http://www.zerohedge.com/news/sometimes-no-means-exactly
Sometimes "No" Means Exactly That
From Mark Grant, author of Out of the Box
Sometimes "No" Means Exactly That
I was interviewed last night on BBC radio. The questions were good and the newsman was knowledgeable. The concentration was on Greece and Spain and as I detailed the real debt to GDP ratios for the two countries which included all of their liabilities and not just the ones that Europe wants to count the whoosh of breath could be heard across the Atlantic. I am afraid I startled the poor fellow as I explained that this was not my opinion nor was it a particularly complex matter past finding the data which requires some hours of digging around in Eurostat and the Bank for International Settlements data bases. Then it is just simple addition and the division by the official GDP for each country and you arrive at the conclusion. What is so eye opening then is the real number and this is why, of course, that these nations are in trouble as various liabilities turn from contingent to current as the economic crisis deepens. It should come as no surprise to the knowledgeable but to those that have long believed the official debt to GDP ratios put out by the European Union; the actual explanation and the dawning of what it means always seems to provoke a certain gasping of breath.
I do want to address one thing this morning that has been on my mind. I am not nor have I ever called for Armageddon or the end of the world. I find these kind of statements, by anyone, to be quite irresponsible and mostly self-aggrandizing. The world will pick itself up one way or the another and solutions will be found albeit quite painful ones for Europe I am afraid but there will ultimately be solutions. Over my many years on Wall Street I have seen one soothsayer after another rise and fall and then try to repeat the experience with the next Big Call. This is not what I do nor do I find any appeal in this kind of behavior at all. My commentary is certainly unique as it is almost totally directed at keeping you out of trouble and it is the rare moment when I suggest something of interest. I learned long, long ago the great and terrible secret that if you can avoid losing money that you are way ahead of the Great Game and better placed than your competitors. This is why Grant’s first ten Rules are the first one reiterated another nine times, “Preservation of Capital” which comes first and foremost and is a gift that just keeps giving if you get it right.
Difficult Times
As it dawns upon the world that Ms. Merkel means exactly what she says and is not going to back down you may expect a quite negative reaction in the equity markets and a widening of spreads for some risk assets along with a strengthening of the Dollar. I am talking about the “Trend” here and not some trading strategy for today’s business. Germany is not going to flinch and cannot both due to local politics and to the now obvious fact that Germany has just about reached the limits of what she is financially able to do with a $3.2 trillion economy. To put it quite simply; they have run out of excess cash and more European contributions are only going to weaken the balance sheet of the nation and seriously imperil Germany’s financial condition. I say, one more time, Germany is not going to roll over and all of the pan European schemes brought forward by the bureaucrats and the poorer nations are not going to go anywhere. There is one novel possibility here and that is that the Germans, like the British, may opt out. Germany, Austria, the Netherlands, Finland et al may just say, “Fine, go ahead if you wish to have Eurobonds and the like but we will not guarantee them.” All plans do not need to have an either/or solution and this may well be Germany’s position in the end which would place the periphery nations and France in quite an interesting, if unenviable, place.
“So do we pass the ghosts that haunt us later in our lives; they sit undramatically by the roadside like poor beggars, and we see them only from the corners of our eyes, if we see them at all. The idea that they have been waiting there for us rarely if ever crosses our minds. Yet they do wait, and when we have passed, they gather up their bundles of memory and fall in behind, treading in our footsteps and catching up, little by little.”-Stephen King
Investing in Difficult Times
First you want to have a healthy position in Treasuries as the safe haven bet for the world as things begin to run askew and get worse. The Emerging Markets will get seriously hurt as the European banks funded these countries and these banks are now drawing in their horns and returning to their own home turf not just as a result of Basel III but as a result of their balance sheets, so full of fluff and tomfoolery, run up against the reality of their asset bases and cumulative loans no matter how Europe allows them to be categorized. Loans that aren’t paying and Real Estate securitizations that aren’t paying take the same bite whether you call them roses or daffodils or you claim their mark-to-market worth is some fantasy number concocted by the banks and approved by the central bank of any given nation. Many of the European banks have hit the wall now and are standing there staring at the tiles. With the few exceptions I would not want to be the holder of European bank obligations at this time. Neither do I advise to be the owner of most of the European sovereigns; first as connected to their banks which are three times the size of the sovereign countries of the EU-17 but also because their real debt to GDP ratios are so far into the red that whatever solutions are found, and printing money will not help as there is plenty of liquidity in the world and the real issue is solvency, so that any grand liquidity play will not do much good past the shortest of terms. In fact, the liquidity play has run out in my estimation and now the hard choices, the unpleasant choices, are all that remain and they will be painful; any of them.
To capture any sort of yield is now a painful affair. The corporate debt that is deemed worthy and safe is trading within basis points of Treasuries and the spread is so insignificant that these names have become proxies for Treasuries and hold now, in my opinion, very little value. There is a tendency in the markets to regard the financials with one viewpoint as categorized in one basket. I do not share this view. The major European banks and the major American banks are now two totally separate categorizations in my view. It can be said that they are all banks but the leverage, the financial accountability and the basis for investment is the separation of the Earth from Mars now. For yield I would look at the senior debt and perhaps some hybrids/trups of the major American banks because they are not going anywhere and the United States does have the wherewithal to make quite sure of that. We are in a financial crisis no doubt and I expect a world-wide recession by the fourth quarter as caused by the antics of Europe and long experience dictates that you want to be at the top of the capital structure, not in equities or preferreds during this kind of cycle but if yield is high on your agenda then I would take a look at senior debt of the American financials which would be both the banks and some of the insurance companies. Choose carefully, be cautious, but at current spreads there is value in this sector in my opinion. Remember that dividends can come and go and that the dividends for Preferreds can be waved by the gesture of hands at some Board meeting but senior debt defines whether a company is still in existence and is far safer than other securities further down in the capital structure. In general the marks-to-market may decline but the senior financial debt will pay and there are not many good choices to get any sort of yield now.
In the Next Days
Germany will not back-up. This summit will prove to be quite contentious as the beggars want to be the choosers and that is not the way the world works. Hopes will get dashed and reality will invoke its presence and the platitudes of the last thirteen years since the EU was formed will run head on into the unavailability of funds and shockwaves will reverberate across the Continent. That is my prediction. Then Greece will beg and plead and perform its ritual dance but this time, after the Troika has looked at the progress of Greece and found it severely wanting; there will be no more money and it is even dubious that there will be any meaningful extensions. Spain will also dance the dance of the alms seekers and money will be given, virtually exhausting the availability of the EFSF funds which were pledged and are about to become a matter of payment $425 billion which will now be on the table for Greece, Portugal, Ireland and now Spain so that pledged liabilities become current liabilities and cash on the barrelhead is quite a different matter than promises to pay; as we all know.
Patience, patience; we are getting down to it and while the road has been long and the twists have been many and varied in the final analysis it will be the actual amount of the available capital that will answer the long awaited question of when this all ends. I submit that this Summit will offer all of us a “Moment” and that will be when Germany and the rest just say “No;” and then the tide turns, the water begins to pour out and realization, like the morning sun, dawns.
and...“I feel them steal softly upon my thoughts, pattering gently like drops of rain against my window of thought. And so I lay, wandering the long halls of my thoughts, allowing the shades of memory to slip quietly through my mind, remembering starlight and shadows, days of refulgent glory and nights of moonless pitch, and I allow the needle of the tiny compass inside me to swing wildly… First towards the bright dawn of the morrow…then towards the long night behind me: and I think, and I wonder… When Fate comes to collect one of her sons… which way will the compass lie?”-Joshua Azevedo
http://www.zerohedge.com/news/latest-europe-saved-rumor-full-life-under-40-minutes
Latest "Europe Is Saved" Rumor Full-Life: Under 40 Minutes
Earlier today there was an amusing headline generated in the WSJ "Berlin Blinks on Shared Debt" which we noted in the frontruninng section and promptly mocked, because it was patently 100% untrue, and would have a chance of happening only if markets were in full on crash mode. It also goes completely against what everyone in Germany has been saying for weeks and months. Still, the stupid markets, and especially the EURUSD algos keep responding as more and more media sources caught on to this headline. It took just under 40 minutes for Germany to get out of bed and slap the WSJ down, which as of this morning has about the same credibility as the Guardian in the Euro-rumor mongering department.
- GERMAN FINANCE MINISTRY SPOKESMAN SAYS SCHAEUBLE DID NOT SAY GERMANY WILL MOVE SOONER THAN EXPECTED TOWARDS SHARED LIABILITY FOR DEBT
And full roundtrip:
http://www.zerohedge.com/news/spain-back-over-7
Spain Back Over 7%
What goes down, must shoot right back up. In this case we are talking about Spanish bond yields of course, which have yoyoed from a record 7.3% two weeks ago, back down to 6.3% last week, and right back up over 7% as of this morning. While the hope last week was that since the ECB is expanding its collateral it means an LTRO3 is on the way, the market promptly realized (even before LTRO3 was launched), that such a step means that Europe has run out of actual assets, and at this point is merely diluting the taxpayer collateral base. The result is that Spain is right back in purgatory where talk is cheap and unless Europe comes up with something concrete, purgatory will promptly be upgraded to the8th circle of hell.
Elsewhere Italy was on the verge of joining Spain too after both its 5 and 10 Year bonds were trading above 6% minutes before a major 5 and 10 Year bond auction. However, the fact that the bond auction was not an outright failure managed to get yields down to a more modest reading.
Italy paid 5.84% to borrow €2.5 billion (same as the target) for five years, compared with 5.66% at a late-May sale and a 4.58 percent average for this year. The yield at auction on the 10-year bond rose to 6.19%, compared to 6.03% a month ago, and a 2012 average of 5.66 percent. Italy raised €2.92 billion in 10 Year paper just shy of the €3 billion expected. The five-year BTC was 1.54, above this year's average of 1.46. However, the BTC for the 10-year bond was 1.28, well lower than the 2012 average of 1.65.
In other words, while the kneejerk reaction has been one of brief relief, expect Italian yields to all balloon well north of 6% in the coming hours as the Eurozone summit starting in hours is a complete disappointment.
Some perspectives on the bond auction:
NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH
"The auction was slightly disappointing. They failed to reach the
(maximum) target, demand was reasonable, probably driven by domestic
investors. The key thing is that yields continue to rise, which shows
the hurdle that funding is moving into ever higher territory,
compounding the fiscal problems facing Italy.
(maximum) target, demand was reasonable, probably driven by domestic
investors. The key thing is that yields continue to rise, which shows
the hurdle that funding is moving into ever higher territory,
compounding the fiscal problems facing Italy.
"It is unlikely to help confidence as investors nervously await the outcome of the EU summit."
BIAGIO LAPOLLA, STRATEGIST, RBS, LONDON
"All in all the auctions went quite well, particularly for the five-year bond, which has seen a more solid demand that was confirmed by post-auction market trades. Certainly the 'concession' we have seen pre-auction helped support demand for both bonds. Clearly uncertainty remains as we wait for what happens at the EU summit"
LUCA JELLINEK, HEAD, EUROPEAN RATES STRATEGY, CREDIT AGRICOLE, LONDON
"Today's auction has certainly been a good placement. The five-year BTP and in part also the 10-year BTP have been placed above market levels. After some sale orders on these securities at the start of the session, we have seen consistent orders just before the closure of the auction."
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM
"The two bonds have been placed at better levels than the market, both in terms of yield and price. Demand was good, particularly for the five-year BTP, which went very well. Prices fell down over the last few weeks, consequently the bonds have become attractive from a speculative point of view. In any case, despite rates above 6 percent, Italy is still able to place its bonds"
MATTEO REGESTA, RATE STRATEGIST, BNP PARIBAS, LONDON
"It's not impressive but it does not deliver any particular message to the market. It's broadly in line with what we were expecting. The market was pricing in a concession versus the previous auction but given market levels we can see there was demand evidenced by some overbidding."
LYN GRAHAM-TAYLOR, STRATEGIST, RABOBANK, LONDON
"Given the support given to the auctions by 18.1 billion euros of redemptions and coupons that are due on Monday the bid/cover on the 10-year bond in particular is quite low. If the result of the EU summit is viewed negatively by the market then it is likely that the Spain-Italy spread will narrow due to the political pressure that Monti is under at home to return with at least some concession. However, if there is any signal from the summit that the ESM will start to be used imminently to purchase Italian and Spanish sovereign debt then this could also see the spread narrow as Spain is likely to benefit from such purchases more than Italy as euro zone yields may start to converge."
and......
http://ftalphaville.ft.com/blog/2012/06/28/1063871/sell-bob/
‘Sell Bob’
Barclays, down 16 per cent at pixel…
RBS off 14 per cent, btw.
and...
http://www.businessinsider.com/barclays-shares-fall-after-libor-fine-2012-6
and.....
http://www.businessinsider.com/barclays-shares-fall-after-libor-fine-2012-6
Barclays Is Getting Creamed Today
Big loser in London this morning: Barclays.
The British bank is down about 7% after getting slapped with a massive fine yesterday for its role in the LIBOR-manipulation scandal.
What's worse is that now politicians say they want criminal avenues explored.
 |
and.....
http://www.athensnews.gr/portal/8/56601
| Greece frozen out of EU summit debates | |||||||||||||||||||
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The nightmare of EU leaders gathered for Thursday’s crucial summit in Brussels is not the deadlock in a tug-of-war between North and South over a roadmap towards “genuine” fiscal and banking union backed by some form of Eurobonds, which Berlin vehemently rejects.
The real horror, according to Wednesday’s article by Reuters is a possible failure of the next Spanish bond auction that would prompt “solvency worries to Italy and beyond" and trigger "uncontrollable bank runs that spell the single currency's end”.
In this context, Athens is virtually frozen out of the heated debates in Brussels after last week’s decision by Eurogroup finance ministers to freeze fund disbursement under the country’s second bailout programme until the next inspection and audit of the government's performance has been completed by the troika.
But according to a German government source quoted by Reuters on Thursday, “the troika inspection is likely to take weeks rather than days”.
The German source also said Chancellor Angela Merkel had spoken "intensively" but inconclusively with French President Francois Hollande on Wednesday evening in Paris implying that the North-South rift remains deeper than ever.
This leaves President Karolos Papoulias little room for manoeuvre as he represents the ailing Prime Minister Antonis Samaras at the tense EU summit conference hall.
Papoulias will deliver a letter by Samaras to his EU counterparts pleading for some breathing space of bailout finance for bank recapitalisation and domestic state debt settlements to halt the country’s economic collapse from the dramatic cash squeeze.
Samaras noted that part of this “breathing space” would be the revision of the harsher terms of the troika’s and the extension of the fiscal adjustment period for two more years after 2014.
But Samaras has again failed to appeal for EU solidarity as Greece is facing a state of economic emergency and a veritable humanitarian crisis as a result of the troika’s harsh austerity prescriptions.
and.....
http://www.athensnews.gr/portal/1/56598
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http://www.telegraph.co.uk/finance/debt-crisis-live/9360282/Debt-crisis-live.html
11.13 Irish Deputy Prime Minister Eamon Gilmore says his country will want equal treatment on bank debt if Spain wins concessions. Spain has asked the EU for up to €100bn in order to bail out its banking sector.
11.11 EuroGroup chairman Jean-Claude Juncker says he is seeking progress on short-term measures at EU Summit.
10.57 Finnish PM joins Germany in rejecting eurobonds. Should be an interesting EU Summit today. Most of Europe pushing for eurobonds as a solution to debt crisis.
PM adds that EU leaders will discuss buying Spanish and Italian bonds.FInland suggests that vulnerable eurozone countries should issue covered bonds, and the EFSF/ESM could stand ready to intervene at such auctions to make them a success.
Meanwhile, Swedish PM Reinfeldt says his country would oppose a proposal for an EU banking union.
10.40 Greece's national bank says impaired loans in first quarter at 15.5pc, and the pace is accelerating. Adds that bank mergers are needed.
10.38 European Central Bank Governing Council member Christian Noyer says Europe has arrived at a crucial moment and must advance more towards federalism with a stronger budgetary union.
He adds that Greece must improve its credibility. Central banks have already done a lot but government cannot rely on them to do everything.EU/IMF Troika will visit country early next week.
10.33 And a quick update on Barclays being fined for Libor manipulation. Both Boris Johnson and Ed Miliband have this morning called for an investigation.
10.18 Italy has sold €2.9bn 2022 bonds at yield of 6.19pc versus 6.03pc on May 30.
Sells €2.5bn 2017 bonds at yield of 5.84pc versus 5.66pc on May 30.
Bid to cover 1.28 versus 1.40. So, not a huge jump in borrowing costs but demand has fallen.
10.00 Eurozone economic sentiment falls to 89.9 in June from 90.5 in May (lowest since 2009). Consumer sentiment falls to -19.8 from -19.3. Preliminary CPI +0.2pc.
09.36 BREAKING NEWS...
UK GDP Q1 figure confirmed at -0.3pc. Services +0.2pc, industrial production -0.5pc and construction -4.9pc. Government spending+1.9pc (highest since 2005), household spending -0.1pc. Bank of England expects borrowing costs for mortgages and household loans to rise markedly in Q3. Forecasts sharp reduction in availability of high loan-to-value mortgages.
The ONS said fourth-quarter 2011 UK GDP revised down to -0.4pc.
Ranvir Singh, chief executive of the market analysts RANsquawk, said:
Waiting for these numbers was much like watching an England penalty shootout. A grim sense of foreboding, flecked with the odd, irrational splash of hope.
"In the end the confirmation that, yes, it really was that bad, came as an anticlimax. No amount of extenuating circumstances can mask the economy's serious weakness in the first three months of the year. All eyes will now turn to the Bank of England to see how it will respond. But the sages of the MPC are far from united in their approach.
09.32 Italian employers' lobby Confindustria says country is "in abyss" and that crisis is hurting economy as if there was "a war". Cuts 2012GDP forecast from -1.6pc to -2.4pc and 2013 from +0.6pc to -0.3pc, seesdebt to GDP ratio at 125.7pc (121.3pc previously) this year.
09.26 Markets falling on rumours that no debt crisis plan will be finalised at today's EU Summit. FTSE 100 down 0.6pc now.
09.09 Ireland is undergoing the costliest banking crisis of any advanced economy since the Great Depression, according to The Irish TImes, citing a working paper prepared by two researchers within theInternational Monetary Fund.
08.56 German unemployment edges up from 6.7pc to 6.8pc in June, extra 7,000 claimants this month.
08.34 Spanish 10-year bond yields have jumped seven basis points to 6.99pc this morning. And they have now passed 7pc.
08.20 Trader Cigolo:
The source also says Germany is sceptical about dveloping yet another instrument to solve Italy's problems. Adds that Germany warns against "exaggerated panic-mongering" over very high interest rates in Spain andItaly. Troika report on Greece likely to take weeks.
07.55 German IFO Institute sees economy entering a "weak phase".
07.49 The ECB's Peter Praet has added that a bailout of Spain's banks comes with strings attached and Madrid's efforts to cut its deficit must be monitored closely.
He told the Financial Times Deutschland:
Spain will receive the money from the bailout fund in tranches, with payment depending on whether Spain meets the conditions. Spain has no classical aid programme. But given the interconnectedness between the situation in the banking sector and state finances, we must also keep an eye on the development in the Spanish state budget.
07.37 Moody's has downgraded 11 Brazilian financial institutions. The ratings agency said it had cut the standalone bank financial strength ratings (BFSR) or lowered the standalone baseline credit assessments (BCA) of eight Brazilian financial institutions by one to three notches.
The long-term global local currency (GLC) deposit ratings or issuer ratings of 11 financial institutions were downgraded by one to two notches, while the deposit rating of one bank was confirmed. The short-term deposit ratings of six banks were downgraded by one notch.
Banks affected include Banco do Brasil, Banco Sanfra SA, banco Santander (Brasil), HSBC Bank Brasil - Banco Multiplo SA, Banco Bradesco, Banco Itau BBA SA and Banco Itau Unibanco SA.
07.30 Spain is considering buying its motorways in the Madrid region for €1 plus debt and introducing tolls, according to Cinco Dias.
07.19 European Central Bank policymaker Peter Praet says he is very skeptical of Italian PM Mario Monti's plan for the ECB to buy bonds part-guaranteed by the ESM bailout fund. Praet says plan would contravene ECB mandate. He adds that Spain should first look to shareholders for bank aid.
07.12 BREAKING NEWS...
UK house prices have fallen 0.6pc in June compared with May, and 1.5pc from last year. Analysts expected a 0.1pc rise. Average home price now £165,738.
06.40 Nein, nein, nein! Pleas from Spain and Italy for financial aid were dismissed by Angela Merkel yesterday on the eve of a critical summit in Brussels. Bruno Waterfield reports:
Germany's Chancellor angrily rejected desperate pleading by Italy and Spain as a Franco-German rift over eurozone debt sharing threatened to unravel efforts to find a fix for the single currency at a meeting of European leaders on Thursday.
Before flying last night to Paris for emergency talks with Francois Hollande, the French President, Mrs Merkel told German MPs that instead of more cash the eurozone needed to step up debt reduction and economic reforms.
"I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures," she said.
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