On Growing Tensions, Spreading Global Downturn And A Dead-End Greek Resolution

Tyler Durden's picture


Just when one thought it was safe to come out of hiding from under the school desk after the latest nuclear bomb drill (because Europe once again plans on recycling the Euro bond gambit - just like it did in 2011 - so all shall be well), here comes David Rosenberg carrying the launch codes, and setting off the mushroom cloud.

From Gluskin Sheff

Growing Tensions

Anti-austerity demonstrations in Frankurt. Massive emigration out of Spain. Student bombings in Italy. Suicides in Greece, along with a run on the banks. Camp David discord with Germany. Unusual nuclear war talk out of Russia.

The euro area fiscal and banking crisis is taking on a certain destabilizing geopolitical tone. One reason why gold — as a hedge against instability — is starting to stage a comeback. After touching a four-month low last week and moving into official correction mode of a 20% decline from the highs, the yellow metal then went off and enjoyed its best day since January on Thursday and posted a nice follow-through to finish off the week.

Spreading Global Downturn

Italy, Spain, Portugal, Greece, the Netherlands and Brazil are now facing economic contraction (Brazil is the world's seventh largest economy and despite a huge 350 basis point rate cut from the central bank, the country has suffered three straight months of declining economic activity). France is stagnating. China is slowing down rapidly. The only two countries I see that have managed to surprise to the upside are Germany and Japan (the latter just saw the government actually raise its assessment of the economy).

Beyond Greece, two areas of concern are clearly Spain's woefully undercapitalized banking system where bad debt ratios have hit all-time highs (the banks received a Moody's downgrade late last week too), and China's property market which continues to deflate — average prices in 70 major cities fell in April for the second month in a row (-1.2% YoY versus -0.7% in March ... maybe this is one of those events that we're supposed to assume will somehow stay contained). On a MoM sequential basis, prices declined 0.3% and have fallen now for seven consecutive months (Chinese policymakers over the weekend verbally hinted of a coming round of additional monetary stimulus along with a fiscal boost ... and the market bulls desperately needed to hear that).

It's not just the economies, either, but also stock markets. The likes of Greece, Spain, Italy, Russia, Brazil and even Canada have seen corrections of 20% or more from the cycle highs. The U.K. FTSE has corrected more than 10%. As the Financial Times reports, euro area banking stocks are actually lower now than they were at the panic troughs after Lehman collapsed nearly four years ago. The S&P 500 has given up two-thirds of its 2012 gains and is now below its level of a year ago. The VIX index is at a new high for the year and copper touched a four-month low to finish off last week. The FX market is consistent with this downbeat global growth assessment, underscored by the Aussie slipping to its lowest level since November and the NZ kiwi sliding to its lowest level since December. The winners have generally been the more defensive units — like the U.S. dollar, the yen, and sterling as well.

Greece is the Word

Well, look at the bright side. At least we'll know whether Greece decides to stay or go within the next month since the second-round election in June is being widely viewed as a referendum on continued euro area membership. Incredibly, the polls show that 80% of Greek citizens want to stay in. The problem is that they also want more bailout money with fewer stipulations.

What was considered unthinkable just a few months ago is apparently an event that now seems inevitable. The editorial in the current Economist runs with The Greek Run: It is Not a Good Idea for Greece to Leave the Euro, But it is Time to Prepare For its Departure. The weekend WSJ went with this on page All — Europe Weighs Exit Scenario. There's even a new name being bandied about over this departure prospect — a "Grexit". Surreal. All the more so since the Maastricht Treaty contained no provisions on any exit — there are no ground rules!

There are no clear winners from a Greek exit unless you are long confusion, turmoil and uncertainty. The country faces a depression no matter what it does or doesn't do — though reclaiming control over its currency and monetary policy could end up having long-run competitive benefits. The country would likely need a 30-40% devaluation to put its economy on a more competitive footing. The financial disruption, based on many estimates I have seen, would cost Europe something in the order of 2-2.5% of lost output. Greek's total public and private external liabilities amount to $540 billion U.S. dollars — the ECB, the IMF, banks and a swath of other foreign creditors would suffer deep losses.

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Tue, 05/22/2012 - 21:36 | 2453618 veyron
veyron's picture

What's CNBC's spin on the matter?  Are they done fellating zuckerberg ...

Tue, 05/22/2012 - 21:41 | 2453632 SilverTree
Tue, 05/22/2012 - 21:46 | 2453653 SilverTree
Tue, 05/22/2012 - 21:51 | 2453656 Paul Atreides
Paul Atreides's picture

Sh*t... thanks ST, click his link mine is missing the http://

Tue, 05/22/2012 - 21:59 | 2453686 5880
5880's picture


Tue, 05/22/2012 - 22:08 | 2453710 El Oregonian
El Oregonian's picture

Who? Obama?

Tue, 05/22/2012 - 22:24 | 2453738 SilverTree
SilverTree's picture

No, he is bi.

Tue, 05/22/2012 - 22:32 | 2453749 Treason Season
Treason Season's picture

A Bi Cyborg

Tue, 05/22/2012 - 22:39 | 2453774 veyron
veyron's picture


Tue, 05/22/2012 - 23:04 | 2453818 Michael
Michael's picture

If I couldn't live free, I'd just rather die.

Wed, 05/23/2012 - 00:15 | 2453908 bsdetector
bsdetector's picture

I don't fully understand the narration but that is certainly a moving video Silver Tree! Need I suggest that this is a professionally produced piece and probably cost upwards of $100,000 to produce? Who paid for this and what is their motive?

Wed, 05/23/2012 - 06:46 | 2454243 IrritableBowels
IrritableBowels's picture

In the yt comments somebody was inquiring as to why the film 'Baraca' was not given credit. I think it was that film with the voice dubbed.

Wed, 05/23/2012 - 03:28 | 2454134 aminorex
aminorex's picture

be careful what you wish for

Wed, 05/23/2012 - 06:44 | 2454242 bdc63
bdc63's picture

Homeland Security has taken note of your wishes ...

Tue, 05/22/2012 - 23:36 | 2453860 El Oregonian
El Oregonian's picture

As in Bye-Bye?

Tue, 05/22/2012 - 23:04 | 2453819 Waffen
Waffen's picture

I love Les Visible and snordelhans renditions.. Cant wait to listen.

Tue, 05/22/2012 - 23:46 | 2453883 john39
john39's picture

great writer he is, very original.  no problem calling a spade a spade.  or a banker a satanist as it were.

Tue, 05/22/2012 - 21:56 | 2453676 5880
5880's picture

they will say it's bullish

everything is bullish to them

Tue, 05/22/2012 - 22:13 | 2453714 stocktivity
stocktivity's picture

I thought those CNBC bozos were going to pass out with excitement friday when the hooded wonder rang the opening bell.

Tue, 05/22/2012 - 22:26 | 2453744 cbxer55
cbxer55's picture

He be the Hooded Flounder now!  ;-)

Tue, 05/22/2012 - 22:50 | 2453795 Trimmed Hedge
Trimmed Hedge's picture

Oh, don't worry.. He's quite set, thanks for your concern, tho....

Wed, 05/23/2012 - 01:07 | 2454008 CrazyCooter
CrazyCooter's picture

I used my time machine to get this video decades from now (when he has put on some weight) ...




Tue, 05/22/2012 - 22:53 | 2453799 earleflorida
earleflorida's picture

 just can't understand why bloomberg doesn't change their streaming quotes to match the format of cnbc's. i for one wish they would just go away, period!  the misery of having to watch 'fair-n-balance [cnbc] shit-pumping', makes me nauseous to say the least. bloomberg has great analysis and plausible integrity - and, the lady's, well... no need for elaborate!

Ps.   btw, what happened to Margaret Brennan?



Tue, 05/22/2012 - 23:03 | 2453815 Palladin
Palladin's picture

Ever wonder what the Bloomberg ladies do off camera?  Scour the internet for breaking news? Show prep for the next hard hitting exclusive interview?


Regarding Margaret Brennan, from Wikipedia:

On April 27, 2012, she hosted her last show of InBusiness. No reason was given for her departure, other than the choice to pursue new opportunities'. Scarlet Fu has been hosting InBusiness since.

Now that was a tall drink of water.



Tue, 05/22/2012 - 23:22 | 2453838 earleflorida
earleflorida's picture

amen to that, brother

Wed, 05/23/2012 - 00:56 | 2453995 MayerRothschild
MayerRothschild's picture

I think they are still waiting for the 'pop'

Tue, 05/22/2012 - 21:38 | 2453622 Default to Reality
Default to Reality's picture

The MSM is too busy muffling their bitch Cramer, he let the cat out of the bag the other day..........


Tue, 05/22/2012 - 23:30 | 2453850 UP Forester
UP Forester's picture

Here's something you won't hear on the MSM, Egon von Greyerz explaining a Swiss bank didn't have his allocated gold for delivery:


@ 5' 12"

Wed, 05/23/2012 - 06:21 | 2454228 Its_the_economy...
Its_the_economy_stupid's picture

I am shocked and hugely dissappointed in such behavior.

Tue, 05/22/2012 - 21:39 | 2453625 GOSPLAN HERO
GOSPLAN HERO's picture

Collapse, comrades.

Tue, 05/22/2012 - 21:45 | 2453651 DeadFred
DeadFred's picture

I'm betting tomorrow sees the second try at S&Ps 200 DMA. The first try was half hearted but this one will have some muscle to it.

Tue, 05/22/2012 - 23:40 | 2453867 barliman
barliman's picture


Oh would that it  proves true ...

... but the low volumes work better for the HFT's algos reading positive spin headlines out of the latest EU circle jerk so I don't think so.

When is it, Thursday, that the possibility of shorting FB becomes active? My money says thats the day the S&P takes out the 200 DMA.


Tue, 05/22/2012 - 22:03 | 2453661 xcehn
xcehn's picture

"In the end, the financial crisis could destroy Western civilization."


"During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that "financial anarchy" is coming to Europe and that there will be "bank runs" in Spain and Italy in the next few weeks. This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using."


"With each passing day, the banking crisis in Europe escalates. European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone. The situation in Europe is rapidly going from bad to worse. It is almost like watching air being let out of a balloon. The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate. When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks. Millions of people in Europe are starting to realize that a "euro" is not necessarily always going to be a "euro" and they are starting to panic. The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail. In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government. It is only a matter of time before we hear more announcements like this. Right now, events are moving so quickly in Europe that it is hard to keep up with them all. But this is what usually happens in the financial world. When things go well, it tends to happen over an extended period of time. When things fall apart, it tends to happen very rapidly. And at the moment, things across the pond are moving at a pace that is absolutely breathtaking. The following are 18 signs that the banking crisis in Europe has just gone from bad to worse...."


Wed, 05/23/2012 - 06:25 | 2454230 Its_the_economy...
Its_the_economy_stupid's picture

JC is like and alcoholic who suddenly goes on the wagon and gets religion.

Where you been, Jim?

Wed, 05/23/2012 - 06:50 | 2454247 bdc63
bdc63's picture

He's just preparing for his "Europe know NOTHING!" rant

Tue, 05/22/2012 - 21:40 | 2453627 StockHut
StockHut's picture

Aint nothing like watching a Keynesian dream fall apart

Tue, 05/22/2012 - 22:06 | 2453708 FL_Conservative
FL_Conservative's picture

Except if you can take their money (real money, that is) too.

Tue, 05/22/2012 - 22:18 | 2453727 crawldaddy
crawldaddy's picture

stop with the retarded right wing motifs. Supply side bullshit has its fingerprints all over this crisis as well.

Tue, 05/22/2012 - 22:49 | 2453794 Joe The Plumber
Joe The Plumber's picture

Supply siders were keynesian too with a little trickle down added. I dont see keynesianism as right or left but just another statist philosophy embraced by both, at least in action if not word

Wed, 05/23/2012 - 06:26 | 2454229 jeff montanye
jeff montanye's picture

oh it does.  the corruption and malfeasance are nearly universal around the levers of power.  to not see it is to be willfully blind.

Wed, 05/23/2012 - 10:09 | 2454669 mikesswimn
mikesswimn's picture

You're an idiot.

Arthur Laffer, a major architect of supply side economics, stole the concept of the Laffer Curve - the embodiment of "supply side bullshit" as you call it - from John Maynard Keynes and freely admits it:


Or, if you want the original, see: John Maynard Keynes, The Collected Writings of John Maynard Keynes (London: Macmillan, Cambridge University Press, 1972).

Maybe if you did a little more reading you would be a little less retarded.

Tue, 05/22/2012 - 23:57 | 2453905 Plumplechook
Plumplechook's picture

Piss-off StockHut with your Heritage Foundation talking points. 

This is a crisis of capitalism - the end result of 30 years of neo-liberal/supply-side economics.   A generation of market deregulation and corporate liberalisation has now wrecked havoc on public finances, jobs, services and living standards throughout the western world - except of course for the 0.1 percent rentier class who are doing better than ever.

Wed, 05/23/2012 - 07:44 | 2454296 Lednbrass
Lednbrass's picture

An out of control financial sector has certainly caused some serious problems- but you leftist tards want to ignore that the same system that pumps money to them also allowed the insane spending that is so near and dear to the people that want the government to provide for them. The massive spending and borrowing are a huge problem and can no longer be avoided, it was only a question of when it would blow up.

You can ignore the sovereign debt problem that is eating Europe alive and pretend that it doesnt exist, but that would make you a complete damn idiot.


Tue, 05/22/2012 - 21:44 | 2453643 zerotohero
zerotohero's picture

somebody hit the fast forward button already.

Tue, 05/22/2012 - 22:14 | 2453719 El Oregonian
El Oregonian's picture

Ok.... ZIIIPPP! your dead... Oops, to far....

Tue, 05/22/2012 - 22:47 | 2453790 Gypsyducks
Gypsyducks's picture

ZIRP you're dead

Tue, 05/22/2012 - 21:45 | 2453649 pasmurf
pasmurf's picture

BBC polling showed 25-25 between Syriza and ND,- so what about another round of elections just to keep everyone on their toes after June 17th? Have fun with that!!!!

Tue, 05/22/2012 - 21:52 | 2453654 ACP
ACP's picture

Seems like Greek citizens are in quite the catch 22.

But the amount of money is so big, how can you possibly give a shit? I think it's times like these that turned great cities into the ruins-cum-tourist attractions they are today.

Tue, 05/22/2012 - 22:39 | 2453773 Joe The Plumber
Joe The Plumber's picture

A devolution of the greek economy to agriculture, cheap tourism, and a small sideline of shipping will be interesting to see. No matter what happens greece is dropping to the level of the lower end of a middle income nation at best.

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