• Gold Standard I...
    07/28/2015 - 04:17
    Greece has no future, so long as it clings to the euro. The dollar won't servce you much better. A drachma will only harm the Greek people. That leaves one other option.

Baseline Scenario

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Juncker Echoes IMF Call For Greek Debt Re-Profiling





The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece's public debt. A very substantial re-profiling, such as a long extension of maturities of existing and new loans, interest deferral, and financing at AAA rates would allow to cater for these concerns from a gross financing requirements perspective, though they would still leave Greece with very high debt-to-GDP levels for an extended period.

 
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What It All Comes Down To On Sunday





"Do you think Europe should forgive your debt, check box 'Yes' or 'No'." "No" means a lot of pain now and recovery later. "Yes" means less pain now but no hope of recovery ever. Choose wisely...

 
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Did The IMF Just Open Pandora's Box?





... at this very moment, politicians from Spain's Podemos to Italy Five Star movement are drafting memos demanding that the IMF evaluate their own debt sustainability. Or rather unsustainability.

 
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IMF Bolsters Greek "No" Vote, Says Country Needs Much Bigger Debt Haircut





According to a report prepared prior to capital controls and the banking sector meltdown, any deal that included creditor concessions on fiscal reforms would mean Greece's debt load would have to be written down.

 
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Leaked Troika Documents Show Greece Needs Huge Debt Relief





Just when you think things can’t get any crazier, they always do. The Guardian reports on unpublished Troika documents that show Greece is only too right in asking for debt relief. That for the Syriza government to sign what the Troika wants to force them to sign would see Tsipras et al plunge their country into a financial hell hole.

 
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Looking For The Next Big One: Part 1, Orderly Or Not?





"...recent indications have darkened the probability spectrum to the point that it may actually be worth examining a worst case scenario. My gut sense is that there is indeed a recession forming, and one that looks worse by the month, so there are numerous relevant factors that demand attention the greater the potential for it. That starts with leverage and any transmission from finance to the economy."

 
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Albert Edwards On What Happens Next: "More QE - Everywhere!"





"The Q1 US GDP data was a major disappointment to the market as business investment declined due to the intensifying US profits recession. Only the biggest inventory build in history stopped the economy subsiding into a recessionary quagmire. The US economy is struggling and the Fed will ultimately re-engage the QE spigot. Talk is growing that China will soon be doing the same as local authorities struggle to issue debt. But this week we want to focus on Japan, having just made my fist visit to that fine nation for over a decade! Japan, the third largest economy in the world, is also in trouble (see chart below) and will soon be increasing its off-the-scale QE programme to an out-of-this-world QE programme." - Albert Edwards

 
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ECB Preview: Draghi To Address Bond Scarcity, Stress Full PSPP Implementation





"Mr Draghi during the press conference to stress the need for the full implementation of the expanded asset purchase programme as an important condition for the positive growth and inflation outlook to materalise," Goldman says, previewing the Draghi presser where the ECB chief will likely get more than a few questions about the possibility that the central bank will run out of bonds to purchase in the course of monetizing the entirety of euro net issuance.

 
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BofA's Modest Proposal For Greece: "A Negative Shock May Be Necessary"





Either Greece will stop trying to save the failed past and look into the future, treating the crisis and the adjustment program as opportunities to finally implement urgently needed reforms, or the country will be eventually forced to exit the euro, in our view.  Economics 101 teaches us that an economy can survive within a monetary union only if it has fiscal policy room and structural flexibility to respond to asymmetric shocks. In our view, Greece had none and has none. We see no solution for Greece within the Eurozone without reforms.

 
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S&P Futures Weak As Fed Meeting Begins, 10 Year Yield Drops; Oil Back Under $43





Following yesterday's inexplicable ramp in stocks, which perhaps was driven by the collapse in oil (which sent energy companies higher because a 30x energy forward PE is cheap), and by the latest battery of disappointing economic data which made it less likely the Fed will proceed with a tightening move, overnight futures have given up a portion of the gains, and were trading down 0.3% at last check. And yet, if yesterday's weakness was driven by USD weakness, today's jump in the EURUSD above 1.06 (on absolutely disastrous German ZEW investor index print) is now somehow responsible for risk offness? And, adding confusion to insult, the 10 Y is down to 2.05% and in danger of re-entering a 1% handle. Sadly, nothing makes sense any more and today's conclave of central planners in the Marriner Eccles building ahead of tomorrow's 2pm FOMC "impatient" announcement isn't going to make it any better.

 
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Moody's "Junks" Russia, Expects Deep Recession In 2015





Having put Russia on review in mid-January, Moody's has decided (somewhat unsurprisingly) to downgrade Russia's sovereign debt rating to Ba1 (from Baa3) with continuing negative outlook. The reasons:

*MOODY'S SAYS RUSSIA EXPECTED TO HAVE DEEP RECESSION IN '15, CONTINUED CONTRACTION IN '16
*MOODY'S SEE RUSSIA DEBT METRICS LIKELY DETERIORATING COMING YRS

We assume the low external debt, considerable reserves, lack of exposure to US Treasuries, and major gold backing were not considered useful? Moody's concludes the full statement (below) by noting that they are unlikely to raise Russian sovereign debt rating in the near-term.

 
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A "Conditional Bazooka": European Top Court Finds ECB's OMT "May Be Legal" But Must Meet Conditions





Moments ago, the Advocate General Pedro Cruz Villalon of the EU Court of Justice in Luxembourg delivered the non-binding opinion on issue of Mario Draghi's "unconditional" OMT. Here are the details from Reuters and Bloomberg:

  • EU COURT ADVISER SAYS OMT PROGRAMME IN LINE WITH EU LAW SO LONG AS CERTAIN CONDITIONS MET
  • EU COURT ADVISER SAYS OMT LEGITIMATE SO LONG AS THERE IS NO DIRECT INVOLVEMENT IN FINANCIAL ASSISTANCE PROGRAMME THAT APPLIES TO STATE IN QUESTION
  • EU COURT ADVISER SAYS ECB MUST OUTLINE REASONS FOR ADOPTING UNCONVENTIONAL MEASURES SUCH AS OMT PROGRAMME

In other words, Draghi's "unconditional" bazooka just became conditional, but it is still a bazooka, albeit one that will never actually be used since well over two years after it was revealed following Draghi's famous "whatever it takes" speech, it still has no legal termsheet or basis, and no definition on its pari passu or burden-sharing status. And it never will: after all it was merely meant as a precautionary device designed to scare away the bond vigilantes, and never to be actually implemented.

 
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These Are The Two Most Crowded Trades As We Enter 2015





For all those who are long the USD and short the 10Y, good luck because everyone else is too...

 
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An Endless Sea Of Energy





With crude oil prices in a strong corrective mode, energy depletion is understandably not on people’s minds these days. However, this is a scenario that many of us might have to deal with at some point in our lifetimes. We might be swimming in oil for now, but this should be no reason to become complacent. Our children and grandchildren will thank us for it.

 
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