http://www.zerohedge.com/news/chart-spains-mariano-rajoy-wishes-could-be-swept-under-rug
The Chart Spain's Mariano Rajoy Wishes Could Be Swept Under The Rug
A week ago, after peripheral European bonds soared and yields plunged on more hype and more promises that the ECB maymonetize debt on the one condition that insolvent countries hand over sovereignty to the Troika ala Greece, we were not all surprised to learn that "suddenly, nobody in Europe wants the ECB bailout." And why should they? After all, The whole point of the gambit was to lower bond rates, which happened, which would allow insolvent government to stack even more debt courtesy of lower rates on top of record debt, taking the insanity of the old saying "fixing an insolvency problem with liquidity" one step further, and revising it to "fixing an insolvency problem with more insolvency." Furthermore, if the mere threat of the ECB stepping in and crushing any shorts or supporting longs was enough, why even bother with actual intervention. Simple: even infinite monetary dilution has its limits. That limit is and always has been cash flow, because a central bank can only dilute wealth, never create it. And for Spain said limit is approaching fast.
Recall that as we calculated on September 3, Spain is rapidly running out of cash: its consolidated cash balance has plunged from over €50 billion in March to just over €20 billion in July and dropping at an alarming rate. The cause for this drop: a budget deficit that refuses to go away, and with ~25% unemployment, what the government does to the tax rate is irrelevant as the Laffer curve crosses into the twilight zone of the Laughter Curve.
Recall also that Goldman made it very clear that Rajoy has to request an ECB bailout last week, because while he may posture for political reasons knowing once he invites the Troika his political career is done, and such posturing will cause even greater conditionality to be ultimately imposed on Spain, the real gating issue is cash.
Enter the chart that Rajoy wishes did not exist: the net cash in/outflow into the Spanish treasury due to bond/interest activity.
As is quite obvious on the chart above, and explains Goldman's urgency with a formal Spanish ECB activation request, the closer we get to October, the closer Spain gets to running out of cash. And inthat particular case none of the currently implemented reality countermeasures will do anything to hide the fact that Europe's emperor was naked from the very beginning.
The flowchart then becomes as follows:
1. Find out what the Spanish cash balance was as of August. If the economy indeed contracted far more than expected, which it likely did, this number should dip below €20 billion for the first time since August 2011.
2. The September number will not be known until a month later. However, it is safe to assume that it will not be a blockbuster cash surge.
3. If the total cash balance extrapolated going into October is close to the ~€15 billion needed to satisfy the Net Cash Requirement, watch out below, as "Plan Silvio" comes into play.
3.5. What is "Plan Silvio" you may ask? Simple - in November 2011, the ECB made it very clear it would no longer purchase Italian bonds as long as Berlusconi was in charge. In essence, this was the first act of the now totally political ECB, courtesy of its then-brand new president Mario Draghi, who had replaced JC Trichet days earlier. End result: Italian bonds soared to their post-Eurozone highs, and Silvio was promptly replaced with a Goldman technocrat. Just as was planned from the beginning.
4. Of course, Plan Silvio will be called Plan Mariano in its 2012 version. It will, however, manifest itself in identical terms to its prior iteration: a bond curve inversion which forces the current administration to do the biddings of the market. Should the Spanish bond curve, however, invert, it would mean that the 2 years will literally implode, as the matched yield will soar by 300-400 bps.
5. Next steps: in 2011, one firm that literally bet the farm that the ECB would not allow a curve inversion in Italy (it did), as a catalyst to replacing the current government, was everyone's favorite client money vaporized: MF Global. Should Plan Mariano be a "go", we can only wonder how many other hedge funds and prime brokers will suffer the MF Global fate, now that buying the Spanish short end is the "no brainer" trade of 2012.
Naturally, all of the above assumes that the Spanish economic contraction has continued, and its funding needs are over and above those budgeted at the beginning of the year when the Treasury bond issuance schedule was announced.
One thing we do know: the wall of worry is now officially gone courtesy of coordinated intervention between the ECB and the Fed, both of which have gone all in on the reflation trade. And with no wall of worry to be surmounted, everyone will now be on the same side of the trade. Hopefully, for "everyone's" sake, the central planners are better equipped to dominate reality this time around, than they were back in 2006 when "subprime was contained." Sadly, they never are. Which means that the current attempt at reflation will fail, only to be followed by yet another sharp deflationary crunch, which in turn will be followed by even more CTRL-P based reflation attempts, and so on, until finally one day, disgusted by the central-planners intention to defer the advent of reality at all costs, leading to record amplitudes in prices at ever increasing frequency, money itself, in its current form, will be overthrown by the same people who use it. Because every ponzi scheme lasts only as long as there is at least one more sucker.
It is at that point that the lunacy of the status quo will finally end. Seen in this light, we actually wish to thank the central planners for taking the steps they did in the past two weeks: they simply made the arrival of the final monetary phase transfer that much quicker.
http://www.zerohedge.com/news/fed-may-be-pumped
The Fed May Be Pumped Up
Via Mark J. Grant, author of Out of the Box,
Not So Fast
“For every action there is an equal and opposite reaction,” Isaac Newton tells us. It is within this context that we also account for “unintended consequences;” those nasty things that no one thinks of that tend to jump out of the bushes at you when you thought you had everything figured out. In Bernanke’s rush to increase employment and raise asset prices and lower mortgage rates, if not to help the President with his re-election; I would assert that the Fed did not go far enough in its thinking and that they may get stung by what they have not considered.
The issue here is gas at the pump.
Far more important to most Americans than the interest rate on their mortgages is how much they have to pay to fill up their cars. This is true, I think, for the group affected by both costs but the amount of people in the United States that have no mortgages and still have to pay for gas to go to work and the grocery store is a far larger amount of people than those that own houses. Further, the amount of time necessary to lower mortgage rates is a much longer proposition than the time it takes to raise prices at the gas stations. With oil hovering around $100.00 and likely to go higher as a consequence of the Fed’s recent actions; trouble may be brewing.Even without Bernanke’s recent move the price of gas has escalated dramatically. Regular gas, since July 1, has risen 54 cents to $3.87 which is a 14% move up in just two and one-half months. It is now highly likely, in my view, that regular gas will reach $4.00/gallon and move higher from there. This will cause a hue and a cry from the streets and the Press will turn its attention to this and the Fed and Mr. Obama may well get blamed for this outcome and hence the “unintended consequence” swings fully into view.
“For every action there is an equal and opposite reaction,” Isaac Newton tells us. It is within this context that we also account for “unintended consequences;” those nasty things that no one thinks of that tend to jump out of the bushes at you when you thought you had everything figured out. In Bernanke’s rush to increase employment and raise asset prices and lower mortgage rates, if not to help the President with his re-election; I would assert that the Fed did not go far enough in its thinking and that they may get stung by what they have not considered.
The issue here is gas at the pump.
Far more important to most Americans than the interest rate on their mortgages is how much they have to pay to fill up their cars. This is true, I think, for the group affected by both costs but the amount of people in the United States that have no mortgages and still have to pay for gas to go to work and the grocery store is a far larger amount of people than those that own houses. Further, the amount of time necessary to lower mortgage rates is a much longer proposition than the time it takes to raise prices at the gas stations. With oil hovering around $100.00 and likely to go higher as a consequence of the Fed’s recent actions; trouble may be brewing.Even without Bernanke’s recent move the price of gas has escalated dramatically. Regular gas, since July 1, has risen 54 cents to $3.87 which is a 14% move up in just two and one-half months. It is now highly likely, in my view, that regular gas will reach $4.00/gallon and move higher from there. This will cause a hue and a cry from the streets and the Press will turn its attention to this and the Fed and Mr. Obama may well get blamed for this outcome and hence the “unintended consequence” swings fully into view.
European Banking Oversight
After this weekend’s meeting of the European Finance Ministers it iscrystal clear that no new banking oversight authority is imminent. While it was a grand plan concocted in Brussels and unveiled with virtual threats that it had to be enacted immediately to save Europe; it was a flop at the meeting. The Financial Times says that any of the twenty-seven nations can veto the proposal and the push back from Sweden, Finland, Britain, Germany et al was loud and boisterous. You may recall that this concept was one of the cornerstone’s for Germany to allow the ESM to provide money directly to European Banks but it appears that it may have been more of a political place to hide than what the Germans really wanted and, in any event, the Brussels plan is nowhere close to what the Germans had in mind. The meeting had any numbers of countries intoning, “Not Happening” in a variety of languages and dialects. The two connected issues of loss of sovereignty the lack of desire to be accountable for the banks of other nations poured like a Tsunami on the scheme dreamt up in Brussels. The Germans were quite clear, once again, that any money for the Spanish banks, as one example, would have to go through the Spanish government and they would have to be accountable and also audited by the various EU institutions and by the IMF. The odds are virtually 100% that nothing will be accomplished in 2012 and quite high that nothing will be accomplished ever given the absolute power of a veto on this issue. The roll down would then be no money directly for any banks of any nation and no change to the current structure of the Stabilization Funds.Vive la Difference
The recent position of the Fed was spelled out and will be enacted. You may be happy, unhappy or camped in between but they will do exactly what they have said they are going to do. This is a Continent apart for the recent announcement of the ECB and should be noted. The European Central Bank waved the banner of “unlimited” and “without cap” subject to the CONDITION of the EU’s acceptance and audits and the approval of any nation applying for aid. It may not have dawned upon you or most of the world but the ECB may never do anything as a result of the yoke that it placed upon itself; nothing at all may ever happen. If the Austrians and the Dutch are to be taken at their word and no more of their money is going to be used to bailout other nations then all of the fluff raised upon giant banners may be no more than flags waving in the wind. The strategy has worked to date and driven down interest rates but when people figure out that the condition is actually an impediment; the winds may begin blowing in the other direction. If “A” depends on “B” and “B” is not forthcoming then “A” is a worthless proposition.
Tell no one that I told you though. It could cause indigestion in Brussels and their food is rich enough now and costly enough for the other nations in Europe. It is a funny thing you know; when a promise made is not a promise kept then Pandora jumps about with her little box of miseries.
“Let the key guns be mounted, make a brave show of waging war, and pry off the lid of Pandora's Box once more.”
-Amy Lowell
and as for gas prices , I expect we shall soon see oil released from strategic reserves.....
http://headlines.ransquawk.com/headlines/iea-chief-economist-says-oil-prices-are-unbearable-for-consumers-could-help-push-global-economy-back-into-recession-14-09-2012
IEA chief economist says oil prices are unbearable for consumers; could help push global economy back into recession
Says:
- Monitoring crude market very closely.
- Monitoring crude market very closely.
15:35, 14 Sep 2012 - Commodities - Source: Newswires
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