http://www.zerohedge.com/news/all-worlds-stage-0
All The World's A Stage
Via Mark Grant, author of Out of the Box,
The Theatre of the Absurd
Mrs. Ethel Chauvenet: Does Elwood see anybody these days?
Mrs. Ethel Chauvenet: Does Elwood see anybody these days?
Veta Louise Simmons: Oh, yes, Aunt Ethel, Elwood sees “somebody.”
-The play, Harvey
Andrew Ross Sorkin once speculated that I was the next “Doctor Doom.” Anyone that knows me or that reads my commentary with any frequency would know that this is hardly my personality nor would I stir pots for the pleasure of watching the froth. Sometimes it is just that I can see the rabbit leaning on the light post before others even see the street corner upon which it is standing. Others may also see the lamp post but they are frightened to admit it because their leaders have screamed for so long that it isn’t there and will never be there; never mind any 6’3” pookah. However as the light is beginning to dawn and as the early morning shadows that played tricks with your vision dissipate; more and more people can see the vague outline of Harvey leaning against the lamp post and, startled by his presence or not, they can no longer turn away and pretend him out of existence.“What can I do for you Mr. Dowd?
“What did you have in mind?”
The troika arrives in Athens tomorrow.The preliminary estimates of meeting the budgetary targets under the Memorandum of Understanding signed off on by the EU, the IMF and the Greek government indicate an achievement somewhat akin to an Olympian running down the track in the opposite direction. A novel approach, no doubt, but one hardly likely to win any race. The IMF and the German government over the weekend stated specifically that if the requirements were not met that no more money would be doled out while the Greek government said they would require another $50 billion to get them through September. The revolving stage of Europe is about to head back to Athens and we well may have reached the last act where the final curtain is pulled and the show is shut down. If this is the case then you may expect screaming, vile proclamations of betrayal and all manner of scathing statements to be issued forth from the plains of Marathon. In the end, whether Greece remains in the Eurozone and retreats to the Drachma and receives some kind of debtor-in-possession financing or not it will mean that Greece will default on a total of $1.3 trillion in obligations unless some deal is worked out so that Europe keeps some kind of funding so the $238 billion of Greek obligations at the ECB does not default which would wipe out the equity capital at the ECB and require Europe to recapitalize the European Central Bank amid all kinds of shouts of dismay. It will be interesting, one might speculate, when Finland asks the ECB for collateral and one can only hope that they do not offer either the securitizations of Greece or Spain as the off-set.
As we are all captivated by the farce at the Parthenon I invite you to step across the street and watch the “Masquerade of Madrid” where the leading character declares a “Great victory for Europe” as his country sinks into the Mediterranean Sea. The money for the Spanish banks will be going to the sovereign and the Men in Black will dictate the terms of the $125 billion dispersal. The regional debt of Spain is equivalent to the national debt and with $36 billion in regional debt maturities coming due before year end and a national fund of only $19 billion the math employed by Mr. Rajoy is the usual European tricks of Trigonometry. As the yield on the Spanish ten year catapults to 7.40% this morning in London and as each region in Spain climbs on the national debt wagon for relief one may expect continuing antics as the Prime Minister declares that the regional debt problems will not affect the debt to GDP ratio of the country. It is an old story in Spain where windmills are fought but I fear that romantic comedies will not be enough this time to placate those who will be called upon, in the spirit of brotherly love, to fund the nation.
The bank and regional debt problem is one the size of $350-400 billion in the fourth largest economy in Europe while their 12% contribution to the EU, the ECB and the stabilization funds will soon no longer be made I surmise. It is a squared problem then you see and a vindication of the notion that firewalls and fences do nothing to improve the health of the horses that are inside the corral. The animals are sick, infected by their own exacerbated standards of living which they can no longer fund internally given declining revenue bases as virtually every country in Europe, besides Germany for the moment, falters in recession. Hence you hear the cries and screams and the gnashing of teeth demanding that Germany picks up the bill but the size of the German wallet is not up to the task with a $3.2 trillion dollar economy that can only withstand so much.
The theatre season is sure to be a hit this year with revivals of Ireland and Portugal while the excitement continues in Athens and Madrid and the sets are alive with the “Sound of Music” though the tunes will vibrate to something in Heavy Metal and not to the sweet melodies of the Alps in July. It was a year ago when I predicted a U.S. Treasury ten year of 1.25% and we are but a scant 16 bps from that now. The Euro is now under 1.21/Dollar and there are negative yields in the short maturities for Germany, France and the Netherlands which I predict will soon be found in the United States. I am not sure what Mr. Bernanke will make of institutions paying him to leave their money with the United States government but it will be a classic example of a point in time where “Return OF Capital” became much more important that “Return ON Capital” but as I have asserted time and time again, given the 36% loss of wealth during the American Financial Crisis, that “Preservation of Capital,” Grant’s Rules 1-10, are manifestly the byword of the Faith at present.
The theatre season is sure to be a hit this year with revivals of Ireland and Portugal while the excitement continues in Athens and Madrid and the sets are alive with the “Sound of Music” though the tunes will vibrate to something in Heavy Metal and not to the sweet melodies of the Alps in July. It was a year ago when I predicted a U.S. Treasury ten year of 1.25% and we are but a scant 16 bps from that now. The Euro is now under 1.21/Dollar and there are negative yields in the short maturities for Germany, France and the Netherlands which I predict will soon be found in the United States. I am not sure what Mr. Bernanke will make of institutions paying him to leave their money with the United States government but it will be a classic example of a point in time where “Return OF Capital” became much more important that “Return ON Capital” but as I have asserted time and time again, given the 36% loss of wealth during the American Financial Crisis, that “Preservation of Capital,” Grant’s Rules 1-10, are manifestly the byword of the Faith at present.
The European Union has been, in a very real sense, like a masquerade ball. The intricately painted masks covering manipulated stress tests, hiding inaccurate debt to GDP ratios, falsified accounting practices, glossing over any sort of contingent liabilities as if the scars were not there and double counting assets however, like all extravaganzas of this type, is about to reach a conclusion. The night has been long and the hour is late but one by one the masks are being removed and the characters are seen for what they are; a less than pretty sight.
“Too late for prayers and useless pity.”
-The Phantom of the Opera
“Too late for prayers and useless pity.”
-The Phantom of the Opera
and.......
http://www.guardian.co.uk/business/2012/jul/23/eurozone-spanish-bailout-inevitable
Eurozone analysis: Spanish bailout is now inevitable
Spain has a collapsing economy, an imploding property market, banks nursing colossal losses, and 10-year bond yields at 7.5%
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Firefighter's signs reads 'We rescue people, not banks', during a demonstration in Valencia, July 2012. Photograph: Manuel Bruque/EPA
Policy in Europe is all about playing for time. The big picture ideas for saving the single currency will take years, not months, to come to fruition - but the threat of collapse is immediate.
So the short-term mindset is all about survival: think the football team that parks the bus in order to defend a 0-0 scoreline or the batsmen whose sole aim is to occupy the crease when their team is facing an innings defeat on the last day of a Test match.
For a while last week, there was the real prospect that Europe's backs to the wall effort had succeeded. Last month's summit had more substance than the previous content-free affairs, and the rally in European financial markets last week reflected the belief that enough had been done to keep things calm through August. That, though, was until the Spanish region of Valencia announced that it needed financial help from Madrid, providing the trigger for a big sell-off in the markets that continued on Monday.
The response from the Spanish government was to swear blind one minute that there was not the remotest possibility of a full-blown rescue involving the International Monetary Fund and to impose a ban on the short selling of shares the next. The markets were suitably unimpressed by this display of ineptitude.
Meanwhile, Greece was once again coming under the spotlight as Athens awaited the arrival of officials from the Troika (the IMF, the European Central Bank and the European Union) on Tuesday. Greece is gripped by a 1930s-style depression and, perhaps unsurprisingly, is having trouble sticking to the austerity programme imposed as part of its bailout. It appears that the troika will threaten to cut off Greece's financial lifeline unless the coalition government agrees to an extra €2bn of cuts.
There are three conclusions to be drawn from these events. The first is that Spain is heading inexorably towards a bailout, probably quite soon. It was always a case of smoke and mirrors to imagine that the promised €100bn (£78bn) package of support for Spanish banks would be enough and so it has proved.
This is a country with a collapsing economy, an imploding property market, banks nursing colossal losses, and 10-year bond yields at 7.5%. The question is not whether there will be a bailout, but how big it will be. At least €300bn in all probability.
The second conclusion is that the trapdoor is opening up under Greece. German patience with Athens has run out, and the IMF was forced to deny reports on Monday it was preparing to cut off financial support. The Greek government is now faced with the choice of agreeing to a new range of demand-reducing measures it knows will be both counter-productive and politically toxic in order to be able to pay its bills inside theeuro zone, or to devalue and default outside monetary union. A voluntary Greek exit would be ideal for Angela Merkel.
What links Greece and Spain is that the failed approach that has brought the smaller of the two countries to the point of no return is now being tried with the bigger and more strategically important member of the club.
The lesson from Greece is absolutely clear: slashing spending and increasing taxes when an economy is in free fall leads to higher, not lower, levels of debt. Spain is following Greece down the vicious spiral that starts with weak growth and rising unemployment and ends with expensive bail outs that do more harm than good.
For Greece in August 2011 read Spain in August 2012. Same problems. Same failed answers. Same crisis. Only bigger.
and.....
http://www.zerohedge.com/news/european-bloodbath-continues-spanish-2y-crushed-record-high-spreads
European Bloodbath Continues As Spanish 2Y Is Crushed To Record High Spreads
While Monti claims there is no need for an emergency summit and Spain and Italy ban short-sellers (but not long-sellers yet), Europe's Dow-equivalent is down around 2.5%. Interestingly Italy and Spain 'bounced' off ugly lows intraday (which we are sure Monti/Rajoy are patting themselves on the back briefly) but France's CAC40 and Germany's DAX were sold hard - both down around 3% (as proxies as much as contagion-gatherers). More critically,equities are catching down to European credit markets. European financial credit is now notably wider than pre-Summit levels but it is the front-end of the Spanish and Italian sovereign yield curves that has been absolutely monkey-hammered in the last few days. Spain 2Y is now at 16 year highs in yield (biggest 1- and 2-day jumps in over two years) but all-time record wides in spread as we await for the ultimate death cross of inversion to signal the approaching endgame. EURUSD hovered around 1.2100 (down around 50 pips from Friday) and while oil prices slumped, Brent priced in EUR remains above its levels 2 months ago. Meanwhile, Swiss 2Y rates are at a new record low of -44.4bps, German 2Y same at -8bp, and Denmark remains -31bps - though we do note some of the other higher quality 2Ys leaking a little higher in yield such as Austria and France.
European stocks (blue) are catching down to European credit and financials are now worse than pre-summit as the reality of bail-ins and/or subordination hit home...
and Italian and Spanish financial credits have been just smashed wider...
but it is the Spanish yield curve and its too big to save nature that is crushing hopes...
and 2Y Spanish spreads are now at all-time record wides...
and EURUSD weakness combined with oil strength has crushed the hopes of any savings on energy as Brent priced in EUR remains extremely high...
and there is some differentiation occurring at the short-end of the high quality collateral spectrum...
Charts: Bloomberg
and........
http://www.zerohedge.com/contributed/2012-07-23/smashing-can-instead-kicking-it-down-road
Smashing The Can Instead Of Kicking It Down The Road
Wolf Richter www.testosteronepit.com
“No, absolutely not,” said European Central Bank President Mario Draghi when asked if the euro was in danger. “The euro is irreversible,” he added just as a whiff of panic began sweeping over the Eurozone. Everybody was supposed to enjoy their long vacation, and nothing important was supposed to happen. But, like a group of disruptive homeless guys, the ECB, the International Monetary Fund, and politicians have apparently gotten tired of kicking the Greek bailout can down the road, and they stomped on it instead.
Last week it was the ECB; it announced that it would no longer accept Greek government bonds as collateral, thus cutting Greek banks off from ECB funding. They will now be dependent on Emergency Liquidity Assistance (ELA) by the Bank of Greece, anunsustainable, risky measure.
Over the weekend, word seeped out that the IMF, having lost patience with Greece’s stalled reform efforts, would be unwilling to contribute more funds to the bailout. A huge blow. Vigorous denial by the IMF? Nope. On Monday, it only said tepidly that it would be “supporting Greece in overcoming its economic difficulties.”
Inspectors of the Troika—the EU, the ECB, and the IMF—are trundling into Athens today for meetings and inspections starting on Tuesday. Their final report will be the basis for the Troika’s decision in September to make the next bailout payment, or to let go. Politicians appear to be holding off on their final judgment until then. But they’re talking—and it doesn’t look good for Greece. Its demands to renegotiate the agreed-upon reform measures and then to delay their implementation has hit a wall of resistance.
“We won’t agree to any substantive change of the agreements we made,” said German Foreign Minister Guido Westerwelle. Economics Minister Philipp Rösler was “more than skeptical” that Greece could work out its problems. But any decision would have to wait for the final Troika report. “If Greece cannot meet the stipulations, then there won’t be any more payments,” he said. Greece would have to default, which might encourage it to leave the Eurozone. But no big deal: “Greece’s exit has long ago lost its scariness,” he said.
Giorgos Papakonstantinou, Greek Finance Minister from October 2009 until he was replaced by Evangelos Venizelos in June 2011, doubted the abilities of the Greek government to deal with the challenges and was “not optimistic“ that it could remain in power much longer.
Even the Big Kahuna, who is on vacation, and who’d pushed for these serial bailouts though they put deep rifts into her coalition government, lost patience with Greece. Itleaked out that Chancellor Angela Merkel considered it “unthinkable” for her to beg the Bundestag for a third bailout package. And a third bailout package would be required if Greece’s demands for watering down the reforms and for delaying their implementation were met—they’d raise the costs by an additional €30 to €50 billion.
The next opportunity for Greece to default is August 20, when it has to pay the ECB €3.8 billion, which it doesn’t have. As Greece’s debt is now mostly held by public institutions, including the ECB, a default would cost taxpayers outside Greece dearly. Requests for emergency funding have fallen on deaf ears. So Greece could try to sell three- or six-month bills at astronomical rates, but most likely, the ECB will find a way to keep it afloat until a political decision has been made in September.
With Spain under fire, and with Italy—and thus the Eurozone as a whole—at risk, the perception is growing that the Eurozone might be stronger if it scuttled its leakiest ship. The surprise factor has long been wrung out of the system. Markets are ready. After a bit of chaos, there might even be relief. And that perception, if it gains the upper hand, will seal Greece’s fate.
Now the strategy is to prevent contagion. The temporary EFSF bailout fund is too small. What is needed is the larger firewall that the “permanent” ESM bailout fund will provide, once operational. Hence the enormous pressure on the German Constitutional Court to wrap up its review of the ESM and nod it through by September 12 [read.... Euro Desperation: German Justices already Buckled under Political Pressure].
By getting the Greek default over with, politicians and the Troika could focus on bailing out Spain. Unlike Greece, Spain is critical to the survival of the euro—and after Spain there is Italy, whose debt is huge, and even the ESM won’t be able to bail it out. All that remains is hope that contagion somehow stops before it gets to Italy. Hope, or a treaty change that would allow the ECB to buy sovereign bonds on a massive scale and bail out banks directly. The whole debt crisis would be over. To be replaced by a crisis of a different and more pernicious sort. Unlikely that the “northern” Eurozone countries would go for that.
But, but, but.... There are opportunities in Europe: mining. Europeans have a long history of it, yet dealing with regulations and eco-friendly groups has driven countries to switch to importing resources. Now record joblessness has refocused political agendas because mines can employ a lot of people! For investors, that’s exciting news. Read... Profiting from Europe’s New Gold Rush.
And here is yours truly in a conversation with Max Keiser on the Keiser Report, discussing bubbles, central banks, the Eurozone, NIRP, and “stupidity arbitrage” (video, aired over the weekend).
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