Saturday, October 29, 2011

Portugal Is Next: Improverished PIIG Demands US Assistance, Debt "Haircut" To Come Next

It has been just over 48 hours since our call that PIIGS the world over will scramble to demand the same concessions that were just granted to Greece courtesy of its economy being in the toilet and getting worse (thanks to lies to misrepresent the Greek economy as being worse than it really was). We already got Ireland yesterday. Now it is Portugal's turn. Reuters reports that "Portugal asked Mexico on Saturday to tell fellow G20 members next week that the United States should offer "financial help" to resolve the euro zone sovereign debt crisis, describing it as a "systemic and global" problem, a Portuguese government source said." Of course, the "US" is a clear proxy for "everyone else" - that the US, whose politicians can't agree on a fiscal stimulus for the US, let alone for some country by the straits of Gibraltar they have never heard of, will not move an inch to save Portugal is a given. Which means that once Portugal is, as it anticipates perfectly well, shut down by the US it will commence demanding for help from those who at least can grant it - the EMU and the Eurozone. And when those refuse, Portugal will do the glaringly obvious: take a page right out of the Greek textbook and proceed to suicide its own economy. And why not - it worked miracles for Greece. Now: two down and two to go. The only question is when does Italy do precisely the same logical next step, and tell the world that its $2+ trillion in debt, the second most in the Eurozone after only Germany, is unsustainable, and will need a modest haircut. 20% should do it. We wonder, what will that do to French banks (and their "perfectly hedged" US proxies - such as MF Global and others)?

Another Eurozone Country Bites the Dust
10/29/2011 - 15:32
Real estate is Cyprus' national sport sponsored by dumb money—foreigners. But now it's unraveling the finances not only of expat owners but also of the banks and the government.

Xtranormal Explains The European Non-Bailout Best - With A Cartoon

While it is not the bears doing the explaining in this latest all too realistic summary of the European non-bailout, it is the next best thing.

Guest Post: One Way To Understand The EU's Inevitable Crash Landing: The Autopilot Analogy

Recent anecdotal evidence out of Asia suggests that the flight training received by some civilian airline pilots is based entirely on the aircraft's autopilot functions. Recall that an autopilot is a mechanical, electrical, or hydraulic system used to guide a vehicle without assistance from a human being. This deficiency in their training has been revealed in a most disconcerting fashion: when the aircraft's autopilot malfunctions, the pilots do not know how to actually fly the airplane. In other words, pilots are not actually trained to fly aircraft, i.e. to know how the aircraft responds in real time to actual human intervention/control; they're trained to monitor and manage the autopilot system which does the actual flying. This is a precise analogy for the European Union's leadership: they don't know how the financial system actually works, they only know how to follow the banking system's autopilot. Now that the financial system's autopilot has been fried, they are clueless and increasingly panicky: what does this lever do? Why is the stick so sluggish? We're losing power... there must be an auxiliary power switch, like in Star Trek... Good God, doesn't anyone know how to actually fly this thing? Sadly, the answer is no. The EU leadership, just like that of the Federal Reserve and the U.S. government, only know how to blindly follow the system's autopilot program: increase leverage and debt, keep interest rates low so everyone (and every nation) with a pulse can increase their debt load, and let high-frequency trading (HFT) programs goose the stock market ever higher.

The headline GDP number was apparently enough growth to completely erase all thoughts of any renewed recession. However, most of us know that one quarter is not a trend and that the quarterly numbers are often statistically adjusted beyond something non-statistically meaningful. If we look at the headline numbers in sequence, it certainly seems that the economy is picking up from the weak first half. From these numbers it looks as if the economy slowed in the middle of 2010, hit a bottom in the first quarter of 2011, and has rebounded through the rest of 2011. I have little doubt that the economics profession has assumed a lagged effect from monetary stimulation, meaning the data largely confirms QE’s stated goals. From this interpretation, it looks as if Bernanke and his crew were exactly right to begin just when conditions were deteriorating and we are now set to bask in the successful afterglow of monetary intervention. A funny thing happens, though, when you remove the seasonal adjustments. This data presents an entirely different picture of the economy. From this point of view, GDP growth peaked toward the end of 2010 (just when QE 2.0 was announced) and has been decelerating ever since. The economy’s deceleration matches perfectly the increase in the price index, the BEA’s uneven proxy for inflation. Intuitively this makes far more sense, and from that we can draw far different conclusions about the efficacy of monetary interventions.

Forget The Unknown Unknowns: Just The Known Unknowns In The Eurozone Crisis Paint A Dismal Picture

While only the market, and no one else, seems to have a grasp on the unknown unknowns in the Eurozone crisis, and has voted two toes up, despite really having no clue what is coming for Europe, here is a report from Exclusive-Analysis that summarizes the known unknowns, and comes up with a bleak conclusion: "We remain very doubtful that the relative optimism that has followed the EU summit will last. Last time, the 10th of October, following a Berlusconi announcement of austerity in the previous week, it took markets only a few days to distinguish between the detail of what was agreed and the more optimistic  principles that were announced." So as everyone scrambles to figure out what is still missing from European bailout plan, perhaps focus on what is already present, because if that is any indication, the Thursday rally is nothing but yet another confirmation of just how broken the market as a discounting mechanism truly is.

2018: Europe At War

The date is October 29, 2018, and Britain faces its darkest hour. On the battlefields of Europe, our Armed Forces have been humiliated. In makeshift prison camps on the continent, thousands of our young men and women sit forlornly, testament to the collapse of our ambitions.From the killing grounds of Belgium to the scarred streets of Athens, a continent continues to bleed. And, in the east, the Russian bear inexorably tightens its grip, an old empire rising from the wreckage of the European dream. Yesterday, after a run of military defeats unequalled in our history, the Prime Minister offered his resignation. There is talk of a National Government, but no one has any illusions of another Churchill waiting in the wings. In suburban streets across Britain, old men and callow teenagers are digging defensive positions in the cold autumn air. But with equipment scarce and ammunition non-existent, the Home Guard would barely last a week. And all the time, across the Channel, enemy forces make their final preparations for the inevitable invasion. Some talk of surrender; no one speaks of victory. Less than ten years ago, millions still believed in a peaceful, united Europe. How did it come to this? When future historians look back on our humiliation, they will surely judge that the turning point was the last week in October 2011. Largely forgotten today, the main event was yet another interminable European summit in Brussels — the 14th attempt to ‘save the euro’ in just 20 months. Hoping to secure German support for a massive one trillion euro rescue package, Chancellor Angela Merkel gave her parliamentarians a chillingly prescient warning. ‘No one should believe that another half century of peace in Europe is a given — it’s not,’ she said. ‘So I say again: if the euro collapses, Europe collapses. That can’t happen.’ At the time, many observers scoffed that she was being absurdly melodramatic. But, seven years on, no one is laughing.

Guest Post: Mario Draghi, Hawk For Whom?

With ex-­?goldmanite ‘super mario’ at the helm of the ECB, expect more money printing, a two tier banking system, and a bigger role for the IMF. After 8 years of Jean-Claude Trichet, the ECB gets a new face: the Italian Mario Draghi. From his recent statements in the press and elsewhere, many assume he will rather be a ‘hawk’ than a ‘dove’, meaning that Draghi will only print little money and will not lower interest rates aggressively. But a look into the past of this man makes us wonder: hawk for whom?

Food for thought
Bruce Krasting
10/29/2011 - 11:00
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