Portugal

First Spain's Castilla La Mancha region was the first to announce it had "discovered" major debt ceiling holes, now it is Portugal's turn. The Telegraph informs that "Portugal's new leader Pedro Passos Coelho has told the nation to brace for further austerity measures after his government discovered a "colossal" €2bn (£1.7bn) hole in the public accounts left by the outgoing Socialists." And while it answers our immediate question "who's next" it certainly does not provide an answer to who's last. Because as more and more governments are changed, more and more such "discoveries" will be announced, but luckily for Europe (and then America), there are far more pressing issues that distract the populace than discoveries than in the past would have led to popular backlash. Concurrently, Portugal joins Greece in indicating that beggars can most certainly be choosers: "Mr Passos Coelho also appeared to caution the European authorities that his government will not tolerate heavy-handed interference in the country. "We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and let Europe govern Portugal," he told a party gathering." And while short-termism reigns across capital markets at least for a few more hours, the reality is that there is simply not enough money out there to plug each and every hole as it is uncovered. But that will take the market a few weeks to months to realize.

And heeeeeere's Moody's to dump on today's no volume levitation and push Portugal further into junk: "Moody's Investors Service has today downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody's has also downgraded the government's short-term debt rating to (P) Not-Prime from (P) Prime-2. Today's rating action concludes the review of Portugal's ratings initiated on 5 April 2011."

As expected, the Portuguese elections appear to be a massive victory for the Social Democrats' Pedro Passos Coelho, who is now guaranteed to replace Socrates as Portugal's next PM. The latest results indicate a 41.08% lead for the PSD compared to 28.77% for the PS. What will this change in terms of national policies for this latest IMF vassal state? Absolutely nothing (as discussed earlier). Follow the latest district by district data live here.

Today, in a much anticipated outcome, Portugal will vote to replace the caretaker Prime Minister Jose Socrates with opposition center-right Social Democrat Pedro Passos Coelho. Alas this is largely a symbolic vote as the new guy is just a continuation of the policies of the old guy: "Passos Coelho, who cast his vote at a polling station in Amadora on the outskirts of Lisbon, where reporters by far outnumbered voters, said Portugal had to stick to the bailout terms to regain market confidence and return to growth." Even the young people understand this: "Ricardo, a voter in his late 20s, expressed a common view that any new government just has to march to the beat of the lenders' drum. "I think the election won't bring anything new because it's the IMF in charge of the country now ... Any party that gets to the government will just have to follow IMF rules, " he said." Spot on. And we wonder how long before Mohamed El-Erian, or some other actual thinker, has an op-ed discussing the pitfalls of what we have now trademarked as "The Congress of Berlin 2.0: the scramble for Europe."

Gold and silver are flat in US dollars but higher in euros this morning. Trade is thin with the UK and US markets closed for spring holidays. Gold and silver were 1.75% and 8% higher last week and the precious metals and especially gold appear to be on solid footing due to the continuing debt crisis in Europe and concerns about a slowdown in the US and global economy. Despite gold being only some 2% away from the record nominal highs seen at the end of April ($1,563.70/oz), sentiment remains lackluster at best with little or no coverage of gold in the international financial press and media over the weekend. In the last two weeks we have experienced a lot of sell orders and the ratio of sell to buy orders has been the highest since our foundation in 2003. Value buyers emerged last week but much of the buying was by existing clients adding to their holdings. The threat of sovereign default and contagion increases by the day.

And so the stealthy campaign by Europe to asset strip its debtor prison nation continues. After on Saturday it was made clear that Europe will force Greece to issue an effective DIP loan ahead of its own bankruptcy, collateralizing post-petition creditors, and pushing existing sub noteholders lower in the cap structure, so the same scheme will now be used by Europe to grant Portugal rescue funding in exchange for Finland's "agreement" to help save the country. Per Bloomberg: "Finland will back a bailout for Portugal provided the third euro member to require aid in 12 months agrees to conditions including state asset sales. In addition, Finland wants a guarantee that bailout donors will get their loans repaid before private investors, he said." Which simply said, means that as PIIGS, already held hostage by a monetary union which threatens with world extinction should it be unwound, and by bankers who promise to never lend money should they be forced to take even once cent in senior debt impairments, will next be forced to literally sell themselves off at n blue light special auctions, where the liquidation sale biggest bidders will be none other than the very same financial institutions who have put these countries in their terminal predicament. Incidentally, all this is coming to municipalities and local governments in the US very, very soon.

Just a ROFL-inducing headline from Bloomberg for now:

• PORTUGAL OPENS CRIMINAL INQUIRY INTO RATING AGENCIES

Are blogs next?

Now that Greece and Europe are hanging on by a thread with relations frayed beyond any chance of reconciliation, all eyes move to Portugal which will soon see "speculative" articles written about it by Der Spiegel as Europe's bloodlust moves from one PIIGy to another. Below we present Portugal attempt to preempt popular hatred of being on the bailout wagon by releasing what can only be described as the most pathetic, see thru propaganda video conceivable.

Almost a year to the day from the first Greek bailout, we thought we would revisit just how successful Europe has been in masking its pervasive insolvency, and just how far Europe has ultimately gone over the past year. As the chart below shows, pretty far. Especially if one measures the displacement by the shift in the Greek bond curve whose 3 year point just passed 18%. Buy it, hold it for 5.5 years and double your money.

Who would have thought permanent austerity and a government crisis would lead to popular unhappiness. Well, the General Confederation of Portuguese Worker, better known as Portugal's largest union, for one. From Reuters: "Portugal's largest labour union is considering calling a general strike as it steps up protests against painful austerity measures that are expected to deepen under an EU/IMF bailout, its leader said on Thursday..."A general strike is an instrument that is on the agenda."" And with 725,000 members, and the certain shutdown of the Portuguese economy that would ensue, it is perhaps time to consider what will happen in Spain and soon all of Europe as the wave of austerity started almost a year ago spreads, and what the impact to European GDP (and thus global) will be. But most importantly, where will the credit money come from to push the world from this latest imminent downturn. After all Jon Hilsenrath telegraphs to us that there will be no QE3. And who are we to disagree.

And you thought the EU bailouts were a mess?

Two weeks ago, we when we disclosed the most recent expansion in the IMF's funding with the announcement of the activation of a "Special Funding Pool" we predicted:  "Bottom line: there is a new threat to the international monetary system which means Europe May 2010 redux is imminent. US taxpayers: our condolences." Alas, as tends to happen in these cases, we were right. The IMF, whose number one source of funding is you, dear US taxpayer, has just received a bailout request from Portugal. 

Following yesterday's bailout request by Portugal one would have expected that the Portuguese bond curve would tighten at least a little on some short covering in rates. One would be wrong. Except for a tiny tightening in the short-end (sub 1 Year), Portuguese rates have actually deteriorated across the curve with roughly a 0.075 widening in all points east of the 2Y. Is it time to pull an Ireland and start pricing in Portugal bailout #5?

Update: It's Official. Portugal is Bankrupt:  Portuguese finance minister says the country will have to use European Union mechanisms to resolve its debt problems, to make announcement at 8PM.

In the biggest shocker to come out just hours before the ECB's announcement tomorrow, which many see is a guaranteed rate hike, Journal de Negocios has just announced that according to the Portuguese Finance Minister, the country needs a bailout, after weeks and weeks of Greece-style denials. And yes, nobody could have foreseen this, and all that jazz.

If you really don't think a Pan-European bank collapse may be in the cards, you really haven't been paying attention. Things are coming to a had much more quickly than even I anticipated, and you know I'm far from optimistic in this regard.