There are those who remember that back in February 2010, before the world realized just how broke Greece was, the public's deplorably short attention span was briefly focused on none other than Goldman Sachs, which as so often happens, was at the heart of the scheme enabling Greece to skirt by Maastricht regulations and mask the fact that its debt and deficits were both far worse than represented publicly. There are also some who remember that back in February 2010, it was none other than the Federal Reserve that tasked itself with uncovering whether Goldman did anything "illegal" by engaging in currency swaps to make the Greek economy appear rosier than it was: "We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," Bernanke said in testimony before the Senate Banking Committee.... Greece in 2001 borrowed billions, with the aid of Goldman Sachs in a deal hidden from public view because it was treated as a currency trade rather than a loan....Goldman Sachs spokesman Michael DuVally declined to comment on the Fed's probe. "As a matter of policy we don't comment on legal or regulatory matters," DuVally said. Goldman Sachs had defended the transactions in a statement posted on its Website Sunday. The firm said they had a "minimal effect" on Greece's overall fiscal situation." Maybe, just maybe it is time, two years later, for the world to hear something, anything, from the Fed as to what its seemingly quite extensive investigation into Goldman's has yielded.
And not because his Rule doesn't have teeth.
We need to look to Europe now to see what TPTB have in store for us. This is the consummate problem, reaction, solution game being played for all the marbles. First, you get the problem “spiking interest rates for the peripheral countries.” Then the “reaction,” financial panic and fear. Finally the “solution.” The placement of unelected technocrats as the leaders of Greece and Italy with ties to all the power structure’s institution such as the Trilateral Commission, the Bilderberg group and of course Goldman Sachs. It is like a coup that takes the shadow government from the shadows and puts them in your face. The reason that this is so key is because we are next. They don’t want to roll up everything at once. If they can get Europe safely consolidated then they will move here. That is when interest rates in the U.S. will spike (problem), and we get panic (reaction) and then the solution (bankster technocratic committees in charge and the IMF to the rescue, ie loss of sovereignty). This is the plan and I see it as clear as day.
The phenomenon of market and confidence reflexivity is quite well known to the US, where not one but two indices, the UMichigan and Conference Board, provide upward boosts to the market when the market is going up, which in turn boosts confidence even more, and so on in a closed loop well used by agents of the central planning bureaus, especially during economic slides, when the "economy" is nothing but the Russell 2000. Europe is no stranger to this, and early this morning despite Germany's recent economic data coming out nothing short of atrocious, Germany announced its business managers are quite confident, and more so than expected whatever that means, after the IFO Business Survey printed at 109.6 on expectations of 108.3 - the highest reading since July 2011. As a reminder, 9 days ago "The German Industrial Output Slides More Than Greek, Despite Favorable ZEW" - in other words, the propaganda machine is out in full force, desperate to break the linkage between Europe's recessionary economy, and the market which has soared over the past 4 months for one reason only - trillions in central bank liquidity. Alas, the bill has now come in in the form of record Brent in British pounds, fresh all time highs in energy prices, and WTI which if Goldman is right, will hit $120 this summer and send Obama's reelection chances down the toilet. Anyway, here is Goldman with a note on the German confidence index which briefly sent the EURUSD up 80 pips to a high of 1.3340, showing just how volatile the fulcrum security now is with 148K net shorts, since retracing most of the gains as apparently not even the market is that stupid to believe the confidence is more important than hard data following the EU's announcement that the Eurozone will officially see a GDP decline of -0.3% in 2012 vs previous expectations of +0.5% rise.
Depending on what yield you apply to the new Greek bonds, then the package is worth 21.5% to 26.25%. Since bonds are trading with accrued and accrued will be paid in 6 months, the real question comes down to what you believe is the value of these new bonds. If there is an amortization schedule, that would change the valuation positively... We still haven’t seen retroactive CAC clauses implemented, but assuming that they are, I’m not sure why the Troika would accept a 95% rate and not trigger, but it seems worth taking the risk. The ECB swap may be illegal. The retroactive CAC may be illegal. The Troika seems like it wants to pretend there is no default if at all possible, in spite of the write-down of more than 50% of the debt.
The week ahead is fairly light on big ticket data releases, but what is released will provide more evidence of the strength of global activity. The most important of these will be the flash PMIs for China and the Euro area and the German IFO reading . There is no consensus expectation for the China print, however the Euro area indices are both expected to rise slightly, as is the German IFO. In terms of cyclical hard data, Taiwan export orders and IP for Singapore and Taiwan, Euro area industrial orders and trade data from Japan and Thailand will be notable. Admittedly the data from Asia is likely to be complicated by Chinese New Year which fell in the third week of January, and presumably this is why the consensus expects such a sharp drop in Taiwan IP, however the data are still worth watching for indications of the strength in global activity. Generally, consensus expectations for these prints are not particularly encouraging and any 'beats' would be a positive surprise. It goes without saying that ongoing negotiations towards signing off on Greece's second package will also remain on the radar screen. As we write, Reuters has posted suggestions that the debt swap will be open by March 8 and complete by March 11.
Aspirin at the door
For several weeks now we have been warning that while the conventional wisdom is that Europe will never let Greece slide into default, Germany has been quietly preparing for just that. This culminated on Friday when the schism between Merkel, who is of the persuasion that Greece should remain in the Eurozone, and her Finmin, Wolfgang "Dr. Strangle Schauble" Schauble, who isn't, made Goldman Sachs itself observe that there is: "Growing dissent between Chancellor Merkel and finance minister Schäuble regarding Greece." We now learn, courtesy of the Telegraph's Bruno Waterfield, that Germany is far deeper in Greece insolvency preparations than conventional wisdom thought possible (if not Zero Hedge, where we have been actively warning for over two weeks that Germany is perfectly eager and ready to roll the dice on a Greek default). Yet it is not only Germany that is getting ready for the inevitable. So is Greece.
Although no one can be sure of Buffett's motives, it would be naïve to believe that someone as intelligent as Buffett has not considered the benefits of pushing through this tax structure. Higher taxes are always problems for entrepreneurs and regular people in the economy. However, they're often beneficial to the well-connected, who receive government bailouts and favors. And with Buffett even on the president's lips, he is becoming more connected to the power mechanism in D.C. every day. With many of Berkshire's companies, your loss as a taxpayer will be their gains.
One thing is for certain, the litigation is beginning to shift from minor players to major players at the core of the Financial Crisis. Investors take note, this is a major shift and needs to be monitored as it will have major implications for market dynamics going forward.
- German president resigns in blow to Merkel (Reuters)
- China central bank in gold-buying push (FT)
- Germany Seeks to Avoid Two-Step Vote on Greek Aid, Lawmakers Say (Bloomberg)
- Eurozone central bankers and the taboo subject of losses (FT)
- Bernanke: Low Rates Good for Banks in Long Run (WSJ)
- Cameron and Sarkozy to test rapport at talks (FT)
- Chinese Enterprises encouraged to invest in US Midwest (China Daily)
- Goldman Sachs Group Inc. and Morgan Stanley have reduced their use of "mark-to-market" accounting (WSJ)
- Regulators to raise trigger for rules on derivatives (FT)
Today, instead of some arcane chart showing in some complex fashion the simple fact that only excess liquidity drives excess returns, we present something more in tune with the latest bubble du jour: social networking. As part of its social media survey Goldman Sachs asked respondents what is the main reason for people to "log on" to various social networking venues. The answer, by a wide margin, is the expected one: namely to spy, and to compare whether our lives are more boring, less glitzy and exciting, with fewer gadgets, gizmos, smaller houses or cars, and generally more in debt, than our "friends." Of course, the politically correct way of saying this is "to see what my friends are doing." In other words, there is nothing new about social media but a millennia-old regurgitated phenomenon- it is merely a new locus of exhibiting and observing social status, to see and be seen. One which can be enjoyed 24/7. At least, until something better comes along.
Sprott strategist John Embry has never been a fan of the existing financial system. Today, he makes that once again quite clear in this interview with Egon von Grayerz' Matterhorn Asset Management in which he says: "I think that the current financial system, as we know it, will be totally destroyed, probably sooner rather than later. The next system will require gold backing to have any legitimacy. This has happened many times in history." Needless to say, he proceeds to explain why a monetary system based on gold, one in which one, gasp, lives according to one's means, is better. Logically, he also explains why the status quo, whose insolvent welfare world has nearly a third of a quadrillion in the form of unfunded future liabilities, will never let this happen. Much more inside.
When Greece defaults, the fall-out will be much, much larger than people expect simply by virtue of the fact that everyone is lying about their exposure to Greece.