Russians are going down memory lane now the Europeans are crawling on their doorstep to save their asses....
This is forgetting the contagion has definately spread to France, Italy is now where Greece was a month or so ago.
The only place this is going is to 'Hell in a hand basket'. Load up PMs asap.
So when exactly does Germany go back to the DM?
Just as soon as they can get their gold back to Berlin. Chavez has chartered all the boats for a while.
The problem with Europe is not the banking, sovereign debt, or the rampant alcholism of it's leaders.
No, wait...those are the problems.
Never mind.
you forgot their sex addictions.
SD - What are you getting us to watch! Shit that is bad news. That first vid I had to turn off.
Man when unreality is worth giving up that much for, your life is screwed. I feel for these people.
I am sure Brussels cannot wait to get "their" man into power in Italy (whoever that may be). The Greeks seem to be getting an ex employee of the Boston Federal Reserve and ex ECB deputy as their new PM, Lukas Papademos
Rule by banker is the way forward.
The triumph of global money over democracy?
went out to eat italian last night -
i had lasagna -
my sweetheart had her favorite angel-hair spaghetti meat-sauce bowl -
as we ate, i couldn't help stopping my analytically probing mind about what's happening in the EU with 'silvio`b' -
all i could think of was the unraveling make-up of what this 'starch' flat-layered pasta,... made-up as a collective whole made me crave -- was it more for its creative culinary art form than its simplistic complexity of a myriad of subtle tastes,... and what if anything was the mental variant that me correlate my dining experience with italy's current political/financial dilemma [?] -
as i noticed my sweethearts dish with its strings of fine drawn starch and how they easily wriggled about her dish, it dawned upon me,... this is how the italian's elitist serve up their dual- mandates -- one as a solid -- the other as string of manipulation -- alas, i've figured it out - the whole is finally unraveling, for the plebeian-press has stopped rolling the flat-layered starch paper from covering up an edible proletariat -
bon`appetit
ps. just musing about,... til the next sovereign's rumor floats from europe
L0L!!! does your face look like a glazed donut, this morning?
i'm sure she enjoyed it as much as you, bro!
I agree that it is best for Greece to consider all options. But with this new "prime minister", former VP of the ECB and member of the trilateral commission (don't know much about that, except I doubt it is interested in the 99%), how do the people stand a chance? The next elections were being tentatively scheduled for February, when G-Pap got a phone call from Merkel demanding, er, I mean requesting, that they be held at the earliest in the fall of 2012. The people have so many powerful interests against them that I believe they do not have a chance.
I hate to be a pessimist, but it is going from bad to worse, with any semblance of democracy being stripped away by the new "government of national salvation", whose purpose is to hand over national sovereignty, or as it is also known, the "unity government" tasked with the very important purpose of coming to a predetermined conclusion (passing measures already set by the EU masters). Someone's using 1984 as a playbook.
A little pontificating here
its a simple thing --big socialism against big fascism-- the world has been monitized. Life is cheap. Atomic war is close around the corner IMHO --socialist militarism against corporate militarism-- this will not end well-- Preemtive strikes are the new norm with world populations poo pooing the atomic pollution of nuclear war. Having been numbed into stupidity with the "its nothing to worry about" MSM campaign to negate the nuclear power industries Tepco disaster people will turn the other way. Fundamental militarism will provide the spark to the powder keg.
We forget that all these "leaders" think they are gods-- believing in their omnipotense and imortality. Wait till they meet the Devil--lol
ok- back to reality