With so much of the attention once again focused on Europe's periphery (which somehow the efficient market could not be bothered with for about 4 months, even though it was all there, staring people in the face all along), it may be time to recall the Europe's core is just as troubled as everything else. Some may recall that back on December 14, S&P came out with a bit of a stunner (which in retrospect looks rather tame following the now forgotten warning on the US Debt): "And so European contagion is back as S&P, now clearly with a mandate
to remind that Europe is in a heap of trouble every month or so, puts Belgium on Outlook negative, saying that it is basically just a matter of time before the country loses its AA+ rating. The bogey: 6 months, which likely means that around May of next year, just like a year prior, we will see the same fireworks out of Europe, only this time not from Greece, but from the very heart of what is left of a solvent continent. "If Belgium fails to form a government soon, a downgrade could occur, potentially within six months. Should a government be formed but is, in our opinion, ineffective in its fiscal stance or devolution, we are likely to consider rating action within two years." Well, it is now 6 months later, and Belgium still has no government. Time to pull the switch?
Goldman on Greece: "We do not see a ‘haircut’ as a viable solution, particularly at this juncture, for a number of reasons: 1. The risk of potential financial ramifications (‘domino effects’) seem too large; 2. the level of debt that is sustainable will be guesswork until growth has stabilized and a primary surplus achieved; 3. the incentives for pursuing adjustment (in Greece and elsewhere) may wane if the debt stock is aggressively reduced; 4. finally, private-sector funding is unlikely to flow back at sustainable levels any earlier than under the current approach of conditional financial support....We still do not expect to see sovereign liability management exercises in Ireland and Portugal. Bonds in these two sovereigns will, however, likely remain subject to higher volatility, reflecting decisions taken on Greece in coming weeks, in addition to local events (e.g., the Portuguese elections, approval of the support package, etc.)."
Total Confusion Rages Over Greece Which [May|May Not] Get A New Bailout Package, [And|Or] [Kept|Kicked Out] Of EurozoneSubmitted by Tyler Durden on 05/10/2011 07:27 -0400
This morning the news wires are filled with the now usual contradictory, and full of lies propaganda about a Greece imminent [restructuring|golden age]. Since very likely all are wrong, we will focus on what appear to be the most credible ones: we will start with the Dow Jones story which has been official refuted by Greece, thus giving its extra validity. As Reuters reports: "News agency Dow Jones, citing a senior Greek government official, reported that Athens expects to receive a new aid package totalling nearly 60 billion euros . Greece denied it was discussing a new package..."It's certainly positive for peripheral sentiment and is assisting in the unwinding of some yesterday's safe-haven flows into Bunds," said Rabobank rate strategist Richard McGuire. Senior euro zone policymakers acknowledged on Monday that Athens will need a second bailout package soon to avert a disorderly overhaul of its debt obligations but rating agencies said more drastic measures may be necessary." Of course, this news comes out strategically and just in time for Greece to auction off a fresh 26-week T-Bill for €1.625 BN at a new record yield of 4.88% (compared to 4.80%) before an an even lower bid to cover of 3.58 vs. 3.81 previously. One can only imagine what a flop the auction would have been without the latest rumor (and even China appears to have given up on Greece: "Foreign take up in Greek 6-month T-Bill sale 34.2% vs. Prev. 41%, according to debt agency chief.") Bottom line as some trader summarized it: "It's very difficult to trade as there are so many conflicting headlines about a restructuring being the only way forward or not. Something will have to give." Exactly - here is a hint: a restructuring, in the city square, with a Molotov Cocktail... and damn soon.
This weekend’s not so secret meeting was the first step towards what could be a rapid end game of Greek debt restructuring. The lenders are unlikely to give Greece the exact same terms as Portugal and seem intent on demanding collateral against future loans. Greece must resist providing collateral since it now realizes it will not be able to pay back all the debt. Greece will push hard for better terms, but if collateral is required, it will be in Greece’s best interest to restructure sooner rather than later. Since the sovereign restructuring process is a negotiation without much ability to use the courts, Greece will find a way to minimize the damage to itself and its citizens while creating a debt structure that is sustainable. This will all be done while retaining the Euro as its currency. Greece may be looking at re-introducing new Drachmas, but this round of restructuring will still be in Euros.
Speaking of spending money we don't have - $23Bn of POMO money will be handed out to the IBanks in the first 3 days of the week as the Government props 'till we drop.
And The Surreal Morphs Into The Tragi-Pathetic: Portugal Opens Criminal Inquiry Into Rating AgenciesSubmitted by Tyler Durden on 05/09/2011 13:36 -0400
Just a ROFL-inducing headline from Bloomberg for now:
- PORTUGAL OPENS CRIMINAL INQUIRY INTO RATING AGENCIES
Are blogs next?
One of the key catalysts that precipitated the perfect storm in precious metals selling last week was the WSJ article that John Burbank, among others, had sold off some or all of his holdings. Today, in a Bloomberg TV interview, Burbank refutes all the skeptics who think the top of gold is here, and makes it clear that while his offloading of the precious metal was merely a temporary trade to lock in profits, the long term fundamentals for gold are as strong as they have every been. So here it is: "The biggest reason to stay in gold is because central banks around the
world can see the writing on the wall long term, which is that the
dollar will be devalued one way or another and that Congress has no
appetite for hard decisions which would be deflationary in nature, and
therefore, make the dollar higher than gold and not as much of a
necessary holding. You also have the Chinese consumer, who has become a
very large buyer, matching almost the Indian consumer and I think quite
clearly, will exceed the Indian consumer. I think ultimately, physical
gold is the story. It is a scarcity story. The more the U.S. dithers and
the more the Fed is willing to print money, as opposed to dealing with
inflation properly, the more this trend will happen. That is the biggest
reason to stay in gold right now. Otherwise, most of the beneficiaries
of quantitative easing will be backing off as most investors get back to
neutral."... "I think that long-term it is clear sovereign yields will be weak and commodities will be strong. It just a question of when we get there and when we price that in." As for risk assets heading toward June 30: "I think risk assets sell off. I think they sell off now into it and we bottom again in commodities this summer." And there you have it, straight from the horse's mouth, instead of from some FRBNY pre-cleared journalist.
When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body. The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders. To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let's follow the money.
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.
Following last week's crude drubbing brought about by correlations gone wild, following the 5 sequential margin hike-inspired collapse in silver, many are wondering if the silver correction is over, or if the crash is just starting. Here is Soc Gen joining in a very schizophrenic Goldman (a month ago: sell; yesterday: buy) telling clients the coast may be clear now that all the weakest hands have been purged (following SLV 88% share turnover on Thursday any latent mania elements have been exorcised).
The correlation between the Euro and Spanish credit risk shows that Spain is a domino too big to fail. It is difficult to conceive of a situation where policymakers would say goodbye to their own jobs by permitting a default. These are fundamentals that matter. It is doubtful that policy can actually stave off default, because liquidity provision is the limits of their arsenal. However, liquidity policy can extend kicking the can down the road for a time. The bottom line is cost of funding. Once it reaches a threshold level, there is just too much pain and default becomes the politically acceptable option. We are nowhere near funding costs that in Spanish government bonds. If fact, the relative pricing of synthetic and cash makes for a compelling trade.
EU To Greece: "We Want To Help You Help Yourself"... And We Want To Own You After You File For BankruptcySubmitted by Tyler Durden on 05/07/2011 11:15 -0400
Well, nobody is leaving the eurozone (as expected), but EU is merely ratcheting up the rhetoric one notch seeing full well what happens to countries that continue to endorse unlimited banker bail outs. And it is likely that the war of words will simply continue escalating until such time as the Greek restructuring becomes inevitable, which will likely happen not sooner than a year from now due to Greek bailout liquidity availability and nobody will push the country to do the inevitable until there is even one spare euro in the coffers for fears of what will happen to Deutsche Bank and the European financial domino. So for those wondering what happened at last night's secret finance minister meeting, one one hand, as Dow Jones reports, Greece "asked its euro-zone partners to ease the country's deficit targets as it struggles to comply with strict austerity terms set under last year's financial bailout agreement, a senior euro-zone government official said Saturday. The senior official said Greece acknowledged that it is unlikely to be able to return to the bond market next year and might need to tap the European Financial Stability Facility, the EU's new bailout fund, for funding. A German proposal to possibly extend the maturities of Greek debt falling due in 2012 also was discussed, this person said. Athens has a long-term borrowing requirement of EUR27 billion in 2012. "Greece has asked for the deficit targets to be eased, specifically to push the budget deficit target of 3% of GDP in 2014 forward by at least two years."" Alas, as expected the latest panhandling attempt by Greece was met with abject failure: "No decisions were taken, according to the Commission's statement. Greece's request for easier terms didn't win the assent of Germany and other participants in Friday's meeting, according to a senior European official." In other words, the country is on autopilot, and possibly worse. Per Bloomberg: "European Union officials may require Greece to provide collateral for aid as policy makers struggle to prevent the euro area’s first sovereign debt restructuring, said a person with direct knowledge of the situation."In other words, for the first time since Weimar, a country may soon be forced to collateralize superpriority debt issuance to foreign creditors: an exercise not really seen in international politics since the Weimar war reparations... and at least Germany had its own currency back then. Summary: the EU just told Greece to prepare for Debtor in Possession loan issuance. Basically should Greece default, and it will, the Parthenon will go to Germany, Santorini will go to Luxembourg, Piraeos will likely end up in IMF hands, and the Chinese will own the rest. Welcome to sovereign debt restructurings for the 21st century.
Comprehensive summary of this week's key bullish and bearish events
GoldCorp submits: "Gold and silver are tentatively higher after their 2% and 8% falls yesterday. In silver, speculators on the COMEX continue to liquidate en masse after margin was increased a massive 84% and various stop loss levels are hit, leading to further falls in the futures market. Absolutely nothing has changed regarding the fundamentals driving the gold and silver markets and this will likely be another correction in gold and another sharp correction in silver. Silver’s sell off has been vicious but value buyers continue to accumulate silver bullion. Jim Rogers, who arguably has a better track record than Soros in recent years, remains bullish on gold and silver and told CNBC, “if it goes down I hope I’m smart enough to buy more silver." Also, there are reports this morning from the Wall Street Journal and Mitsui that there was decent buying of silver from China at these price levels overnight."
Away from the chaos that was the commodities sector today, recent themes in credit, equity, and vol contexts continued to gnaw away at the bullishness of every talking head. Shifts in CMBX tranches point to growing fears of systemic concerns in MBS markets and the up-in-quality trade (or up in capital structure) is in full force.