Freak Out Friday – Global Edition
by Phil - May 14th, 2010 8:30 am
Europe is trading down 2% at lunchtime (7:30 EST).
The Euro fell below $1.25 this morning and the Pound plunged all the way to $1.45 as the new government of the UK gets the fastest "no confidence" vote ever delivered by the financial markets. Keep in mind that only 36% of the people in the UK wanted Conservative leadership. The Labor Party got 29% of the vote and further left Liberal Democrats got 23% of the vote with crazy parties getting 12% of the vote. This is the problem with multi-party systems – MORE than half the people are unsatisfied with the result of almost every election.
Thank goodness America avoids this kind of thing by having a one-party system that pretends to be a two-party system but every once in a while that illusion is totally blown as candidates switch parties as if their former ideologies were mere youthful dalliances. Arlen Specter was only 70 when he decided to leave the Republican Party after 20 years as a Senator. Specter has gone from voting with Democrats 16% of the time to voting with them 97% of the time during his current Senate term and the funny thing is he wonders why the voters don’t seem to trust him…
So if our country is run by two parties that have no soul, imagine how chaotic it is in England, where 3 parties vie for power and the far left and the far right are forced to effectively share the Ministry in order to get rid of the moderate. And if that seems crazy to Americans, think of Germany, who have FIVE (5) major parties, three of which are different brands of Democrats: Christian (yes America, Christians can be Democrats too!), Social and Free all of which are more conservative than the "Green Party" who are seen as more conservative than the "Left Party." Personally, I’d be voting for the Pirate Party (pictured below, won 2% of the vote) on name alone – I’ll bet they have the best bumper stickers!
Only two countries as screwed up politically as England and Germany could come up with an idea as screwed up as the EU government, which is impossible to explain in a single day but can be summed up very simply by pointing out that it’s currently Spain’s "turn" to head up the Council,…
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DiggHow the US Has Perfected the Use of Economic Imperialism
by ilene - May 12th, 2010 7:51 am
How the US Has Perfected the Use of Economic Imperialism Through the European Union!
Courtesy of Reggie Middleton
The IMF, like many other international institutions, asserts that it has a “preferred creditor status”, and this has been a practiced convention in the past. Thus, IMF has de facto seniority rights over private creditors despite the fact that there is no legal or treaty-based foundation to support this claim and this seniority of rights for IMF will continue under the recent EU rescue plan announced as well as it has not been noted otherwise implicitly nor explicitly. This is the reason why Sarkozy said it is a said day when the EU has to accept a bailout from the IMF (aka, the US). The EU now, and truly, contains a significant parcel of debtor nations.
To add fuel to this global macro tabloidal fire, the Euro members’ loan will be pari passu with existing sovereign debt i.e. it will not be considered senior. Although there is no written, hard evidence to support this claim, it is our view that otherwise there will be no incentive for investors to hold the debt of troubled countries like Greece, which will ultimately defeat the whole purpose of the rescue package. Moreover, there are indications that support this idea. As per Dutch Finance Minister Jan Kees de Jager, “We are not talking about a special preference for the eurogroup loans, that’s not possible because then you would have the situation that already-existing rights of creditors at the moment would be harmed.” (reference http://www.businessweek.com/news/2010-04-16/netherlands-excludes-senior-status-for-greek-aid-update1-.html). Of course, if more investors did their homework and ran the numbers, that same disincentive can be said to exist with the IMF’s super senior preference given the event of a default and recoverable collateral after the IMF has fed at the trough.
The ramifications:
IMF’s preferred creditor status coupled with the expensive Euro members’ loans which are part of the rescue package can create a public debt snowball effect that could push the troubled countries towards insolvency when the IMF debt becomes repayable in three years time. This could be seen particularly in case of Greece (subscribers, please reference Greece Public Finances Projections). Even if all the spending cuts and revenue raising are achieved as planned for Greece, its debt will peak to 149.1% of the GDP in 2013. Please keep…
The Currency Implosion Heard Round the World
by ilene - May 10th, 2010 2:44 pm
The Currency Implosion Heard Round the World
Courtesy of Jr. Deputy Accountant
Last night, the Fed promised to support a controlled EU demolition.
Ambrose Evans-Pritchard via the Telegraph:
"It is an absolute general mobilization: we have decided to give the eurozone a veritable economic government," said French president Nicolas Sarkozy, once again basking as Europe’s action man. "Today we have an attack on the whole of the eurozone. This is a systemic crisis: the response must be systemic. When the markets open on Monday morning we will be ready to defend the euro."
An attack.
But if the early reports are near true, the accord profoundly alters the character of the European Union. The walls of fiscal and economic sovereignty are being breached. The creation of an EU rescue mechanism with powers to issue bonds with Europe’s AAA rating to help eurozone states in trouble — apparently €60bn, with a separate facility that may be able to lever up to €600bn — is to go far beyond the Lisbon Treaty. This new agency is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared. A European state is being created before our eyes.
No EMU country will be allowed to default, whatever the moral hazard. Mrs Merkel seems to have bowed to extreme pressure as contagion spread to Portugal, Ireland, and — the two clinchers — Spain and Italy. "We have a serious situation, not just in one country but in several," she said.
You wonder how bad the weekend looked for them to take this move – a paper promise the European Union can’t deliver on (but Zimbabwe Ben is ready to help anyway) that leaves no way out except through a truly united Euro. Likethey will blast the shit out of anyone who comes near them with $1 trillion in made up fucking money God damnit, this is serious (and "systemic," a word that worked quite well on America not that long ago).
Britain had rats running in the streets way before easy money whore psychopaths went chasing the March 2009 market all the way up so to say this problem in Europe is in any way new would be false. It’s just that now it’s started to fester while we’ve been busy remarking how much better things are.
"Nuclear". We’ve…
UK Taxpayers Ramrodded Into EU Bailout; Good Riddance to “Clown” Brown
by ilene - May 9th, 2010 1:32 pm
Since when is a financial crisis a "natural disaster." ?? ("Euro-zone leaders are attempting to get round objections from countries such as Britain by invoking Article 122 of the Lisbon Treaty, intended to enable a collective response to natural disasters.") - Ilene
UK Taxpayers Ramrodded Into EU Bailout; Good Riddance to "Clown" Brown
Courtesy of Mish
Smack in the midst of an election that will likely cost Prime Minister Gordan Brown his job, British taxpayers ordered to bail out euro.
All 27 EU finance ministers have been summoned to Brussels on Sunday to sign up to a “European stabilisation mechanism." Britain will be unable to veto this as it will be put through under the “qualified majority voting” system.
The deal, effectively to shore up the euro, was denounced as a “stitch-up” last night after it emerged Nicolas Sarkozy, the French President and Angela Merkel, the German Chancellor, had devised it behind closed doors and were attempting to push it through at a time when there is no clear government in Britain.
“When the markets reopen Monday we will have in place a mechanism to defend the euro,” said President Sarkozy yesterday. “This is a full-scale mobilisation.”
Euro-zone leaders are attempting to get round objections from countries such as Britain by invoking Article 122 of the Lisbon Treaty, intended to enable a collective response to natural disasters. This does not need unanimous agreement.
By doing so, Mr Sarkozy has ensured a speedy confrontation with a new British prime minister and other leaders of non-euro currency countries. All 27 EU finance ministers must be present, but because decision will be taken by qualified majority vote, the 16 euro zone leaders can ensure its passage.
British exposure to liabilities created by a bail-out under the scheme would amount to around 10 per cent of the total loan. If a country failed to repay, the cost to Britain would be ¤10 billion (£8.6 billion) for every ¤100 billion on which it defaulted.
The scheme will present an immediate dilemma for an incoming Conservative government. A bail-out would increase British liabilities and debt at a time when Mr Cameron would be seeking to restrain spending.
Refusal to lend the money would plunge a Tory prime minister, overseeing a coalition or minority government, into a damaging conflict with the EU.
British officials are concerned that the EU is preparing
…
IS THE ECB ABOUT TO GO NUCLEAR?
by ilene - May 5th, 2010 9:21 am
IS THE ECB ABOUT TO GO NUCLEAR?
Courtesy of The Pragmatic Capitalist
The ECB is in a most unenviable position. As the EMU begins to falter they are confronted with few tools with which to fight this battle. The market called their bluff yesterday with the Greek bailout and is clearly looking past Greece at Portugal and Spain while daring the ECB to make a move on either country. The bond “vigilantes” are betting on the fact that the ECB has overplayed their hand with the Greek bailout. At this point, it looks like the vigilantes are correct. The ECB put a gun on the table and it turns out to have been nothing more than a water pistol. Unfortunately for the vigilantes the ECB is not out of tricks. They have a Hank Paulson like bazooka in their option to buy bonds on the secondary market. But can they use it? RBS analysts believe they should not hesitate in acting:
“The ECB should not wait for a renewed deterioration of the periphery before acting. It should regain its leadership in tackling the crisis following a complete communication and coordination failure amongst euro area fiscal authorities around the Greek crisis. Should contagion reappear, there will probably not be enough time to go through a similar backstop facility to that of Greece for the next country. There simply will not be enough time. Better breaking the rule-book than breaking up the euro area!”
Unfortunately, the decision is a bit more complex than the Fed’s decision to buy assets directly from the U.S.banks – what many refer to as “quantitative easing”. As we’ve previously explained, the Euro is flawed primarily because it is one currency housed under several economies with multiple governments. They are not truly unified because their economic strategies differ which make their inherent monetary needs different. Using the same currency for economies as different as Germany and Greece is truly forcing a square peg in a round hole.
Where are the potential roadblocks to QE? First of all, the program would have to be massive. Credit Suisse estimates that the cost to bailout Spain, Portgual and Greece could be as high as $600B. The program would almost certainly have to be as large in order to quell any and all market fears. But the bigger roadblock is the Maastricht treaty. Although the ECB could technically…
10 Things You Need To Know That Are Going On This Weekend
by ilene - May 1st, 2010 4:36 pm
SPECIAL EDITION: 10 Things You Need To Know That Are Going On This Weekend
Courtesy of Joe Weisenthal, at Clusterstock
It’s a Saturday, but it certainly doesn’t feel like it, because there’s a heck of a lot going on.
Here’s what you need to be paying attention to this May Day.
- The Berkshire Hathaway (BRK) annual shareholders meeting is happening right now. Already the company has reported monster Q1 profits, and both Warren Buffett and Charlie Munger have taken turns defending Goldman Sachs (GS), which is one of their portfolio companies. [See also: From One Pigman To Another....]
- Obama is flying to the Gulf Coast on Sunday morning to inspect the damage and response to the Deepwater Horizon oil crisis. The sense right now is that we’re looking at an environmental tragedy on the scale of Exxon Valdez, maybe worse, since there’s no short-term prospect of plugging the massive leak in the ground that’s spewing oil. Current estimates suggest BP (BP) is on the hook for at least $3 billion.
- Greece/IMF/EU talks continue. According to Greek government officials, some kind of announcement may be made today. The market is hoping to hear something that’s orders of magnitude stronger than any bailout announcement we’ve gotten so far, or otherwise the feeling will be that it can and will fall through again.
- Of course, there are fresh violent, anti-austerity protests going on today in Athens. The fact that it’s May Day, a day for celebrating anti-capitalism only adds to the tension.
- New reports suggest the criminal probe into Goldman Sachs is not just a perfunctory follow-on to the SEC charges, but rather a truly separate thing that’s wider than Abacus, and that started before the SEC’s investigation. HUGE.
- The New York-based Economic Cycle Research Institute says the economy is already beginning to slow.
- With just five days before the election, UK’s The Guardian has endorsed the Liberal Democrats, the country’s biggest third party. Its leader, Nick Clegg, has surged thanks to a string of strong debate performances, Gordon Brown’s disastrous campaigning, and a lingering sense of unease with the conservatives.
- Korea has confirmed that a torpedo sank the Cheonan, though it still won’t blame North Korea directly.
…
Gerald Celente on Global Trends – Interview by Bill Meyer
by ilene - April 30th, 2010 2:42 pm
Gerald Celente on Global Trends – Interview by Bill Meyer
Courtesy of Mish
Here are some Gerald Celente quotes from his interview by Bill Meyer on April 26, 2010.
"Median household income is below 1999 levels. What kind of imbecile is out there saying we have to raise taxes to keep things going more?"
"This is a stimulus recovery. They are printing phantom money out of thin air based on nothing, and producing practically nothing. It’s digital money not worth the paper it’s not printed on."
"It’s not only the US by the way, and that’s why I want to make this clear. It’s China, It’s Japan, It’s Indonesia, It’s Australia. It’s the UK and all of Europe."
I do not care for Celente’s views on hyperinflation or the US breaking up, but the 48 minute long interview is interesting.
The Litany
by ilene - April 19th, 2010 12:51 pm
The Litany
Courtesy of Joshua M Brown, The Reformed Broker
Looks like it’s gonna be a tough one for stocks today. Here’s a list of what you can expect to put pressure on the markets this morning…
1. Germany and the UK are very much interested in the details of how a New York investment bank may or may not have ripped off their local banks.
2. China (Shanghai Composite Index) sold off almost 5% on news that the government has told the banks to curb all loans for third home purchases. In and of itself, not a big deal, but a reminder of the tightness to which that country’s rulers aspire.
3. The Euro weakening against the dollar is a fairly obvious headwind for risk assets – especially commodities and stocks.
4. Dr Copper, possibly the best leading indicator we’ve got these days, dropping 2.3% in London. May crude contract down 2.4% this morning (81-ish).
5. Goldman’s ($GS) earnings conference call is coming up this week (April 20th), there is a hesitancy for any kind of dip buying until The Street gets a better sense of how big the debt derivatives business is for them.
6. The speed and degree to which all stocks and sectors sold off on Friday on news that was rather company-specific is indicative of a blustery Bull without strong underpinnings.
7. While we were celebrating the Intel ($INTC) quarterly earnings, we had gotten a handful of initial jobless claims and foreclosure stats that were overlooked. These stats will now be circled back to – and they looked like Paula Abdul getting off an airplane with no makeup.
8. Many savvy market participants are anticipating the next phase of the CDO fraud pile-on – who else did this, who’s next to be called out. In addition, will state attorneys general be joining the fray? And what will the impact on the financial industry be now that Finance Reform has become more a slam dunk to pass, politically speaking?
Good luck and be careful out there.
Wednesday’s Worry – World Wide Cash Crunch
by Phil - March 31st, 2010 8:37 am
Hugo Chavez is running low on cash.
Should you care that he just had to withdraw $5Bn from reserves, sending them to a 10-month low and down 19% to $28.35Bn? Well it’s not just Venezuela but they are a good example of what’s happening around the World as even oil-rich nations can no longer prop up their economies and will have to begin competing with the US, Europe and Japan to borrow money on the international markets. Venezuela may have external debt financing needs this year of as much as $19 billion and as much as $22 billion in 2011 should authorities choose not to use non-reserve savings estimated at $41.1 billion, according to Morgan Stanley. “Short of some break in Venezuela’s current dynamic, the economy may be faced with a severe dollar crunch as early as this year,” Pardelli and Volberg said. “The dollar crunch may prompt the authorities to attempt to buy time by drawing down their hard currency savings, issuing debt or significantly ratcheting up policy heterodoxy.”
Greece needs $15.6Bn by the end of May and that much again in August and November. Seven-year notes sold by the government this week fell even after the European Union and the International Monetary Fund crafted an aid package that would be triggered should the nation be unable to raise sufficient cash from capital markets to cover its financing needs. Greece may pay about 13 billion Euros more in interest on the debt it sells this year than it would have to had yields stayed at their pre-crisis levels relative to Germany’s.
The UK will be spending 10% of their tax revenues just to pay the interest on their debt as debt itself soars to 90% of GDP with debt now costing the UK more than their Defence and Transportation budgets combined. Neighboring Ireland is looking at a $110Bn bill over the next 12 months to stabilize it’s bad banks – and that’s AFTER giving the banks a 47% haircut on the value of the assets the government will be picking up. This will not be counted as an addition to Ireland’s already $95Bn in debt for 2010 because, technically, they are buying an asset - even if the asset is toxic. It’s the same trick our Fed uses every month to pretend things are fine…
Fed President Richard Fisher says the U.S. can’t ignore the effect of the…
Feldstein: Worry About the Dollar, Not the Euro: Keep an Eye on Sterling
by ilene - March 11th, 2010 9:03 pm
Feldstein: Worry About the Dollar, Not the Euro: Keep an Eye on Sterling
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Here is Marty Feldstein’s view of the economic fundamentals in the euro and dollar portion of the forex markets.
Fundamentals mean little in the short term for trading purposes, at least in my own judgement. However, it does look as though the euro/dollar cross is a bit overdone. If that is correct, then it is likely that this correction in the precious metals should be almost done as well. But we will have to see what happens. The markets are shallow and edgy, almost wobbly. In a liquidation everything gets sold on the short term. Selling and buying on the margins makes price, no matter what size the market. Such it is with most auction markets disconnected from rational valuation.
On the fundamentals, however, Feldstein makes some good points. The problem with Europe is that it is sitting on the fence with its union, and the Greek debt crisis merely highlights their weakness which are largely structural. What is the EU likely to become.
As for the US, its day is fading, and it is in the grip of financial interests that will wring the last drop of vitality out of it given their way.
There are several roads to losing weight. One is to engage in healthy exercise and a good diet. The other way is starvation either through deprivation or disease. In both instances one ‘loses weight.’ The modern day Liquidationists favor starvation, for the other guys, not themselves. The modern day Keynesianians seem to wish to indulge in overeating with a change in diet to be left for another day.
The American economic system cries out for meaningful reform. Deficit spending without reform is futile, the road to addiction. But no government led structural repair efforts is the sure road to stagnation and a zombie-like existence such as has been seen in Japan, or even worse, a third world status and regional fragmentation.
My own bellwether is the UK. I believe quite strongly that Britain will reach its crisis before the US. And it may provide a proper warning, but all things considered, it may be too late. While…
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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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