Take a moment and conduct a mini thought experiment. Imagine that you're from the future many hundreds of years from now, researching what life was like in the early 21st century. You pull up an archive of newspaper headlines from the year 2011 and read the following...
The “American Realist” Says: Past as Prologue – Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!Submitted by Reggie Middleton on 05/18/2011 11:39 -0400
Last night, I spent an interesting time with the esteemed and world reknown macro economist, entrepreneur, NYU professor and strategist, Dr. Nouriel Roubini. Nouriel is a very, very bright guy. He has to be, he agrees with many of my viewpoints :-) On a more serious note, this article is the first installment of the valuation of real world, real assets and properties that are actually up for sale. I plan to walk my readers through the potential absurdity that is investing in a bubble that has not finished popping.
I am now of the opinion that the US will have to go back to fighting deflation soon and that Q/E (probably in a different form) will be needed. Massive inflationary impacts look to be delayed (for now): Whilst I am happy to accept that Bernanke may have delayed or stopped a deep depression for now and that he has made a lot of Wall St. guys very rich, the whole idea of the Q/E programme was supposed to be, if we are to believe him, to create growth and set the economy back on a sustainable growth path, reduce unemployment and cure the housing problem by getting banks to lend and the consumer spending. Mate, you failed! Unemployment is still at 9% (and a lot more if you look at the real stats), the participation rate is falling and the amount on food stamps is over 4mln! Housing is spiralling lower again as prices continue to fall and banks, whilst having their balance sheets ballooned by free money still sit on hidden toxic waste from the sub-prime issue and refuse to lend at competitive rates.
What happens to Europe when DSK isn't there to rescue them?
Last week I used the analogy of a shotgun wedding to describe how the bailout was being forced upon the Greek people. Maybe, after the events of this weekend, I wasn’t being harsh enough in my choice of analogy. As I continue to digest the news and various opinions, I still reach the same conclusion. Default or restructuring is the most logical outcome and should occur sooner than later. I believe that the image of the IMF has been tainted and it will make it more difficult for the Greek people to accept a deal from them, unless the terms are incredibly favorable. I’ve also listed several of the arguments most commonly used to encourage Greece to delay restructuring, and point out the flaws in each of them.
- TEPCO admits nuclear meltdown occurred at Fukushima reactor 16 hours after quake (Mainichi)
- New York Investigates Banks’ Role in Fiscal Crisis (NYT)
- Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers (Huffington Post)
- IMF chief claims consent in hotel 'attack' (Post)
- Ryan pushes spending cuts as U.S. hits debt limit (Reuters)
- Merkel rejects Greek debt restructuring (FT)
- "Hidden" debt raises Spain bond fears (FT)
- As Case Unfolds, France Speculates and Steams (NYT)
- Draghi Backed by Euro Finance Ministers as Next ECB President (Bloomberg)
- Israel Leader Outlines Points Before U.S. Trip (NYT)
From "Sovereign Liability Management Exercise" To "Reprofiling" To "Muddling Through": The Many Faces Of The Greek BankruptcySubmitted by Tyler Durden on 05/17/2011 07:52 -0400
A week ago it was called "Sovereign Liability Management Exercise" following the politically corrected definition of the Greek bankruptcy by Goldman Sachs. However, after Zero Hedge proposed the unpopular acronym SLiME to capture the essence of this idea, the latest appellation of the current Greek metamorphosis stage from solvency to bankruptcy appears to be "reprofiling." Per Bloomberg: "European finance ministers for the first time floated the idea of talks with bondholders over extending Greece’s debt-repayment schedule, saying that last year’s 110 billion-euro ($156 billion) rescue has failed to restore the country to financial health. Europe would consider “reprofiling” Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg Prime Minister Jean-Claude Juncker said. “If all these conditions are fulfilled, we can discuss the question of reprofiling,” Juncker told reporters late yesterday after chairing a meeting of euro-area finance chiefs in Brussels. “It’s not reprofiling or nothing. It’s measures, measures and measures, and then maybe reprofiling.” (And speaking of simple profiiling, perhaps someone can tell us why the Rikers island inmate directory is still down, now for almost 12 hours, and since the time of DSK's admission). But back to Greece, where "reprofiling" is merely the latest term to push for what will likely end up being a consensual restructuring: "Introducing that prospect marks a break in Europe’s crisis- fighting strategy, with governments potentially shifting some costs to bondholders instead of relying on taxpayer-funded bailouts to stamp out the debt crisis. The talks were clouded by the absence of International Monetary Fund Managing Director Dominique Strauss-Kahn, who was denied bail in New York yesterday after being arrested on sexual-assault charges." Of course, when that fails, there is always the last case definition: the "muddling through" one, which is the one known as the "rolloff" where reality finally meats the can in the street, and freefall bankruptcy follows.
Soros Sells Gold ETF While Paulson Buys - PIMCO Favour Gold As A “Protection Against What Can Go Wrong”Submitted by Tyler Durden on 05/17/2011 07:09 -0400
The confirmation of George Soros ETF gold sale has again garnered much media comment. Soros’ $28 billion fund decreased its holdings of the SPDR Gold Trust, the exchange traded fund. Soros had bought gold to protect against possible deflation, though his fund now believes there is a reduced chance of such a condition, the Wall Street Journal recently said, “citing people close to the matter”. Should Soros and his fund think that inflation is now a greater risk than deflation then it is curious that they would sell all their ETF holdings. It is also curious as Soros is on record regarding having serious concerns regarding the outlook for the euro and the dollar and the dollar as reserve currency of the world. There is of course the precedent of other hedge fund managers , such as David Einhorn, who have also sold their gold ETF holdings but bought physical bullion in allocated accounts due to a concern about counter party and systemic risk. This would allow Soros to discreetly accumulate bullion away from the public and media spotlight that result from SEC filings. Paulson & Co., the $36 billion hedge fund founded by John Paulson kept its largest holding - $4.41 billion in the SPDR Gold Trust. Paulson’s belief in gold is seen in the fact that those who buy his fund can have their stakes denominated in gold rather than in dollars, meaning the value of their investment rises and falls with the price of bullion – lessening exposure to the dollar. Paulson, unlike Soros, is on record as having purchased gold to protect against inflation. PIMCO, the largest bond fund in the world, are also increasingly allocating funds to gold in their global equities portfolio. “The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Anne Gudefin, PIMCO’s global equities portfolio manager, told Fortune magazine May 12.
Equities have significantly underperformed credit the last two days but have plenty of room to go before they re-sync with any kind of value. Rotation under the surface points a risk-averse crowd seeking safety and not poised to BTFD.
So accident applies to this situation in the same way that it's an "accident" if the number you bet on in Roulette comes up on the wheel - it doesn't USUALLY happen but, if you spin the wheel enough times - it's GOING to happen
Stocks appear to have largely ignored the technical default of the US (fire and brimstone warnings from the tax expert notwithstanding), and instead appear to be tracking the EURUSD tick for tick, as every algo continues to be an inverse USD "hedge." Earlier today, Goldman's Thomas Stolper, who is danger of once again appearing rather foolish with his 1.50 EURUSD call (despite the pair rising as high as 1.4925 earlier), and has a stop at 1.35, released another note in which he said that while Europe may be insolvent, things are not really all that bad. "It appears FX markets and the Euro play the role of a safety valve
with investors buying protection in case the sovereign situation gets
notably worse...Having said this, apart from the Euro, things seem to stabilise
otherwise. Greek 2yr yields have been stable, slightly below 24 percent
for about 3 weeks and this despite no peripheral bond purchases by the
ECB within the SMP program in recent weeks. Greek stocks appear to be
stabilising at low levels as well, having been on a downtrend for
several months....we remain structurally constructive on cyclical assets, including
stocks and oil, which in turn suggests there could be further upside in
the Euro, induced from cross asset correlations." Ergo, GS is now betting the ranch on a dead cat bounce which will lead the market dominating robots to an IMF like release of buying programs soon enough. And with that we have now seen it all.
All around the world, the bodies and countries with the most power keep screwing people (some like IMF head, Dominique Strauss-Kahn, literally) and entire nations, while supporting their banking systems. Last week, S&P announced it would downgrade Portugal if it didn’t play ball with the IMF and EU over its 4-year 78E billion-bailout program in return for hacking public programs. Echoing our own Congressional goons spewing spending cuts in the face of inadequate revenues and for-bank-manufactured mega-debt, the S&P noted, “Two-thirds of the projected savings in [Portugal’s] 2012 budget will likely come from spending cuts.” On a roll, the IMF also declared Italy needs ‘structural reform’, meaning labor market reform, less public ownership and more private investment to “unlock its growth potential.” (aka invite more speculative capital at its earliest convenience.) Meanwhile, thousands of people are again striking in Greece, as the IMF and EU discuss more austerity measures, following the bank bailout that provoked public outrage a year ago, and a rating downgrade by S&P. The EU remains more concerned with investors regaining confidence in Greece than economic stability of its citizens. Then, there’s Ireland, for whom its last bailout didn’t dent its 14.5% unemployment rate, or fill in the gaping holes its banks dug. In short, the global ‘remedy’ for depressed economies and debt-bloated banking sectors remains to do – more of the same - and pretend this will beget a different outcome. Yet, there is no way this strategy will result in more stable economies. What we can expect instead is further widespread deterioration.
While equities are credit closed almost unch from last Friday but at their lows/wides of the week, there was plenty under the surface that clearly signals derisking is rife and discrimination active. HY dispersion and CMBX tranches among others point to some cyclical turning points that do not auger well.
Following last week's ECB very dovish conference, in which Trichet was believed to have put any tightening plans in the eurozone on hold for an indefinite amount of time, today's release of very strong core Eurozone data once again brings the specter of a rate hike to the fore, sending the EURUSD notably higher, and of course, leading to a weakening in the dollar. In addition, the already well known schism between Europe's core and periphery continues, following very weak data reported in the austere PIIGS countries, offset by consensus beating growth in Germany and France. From Bloomberg: "Euro-region economic growth accelerated to the fastest pace since the second quarter of 2010, powered by forecast-topping expansion in Germany and France that offset the impact of tougher austerity measures from Ireland to Spain. Gross domestic product in the 17-member euro area rose 0.8 percent from the fourth quarter, when it increased 0.3 percent, the European Union’s statistics office in Luxembourg said in a statement today. Economists had forecast the economy to expand 0.6 percent, according to the median of 31 estimates in a Bloomberg News survey. GDP rose 2.5 percent from a year ago." All of which once again proves that there is no possibility that Germany and France will ever allow a disintegration of the euro, and will continue to bail out all their troubled neighbors as the continued pegging of Germany's red hot economy to such weaklings as Greece is the only factor that matters for the country's export-led growth.
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.