The New European Normal... Is Squiggly

Eurostat just updated their statistics for government debt to GDP for 2011, so here is an updated graph over Belgium, Italy, Greece, Portugal, Ireland, Spain, France, UK, Netherlands, Germany and Sweden and the development of their gross government debt to GDP from 1996 to 2011. Countries not matching the new Merkozy-limit of a maximum of 3% budget deficit were Greece, Ireland, Portugal, Spain and... France. But we can forget the old euro convergence criteria of 2% deficit and at most 60% debt to GDP as instead of working back to the green 'safe' quadrant, the PIGS are heading in the exact opposite direction missing both deficit and debt convergence criteria.

Citi's Englander On What Can Go Wrong In The Next 11 Days?

As usual the market remains on tenterhooks for its next fix of Central Bank largesse and the following 11 days provide some rather large potholes for those addicted to the sweet nectar of freshly printed extreme monetary policy. Citi's Steven Englander provides some much-needed reality checking on what the market is expecting and what the FOMC/ECB might deliver, and all importantly, what the implications for risk-assets in general will be. The possibility of misunderstood language at the FOMC meetings seems very high even as the announcement of additional measures remains unlikely and perhaps more notably the Euro has sold off sharply when the ECB does not present a policy response to rapidly deteriorating market conditions - especially in light of the implicit tightening we have seen in Euro-zone aggregate rates. Rock meet hard-place.

Mark Grant: "I Do Not Believe, Any Longer, That The Catastrophe Can Be Avoided"

According to Mark Grant, it's over: "There are only two ways out of the current dilemma and that is growth which is not possible as the European economies contract and fare worse as the result of the austerity measures or Inflation; which Germany can’t stomach. The “at the very bottom of the barrel” answer then is not an economic response at all but a question of politics. The answer is actually when some nation cannot take it anymore; either the funding and the increase in national debt and the resultant credit downgrades or in receiving and the pain inflicted upon the populace. From the funding perspective it will be when the debts of the givers begin to match the debts of the borrowers. From the recipients it will be when the core nations decide that no more money will be given and so they will leave the funding nations and their banks with the debts and return to their own currencies and devalue. Which one comes first can only be answered by Divine Providence but I do not believe the train wreck can be stopped. I do not believe, any longer, that the catastrophe can be avoided and I would begin to immediately plan for an event that will eclipse the American financial crisis of 2007-2009 because this one will be far worse."

Guest Post: Epic Fail - Part One

No wonder one third of Americans are obese. The crap we are shoveling into our bodies is on par with the misinformation, propaganda and lies that are being programmed into our minds by government bureaucrats, corrupt politicians, corporate media gurus, and central banker puppets. Chief Clinton propaganda mouthpiece, James Carville, famously remarked during the 1992 presidential campaign that, “It’s the economy, stupid”. Clinton was able to successfully convince the American voters that George Bush’s handling of the economy caused the 1991 recession. In retrospect, it was revealed the economy had been recovering for months prior to the election. No one could ever accuse the American people of being perceptive, realistic or critical thinking when it comes to economics, math, history or distinguishing between truth or lies. Our government controlled public school system has successfully dumbed down the populace to a level where they enjoy their slavery and prefer conscious ignorance to critical thought.

Daily US Opening News And Market Re-Cap: April 23

European stocks are trading lower as North America enters the market with participants coming to terms with the political events of the weekend. The collapse of the Dutch government has clouded the future for fiscal harmonisation in the Eurozone and the outperformance of the far-right in the French Presidential elections has highlighted the discontent of the populous with mainstream politics. As such, all European bourses are trading significantly lower, with the Bund seen trading higher by around 70 ticks. European government bond yield spreads against the German 10-yr reflect the caution, with the Dutch/German spread widening by over 10BPS and the Spanish yield holding above 6% for most of the session.

Israel's Key Energy Provider, Egypt, Cuts Off All Natural Gas Supplies

Two months ago, we warned that while the world had decided to blissfully move on from last year's topic #1, the MENA revolutions, and specifically the massive power vacuum left in their wake, things in the region were far from fixed. Quite the contrary, and as we added back then "it is very likely that the Mediterranean region, flanked on one side by the broke European countries of Greece, Italy, Spain (and implicitly Portugal), and on the other by the unstable powder keg of post-revolutionary Libya and Egypt, will likely become quite active yet again. Only this time, in addition to social and economic upheavals, a religious flavor may also be added to the mix". Yet nobody cared as after a year of daily videos showing Molotov Cocktails dropping like flies, people had simply gotten habituated and needed some other source of excitement. Nobody cared also when a week ago Art Cashin warned that the hidden geopolitcal risk is not Spain but Egypt. Today, Egypt just reminded at least one country why perhaps caution about the instability caused by having a military in charge of the most populous Arabic country and the one boasting "the Canal", should have been heeded after Egypt just announced that it is cutting off its natural gas supplies to Israel, which just so happens relies on Egypt for 40% of its energy needs.

Europe Is Now Red For The Year

A sea of red is flowing from European equity markets and it seems they are unable to stem the flow as IBEX (the Italian Spanish equity index) nears March 2009 lows (down 18% YTD) but dispersion across European indices is very high from the DAX +14% YTD to Italy, Greece, and Spain very much in the red YTD. However, for the second week in a row, European equity markets (as tracked by the narrow Dow-equivalent Euro Stoxx 50) close with a negative return year-to-date -0.3%. The broader BE500 index is still up around 5% (compared to over 10% YTD gains in the S&P 500). European high yield credit is back at 3-month lows and investment grade credit at 2-month lows. This week, however, followed the exact same path as last week with equity and credit trading in a wide range but notably this week credit markets dramatically underperformed the ever-hopeful equity market with financials underperforming the heaviest. European sovereigns are generally wider close-to-close on the week but just like corporate credit and equity, they generally followed a similar path to last week with a broad range trade - though a clear trend generally wider overall. Italy underperformed Spain on the week and Portugal, as we noted earlier was the big winner on what looked like basis trade-driven flows as opposed to whole new world of relief. Ahead of the G-20 meetings, it did not seem like there was much hope in sovereign credit - even as financials and corporates did lift a little off their multi-month lows and having seen the headlines of the G-20 draft, it appears there is no magic bullet there anyway - no matter how big they think their bazooka is.

Spanish 10 Year Briefly Crosses 6.00% And Portugal Active

European sovereigns peaked in spread yield early this morning before the surprisingly positive German confidence data but while France, Belgium, Austria and more significantly Portugal are all improving, Spain and Italy remain far less positive in this small downtrend after two days of significant selling pressure. Both are now around 35bps post the US non-farm-payroll data with Spain cracking back above 6% yield (and remains above 500bps in 5Y CDS). For those wondering what is going on in Portuguese spreads, it appears CDS-Cash basis traders are very active, according to desk chatter, with the spread between extremely 'cheap' bonds and CDS compressing to 7 month narrows here - bonds remain 232bps wide of CDS though as liquidity, ECB subordination, and CDS trigger concerns remain (though this is in from over 700bps difference at its worst in late January 2012).

Oui Monsieur La Difference

In all of the polls for the last six months the socialist, Francois Hollande, is ahead in the run-off election between 6 and 16 points. The first bout is April 22 and the Concours d’Elegance is May 6. Now no one that is not French can understand the French well. The psychology of this nation is singular. What Mr. Hollande’s win will mean for France is something to be carefully considered. A tax rate on the wealthy at 75%, renegotiate the EU fiscal pact, raise the minimum wage, impose more governmental spending, a decrease in the retirement age and a hostility directed at the banks and other financial institutions that may be described as combative or perhaps virulent and a complete change in attitude and direction from Napoleon’s strutting reincarnation also known as Sarkozy. Furthermore, no one is paying particular attention to the announcement of an upcoming EU meeting to propose reintroduction of border controls between France and Germany but it is a clear sign of Federalism on the wane and of Nationalism coming to the fore.

Why German Tempers Are Finally Boiling

Back in July of last year, before it was even remotely acknowledged (and in fact it was roundly denied) that Greece would set a debt haircut precedent, which despite all the rhetoric has merely given all the other PIIGS ideas about debt haircuts of their own (and how to achieve these as fast as possible), Zero Hedge was the first media outlet to cut to the truth, with "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP." Note we said "soon to be" because it was obvious that the modestly complicated math of Germany bearing the cost of keeping the Eurozone alive would take quite a while to trickle down to the common German man. We did, however, underestimate the Bundesbank's mathematically helping hand in the form of one chart, most recently observed here, which makes the math far clearer than anything we could ever do to explain: namely the exponentially grown Bundesbank TARGET 2 balance, which is essentially Germany's way to fund, via the ECB, account imbalances across the Eurozone (explained in gory detail here), and put the national economy on the hook in ever greater amounts to a sudden and disastrous collapse of the Eurozone, because should a fat tail even occur, a solid 25% of German GDP would be Corzined. Today, The Telegraph's AEP does a bring down on the current status of this one biggest wildcard for Europe's future: namely, German anger, or as he puts it "tempers" which it appears have finally begun to boil.

Phoenix Capital Research's picture

In simple terms, Spain is like Greece, only bigger and worse. According to the Bank of International Settlements worldwide exposure to Spain is north of $1 TRILLION with Great Britain on the hook for $51 billion, the US on the hook for $187 billion, France on the hook for $224 billion and Germany on the hook for a whopping $244 billion.

A Quick Reminder Ahead Of Tomorrow's Spain Debt Auction

The Centre for European Policy Studies published their own findings this week and they estimate that the Real Estate accumulated overhang is actually almost $500 billion which equates to 59% of the IMF revised projections for Spain’s GDP. The EU and the ECB may not mandate that the Spanish banks have to mark-to-market in the normal fashion but a quick calculation indicates that the equity of the major Spanish banks is well into the red and past the blood line of any sustainable position. In my opinion, I would state, that the Spanish banks are in fact bankrupt and are only still alive given the financial shenanigans of how Europe allows the numbers to be calculated. I am well aware that many in Europe do not like to be confronted with the truth and that the stock market in the United States is so myopic that they wish to ignore the truth but the numbers are right in front of your nose if you care to look and reality has a funny way of catching up with the markets and reminding them one still equals one in the end. I am an adherent of the Greater Fool Theory and the trick is to let the other guy be the Greater Fool and not one of us. The “when” is unknowable but the “if” is behind us now and I suggest great caution.