Greece Is Europe: The Failure Of The Euro

Posted by: Econophile

Post date: 06/23/2011 - 02:38

The eurozone is in serious trouble and Greece is just a symptom. Whether or not they default on their debt may not matter as similar problems plague Spain, Ireland, Portugal, and even Italy. The European Monetary Union is built on a house of cards and they don't have the time for needed radical reforms. Like all sovereigns who owe more than they can pay, they will resort to monetary inflation to bail themselves out. This article explains how the EMU works, why it is failing, and why they will resort to fiat money printing to solve it. 

 

 

 

 

Debt Ceiling Talks Collapse 

Submitted by Tyler Durden on 06/23/2011 10:24 -0400

5 weeks ahead of the day when the debt ceiling "extend and pretend" plan ends, talks have broken down, and in order to hike Congressional Nielsen ratings, this time seemingly terminally. From Reuters: "U.S. Deficit-reduction talks led by Vice President Joe Biden have reached an "impasse," House of Representatives Majority Leader Eric Cantor said on Thursday, adding that he will not participate in the meeting of the bipartisan group that had been scheduled for later in the day. Cantor, a Republican, said the group has identified trillions of dollars in spending cuts, but had been unable to resolve a disagreement over tax increases Democrats sought. A Senate Democratic aide said the two sides "need to continue talking", and were continuing to talk. But an aide to Senator Jon Kyl, a Republican member of the Biden group, declined to comment on whether the senator would attend Thursday's scheduled meeting."

Bernanke Lies Half Life Reduced To Under One Day As Aflac Scrambling To Shore Up Liquidity On European Exposure 

Yesterday during his press conference, the Chairman uttered his latest lie: "We have asked the banks to essentially do stress tests and ask, looking at all their positions, all their hedges, what would the effect on their capital be if -- if Greece defaulted...The answer is that the effects are very small.” Enter Aflac to prove that the half life of Bernanke's lies is now under 24 hours. From Bloomberg: "Aflac Inc. (AFL), the largest seller of supplemental health insurance, may issue as much as 100 billion yen ($1.24 billion) in debt as it records losses tied to investments in banks from Greece, Ireland and Portugal. Second-quarter losses on the assets will probably be about $610 million, the Columbus, Georgia-based insurer said today in a statement." Additionally, Aflac CEO Amos has added invesments in public utilities and Japanese government debt to minimize the company's exposure in Europe. Yet what is truly hilarious is that as the EFSF's spokesman Christof Roche just announced in commenting on the sale of 2016 bonds from the CDO, "Asian investors bought 46.5% of the bonds issued yesterday." In other words, by transferring exposure to Japan, Aflac is merely gaining exposure to Europe through yet another insolvent government. But such is life in the unwind phase of the biggest global ponzi ever conceived, in which the smallest mark to market event on the global financial balance sheet in which everyone's assets are someone's else liabilities and vice versa, will launch the biggest house of cards collapse in history.

Greece Tensions Escalate As Labor Unions Call For Two Day General Strike On June 28-29 To Celebrate Austerity Vote 

Submitted by Tyler Durden on 06/23/2011 11:01 -0400

The last time Greece had a full day strike was a week ago on June 15, when labor unions decided to cut another 0.15% from Greek GDP by doing absolutely nothing, and events on Syntagma square reached the highest level of violence so far in 2011. And unfortunately for the Troica, Greece seems to have realized that the best way to make sure the bailout program craters is by continuing to miss all IMF output and production targets. As a result, as Athens News reports, "according to the General Confederation of Workers of Greece (GSEE) and the civil servants' umbrella federation Adedy, the 48-hour strike is an escalation of their recent industrial action comprising 24-hour nationwide strikes in protest of the medium-term programme. A main demonstration will be held on Tuesday, June 28, at the Pedion tou Areos park in central Athens at 11am, while on Wednesday another demonstration will be held in downtown Klafthmonos Square." As a reminder June 28, is the far more critical Greece austerity vote, which unlike the vote of confidence in G-Pap, already has several PASOK members saying they will vote against it. 

 

 

 

 

 

An Ugly Day For "Rose-Colored Glasses" Haute Couture 

Submitted by Tyler Durden on 06/23/2011 10:01 -0400

The big question is how many people are long stocks because they played the 200 day moving average bounce?  We have had at least 3 chances in the last week for investors to buy the moving average.  It seems like a lot of people had stopped buying the dip during the relentless march down for stocks, but everyone seemed to jump on the bandwagon that the 200 DMA was a big support for stocks.  I think a lot of investors got sucked in and allocated capital and are now weak longs.  One group waited until Tuesday when the market really seemed strong and 'was destined to test resistance at 1300' before buying in.  The other group of weak longs are those who typically don't play technicals but found the 200 DMA bounce theory too compelling to resist.  It is always difficult to trade when losing money, but the ability to make really dumb decisions goes up when we have positions that were put on for reasons that we don't normally follow.  The technicians are used to these trades, it is what they do.  The 'fundamentalists' are not and are more likely to react badly to losing money here.  People must be scratching their heads a little, since it seems, according the rose colour glasses world i)  Greece fixed, ii) Contagion avoided, iii) economic soft patch is only a soft patch and no risk of double dip, and iv) Bernanke will be there for us. 

 

 

 

 

You Have Just Entered The Onion Zone: Irish Finance Ministry To Sell "Ireland Is Not Greece" T-Shirts 

Just when you thought you had seen it all... 

 

 

 

 

 

1 Month Bill Offered At -0.005%; 3 Month At 0.000% 

Submitted by Tyler Durden on 06/23/2011 09:32 -0400

Well, it's not quite the negative Bill prints we saw right after Lehman, but the second someone lifts that offer in the 1 Month, Americans will revert to paying the Treasury for the privilege of it holding 1 Month paper. Of course, the last time the 1M was on the verge of being negative, the S&P was at 666. We are now double that. What happens should stocks plummet by 50%, without the Fed withdrawing the massive amounts of liquidity still sloshing out there: -0.5%? -1.0%?

The Bull (Micro) Vs Bear (Macro) Case Summarized 

Submitted by Tyler Durden on 06/23/2011 09:09 -0400

Courtesy of Wolfe Trahan, we share one of the best summaries of the current market sentiment spread, which can be summarized simply as a still bullish micro picture, contrasted with an ever deteriorating macro picture. As WT states: "Throughout 2011, investors have been very creative in explaining away market activity by pointing to one-off events such as weather, floods, tornadoes, earthquakes and even sunspots. While there is some truth to these statements, none of them fully explain the fact that a global slowdown has been underway for a few months now. The most recent one is that the supply-chain disruption stemming from Japan is about to rectify itself creating a tailwind that will accelerate world growth faster in the second half. While we are certainly set to see a snap-back in some areas of the economy (i.e., auto production) in the coming months, the problems facing economic prospects affect the entire economy and will likely overwhelm. We continue to hear a positive tone from company managements and the "bottoms-up only" crowd; however from the 10,000 foot view, the economic outlook is far from bright and sunny." Graphically, this looks as follows. 

 

 

 

 

 

EURCHF Tumbling, Prints Fresh All Time Low Of 1.1914, Commodities Plunge (Update: Scratch That, New Low Is 1.1875) 

Submitted by Tyler Durden on 06/23/2011 08:41 -0400

Wonder what is happening with Greek deposits? Nothing good, at least nothing good for Greek banks. And it is not just Greece: all of Europe is scrambling into the relative security of Switzerland where the EURCHF just hit a fresh all time low of 1.1915, and likely to drop much lower. And the FX massacre has just spread to commodities where everything is screaming "Risk Off." 

 

 

 

 

 

Big Miss In Initial Claims, Print 429,000 On Expectations Of 415,000, Downward June NFP Revisions Coming 

Submitted by Tyler Durden on 06/23/2011 08:38 -0400

The soft patch may need to order a lifelong supply of Viagra soon, as the economic news continues going from bad to worse: Initial Claims just printed at 429,000 on expectations of 415,000. Prior was naturally revised higher, the n+1 such revision, from 414K to 420K. Continuing claims also missed the consensus of 3670K coming at 3697K, although in yet another BLS spin job, the number will be presented as a drop, since the previous number of 3675K was revised to, wait for it, 3698K, a one week sequential drop of 1K in continuing claims. The week ended June 4 saw the first spike in recipients of extended claims, with both EUCs and Extended Benefits rising by 68K. Bottom line, this is the 11th consecutive week of 400K+ Initial Claims, which likely means that the June NFP will be revised substantially lower. The state by state analysis showed that not a single state had a decline of more than 1000 claims, while 13 state had a greater than 1000 increase in claims, with the biggest hit being Pennsyvlania and California, at 6,019 and 3,884, due to layoffs in the service, manufacturing and transportation industries.

 

China Hard Landing Bets Rise As It Now Costs More To Bet On Renminbi Strength Than Weakness 

Submitted by Tyler Durden on 06/23/2011 07:57 -0400

About a week ago, Goldman Sachs closed its tactical short USDCNY Non-Deliverable Forward trade, which was opened on June 10, 2010 and which expired a year later for a 4.2% gain. Goldman added: "Our view has not changed. The necessary adjustments to global imbalances demand a weaker US Dollar, and especially so vs the CNY. The cyclical and political backdrop remains supportive along those lines. Moreover, we expect $/CNY depreciation to continue/extend in the months to come. We remain positioned for the theme via our $/CNY NDF recommended Top Trade with longer initial maturity, expiring on 4 December 2012." Nonetheless, something appears to have shifted in the derivative CNY market, where as Bloomberg points out, it now costs more to bet on RMB weakness than strength. It adds: "China appears headed for a hard landing as the country’s housing market shows more signs of weakness. Currency traders have reduced their expectations for more appreciation of the yuan versus the dollar in the derivatives market, meaning they expect Chinese policy makers to fundamentally shift their approach to the currency due to economic softening. Other markets may soon follow currency’s lead." As the attached chart shows the USDCNY 3 Month 25 Delta Risk Reversal for the first time since September 2009, there appears to be some outright bearishness on the renminbi appreciation scenario. Does this mean that yesterday's decline in the official fixing rate to 6.4736 on Thursday, lower than the record high of 6.4683 on Wednesday is more than a one time adjustment and is the start of a new trend? We will find out soon enough.