|
|
Post by linsal on Oct 30, 2011 8:41:42 GMT -5
|
|
|
|
Post by linsal on Nov 1, 2011 6:04:24 GMT -5
And now the wheels are falling off the Euro deal in just 5 days... On Thursday of last week stocks across the world surged on news that EU leaders, attending their 7th heads of state summit in 2011 alone had agreed a new plan to tackle the debt crisis. Photo: Bloomberg | Getty Imgaes -------------------------------------------------------------------------------- The details of the plan are well known and focus on recapitalization of Europe’s banks, 50 percent haircuts for Greek debt holders and the leveraging of the European Financial Stability Fund to 1 trillion euros. Just five days later and the plan is already facing huge criticism and the market, fueled by the collapse of MF Global on Monday is showing Angela Merkel and Co exactly what it thinks. Stocks in major euro zone banks are showing double digit losses after the Greek Prime Minister George Papandreou called for a referendum on the deal which would have significantly reduced his country’s debt burden in return for cuts in Greek government spending. “We have faith in our citizens, we believe in their judgment and therefore in their decision. All the country’s political forces should support the (bailout) agreement. The citizens will do the same once they are fully informed” said the Greek Prime Minister on Monday. The prospect of an angry Greek electorate voting down the latest EU deal is clearly a concern for investors and follows harsh criticism of the plan from all over the Greek political spectrum. “The PM is under heavy pressure from his own party to step down and from the opposition to call for new elections” said Jan Poser, the chief economist at Sarasin in Zurich said following news of the referendum. “By threatening a referendum, Papandreou takes a huge gamble. Faced with a stark choice between sovereign default and a EU rescue package, he believes that the people will give him the support” said Poser. RELATED LINKS Current DateTime: 02:59:50 01 Nov 2011 LinksList Documentid: 45114479 European Banks Sink on Greek Vote BombshellGermany mocked for 55-billion euro bank accounts error Poser believes the Greek leader is playing for high stakes. “To save his own skin, Papandreou is obviously ready to take the Greek people to the abyss and to let them have a glance at the possible consequences of a sovereign default and a euro exit,” he said. For those who hoped last week’s deal would allow the market to focus on some signs of a rebound from the US and this Friday’s jobs number there was more worrying news from Italy. Borrowing costs for the euro zone’s third largest economy continued to rise on Monday despite heavy buying from the European Central Bank. “Yesterday we had one of the biggest ever days of peripheral sovereign bond buying from the Securities Market Program, with some banks estimating that over 5 billion euros of peripheral sovereign bonds were purchased via the ECB’s bond buying program in an effort to keep a lid on peripheral sovereign bond yields” said Mike Riddell, a fund manager at M&G Investments in London. Despite much of this buying reportedly being directed at Italy, the spread over German borrowing costs kept rising to hit a new euro area high. With business leaders calling for Berlusconi to go and demanding a government of national unity, it could take his resignation to turn things around for Italy but despite reports he would go, Berlusconi remains in charge. The collapse of MF Global had a lot to do with the price action over the last 24 hours as its trading rivals assessed their exposure and counter party risk. But just five days after yet another deal to solve the debt crisis, investors are again looking at a sea of red on their screens and huge losses for European banks. Not something Angela Merkel and her peers in the euro zone wanted to see so soon after their latest grand plan. www.cnbc.com/id/45114409 |
|
|
|
Post by linsal on Nov 1, 2011 6:37:23 GMT -5
The Air Has Been Let Out Of The Balloon
Do you hear that sound? It is the sound of Europe being hit with a cold dose of financial reality. The air has been let out of the balloon, and investors all over the world are realizing that absolutely nothing has been solved in Europe. The solutions being proposed by the politicians in Europe are just going to make things worse. You don't solve a sovereign debt crisis by shredding confidence in sovereign debt. But that is exactly what the "voluntary 50% haircut" has done. You don't solve a sovereign debt crisis by pumping up your "bailout fund" with borrowed money from China, Russia and Brazil. More debt is just going to make things even worse down the road. You don't solve a sovereign debt crisis by causing a massive credit crunch. By giving European banks only until June 2012 to dramatically improve their credit ratios, it is going to force many of them to seriously cut back on lending. A massive credit crunch would significantly slow down economic activity in Europe and that is about the last thing that the Europeans need right now. If the deal that was reached last week was the "best shot" that Europe has got, then we are all in for a world of hurt.
On Monday, investors all over the globe began to understand the situation that we are now facing. The Dow was down 276 points, and the euphoria of late last week had almost entirely dissipated.
But much more important is what is happening to European bonds.
Investors are reacting very negatively to the European debt deal by demanding higher returns on bonds.
Perhaps the most important financial number in the world right now is the yield on 10 year Italian bonds.
The yield on 10 year Italian bonds is up over 6 percent, and the 6 percent mark is a key psychological barrier. If it stays above this mark or goes even higher, that is going to mean big trouble for Italy.
The Italian government just can't afford for debt to be this expensive. The higher the yield on 10 year bonds goes, the worse things are going to be for Italy financially.
Of course it was completely and totally predictable that this would happen as a result of the "voluntary 50% haircut" that is being forced on private Greek bondholders, but the politicians over in Europe decided to go this route anyway.
Major Italian banks also got hammered on Monday. The following is how a CNN article described the carnage....
Shares of UniCredit, the largest bank in Italy, sunk more than 4% on Friday in Milan and were down nearly another 6% Monday. Intesa, the second-largest Italian bank, slipped 7% Monday, while Mediobanca, Italy's third-largest financial institution, fell about 4%.
The financial world can handle a financial collapse in Greece. But a financial collapse in Italy would essentially be the equivalent of financial armageddon for Europe.
That is why Italy is so vitally important.
Another EU nation to watch closely is Portugal.
The yield on 2 year Portuguese bonds is now over 18 percent. A year ago, the yield on those bonds was about 4 percent.
In many ways, Portugal is in even worse shape than Greece.
A recent article by Ambrose Evans-Pritchard discussed the debt problems that Portugal is faced with. The following statistic was quite eye-opening for me....
Portugal’s public and private debt will reach 360pc of GDP by next year, far higher than in Greece.
Like Greece, Portugal is essentially insolvent at this point. Their current financial situation is unsustainable and politicians in Portugal are already suggesting that they should be able to get a "sweet deal" similar to what Greece just got.
You see, the truth is that what this Greek debt deal has done is that it has opened up Pandora's Box. Most of the financially troubled nations in Europe are eventually going to want a "deal", and this uncertainty is going to drive investors crazy.
There is very little positive that can be said about this debt deal. It has bought Europe a few months perhaps, but that is about it.
As the new week dawned, financial professionals all over the globe were harshly criticizing this deal....
*The CEO of TrimTabs Investment Research, Charles Biderman, says that the big problem with this deal is that the fundamental issues have not been addressed....
"The euphoria about the latest euro zone bailout will fade quickly, as investors realize that the underlying solvency issues have not been addressed"
*Bob Janjuah of Nomura Securities International in London was even harsher....
"This latest round of euro zone shock and awe is, in my view, nothing more than a confidence trick and has possibly even set up an even worse financial outcome."
In fact, Janjuah says that the debt deal is essentially a "Ponzi scheme"....
This latest bailout relies on the market not calling what I see is a huge "bluff", because if the market does call it, the bailout simply won't be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can't believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble.
*The chief economist at High Frequency Economics, Carl Weinberg, is calling the European debt deal a scheme "of Madoffian proportions"....
"Now they (EU Leaders) are keen to tap into resources that are not their own to fund this crazy scheme of guarantees, leveraged off guarantees to sell bonds and bank shares that no one may want to buy, (in order) to restore value in the banking system destroyed by other bonds that no one wants to own right now. This is a construct of Madoffian proportions"
Even George Soros is criticizing the deal. George Soros is saying that this European debt deal will help stabilize things for a maximum of three months.
Of course with Soros there is always an agenda and you never know what his motives are. Perhaps he is honestly concerned about the financial health of Europe, or perhaps he is trying to feed the panic to get Europe to crash even faster. With Soros you never really know what he is up to.
In any event, the crisis in Europe is already claiming financial casualties in the United States.
MF Global, a securities firm headed up by former New Jersey governor Jon Corzine, has filed for bankruptcy protection.
As a recent CNBC article noted, the firm failed because of bad debts on European sovereign debt....
The bankruptcy protection filing from MF Global — a mid-sized trading firm run by former New Jersey Gov. and Goldman Sachs CEO Jon Corzine — only helped amplify the realization that more difficulties remain. MF Global got into trouble mainly because Corzine made tragically wrong bets on European sovereigns that unraveled when it became clear that bondholders of Greek debt will not be made whole as the nation tries to make its way out of its fiscal morass.
As time goes on, there will be more financial casualties. The truth is that someone is going to pay the price for the financial foolishness of these countries in Europe.
Politicians in Europe did not want to increase the "bailout fund" with any of their own money, so they are going to go crawling to China, Russia and Brazil and beg those countries to lend them huge amounts of money.
This is incredibly foolish, and it is already fairly clear that China is going to play hardball with Europe. China has Europe exactly where China wants them, and China will likely demand all sorts of crazy things before they will lend Europe any cash for this bailout fund.
As a recent CNN article noted, Europe is going to be in a lot of trouble if they can't get money out of China, Russia and Brazil....
The hope is that China and other sovereign wealth fund will invest in new special vehicles that will allow the EFSF to add leverage to increase the amount of funding available.
Without the help of China, Brazil, Russia and others, Europe is back where it started. And it still seems clear that the stronger northern European nations aren't keen on the idea of a full bailout of their southern siblings.
What a mess.
It is a comedy of errors for the politicians over in Europe. They can't seem to get anything right. In fact, everything that they do seems to make a financial collapse in Europe even more likely.
Keep a close eye on the bond yields over in Europe. Especially keep a close eye on the yield on 10 year Italian bonds.
A massive financial storm is coming to Europe.
It is going to rock the entire globe.
Now is the time to make certain that your financial house is not built on a foundation of sand. Get your assets into safe places and keep them safe because the road ahead is going to be quite rocky.
|
|
|
|
Post by Hobbyfarmer on Nov 1, 2011 20:37:36 GMT -5
The first layer of icing on the cake is that the Greeks are going to vote on whether or not they will accept austerity measures or vote to continue as before. The Kool-Ade over there must have some "special" flavoring?
Anybody think they will vote to end the party?
|
|
|
|
Post by linsal on Nov 2, 2011 6:13:59 GMT -5
My guess is that Greek PM Papandreou is going to be out of office within a week, or a month at best. He just replaced the heads of his various military department---perhaps he is thinking about suspending the Greece constitution and declaring himself dictator (he would need the support of the military to pull that off)? A default by Greece almost appears inevitable now.
And the referedum vote is at joke at best---the Greek people are now between a rock and a hard place.
|
|
|
|
Post by linsal on Nov 2, 2011 6:22:47 GMT -5
Ya know...with MF Global Holdings declaring bankruptcy----I wonder how many other firms are now are teetering on the brink of disaster that we haven't yet heard about? The Fed simply can't print enough money to get us through this thing...serious money is going to be lost in the next year....
And the thing that really scares the hell out of me is wondering who is lurking in the shadows, thinking, planning and scheming who has the mindset "Never let a good crisis go to waste."....
The debt crisis in Europe just seems to get worse with each passing day, and it is yet another glaring example of why the EU is a mind blowing failure. The EU is made up of 27 nations that all have their own economic policies, and 17 of those nations are trying to use the euro as a common currency. But when you have 27 different governments pulling in different directions, it is inevitable that there are going to be major problems. The stunt that Greek Prime Minister George Papandreou just pulled is a perfect example of the nightmare that the EU has become. European officials worked really hard to pull together a deal to address the debt crisis (of course the deal was a total mess, but that is another matter), and a couple of days later Papandreou decides that Greece should hold a national referendum on it. It is so bizarre that it almost defies words. But that is what happens in the EU. Someone else always wants to have a say. Someone else always wants to throw a fly into the ointment. Someone else always want to throw in their two cents. The EU is a bureaucratic nightmare and this latest episode is yet another example of that fact. First the politicians in Europe come up with an idiotic plan that is going to make the financial crisis much worse, then Papandreou comes forward and pulls a stunt that shatters what little confidence the financial markets still had in Greece. That is why the EU should break up. It is a total failure and it is time that we all admitted it.
Financial markets reacted in horror to the news that Papandreou wants Greece to hold a referendum on the debt deal.
Apparently Papandreou wants the Greek people to willingly choose the harsh austerity measures contained in the package. To be honest, that is not entirely unreasonable considering the tremendous economic damage that austerity measures have already done to the Greek economy.
So if there is a referendum, will the Greeks vote for the package?
That is not at all certain.
As month after month of protests have shown, austerity measures have been extremely unpopular in Greece.
But a lot of Greeks are not too keen on rejecting the bailouts and being forced to leave the euro either.
Both alternatives would be extremely unpleasant.
Greek Prime Minister George Papandreou apparently believes that the Greek people will vote in favor of the debt deal. He made the following statement on Tuesday....
“We have faith in our citizens, we believe in their judgment and therefore in their decision. All the country’s political forces should support the (bailout) agreement. The citizens will do the same once they are fully informed”
Predictably, global financial markets were shocked by the announcement by Papandreou. The Dow was down another 297 points on Tuesday, and bond yields for the PIIGS shot up significantly.
It really is mind blowing to watch what is happening to some of the bond yields over in Europe.
The yield on 1 year Greek bonds is now over 200 percent. If you want to see what a financial meltdown looks like, just look at this chart.
The yield on 2 year Irish bonds is now over 9 percent, and the yield on 2 year Portuguese bonds is now over 20 percent.
Most importantly, the yield on Italian bonds continues to surge higher.
The higher those bond yields go, the worse things are going to get for Europe.
And those bond yield are skyrocketing in spite of rampant bond buying by the European Central Bank.
A CNBC article from earlier today noted the extraordinary intervention by the ECB that we are witnessing right now....
“Yesterday we had one of the biggest ever days of peripheral sovereign bond buying from the Securities Market Program, with some banks estimating that over 5 billion euros of peripheral sovereign bonds were purchased via the ECB’s bond buying program in an effort to keep a lid on peripheral sovereign bond yields” said Mike Riddell, a fund manager at M&G Investments in London.
Europe is falling apart financially and politicians all over Europe are furious with Papandreou right now. The following comes from an article by Ambrose Evans-Pritchard that was published earlier today....
The Greek referendum – if it is not overtaken by a collapse of the government first – has left officials in Paris, Berlin, and Brussels speechless with rage. The ingratitude of them.
The spokesman of French president Nicolas Sarkozy (himself half Greek, from Thessaloniki) said the move was “irrational and dangerous”. Rainer Brüderle, Bundestag leader of the Free Democrats, said the Greeks appear to be “wriggling out” of a solemn commitment. They face outright bankruptcy, he blustered.
A number of European politicians are warning of severe consequences for Greece. For example, the Finnish minister of European affairs and foreign trade, Alexander Stubb, even declared that if Greek citizens do not vote the right way it will mean an exit from the eurozone for Greece....
"The situation is so tight that basically it would be a vote over their euro membership"
If Greece ends up rejecting the bailout package, it would essentially mean a complete and total debt default by Greece. The following is what Nobel prize-winning economist Christopher Pissarides said about the potential consequences of a "no" vote....
"In the scenario of a 'No' vote Greece would declare bankruptcy immediately, they would default immediately. I can't see them staying within the euro"
But there is no guarantee that a referendum will actually be held. The Greek government has been thrown into a state of chaos and is on the verge of collapse.
To many, it seems more likely that the government will fail and that we will see early elections in Greece. For example, the following is a quote from an anonymous Greek trader that was posted in an article on Business Insider this morning....
I believe the present government will be history by the end of this week. Most probably this evening actually, when the already scheduled emergency cabinet meeting is to be held.
The important question to be resolved is whether the present government will be replaced by an interim national unity government for several months ratifying in parliament the Eurogroup decisions of last week and then proceeding with elections, or else whether national elections will be immediately announced with probable dates the 4th or 11th of December.
But in the final analysis, it is not the Greek government that is the problem.
The reality is that the way the eurozone was constructed was fatally flawed from the very beginning.
It was inevitable that trying to force 17 different countries with 17 different economic policies to use a common currency was going to end up creating a huge mess.
People all over Europe know this is true. Just consider the following quotes....
* Stephane Deo, Paul Donovan, and Larry Hatheway of Swiss banking giant UBS: "Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change."
* EU President Herman Van Rompuy: "The euro has never had the infrastructure that it requires."
* Former German Chancellor Gerhard Schroeder: "The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy"
* Professor Giacomo Vaciago of Milan's Catholic University: "It's clear that the euro has virtually failed over the last ten years, even if you are not supposed to say that. We pretended to be Germans, but it was an illusion"
So why should those of us living in the United States care about all of this?
Well, it is because a financial collapse in the EU could plunge the entire globe into a horrific economic nightmare.
Today, the EU actually has a larger economy and a larger population than the United States does. The EU also has more Fortune 500 companies that the United States does.
If Europe experiences a financial crash, it is going to send shockwaves to the very ends of the earth.
Another reason why Americans should care is because what is happening right now in Greece, in Italy and in some of these other countries is eventually going to come to the United States.
Just like Greece, we are in debt up to our eyeballs.
Just like Greece, our politicians thought that they could pile up gigantic mountains of debt indefinitely.
Just like Greece, this debt is going to have very, very serious consequences.
Just like Greece, we are going to have mass economic rioting in our streets.
The road that Greece is going down is the exact same road that the United States is going down.
Yes, the Federal Reserve could step in and print up trillions and trillions of dollars, but that would not solve our problems. The truth is that a hyperinflationary crash can be even worse than a deflationary crash.
What is happening in Greece is just the beginning. A bunch of other eurozone nations are also rapidly approaching a date with destiny. At some point the United States is going to experience massive problems as well.
The epicenter for the financial collapse of 2008 was the United States.
The epicenter for the next financial collapse will almost certainly be Europe.
When Europe goes down, the rest of the world will be dragged down with them.
The next wave of the economic collapse is coming.
You better get ready.
|
|
|
|
Post by Hobbyfarmer on Nov 2, 2011 15:23:31 GMT -5
Nov. 2, 2011, 12:01 a.m. EDT
Greek farce: Let them eat baklava
Commentary: Europe should let Greece default
By Brett Arends, MarketWatch
NEW YORK (MarketWatch) — Aristotle would be proud.
The philosopher of Greek drama divided the works of theater into tragedy and comedy, never the twain to meet. But his fellow countrymen are going one better. They are currently staging a tragedy that is also a farce.
Not only did Prime Minister George Papandreou call for a “referendum” on the latest European bailout, but it turns out he didn’t bother telling his own finance minister first.
Ha-ha!
Maybe Aristotle’s famous, long-lost book on comedy has finally turned up in the government archives, and Papandreou is putting on a one-man recital.
The situation remains fluid — or, to be more accurate, chaotic.
But you have to wonder why the Europeans don’t just kick these clowns to the curb. Europe doesn’t need Greece. It gets no benefit from having Greece in the euro . Greece’s entire debts come to $366 billion. That’s 4% of the gross domestic product of the euro zone. Greece’s GDP is less than 2%. More money was “lost” during yesterday’s stock-market tumble than in a massive write-off.
Europe could eject the Greeks, write off most of the debt, monetize the losses and move on. Guarantee bank depositors, but let the stockholders, bondholders and credit-default counterparties take their losses.
Let them eat baklava!
Reuters
Greek Prime Minister George Papandreou If Greece is ejected from the euro and launches a new drachma, Greek pastries, olive oil, real estate, island vacations and ouzo will quickly become a bargain again.
|
|
|
|
Post by glowplug on Nov 2, 2011 18:21:15 GMT -5
The concept of an European Union was flawed from day one.
There's no common language, no common national interests, no shared history (except of war with each other), .......there could never be a United States of Europe.
And any nation that plays euro-weenie soccer instead of real American football is doomed anyhooo.
|
|
