Who would have thought it only takes for PIIGS spreads to go back to all time records, and for Ireland and Portugal to be hours away from joining Greece in the bailout corner, for Goldman's Erik Nielsen to turn bearish again. To wit: "if investors are running for the door out of fear of being the last one left behind, then there’ll be a liquidity crisis (as there would be for anyone with a financing need), and they’ll need help." Way to stay ahead of the curve Erik. The problem is that while the economic reality below the surface cracks and collapses, investors are largely ignoring the perpetual words of optimism from Europe's politicians, and sellside cheerleaders (which begs the question - is it time to take this Goldman acknowledgment of reality as a buying opportunity?). What happened in Greece may have been brushed under the carpet for a few months, but the policy response there, which is identical to what is happening in Ireland and Portgula now, i.e., blatant lies, has left those holding relevant securities with a bitter taste in the mouth. And now, unlike before, the possibility of holder haircuts is distinctly on the table. Which is why we expect that before the Asian open, there well may be some key news out of Ireland (and/or Portugal)- no matter how much Nielsen believes that Ireland is not in a solvency crisis, with Bund spreads in the 700 range, no matter how much prefunding the government has, it will be irrelevant and will create yet another toxic debt spiral. The biggest threat is not so much to Ireland, which supposedly has its cash needs met through mid 2011, but contagion hitting other European countries, which do have solvency issues, yet have been spared the liquidity hammer so far. And with Italy CDS also hitting record highs, look for the core to start crumbling as everyone, especially Chiswick's perpetual optimist, to appreciate the gorgeous mushroom cloud over the European periphery.
Who thought one could write 2000 words to describe the beneficial and very transitory impact of a currency plunge in a fiat world where everyone's goal is now to devalue their own monetary equivalent. Yet that is precisely what Goldman's European analyst Erik Nielsen has done in his weekly recap of European events past and future. Below are the just released views of Chiswick's perpetually cheery resident.
Looking at the European theater of Keynesian war, Erik Nielsen says, "We optimists have had a very good week in Europe." Well, when after a 70 year sabbatical, it is once again the pan-continental doctrine to fabricate a lie so bold, the population has no choice but to believe in it, it is truly a victory for the bulls. Yet even the consummately rosiest outlook out of Chiswick agrees there are at least a few thunderclouds on the horizon: "Hungary is a space worthwhile watching. Orban’s government seems to have taken a populist line, but I think the EU and IMF will be prepared to make a demonstration effect out of Hungary, if needed. The government will most likely end up caving, but it could become quite messy before then."
Erik Nielsen On The World Cup, The European Round Up, And On Wednesday's Huge Day For The ECB And GreeceSubmitted by Tyler Durden on 06/28/2010 06:56 -0500
We have already had our say about Denmark's World Cup performance. It was not lost on Erik Nielsen. It has not had as much of a dire impact on his outlook, as his European round up is summarized: "that’s the way Europe looks from my unbelievably green garden on this gorgeous afternoon. I shall now pour myself some sort of chilled and lovely summer drink and turn to my favourite book." Something tells us this is not Hayek. More importantly Erik points out why Wednesday will be a very important "micro event" day for Europe: the ECB's 12 month LTRO, whose impact on Libor and Euribor we discussed previously, matures on the 1st, and also on Wednesday "Greece formally falls out of the indices because of their downgrade. How much selling will that cause? I have no clue, but I would fail to understand why investors would have waited till the last day to get rid of their Greek bonds when they have known about the issue since June 15." Yet Erik points out something curious: "the Greek governments intends to roll over 3, 6 and 12 month treasury bills maturing in July; a total of about €3.5bn. Auctions are expected on Tuesday 13th and on Tuesday 20th July." And he wonders:"Why are they doing it? Could it be that they are responding to demand from banks and other investors who have started to appreciate that a debt restructuring the next 12 months is very unlikely and therefore looking for high-yielding assets? If so, this would be a mis-guided move, in my opinion, and – frankly – I hope the IMF and EU would tell them to back off." Looks like yet another shoe in the European collapse may be due to drop this week.
All you need to know about how the world looks through the eyes of everyone's favorite Chiswick resident: "I am sorry to sound like a broken record here in my opening paragraph, but – alas – we are through yet another week of pretty good real-economy data in Europe, further positive signs on the policy front, and stabilising markets." (and yes, that's Erik Nielsen from GS). The decoupling from reality is now complete: what is it about "decoupled" London tap water? First O'Neill and now Nielsen...
On one hand you have the EURUSD telling you things are horrible and getting worse, on the other you have Goldman's Erik Nielsen. Here is the latest hilarious confirmation that Goldman managing directors are just plain clueless when the ponzi pulls a Madoff: "I don’t get the FX market these days. While I understand the technical and position-based arguments for the FX levels, on fundamentals, I don’t know why the Euro has remained overvalued for so long. That said, the triggers for moves are amazing: On Thursday, markets basically ignored the man with the world’s single biggest portfolio, Chinese central bank governor Zhou Xiaochuan, when he expressed full trust in Europe’s ability to deal with its debt crisis, while going into a virtual panic sending EUR/USD below 1.20 for the first time since March 2006 when the wire services botched the simple job of translating French PM Fillon’s statement on the FX. But here is the most fundamental of questions: How can one be bearish on both the Euro and on Euro-zone growth? Beats me – I assume you know which camp I am in."
Goldman's Erik Nielsen has yet to disclose if he is joining his Euro-pal Jim O'Neill in declaring all out war on the bears (for those unsure about the reference see here, and FYI Jim, the grizzlies send their love... and in keeping with the animal references, they don't really give a rats ass about the occasional dead cat bounce). What he has no problem disclosing, however, is his latest round of rose-colored ebullience, even as other, "slightly" more objective europundits see the end of the Eurozone as ever more imminent. It is stunning how cognitive dissonance can lead two people to the following diametrically opposite conclusions: Erik Nielsen: "The European recovery continues to look pretty good and solid to me" and Ambrose Evans-Pritchard: "[the Pan-European austerity package] can end only in two ways. Either Germany tolerates massive monetary reflation by the ECB or Spain will be forced out of EMU, setting off a catastrophic chain-reaction through north Europe's banking system." Of course, when one is in the business of perpetuating ponzies, while another has a page view quota, the truth likely is somewhere inbetween. Then again, "inbetween" two polar opposites is a wide range. Anyway, since we will likely see a lot more pain "on the plain" shortly, here are some soothing words for all those who are still long and strong and need goal-seeked analyses.
For the first time this year I am writing to you from my backyard here in Chiswick; the weather is impeccable and I couldn’t think of a place I’d rather be right now. A good cup of Nespresso certainly contributes to my well-being this morning, but more on that later. Here’s my view of Europe right now. - Erik Nielsen, Goldman Sachs
Since we feel there is little need to post on the Greek "update" as we don't believe anything new has happened or anything has been resovled, we will instead provide that from Goldman's Erik Nielsen: "With the May liquidity crisis now practically dealt with, here are the risks for the rest of 2010 and 2011 (and beyond) as I see them: (1) Implementation of the program in the face of a social unrest; (2) the likely need for further adjustments when/if GDP doesn’t respond as expected; and (3) European approval of the second phase of their part of the package (which will emerge in their fiscal bills for the next two years.)"
Erik Nielsen said one week ago Greece would need €120 billion. Today the IMF announced it would provide €120 billion. Coincidence? Read all about it straight from the horse's mouth.
- IMF is likely to reach agreement this coming weekend. It'll then go to the Board for formal approval, which is a formality.
- The program will NOT be 100-150bn. Not realistic. But it will probably include a year of full funding (55bn), and indications of a long term commitment to help Greece.
- The program will not include a "private sector contribution", ie a demand for debt restructuring.
- the first European money, including in Spain, will be approved on Friday; others including Germany will followed very shortly after. It looks as if the European money will be disbursed in parallel with the IMF, with the first money going out before mid-May, safely in time for the May 19 "deadline".
- The ECB is extremely unlikely to intervene in Greek sovereign debt (what would they want to achieve by doing so?).
Goldman's Erik Nielsen On Why US Taxpayers Will Soon Burn Tens Of Billions To Delay The Greek BankruptcySubmitted by Tyler Durden on 04/26/2010 23:11 -0500
A very much downcast Erik Nielsen shares why the soon to be revised IMF/EU 3 year €150 billion (up from €40 billion) Greek bailout will be a waste of taxpayer money. And here is why American taxpayers will soon have to pony up to make sure Greeks can retire at 61. "I suspect that some haggling is now going on between the IMF and the Euro-zone on the burden sharing of a bigger program, but I rather doubt that the Europeans can do more than the already announced EUR30bn for the first year. If so, I suspect that the IMF will have to settle for something like a 12-months fully funded program worth a total of EUR50-55bn (or could it be an 18-months program worth some EUR80bn?)." Yet, as even Erik points out, this is just more US money thrown out. "even a fully funded program for 12-18 months imply important risks and could lead to debt restructuring. First, while the government will be fully funded, the private sector, including the banks, maybe still find financing at affordable rates difficult to come by. Second, there is a risk that the government will not meet the performance criteria and hence lose the promised official financing, and third, what comes after the fully funded program? If the situation is unsustainable now, it’ll take one heck of a policy program to make it sustainable in three years following more debt at interest rates well above the likely nominal GDP growth rate." All is good though - remember the Bernanke Directive #1: If an action results in the imminent weakness, suffering, pain or death of the dollar, with (preferably) or without the elimination of the US middle class, pursue such action with enthusiasm and vigor, in perpetuity.
The finance minister has failed to convince Conservative MPs to approve his chosen tactic to get the financial help package for Greece fast through parliament. The finance minister had planned to "attach" the financial help to a draft law that had already passed most of the usual parliamentary hurdles. This plan, however, has now been rejected by the Conservative MPs who demanded a specific stand alone law. This may significantly delay the whole process of parliamentary approval. There is the possibility of fast track legislation that would take only about two weeks but the opposition would need to approve this. All this does not imply that the financial help will not be approved by parliament in the end, but it has significantly increased the possibility that the German part of the package will be disbursed only later. - Erik Nielsen
Erik Nielsen's Morning Greek Update, More Vivid Imagery As Loaded Gun Becomes Full Fire ExtinguisherSubmitted by Tyler Durden on 04/12/2010 08:10 -0500
As we claimed yesterday, Greek bailout #4 is nothing but more hot air and mirages that more debt will fix excess debt. Just as the bond traders who are now starting to take the entire Greek curve wider once again. Goldman agrees too.
Erik Nielsen must have gotten quite a beat down from the Goldman Greek PR corps. Earlier, as we disclosed, the firm's European strategist, suggested that something nasty this way comes courtesy of an emergency ECB meeting. Later, he backtracked not only on that statement, but also on all the media hoopla over the country with the inverted curve, saying (independent) media is now the functional equivalent of CDS traders - vile, smelly, scheming bastards. Amusingly, this is very much reminiscent to Erik faux pas in early February when he had the temerity to point out (rightfully so) that the Greek GDP deficit is actually 16%, not 12.2% as was widely believed (and with every passing week it is becoming clear that Nielsen was completely right, as 2009 GDP is now at 12.9%, and probably will be 14% in another month, yet post another smack down had to reissue his note saying it was all his fault for stirring the speculative elements). Too bad Erik does his best to report the truth as he sees it, only to receive the prop desk's Greek trading axis after the fact, which today apparently was in direct opposition with his earlier bearish tone.