The Battle Of Berlin

In what has become a typical pattern; Europe has a summit, everyone says this, that, their own variation of that and the other to appease their citizens and it is not until days later that some sort of reality begins to be released to the Press. Not only has this become the pattern but it generally comes over the weekend when the markets are not open and when no one is paying much attention. It is a purposeful scheme and useful I suppose for dampening effects and it allows the bliss to continue. In the meantime there is no ESM in place, only $65 billion left in the EFSF after Spain and Cyprus are funded and the German Constitutional Court declared over the weekend that there would be no ruling on the ESM until September 12. The Golden Rule lives on; “He that has the Gold rules.”. For those that believe in the usefulness of firewalls, which would not include me, you are now staring at bricks to build dollhouses and it is not just the flank but the center that is fully exposed and vulnerable. This is Vichy reborn and Anschluss déjà vu and the takeover of Poland just accomplished on a different battlefield. The weapon is money and not armaments and while the stench is more polite the demand for victory has not lessened.

Dummies Guide To Europe's Ever-Increasing Jumble Of Acronyms

It seems every week there are new acronyms or catchy-phrases for Europe's Rescue and Fiscal Progress decisions. Goldman Sachs provides a quick primer on everything from ELA to EFSM and from Two-Pack (not Tupac) to the Four Presidents' Report.

Guest Post: Five Things I’ve Learned On The Ground In Portugal

Portugal is a country that I’ve always enjoyed, full of warm, welcoming people, excellent wine, and great weather. I came to Porto, the country’s second largest city of some 1.5 million, to get a sense of what’s been happening since the eurocalypse...

S&P Futures At Day Session Lows As German 2Y Hits Record 'Negative' Yield

As Europe opens, S&P 500 e-mini futures (ES) have given up all gains for the day and are back below yesterday's day session lows (down 9pts from the close). German and Dutch 2Y interest rates just hit record lows at -0.021% and 0.033% respectively (and Swiss 2Y is back at -35bps just off its lowest ever). Major AUD weakness following its worst of the year drop in employment is impacting carry pairs (notable JPY strength) and the EURUSD is back at yesterday's lows - which is pushing the USD up to week's highs and dragging commodities lower (with Silver and WTI dropping the most). Treasury yields are leaking lower but remain well off post-10Y-auction spike lows for now. Meanwhile - Italian and Spanish sovereign bond spreads are modestly lower. This seems like a combination of technicals from CDS-cash basis traders stepping in at notably wide spreads as well as the considerable decompression in subordinated bank spreads relative to senior/sovereigns - which is/was a popular trade and seems to have gathered steam once again as the Spanish MOU is leaked (and as we suggested Subs get 'bailed-in'). European credit remains markedly underperforming European stocks post EU-Summit, but the stocks seem to be playing catch-down for now today.

Guest Post: Why We’re Light Years Away From Solving Our Problems

It’s been said that the definition of insanity is to do the same thing over and over again but to expect a different result. On that basis, the western world’s economic policymakers are clearly certifiable. They cut rates. It does nothing. So they cut rates again. And again. They in debt future generations to ‘stimulate’ the economy. It does nothing. So they stimulate again. And again. Nothing that central banksters or politicians have done since the 2008 global financial crisis has fundamentally changed economic conditions. Yet they keep applying the same remedies, drawn from the same old Keynesian playbook. The false premise which guides their decisions is that we can all grow wealthy by borrowing and consuming, instead of by producing and saving. People have been sold this lie for more than a generation. It is embedded in social DNA. In the current western economic system, you are rewarded for going into debt with all sorts of tax deductions. Save money, on the other hand, and you are punished through taxation and inflation. The incentives are all wrong; it’s no wonder that people have over-borrowed and overspent given that the system is so blatantly slanted to promote such behavior.

A Night At The European Opera

It is the ring of the auction house; “Going, Going Gone” as the final bang of the auctioneer’s gavel is about to fall. It is the awful sound of the whoosh of the guillotine manned by the Lord High Executioner that will fall upon ears and eyes wide open. It will be the final night of a failed play and the melodrama of the Operatic tragedy that will be documented in history books and perhaps recorded in some literary masterpiece that is yet to be written. The economic conditions in Europe are deteriorating with an alarming speed and the affects, coming to the United States in this quarter, will be worse for the balance of the year. It is to be recession there, recession here and some measly cup of porridge for all. Those expecting Prime Rib for dinner are about to be disappointed as it will be gruel and the Petrus wine of last year will be Annie Greensprings poured from a plastic box.

Answering The Open Questions On Europe's Bailout Fund

Despite the ongoing barrage of pronouncements out of Europe on a weekly if not daily basis, discussing the imminent launch and even more imminent success of the ESM, the reality is that many questions remain: such as will Germany just say nein again today, in the constitutional court's verdict, especially after the President asked Merkel over the weekend why it is that Germany has to keep bailing out Europe, a proposition which no longer impresses about 54% of the German public. More importantly, even though the debate over the explicit subordination of the ESM may be resolved (it never will be as the bailout funding will always be implicitly senior to general bondholders no matter how many pieces of paper are signed), a bigger debate now emerging is just who will guarantee the bank losses. Below, we answer that question, and virtually every other outstanding one, courtesy of this DB analysis, which removes most of the lack of clarity surrounding the European bailout mechanism. Yet the main axis of inquiry in our opinion is different: what is the timetable of funding rollout. Because as DB explains, "It follows that from July to October, the ESM can only lend about EUR 100bn. If that is committed to Spain, there is nothing left in the ESM until October. Any other intervention before October would have to be under the EFSF." In other words, assuming a smooth acceptance of the ESM today by the German court, and no further glitches, the best case scenario is one which provides for funding to Spain... and there is no other cash until virtually the end of the year under the ESM, whose implementation is staggered as the chart below shows.

Guest Post: Why Spanish Social Tension Does Not Boil Over?

It is truly difficult to believe that social tensions may be contained indefinitely under a deteriorating economic scenario – although there is the 'frog in the pot analogy' again. There are also escape valves which surely help keep social tension from mounting such as the ongoing criminal investigation in which former Bankia chairman Rodrigo Rato and 32 members of the failed bank’s board were formally cited this week as suspects of fraud, misappropriation of funds, and the falsification of financial documents; a necessary but inconceivable turn of events compared to only two months ago. Ultimately, however, unless the long-yearned European breakthrough (which nobody has managed to properly define) occurs soon and some form of economic upturn begins to be seen as within reach, there is no reason to believe that Spain’s situation will improve over the next several months. If the summer turns out to be as “hot” as expected, Rajoy may at least have to revise his communication strategy and start facing the public. The cooling variables which currently work in favor of keeping society simmering in a state of fear rather than boiling with outrage may not hold the fire.

Phoenix Capital Research's picture

Merkel and Weidermann’s points here are crucial. There is no way that either can OK giving German funds (ultimately Germany is the real backstop for the EFSF and ESM) without conditions. Why should Germany risk its AAA status to prop up countries that have proven to be unwilling to implement any meaningful reforms and whom actually lie openly to Germany’s face time and again?

EURUSD Slides To 2 Year Low As Reality Supercedes Hope

European credit markets - sovereign, financial, and corporate - have all slumped dramatically in the last two days - massivley underperforming the ever-hopeful equity markets. Even though broadly European stocks (the BE500 or STOXX) are only retraced by around 25% off their post-summit highs, individual markets (and especially financials) have retraced almost 100% of the gains with Spain's IBEX seeing its biggest 2-day drop in 7 months and closing unch anged from pre-Summit levels. EURUSD is the story though as it plunges to two-year lows  at 1.2266 - over 400pips from its post-summit euphoria highs as QE3 hopes are dashed by muddling through US data. The disconnect between US and European equity indices and the rest of the world's more idiosyncratic risk markets remains unsustainable and as we have said before again and again "credit anticipates and equity confirms".

AVFMS's picture


Central Banks came, stood and delivered… just not much more, although the (nightly) POBC cut (1 YRS by 31 to 6% and deposits by 25bp to 3%) had not really been foreseen. Second Chinese cut in as many month, the last one having been on 07 Jun (as well just ahead of the ECB meeting, then by 25 basis points to 3.25% and 6.31%). The Chinese move was good for a small uptick, rapidly squashed by the European serving.

ECB quarter cut and BoE GBP 50bn additional QE to GBP 375bn both already in the valuation ramp-out of late.

Hmmm… Non-event.

Then came the ECB press conference…



Guest Post: The Socialization Of America Is Economically Impossible

I understand the dream of the common socialist.  I was, after all, once a Democrat.  I understand the disparity created in our society by corporatism (not capitalism, though some foolish socialists see them as exactly the same).  I understand the drive and the desire to help other human beings, especially those in dire need, and the tendency to see government as the ultimate solution to all our problems.  That said, let’s be honest; government is in the end just a tool used by one group or another to implement a particular methodology or set of principles.  Unfortunately, what most socialists today don’t seem to understand is that no matter what strategies they devise, they will NEVER have control.  And, those they wish to help will be led to suffer, because the establishment does not care about them, or you.  The establishment does not think of what it can give, it thinks about what it can take.  Socialism, in the minds of the elites, is a con-game which allows them to quarry the favor of the serfs, and nothing more. There are other powers at work in this world; powers that have the ability to play both sides of the political spectrum.  The money elite have been wielding the false left/right paradigm for centuries, and to great effect.  Whether socialism or corporatism prevails, they are the final victors, and the game continues onward… Knowing this fact, I find that my reactions to the entire Obamacare debate rather muddled.  Really, I see the whole event as a kind of circus, a mirage, a distraction.  Perhaps it is because I am first and foremost an economic analyst, and when looking at Obamacare and socialization in general, I see no tangibility.  I see no threat beyond what we as Americans already face.  Let me explain…

Spain Sells 10 Year Paper, Yields Jump; Ireland Is Not Uganda

So much for the latest European bail out. Not even a full week after the last European dead of night summit, which supposedly "was different this time", and Spanish bond yields have already retraced virtually the entire move lower, and after sliding to as low as 6.1%, are now back to 6.62% as of this morning, 22 bps wider on the day, as a result of the now generic realization that nothing actually changed, and also following the latest abysmal and unsustainable (there's that key word again) auction out of Spain, which sold bonds due 2015, 2016 and 2022, even as its default risk is now wider than that of Ireland.