EURCHF Crashing After Hours On Italian Bank Run Concerns
Less than an hour ago, Larry Kudlow tweeted the following: "Sources tell me Italy has to restructure bonds.Deposit run on Italian banks.EU will have to mount Tarp rescue.Big stress on interbank loans." Basically, this is the worst possible combination for Europe which means that another bailout is not only imminent but has to happen tomorrow. Incidentally Reuters is reporting of an emergency meeting between Sarkozy and Merkel and Zapatero on "the markets" which can only mean damage control following today's disastrous Trichet performance. Too bad the markets won't buy it any longer absent some actual actions to back up the deeds. Yet what we are more concerned about is whether or not there really is a bank run in Italy which would be the end of the euro. For that we went to the most trustworthy indicator for European "bankrunness" the EURCHF. To our surprise, the pair just plunged nearly 100 pips after hours, after dropping over 200 pips from intraday highs following yesterday's SNB intervention. Will this force the SNB to intervene again? Find out shortly. AS to what Sarkozy has up his sleeve, we will just have to wait and see when the European markets open in about 10 hours.
This Time Around, the Fed Will Be Powerless
08/04/2011 - 16:09
Harvey Organ, Thursday, August 4, 2011
Stock Market Bloodbath as Dow plummets 512 points/Markets freeze in Italy and Spain.
Summarizing Italy's Catastrophic Predicament In 15 Simple Bullet Points
The irony about the blow up over the past month in "all things Italian" is that the facts about its sovereign debt and viability profile have always been available for anyone to not only see, but make the conclusion that the situation is unsustainable. The fact that so few dared to do so only confirms that affirmative confirmation bias that dominates within 99% of the investing population. Sites such as Zero Hedge and others had been warning for over a year that the Italian "contagion" (which is a misnomer: Italy's lack of viability is perfectly-self contained: it does not need Greece or Portugal to blow up, and can do so perfectly well on its own, but the punditry certainly needs a scapegoat, in this case the incremental layering of "revelations" about how insolvent Europe is) and we have long presented primary source data confirming just how precarious the house of cards is not only in Italy but everywhere else too. Regardless, no matter how conventional wisdom got to the big picture revelation of just how ugly Italy's reality is (and don't think for a minute that Spain is any better) the truth is that the cat is not only out of the bag, but is widely rampaging through the china store (no pun intended), high on speed and methadone. So for everyone who still wishes to know why the Italian jobs is very much hopeless absent the ECB stepping in an bailout out the country, below is a succinct list of 15 bullet points courtesy of The Telegraph, which explains all there is to know about the country's current predicament. In retrospect we certainly can not blame Tremonti for wanting to get the hell out of there.Guest Post: The Debt Deal Con: Is It Fooling Anyone?
Alternative economic analysis brings with it a certain number of advantages and insights, but also many uncomfortable burdens. Honest financial research is a discipline. It requires us to not only understand the fundamentals, but to question the fundamentals. It requires us to look beyond what we would LIKE to see in the economy, and accept the reality of what is actually there. With this methodology comes the difficulty of knowing the dangers ahead while the mainstream stumbles about well behind the curve. It means constantly having to qualify one’s conclusions, no matter how factual, because the skeptics and opposition base their views on an entirely different set of rules; farcical rules that no longer (or never did) apply to the true state of our country’s fiscal health.Stocks Collapse, 2yr @Record Low, Rating Agencies Opinion Irrelavent as Global Capital Jumps from Ponzi Scheme to Ponzi Scheme
08/04/2011 - 16:58
Jim Sinclair’s Commentary
QE, be it of the front or back door variety, must go to infinity.
Stocks Tumble as Signs Point to Weak Global EconomyGRAHAM BOWLEY
Published: Thursday, August 4, 2011 at 2:07 p.m.
The stock market fell sharply Thursday on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s ongoing debt crisis, which is centered now on Italy and Spain.
As Japan intervened to weaken its currency and European stock markets turned negative across the board, United States stocks fell by around 3 percent in morning trading in New York.
By afternoon, the Standard & Poor’s 500-stock index was down 35.08, or 2.78 percent. The Dow was off 312.35, or 2.63 percent, to 11,584.09, and the Nasdaq was down 76.30 points, or 2.83 percent.
A fear haunting markets is that the United States economy may be heading for a double-dip recession. Even after a second major rescue package for Greece and the agreement to raise the debt ceiling in the United States, investors are worrying that world leaders have not done enough to address fragile underlying economic growth and Europe’s debt problems, which risk spiraling out of control.
Although the fractious debt ceiling debate is now past, markets fear spending cuts and weaker economic data point to a weaker economy. The latest weekly jobless data Thursday again showed the economy was still vulnerable.
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Jim Sinclair’s Commentary
It would be more correct to say markets slump on debt concerns of the entire Western world.
Global stock markets slump on eurozone debt fears
Global shares have dropped sharply for the second day as fears about the eurozone debt crisis intensified.4 August 2011 Last updated at 11:34 ET
New York’s Dow Jones index fell more than 2% in early trading, while Frankfurt’s Dax and London’s FTSE 100 indexes dropped more than 3%.
European Commission President Jose Manuel Barroso’s warning that the sovereign debt crisis is spreading spooked the markets.
Meanwhile, the price of gold hit a new record high of $1,677 an ounce.
More weak jobs data from the US also raised concerns about the strength of the economic recovery there.
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Jim Sinclair’s Commentary
Regardless of gold’s natural reaction from $1650, do not be concerned. The seeds of $1764 are well planted and watered.
Buyers will emerge in size should the middle to low $1500 occur in this reaction.
U.S. eats up most of debt limit in one day
$239 billion spike uses up 60% of funding OK’d on TuesdayBy Stephen Dinan
The Washington Times
5:05 p.m., Wednesday, August 3, 2011
U.S. debt shot up $239 billion on Tuesday — the largest one-day bump in history — as the government flexed the new borrowing room it earned in this week’s debt-limit increase deal.
The debt subject to the statutory limit shot way past the old cap of $14.294 trillion to hit $14.532 trillion on Tuesday, according to the latest the Treasury Department figures, which are released on the next business day.
That increase puts the government already remarkably close to the new debt limit of $14.694, which means one day’s new borrowing ate up 60 percent of the $400 billion in space Congress granted the president this week.
Debt numbers go up and down regularly, depending on what the Treasury Department is redeeming or issuing on any day, but have been on a steep upward trend for the past decade as spending has ballooned and revenues have fluctuated.
For the past 2½ months, though, the number essentially was frozen as the government was poised to reach the borrowing limit set by law. TheTreasury Department used extraordinary means to stall, but was about to run out of room on Tuesday.
With little time to spare, Congress and the White House managed to cobble together a deal to grant new borrowing authority: an initial increase of $400 billion, coupled with future increases.
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Jim Sinclair’s Commentary
QE to infinity. You have to love it.
ECB to protect Europe by buying bonds
The European Central Bank is expected to signal it is stepping into the eurozone debt crisis on Thursday by reopening its purchases of government debt, amid fears the turmoil will claim the economy of a nation that is “too big to bail”.
Officials on Wednesday night said the ECB’s monthly meeting was expected to see a reversal on the buying of sovereign bonds after 18 weeks of staying out of the markets, because of an EU institutional vacuum that threatens to drag down Italy and Spain, the region’s third and fourth-largest economies.
With EU officials scrabbling to fine-tune changes to allow the eurozone’s €440bn (£384bn) bail-out fund to intervene in the markets, central bankers are expected to reluctantly accept the precedent of allowing ECB bond buy-backs in May 2010.
Measures allowing the European Financial Stability Facility (EFSF), the bail-out fund created last summer, new powers to buy the bonds of struggling countries were agreed at an emergency euro summit on July 21 in an attempt to protect Italy (whose public debt and bank exposure is shown in the interactive graphic above) and Spain.
However, legally changing the basis of the EFSF and ratifying the changes in 17 eurozone countries, where the expanded fund’s role is controversial in German, Dutch and Finnish parliaments, could take weeks or even months, leaving a dangerous vacuum.
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Jim Sinclair’s Commentary
When did the debt crisis stop? It has been a rolling drama in the entire Western world.
Italy ETF Feeling Heat of Debt CrisisAugust 4th at 7:23am by Tom Lydon
An exchange traded fund tracking Italy was set for a lower open in the U.S. on Thursday as the country’s FTSE MIB Index fell over 2% after Prime Minister Silvio Berlusconi tried to calm markets.
In Spain, the Treasury sold bonds at higher yields but there was solid demand, the Associated Press reported. Still, the debt contagion is spreading to Eurozone’s third and fourth largest economies.
Yields on Spanish and Italian 10-year bonds have crossed over 6%, report Victor Mallet and RIchard Milne for Financial Times. Higher yields means that the countries will have to pay more to refinance old debt and raise new money.
Observers believe that the added stress may force the countries to line up behind Greece, Ireland and Portugal in accepting a rescue plan.
“There’s a kind of acceleration process going on,” said Edward Hugh, a Barcelona-based economist, in the report. “As the ship fills up with water, it gets more unstable.”
“It’s starting to be a little bit questionable when yields are well in excess of 6%,” commented Elisabeth Afseth, Evolution securities fixed-income analyst. “For the other peripheral countries, 7% has been seen as the upper limit.”
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Jim Sinclair’s Commentary
Here we go again. The crisis never ended, it was camouflaged by liquidity.
The coming crises of governmentsBy Robert Barro
August 3, 2011 10:00 pm
The global crises of financial and housing markets are now being superseded by new crises of governments. The fiscal challenges for the weaker members of the eurozone are early warnings, as are analogous problems in American state governments weighed down by unfunded pension and healthcare liabilities. Without action, this new crisis of state competence could soon become just as damaging as its recent financial predecessor.
This week’s US debt deal, along with the prospect of debate on fiscal solutions in the run-up to the 2012 elections, provides some room for optimism. But America’s fiscal problems have deep roots. The recession of 2007-09 stemmed from the unprecedented bust in the housing market, driven by reduced lending standards and propelled by congressional pressures on private lenders and the reckless expansions of Fannie Mae and Freddie Mac. It is, however, important to recognise that this mistake is now understood and will not be repeated.
In the aftermath of the debt ceiling agreement there will be calls for further stimulus for America’s economy. This would be a grave mistake. In the financial turmoil of 2008, bail-outs by the US and other governments were unfortunate, but necessary. However, the subsequent $800bn American stimulus package was largely a waste of money that sharply enlarged the fiscal hole now facing our economy.
President Barack Obama’s administration has consistently overestimated the benefits of stimulus, by using an unrealistically high spending multiplier. According to this Keynesian logic, government expenditure is more than a free lunch. This idea, if correct, would be more brilliant than the creation of triple A paper out of garbage. In any event, the elimination of the temporary spending is now contractionary and, more importantly, the resulting expansion of public debt eventually requires higher taxes, retarding growth.
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