headlines

No. No way. If we have to go through one more year of endlessly repetitive and utterly worthless European bullshit, rumors, headlines, and other subterfuge whose only point is to extend and pretend the fact that Europe is utterly broke, just so the effete Greek citizens can pretend they give a rat's ass about their independence, when in reality they will gladly pay 80% of their salary to keep European banks solvent simply to retain the illusion that their retirement funds are still worth more than diddly squat, we are done.

When even the bullshitters get tired of the bullshit! Financial contagion tale of Greece, the need for Grease & what happens to those without it, featuring the "Bad Ass" interview...

As the banks in Europe report out earnings; or the lack thereof in most cases, it becomes clear that the LTRO is helping with liquidity but not with solvency past some very short term point. This is always the case of course but it is beginning to hit home. The balance sheets for many European banks have now swelled on the liability side with more and more debt piling up courtesy of the ECB while their assets decrease due to the Basel III mandates so that the financials of these banks begin to deteriorate. It is not just the losses from their Greek debt holdings that are coming into play but also their potential future losses from sovereign debt write downs markedly for Portugal soon I think but also perhaps for Spain and Italy in the near term as the recession in Europe brings new problems to the fore which will further reduce the value of sovereign and bank credits in Europe.

The better tone in risk markets is largely being driven by encouraging economic data from the US and Europe, which as a result saw Bunds trade in negative territory. Of note, ECB’s Liikanen has said that inflation is not a particular concern in Europe, adding that the ECB has never said that there is an interest rate floor. On the other hand, Gilts are being supported by comments from BoE’s Fisher, as well as less than impressive GDP report. Nevertheless, EUR/USD took out touted barrier at the 1.3400 level earlier in the session, while USD/JPY is trading in close proximity to an intraday option expiry at 80.60.

Despite the release of better than expected German IFO survey, stocks in Europe remained on the back foot after the EU Commission slashed forecasts for 2012 Eurozone GDP to -0.3% vs. 0.5% previously, while EU's Rehn added that the Euroarea has entered a mild recession. As a result Bunds advanced back towards 139.00, whereas the spread between the Italian/German 10-year bond yields widened marginally on the back of touted selling by both domestic and foreign accounts ahead of the upcoming supply on Friday. Looking elsewhere, EUR/USD erased barriers at 1.3300 and 1.3325, while today’s strength in GBP/USD can be attributed to a weaker USD, as well as touted EUR/GBP selling by a UK clearer.

There is a very clear relationship between economic growth and sufficient quantities of high quality energy. A crude measure of energy quality is its price. The lower the price for a unit of energy, the higher its quality (or net energy), but this is a very crude measure that can and often is heavily distorted by subsidies, market pressures, and other factors. As we squint at the world price for oil and note that Brent today is trading at $120 per barrel, it is clear that this high price is signaling that energy is now more expensive than it used to be. By adopting the belief that Peak Oil has been debunked, one runs the risk of missing the larger story that our current economic model is unsustainable. And that stocks and bonds and other traditional investments that derive a large portion of their current value from expectations of future growth simply may not perform anything like they have in the past. And worse, that recent and continuing efforts to revive the old economy by printing money risk the destruction of the money system itself. Given this all-too-human tendency to attempt to preserve the status quo, in this case by printing money, I must reiterate my advice to be sure that gold forms a significant portion of your core portfolio. 

The softer PMI reports have weighed on risk markets, which as a result saw equities trade lower throughout the session. In addition to that, market participants continued to fret over the latest Greek debt swap proposals, which according to the Greek CAC bill will give bond holders at least 10 days to decide on new bond terms following the public invitation, and the majority required to change bond terms is set at 2/3 of represented bond holders. Looking elsewhere, EUR/USD spot is flat, while GBP/USD is trading sharply lower after the latest BoE minutes revealed that BoE's Posen and Miles voted for GBP 75bln increase in APF. Going forward, the second half of the session sees the release of the latest Housing data from the US, as well as the USD 35bln 5y note auction by the US Treasury.

Heading into the North American open, equities are trading lower with the benchmark EU volatility index up 1.6%, with financials underperforming on concerns that the latest Greek bailout deal will need to be revised yet again. Officials said that the deal will require Greece’s private creditors to take a deeper write-down on the face value of their EUR 200bln in holdings than first agreed. The haircut on the face value of privately held Greek debt will now be over 53%. As a result of the measures adopted, the creditors now assume that Greece’s gross debt will fall to just over 120% of GDP by 2020, from around 164% currently, according to the officials. However as noted by analysts at the Troika in their latest debt sustainability report - “…there are notable risks. Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis”. Still, Bunds are down and a touch steeper in 2/10s under moderately light volume, while bond yield spreads around Europe are tighter.

You read headlines that Greece is saved (in a carbon copy release from July 21). Now read the truth behind the lies - presenting the 9 page (so it's brief enough) Greek sustainability (or lack thereof) analysis.

Mainstream media is desperately scrambling to fill copy with stories of collaboration, rescue, heroism, sacrifice, and altruism among the European leaders. The dismal reality facing real people and real participants is quite different and as Peter Tchir points out "How many 'untruths' have become so accepted that they are now treated as facts or axioms". In an effort to get to the facts and reality, we disentangle Bloomberg's 'Greek Rescue' story and note the increasingly Orwellian nature of the events unfolding across the pond. But anyways, the machine is grinding along towards headlines of "rescue" where Greece will have been "saved" and "default will have been avoided" and it will be "great that banks and politicians worked to save Greece" in spite of the "lingering doubts that Greece will fulfill its obligations".

As forecasts for peripheral macro data continue to deteriorate and core to strengthen modestly, there is little real comfort available from the European situation aside from the 800lb gorilla that all headlines are focused on today. Credit Suisse describes it as "a case of the outlook being less bad than expected, rather that it being better" and notes that post the Greek situation, despite the ongoing rally in the ever-thinning sovereign bond market, that risk premia (that were dangerously forgotten for the first decade of the Euro) will remain at elevated levels. CS sees three scenarios beyond Greece with even the best-case leaving questions of sustainability, trust, and continued negotiations yet the market's willingness to follow along the path of inevitably ruinous policies seems writ large with today's credit, equity, and FX strength.

It appears that while we were busy over the past month spreading the Greek pre- and post-bankruptcy balance sheet, and otherwise torturing Excel (something we urge other financial journalists to try once in a while - go ahead, it doesn't bite. In fact, it is almost as friendly as your favorite Powerpoint) our peer at such reputable financial publications as Forbes, and many others, were laying of carbon-based reporters and replacing them with... robots. As Mediabistro reports, "Forbes has joined a group of 30 publishers using Narrative Science software to write computer-generated stories. Here’s more about the program, used in one corner of Forbes‘ website: "“Narrative Science has developed a technology solution that creates rich narrative content from data. Narratives are seamlessly created from structured data sources and can be fully customized to fit a customer’s voice, style and tone. Stories are created in multiple formats, including long form stories, headlines, Tweets and industry reports with graphical visualizations.”" In other words, with well over 70% of stock trading now done by robots, we have gotten to a point where robots write headlines and stories read, reacted to and traded by robots. Surely, what can possibly go wrong. And here we were this morning, wondering why the market is not only broken but plain dumb.

While Greece and Europe continue sinking ever deeper into the colonial quicksand of Pax Goldmania, Iceland, which blew up, pushed its banks into bankruptcy, and arrested its corrupt bankers, is well on its way to being the world's only normal country.

• ICELAND RATINGS RAISED TO INVESTMENT GRADE BY FITCH
• FITCH UPGRADES ICELAND TO 'BBB-'; STABLE OUTLOOK
• FITCH DOES NOT EXPECT ICELAND TO SLIP BACK INTO RECESSION
• FITCH SAYS ICELAND GOVERNMENT DEBT PEAKED AT 100% OF GDP IN '11

Too bad the Goldman colony of Greece (and soon everyone else - thank you first lien "bailout" debt) will not see headlines such as these written about it any time in the next century.

And just a little bit more on yesterday's story of the day, which a few recent journalist grads took as positive having absolutely no clue about the very basics of a simple restructuring process, and in turn fed it to the 18 year old math Ph.Ds who program FX trading algos that ran away with it in the form of a 150 pip gain, when in reality it was all negative. As the WSJ reports, the only sane person in Europe, did get it: Bundesbank's Jens Weidmann "voted against the proposal, according to a person familiar with the matter." As we expected. Why? Go back to our story on subordination and what it means as the ECB creates an ever more junior class of bond holders. For those who hate long sentences, the WSJ gets it right this time: "The move could rankle investors and turn them away from the peripheral euro zone bond market, blunting the impact of a possible approval of a Greek aid deal and plentiful cash from the ECB." Of course, those who don't react to idiot headlines, and every upticks courtesy of algobots, knew that long ago. But in this stupid market, it takes hours, if not days, for the progressively dumber investor base to comprehend what is going on.