Thursday, March 29, 2012
Europe's Bazooka Will Fire Blanks... Good Luck Killing the Crisis With That
Europe continues to take a page out of Hank Paulson's "Crisis Combat" booklet, by unveiling one monetary "bazooka" after another. Obviously, EU leaders didn't notice that Paulson's "bazooka" completely failed to stop the 2008 Crash.
Even more strangely, they keep pulling out bazooka after bazooka, first unveiling the EFSF which was supposed to raise €1 trillion but failed to raise even €10 billion without having to intervene in its own bond auctions.
Then came the ESM, which was supposed to be another mega-bailout fund, which as before, is having trouble raising funds. After all, if one bailout fund is a dud, why would launching another fix anything?
Oh, and I forgot to mention that both bailout funds will be leveraged... which Europe obviously doesn't have enough of already (the EU banking system as a whole is leveraged at 26 to 1. Lehman Brothers was at 30-to-1 when it imploded).
Indeed, you don't even need to look at the math (though the math is impossible and makes the premise of "saving Europe" even more insane) to know that this can't work. Which is why the idea that the EU as a whole can create mega-bailout funds to put up a "firewall" around its banking system is outright absurd.
The EU is 27 countries. Of these, only 17 use the Euro. And these countries have a long, bloody history of political conflicts with one another. We've already seen hints of this with Germany calling Greece a "bottomless hole" to which Greece responded by portraying German politicians as Nazis.
Spain, France, and the others aren't exactly the best of friends either. And as their respective economies collapse at varying speeds (even Germany posted negative QoQ GDP for 4Q11), political tensions will rise even more rapidly.
So in the end, Europe's bazookas will be firing blanks (assuming they even can fire at all, which their respective efforts to raise capital call into doubt). Which brings me back to one of my central themes for Europe: that you cannot band together such disparate economies and cultures in one monetary union and expect it to work.
Again, this is common sense. And when we add in the math, it becomes even more clear just how insane these political proposals are.
Consider Germany, for instance. As I've noted for months now, that country sports a REAL Debt to GDP of 200% (from former Bundesbank officials' own admissions) when you include unfunded liabilities. And Germany is somehow going to bailout Italy or Spain (which both sport REAL Debt to GDPs north of 300%)?!
Again, the whole thing is absurd. The entire European financial system is just one big house of cards, propped up by the hopes that the ECB can hold this thing together.
But it can't. Europe isn't the US. And the ECB isn't the Federal Reserve. What I mean is that you can maybe fool investors into believing that a financial system is fixed if you're only dealing with one country and one Central Bank. But when you're dealing with 17+ countries, many of which have their own national Central Banks, and you're trying to save this system with a larger regional Central Bank (the ECB) the whole thing is impossible.
Indeed, because of its interventions and bond purchases, the ECB's balance sheet is now PIIGS debt AKA totally worthless junk. And the ECB claims it isn't going to take any losses on these holdings either. No, instead it's going to roll the losses back onto the shoulders of the individual national Central Banks.
How is that going to work out? The ECB steps in to save the day and stop the bond market from imploding... but the minute it's clear that losses are coming, it's going to roll its holdings back onto the specific sovereigns' balance sheets.
So... PIIGS debt is essentially just a monetary "hot potato" that the various Central Banks in Europe are tossing around? And this is supposed to save Europe? Good luck with that.
On that note, I fully believe the EU is heading into a Crisis in the May-June window of time. We have a confluence of negative factors (monetary, political, technical, etc.) hitting during that window of time, which is unlike anything I've ever seen before. And unlike the 2008 Crisis, the Central Banks won't be able to rein this one in.
Why? Because Europe's banking system is $46 trillion in size. And the Fed and ECB are already leveraged to the max having spent all their ammunition combating the Crisis this far.
Labels: Collaps, Crash, crisis, Default, Euro Collapse, europe, Greece
Wednesday, March 28, 2012
The geopolitical complexity in Greece (Arms)
BBH analysts point out the political and economic issues that are faced when it comes to the structural reforms in Greece, as the country is the no.1 arms importer from Germany and no.3 from France. These arms dealing relationships explain why creditor countries don’t insist much on Greece’s defense budget cutting.
“If, over the past decade Greece would have spent only the euro zone average of 1.7% of GDP on defense, rather than 4%, it would have saved a little more than 50% of GDP or roughly 150 bln euros--more than the second aid package”, wrote Marc Chandler, global head of currency strategy at BBH, pointing also to the €900 M extra spending in defense in 2010, while social spending got cut by €1.9 bn.
BBH analysts regard the export-oriented models in Europe as one of the casualties of the crisis as the consumer countries no longer have the ability to keep up with creditors’ production. Creditor nations “were essentially engaged in producer financing”.
Mounting to those issues is the fact that Greece is a NATO member, with vast geostrategic assets that could be used against Europe and US interest, having already conceded the port of Piraeus to China for 35 years. Russia could be next!
Labels: europe, Greece, Greece Arms, Greece bailout
Monday, March 26, 2012
A Tenuous Balance is in Place
The markets will likely try to rally this week based on the following items:
1) End of quarter performance gaming
2) Last week's weak stock performance
3) Angela Merkel signaling that Germany will increase the pointless "firewall" around Europe's banking system
4) Bernanke's hint that more QE is coming in April in this morning's speech
#1 is a regular phenomenon in the markets and needs not be explained. #2 is closely tied in with the latest policy of verbal intervention on the part of the Fed: any time stocks weaken some Fed official, usually Charles Evans of Chicago or Bill Dudley of New York, gives a speech suggesting more easing is just around the corner and VOOM! stocks take off again.
#3 is just the next step in Germany trying to hold the EU together long enough to see how the French elections turn out in April/ May. Given that Merkel's political ratings drop like a stone any time she spends more German money and explode higher any time she plays hardball with the EU, we can take this move to be mainly posturing and playing for time.
Indeed, France is now a wildcard in the great EU bailout scheme. Most polls show a socialist winning in the second round of the elections. And not just any socialist, but François Hollande.
A few facts about Hollande:
1) He just proposed raising tax rates on high-income earners from 41% to 75%.
2) He wants to lower the retirement age to 60.
3) He completely goes against the recent new EU fiscal requirements Merkel just convinced 17 EU members to agree to and has promised to try and renegotiate them to be looser.
So Merkel knows that if Hollande wins in France, her campaign to turn the EU into a fiscally responsible German-led group of colonies will be over. Europe could very well collapse before then as the Spanish and Italian bond markets are flashing danger signs again (despite the world believing LTRO's 1 and 2 solved everything). And the facts remain that the entire EU banking system is a disaster waiting to hit (anyone notice that EU banks continue to park cash at the ECB like there's a systemic catastrophe looming?)
Finally, Bailout Ben Bernanke just hinted at more QE in his speech at the National Association for Business Economics this morning. With gas prices at $4 and food prices not far off from their all time highs, I cannot see how Bernanke can possibly unveil more QE without unleashing major political outrage and destroying Obama's chances at re-election (Obama did re-elect Bernanke as Fed Chairman).
So I view this hint as more posturing from Bernanke. He likely is aware that seasonal adjustments have made all economic data from the last three months look better than reality and is simply trying to prep the markets for what's likely going to be a slew of bad data started in 2Q12. We also have to note that stocks took it on the chin last week, so Bernanke could very well be maintaining item #1 on the list above: verbally intervening to keep the markets up.
Big picture: the markets are being held together via a very tenuous balancing act on the part of EU leaders and the world Central Banks. The short-term bias will be bullish due to the factors listed above. But big trouble is lurking just beneath the surface. And should anything upset the current balance being maintained, we could see some real fireworks in the markets in short order.
Labels: collapse, Default, disaster, Euro Collapse, Euro crisis, France crisis
Sunday, March 18, 2012
Best News for YOU: Scam: Global Finance Online Ltd, Briskremit
Scam: Global Finance Online Ltd, Briskremit
Global Finance Online Limited and their Briskremit service!
This company with registered UK number 03768746 will ask you to send
400 Pounds to "verify" your account via Western Union or Moneygram
to a person NOT directly associated with the company.
Global Finance Online Limited and their Briskremit service are saying,
that the 400 Pounds are going into "your" account and will be for your
use only, but they also tell you "not to panic" in case you can not login
to your account and simply try again.
Naturally you will never be able to login to your account after you sent
the money to a person not directly associated with the company.
Be also very careful if you receive offers to accept money for companies,
they might let you have 100 Pounds and ask you to give them the rest
of 300 Pounds. May be you can do this up to five times, until you get
blacklisted by Western Union or Moneygram and never may receive
legitimate money for yourself again.
Global Finance Online Limited and their Briskremit service-website
seems like a professional operating company asking you for your
photo and orginal signature to open an account, but in the NEXT
step they ask you to send 400 Pounds. Don't do this, even if an
other company like WFS Capital Financing UK register number
07090142 offered you to send a good amount of money into your
Briskremit account, after you have opened it.
It is the old game like: "We, WFS Capital Financing, do not ask for
any upfront fees to give you a loan, you only have to open an account
with our service provider."
And the service provider Briskremit then asks you for 400 Pounds
to "verify" your account, which would be at your disposal; but they
never will. Your money will be gone and no loan will be come.
And according to the latested companycheck Global Finance Online Limited
had 579 Pound in their bank account, so clearly they need your 400 Pound
to come over the next week...
Labels: Briskremit, Briskremit Scam, Fraud, Global Finance Online Limited Scam, money scam, UK Fraud, WFS Capital Financing Scam
Thursday, March 15, 2012
The Big Fat Greek Lie Is Now Obvious to Spain... So Who's Next to Default?
The big fat Greek lie being spread throughout the financial community is that "Greece has been saved". It's a lie for the following reasons:
1) Greece did in fact default.
2) Greece now has more debt than it did before the bailout (how does writing off €100 billion Euros in debt and taking on €130 billion Euros in more debt improve this situation?)
3) The Greek economy continues to implode (youth unemployment over 50%, one in ten Greek youth looking for jobs abroad, Greek GDP fell 7% in 4Q11)
4) This Second Bailout was indeed a "Credit event" which the markets have yet to discount (though German investors are already lining up litigation)
5) Germany's finance minister has already admitted Greece may need a third bailout.
Anyone who thinks that Greece is better off, let alone "saved" is out of their minds. The Euro may have been saved for a few more weeks/ months. But Greece is in worse shape than ever.
Indeed, if anything, the Greek situation has made it clear that the whole "give up fiscal sovereignty and implement austerity measures in exchange for bailouts" formula is a waste of time and money. Let's take a look at the progression here.
1) Greece claims it doesn't need a bailout at all (January 2010-March 2010)
2) Greece begins to ask for a bailout (April-May 2010)
3) Greece gets a bailout equal to 57% of its GDP (May 2010)
4) Greece posts a GDP of -4% in 2010
5) Greece announces it won't be able to meet budget requirements/ payback the first bailout on time and asks for an extension (January-February 2011)
6) Greece asks for another extension (May 2011)
7) Talk of Second Greek Bailout begins (July -October 2011)
8) Greece posts a GDP of -6.5% in 2011
9) Second Greek bailout announced/ finalized (February/March 2012)
10) Talk of third Greek bailout begins (March 2012)
No other EU country could look at this progression and think "this looks like a good approach." Indeed, Spain and Italy must be watching what's happening in Greece and asking themselves whether they want to go through this whole process of negotiating for bailouts via austerity measures or not?
Labels: Crash, crisis, Debt crisis, depression, Euro Collapse, Greece, Greece bailout
Friday, March 09, 2012
Mr. Market: Get It Through Your Head, The PSI DOESN'T Matter
I don't know how many times I have to say this, but I'm saying it again.
Greece and the Euro are finished. The math is impossible. There is no way on earth that this Second Bailout accomplishes anything worthy of note. The idea that this country will somehow return to economic growth within two years, based on an additional €130billion in bailouts is outright insane.
Remember, Greece already received €110 billion in bailout funds in 2010... and still posted GDP growth of -4.5% in 2010 and -6.8% in 2011. Greece's economy is only €227 billion, so the country failed to post any economic growth and in fact saw its economic collapse accelerate after receiving a bailout equal to 57% of its GDP!!!
And somehow another 130€ billion is going to get this country back to economic growth in two years' time? Greece hasn't experienced any growth in five years.
Again, this entire deal is just stupid. And all it's done is alert Spain and Italy to the fact that handing over fiscal sovereignty and implementing austerity measures in exchange for bailouts is a waste of time.
As I wrote several weeks ago:
Meanwhile, on the other side of EU equation, Spain and Italy must be watching what's happening in Greece and asking themselves whether they want to go through this whole process of negotiating for bailouts via austerity measures.
Both countries have already had a small sampling of the austerity measure medicine. Spain recently implemented a meager 19€ billion in austerity measures while Italy passed 30€ billion in austerity measures in 2011... hardly a drop out of their respective 1.06€ trillion and 1.5€ trillion economies.
Yet, even these tiny moves resulted in protests and riots. One can only imagine what Spanish and Italian politicians are thinking as they witness the widespread civil unrest, country-wide strikes, and economic depression that have occurred in Greece as a result of that country's full commitment to the EU's austerity measure demands.
Spain's official Debt to GDP is only 64%, but its private sector debt is at an astounding 227% of GDP. And the Spanish banking system is leveraged at 19 to 1 (worse than Greece).
Moreover, the country is already experiencing an economic Crisis with an unemployment rate of 20+% and an economy that has been contracting since mid-2011 (in fact Spain's GDP just actually went negative in the first quarter of 2012)...
So... we must consider that it is highly likely the option of simply defaulting is being discussed at the highest levels of the Spanish and Italian government. Should either country decide that austerity measures don't work and it's simply easier to opt for a default, then we are heading into a Crisis that will make 2008 look like a joke.
Well, Spain just woke up and smelled the coffee:
Spain's sovereign thunderclap and the end of Merkel's Europe
As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).
Taking what he called a "sovereign decision", he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).
In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.
With condign symbolism, Mr Rajoy dropped his bombshell in Brussels after the EU summit, without first notifying the commission or fellow EU leaders. Indeed, he seemed to relish the fact that he was tearing up the rule book and disavowing the whole EU machinery of budgetary control.
So... if you still think the Greek PSI matters in any way, you're not thinking past the next 24 hours. Spain has just told the EU to "shove it." Having seen Greece enter a depression and get pushed around by Germany and France for two years, Spain's just told the EU that it's not going that route.
So... if Greece, whose economy is roughly the size of Massachusetts, nearly took down the European banking system... what do you think will happen when Spain decides to it doesn't want to play ball and would rather just default.
Hint: It will be Lehman times ten.
Labels: Crash, Crisis Crash, Default, depression, Euro Collapse
Monday, March 05, 2012
You Cannot Build a Strong Economy or a Bull Market on Fudged Numbers and Lipstick
Let's say that you just spent a large sum, to the tune of several trillion Dollars, bailing out various businesses that were literally run into insolvency by shortsighted and greedy business practices.
Having spent this money, your next concern becomes avoiding popular outrage as sooner or later folks will find out that this money was practically given away and that everyone else got a raw deal.
So, at that point your primary focus must become convincing the world that your policies worked and that you did in fact save the world.
How do you do this?
1) The businesses you bailed out need to appear successful and profitable again
2) The economy you "saved" needs to look to be in recovery
This is precisely the blueprint for what the Powers That Be have followed post 2009.
Regarding the bailed out businesses, the large banks are posting great profits by writing down bonds they own (and recording this as a profit) and by lowering loss reserves.
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $26.3 billion in the fourth quarter of 2011, a $4.9 billion improvement from the $21.4 billion in net income the industry reported in the fourth quarter of 2010. This is the 10th consecutive quarter that earnings have registered a year-over-year increase. As has been the case in each of the past nine quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings...
Fourth-quarter loss provisions totaled $19.5 billion, about 40 percent less than the $32.7 billion that insured institutions set aside for losses in the fourth quarter of 2010. Net operating revenue (net interest income plus total noninterest income) was $3.8 billion (2.3 percent) lower than a year earlier, due to a $4.4 billion (7.4 percent) decline in noninterest income.
http://www.fdic.gov/news/news/
Nevermind that most of these profits are illusory and that the policies used to create them (not thinking ahead but focusing on the near-term) are precisely what caused the 2008 Crisis. As long as headlines ready "great profits" all will be well.
Then of course there's General Motors, the other bailout darling.
GM's Crowded Truck Stop
A year ago today analysts rained on General Motors' parade. Wall Street's finest pointed out that GM's strong February 2011 sales were boosted by extremely generous incentives to customers. These turned out to be wholly unnecessary too: Japan's earthquake 10 days later wrecked competitors' supply chains. U.S. carmakers gained market share, slashing inventory and making record profits with solid pricing over the next several months.
While not wishing natural disasters on anyone, GM could use a deus ex machina of some sort this year. Not only did it lag every major carmaker last month with a mere 1.1% U.S. sales gain (fellow bankruptcy victim Chrysler notched 40%). But GM's dealer inventories are also at a post-bankruptcy record of 667,000 vehicles, up 29% versus a year ago and 59% compared to two years ago.
And it's the wrong sort of inventory to boot: With pump prices surging, GM has 116 selling days' worth of trucks gathering dust. Zero percent financing, anyone?
http://blogs.wsj.com/
In this situation, GM is seeing some sales growth, though it's the worst of any major carmaker. However, what the company is really excelling at is delivering cars to dealers, in a sense, maintaining the appearance of economic growth, when in reality the cars are just sitting on the lots unsold.
Here again, the "success" is illusory in nature.
As for the other issue, (making the economy you "saved" look like it's in recovery), you've got Government bean-counters with an entire arsenal of seasonal adjustments and other accounting gimmickry to make the economy look far better off than it really is.
Case in point, the BLS claims we ADDED 243,00 jobs in January. That's an odd claim given that the BLS admits, in the very same report, that without adjustments, the US actually LOST 2.69 MILLION jobs in January.
This is roughly a discrepancy of 3 MILLION jobs. And this 243,000 jobs number for January also comes along with upward revisions that saw roughly 50,000 jobs added in both October and November.
So according to the BLS, the US is on the upswing again, maybe not in a HUGE way, but overall things are improving: we're adding jobs and unemployment is falling (from 8.5% to 8.3%).
In the end, both policies (making the bailed out businesses look successful and the economy strong) essentially boil down to fudging the numbers. And whether or not people fully understand these issues, most Americans have a sense that the Government is lying to them about the "success" of the 2008 bailouts and the recovery.
Put another way, most Americans know that all this talk of recovery is just putting lipstick on a pig. They know that the economic reality facing the US is in fact far worse than the numbers claim. Heck, it's the people are on unemployment, food stamps, and are unable to find jobs that know the real situation in the US.
An equally dangerous problem is the fact that professional investors (institutions, hedge funds, traders) are investing based on this fudged data. We've already seen how this kind of situation plays out before (2007-2008). What happens when the REAL situation in the economy and the financial system comes home to roost? What happens when Americans' retirement accounts get decimated by yet another collapse as most asset managers and financial advisors have yet to even regain their 2008 losses.
Big hint: it won't be pretty.
Make no mistake, the entire "success" of the 2008-2009 bailouts and stimulus is just a mirage. And the people simply aren't buying it. Which is why they're pulling their money from the markets en masse (investors pulled $132 billion from Us-stock based mutual funds in 2011, that's only $15 billion short of the record amount they pulled in 2008).
Labels: Collaps, crisis, Default, depression
