Friday, October 28, 2011

German Constitutional Court Halts EFSF Approval, Issues Temporary Injunction On Further Bailout Decisions

The German constitutional court has already played a substantial role in the country's participation in the European bailout. Back in  September when noting the first participation of the court in the European rescue machinery we noted that "giving the Bundestag’s Budget Committee the final say over the use of the bailout fund is welcome from a democratic point of view, but will add another element of uncertainty to the eurozone crisis. However, so far the Budget Committee has consistently taken the government line on the bailout, albeit reluctantly, and it remains to be seen whether it dares to exercise its new power." It appears the court has once again decided to step up only this time not in a favorable light, after, as Spiegel reports, that the court has "issued a temporary injunction banning the nine-person committee in the Bundestag from taking any decisions on the deployment by EFSF of German taxpayer money." In addition to this, the Court also put the whole German fast-track approval process in jeopardy after it expressed "doubts about the legality of a new panel of lawmakers set up by the German parliament to reach quick decisions on the release of funds from the euro bailout mechanism." This is hardly the ringing endorsement the EURocrats needed to hear from the only power in Europe with the funds to keep the EMU together.

Citi Explains Why The Time To Fade The EUR Rally Has Come

Yesterday the short squeeze in the EURUSD brought the pair to within pips of Citigroup's revised stop loss of 1.4260 even as it got even more bearish on the European currency, setting a new target of 1.3150. Today the bank's FX strategists continue their onslaught, stating in a note that wonders how long the Euro-love will last that "The post-summit EUR rally is driven by a continuing squeeze in short risk positions and unwinding of worst fears of financial contagion, rather than improvement in cyclical fundamentals." Here are their full thoughts on why the time to short the pair, and thus the entire EURUSD-driven market, lower.

Was A Wrecking Ball Just Taken To The EU Taxpayer Bailout Agreement?

Dave in Denver at The Golden Truth - 26 minutes ago
Looks like the German high court has issued an injunction on the German Parlaiment's ability to deploy taxpayer money to fund the new EFSF funding agreement. Sourced from zerohedge quoting Spiegel Online: Germany's Federal Constitutional Court on Friday expressed doubts about the legality of a new panel of lawmakers set up by the German parliament to reach quick decisions on the release of funds from the euro bailout mechanism, the European Financial Stability Facility (EFSF). The court issued a temporary injunction banning the nine-person committee in the Bundestag from taking a... more » 

Politicians Have Delayed Addressing The Problem Yet Again

Admin at Jim Rogers Blog - 36 minutes ago
Politicians have delayed addressing the problem yet again. It will come back in a few weeks or a few months and the world will still have the same problem, but this time only worse because the European Central Bank and other countries will be in deeper in debt. Greece is bankrupt, but others are too, and these haircuts will have to come back and be wider. - *in MoneyNews* *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 ... more » 

Printing Money Is Postponing The Endgame

Admin at Marc Faber Blog - 49 minutes ago
Well, before sovereigns go bankrupt they'll print money, and they can print endless money, and as long as we have Ben Bernanke and Janet Yellen at the Fed, they will also print money, and they can postpone the endgame endlessly, endlessly not, but say for another five to 10 years. - *in CNBC* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

EU Debt Deal Not A Lasting Solution

Eric De Groot at Eric De Groot - 1 hour ago
Distribution in the Euro demands objectivity replace europhia towards the proposed EU debt deal. Euro ETF (FXE) Headline: Eurozone debt deal tackles symptoms, not cause Eurozone leaders are as far as ever from finding a lasting solution to the bloc’s underlying problem of economic divergence, despite their latest progress in managing the symptoms of its debt crisis. The complex agreement... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Wall Street Journal Editorial Page Dissects the European Bailout Plan

Trader Dan at Trader Dan's Market Views - 8 hours ago
I would like to recommend the commentary from the editors at the Wall Street Journal dealing with the proposal that came out of Europe yesterday; a proposal which launched a massive short covering squeeze in both the Euro and in the equity markets. Their editors are much more eloquent than I am but the crux of their analysis is in complete agreement with my own - all these leaders have done is to temporarily paper over a problem that will not go away until the root of this weed is pulled up and disposed of. That however requires unpleasant business that will no doubt engender a los... more » 

Euro Gyrates On Fitch Announcement Greek 50% Haircut To Be An Event Of Default

The reason why the EURUSD took a big step lower in the past minutes is because Fitch has come out with a note in which it has assigned an AAA rating to the amended EFSF program. That in itself is not an issue, what is however, to the market is the announcement that a 50% Greek haircut would be an event of default. That said this is not to be confused with an ISDA determinations committee ruling that CDS has been triggered: we now know this will never happen and is the reason why basis trades across the board are exploding as all sovereign CDS is effectively being unwound. Regardless, the market does not seem to be liking the fact that someone's head is not stuck in the sand. Fitch also adds that it is critical that ECB carry on bond purchases, something which neither the ECB nor Germany have agreed to. It also adds that Greek PSI deal is a necessary step, and that the effectiveness of the summit deal depends on details. This is important considering Greece was barely able to get 85% acceptance in its 21% proposed haircut. The 50% will be even more interesting. Fitch concludes that the market is likely to see further market volatility. That is a given.

Earlier today Italy had an extended bond auction in which it sold 3, 6, 8, and 10 year bonds. The auction did not go quite as planned. The reason: far less than the maximum €8.5 billion target was raised, all the Bids to Cover slid and all the yields soared with a particular emphasis on the 10 Year BTP which everyone is following with great interest as it sternly refuses to trade inside of 6% despite all the worthless promises with the word "trillion" in them, lobbed in Italy's general direction from Europe, which knows too well that if the Italian bonds complex goes, so does the rest of Europe. As Reuters summarizes: 'Italy paid the most since joining the single currency to sell new 10-year debt on Friday in the first euro zone bond auction after European leaders agreed new steps to tackle the debt crisis. The auction yield on Italy's March 2022 BTP bond rose to 6.06 percent from 5.86 percent a month ago."  So... when is the next "Italy bailout" summit?

Daily US Opening News And Market Re-Cap: October 28

  • Chinese vice finance minister said details on the expansion of the European bailout fund is still unclear, adding that purchases of EFSF bonds are not on the G20 agenda. Also, EFSF’s Regling said he does not expect to reach a conclusive deal with Chinese leaders during his visit to Beijing
  • The German Constitutional Court halted the use of a special parliamentary committee that was recently created to decide on changes to the Eurozone’s bailout fund in emergency situations
  • Meanwhile, a German senior coalition lawmaker said the Constitutional Court's decision means the EFSF secondary market bond purchases will be de facto impossible until a verdict, as Bundestag plenary cannot meet confidentially
  • Lacklustre BTAN auctions from Italy dented appetite for risk

Chart Of The Day: Savings Rate Drops To December 2007 Levels

Wondering how it was possible for Q3 GDP to post such a substantial beat yesterday driven by a surge in Personal Consumption expenditures? Wonder no more: in the last quarter, the US consumer literally tapped out, bringing their savings rate from a 2011 high 5.3% in June to 3.6% in September, after the BEA reported that while spending increase was in line with expectations at an unsustainable 0.6%, income was just barely above unchanged at 0.1% on expectations of 0.3% confirming that as far as the economy is concerned, the consumer is just getting worse and worse off. This is the lowest number since the depression started back in December 2007! The only problem is back then it had been lower and was rising in anticipation of the fallout from the Great Financial Crisis, this time it was modestly higher and is now plunging. Very soon deleveraging Americans, whose homes are getting cheaper by the day, will have no savings left to use for useless trinket purchases. How does GDP "grow" then?

Italy - Weak, But How Would A First Loss Insured Auction Work

With the EFSF, Italian and Spanish debt all creeping higher in yield today and a disappointing Italian auction, we take a deeper dive into the mechianics of the EFSF and the paradoxically weak impact it may have as sovereign risk deteriorates. The [EFSF] idea works well when people aren’t thinking there is a real chance of default, but as that increases, the EU may wish they had stuck to their original plan of having raised 440 billion of cash that they could lend directly.  Basically, if the markets deteriorate, the first loss protection, is worth more, but provides less leverage.

One Day After The Euphoria, Here Comes The Hangover

Now that the kneejerk euphoria, in which nobody had done any work, confirming that the only thing worse than a clueless Europe is an even more clueless market, over the non-bailout has ended, here is the hangover, courtesy of Tullett Prebon.

Berlusconi Battered As Bonds Break 6%

Presented with little comment as we note BTPs have broken the week's low prices and are significantly off their knee-jerk response highs.  It is clear that investors don't want to be too long BTPs into a weekend which will be full of research and thinking about reality as we broke the dismal Maginot line of 6% yield. Chatter of ECB buying came and went as it is very clear that managers and traders want out. The unintended consequence of banning CDS combined with an EFSF that is both self-referencing and paradoxically weakened as majors deteriorate is certainly not helping here.

Guest Post: Want To Defeat The Banks? Stop Participating In The System!

The common assumption amongst Americans is that nothing can be done without mass action resulting in “compromise” from leadership. That the healing of our cultural dynamic is a “top down” process. That one person alone has little at his disposal for bettering the world. In fact, it is always self aware and self sustaining individuals who build better societies, not angry mobs without understanding or direction. Individuals blaze the path that the rest of the world eventually follows, and they do this through one very simple and effective act; walking away. By walking away from the corrupt system, and building our own, we make the establishment obsolete. This philosophy could be summed up as follows: "Provide for yourself and others those necessities which the corrupt system cannot or will not, and the masses (even if they are unaware) will naturally gravitate towards this new and better way. Offer freedom where there was once restriction, and you put the controlling establishment on guard. Eventually, they will either have to conform to you, attack you, or fade away completely. In each case, you win. Even in the event of attack, the system is forced to expose its tyranny and its true colors openly, making your cause stronger."

A Brief Guide To The Euro Crisis
10/28/2011 - 00:56
  There are several things that you need to know about the eurozone crisis and Wednesday's Summit agreement: It isn't over. The European Monetary Union's (EMU) "architecture" is a failure. They...

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