With the European End Game now in sight, the primary question that needs to be addressed is whether Europe will opt for a period of massive deflation, massive inflation, or deflation followed by inflation.
On October 27th we rallied 40 points in SPX and hit 1285. So far today we are up 32 points and are at 1185. About the only positive thing I have to say is that 1185 is cheaper than 1285. The reasons for the rally are largely based on headlines and rumors out of Europe and being too pessimistic about what happens if there is no “solution”. The IMF bazooka does not seem to be there (offically denied), the EFSF is nothing like what was promised, Euro-bonds seem practically impossible in any time-frame and 'fast-treaty-ing' remains a pipe-dream, Greece is closer to actual restructuring as it starts direct negotiating, and while Thanksgiving Sales were up it seems the main reason for a market rally is the amrageddon-like scenario of the break-up and the typical belief that 'the-worse-it-gets, the-better-it-will-be-in-the-end', so buy.
The La Stampa rumor that the IMF would bail out Italy has come and gone, roundly refuted by none other than the IMF as expected, but not before lifting futures by over 30 points in the premarket session, and setting a very favorable tone to the market overnight. How long it lasts now depends on the amount of time it takes the bipolar market to realize that the tapped out consumer, already at near multi-year lows in savings, will be unable to carry this holiday period despite what the Retail Federation reported about supposedly record Black Friday sales. But for now all is forgiven and not a moment too soon: after all S&P had just downgraded Belgium which was coming to market with a new 10 year bond issuance. And courtesy of the US consumer, the auction was not a failure, yet still pricing over 1% higher compared to a month ago, or at 5.659% compared to 4.372% on October 31. Still, the bid to cover rose, and thus the modestly successful auction saw the 10 year yield drop 16bps to 5.7%, the biggest decline in a month and the first in 6 days; hit 5.91% earlier, highest since 2000. Just shortly before Belgium, Italy sold €567MM in 2.6% 2023 Inflation Linked linkers at a bid to cover of 2.16 but most importantly at a yield of 7.3%. This was an epic collapse compared to the last such issuance from October 27 when 2.1% I/Ls due 2021 priced at a 2.14 B/C and a 4.61% yield: nearly a 2.7% increase. And somehow this unsustainable yield (not to mention another BTP auction tomorrow) is considered a good thing: the 10 Year dropped to just over 7% in the auction aftermath after hitting 7.3% earlier. And for now Europe is on the backburner with all eyes on how few contracts of ES can get the S&P up 3% today: all signs of a perfectly functioning market.
Buy the rumor, sell the news? Investors bought the rumor, then sold the lack of news, I think you are supposed to sell the news again, as there is nothing in this document that provides evidence that they get it, or that any scale can ever be achieved, and if anything, it makes you wonder if they will even get to the 440 billion of support the market thought they had back in July.
Former IMF Employee And Greek Statistics Head Faces Life In Prison If Found Guilty Of Making Greece Look UglierSubmitted by Tyler Durden on 11/27/2011 18:30 -0400
A few months ago we reported that unlike in any other Banana Republic, where the natural bias is to fudge one's numbers higher to make the economy look better and get the stock market to rise, in Greece even the traditional banana metrics are upside down. To wit: "Greek newspaper Eleftherotypia reports that according to a just terminated member of the Greek Statistical Authority, Greece artificially misrepresented its 2009 15.4% deficit number to Eurostat in order to obtain aid from the EU and IMF." Sure enough, two months later even this absolutely bizarre story has been confirmed. The FT reports that "The head of Elstat, Greece’s new independent statistics agency, faces an official criminal investigation for allegedly inflating the scale of the country’s fiscal crisis and acting against the Greek national interest." Not surprisingly, the man who allegedly cooked the books is none other than a 20 year former IMF employee: precisely the kind of guy who knows just what buttons to push to get the US-funded organization to dole out capital. "Andreas Georgiou, who worked at the International Monetary Fund for 20 years, was appointed in 2010 by agreement with the fund and the European Commission to clean up Greek statistics after years of official fudging by the finance ministry." And just because someone needs to be made a scapegoat, if convicted Georgiou may face the same sentence as Madoff: "Mr Georgiou is due to appear before Greece’s prosecutor for financial crime on December 12 to answer the charges. If convicted of “betraying the country’s interests”, he could face life imprisonment." Well, that's fine: the man should rot in hell for not learning that "minus" is not really "plus" - surely no greater ex-capital punishment crime exists. Yet we wonder - will the same life sentence follow all those others who are found to have betrayed their countries interest and inflated numbers higher thus not getting US taxpayer-funded bailouts? Because when it comes to Europe, it is now every many for himself (as the soon to be faded rumor du jour of a €600 billion IMF-funded bailout of Italy confirms)... all the way to Joe Sixpack's wallet.
If you really listen to his whining socialist diatribes, Paul Krugman is the enemy of every man and woman who works in the global financial markets. Many of my colleagues on the Street are very liberal, yet Krugman would take all of their money via higher taxes in a nanosecond. How is it that nobody sees that Krugman’s commentaries in The New York Times are almost perfectly predicted by George Orwell in Animal Farm – and Hayek in the The Road to Serfdom?
A lot of technical analysts and financial pundits are expecting a standard-issue Santa Claus Rally once a "solution" to Europe's debt crisis magically appears. There will be no such magical solution for the simple reason the problems are intrinsic to the euro, the Eurozone's immense debts and the structure of the E.U. itself. The accident has finally happened, and it's called the euro/European debt crisis. I see a lot of analysts trying to torture a Bullish interpretation out of the charts, so let's take a "nothing fancy" chart of the broad-based S&P 500 with five basic TA tools: Bollinger Bands to measure volatility, relative strength (RSI), MACD (moving average convergence-divergence), stochastics and volume. If we use Technical Analysis 101 (basic version), a number of things quickly pop out of this chart--and none of them are remotely bullish.
If only we had known that the EFSF was nothing but the latest Chinese reverse merger IPO gimmick, dependent entirely on market conditions for its success, we probably would have sold even more euros to Thomas Stolper. Alas, despite all the pomp and circumstance of last month's European summit announcement when the 50% Greek debt haircut (which has a snowball's chance in hell of passing) was accompanied by vague promises of a 4-5x leveraging of the EFSF's €440 billion, it now appears that our original skepticism was well-founded. Because according to the latest news out of the FT, the EFSF won't get 4-5x leverage. Nope. It will, in fact be lucky if it can be doubled, which however kills the whole point as it needs to be well over €1 trillion to even exist. From the FT: "A plan to boost the firepower of the eurozone’s €440bn rescue fund could deliver as little as half what the bloc’s leaders had hoped for because of a sharp deterioration in market conditions over the past month, according to several senior eurozone government officials." Well what do you know. Next we will learn that when the EFSF denied it was an outright pyramid scheme, and was buying its own bonds, it was actually kidding. Either way, as it currently stands, there is no bailout in place for Europe whatsoever, as the ECB's demands for a fallback to the ECB are now moot. Furthermore, once the market realizes there is no even implicit backstop to the trillions in debt rollover over the next several years, it will dump sovereign bonds with even more gusto, pushing Europe into an even deeper funding crisis, which in turn will make bond repayment even more impossible, which will send prices even lower, and so on. There is a reason they call it a toxic debt spiral.
Presented with no comment - none at all, not even a wry schadenfreude-ridden smirk. GRPN -13% at $17.40
cough ... Ron Paul ... cough
The IMF move is just a backdoor bailout that the Powers That Be are hoping the public won’t notice. None of the IMF backers were willing to commit money at the G20 meeting last month… so why are they willing to do so via the IMF now?
Now we all get to wince once again watching Greenberg trying to get his final Fat Cat licks in.
Impoverishing our fellow Americans has never been more profitable.
The Complete And Annotated Guide To The European Bank Run (Or The Final Phase Of Goldman's World Domination Plan)Submitted by Tyler Durden on 11/19/2011 20:38 -0400
"Nervous investors around the globe are accelerating their exit from the debt of European governments and banks, increasing the risk of a credit squeeze that could set off a downward spiral. Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations. " So begins an article not in some hyperventilating fringe blog, but a cover article in the venerable New York Times titled "Europe Fears a Credit Squeeze as Investors Sell Bond Holdings." Said otherwise, Europe's continental bank run in which virtually, but not quite, all banks are dumping any peripheral exposure with reckless abandon is now on. Granted, considering the epic collapse in bond prices of Italian, French, Austrian, Hungarian, Spanish and Belgian bonds which all hit record wide yields and spreads in the past week, and furthermore following last week's "Sold To You": European Banks Quietly Dumping €300 Billion In Italian Debt" which predicted precisely this outcome, the news is not much of a surprise. However, learning that everyone (with two exceptions) has given up on Europe's financial system should send a shudder through the back of everyone who still is capable of independent thought - because said otherwise, the world's largest economic block is becoming unglued, and its entire financial system is on the edge of a complete meltdown. And just to make sure that various fringe bloggers who warned this would happen over a year ago no longer lead to the hyperventilation of the venerable NYT, below, with the help of Goldman's Jernej Omahan, we bring to our readers the complete annotated and abbreviated beginner's guide to the pan-European bank run.