http://www.zerohedge.com/news/efsf-issuance-proclaimed-success-even-risk-hits-4-month-highs
Submitted by Tyler Durden on 04/24/2012 11:45 -0400
Submitted by Tyler Durden on 04/24/2012 11:21 -0400
EFSF Issuance Proclaimed Success Even As Risk Hits 4 Month Highs
The EFSF 'firewall' issued EUR3 billion 7-year bonds this morning. It seems any time any European entity actually manages to issue debt, it is proclaimed as miraculous evidence of investor demand and comfort with these risks. In this case, we are told, via Bloomberg, that:
- *EFSF SAYS BOND ISSUE MET WITH STRONG DEMAND
- *EFSF SAYS SUPPORT FROM ASIA, CENTRAL BANKS, SOVEREIGN WEALTH
So the self-dealing continues to grow the ponzi ever bigger. However, what few will mention is that 10Y EFSF spreads (the risk premium over Bunds to hold these government-guaranteed exposed-to-Europe's-entrails) broke above 150bps today for the first time in over four months and are now over 35% higher than at the start of April. Success Indeed.
Chart: Bloomberg
and.....
http://www.zerohedge.com/news/europes-risk-ually-transmitted-disease
Europe's Risk-ually Transmitted Disease
Remember when Lehman or Bear Stearns was 'too small' to matter and 'subprime was contained', we we are getting same ignorant first-order analysis now with regard Spain (or more broadly-speaking Southern Europe). The whole of Southern Europe is only 6% of global GDP - how can that matter? (especially when we can eat iPads?) Michael Cembalest, of JPMorgan, provides some much needed sense on why thesesmall countries pack a large disruption risk punch for global markets and economies. By breaking down the world into a few categories of disruption risk, the JPM CIO notes that the southern strain of Eurovirus has a much larger non-proportional impact thanks to transmission risk via its significantly greater share of sovereign and bank debt relative to the world and how these debts are financed. The transmission risk to the much-larger Northern Europe is material. We are already seeing Germany's new orders from within the Euro-zone slumping and this week's business sector surveys were very weak. As Cembalest concludes, from an alien's perspective, Earth may be able to outrun the collapse in Europe’s periphery if the ECB keeps printing money and the IMF increases its firewall, but it’s not going to be easy.
The table above breaks Earth down into a few categories, with the ones at the top representing less near-term disruption risk in our view. In principle, the strength of commodity countries, much of Asia and Latin America would offset Southern European problems. In addition, China has the scope to relax monetary and/or fiscal conditions, which we think will be necessary given the sharp decline in China’s private sector growth trend.
That being said, Earth’s problem with Southern Europe is one of transmission risk and non-proportional impact:
- While Southern Europe is only 6% of global GDP, it has a higher representation of the Earth’s sovereign debt and bank debt. In recession, the region causes more than a proportional problem for the leveraged financial system described on the prior page. Even with German and French bank claims on Southern Europe having fallen in half since 2007 (see page 6), potential losses on remaining claims still represent a large percentage of European bank capital.
- The table shows what each country reports as its sovereign debt, but these figures may be underestimated. Spain’s central government and regional debt is reported at 68% of GDP. After accounting for bank restructuring costs, write-downs on development bank loans, potential losses on government guaranteed private sector debt, and possible losses on Spain’s share of loans to other countries in Southern Europe, we estimate Spain’s debt as being ~85% of GDP.
- The table does not capture how countries finance their sovereign debt. Japan’s sovereign debt is large relative to its GDP, but is 93% owned domestically; and the US is (for now) the world’s reserve currency. Southern Europe’s reliance on crossborder capital required the ECB to take extraordinary steps to offset it when it fled.
- The transmission risk to Northern Europe is material. As shown below, the collapse in Germany’s new orders from within the Euro area is substantial. This week’s business sector surveys in Europe were very weak, and the only surprise to us was that people were surprised. The French and German economies are stagnant right now.
Economic strains in France contributed to increased polling for the National Front, and the Netherlands is struggling with the fiscal compact just agreed to last year. Germany may have to decide sooner rather than later if, how and when it will pay the freight of European fiscal integration if it wants to preserve the Euro. Earth may be able to outrun the collapse in Europe’s periphery if the ECB keeps printing money and the IMF increases its firewall, but it’s not going to be easy.and.....http://www.zerohedge.com/news/ich-bin-ein-athenerIch Bin Ein Athener
Submitted by Tyler Durden on 04/24/2012 10:49 -0400
Via Mark J. Grant, author of Out Of The Box,“The only relevant test of the validity of a hypothesis is comparison of prediction with experience”It is quite likely, in my view, that the Greek elections will amount to a material political push-back and may well result in either the IMF/EU refusing to provide more aid and/or the newly elected government, finding no more capital forthcoming, heading back to the Drachma and devaluation as the only real solution left. This, of course, would mean that the old Greek debt held at the EU/ECB/IMF will head south along with the new bonds that were jammed upon the previous investors. What is readily apparent now is that the last aid package for Greece is significantly deficient and that it will either be more aid or someone’s exit strategy that will have to prevail because the current situation is little more than a Greek farce. I think the “wink, blink and nod” strategy which has been employed by Greece is about to end either as a result of the will of the people or as a result of the till being closed by political forces in the funding countries. There will either be a conclusion or Berlin can absorb Greece as a welfare state and be done with it. Athener
-Milton Friedman
It was on January 13, 2010 that I first predicted that Greece would default. The yield on their ten year was 4.38%. I took a lot of flak for that call at the time. Vindication was mine in the end and Greece may be the spark that lights the fuse by the time we all look back and marvel at the way the European Union played out. Yesterday as we all watched the Holland and Hollande Show; Greece was scarcely on the radar. That act was behind us now we think and we are off to different adventures. Not so fast my friends, a moment’s respite; nothing more.The Greek Statistical Office released new data yesterday and the results were anything but positive. The official debt to GDP ratio now stands at 165.3%, a fourteen percent increase from last year’s numbers. Quite frankly, this is a disaster and hardly in-line with all of the fantasy projections that Greece will now be heading towards the mythical 120% number bandied about by both the EU and the IMF. The rest of the economics for the country continue to worsen with a 21.8% unemployment rate and more younger people without jobs than employed. Greece is in its fifth year of recession and estimates place the economic contraction for 2012 between 4.5%-6.9%. They have elections on May 6 and to get the next round of aid the IMF is demanding further spending cuts of 5.5% of their GDP or around $14 billion plus an additional $4 billion from better tax collection. In my opinion, if history is any guide, none of these fantasies will be actualized so that Europe will face Round III of bailouts in the not too distant future which is one ungodly exercise in futility with the Greek people bearing the whip of their Germanic Masters.
To make matters worse; the banks in Greece are losing $344 million a day and have capital outflows of about $500 million per month. Even with the $32.2 billion in recapitalization funds it does not take a fiscal genius to see where this is all leading which is right down the Spartan rabbit hole. May 6 is hard upon us with elections both in France and Greece and the outcomes of both contests may result in a quite different Europe than we had the day before.
Elections are a good deal like marriages. There's no accounting for anyone's taste. Every time we see a bridegroom we wonder why she ever picked him, and it's the same with public officials. - Will Rogers
No comments:
Post a Comment