Thursday, May 31, 2012

Corporate debt crisis

Debt crisis: a $46 trillion problem comes sweeping in

Bad stuff, they say, comes in threes. We've already got the banking and the eurozone sovereign debt crises. Next comes the corporate funding crisis

Just as you thought things couldn't get any worse, credit markets are about to be hit by a veritable tsunami of maturing corporate debt. Standard & Poor's estimates that companies in Europe, the US and the major Asian economies require a combination of refinancing and new money to fund growth over the next four years of between $43 trillion and $46 trillion. The wall of maturing debt is unprecedented, raising the prospect of further, extreme difficulties in credit markets.


Comment: So we're only at the prelude stage of the opera. When the fat lady has finally sung, the world will be different from what we know.

Down with gold

Gold Poised for Worst Monthly Run in 11 Years on Europe

Gold is poised for the worst run of monthly losses in more than 11 years in New York as concern that Europe’s fiscal crisis is escalating drove investors to seek the dollar as a haven over the precious metal.

Comment: Don't try to find a logic in what's going on. As any serious investor should know, markets are not much different from looney bins or kindergardens. Monkey business also fits well. There are times when the wise man should stay away from the market. Yet this is easier said than done. Moving out of the market always also means to move into something and when it is cash the question arises about which currency to choose. As much as there was a shift out of the dollar into gold and dollar and the shift is now gong back into the dollar and out of the euro and gold, the next shift will be back again into euro and gold.

Wednesday, May 30, 2012

Real economic growth since 2007

The change is in real GDP from the second quarter of 2007 to the first quarter of 2012, except for Greece (where the data is up to the first quarter of 2011).
% change
Germany +3.2
US +2.5
France +0.3
Euro area -0.3
Japan -1.2
Spain -2.4
Britain -2.6
Portugal -4.3
Italy -5.7
Greece -8.2
Ireland -9.0

A couple of points are striking. Spain has performed better than Britain overall. And even though Germany has done better than the rest, the euro area has not grown in aggregate over five years. That is why there is a debt crisis; when you take on debt, either the debtor or the creditor must assume that the former will prosper. If the economy doesn't grow in real terms, that creates a problem; the debtor will either default or try to inflate the debt away.
Structural reform could boost European growth but only over the long-term. In the meantime, Europe remains divided between the inflate and default options. Until it decides (and comes through the resulting pain), the crisis won't really be over.

Credit crunch and euro woes

The Economist

Crunch time

Current credit conditions bode ill for the euro area
THE euro crisis drags on and on. Spanish yields on ten-year debt hit 6.6% on May 30th, just ten basis points lower than last November's nadir, as the costs of sorting out Spain's banks sink in. With ten-year US Treasuries now at a 60-year low, investors are heading across the Atlantic for the perceived safety of the world's second-largest debt market. According to The Economist's credit-crunch index, credit is now tighter in the euro area than it was at the height of the financial crisis (see top-left chart). This is having a detrimental effect on the real economy, as demonstrated in the following three charts. When the index was last at a similar level during 2008-09, economic output tanked, unemployment shot up and stockmarkets plummeted. Unless policymakers find a lasting and credible solution soon, it seems likely that the same will happen again.

Down with the euro

Euro Approaches Two-Year Low on Spanish Banks Concern

The euro fell to the lowest level in almost two years against the dollar as Spain struggled to rescue its troubled banks, adding to signs the European debt crisis is spreading to the region’s larger economies.
The 17-nation currency slid for a seventh day versus the yen, the longest losing streak in four months, after Italy sold less than its maximum target at a debt auction. The yen and dollar strengthened as investors sought safer assets ...
Comment: My mental downside limit for the euro was 1.25. Now we' re below 1.24 to the dollar. I'm expecting a strong move towards 1.30 to happen anytime soon. The factor that speaks against my position is opinion-making but not economics reality.

Monday, May 28, 2012

Dollar becomes relatively scarcer

Dollar Scarce as Top-Quality Assets Shrink 42%

By John DetrixheThe dollar is proving scarce, even after the Federal Reserve flooded the financial system with an extra $2.3 trillion, as the amount of the highest-quality assets available worldwide shrinks.
From last year’s low on July 27, the greenback has risen against all 16 of its major peers. Intercontinental Exchange Inc.’s Dollar Index surged 12 percent, higher now than when the Fed began creating dollars to buy bonds under its extraordinary stimulus measures at the end of 2008.
International investors and financial institutions that are required to own only the highest quality assets to meet investment guidelines or new regulations are finding fewer options beyond dollar-denominated assets. The U.S. is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group-of-10 nations fit that category, data compiled by Bloomberg show.

Monday, May 21, 2012

Euro shorts in panic mood

During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that "financial anarchy" is coming to Europe and that there will be "bank runs" in Spain and Italy in the next few weeks. This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using. In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog. It may not happen in "the next few weeks", but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal. There are already rumors that the "smart money" is pulling out of Spanish and Italian banks. So could we see some of these banks collapse? Would they get bailed out if they do collapse? It is so hard to predict exactly how "financial anarchy" will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.
Comment: Nothing of that will happen. After a slight dip, the euro is already moving back to over $ 1.30 again.

The euro massacre

Hedge Funds Rebuild Euro Bear Bets on Greek Exit Banks Weigh

The euro has weathered the worst financial crisis since the Great Depression, bailouts of Greece, Ireland and Portugal, and falling interest rates. Now, investors are betting like never before that a Greek exit would be too much to keep the 17-nation currency above its long-term average.
Hedge funds and other large speculators, which pared trades that would profit from a drop in the euro to the lowest levels since November, rebuilt them to a record high last week, figures released May 18 by the Washington-based Commodity Futures Trading Commission showed. The premium for options that grant the right to sell the euro has more than doubled since March.
Comment: Watch out when the massacre won't be the euro, but the euro shorties.

Saturday, May 19, 2012

Did GS plant the financial bomb in Greece?

Cut Greece Adrift To Save the Euro
"... Greece should never have been admitted to the euro. It snuck into the currency union by hiring those miscreants at Goldman Sachs to falsify its financial books..." More
Comment: Indeed, a Trojan horse. There are two questions left: 1. Did GS do it by intention or by greed or by accident? 2. Did it act on its own or with the backing of the US government (which is a branch of GS).

Thursday, May 17, 2012

Conservatives lead poll for Greek election

Nea Demodratia heads polls with 26.1 per cent according to the polling institute Marc/Alpha
Report in Der Spiegel

Wednesday, May 16, 2012

Wisdom from Asia

Zeti Says Greek Euro Exit Would Have ‘Unimaginable’ Consequences

Malaysia’s central bank Governor Zeti Akhtar Aziz warned that Greece exiting the euro would have“unimaginable” consequences for Europe and that she expects a solution will be reached to prevent a departure.
“The consequences for that to happen I believe will be unimaginable for Europe, therefore a solution has to be found to address the situation,” Zeti, 64, said in an interview with Bloomberg Television in Istanbul yesterday. “I believe that such a solution can be found.”
Comment: It used to be said that the people form Asia like those from the Caribean talks and act like kids. Listen closely: now it's the "cradle of democracy" that behaves and talks like nutes while "the Asians" are those with a sober mind, A tidal shift, indeed.

Tuesday, May 15, 2012

Rehash of the Greek tragedy

Greek President Proposes Government of Non-Politicians

Greece will hold new elections after President Karolos Papoulias failed to broker a governing coalition following an inconclusive May 6 vote, raising concern it may exit the euro. The currency and euro-area stocks fell.
“The country is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party said. “The Greek people told us they didn’t want elections but a coalition government, that they want Greece in the euro.”
Comment: It was a grave error to let Greece get into the euro even more so as it was well known that the official statistics were heavily mainpulated. The second major error happened in 2010 when contra to the EU treaty Greece was promised a bailout although the treaty clearly states that each country is responsible for its own debt. The third major blunder was the horrible crisis management that has been following ever since, both in Greece and in the EU.
Backgrounder: What's behind the euro crisis?

Monday, May 14, 2012

Don't short the euro

Don't believe what they say on TV and write in the papers that Greece will leave the eurozone and go into full default after a new election will be held. Much more likely is the following scenario:
- Greece will form a new government based on the recent election results
- Greece will implement the austerity program
- Greece will get additional EU assistance for behaving well
- Greece will stay in the eurozone
- There won't be further contagion
- US financial interest groups want a second term for Obama
- Blaming the US non-recovery on Europe serves Wall Street and Obama well
- As long as these groupos succeed in making the eurozone appear sicker than it is, the US can be sold as being healthier than it really is.

Wednesday, May 9, 2012

The panic of the euroshorters

11 Quotes That Show How Worried The Financial World Is About Europe Right Now

The following are 11 quotes that show how worried the financial world is about Europe right now....
#1 Tres Knippa of Kenai Capital Management: "What is going on in Europe is an absolute disaster…the risk-on trade is not the place to be. I want to be out of equities and very, very defensive because the situation in Europe just got worse after those elections."
#2 Mark McCormick, currency strategist at Brown Brothers Harriman: "We’re going to have higher tensions, more uncertainty and most likely a weaker euro."
#3 Nick Stamenkovic, investment strategist at RIA Capital Markets in Edinburgh: "Investors are questioning whether Greece will be a part of the single currency at the end of this year."
#4 Jörg Asmussen, a European Central Bank executive board member: "Greece needs to be aware that there is no alternative to the agreed reform program if it wants to remain a member of the eurozone"
#5 Tristan Cooper, sovereign debt analyst at Fidelity Worldwide Investment: "A Greek eurozone exit is on the cards although the probability and timing of such an event is uncertain."
#6 Art Cashin: "Here’s the outlook on Greece from Wall Street watering holes. If a coalition government is formed or looks to be formed, global markets may rally. Any coalition is unlikely to make progress on goals, since austerity is political suicide. There will likely be another election around June 10/17. A workable majority/plurality remains unlikely, so back to square one. Therefore, Greece will be unable to attain goals by the deadline (June 30). Lacking aid funds, pensions are suspended and government workers are laid off. Protestors take to the streets and government is forced to revert to drachma to avoid social chaos. Pass the peanuts, please."
#7 John Noonan, Senior Forex Analyst with Thomson Reuters in Sydney: "Sentiment is very bearish, The euro is under a lot of pressure right now. I get the feeling that it’s going to be a nasty move lower for the euro finally"
#8 Kenneth S. Rogoff, a professor of economics at Harvard: "A Greek exit would underscore that there’s no realistic long-term plan for Europe, and it would lead to a chaotic endgame for the rest of the euro zone."
#9 Chris Tinker of Libra Investment Services: "It’s a binary decision. If Greece gets itself to the point where the European administration says, ‘We can’t play this game anymore,’ that starts a domino effect"
#10 Nicolas Véron, a senior fellow at Bruegel: "France has very limited fiscal space and actually has to engage in fiscal consolidation"
#11 80-year-old Greek citizen Panagiota Makri: "I'm confused. I feel numb and confused. Only God can save us now"
All of this comes at a time when much of Europe is already descending into a new recession. Economies all over Europe are contracting and unemployment rates are skyrocketing. Until things start improving, there is going to continue to be a lot of civil unrest across Europe.
Meanwhile, things are not so great in the United States either.
JPMorgan Chase CEO Jamie Dimon claims that the U.S. economy is holding a "royal straight flush", but the only part of that he got right was the "flush" part.
There are 100 million working age Americans that do not have jobs, the middle class continues to shrink, the rising cost of food and the rising cost of gas are severely stretching the budgets of millions of American families and the federal government continues to run up gigantic amounts of debt.
When Europe descends into financial chaos, the United States is not going to escape it. The financial crisis of 2008 deeply affected the entire globe, and so will the next great financial crisis.

Monday, May 7, 2012

New perspectives on Europe

The Greek and French election results are no reason for panic. On the contrary. Hollande as a socialist has better chances than Sarkozy has had to implement the necessary reforms. It may even be similar the case in Greece albeit the situation there is much more complicated.
There no good reason to short euros and euro bonds now. Dont't believe the clatter you'll hear. 

Thursday, May 3, 2012

The crash trip of debt

What if the President of the United States was the driver of a car, and the speed at which he drove was the rate at which the U.S. national debt would increase while he was at the wheel? Would that be the kind of road trip you’d like to go on?
Courtesy of the data visualization talents of the anonymous mind at the Political Math blog, you can take the trip for yourself without ever leaving home!
Take a ride on the wild side