First Peaceful European Revolt, As Irish Tsunami Ends 60 Years Of Fianna Fail Rule Following Banker Bailout FurySubmitted by Tyler Durden on 02/26/2011 21:26 -0400
Angela Merkel is carefully observing what can only be classified as a peaceful revolution in Ireland, where a stunning amount, over 70% by some estimates, of voters turned out to punish the ruling Fianna Fail party for its betrayal of the Irish people and for the latest (and what some say last) broad banker bailout. The Telegraph reports that "Exit polls and early tallies from Ireland's general election heralded political annihilation for Fianna Fail (FF), the party which has ruled Ireland for more than 60 years of the Irish Republic's eight decades of independence." Bloomberg adds: "Counting will continue today to fill the 166-seat parliament, with an exit poll giving Fine Gael and the Labour Party a combined 57 percent of the vote. Support for Fianna Fail, which has ruled for the last 14 years, dropped to 15 percent from 42 percent in the 2007 election, the poll showed." In other words, the Irish people have voted for a direct confrontation with the EU, and indirectly, for austerity: "Fine Gael leader Enda Kenny, likely to become prime minister, wants to re-negotiate the interest rate on the emergency loans and speed up planned spending cuts to narrow the budget gap. Labour is pushing for more tax increases." And the reason Merkel is not going to sleep much tonight is that Germany is next. The country, where the CDU saw a comparable annihilation in a recent Hamburg vote, faces several regional elections as early as a few weeks from now, and the political scene is expected to change drastically, as a warning to anyone who feels like putting the banking kleptocracy (again) over the interests of the taxpaying majority. But what is most troublesome for all those who think that the EURUSD at 1.38 is remotely credible, is that the European Nash Equilibrium is now completely destroyed, and the game theory defections are about to start in earnest: "Declan Ganley, the Irish businessman who led the 2008 No vote to the Lisbon Treaty, said Ireland must "have the balls" to threaten debt default and withdrawal from the single currency. "We have a hostage, it is called the euro," he said. "The euro is insolvent. The only question is whether Ireland should be sacrificed to keep the Ponzi scheme going. We have to have a Plan B to the misnamed bailout, which is to go back to the Irish Punt." Funny nobody even pretends that modern economics is even a remotely viable concept. Also, the Fed's plan of keeping the USD artificially low against most currencies is about to crash and burn mercilessly.
Albert Edwards On The Resurgence Of The "Conspiracy Of Optimism" As Groupthink Is Back To Record LevelsSubmitted by Tyler Durden on 02/26/2011 15:01 -0400
As regular readers know too well, one topic Zero Hedge enjoys ridiculing with the disdain it deserves is groupthink of any form. The phenomenon, which is nothing but transference of laziness by those who manage other people's money with complete disregard for the consequences of their actions, was among the main reasons for the Great Financial Crash. As nobody was willing to engage in any form of critical thought, and with the market "only" going up, any investment thesis was predicated solely on what the "other guy" was doing. Of course when it all blew up, it was time to blame the evil rating agencies. After all, heaven forbid someone actually think about the logic behind the credit ratings of hundreds of billions in synthetic CDOs, or worse still, take responsibility for their own stupidity and laziness. We are now precisely in the same place we were when the market peaked last time around, with groupthink rampant, with any attempt at opposing thought squashed for fears it will end the party early, with sellside analyst optimism at all time highs, and with the administration actively encouraging rampant lies and perpetuation of the myths that take hold in the market with no factual footing whatsoever. The "conspiracy of optimism", as dubbed once by James Montier, has once again fully taken hold. As SocGen's Albert Edwards points out "despite another post mortem on forecasting failure, nothing has or will change": this is true... until the next crash. Then the finger pointing will begin anew, theatrics about the change in the Status Quo will resume, and once again the Fed will attempt to reflate the latest bubble crash. Only this time there will be no reflation, as the central planning committee's reign of terror will be over, and the fiat monetary system will have ended. Below we present Edwards' most recent solemn and very troubling thoughts on the latest break out of the great groputhink malaise, which will only last as long as the great chairsatan has some control over events. Luckily, with the amplitude from a stable market equilibrium shifting ever greater in either direction, and as the Fed's very existence (remember: the whole point of the central bank is to contain price stability) is repudiated, the time until the reset is now shorter than ever before in history.
A significant extension to my 3 minute Q&A on CNBC's Fast Money show yesterday that, in my opinion, provides irrefutable evidence that commercial real estate is about to enter a cyclical bear market. Then again, what do I know...
Of course, what sucks for the American worker is great for our Multi-National Corporate Masters and we all love a good puppet show, so they bought out the President to say "U.S. companies shouldn't worry about inflation if they're planning on expanding their business."
After having surged for 6 days starting with a major jump on February 16, from €1.2 billion to €15.8 billion, borrowings under the ECB's 1.75% Marginal Borrowing Facility plunged overnight from €14.9 billion to €2.2 billion. As was reported previously, the supposedly responsible banks for this surge in borrowings were Ireland's two most insolvent financial entities: "The FT reports that "Anglo Irish Bank and the Irish Nationwide Building Society, Ireland’s two most troubled lenders, were behind a spike in overnight borrowings this week from the European Central Bank, according to people familiar with the transactions." A senior figure familiar with the transaction said it was “to facilitate” the sale of deposits by Anglo Irish and Irish Nationwide under the restructuring plan. Under the ECB’s normal refinancing operations, the collateral is locked up for a week. Tapping the ECB’s overnight or “marginal lending” facility, although more expensive “gives the banks the freedom to have the assets at their disposal immediately if there is a quick sale" he said." So does this mean that AIB and the INBS have completed their asset sales and the collateral has been unwound from overnight activity? That would be the logical explanation, especially as today is an important day for Ireland with Enda Kenny expected to become Taoiseach imminently. What will be curious is if the MLP borrowings surge once again in the coming days: at that point the "Irish" excuse will no longer be applicable.
Ahead of what is shaping up to be a brutal March for Europe, here is a refresh of all the key European data. Keep this handy as there will be much selling (and, respectively, much buying by the ECB) over the next month. From Nomura: "We refresh the Cheatsheet in the lead-up to a period of key events for euro sovereigns. On 25 February Ireland is set to hold elections, which could ultimately be positive for the sovereign in settling some of the political turmoil that is gripping the country in the post-bailout world. The upcoming ECOFIN (14/15 March) and EU Council (24/25 March) meetings are crucial for the future of the crisis resolution mechanism based on the proposed timeline of the EU treaty change."
- Qaddafi Vows New Crackdown as Violence Spreads (Bloomberg)
- Merkel Says EU Considering Extension of Financial Aid Program for Greece (Bloomberg)
- Dale Joins Sentance, Weale in Push for BOE Rate Increase (Bloomberg)
- Making sense of Wisconsin's union showdown (WaPo)
- Ireland Needs Help with its Debt (FT)
- What Inflation Means to You: Inside the Consumer Price Index (dshort)
- New Zealand's Central Bank May Hold Rates as Earthquake Postpones Recovery (Bloomberg)
- Hong Kong's Main Task Is `Fighting Inflation,' Tsang Says (Bloomberg)
The Inevitable Has Finally Been Admitted In Europe: The Macro Experiment Has Ignited Inflation Without Commensurate Growth; Rates Will SpikeSubmitted by Reggie Middleton on 02/22/2011 09:44 -0400
Is the ECB ready to admit the potential failure of the Great Global Macro Experiment? What will an increase in interest rates bring? Prepare for global cap rate expansion and the potential equivalent for the first global real estate depression...
Markets down this morning as turmoil in Libya heightens. Treasuries remained unchanged and LIBOR-OIS fell to 16.3bp from 16.75bp last Friday v 12bp at the start of the year. Look for today’s release of consumer confidence and Thursday’s release of durable goods to put the recent stock market gains in the context of the economic recovery.
Leading Indicators of Revolt in the Middle East and Northern Africa: Corruption, Unemployment and Percentage of Household Money Spent on FoodSubmitted by George Washington on 02/21/2011 14:17 -0400
The Numbers Behind the Middle Eastern and North African Revolts
With just 4 days left before the Irish General election, the Irish Times reports that Fine Gael is now guaranteed to be the winner of the upcoming popular vote. The only question is whether the government will be a monopoly one or coalition based. Reports the Irish Times: "When people were asked who they would vote for if there were a general
election tomorrow, the figures for party support (when undecided voters
were excluded) compared with the last Irish Times poll on
February 3rd were: Fianna Fáil, 16 per cent (up one point); Fine Gael,
37 per cent (up four points); Labour, 19 per cent (down five points);
Sinn Féin, 11 per cent (down one point); Green Party, 2 per cent (up one
point); and Independents/Others, 15 per cent (no change)." Not surprisingly, lagging Labour party is scrambling to get some last minute votes: "Labour Party leader Eamon Gilmore has urged voters not to give Fine Gael
a “monopoly of power” and called on people to “switch to Labour” when
they cast their vote on Friday." Sounds like a call for a vote for hope and change. That worked swell back in the US. So now that the election outcome is certain, and Brian Cowen's tenure has at most 3 more days to go, here is a profile of the new Irish leader: Fine Gael Leader Enda Kenny.
As was reported on Saturday, the culprits for the surge in borrowing on the Marginal Lending Facility have been supposedly identified, with Ireland once again to blame. The flawed explanation provided was that insolvent Irish banks are paying an extra 75 bps in interest just so they have access to capital on a day's notice (as opposed to a week) as they unwind their collateral. Needless to say, we are skeptical of that "explanation." And judging by the fact that today total borrowing on the MLP, while still near record highs, dropped by €2 billion, without any news of collateral unwind to free up asset sales by either Anglo Irish Bank and the Irish Nationwide Building Society, puts the credibility of the FT source at question. What is without doubt, is that borrowings on the MLP will persist for a long time, as was insinuated in the original piece. After all the whole point was to make this latest outlier event "priced in."
"Massive Collapse" For Angela Merkel Following Today's Hamburg Election As Germans "Just Say No" To More European Bail OutsSubmitted by Tyler Durden on 02/20/2011 17:37 -0400
As the results of the first of seven German regional elections hits the wire, the German people are heard loud and clear: "no more bail outs." The outcome of the Hamburg election is nothing short of a disaster for Angela Merkel and her ruling (for now) CDU party. Bloomberg reports that "Chancellor Angela Merkel’s party lost control of Hamburg, Germany’s richest state, in the first of seven state votes this year that threaten to limit her scope to respond to Europe’s debt crisis, television projections show." Merkel’s Christian Democratic Union took 20.8 percent in today’s election, its worst result in the port city since at least World War II, ARD television projections showed. The Social Democrats, the main national opposition party, took 49.8 percent, enough to end the CDU’s 10-year rule in Hamburg and form a majority government without need of a coalition partner. The CDU suffered “a massive collapse of support in this
booming city that must set off hand-wringing in Berlin,” said
Hans-Juergen Hoffmann, managing director of Hamburg-based
pollster Psephos. “Merkel will surely be concerned now that
this disaster won’t be repeated in upcoming state elections.” To their great chagrin, the young participants on the FRBNY's OMO desk will have to be absent from their President's Day NYU mixers overnight as they are urgently needed by JC Trichet: the reason - buying up every single Portuguese bond as soon as the market opens tomorrow: "There’s a risk to peripheral bonds if Germany is seen not to be displaying support for the countries that are in trouble,” said Orlando Green, assistant director of capital- markets strategy at Credit Agricole Corporate & Investment bank in London. “The market would have been hoping that a deal would have been struck already” before the elections." And while German people are just modestly more civilized than their North African peers, what has happened in Germany is nothing short of a revolution to the existing status quo. The attempt to cover up European bail outs with endless rhetoric is over. If Merkel continues the course she is on, she is history... and she knows it too well. Time to be less than bullish on the EUR's prospects.
There goes another "fat finger" red herring. On Thursday and Friday, when we noted that borrowing under the ECB's Marginal Lending Facility has spiked from roughly €1 billion to €16 billion for two days in a row, we mocked the MSM explanation that this was merely the result of a fat finger, or at worst a faulty recalendarization of a term-MRO borrowing activity for an overnight one (at the exponentially higher rate of 1.75%). As expected, and as we predicted, this was indeed a case of bank gone wrong. Or two. The FT reports that "Anglo Irish Bank and the Irish Nationwide Building Society, Ireland’s two most troubled lenders, were behind a spike in overnight borrowings this week from the European Central Bank, according to people familiar with the transactions." And while we now know who the guilty parties are, the explanation once again leave much to be desired. It is no surprise that all European banks are exclusively reliant on the ECB for funding, which as previously indicated confirms that the Euribor market is a relic of the past since nobody approaches other banks for capital - everyone goes straight to uncle Jean Claude... And in doing so pledges any and all collateral, even if it means running an outright ponzi scheme. "Both banks have become heavily reliant on the ECB’s liquidity funding over the past 2 years, as they have been unable to roll over maturing bond debt and have seen an outflow of deposits." Yet instead of acknowledging that this action is merely a liquidity crunch, the FT's explanation is that the surge in borrowing has to do with the ability to unwind collateral on a moment's notice as a function of the banks' restructuring, instead of having it locked up for a week under the MRO. We are not sure if this "explanation" is just as, or more, laughable than the fat finger one.
ECB Swallows Massive Portuguese Bond Losses As It Is Clear That The Third State Will Soon Join The Bailout Brigade – Haircuts, Here We Come!!!Submitted by Reggie Middleton on 02/18/2011 12:03 -0400
Can the ECB outspend the Bond Markets? Is Portugal truly Insolvent? Will they default? What happens to rate sensitive assets that are already at depression levels, such as real estate, when rates spike world wide? Why am I asking questions that everybody already knows the answer to???? Well, just in case, here go those answers anyway.