As Greece Denies, Germany Begins Greek Default Preparations

Literally seconds after the Greek finance ministry announce that any rumors of a Greek default over the weekend are absolute rubbish (we wonder who would admit such rumors?), we get the following from Bloomberg: "Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said. The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said. The existence of a “Plan B” underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress." Looks like at least one very "naive" government is not buying the latest batch of lies from Greece.

 

 

The Worldwide Historic Shift

Admin at Jim Rogers Blog - 53 minutes ago

Topics: Western decadence, lost decades, debtors, creditor nations, China; *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.* 

 

 

 

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Obama`s Job Plan Is A Complete Joke

Admin at Marc Faber Blog - 1 hour ago

The package is another complete failure of Keynesian economics and corrupt interventions. This all amid talk of deficit reductions. The package is a complete joke. - *in CNBC* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

European Liquidity At Worst Level In Years

While it is not all too surprising in light of news that Greece may be insolvent in 48 hours, that the ECB is about to commence printing with the abandon of a drunken chairsatan, and that New York has a "credible threat" of another terrorist attack, it is a fact that liquidity across virtually every European vertical is now at its worst levels in years, starting with the EURIBOR-OIS (or interbank/central bank funding spread), which soared by 6 bps to 81.2, or the most since March 2009, the 3M USD LIBOR rising for the 34th day in a row to 0.338% at multi-year highs, and with deposit facility usage at the ECB rising to a new one year high of €172.9 billion, an increase of €7 billion overnight. Of particular note is the dramatic deterioration at Credit Agricole overnight which hit 0.4% in the 3M USD Libor, far worse than the "self-reported" dollar funding at Barclays and RBS which as we reported earlier, are perceived as the riskiest European banks should the inevitable bond haircut take place. Just as Dexia long-CDS was the slam dunk trade of H1, is CA poised to be the H2 one?

EUR breaks July Lows as GRE/PTE CDS Surge

Peripheral country bond yields (and CDS) continue to rise unwaveringly towards the endgame where European leaders are forced to actually do something as opposed to paper over gaping cracks with piecemeal solutions that are seen through by market participants within hours of release. Greece 5Y CDS rose 210bps to 3235bps (running equiv.) Portugal 5Y CDS rose 50bps to 1110bps. Perhaps more worryingly Germany 5Y CDS rose 3bps to 81bps as we see similar risk transfer transmissions as were evident during the US (private to public) crisis three years ago. EUR just broke through the mid-July lows of 1.3837, taking it back to mid-March lows.

G7 Considers Issuing Communique: Global Easing Imminent After All?

A few days ago we mocked Morgan Stanley's call that the G7 would proceed with a global easing episode over the weekend. We may have been slightly premature. From Reuters: "Group of Seven finance chiefs meeting in southern France are considering issuing a communique after their talks, a G7 source said on Friday.  G7 chair France had said there would be no communique from the talks, but the source said the issue was now being debated and there was a 50 percent chance of a statement.  The source said if there was a communique it would talk about the global economic slowdown, financial market turmoil and the policy tools different countries could use, but it would not make any reference to concerted interventions."

"Inventory Stuffing" Hits 9 Month High

There is just one relevant data point in today's Wholesale Inventories report (which came at 0.8% in July, in line with expectations of a 0.7% increase), and up from 0.6% in June. And it is called "inventory stuffing" as the ratio of inventories to sales just hit 1.17, the highest since October 2010. All that hollow GDP growth is catching up with companies, and sooner or later, FIFO/LIFO liquidations follow.

It's Official: Stark Is Gone

Today, Jürgen Stark, Member of the Executive Board and Governing Council of the European Central Bank (ECB), informed President Jean-Claude Trichet that, for personal reasons, he will resign from his position prior to the end of his term of office on 31 May 2014. Mr Stark will stay on in his current position until a successor is appointed, which, according to the appointment procedure, will be by the end of this year. He has been a Member of the Executive Board and Governing Council since 1 June 2006.

ECBCTRL+P: The Next Steps In The European Implosion

Wondering what is next for Europe? Don't be. With Jurgen Stark, aka the last real hawk at the ECB, gone, here comes "the printing." SocGen's Dylan Grice explains.

Corporate Bond Downgrades Outpace Upgrades For First Time Since Q1 2010

We have been discussing the indications being sent by the credit markets and the turn in the credit cycle that appeared to be developing. Just to add to the pile of cyclical turn indicators, we note that the number of corporate bonds receiving S&P credit rating downgrades exceeded upgrades this quarter for the first time since Q1 2010. Obviously, this is led by the high-yield names but the withdrawal of liquidity often rapidly pushes crossover names closer to the edge and inevitably leads up the capital structure and quality spectrum.

Market Chatter Of Greek Default Over The Weekend

This email is making the rounds and catching most traders' attention:

From colleague: trader friend just hit me with the following: There is “Chatter” in the market of a Greek Default this Weekend - and their CDS is over 400 wider…  Soc Gen is off 7% on exposure - German CDS more expensive than UK;s - despite the ballooning in the CDS prices for Lloyds and RBS.

In other news, Reuters is reporting that Stark is about to retire; with announcement to come after the German market close according to sources. His potential departure is due to a conflict over ECB bond buying according to sources.

CME Hiked Cleared OTC London Gold Forward Margin By 40% Yesterday

There is much talk of a gold margin hike this morning. For one thing this is not news: it happened early afternoon yesterday. Second, it impacts a relatively innocuous contract. But of course, in the footsteps of the Chairman, at this point it is not what one does, but what one promises to do. As such this move is seen as merely a telegraphing of what the CME will do to GC should gold spike over $1900. We say do it already, and make gold margin 100%. What will the CME do then when everyone moves to trade the contract in Asia, or is happy to trade with 100% cash collateral?

Global CDS Rerack: All Red

Cue popular REM song...

On Sounding Like A Broken European Record

Short dated Greek bonds remain weak. They have not bounced. You can buy the 2 year bond at 50. With a 4% coupon, that is 8% current yield with the chance to double in price in 2 years. Clearly the bond market is expecting a default or massive write-offs for Greek debt. I have heard the argument that equities must be pricing that in at this stage. That is possible, but I find more equity people believe that "something" will be done to avert default than credit people. Looking back at 2007 and 2008, it often seemed like equities had to be hit over the head with a stick before they would price in problems in credit. Stocks hit their high in October 2007 - after strong signs of problems in the credit markets had appeared. They also managed to shrug off the Bear Stearns problems after JPM bought them and rallied hard after that, completely missing the impending doom of FNMA, LEH, GM. I would not feel comfortable that stocks have "priced in" the problems in Europe. I think they have failed before on credit problems and with such a high percentage of daily volume just "churn" from traders and computers who go home flat every day and funds trying to avoid showing a monthly loss, the value of stocks as a pricing mechanism seems diminished.

Global Currency Wars Sees Swiss Franc Devalue 8.5% Against Gold In Week

It was a momentous week for markets and the ramifications of the German constitutional court decision and the SNB currency intervention have yet to be realized. The German constitutional court decision has effectively ruled out Eurobonds which has massive ramifications for the European monetary union and the euro. While promoters of Eurobonds suggest that Eurobonds may still be possible – most objective analysts believe they are now highly unlikely. The SNB decision to peg the Swiss franc to the beleaguered euro, thereby effectively devaluing the franc, stunned currency and wider financial markets. It is one of the most significant currency interventions in modern history and led to violent volatility the like of which have never been seen in foreign exchange markets. Incredibly and not widely reported the Swiss franc fell more than 7% against the euro, dollar and gold in just 15 minutes (putting gold’s relatively minor recent price fall into context). Such volatility in currency markets was not seen during 911, the Lehman’s collapse or for any other major macroeconomic or geopolitical event in modern history. The collapse of the Swiss franc in minutes greatly surpassed the collapse of sterling seen on “Black Wednesday” in 1992, when the British pound fell by 2.7% against the German mark on one day.

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