http://www.zerohedge.com/news/snow-white-dumps-prince-charming

Snow White Dumps Prince Charming

Submitted by Tyler Durden on 07/28/2012 18:38 -0400

Via Mark E. Grant, author of Out of the Box,

Magic Mirror: Snow White still lives, fairest in the land. 'Tis the heart of a pig you hold in your hand.

Queen: The heart of a pig! Then I've been tricked!

You know how when you were a little kid and you believed in fairy tales, that fantasy of what your life would be; a shimmering white dress, a Prince Charming who would carry you away to his castle on a hill. You would lie in bed at night and close your eyes and you had complete and utter faith in God, country and Superman. Santa Claus, the Tooth Fairy, the quest for the Grail, the Easter Bunny were so close you could taste them, but eventually you grow up, one day you open your eyes and the fairy tale disappears.Sneezy: Hey, someone stole our dishes!

Most people, most markets, operate on the basis of reality and probable scenarios based upon fact. This is not true for the equity markets however as it is here where hopes and prayers and visions of Tinkerbell and little blue fairies that will come to the rescue reside. It is in the stock markets where great dreams take place and where Batman guards Metropolis. It is also here, however, where eyes tightly closed are pried open from time-to-time and where the horrors of the known universe stare back at you with disquieting eyes.

Sleepy: Maybe the Old Queen has got Snow White.

Thursday and Friday of last week, I should imagine, will prove to be those once again days where the flight of fantasy took off and hoped for the best only to find that the fuel in the tanks was dangerously low. Treasuries moved some, not much, the bonds of Spain and Italy gained a bit of ground while the stock markets soared on the basis that all of Europe’s problems had been solved by Draghi & Company. Interestingly enough, after the close of course which is the way these schemes are pre-arranged, the German Central bank came out and said there were no changes in their stance and so the cold water was poured upon the fire after all of the party-goers had gone home. Just this morning in Berlin the German Finance Minister declared that the Stabilization Fund that is currently in existence, the EFSF, will not be buying Spanish debt in the market which topples the dreams and fantasies of last week.Magic Mirror: Prepare to be amazed beyond all expectations. After all it is what I do.

Draghi represents the Southern contingency, the periphery nations, the troubled cousins who cannot live on what they make. This is all fine and dandy but do not kid yourself; if the Germans say “Nein” then it is “Nein” and any other conclusion is foolhardy. We will soon get the German opinion on Greece, the money for the Spanish banks is going to the nation of Spain and will be controlled by the German auditors, Italy is staring at mounting difficulties, Portugal is going to face an Act II and there is only $65 billion left in the EFSF fund while the ESM fund is hung up in the German courts until September 12 and today is July 28.

Whoosh and sorry for the dose of reality.

Snow White: That was fun!

and....

http://www.telegraph.co.uk/finance/financialcrisis/9434497/Spanish-bail-out-impossible-experts-warn.html

By Angela Monaghan

9:41PM BST 28 Jul 2012

1 Comment

Leading think-tank Open Europe made the estimate based on the assumption the Spanish government would be forced out of the markets for three years because of its unsustainable borrowing costs, as happened in Greece, Ireland and Portugal.

Between now and mid-2015, Spain has funding needs of €542bn, with its banks requiring up to €100bn on top of this. The Spanish regions possibly require another €20bn, according to the study.

A Greek-style bail-out for Spain would bleed dry the eurozone’s €500bn rescue fund, making an alternative solution essential.

Fears that Spain will need a sovereign bail-out mounted last week after the government’s borrowing costs hit fresh highs and Catalonia followed Murcia and Valencia as a region which may be forced to turn to Madrid for assistance to meet its debt obligations.

“The regions will not make or break Spain financially, but their bail-out requests show how politically difficult it will be for Spain to rein in spending and reform,” said Raoul Ruparel, head of economic research at Open Europe.

http://globaleconomicanalysis.blogspot.com/2012/07/schauble-rejects-ecb-help-for-spain.html

Saturday, July 28, 2012 11:49 AM

Schäuble Rejects ECB Help for Spain; Full Bailout Still Coming

As any clear-thinking person should have expected, Schäuble rejects ECB help for Spain

Berlin - For days, it is speculated that the European Central Bank (ECB) is planning, together with the bailout fund EFSF Spanish government bond buy - so come back to Spain to cheaper capital. The "Sueddeutsche Zeitung" According to the euro countries willing to support this approach . Federal Finance Minister Wolfgang Schäuble (CDU), but has now dismissed the reports in an interview with the newspaper "Welt am Sonntag".

"No, at this speculation is not true," Schäuble said the newspaper. The Finance Minister said it was already a sufficiently large aid package for Spain have been laced.

The 100-billion-euro package to recapitalize Spanish banks also close an emergency aid of 30 billion €. "The short-term financial requirements of Spain is not so great", said Schäuble, "the painfully high interest rates - but the world will not, if you have to pay for some bond auctions a few percent more."

Full Bailout Still Coming

Schäuble is saying the right things. For starters, ECB backdoor bailouts of Spain are likely against the German constitution. Even if they weren't, why should German taxpayers accept the risk of any of these leveraged proposals that have been circulated, and recirculated?

It's important to understand that the near-7% current market rate does not affect interest on prior bonds (only the current value of them). However, high rates do reflect the interest Spain would have to pay to float new bonds or rollover existing ones.

Thus, high rates reflect extreme stress and are unsustainable for the long-term, but they are not an immediate killer for Spain.

Regardless, Spain is deep in recession and there is no way it can meet its deficit targets. A full bailout of Spain is a certainty.

and if one wonders why Spain will need a bailout quite soon........

http://elpais.com/elpais/2012/07/27/inenglish/1343393311_980006.html

Catalan aid will come with no political strings, says official

Economy commissioner says other factors are negotiable

Catalonia will "never accept any political conditions" in exchange for the aid it hopes to receive from the central government to deal with its liquidity problems, the region's top economic official said Thursday.

Andreu Mas-Colell, the Catalan economy commissioner, said the region was willing to negotiate such things as interest rates and the sharing of audits after it taps into the regional stability fund (FLA), the mechanism the Rajoy administration will use to help troubled regions pay their bills. Catalonia joined Murcia and Valencia in applying for FLA aid.It is not known how much Catalonia will need, but Valencia has said it will request more than two billion euros while Murcia wants 300 million.

http://elpais.com/elpais/2012/07/27/inenglish/1343398141_204950.html

Spain hit an Olympic record on Friday when the unemployment rate soared to an all-time high of 24.63 percent for the second quarter of the year. According to the latest figures released by the National Statistics Institute’s Survey of the Active Population (EPA), 5,693,100 people are out of work.

The Rajoy administration’s severe cutbacks, the ongoing recession and the relaxation of rules governing layoff schemes - known in Spanish as EREs - which make it easier and cheaper for companies to let workers go - are the three factors being blamed for the record number.

Friday’s figure surpasses the previous jobless record of 24.55 percent recorded in 1994, during the country’s last major economic crisis.

There had been slight surges in employment prospects at the end of June and May, as the busy summer tourist season got underway. But the new numbers show that jobs across Spain are getting harder to find.

The biggest losses were in Andalusia, where 23,300 more people were reported without work, and Castilla-La Mancha, where 19,500 jobs were lost during the first three months of the year.

Deputy Prime Minister Soraya Sáenz de Santamaría said during a news conference after the weekly Cabinet meeting that there was “no doubt” that the recession was to blame for the poor figures, and that the government had “to continue to make structural reforms” to reduce the deficit and boost production.

“Figures like these push us to strengthen reforms and meet our goal in reducing the deficit,” she said.

This EPA survey is the first to be conducted with the Popular Party (PP) government’s labor reform in full force covering the entire three-month period. The reform went into effect in February.

When asked if the government had plans to tweak the labor reform, Sáenz de Santamaría insisted that the Rajoy administration’s primary goal was to bring down the deficit. However, she said that it was impossible to see any type of results in the seven months since the PP came into office.

http://www.acting-man.com/?p=18686

Perpetual 'QE'

In recent days, numerous central bank bureaucrats have given us hints that another round of pump priming is more or less imminent. It started with John Williams, president of the San Francisco Fed who mused about 'QE without a limit'. The FT reported:

„The US will make little progress tackling high unemployment before 2014 unless the Federal Reserve eases policy further, one of the central bank’s leading officials has warned in the run-up to a meeting next week where the option of “QE3” will be on the table.

The comments by John Williams, president of the Federal Reserve Bank of San Francisco, show how the weak economy is pushing the central bank towards action to support growth.

[…]

If the Fed launched another round of quantitative easing, Mr Williams suggested that buying mortgage-backed securities rather than Treasuries would have a stronger effect on financial conditions. “There’s a lot more you can buy without interfering with market function and you maybe get a little more bang for the buck,” he said.

He added that there would also be benefits in having an open-ended programme of QE, where the ultimate amount of purchases was not fixed in advance like the $600bn “QE2” programme launched in November 2010 but rather adjusted according to economic conditions.

“The main benefit from my point of view is it will get the markets to stop focusing on the terminal date [when a programme of purchases ends] and also focusing on, ‘Oh, are they going to do QE3?’” he said. Instead, markets would adjust their expectation of Fed purchases as economic conditions changed.“

(emphasis added)

Mr. Williams, so the FT, is thought to be 'close to the center of gravity' on the FOMC. We take this to mean that he has the helicopter pilot's ear.

So if indeed the Fed were to embark on 'open-ended QE' that is predicated on developments in the vaunted 'economic data', or putting it differently, is dependent on recent economic history (a method also known as 'driving forward with one's eyes firmly fixed on the rear-view mirror'), what happens if said data fail to improve?

Will the Fed then just keep printing forever and ever? As an aside, financial markets are already trained to adjust their expectations regarding central bank policy according to their perceptions about economic conditions. There is a feedback loop between central bank policy and market behavior.

This can easily be seen in the behavior of the US stock market: recent evidence of economic conditions worsening at a fairly fast pace has not led to a big decline in stock prices, as people already speculate on the next 'QE' type bailout. This strategy is of course self-defeating, as it is politically difficult for the Fed to justify more money printing while the stock market remains at a lofty level.

Of course the stock market's level is officially not part of the Fed's mandate, but the central bank clearly keeps a close eye on market conditions. Besides, the 'success' of 'QE2' according to Ben Bernanke was inter alia proved by a big rally in stocks. Such increases in stock prices are seen as a spur to spending, as the perceived wealth of stockholders increases. In the view of Bernanke and his colleagues, spending is what it's all about. The central bank chief holds that we can consume ourselves to prosperity. It follows from this that one should also be able to print and deficit spend oneself to prosperity, but oddly enough, it hasn't worked thus far. A reason to revisit long-cherished beliefs? Not at all! We must 'do more' of what hasn't worked thus far.

and....

CDU's Michael Fuchs "Greece Cannot Be Saved, That Is Simple Mathematics"

Submitted by Tyler Durden on 07/28/2012 10:17 -0400

Since it has now become the norm to spread myth, fairy tales and magic during the week, only to collapse the wave function of an insolvent "developed world" with a double dose of reality during the weekend when markets are conveniently closed (recall the Draghi in a Box phenomenon) only to repeat it all again the coming week, here is some more truth which may force Citi to hike its estimate of Greece leaving the Eurozone from 90% to 110% (or about how much of QE3 is now priced into the market): "Greece cannot be saved, that is simple mathematics," Michael Fuchs, deputy leader of the parliamentary group of Merkel's Christian Democrats and their Bavarian sister party told weekly business magazine Wirtschaftswoche." Indeed, truth hurts, especially when accompanied by math. Which sadly is the problem these days in a world where math and surreality can no longer coexist. And sadly, in the absence of money growing trees, where one can createwealth out of thin air, not fiat dilution, disappointments such as these will only propagate until the game (over) theoretical equilibrium we discussed yesterday has no choice but to finally make its appearance.

"Greece cannot be saved, that is simple mathematics," Michael Fuchs, deputy leader of the parliamentary group of Merkel's Christian Democrats and their Bavarian sister party told weekly business magazine Wirtschaftswoche.

"The government has neither the will nor the means to implement reforms," he said.

Hermann Otto Solms, a financial affairs expert for the FDP, also underlined in an interview with Wirtschaftswoche that should inspectors from the so-called troika criticise Athens's progress there should be no new aid for Greece, and it would have no choice but to leave the single currency.

Roesler ruffled feathers last weekend when he told a German broadcaster that a Greek euro zone exit was no longer a taboo for experts and had lost "its fear factor." A party colleague branded his remarks "reckless."

In his interview with OZ Roesler dismissed widespread criticism of his stance both from Athens and within his party.

"In my ministry we've seen that the Greek government has been unable to implement very much."

His comments come amid a growing chorus of voices within Merkel's centre-right coalition that insist there can be no new aid for Greece and that a Greek exit could be imminent.

To summarize: euphoria meets despair, as everyone from one side of the stock market ship scrambles to get to the other, and as the amplitudes of market moves become larger and larger, thanks entirely to central bankers destructive influence on capital allocation, until finally one day the entire market drops to below zero, which as theFed itself was kind enough to tell us it would have been in 2009 if it wasn't for the Fed itself.

and......

http://www.zerohedge.com/news/schauble-just-says-nein-again-german-finmin-denies-rumors-ecb-bond-buying

Schauble Just Says Nein Again: German FinMin Denies Rumors Of ECB Bond Buying

Submitted by Tyler Durden on 07/28/2012 09:28 -0400

Bond

European Central Bank

European Union

Germany

Gross Domestic Product

Momo

Newspaper

Timothy Geithner

When day after day, for three days in a row last week, the ECB spread rumors that it would commence buying Spanish debt in what was in retrospect nothing but a massive bluff (just as we suggested yesterday), what passes for a market postulated that since there was no official German denial, and with Merkel on vacation that would mean a statement from her finance minister sidekick Wolfgang Schauble, that Germany was ok with the reactivation of Spanish bond buying and as a result ramped risk by over 4% in 3 days. All of that is about to wiped out as Schauble has finally spoken. Quote Spiegel: "For days, it is rumored that the ECB will buy Spanish government bonds in a big way. Now Finance Minister Wolfgang Schaeuble has rejected such reports - there was "no truth". End scene. Luckily all the momo chasers who bought stocks last week on hopes their prayer-based strategy will finally play out, will be able to sell ahead of all those other momo chasers who bought stocks last week on hope their prayer-based strategy will finally play out. Or maybe not.

From Spiegel:

For days, it is speculated that the European Central Bank (ECB) is planning, together with the bailout fund EFSF Spanish government bond buy - so come back to Spain to cheaper capital. The "Sueddeutsche Zeitung" According to the euro countries willing to support this approach . Federal Finance Minister Wolfgang Schäuble (CDU) has now dismissed the reports in an interview with the newspaper "Welt am Sonntag".

"No, at this speculation is not true," Schäuble said the newspaper. The Finance Minister said it was already a sufficiently large aid package for Spain have been laced.

The 100-billion-euro package to recapitalize Spanish banks also close an emergency aid of 30 billion €. "The short-term financial requirements of Spain is not so great", said Schäuble, "the painfully high interest rates - but the world will not, if you have to pay for some bond auctions a few percent more."

Why will Germany, which Schauble says himself is in a very difficult position, and has already been very helpful to Spain, not provide more funding? Simple - unlike all other broke globalist neo-socialists, he believes that the market is actually right in punishing profligate spenders, and having bonds trade above 7% is not the end of the world. Of course, he is absolutely right.

The interest for Spanish government bonds in recent days had passed, the legislation as critical threshold of seven percent. Schäuble said, however, convinced that the Spanish reform efforts, which he praised likely to be soon rewarded. The finance ministers will meet on Monday with his U.S. counterpart, Timothy Geithner . Observers expect that will also be in this conversation on the holiday island of Sylt in the center of the European financial crisis.

And in case one rejection is not enough, here is another, courtesy of Handelsblatt:

Federal Finance Minister Wolfgang Schaeuble has rejected speculation about impending purchases of government bonds by Spanish EFSF and ECB. Spain itself, meanwhile, calls for more solidarity from Germany.

When asked whether there would soon be a motion to allow the euro rescue could buy Spanish government bonds, Schaeuble said the "Welt am Sonntag", "No, at this speculation is not true."

Schäuble does not believe that the high risk premiums on corporate bonds Spain overwhelm. "The short-term financial requirements of Spain is not so big," he said. "The high interest rates are painful, and they create a lot of anxiety -. But the world does not go under if you have to pay for some bond auctions a few percent more," You have "tied aid package big enough" for Spain. The country receives for the recapitalization of its banks up to 100 billion €. "And we have them provided 30 billion euros in rescue EFSF as a possible emergency," said the Minister

Finally, no denial is complete unless it is in triplicate (biblical references notwithstanding), here is Dow Jones with the news that nobody could have possibly predicted:

German Finance Minster Wolfgang Schaeuble denied plans for a new aid program for Spain, according to newspaper Welt am Sonntag, after the media reported European Union leaders aim for Spanish government bond purchases by the European rescue fund and the European Central Bank.

Speculations that Spain might apply for additional aid from the rescue fund are unfounded, Mr. Schaeuble said, according to pre-released excerpts of an interview to be published Sunday in Germany's Welt am Sonntag. Spain's "high interest rates are painful and cause a lot of concern, but it isn't the end of the world when a few percent more have to be payed at some auctions," Schaeuble said according to the newspaper, adding "Spain's financing needs aren't that huge in the short term."

Schaeuble's remarks are a denial of a report in French daily Le Monde that the ECB and European governments are putting together a plan that would see the bailout fund and the central bank buying Spanish and Italian debt. A surge in Spanish government debt yields sparked fears the country might lose access to financing.

Schaeuble said the Spanish government has made all necessary decisions and is implementing them, according to Welt am Sonntag. "Financial markets haven't yet honored the reforms, but they will do so," he is quoted as saying. Spain's reform program will have good effects, also on financial markets, he said

So what is Spain's strategy: nothing but more heart-string tugging and some World War II revisionist history:

The Spanish Minister for Europe, Inigo Mendez de Vigo has claimed in an interview from the federal government more commitment and solidarity in crisis management. After the Second World War, Germany had been helped in a very much more difficult situation, the minister said the "Bild" newspaper. Many countries have abandoned in favor of the Federal Republic of money. "That should not forget Germany".

In other words, help a brother out. Only problem is that when the Marshall Plan was instituted, there was a whole continent of incremental debt capacity still untapped, courtesy of debt repudiation. This time around, there is no such thing, and certainly not in the US where debt/GDP is now 103%. So unless somehow Africa is to be involved in the second Marshall Plan of Europe, we urge Spain to rethink its strategy.

Just as we urge all those who continue to buy stocks on hope and prayer to perhaps reevaluate if they are in the right business.

Catharsis Ours

Saturday, July 28, 2012