Portugal

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.

Phoenix Capital Research's picture

The Fed, by buying Treasuries is making insolvent banks even more insolvent. It is a short-term gain (liquidity) for a long-term disaster: banks need as much collateral as they can get their hands on right now. And with Treasuries rallying (raising the value of the banks' assets) any aggressive Fed program to take Treasuries out of the system would be a MAJOR step towards another solvency Crisis a la 2008.

AVFMS's picture

 

Closing in unconvinced ROn mode. European equities taking their final lead from US peers. Peripherals pushing just the last basis points tighter. Note that these curves are finally steepening through renewed short end strength with both 2-3 YRS area down 20bp on the day. On the other hand, Core EGBs have not been driven into the wall, as one could have expected in full ROn modus. German 2 / 5 / 10s about unchanged from Friday.

Tug of war between wary optimists and tired pessimists? Glass half full or empty? Dusty diamonds, anyone?

 

Not a highly inspirational day to write about. Reduced volatility and very range-bound. Lack of real news flow. Action more in the financial people press, as it stands. And in EUR New Issues, as borrowers have come to learn that windows of opportunity, when seeing one, should be used. Knowing, too, that new issues will grind to an end probably as of the end of next week. Hence, EUR 7.5bn senior bank debt served in 2 days. Ce qui est pris n’est plus à prendre…

 

Secrets Of The Trade

I don’t know, in my rather straight down the middle Kansas City mind I prefer a reality where one plus one is two and not where some European auditor, when asked about the sum of one plus one says, “What number would you like?” This was the way of it in “Alice in Wonderland” of course as the meaning of the word was determined by the speaker but this is not a wise path to be followed by an investor. Recently I wrote about Firewalls and the hocus pocus of their being touted as the cure-all for Europe. Europe missed the train on this one altogether as no amount of money, either pledged or funded, will do one thing to help the worsening financial crisis of the countries in Europe. You may think of the nations of Europe as horses in a corral. What is the value of a bigger and bigger fence that surrounds them if the horses are full of cancer? The fence, of whatever size, does nothing and I mean nothing to help the sickness of the horses. Europe is battling with windmills when they should be addressing the financial health of each country. “The horses are sick,” I say, “forget fiddling with the fence.”

Faber On Europe: Think GERxit Not GRExit

In line with our views on Europe's endgame, Marc Faber opined on Bloomberg TV this morning that if he "was running Germany, [he] would have abandoned the eurozone last week". We suspect that given the lack of real steps forward and no additional exposure (as yet) for Germany that they can hang on a little longer before they reach the final phase of the game-theoretically optimal exit (that Credit Suisse and us share) of a mercantilist GERxit occurring sooner than many think (benefiting from deposit inflows and low-EUR-based high profitability from exports for as long as possible and not a moment longer). The "cosmetic fix" of this latest summit, as Faber calls it, simply does not solve the fundamental problem of over-investment in the euro-zone. He is bottom-fishing in some European equities (though avoiding banks) and is not long the Euro here as he sees the modest rally in risk assets in Europe as merely a reflection of illiquidity and a grossly oversold market reverting on 'not a total disaster' though he reminds us early on that "pooling 100 sick banks does not make them healthy."

The Failure Of The Firewall

The markets are getting mislead, one more time, by the spin that Europe places on events; by the focus that the giant European propaganda machine spits out from various sources again and again and again. You may recall, in the not too distant past, how the firewall was the thing, how the money needed to be bigger and how we were all led to believe that this giant, massive wall of Euros would protect the core nations of Europe. These nations included Spain and Italy without question and now the first mighty oak has fallen as Spain stepped up to the plate and swung the begging bat. Firewalls, of any size, do not do one thing to stop the infection of those that are heading economically south and Europe has placed its full concentration on the totally wrong aspect of the problem which has been to ward off the evil spirits of the bond vigilantes instead of on fixing the financial problems of the nations and so the problems continue and worsen. Over the weekend Spain said their second quarter results would be worse than the first quarter and Italy said there may come a moment when she needs help and the basis of what is driving the markets heightens as the economies of a mostly recession bound Europe are getting worse. What have we learned in short, in brief, in actuality is that the concept of some mighty firewall is a failed concept and Spain has just proved the truth of that.

Europe's Unanswered Questions

The EU summit to save the Euro (the nineteenth, or thereabouts) has, quite remarkably, agreed to do something to try and save the Euro. As UBS' Paul Donavan notes "As ever with a Euro summit there are unanswered questions. Grandiose statements are what heads of government specialise in – the details are left to later" - it is one of the reasons why Maastricht produced a monetary union that was flawed from the outset. Once “create a single currency” had been agreed, politicians lost interest. The statement from the summit itself was woefully inadequate, but below UBS lays out what additional questions need to be answered. Always keep in mind though, "Going into this summit we had a monetary union in Europe that clearly did not work. Coming out of this summit we have a monetary union that still does not work."

Despite 'Nouveau-Deal', European Bonds End Week Unch

Exuberance rules and it seems everyone and their mum believes that something significant just happened in Europe in terms of a 'game-changer'. We suspect this is anchoring bias writ large - we've been down so long that any up feels great. While every asset class jumped dramatically on the day - EURUSD 4-sigma surge, stocks up 3 to 4%, Credit snapping tighter, Europe's VIX plunging, and Sovereign bond yields gapping down - the truth of the matter is that if this were truly a 'game-changer' then would it not be likely that risk assets would be higher than they were just a week ago? Between the total uncertainty of the actual plan's implementation and Merkel still pouring cold water timelines on things; we note that Spanish and Italian bond spreads end the week practically unchanged; Corporate and financial credit spreads are at 6/21 high levels (but not beyond); Europe's VIX has compressed dramatically in our favor for relative to US VIX but remains at 6/21 levels; and only stocks are above those 6/21 highs in their typical high beta excited hopeful manner. Into a thinly traded weekend ahead of July 4th, we would have expected a little more from this nouveau-deal.

Epic EUR Short Squeeze Sends Risk Soaring, Gold Over 1600

The squeeze is on. EURUSD is probably the most extreme example of the squeeze-factor potential of what is at its heart a lot more talk and lot less action. Up almost 250 pips from its pre-summit-statement levels, EURUSD is just under 1.2700 - which in context is only back to 6/21 levels. As we noted on June 3, the epic level of CFTC non-commercial EUR spec shorts were ripe for a squeeze-fest, while on the other hand we specifically said "the pain trade will be any appeasing announcement from Europe." Sure enough we got just that (supposedly) and EURUSD is now up well over 300 pips from those levels as the clear pain trade plays out. The USD weakness has driven commodities higher with Gold reaching $1600 once again (6/21 levels). European sovereigns are (somewhat expectedly given the euphoria - though just how much has actually changed is unclear) also rallying hard on the day but while they have compressed spreads markedly, they have stalled at unchanged on the week (though Portugal remains notably wide on the week). Credit and equity markets in Europe are in sync and have snapped higher to 6/21 levels also (with financials outperforming modestly). Europe's equity markets are all soaring - up 3 to 4.5% - as DAX is now outperforming the S&P 500 on the year once again. Big moves (multiple sigma in bond and FX markets) and yet we can't help but think they were hoping for more than just a retracement of one week's price action.

Hardball In Brussels

In the final analysis Europe is quite exposed at this moment and may be for quite some time. The ESM, after the change in seniority status, must be re-affirmed in at least two countries that are the Netherlands and Finland and Germany has not yet approved it yet either. The EFSF has already spent $450 of its capacity on Greece, Ireland, Portugal and now $125 billion for Spain. The balance left in the fund is tissue paper thin and that is all that is in existence presently for any more problems in Europe. Plans and schemes aside, the amount of money that could actually be used today is a drop in the proverbial bucket.