THE ONLY NEWS THAT MATTERED TODAY
by ilene - May 24th, 2010 7:20 pm
THE ONLY NEWS THAT MATTERED TODAY
Courtesy of The Pragmatic Capitalist
There were only two stories worth paying attention to this afternoon. The first was the increase in inventory in the existing homes sales report. A positive read on actual sales was largely expected for this month as the home buyers tax credit ended in April, but the continuing rise in inventories is further concern that the shadow inventory will continue to come on the market in the coming months. We have detailed the outlook for housing and continue to believe the pressures are mounting in real estate. Today’s surge in inventories is worrisome to say the least. Home sellers are clearly trying to sell into the brief strength we’ve seen in housing. The massive supply on the market is not a good sign for what is likely to be lower and lower demand as the year wears on.
The other story of note is the CajaSur Takeover in Spain. The Spanish central bank initiated the takeover this weekend. The move rippled thru the credit markets as investors begin to see real signs that the sovereign debt crisis is impacting the banking sector. The Ted Spread jumped to 36.96 on the news and banking stocks were down 2.85% on the day.
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DiggEurope’s Sleepless Night
by ilene - May 20th, 2010 8:02 pm
Europe’s Sleepless Night
Courtesy of Gregory White at Clusterstock
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Europe remains in chaos, after another day of heavy losses. What was once a crisis of the PIIGS is now felt by Germany and France as both come to grips with the meltdown in the eurozone.
Tomorrow, Germany votes to approve or deny the bailout of Greece. On that vote could hinge the future of the eurozone. It is likely it will pass.
But other problems remain. The risk of contagion from the continent’s debt crisis could soon cripple inter-bank lending, if it hasn’t already.
After announcing a bailout weeks ago, tomorrow is follow through day for the eurozone. Will they need to burn the midnight oil in Brussels yet again on Sunday?
Check out why, even if Germany saves Greece tomorrow, Spain is the real problem lurking in the eurozone >
Social Unrest Spreads to Slovenia and Spain; Images Around the Globe; US Not Immune to Protests
by ilene - May 20th, 2010 4:08 pm
Social Unrest Spreads to Slovenia and Spain; Images Around the Globe; US Not Immune to Protests
Courtesy of Mish
The wave of social unrest is spreading. A new round of protests has hit Spain with a public sector strike set for June 8. In Slovenia, students are protesting new rules that limit their work hours and pay.
"Luka Gubo" an economist from Slovenia writes:
Hi Mish!
First I must say that I love your blog. Great job!
I just wanted you to know that Slovenian students are protesting too.
The main reason for organizing protests is changes in law regarding student jobs. Current tax law makes average workers uncompetitive because businesses pay about 15% income tax for students and more then 35% income tax for average worker (average net income is 930€).
Bear in mind that the average time for a student to complete his higher education here is 6 years and that more then 20% of "students" do not to school at all. Instead, they just enjoy student benefits like lower income taxes, food stamps, etc.
I think that everyone would agree a new law is needed in Slovenia. However, the new will limit the maximum hours worked by students to one third of full work time, and put a limit on maximum hourly wage at 8€ per hour.
That one *ing great free-market solution, wouldn’t you agree?
Here is the Slovenian parliament building after 2 hours:
The protests went smooth for a while, but it did not last long. You can find a series of 39 images at http://www.finance.si/galerije/2139/3/
Luka Gubo
More Images
Greece, Spain hit by strikes over cuts
CNN Reports Greece, Spain hit by strikes over cuts
Public sector union ADEDY and private sector union GSEE called the strikes against the government’s austerity measures, in particular the pension reforms announced last week. The reforms include raising the retirement age, which varies in different professions.
It is the first major strike since May 5, when violent protests against the austerity measures resulted in the deaths of three people in the capital, Athens.
Spanish government workers were set to protest at 6 p.m. (noon ET) outside the Ministry of the Treasury in Madrid and outside the central government offices in their respective towns. Spanish government workers were set to protest at 6
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Counterparty Risk Increasing
by ilene - May 20th, 2010 3:02 pm
Counterparty Risk Increasing
Courtesy of Rom Badilla, CFA – Bondsquawk.com
Due to the European debt crisis, counterparty risk is increasing as banks are reluctant to lend to each other, which is remiscient of the bank freeze at the beginning of the fiancial crisis of 2008. The LIBOR-OIS spread which is a gauge of banks willingness to lend, widened 2 basis points today to a spread of 26. Despite the unveiling of the near one trillion dollar Stabilization Fund last week, it continues to drift higher. The spread has now increased 20 basis points from the most recent low achieved on March 15.
As mentioned last week here at Bondsquawk, the spread inched higher from 13 basis points in late July 2007 to 19 basis points the following week. As market conditions deteriorated, the widening accelerated. By late August, the spread widened to 73 basis points and the route was on. During the height of the financial crisis which is marked by the fall of Lehman Brothers, the spread reached a high of 364 basis points by October of 2008. While it remains to be seen if this will turn into another credit crunch as we have warned several days ago and as Bank of America’s Jeff Rosenberg had suggested earlier today, today’s action is certainly a growing concern and deserves further monitoring.
The Road to Recession
by ilene - May 20th, 2010 2:36 am
The Road to Recession
By MIKE WHITNEY writing at CounterPunch
Debt woes in Greece have sent bond yields soaring and increased the prospect of sovereign default. A restructuring of Greek debt will deal a blow to lenders in Germany and France that are insufficiently capitalized to manage the losses. Finance ministers, EU heads-of-state and the European Central Bank (ECB) have responded forcefully to try to avert another banking meltdown that could plunge the world back into recession. They have created a nearly-$1 trillion European Stabilization Fund (ESF) to calm markets and ward-off speculators. But the contagion has already spread beyond Greece to Spain, Portugal and Italy where leaders have started to aggressively cut public spending and initiate austerity programs. Belt-tightening in the Eurozone will decrease aggregate demand and threaten the fragile recovery. We are at a critical inflection point.
From American Banker:
"Bank stocks plunged last week under the theory that banking companies will take large losses in Europe. The theory is correct. Banks will get hurt," Richard Bove of Rochdale Securities LLC wrote in a research note.
Bove wrote in a separate report last week that "big American banks have a bigger stake in this drama than thought." He estimates that JPMorgan Chase has $1.4 trillion of exposure across all of Europe alone, while Citigroup Inc. has $468.4 billion.
Analysts said large U.S. banks have opaque ties to the region through their overseas counterparts. U.S. money-center banks trade derivatives, orchestrate currency swaps and handle other transactions with large European banks. U.S. banks may not hold a lot sovereign debt in Europe, but those European institutions do. If Greece defaults, that could create a crisis of confidence in the European banking market that would spread to large U.S. banks.
"Obviously, the European banks have exposure to Greece. The U.S. banks have loans out to those banks," said Keith Davis an analyst with Farr Miller & Washington. "There are a number of different ways they can have exposure — it’s not hard to imagine how a wildfire can spread." (Europe’s debt Crisis, US Banks Exposure", Paul Davis and Matt Monks, American Banker)
China and the United States have begun to hunker down and pursue deflationary policies. China has already been blindsided by a steep 14.5% rise in the renminbi over the euro in the past 4 months which is beginning to hurt exports.…
Today’s Unprecedented Swiss Bank Intervention Driven By Massive Capital Flight From Germany To Switzerland; Result Was Euro Surge
by ilene - May 19th, 2010 7:04 pm
Today’s Unprecedented Swiss Bank Intervention Driven By Massive Capital Flight From Germany To Switzerland; Result Was Euro Surge
Courtesy of Tyler Durden
Earlier today we disclosed what were not one but several massive central bank interventions in the Euro-Swiss Franc exchange rate. The intervention was large enough to push the rate up by 300 pips, a gargantuan amount in a world where applied leverage is often in the thousands. The amount of capital required to achieve this was likely unprecedented. Yet what bothered us was why would the SNB so glaringly intervene in the FX market not once but three or even more times. Thanks to the Telegraph we find out that the reason was a massive €9.5 billion capital flight from Germany into Swiss deposit accounts just this morning, according to BNP. Unfortunately for Germany this is only the beginning of capital reallocation from the country into neighboring Switzerland. And the technical bounce in the EUR today was in fact an even greater sign of weakness: in fact, as the IMF’s Tim Kingdon pointed out, the money run in Club Med banks last week resulted in a massive €56 billion of interbank lending as the move from the periphery to the core accelerated. Now that the next stage of the run is from the core, Europe will very soon find itself with depleted depository capital very soon. Because if money is fleeing Germany, it is certain that France, Italy and the UK can not be far behind.
Below, is a chart we posted earlier of the record Swiss National Bank intervention.
And here are more details on today’s unprecedented move from Evans-Pritchard:
The market is left asking what skeletons are lurking in the cupboard," said Marc Ostwald from Monument Securities. The short ban follows a report by RBC Capital Markets that circulated widely in the City accusing German banks of failing to come clean on 75pc of their €45bn exposure to Greek debt.
German lenders have the lowest risk-weighted capital ratios in the world after Japan. They were slow to rebuild safety cushions after the sub-prime crisis, and now face a second set of losses on Club Med holdings. Reporting rules have let Landesbanken delay write-downs, turning them into Europe’s "zombie" banks.
Even so, nothing adds up in this BaFin episode. Germany acted alone, prompting a tart rebuke from French finance
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Foolish Thursday – Through the Looking Glass
by Phil - May 6th, 2010 8:28 am
"If you don’t know where you are going, any road will take you there." – The Cheshire Cat
I like to sit with my daughters (8 & 10) on the couch and look at news pictures on my laptop – it’s a good way of getting them involved with the day’s events, teaching them about my job and teaching them about the world (albeit from my twisted perspective). The USA Today is exellent for this as is Reuters and the NY Times. As CSNY said:
Teach your children well and feed them on your dreams…
Can’t you see, you must be free to teach your children what you believe in, to make a world – that we can live in?
Since they are kids, I often simplify what’s happening so we have a general classification of "protesters" to explain why the army or police are attacking people with no guns. Yesterday, my 8-year old had a "eureka" moment when she said to me "Why is everyone around the World protesting – it is because of the bad economy?" Well, she pretty much nailed it, didn’t she? As I’ve been warning for years, the poor (all of the bottom 90% at this point) have been pushed to the edge and they are now starting to push back – so much so that it’s obvious to an 8-year old that we are on the verge of a global revolution…
That led to a little photo project we did together, where I also got to teach my daughters one of my favorite songs: "We Won’t Get Fooled Again!" As the great and powerful Bush the 2nd once said: "Fool me once, shame on, shame on you. Fool me ya can’t get fooled again." That pretty much sums up my attitude on the markets right now – we cashed out at the top and, until we see some pretty DEFINITIVE proof that it was not a top, we’ll be sticking to mainly cash, thank you very much! While Alice’s Red Queen may have said "Sometimes I’ve believed as many as six impossible things before breakfast," we’re having a little trouble swallowing what’s being dished out by our government and the MSM. Richard Davis’s article on the lagging GDP is one example, as are many of the fine articles in our Phil’s Favorites section.
In "Through the Looking Glass" (you can tell I have kids!) Alice said "It’s no use going back to yesterday, because I was a different…
Trichet, a Monetarist Pussycat at Heart, Throws ECB Rulebook Out the Window
by ilene - May 4th, 2010 3:50 pm
Trichet, a Monetarist Pussycat at Heart, Throws ECB Rulebook Out the Window
Courtesy of Mish
After all his tough bulldog talk over the years, the world can now see Trichet is in reality nothing more than a monetarist pussycat when the chips are on the line.
Let’s recap.
Trichet Floods Banking System With Cash
October 08, 2008: Trichet Offers Unlimited Cash
European Central Bank President Jean-Claude Trichet said he can’t rule out further interest-rate cuts after joining a round of global reductions today and offering to flood the banking system with as much cash as it needs.
So Much For Price Stability Mandates
What was it someone was telling me just two weeks ago? Oh, here it is: "Trichet will NEVER cut. The ECB has price stability mandates."
The person went out of his way to put "NEVER" in caps.
That’s rather touching given that today the ECB made a 50 basis point in conjunction with global coordinated panic (see Global Coordinated Rate Cuts Won’t Solve Economic Crisis).
ECB Waives Collateral Rules
May 03, 2010: ECB Comes to Greece’s Aid by Waiving Collateral Rules; ECB Plays With Fire; Europe’s Web of Debt
In a move that is supposed to stop contagion and inspire confidence, the ECB Comes to Greece’s Aid by Waiving Collateral Rules
The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market.
Today’s decision was a reversal for ECB President Jean-Claude Trichet, who began the year saying the ECB would not change its “collateral policy for the sake of any particular country.”
ECB Plays With Fire
This is a dangerous precedent that challenges the credibility of both the ECB and Jean-Claude Trichet.
Intermediate-term, the ECB’s actions add more tinder to the woodpile. Spain and Portugal are the matches.
Rulebook Heads for the Window
May 03, 2010: Trichet May Rewrite ECB Rule Book to Tame Greek Risk
European Central Bank President Jean- Claude Trichet, who capitulated on a January pledge not to relax lending rules for the sake of one country, may have to sacrifice more principles to prevent Greece from bringing down the euro.
Trichet yesterday diluted rules for the second time in a month to guarantee the ECB will keep taking Greek government bonds as collateral for
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The Pain in Spain Falls Mainly on the Plain (folks)
by ilene - May 3rd, 2010 3:58 pm
The Pain in Spain Falls Mainly on the Plain (folks)
Courtesy of Joshua M. Brown, The Reformed Broker
How backwards does a modern nation have to be for a 20% unemployment number to be even remotely tolerable?
I’m always fascinated with democracies that choose to embrace a form of quasi-communism after watching every single one of these experiments toppled – from Russia to Latin America to Asia.
When will they learn? 22% unemployment? 25%? 30%? Must the people be boiling and eating shoe leather before the marxist regime is finally dismantled?
In Spain’s case, apparently.
The timing of the March 11, 2004 Madrid train bombing couldn’t have been worse…3 days later, a nationwide legislative election was held in which the Socialist Party, under current Prime Minister Zapatero, pulled off a major upset. The socialists carried the vote as cowardly citizens ran from the previous ruling party which had been tough on terror, essentially performing the script that the Islamo-Fascists had written for them.
Immediately following the election, Zapatero let the populace of Spain know that there would be no coalition government, that the Socialist Party would be using its perceived mandate to take the country hard-left.
The trouble with this large-scale adoption of big government was that it began just prior to a meltdown. Within just a few years, the global real estate bubble began its descent into hell. The Spanish had gorged on mortgages and buildings with the best of us, levering up to a median…
Monday Munificence – Greece “Fixed” for “Only” $146Bn, Who’s Next?
by Phil - May 3rd, 2010 7:48 am
Yay, Greece is fixed…. again.
Now we only have to worry about Austria, Belgium, France, Germany, Greece, Hungary, Italy, Ireland, Japan, Netherlands, Portugal and, of course, the UK – who all have WORSE Sovereign Debt to GDP ratios than Spain (who are up next on the "wall of worry" the markets are climbing) while we pretend that the US is in "good" shape because we "only" have $15Tn in debt on a $14Tn economy, which is how we, through the IMF, were able to write Greece a $20Bn check this weekend.
$146Bn given to Greece is almost 50% of Greece’s ENTIRE $339Bn GDP – now THAT’s a bailout! Bailing out Spain’s $1.5Bn economy would force us all to dig just a little deeper, despite the lower ratio and bailing out Italy’s (same ratio as Greece) $2.1Tn economy might be a stretch so maybe we can help Belgium first ($470Bn) before we all get together and figure out what we’re going to do about Japan, who have a $5Tn economy that is $10Tn in debt yet somehow has had their bonds marked to fantasy for years.
16.5% of Japan’s tax revenues currently go to debt service (10% on interest alone) as the government borrows money at an average 1.3% (10-year rate) and you won’t here it from the happy, happy CNBC crew this morning (because Greece is "fixed" and Buffett says GS are REALLY nice guys) but Fitch released a report this weekend warning: "Japan is increasingly vulnerable to an adverse interest rate shock, given the scale of government debt and hence the volume of refinancing. The lack of a coherent and credible plan" for fiscal discipline is likely to put downwards pressure on creditworthiness in the medium term." According to the non-Murdoch London Telegraph:
Tokyo has until now been able to borrow at ultra-low rates of around 1.30pc for 10-year bonds, drawing on a huge captive savings pool from its own citizens. While this reduces the risk of a "temporary liquidity problem" – or `sudden death’ in ratings parlance – as foreigners cut off funding, it does not protect Japan from deeper forces at work.
"The slow but steady drop in the domestic savings rate could eventually undercut [Japan's] ability to fund itself locally at nominal yields and makes it more vulnerable to interest rate and refinancing risks," he said. Even at the current low rates – 0.16pc for two years, and
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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