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When do we decide that Europe must restructure much of its debt?

When do we decide that Europe must restructure much of its debt?

Courtesy of Michael Pettis 

It is hard to watch the Greek drama unfold without a sense of foreboding. If it is possible for the Greek economy partially to revive in spite of its tremendous debt burden, with a lot of hard work and even more good luck we can posit scenarios that don’t involve a painful social and political breakdown, but I am pretty convinced that the Greek balance sheet itself makes growth all but impossible for many more years.

The history is, to me pretty convincing. Countries with this level of debt and this level of uncertainty associated with the resolution of the debt are never able too grow out of their debt burdens, no matter how determined and how forcefully they implement the “correct” set of orthodox reforms, until the debt is resolved and the costs assigned. Greece and Europe, in other words, have a choice. They can choose to restructure Greek debt explicitly, with substantial real debt forgiveness and with the costs optimally allocated in a way that maximizes value for all stakeholders, or Greece can continue to struggle for many more years as the debt is resolved implicitly, with the costs allocated as the outcome of an uncertain political struggle.

Until one or the other outcome, the country is not a viable creditor and it will not grow. There is no way to get the numbers to work. If Europe policymakers who oppose a rapid resolution of its debt crisis continue to prove as intransigent over the next few months as they have been in the past week, I suspect that they will only be able to pull off one of their goals, which is to embarrass Syriza and get it thrown out of office.

But I suspect that many European policymakers incorrectly think Syriza is as radical as it gets, and once Syriza is discredited, almost any alternative leadership would be better. I disagree. If Syriza is discredited, and the Greek economy continues to stagnate as I expect, the alternative could very easily be Golden Dawn or some other group of radical nationalists determined to blame foreigners for their problems, and Germany


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Ukraine Rations Food; Interbank Rate New Record Low; Monetization of Bonds; “Devaluation Kerosene”; Electronics a Store of Value

Courtesy of Mish.

A chart of Ukraine’s currency is nonsensical once again today.

Supposedly the hryvnia rallied again today, if only by a miniscule amount 0.15%. Yet, once again the chart is complete nonsense.

Black Market Rate

The Black Market Rate today is a bit improved, with a bid/ask spread of 29.45 to 34.55. How long that rally lasts is questionable. I presume not long.

If one could exchange at the official rate, one would immediately have an arbitrage on the black market.

Translation: The alleged official rate is “for show”. No one can get it, except perhaps favored politicians and bankers taking advantage of their position of authority.

Reader John, whose father was a key figure in the Ukrainian Resistance in WWII, and whose sister currently lives in Lviv in Western Ukraine sent the following link that shows what’s really happening.

Interbank Rate Fell Sharply to New Record Low

Dateline February 26, ZN-UA reports Interbank Hryvnia Fell Sharply to New Low.

Interbank Hryvnia, despite yesterday’s statement heads the National Bank and the Finance Ministry to take measures to stabilize the currency as of February 26, the hryvnia plunged to a new record low, reaching a figure of 34.5 per US dollar.



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3 Things – High Yield Warning, Yellen’s Employment & Economy

Courtesy of Lance Roberts via STA Wealth Management

A High-Yield Warning

With Janet Yellen recently warning about overvaluation in the bond market, I thought it would be important to look at potentially one of the single most overvalued areas in that market – high yield. To wit:

"However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets, despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector, as indicated by rising prices and the easing in lending standards on CRE loans. Finally, the increased role of bond and loan mutual funds, in conjunction with other factors, may have increased the risk that liquidity pressures could emerge in related markets if investor appetite for such assets wanes. The effects on the largest banking firms of the sharp decline in oil prices and developments in foreign exchange markets appeared limited, although other institutions with more concentrated exposures could face strains if oil prices remain at current levels for a prolonged period."

There is a significant chunk of high-yield debt that is associated with the oil and gas drilling sector that was used to chase "fracking" opportunities in Texas, Oklahoma and North Dakota. The one-two punch will come from a sustained period of low oil prices and a potential rise in borrowing costs for the sector.  As I have discussed previously:

"But with valuations in the energy space exploding due to falling revenue and profitability, there is likely a good bit of "shaking out" left before this reversion is complete. (Also be careful of highly indebted oil related investments, there will likely be more liquidations than acquisitions in the not so distant future.)"

There is little doubt that a "bubble" has formed within the high-yield sector due to the incessant "chase for yield" given the Fed's ongoing drive to push interest rates toward the zero-bound. This has led investors to take on substantially more "risk" than they most likely realize which will result in substantial loss of principal during a mean-reverting event.

The chart below shows the spread between high-yield (junk bonds) and both AAA corporate bonds and 10-year Treasury bonds. When the spread…
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Economic Composite Index Suggests Restocking Cycle Is Over

Courtesy of Lance Roberts via STA Wealth Management


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Right-to-Work Sweeps Midwest, Heads for Passage in Wisconsin

Courtesy of Mish.

Right-to-Work legislation is sweeping the Midwest. It’s one of many reforms needed to makes states more competitive, reduce cost pressures on infrastructure projects, and hold down the necessity of tax hikes.

Today the Wisconsin Senate Passed ‘Right to Work’ Legislation.

The proposal would let workers opt out of paying mandatory dues. Many would do just that, preferring to keep money for themselves rather than for the priorities of union officials, including corruption, graft, and various political goals that workers may not at all agree with.

The Wisconsin House of representatives is expected to approve the legislation making passage all but certain.

His staff issued this statement “Governor Walker continues to focus on budget priorities to grow our economy and to streamline state government. Governor Walker co-sponsored right-to-work legislation as a lawmaker and supports the policy. If this bill makes it to his desk, Governor Walker will sign it into law.”

Illinois Again Lags Neighboring States

Unfortunately, and as typical, Illinois lags other Midwest stated in passing much-needed legislation.

I wrote about that on Febuary 11, in my first article for the Illinois Policy Institute. Let’s recap Missing the Boat on Right-to-Work.

Illinois Chamber Misses the Boat on Right-to-Work

The Illinois Chamber of Commerce recently took interesting, as well as contradictory, positions regarding the minimum wage and Right-to-Work legislation.

On one hand, the chamber is not in favor of minimum-wage hikes for Illinois. On the other, the chamber says “Illinois doesn’t need right to work (laws) to compete with its neighbors.



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Greece Suffers Biggest Bank Run In History: January Deposits Plunge To 2005 Levels

Greece Suffers Biggest Bank Run In History: January Deposits Plunge To 2005 Levels

Courtesy of ZeroHedge. View original post here.

One of the biggest question marks surrounding the Greek negotiation and ultimately, bailout extension, was just how panicked the Greek population and domestic corporations were. As previously noted, the tension boiled down to this: the Troika did everything in its power to accelerate the bank run in order to crush any negotiating leverage Varoufakis may have; Greece on the other hand was desperate to make its cash drain appear far better than rumored.

Moments ago the Bank of Greece presented its latest, January, deposit data. And it's a doozy: following a record €12.2 billion monthly outflow, greater in absolute and relative terms than anything experienced during any of the previous Greek crises and bailouts, the total amount of Greek corporate and household deposits has now tumbled to just €148 billion, down 7.7% from the month before, and down 10% since November. This number is in line with some of the more pessimistic expectations, and brings the total cash holdings at Greek banks to the lowest level since August 2005.

What's worse is that the outflow has most certainly continued in February, when according to rumors another €10 billion or more may have been withdrawn. And while the new FinMin is desperate to make it seem that now that Greece has a can-kicking bailout extension "deal" the bank run has stopped, this is very much in doubt.

One thing is certain: Greek banks, already crushed by record non-performing loans (NPLs) somewhere in the 40% range, and without any equity buffer, are now all dead banks walking following this latest cash rush. And absent another bailout – one which S&P calculated in October will need to fund Greece with more than €40 billion in additional cash – and one which will come with even more draconian conditions, we simply don't see how Greece gets away from its current "self-reinforcing feedback loop" predicament without Cyprus-style capital controls.

(Source)





Reforming the Fed: Who’s Right; Who’s Wrong?

Courtesy of Pam Martens.

Congressman Jeb Hensarling, Chair of the House Financial Services Committee

Congressman Jeb Hensarling, Chair of the House Financial Services Committee

The Republicans are making good on their campaign pledge to turn up the heat on the Federal Reserve. Sparks flew in the House Financial Services Committee hearing room yesterday as Fed Chair Janet Yellen appeared to present her semi-annual testimony. At times, the exchanges between Yellen and Republican members of the Committee were sharp and tense.

In his opening statement to the Committee, Jeb Hensarling (R-Tx), who chairs the Committee, blamed the “anemic” recovery on Obamacare, Dodd-Frank and regulatory costs. He went on to say that “Then there’s the doubt, uncertainty and regulatory burden that grows as more and more unbridled, discretionary authority is given to unaccountable government agencies.  Although monetary policy cannot remedy this, it can help.”

Republicans are locked in some kind of mind warp where the remedy for every problem is to deregulate. Despite six years of books, academic studies, investigative findings, and a 600-page report from the Financial Crisis Inquiry Commission proving that deregulation was responsible for the financial crash of 2008 – the greatest financial implosion since the Great Depression – Republicans refuse to let facts get in the way of pushing for more deregulation.

Democrats on the other hand, despite overwhelming proof that the Dodd-Frank Wall Street Reform and Consumer Protection Act has actually allowed Wall Street to grow systemically more dangerous and more corrupt since its passage, is irrationally wedded to this legislation.

No amount of evidence will change the Democrats’ position on Dodd-Frank. JPMorgan gambling with hundreds of billions of bank depositors’ money in the London Whale fiasco where $6.2 billion got flushed down the toilet will not change their mind. Cartel activity among the big banks in the interest rate market, precious metals market, foreign currency market will not change their mind. Bank chat rooms called “The Bandits Club,” “The Mafia” and “The Cartel,” where brazen market rigging is alleged to have occurred will not change their mind. Endless criminal investigations and multi-billion dollar settlements will not change their mind. Scandal after scandal destroying public trust in Wall Street and its regulators will not change their mind.



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Briefing For A Descent Into Hell

Courtesy of The Automatic Earth.


Ben Shahn “Scene in Jackson Square, New Orleans” 1935

Oh well, some are more equal than others. One day after Eurogroup head Dijsselbloem says France won’t get any more lenience …

France Must Respect EU Budget Rules

France must meet EU budget targets or risk damaging the bloc’s entire framework for policing countries’ spending plans, the head of the Eurogroup said on Tuesday. “I don’t think small or larger countries should be treated differently … It is crucial for the credibility of the whole fiscal framework that also France commits to it, both in fiscal terms and in reform terms,” Jeroen Dijsselbloem, who chair meetings of eurozone finance ministers, told the European Parliament. “I think that the Commission has allowed itself and France more time to scrutinise the figures but also to take more measures and prepare more proposals. The Commission will assess them first and then report to us at the beginning of March.”

… the EC overrules him. Just like he overruled them a few days ago on the proposal for Greece that EC head Juncker had prepared for Varoufakis, but which Dijsselbloem swept off the table. A tit for tat battle of the peacocks? Talking with one voice it ain’t.

France Gets More Time to Meet EU Budget Rules

European Union officials on Wednesday gave France until 2017 to bring its government finances in line with the bloc’s budget rules, despite the country’s continued failure to adhere to them. The European Commission said it was recommending that France be given what amounted to a two-year extension to cut its deficit, which is expected to come in at around 4.1% of GDP this year and next, well above the 3% ceiling for the bloc. The commission, the executive arm of the European Union, is charged with signing off on member states’ budgets to ensure they comply with Union rules.

The commission also said it would not recommend that Italy, Finland and Belgium be punished, despite their failure to meet deficit goals, owing to “account key relevant factors,” including the weak economic picture. In November, the commission gave France, Belgium and


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Mariupol Exchange Rates vs. Laughable “Official” Rate: Foreign Exchange Intervention; IMF Calling the Shots?

Courtesy of Mish.

Colonel Cassad reports It Takes 44 Hryvnia to Buy a Dollar in Mariupol.

Let’s do some quick math.

On Monday (perhaps reflective of Sunday) Ellen, who lives in Kiev wrote “Today $1 is worth 36 hryvnias on the black market. A Week ago it was 20 hryvnais. No one knows where the bottom is. People buy anything just to get rid of hryvnias.

To be safe, let’s call it 10 days ago. In those 10 days, the hryvnia plunged from 20 to the dollar to 44 to the dollar.

That is a decline of 54.54% in about 10 days. Here is the key “People buy anything just to get rid of hryvnias“.

Laughable “Official” Rate

Here is an amusing chart from Investing.Com for February 25.

I explain the that chart below. Meanwhile, rest assured that not a damn thing transacts at that rate other than perhaps graft and illegal transactions by bankers and Ukrainian officials selling 25 hryvnias for a dollar.

Poroshenko Ultimatum



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Presented without comment…

As usual I was looking for something uniquely entertaining today, and Joshua M. Brown came through with Morgan Stanley’s Hunger Games-inspired video. I'm not sure what M.S. management was thinking when it produced this video, but apparently someone had second thoughts between the making of the video and the releasing of the video.

Presented without comment…

Courtesy of 

ms

So this happened…

Morgan Stanley’s Hunger Games-inspired video they don’t want you to see (Investment News)





 
 
 

Zero Hedge

U.S. Healthcare And The Tragedy Of The Commons

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

When the system is set up to encourage maximizing self-interest, accountability for the whole is lost.

  The lessons drawn from the U.S. healthcare system's failures can be fruitfully applied to a variety of large-scale problems around the world. Let's start with an insightful look at the fixes that have largely failed to rein in costs and improve actual care/patient health.

Dile...



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Phil's Favorites

When do we decide that Europe must restructure much of its debt?

When do we decide that Europe must restructure much of its debt? Courtesy of Michael Pettis 

It is hard to watch the Greek drama unfold without a sense of foreboding. If it is possible for the Greek economy partially to revive in spite of its tremendous debt burden, with a lot of hard work and even more good luck we can posit scenarios that don’t involve a painful social and political breakdown, but I am pretty convinced that the Greek balance sheet itself makes growth all but impossible for many more years.

The history is, to me pretty convincing. Countries with this level of debt and this level of uncertainty associated with the resolution of the debt are never able too grow out of t...



more from Ilene

Chart School

Second Day of Quiet Action

Courtesy of Declan.

The S&P lost a little, the Nasdaq gained a little, but there was no change in the larger picture.  The S&P registered a distribution day, of sorts: volume climbed, but as the index finished with a doji it doesn't really qualify as a heavy sell off day. The selling volume was enough to generate a 'sell' trigger in On-Balance-Volume too, but the whipsaw risk is high.


The Nasdaq did the opposite. It added nearly 0,5% on higher volume accumulation. It's brushing the 10% envelope relative to the 200-day MA, which is not a particularly strong sell signal, but a warning sign for a possible slow down in the advance.

...

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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Market Shadows

Kimble Charts: Coal

Kimble Charts: Coal

By Ilene 

Chris Kimble's chart for KOL shows a recently beaten down ETF struggling to pull itself up from the ashes. As the chart shows, KOL has recently drifted down to levels not seen since the financial crisis of 2008-9.

Bouncing or recovering with energy in general, coal prices appear to have stabilized in the short-term. Reflecting coal prices, KOL has traded between $13.45 and $19.75 during the past year. Bouncing from lows, KOL traded around 2% higher yesterday from $14.26 to $14.48 on high volume. It traded another 3.6% higher in after hours to $15, possibly related to ...



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OpTrader

Swing trading portfolio - week of February 23rd, 2015

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Sabrient

Sector Detector: Sector rankings stay neutral with few bullish catalysts on horizon

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

Stocks are hitting new highs across the board, even though earnings reports have been somewhat disappointing. Actually, to be more precise, Q4 results have been pretty good, but it is forward guidance that has been cautious and/or cloudy as sales into overseas markets are expected to suffer due to strength in the US dollar. Healthcare and Telecom have put in the best results overall, while of course Energy has been the weakling. Still, overall year-over-year earnings growth for the S&P 500 during 2015 is expected to be about +8%.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 cha...



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Digital Currencies

MyCoin Exchange Disappears with Up To $387 Million, Reports Claim

Follow up from yesterday's Just the latest Bitcoin scam.

Hong Kong's MyCoin Disappears With Up To $387 Million, Reports Claim By  

Reports are emerging from Hong Kong that local bitcoin exchange MyCoin has shut its doors, taking with it possibly as much as HK$3bn ($386.9m) in investor funds.

If true, the supposed losses are a staggering amount, although this estimate is based on the company's own earlier claims that it served 3,000 clients who had invested HK$1m ($129,000) each.

...



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Pharmboy

2015 - Biotech Fever

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

...

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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