Just because the unpronounceable volcano did not do quite enough damage, and both Hekla and Katla are taking their sweet time, the Iceland Supreme Court recently ruled on the illegality of foreign FX-linked loans, and "Icesave" is still DOA, here is Moody’s with a stern warning for the country to change its anti-Keynesian ways promptly or else. "Today’s rating action was triggered by the recent Supreme Court ruling on the illegality of foreign-exchange-linked loans and government’s continuing difficulties in achieving a resolution to its "Icesave" dispute with the UK and Dutch governments. Specifically, the Supreme Court ruling has the potential to cause substantial bank losses on foreign currency-denominated loans to domestic borrowers and may therefore require additional government support to the banking system. Moreover, a failure to resolve the "Icesave" dispute could lead the Nordic countries and the IMF to withhold future disbursements to the Icelandic government." Zero Hedge is certainly rooting for the tiny island country, even if it is triple hook rated, as it continues to give the middle finger to all the developed world kleptocrats.
Moody’s Investors Service has today changed to negative from stable the rating outlook for Iceland’s Baa3 local and foreign currency government bond ratings.
Today’s rating action was triggered by the recent Supreme Court ruling on the illegality of foreign-exchange-linked loans and government’s continuing difficulties in achieving a resolution to its "Icesave" dispute with the UK and Dutch governments. Specifically, the Supreme Court ruling has the potential to cause substantial bank losses on foreign currency-denominated loans to domestic borrowers and may therefore require additional government support to the banking system. Moreover, a failure to resolve the "Icesave" dispute could lead the Nordic countries and the IMF to withhold future disbursements to the Icelandic government.
These two sources of macroeconomic uncertainty are indicative of the generally asymmetric risks facing Iceland and explains the rationale for the negative outlook on its ratings.
Moody’s has today also changed the outlook on Iceland’s country ceiling for foreign-currency bonds of Baa2 from stable to negative. The outlook on the foreign-currency deposit ceiling of Baa3 has also been changed to negative from stable.
RATIONALE FOR NEGATIVE SOVEREIGN OUTLOOK
"The magnitude of the banking system losses that will result…
Iceland represents an interesting situation. Most people are not very familiar with it. With only 300,000 inhabitants, Iceland certainly fits the description of a ‘microcosm.’ The story of the privatization of the Icelandic banks, and the ensuing orgy of credit expansion and fraud, is well worth some attention.
Banks that are private sometimes should be allowed to fail. One might consider saving the depositors, especially if it is a fraud, and certainly if the accounts are explicitly insured, but the creditors and investors should be wiped out, utterly and completely. This is the only way to wring moral hazard out of the system. This of course should be accompanied by vigorous and aggressive investigations for fraud, and prosecutions if the evidence indicates for indictment. I would follow those perpetrators to the ends of the earth, seeking their extradition, to insure that justice was done. These people are little better than traitors to their country and their people.
We tend to treat these sorts of banking frauds far too lightly. They are like poison to the system, because they not only involve the theft of funds, but the destruction of the confidence and integrity which permits the social system to function.
Their reform movement and new approaches to banking in Iceland are hopeful signs. They should not even think about joining the EU, or taking any loans for their banks.
They might also consider relieving the Social Democrats of power, because it sounds as if they are not interested in serving the people. The only question I would have is, "Why are they still in office, and not out on the street looking for employment?"
While not mentioned in the video, the implications of the recent Icelandic Supreme Court’s decision on the illegality of loans indexed to foreign currency baskets may be significant.
Under the provisions of the IMF Articles of Agreement, courts of other member states, including the US, UK and the Netherlands, are presumably/arguably barred from reaching a different conclusion. See, Article VIII, Section 2(b):
(b) Exchange contracts which involve the currency of any member and which are contrary to the
Notice how Prime Minister Johanna Sigurdardottir calls the will of 93% of Icelandic citizens "obsolete". The reality is she will soon be obsolete and voted out of office. Such arrogance is not tolerated anywhere.
I would suggest that overriding the will of 93% of the population is under-interpreting the message. But hey, to politicians everywhere, no does not mean no, it means whatever the politician wants it to mean.
What’s highly dangerous is the attitude that the wishes of 93% of the people is irrelevant.
Icelandic citizens have overwhelmingly spoken. They do not care for the bailouts. They also rightfully believe the Icesave proposal was blackmail, as without it inclusion in the EU would be delayed.
Thus, it’s good to see some hardball from someone in the Icelandic parliament. Hopefully Prime Minister Johanna Sigurdardottir will be rewarded for her arrogance and removed in the next election.
The citizens of Iceland think "no means no", so does Birgitta Jonsdottir, and so do I. Best wishes to Iceland.
The Hang Seng is up 2% at 21,196, gaining 408 points on the day along with a 2% gain on the Nikkei (216 points), taking them over the 10,500 mark to 10,585 as they play catch-up to the Dow, which topped out at 10,566 last week. The BSE keeps going higher, adding 0.6% for the day, back over 17,000 at 17,108 and the Shanghia added 0.7%, finishing the day at 3,053.
The Hang Seng’s incredible morning gap up and 100-point follow-through, though impressive, is only a "good start" to getting that index back on the road to recovery as they had topped out at 23,000 in November and flirted with 22,500 in early January so we’ll need some sustained conviction before we get all bullish on China but, for today, we can just say "WOW" – it’s amazing how much a market can move when it’s closed!
We’re closed as well but our pre-markets are looking strong although Europe is kind of flat-lining. They are all upset because the 300,000 people who live in Iceland took a vote and decided they didn’t have $5.3Bn to bail out failed Icebank, which kind of leaves the EU investors, who deposited money into an internet savings account that promised 8% returns, in a bit of a lurch becuase (surprisingly, I’m sure) it turns out the bank took a lot of risks to get those returns and (even more surprisingly) THEY BLEW IT! Even more surprisingly to European investors, 93% of the voters said: "No thank you, we will not agree to pay $17,666 per person (about $58,000 per family) to make foreign investors whole."
What I find most funny about this is that the UK and the Netherlands had the nerve to ask Icelanders to repay this money. $5.3Bn is 1/2 of Iceland’s GDP – that would be like countries who lost money in the Lehman collapse asking US taxpayers to kick in $6.5Tn to make them whole. What do you think our vote would be? Sure we are numb to our own debt level but are we that numb? Possibly so as we seem to be happily buying oil at $80 a barrel again – sending $321Bn American dollars out of the country in exchange for a product we burn up and need again the next day. I wrote about this disaster…
Personally I doubt that the US is capable of self-reform at this time. I think the corruption of the system runs that deeply and is embedded in the national consciousness as a reflexive set of slogans (the big lies) that substitute for empirical thought and effective policy formation. The examples of ‘thinkspeak’ are almost endless, but the irony is that the inmates of the asylum can no longer recognize them as such.
The major media is owned by a few corporations, and the Congress listens to its large contributors and ignores the public except at election time, when it inundates them with expensive media campaigns, political spin, and propaganda. And then it is back to business as usual
What will it take? It took the Japanese about twenty years of economic privation to finally get rid of the LDP political party that had ruled the country since the Second World War. It may take ten years of stagflation and economic hardship for the American people to wake up and put an end to the crony capitalism that has captured its two party political system. A good start would be to continue to eject incumbents from both parties, and to start electing viable third party candidates. But that will take more a more thoughtful venue than is currently the norm.
…What can be done to reduce the likelihood of a repeat performance – in Iceland and elsewhere? Here are eleven main lessons from the Iceland story, lessons that are likely to be relevant in other, less extreme cases as well.
Lesson 1. We need effective legal protection against predatory lending just as we have long had laws against quack doctors. The problem is asymmetric information. Doctors and bankers typically know more about complicated medical procedures and complex financial instruments than their patients and clients. The asymmetry creates a need for legal protection through judicious licensing and other means against financial (as well as medical) malpractice to protect the weak against the strong.
Lesson 2. We should not allow rating agencies to be paid by the banks they have been set up to assess. The present arrangement creates an obvious and fundamental conflict of interest and needs to be revised. Likewise, banks should not be allowed to hire employees of regulatory agencies,…
The latest piece of big news in the sovereign debt crisis comes, remarkably, from Iceland. The country collapsed into depression after its experiment as an open economy with a large banking sector went pear shaped.
After a debt-fuelled boom and a huge influx of hot money due to high interest rates, its currency and banks collapsed under a fleeing of foreign money and huge losses. The government nationalized the bank’s debt only to find the banks were too big to bail. The Icelanders rioted on the streets, a sovereign crisis ensued, and the government was toppled.
Iceland was rescued and it seemed all was well. They was even talk of fast-tracking Iceland into the EU. Then, suddenly, the population balked at the prospect of bailing out the banks. Now, the sovereign debt crisis is on again. At issue is Icesave, an Icelandic bank that operated in the UK and the Netherlands whose bust caused great hardship amongst British and Dutch savers who were attracted by high interest rates.
See the video below on why Fitch is now downgrading the country’s debt status to junk despite the lack of immediate liquidity concerns.
I think this is big news and have a number of sources on this story below. Watch the Dutch and British stories for signs of European tensions as this is where the affected Icesave savers reside. The FT headline says it all. Ambrose Evans-Pritchard’s commentary is the most comprehensive and balanced in my view. The Norwegian headline, on the other hand, is “Iceland not on the verge of collapse” in huge typeface. The fault lines are definitely opening in Europe. I will discuss this later on the latest story on Greece and the likelihood of EU help.
Iceland was plunged back into crisis after its president refused to sign a bill promising to repay more than €3.8bn (£3.4bn) to Britain and the Netherlands after the collapse of the country’s Icesave bank in 2008.
The escalating row threatens to further destablise the Icelandic economy, which went into meltdown after the failure of its three big banks, cutting off further aid from the International Monetary Fund and jeopardising efforts to join the European Union. The credit rating agency Fitch immediately downgraded Iceland, describing the latest political row as a "significant setback".
The British and Dutch governments had compensated savers who lost money when Icesave’s parent Landsbanki filed for bankruptcy. But both have since put pressure on Reykjavik to repay the money.
Opinion polls suggest that Icelanders will overwhelmingly vote against the passage of the bill. A petition urging Grimsson not to sign the bill attracted 62,000 signatures, around one-fifth of the population. Critics say the bill would burden each citizen with a debt of €12,000 including interest.
In a televised address, Grimsson said: "It is the cornerstone of the constitutional structure of the Republic of Iceland that the people are the supreme judge of the validity of the law. It is…the responsibility of the president to ensure that the nation exercises this right." He said the referendum would take place as soon as possible.
Almost 300,000 British savers had deposits with Icesave, attracted by market beating interest rates. Their accounts were frozen in October 2008, sparking a diplomatic row between Britain and Iceland, which had only recently begun to thaw. Britain outraged ordinary Icelanders at the time by invoking anti-terrorist legislation to freeze the UK assets of Landsbanki.
Wow – what a lot of work to get back to last Tuesday’s high!
As usual, the vast majority of gains came in pre-market trading and the rest came in light-volume, early morning trading while the rest of the day was dominated by every buyer finding a willing seller for 75% of the day’s volume. We saw what happened on Thursday when someone big wants to sell and there are no buyers so we’ll see how long the bull’s luck (manufactured or otherwise) will hold out as we begin to get economic data along with some early earnings reports.
The Ag sector popped 2% yesterday ahead of tonight’s earings from MOS with MON checking in tomorrow morning so we’ll see how wise those last-minute bets were in short order. SONC also has earnings tonight and we like those guys long-term. SONC makes a decent buy/write candidate as you can buy the stock for $10.29 and sell June $10 puts and calls for $2.25 for a net entry of $8.04 with a very nice 24% profit if called away at $10 and an average entry of $9.02 (a 12% discount) if more stock is put to you below $10 in June.
FDO and WOR also report tomorrow morning. FDO will be interesting but a weak dollar probably hurt them last quarter. Tomorrow night we hear from BBBY, BLUD, OHB and Sonic competitor RT, who seem a bit pricey at $7.50. Thursday we get our first real builder, LEN along with STZ and TXI. After the bell on Thursday we hear from APOL, CRI and SCHN with GBX and PSMT on Friday. AA officially kicks of earnings season next Monday with GAP, INFY, KBH, BGG, SCHW, SHFL, INTC and JPM highlighting the reporters.
We have plenty of data this week including Factory Orders and Pending Home Sales at 10 am along with December Auto Sales throughout the day (did you get a new car for Christmas?). Tomorrow is jobs day, with the ADP Report and Challenger Job Cuts ahead of the bell followed by ISM Services (yesterday’s ISM was a nice beat) and, of course, Crude Inventories at 10:30 which are unlikely to sustain $82 oil (USO Jan $40 puts for .80 are a good way to play this). We talked about the other stuff yesterday so I won’t repeat it – suffice to say we have plenty of data this week to see if we justify these lofty levels.
A week ago we posted the list of countries [below] at risk of default or with very poor credit ratings. It turns out that concerns are seriously growing worldwide about sovereign debt.
The Financial Times reports today that following the disasters in Greece and Dubai indeed sovereign debt risk is emerging as a serious concern for senior bankers, risk consultants and auditors: "Bankers at some large institutions are discussing whether they need to make provisions for sovereign risks in the same way they now set aside reserves to cover losses from corporate or emerging market risks".
This all has to do not only with the seemingly isolated financial disasters (Greece, Dubai, although one can add Hungary, Ireland, Iceland, Japan, the U.K, and even the U.S, and several others – are these really isolated?), but with the loose monetary policy employed by some countries. Moody’s has warned that debt could be sold off in 2010 if central banks do not implement successful exit strategies from these loose monetary policies.
"Control Risks, a risk consultancy, has seen a big increase in mandates from insurance companies and other financial institutions seeking to understand the part politics plays in sovereign default risk".
A survey showed lower risks for eurozone countries given the likelihood of support by other member states, however, countries such as Kazakhstan, Ukraine, the Seychelles and Eritrea – are vulnerable to downgrades and default.
So we have money printing pushing markets up, and debts and disasters in the making. This is why I like straddes so much. Anything can happen.
Says the WSJ article: "After two years of crashing banking systems and economic recession, the euro zone enters 2010 with a full-blown debt crisis. The European Commission warns that public finances in half of the 16 euro-zone nations are at high risk of becoming unsustainable".
"Half of the 16 euro-zone countries are deemed to be at
The latest Reuters poll is showing 24 out of 43 economists projecting the first rate hike in the U.S. by June of next year. The futures market is pricing lift-off by September. Citi's latest analysis puts it in December. And all of these forecasts are running way behind the so-called Taylor Rule, which suggests that the Fed Funds rate should already be at 1.5%.
Based on the following "before" and "after" the Ukraine crisis pictures of NATO warplanes located just off the Russian border...
... one can almost understand why Victoria Nuland was so eager to tell the EU to "fuck off" in her successful attemp to foment Ukraine unrest leading to the overthrow of ex-president Yanukovich, and destabilize the region, giving NATO a pretext for a major arms build up on the other side of the R...
The world market rally continued last week with six of the eight indexes on my watch list posting gains. Europe led the pack, with Germany's DAX up 5.18%, France's CAC 40 up 3.44% and the UK up 1.45%. Hong Kong's Hang Seng was the big loser with its -2.70% loss. The other negative performer was Japan's Nikkei 225. It's fractional -0.76% decline snapped not only a four-week string of gains, but also four weeks as the top performer.
China's Shanghai Composite remains the only index on the watch list in bear territory -- the traditional designation for a 20% decline from an interim high. The index is down 28.36% from its August 2009 peak. See the table inset (lower right) in the chart below.
I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
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Investors in U.S. equities seem to have embraced a new market paradigm in which upside spikes come more swiftly than the downside selloffs. Remember when it used to be the other way around? When fear was stronger than greed? The market is consolidating its gains off the early-October V-bottom reversal, and no one seems to be in any hurry to unload shares this time around, with the holidays rapidly approaching and all. After all, there are bright blue skies directly overhead giving hope and respite from the early freeze blanketing the country.
In this weekly update, I give my view of the current market environment, offer...
If you would have supposed that Ukraine had enough problems to make banning bitcoins a backburner issue, you'd have been wrong. The rationale, "to protect consumers' rights" makes little to no sense... The other one, "to keep money in the country" makes more sense.
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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 email@example.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.
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