http://www.zerohedge.com/news/ray-dalio-dont-assume-germany-will-bail-europe-out-consider-fat-tail-significant-possibility
Submitted by Tyler Durden on 06/26/2012 19:54 -0400
Lately, more and more professional investment "advisors" and newsletter recommendations boil down to just one catalyst: wait for either Germany, the ECB or the Fed to step in, as usual, and bail the world out, because, well, they have to, and any additional thought is rendered moot as fundamental analysis is meaningless under central planning (plus it is actually more work than just repeating the same stuff over and over while charging $29.95/month for it). Of course, when these same snakeoil salesmen are asked the simple question: what if said bailout does not happen, or if it happens late (for the purposes of this exercise let's assume one is not a central bank that can print its own money, have an infinite balance sheet, and can afford to be wrong almost into perpetuity), they give a blank stare, start mumbling something and walk away, especially if one mentions Lehman brothers and the simple detail that, oh, it failed. Which is why if Ray Dalio, head of the world's largest hedge fund, is correct, it may time to summarily fire and stop subscribing to each and every broken record Oracle whose template is "X will bailout Y" for the simple reason that it is wrong.
In recent weeks Chancellor Merkel has come under ever-increasing pressure to “do what is necessary” and take the plunge on debt pooling within the eurozone. This pressure has been applied from a wide of actors including the other big eurozone countries (France, Italy and Spain), the EU institutions (Commission President Barroso, Council President van Rompuy, Eurogroup chief Juncker and ECB head Draghi), the IMF and last but not least UK Prime Minister David Cameron and US President Barack Obama.
However, Merkel - who in her time has crossed a fair few ‘red lines’ - has come out swinging ahead of Thursday’s summit of EU leaders, with Handelsblatt reporting that she is has lashed out at discussions ahead of the for focusing "far too much on all kinds of common liability [including] eurobonds, eurobills and a European common deposit guarantee fund with common liability". She described the proposals as "economically false and counterproductive" and asked Van Rompuy, to rework the report he published ahead of the summit to shift the focus from debt pooling to budget discipline.
According to Reuters, at a meeting today with representatives from the FDP, her junior coalition partner, she went even further, claiming that:
However, to split some pretty big hairs, the qualification of “shared total liability” hints that Merkel is not ruling out all forms of eurobonds during her lifetime, such as debt redemption fund as favoured by the SPD and Green opposition. Likewise she could offer other concessions, something hinted at by the news that Germany could be prepared to drop the provision that ESM loans are senior to other debt, something which has been perceived to have contributed to rising Spanish debt yields on the assumption private creditors would take the biggest hit.
However, nothing will happen on any form of debt pooling before the German elections in the autumn 2013.
http://www.zerohedge.com/news/egan-jones-downgrades-germany-aa
Submitted by Tyler Durden on 06/26/2012 14:49 -0400
Submitted by Tyler Durden on 06/26/2012 08:27 -0400
-Samuel Johnson
It seems, some days, that the markets are waiting for a “Lehman Moment.” The arrival of some Black Swan to commemorate the fact that the financial system has fallen off the cliff or perhaps they are waiting for the ECB, which already has a balance sheet of $4 trillion, to raise it to $15 trillion to save the arrogant of the world and rescue the debtors from the prison that they have built for themselves. The fact that the ECB can print money will not save it from investors who are fleeing their charge. These would be “real money” institutions and not the hedge funds and various speculators intoned as the evil denizens of the Devil himself. There is no firewall that is high enough or barricade that is strong enough to stop people from fleeing when it is obvious that those corralled in the castle have the Plague.“He knew quite well that it was plague and, needless to say, he also knew that, were this to be officially admitted, the authorities would be compelled to take very drastic steps. This was, of course, the explanation of his colleagues' reluctance to face the facts.”
-The Plague, Albert Camus
The Spanish Bank Stress Tests
GUINDOS SAYS STRESS TESTS HAD VERY CONSERVATIVE ASSUMPTIONS
-The Economy Minister of Spain
Please allow me to elucidate this situation for you. The two consulting firms that performed the Spanish bank stress tests did nothing, not one thing, but take the information provided by the Central Bank of Spain. There was no bank examination, there was no outside assumptions made about the Spanish Real Estate markets, there was no examination of how loans or mortgages or securitizations were carried on the books of any Spanish bank. It was the normal European Union trick which we have witnessed a number of times now where conclusions are made and paraded around in the public which are based upon highly suspicious data and I am being kind here. One thing that can be absolutely be said with 100% accuracy is that if no independent examination was made of the actual numbers and of the value of Real Estate and the loans appended to them then the value of the stress tests has all of the worth and reality of Maria del Sol, the flying pig attired in Prada sunglasses and carrying a Chanel purse. She may be the new friend of Don Quixote and of Prime Minister Rajoy but let’s not use this pig as the basis for our investment decisions.The EU Summit
It is the twentieth Summit. I predict it will be the twentieth time that almost nothing is accomplished. The beggars want to be the choosers and Germany and the richer nations will hardly allow for that. The bureaucrats and the residents of Brussels are calling for all manner of schemes to harmonize the European Union. The people in Berlin are not, under any circumstances, going to allow their cost of funding to be the blended cost of all of Europe nor will they allow for their standard of living to be equivalent to those in Athens, Lisbon and Madrid. The German gesture towards this envisions absolute control of all of the budgets of each nation and the Dutch and Finland have already replied “No” to this very polite offer made by the Holstein Empress. The Germans surely know that this will not happen either but it is a convenient political ploy to toss out to their struggling cousins. So the begging will continue, the pleas for more alms will intensify and then the Troika will inspect Greece and find so many promises broken and so many fantasies created that Germany will say “Nein” to continued funding and then the next phase of the crisis will begin and the Great Greek Moment will begin as the country defaults on $1.3 Trillion of its obligations as the intended and unintended consequences resonate with the Big Bang that so many have waited on.
Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant Possibility
Lately, more and more professional investment "advisors" and newsletter recommendations boil down to just one catalyst: wait for either Germany, the ECB or the Fed to step in, as usual, and bail the world out, because, well, they have to, and any additional thought is rendered moot as fundamental analysis is meaningless under central planning (plus it is actually more work than just repeating the same stuff over and over while charging $29.95/month for it). Of course, when these same snakeoil salesmen are asked the simple question: what if said bailout does not happen, or if it happens late (for the purposes of this exercise let's assume one is not a central bank that can print its own money, have an infinite balance sheet, and can afford to be wrong almost into perpetuity), they give a blank stare, start mumbling something and walk away, especially if one mentions Lehman brothers and the simple detail that, oh, it failed. Which is why if Ray Dalio, head of the world's largest hedge fund, is correct, it may time to summarily fire and stop subscribing to each and every broken record Oracle whose template is "X will bailout Y" for the simple reason that it is wrong.
From Bridgewater's Daily Observations:
Be Careful When Betting Against Human NatureAlliances are shifting in a logical manner. The German-French alliance is breaking down in favor of contributor (higher rated credit) countries aligning against recipient (lower rated credit) countries. Similarly, the terminology to describe who is reasonable and who is unreasonable reflects these parties' respective interests. Those who don't have to contribute use terms like "inflexible" and "irresponsible" to describe the contributors' reluctance to "do enough" to prevent collapse by lending more to recipients who can't service their existing debts, while those who have to contribute use terms like "inflexible" and "irresponsible" to describe the recipients' reluctance to "do enough" cutting of their spending and borrowing to service their debts. Students of human nature and deleveragings know that this is to be expected.Similarly, talk of a fiscal union to resolve these problems has to be looked at in light of the question of whether it is in the interest of fiscally strong contributors to have a fiscal union with fiscally weak recipients in which the majority rules how the money is divided.For this reason, we think the popular assumption that the Germans and the ECB (which requires agreement of the key factions within it) will come through with the money to make all these debts good should not be taken for granted. Said differently, we think there are good reasons to doubt that European bank and sovereign deleveragings will be prevented from progressing to the next stage in a disorderly way, without a Plan B in place. This "fat tail" event must be considered a significant possibility.
and.......
Merkel Comes Out Swinging Against Debt Pooling
 |
| Debt pooling in practice? (h/t Phil's Stock World) |
However, Merkel - who in her time has crossed a fair few ‘red lines’ - has come out swinging ahead of Thursday’s summit of EU leaders, with Handelsblatt reporting that she is has lashed out at discussions ahead of the for focusing "far too much on all kinds of common liability [including] eurobonds, eurobills and a European common deposit guarantee fund with common liability". She described the proposals as "economically false and counterproductive" and asked Van Rompuy, to rework the report he published ahead of the summit to shift the focus from debt pooling to budget discipline.
According to Reuters, at a meeting today with representatives from the FDP, her junior coalition partner, she went even further, claiming that:
“Europe would not have shared total debt liability as long as I live”If accurate, this is strong stuff and - though intended for a very domestic audience - certainly a departure from the measured and stoic tone Merkel usually adopts. Likewise Merkel’s reaction to suggestions that Germans would be getting a referendum on a new constitution allowing for greater EU integration in the immediate future – after Finance Minister Schäuble had suggested this in an interview with Der Spiegel –suggest that she does not anticipate full debt pooling as an immediate possibility, with FT Deutschlandciting her spokesman as saying “clearly we are not there yet.”
However, to split some pretty big hairs, the qualification of “shared total liability” hints that Merkel is not ruling out all forms of eurobonds during her lifetime, such as debt redemption fund as favoured by the SPD and Green opposition. Likewise she could offer other concessions, something hinted at by the news that Germany could be prepared to drop the provision that ESM loans are senior to other debt, something which has been perceived to have contributed to rising Spanish debt yields on the assumption private creditors would take the biggest hit.
However, nothing will happen on any form of debt pooling before the German elections in the autumn 2013.
http://www.zerohedge.com/news/egan-jones-downgrades-germany-aa
Egan Jones Downgrades Germany From AA- To A+
The unstoppable Egan-Jones juggernaut continues:
6/26/2012: Federal Republic Of Germany: EJR lowered AA- to A+ (Neg.) (S&P: AAA) (3413Z GR)
Stuck - whether or not Greece and other EMU members exit, Germany will be left with massive, additional, uncollectable receivables. Via the ECB's Target 2, Germany is owed EUR700B of which perhaps 50% is collectible and then there is the banks' southern EMU exposures. Germany's debt to GDP was 87% as of 2011. However, increasing Germany's debt by EUR700B to EUR2.9T for its indirect exposures raises the adjusted debt to GDP to 114%.The deficit to GDP of 1.0% is reasonably strong. Unemployment is 6.8% but will probably rise as global economies continue to show weakness. The positive (EUR130B) balance of trade and the positive (EUR196B) current account help. Inflation has been moderate at .9% (per Eurostat).
We used the IMF's data for Germany's debt which is 10% great than Eurostat's data. German chancellor Angela Merkel continues to create tension with EU member states by resisting calls for EU bonds (shared liabs.), money printing calls and for her pushing for fiscal controls and the seniority of bailout funding. Germay is likely to be outvoted by other ECB members and therefore will have greater prospective exposure. Watch for the EFSF and the ESM morphing into banks (thereby depressing eventual recoveries) and a rise in the number of euros. The fallout from a likely Greek exit needs to be monitored. We are cutting to "A+".
and.......
http://www.zerohedge.com/news/reservations-please-merkel-party-nein
Reservations Please: Merkel, Party Of "Nein"
- Black Swan
- European Central Bank
- European Union
- Finland
- Germany
- Greece
- Gross Domestic Product
- Ireland
- Portugal
- Real estate
- Reality
- TARP
Via Mark J. Grant, author of Our of the Box,
"Ah, nowadays we are all of us so hard up, that the only pleasant things to pay are compliments. They're the only things we can pay."
-Oscar Wilde
-Oscar Wilde
There are those that wait and hope and pray that there will be Divine Intervention. They cling to the belief that Germany, in the end, will back down and retreat and agree to bail everyone out. Germany’s GDP is only $3.2 trillion and this expectation, believed in by more than a few, is not only ridiculous in my opinion but a mathematical impossibility. If you just take the example of Spain where $125 billion has been pledged to fix its banks and you put it in perspective the situation becomes clearer. As with many things, if they are discussed in the platitude it seems reasonable but when taken down to the hard numbers; a different opinion emerges. If you take just this $125 billion for Spain and consider that the United States has a GDP twelve times that of Spain and that the equivalent number would be $1.27 trillion which is $577 billion more than that was authorized by Congress for our TARP program then you begin to see the enormity of what is taking place in Europe. Next consider that Germany’s GDP is 22.3% of America’s and try to imagine what the troubled nations on the Continent are asking of Germany and why they keep saying “No.” They refuse for a very simple reason; they can’t afford it. They do not have the amount of capital that is necessary to keep bailing out the troubled nations of Europe. Then if you consider the current EFSF program and that $300 billion has already been used for Greece, Ireland and Portugal and that this new assistance program for Spain will take it up to $425 billion you begin to get some sense of the enormity of the problem. The U.S. equivalent then for the total EFSF would be $4.318 trillion or 30.4% of America’s total GDP which would swamp our nation. This is why when I listen to Frau Merkel say “Nein;” I believe her!“Hope is itself a species of happiness, and, perhaps, the chief happiness which this world affords: but, like all other pleasures immoderately enjoyed, the excesses of hope must be expiated by pain; and expectations improperly indulged, must end in disappointment. If it be asked, what is the improper expectation which it is dangerous to indulge, experience will quickly answer, that it is such expectation as is dictated not by reason, but by desire; expectation raised, not by the common occurrences of life, but by the wants of the expectant; an expectation that requires the common course of things to be changed, and the general rules of action to be broken.”
-Samuel Johnson
It seems, some days, that the markets are waiting for a “Lehman Moment.” The arrival of some Black Swan to commemorate the fact that the financial system has fallen off the cliff or perhaps they are waiting for the ECB, which already has a balance sheet of $4 trillion, to raise it to $15 trillion to save the arrogant of the world and rescue the debtors from the prison that they have built for themselves. The fact that the ECB can print money will not save it from investors who are fleeing their charge. These would be “real money” institutions and not the hedge funds and various speculators intoned as the evil denizens of the Devil himself. There is no firewall that is high enough or barricade that is strong enough to stop people from fleeing when it is obvious that those corralled in the castle have the Plague.“He knew quite well that it was plague and, needless to say, he also knew that, were this to be officially admitted, the authorities would be compelled to take very drastic steps. This was, of course, the explanation of his colleagues' reluctance to face the facts.”
-The Plague, Albert Camus
The Spanish Bank Stress Tests
GUINDOS SAYS STRESS TESTS HAD VERY CONSERVATIVE ASSUMPTIONS
-The Economy Minister of Spain
Please allow me to elucidate this situation for you. The two consulting firms that performed the Spanish bank stress tests did nothing, not one thing, but take the information provided by the Central Bank of Spain. There was no bank examination, there was no outside assumptions made about the Spanish Real Estate markets, there was no examination of how loans or mortgages or securitizations were carried on the books of any Spanish bank. It was the normal European Union trick which we have witnessed a number of times now where conclusions are made and paraded around in the public which are based upon highly suspicious data and I am being kind here. One thing that can be absolutely be said with 100% accuracy is that if no independent examination was made of the actual numbers and of the value of Real Estate and the loans appended to them then the value of the stress tests has all of the worth and reality of Maria del Sol, the flying pig attired in Prada sunglasses and carrying a Chanel purse. She may be the new friend of Don Quixote and of Prime Minister Rajoy but let’s not use this pig as the basis for our investment decisions.The EU Summit
It is the twentieth Summit. I predict it will be the twentieth time that almost nothing is accomplished. The beggars want to be the choosers and Germany and the richer nations will hardly allow for that. The bureaucrats and the residents of Brussels are calling for all manner of schemes to harmonize the European Union. The people in Berlin are not, under any circumstances, going to allow their cost of funding to be the blended cost of all of Europe nor will they allow for their standard of living to be equivalent to those in Athens, Lisbon and Madrid. The German gesture towards this envisions absolute control of all of the budgets of each nation and the Dutch and Finland have already replied “No” to this very polite offer made by the Holstein Empress. The Germans surely know that this will not happen either but it is a convenient political ploy to toss out to their struggling cousins. So the begging will continue, the pleas for more alms will intensify and then the Troika will inspect Greece and find so many promises broken and so many fantasies created that Germany will say “Nein” to continued funding and then the next phase of the crisis will begin and the Great Greek Moment will begin as the country defaults on $1.3 Trillion of its obligations as the intended and unintended consequences resonate with the Big Bang that so many have waited on.
The Greeks, as part of their tradition, like to take plates and smash them on the floor. The famous Greek movie, “Chitty-Chitty Bang-Bang” was written about this of course. The sequel, “Lie-Lie Explode-Explode” is expected out any day. Athens predicts a rousing success but critics who have previewed the spectacle expect a Bomb.
No comments:
Post a Comment