WILLIAM BLACK: THE EURO COULD COME UNDONE IN 3-4 YEARS
by ilene - December 28th, 2010 3:20 pm
Courtesy of CULLEN ROCHE, The Pragmatic Capitalist
William Black of UMKC believes the Euro could unravel in the coming 3-4 years as the political tension continues to increase and ultimately creates a divide between the core and periphery. Black says the economies on the periphery are likely to remain very weak and will lead to civil unrest and political overhaul. In the end the strains will be too much for the region to overcome.
Black also discusses the imbalances in China and why the Chinese are likely to experience their own crisis in the coming years. (Video here.)
Source: Bloomberg
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DiggTrillion Dollar Tuesday – More Free Money!!!
by Phil - December 7th, 2010 8:29 am
Thank you Republicans!
The party of fiscal responsibility has strong-armed the President and what little is left on the Democrats in Congress to extend the Bush Tax cuts for another two years at a cost of "just" $830Bn to the little people who still have to pay taxes. They accomplished this by allowing the Democrats to extend $56Bn of additional unemployment relief to the 2M families who were cut off on Friday and were about to go their first week without checks with just 17 shopping days left until Christmas. Of course, the Democrats don’t just bend, they BREAK and the Republicans also got a 30% reduction in the estate taxes that are projected to cost an additional $66Bn to the people who don’t have $5M estates. Merry Christmas, rich folks – Lloyd bless us, everyone!
"But Phil," you may ask "who actually does pay taxes?" When your deficit is about as high as your net collections – the answer is: No one really – or no anyone who matters, anyway. As I’ve often told you, our Corporate Overlords actually pay just 2.4% of our GDP in taxes, just $138Bn last year which was less than the $6Tn in bailouts they collected by a factor of 43 – no wonder they are doing so well! As you can see from the chart, Estate and Excise taxes are barely a point on the graph and Individual income taxes are barely 6% while Employment Taxes have jumped from 1.5% of GDP in 1950 to 7.5% today – that’s a 400% increase but don’t worry, it only affects your first $106,800 in income – after that, ZERO! That way, if you earn $1M, the jump in payroll taxes from $1,250 to $6,250 is just 0.5% of your income vs the 5% increase borne by a person earning $100,000 or less.
Imagine if all 140M US workers were given an even $6,000 break ($840Bn divided by 140M) on their take-home pay by just eliminating those SS deductions (it’s not like they’ll ever get that money back anyway)? Why everyone would immediately be taking home $500 more per month. Of course we know that the poor people would only "waste" it on food, shelter and clothing so our wise government has guided the bailout to the places it will do the most good, with $670Bn going to the top 5% and $160Bn…
Flip, Flop Friday – This Week It’s Europe!
by Phil - November 26th, 2010 8:11 am
Ah, you guys fall for it every time, don’t you?
They take it up for BS reason, they take it down for BS reasons and, somehow, they get you to commit to some thing or another that goes the wrong way within a day or two. And you guys wonder why I like cash… You can’t leave anything on the table in this market! Today’s reason du jure for the markets pulling back is Europe again and, as we laid out for you weeks ago – it’s now on to Portugal as the next "crisis" in the making.
It looks like almost all of Wednesday’s gains will be wiped out by the time we open but let’s keep in mind all this EU nonsense is nothing but hyena attacks as most of these countries are not in that bad shape overall – certainly no worse than we are (maybe we’re next!). Anyone can be next. If you want to attack a country, you can attack any country where you can get traction on rumors that POTENTIAL bank losses exceed GDP – that’s a banking failure.
Once you get just a small amount of people to believe the banks may fail, then the rates start going up (and big investors can give them a little push artificially, of course, to get the ball rolling). Once the banks have to borrow at higher rates, then they need more capital reserves and then you can scream that they were lying about their capital requirements and call for "investigations" and that will convince more people they are hiding something and then the rates go higher and they need more capital and the bears can then parade on TV saying that they knew all along and that the banks are insolvent and they can EXTRAPOLATE that, at the rate things are going – the whole country will be bust in X amount of time…
You can do this to anyone, anytime. Only if we stop the speculators from profiting from this game will it ever end. The reason that there are no runs on banks in China and Russia isn’t because their banks are more solid – I’ll bet there are Chinese banks who have nothing but a fortune cookie in their vault – but the difference is in Russia or China they will cut your head off if you…
Wednesday – Working Toward the Clampdown
by Phil - November 24th, 2010 8:10 am
No man born with a living soul
Can be working for the clampdown
Kick over the wall ’cause government’s to fall
How can you refuse it?
Let fury have the hour, anger can be power
D’you know that you can use it?The voices in your head are calling
Stop wasting your time, there’s nothing coming
Only a fool would think someone could save youIn these days of evil presidentes
Working for the clampdown
But lately one or two has fully paid their due
For working for the clampdown – The Clash
Portugal is having a national strike today and labor unions in Ireland are planning “mass mobilization” in protest of planned spending cuts, with a march in Dublin on Nov. 27.
Portugal said in September it would cut the wage bill by 5 percent for public workers earning more than 1,500 euros ($2005) a month, freeze hiring and raise value-added taxes by 2 percentage points to 23 percent to help reduce a deficit that amounted to 9.3 percent of gross domestic product last year. The measures are included in the government’s 2011 spending plan, which faces a final vote in parliament on Nov. 26. “The strike arises in a context of a set of measures that are quite significant and have social impact,” said Carlos Firme, a director at Lisbon-based Banif Banco de Investimento SA. “It’s natural that there are demonstrations of discontent.”
I’m sure King George’s Bankster buddies told him the same thing when the American colonists expressed their "discontent" – Don’t worry my King, there’s sure to be some grumbling from the peasants but your stimulus package is working wonderfully – now come outside and check out the golden horseshoes I put on my carriage team!
We were able to add a little bling to our own rides as those QQQQ $53 puts I told you about in yesterday’s morning post, which we picked up in Member chat on Monday at .45, opened at .75 and flew on up to $1.25 (up another 110% from Monday’s entry) and pulled back to finish the day at .98. We were, of course, very happy to take a daily double off the table because that’s all you need to stay ahead of the game. Even if you are just playing with $450 (10…
Ireland’s “String and Sealing-Wax Fix”; Irish PM Loses Confidence of Own Party; European Sovereign Default Risk Hits All Time High
by ilene - November 23rd, 2010 4:53 pm
Mish reports on Ireland’s "String and Sealing-Wax Fix"; Irish PM Loses Confidence of Own Party; European Sovereign Default Risk Hits All Time High.
Courtesy of Mish
News in Europe regarding Ireland, Spain, and Portugal is ominous. Credit Default Swaps (CDS) are soaring in Spain and Portugal. European sovereign risk jumped to an all-time high.
Lloyds TSB says "Ireland’s debt woes may spread because investors have lost confidence in policy makers".
Members of his own party are calling on Irish Prime Minister Brian Cowen to resign.
The quote of the day goes to Bill Blain, a strategist at Matrix Corporate Capital LLP in London who said "“Bailouts are nothing but a short-term string-and-sealing-wax fix”.
With that let’s take a look at some specific news.
Zero Confidence in Irish Solution
Lloyds says Ireland’s Woes May Spread on ‘Zero Confidence’
“The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis even though fiscal austerity measures in both Portugal and Spain have been severe and prima facie, sufficient to ease market concerns,” Charles Diebel and David Page, fixed-income strategists in London, wrote in an investor note today.
“With markets effectively in a position to dictate policy, the risk is that the credibility crisis shifts to more sizeable European Union countries and thereby poses a greater risk to the system as a whole,” they wrote. That may also raise “valid questions about the prescriptive policy measures being sufficient to deal with issues of such magnitude.”
Credit Default Swaps Soar in Spain, Portugal
In spite of the Irish bailout, Spain, Portugal Bank Debt Risk Soars as Traders Look South
The cost of insuring Spanish and Portuguese subordinated bank bonds soared as traders of credit-default swaps turned their focus to southern Europe following Ireland’s bailout.
Swaps on Portugal’s Banco Espirito Santo SA rose to a record while contracts on Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, climbed to the highest in more than five months. The benchmark gauge of European sovereign risk also jumped to an all-time high, while two indexes tied to bank debt surged the most since June.
Ireland’s rescue “achieves completely the opposite of what it allegedly tries to achieve, namely to calm markets,” Tim Brunne, at UniCredit SpA said in a report.
“Instead, the credit profile of both the sovereign and the impaired financial institutions has been weakened,” the Munich-based strategist wrote.
…
Hooray, ECB Saves Eurozone 2nd Time; Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens “Namatized”
by ilene - November 19th, 2010 6:49 am
Hooray, ECB Saves Eurozone 2nd Time; Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens "Namatized"
Courtesy of Mish
Market participants are giddy today on the great news that Ireland will go deeper in debt in a foolish attempt to bail out the German and UK bondholders who were in turn foolish enough to lend ridiculous amounts of money to Irish banks in various real estate schemes.
The Irish government was of course foolish enough to guarantee all of this foolishness which means that Irish citizens many of whom were sucked into buying property at foolish prices are now on the hook to bail out the bondholders, rubbing salt into the wounds of Irish taxpayers, not all of whom were foolish enough to freely participate in the general foolishness.
Got that?
Here is a short video from the Wall Street Journal that explains why the bailout will not work.
Ireland Nears Bailout
Now let’s consider details of this foolishness in greater detail, starting with Crude Oil Rises From Four-Week Low as Ireland Nears Bailout
Crude oil increased from a four-week low as Ireland moved closer to a European Union-led financial bailout, strengthening the euro and boosting commodities.
Irish Central Bank Governor Patrick Honohan said in an interview with state broadcaster RTE today he expects the country to ask the EU and the International Monetary Fund for “tens of billions” of euros to rescue its banks.
Desirable Outcome
“If these talks were to result in a substantial contingency capital funding” pool that didn’t need to be drawn down, that “would be a very desirable outcome,” Finance Minister Brian Lenihan said in the Irish parliament in Dublin today. He said no agreement has yet been reached.
Fairy Tale Nonsense
Check out that fairy tale silliness from Finance Minister Brian Lenihan, then answer this question: What are the odds that a "substantial contingency capital funding” would not be drawn down?
If you answered zero percent you are a winner, which makes the Irish taxpayer a loser.
Allied Irish Bonds Have Face Value Bid of 45 Percent
Bloomberg reports Allied Irish Bonds Fall on Concern IMF ‘Bad Guy’ to Impose Loss.
Allied Irish Banks Plc’s 12.5 percent subordinated bonds due 2019 were quoted at a bid price of about 45 percent of face value, according to Jefferies International in London, down
…
Ireland Brinksmanship with the EU: Slow Motion Bank Run May Be Giving Government Leverage
by ilene - November 19th, 2010 12:42 am
Ireland Brinksmanship with the EU: Slow Motion Bank Run May Be Giving Government Leverage
Courtesy of Yves Smith at Naked Capitalism
In negotiations, understanding where you have leverage relative to your counterpart is key. Ireland appears to be engaged in a quiet staredown with the EU, evidently with the objective of securing a rescue of its banks rather than its government.
In case you managed to miss it, Ireland is in the midst of a long running budgetary crisis that has reached an acute phase. The implosion of a real estate bubble has left the country with banks up to the gills in bad loans. The government set up a “bad bank” entity, and the commitments per taxpayer, which were over 25,000 euros per taxpayer as of July, just keep rising. Deep budget cuts to meet eurozone fiscal deficit targets have put the economy in freefall, with nominal GDP falling nearly 20% and unemployment at 13%.
The immediate trigger for panic over Ireland was Merkel’s announcement that bondholders would have to take their lumps in any Eurobailouts. That immediately put Irish and other periphery country bonds under pressure. And although Merkel was beaten a bit back into line (all bondholders will supposedly be protected through 2013), the damage was done. As Richard Smith noted two weeks ago:
Since the Irish budget is fully funded for a few more months (ex any revenue surprises, or God forbid, further bank loan writedowns), they can in principle trundle along like this until their date with destiny in Q2 2011, when they have to raise funds again. But somehow it’s hard to believe that that is going to be the way things go. We will see if the budget gets thrown out or not; or the government. It will be close, on either count. Either eventuality brings forward the timetable for the Irish crisis proper, but it’s coming, one way or the other…
The folk close to the action think
…
Could The Financial Crisis Erupting In Ireland, Portugal, Greece And Spain Lead To The End Of The Euro And The Break Up Of The European Union?
by ilene - November 18th, 2010 1:39 am
Could The Financial Crisis Erupting In Ireland, Portugal, Greece And Spain Lead To The End Of The Euro And The Break Up Of The European Union?
Courtesy of Michael Snyder at Economic Collapse
The Irish banking system is melting down right in front of our eyes. Ireland, Portugal, Greece and Spain are all drowning in debt. It is becoming extremely expensive for all of those nations to issue new debt. Officials all over Europe are begging Ireland to accept a bailout. Portugal has already indicated that they will probably be next in line. Most economists are now acknowledging that without a new round of bailouts the dominoes could start to fall and we could see a wave of debt defaults by European governments. All of this is pushing the monetary union in Europe to its limits. In fact, some of Europe’s top politicians are now publicly warning that this crisis may not only mean the end of the euro, but also the end of the European Union itself.
Yes, things really are that serious in Europe right now. In order for the euro and the European Union to hold together, two things have got to happen. Number one, Germany and the other European nations that are in good financial condition have got to agree to keep bailing out nations such as Ireland, Portugal and Greece that are complete economic basket cases. Number two, the European nations receiving these bailouts have got to convince their citizens to comply with the very harsh austerity measures being imposed upon them by the EU and the IMF.
Those two things should not be taken for granted. In Germany, many taxpayers are already sick and tired of pouring hundreds of billions of euros into a black hole. The truth is that the Germans are not going to accept carrying weak sisters like Greece and Portugal on their backs indefinitely.
In addition, we have already seen the kinds of riots that have erupted in Greece over the austerity measures being implemented there. If there is an overwhelming backlash against austerity in some parts of Europe will some nations actually attempt to leave the EU?
Right now the focus is on Ireland. The Irish banking system is a basket case at the moment and the Irish government is drowning in red ink. European Union officials are urging Ireland to request a bailout, but so far…
Is Europe Coming Apart Faster Than Anticipated?
by ilene - November 17th, 2010 2:43 pm
Is Europe Coming Apart Faster Than Anticipated?
Courtesy of Gonzalo Lira
The sky is black with PIIGS coming home to roost: I was going to write my customary long and boring think piece—but the simmering crisis in the Eurozone just got the heat turned up: Things are boiling over there!
 |
| “Euro Dead” by Ryca. |
So let’s take a break from our regularly scheduled programming, and give you a run-down of this late-breaking news:
The bond markets have no faith in Ireland—Greece has been shown up as having liedagain about its atrocious fiscal situation—and now Portugal is teetering—
—in other words, the PIIGS are screwed. I would venture to guess that we are about to see this slow-boiling European crisis bubble over into a full blown meltdown over the next few days—and it’s going to get messy.
So to keep everything straight, let’s recap:
The spreads on Irish sovereign debt widened, and the Germans are pressing them to accept a bailout—despite the fact that the Irish government is fully funded until the middle of 2011. But it’s not the Irish fiscal situation that the bond markets or the Germans are worried about—it’s the Irish banking sector that is freaking everyone out.
After all, the Irish government fully—and very foolishly—backed the insolvent Irish banks back in 2008. And for unexplained reasons, the Irish government is committed to honoring Irish bank bonds fully—which the country simply cannot afford. However, German banks are heavily exposed to Irish banks, which explains why Berlin is so eager to have Ireland accept a bailout.
Right now, European Union, International Monetary Fund and European Central Bank officials are meeting with Irish representatives, putting together a bail-out package. The reason the Irish are so leery, of course, is that any bail-out would be accompanied by very severe austerity measures: In other words, the Irish people would suffer the consequences of shoring up the Irish banks—which is the same as saying the Irish people would suffer austerity measures in order to keep German banks from suffering losses. Also, the EU/IMF/ECB bail-out would probably also cost the Irish their precious 12.5% corporate tax rate—a key magnet for bringing capital to the Emerald Isle.
Add to the Irish worry, Greece is once again wearing a bright red conical dunce cap: They’ve been shown up to have lied again about their fiscal situation. Three guesses what they lied about: If you guessed Greek deficit, you win—yesterday, the Greek government officially revised…
The Tidal Forces Ripping Europe Apart
by ilene - November 13th, 2010 1:02 pm
Tidal forces are pulling the European Union apart. On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet, rendering many of the smaller European states insolvent. On the other end, Europe is unwilling to carry out sovereign default and restructuring of debt of any one of its member nations. So as Europe gets closer and closer to the Global Depression, we are seeing as these two opposing forces—insurmountable debt vs. unwillingness to default and restructure—pull the continent apart as surely and relentlessly as tidal forces. — Gonzalo Lira
The Tidal Forces Ripping Europe Apart
Courtesy of Gonzalo Lira
In July of 1994, a comet named Shoemaker-Levy 9 crashed into Jupiter—it was quite a sight.
According to astronomers, Shoemaker-Levy was a comet that was captured by Jupiter’s gravity twenty or thirty years before it was discovered. As the comet circled Jupiter, at one point it passed the Roche limit—the line around a large mass where its gravity will rip apart a smaller mass by way of tidal forces.
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| Comet Shoemaker-Levy, after Jupiter’s tidal forces ripped it apart. |
By the time Shoemaker-Levy crashed into Jupiter, tidal forces had had their way with the comet. As the picture shows, it was no longer a single comet—it was a string of small lumps of rock and ice
Tidal forces are pulling the European Union apart.
On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet. These debts and liabilities are near-term enough that there is only one way to characterize many of the smaller European states: They are insolvent.
On the other end, Europe is unwilling to carry out sovereign default of any one of its member nations. Indeed, there is a sense that—constant drumbeat of the Germans aside—Brussels is unwilling to evencontemplate the very notion of sovereign default and debt restructuring. Brussels and the European Central Bank believes in bailouts, not default, because they believe that the entire European project rests on the non-default status of all the EU members. They believe that all EU debt is backed by the entire EU, no matter how irresponsible the EU country that issued the EU debt.
As we watch Europe get closer and closer to the Global Depression,…
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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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coordinator for PSW. She manages the Favorites backup site
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