Spain Caves, Admits It Needs European Bailout
And so those lining up at the bailout trough are now 4: remember all those lies Spain spoon-fed the gullible press that it didn't need a European bailout as recently as yesterday? You can now forget them. From Reuters: "Spain said on Tuesday that credit markets were closing to the euro zone's fourth biggest economy as finance chiefs of the Group of Seven major economies were to hold emergency talks on the currency bloc's worsening debt crisis. Treasury Minister Cristobal Montoro sent out the dramatic distress signal in a radio interview about the impact of his country's banking crisis on government borrowing, saying that at current rates, financial markets were effectively shut to Spain. Montoro said Spanish banks should be recapitalised through European mechanisms, departing from the previous government line that Spain could raise the money on its own and and prompting the Madrid stock market to rise. But his comments on Spain's borrowing sent the euro down after the 17-nation European currency earlier hit a one-week high against the dollar on expectations that a conference call of G7 finance ministers and central bankers may hasten bold action." Well, Germany got its wish: it got Spain to admit it is broke. Just as it wanted - because remember: all Germany is, is a true lender of last resort unlike the ECB: after all they are the decision makers. And Germany knows very well that it needs Europe desperate when it is forced to accept any conditions to the German DIP loan that Schrodinger Schauble proposes. Which means forget anything positive will come out of the G7, and certainly forget anything actionable will come out of the ECB's June 7 meeting. If anything, things will first get much worse, before things get better. And finally, don't forget just who benefits the most from EURUSD at parity or lower... That's right: Germany.
The Reign In Spain Is Over
Spain
has now officially asked the European Union for aid for its banks. The
markets seem to be responding as if the bank issue is isolated. It is
not isolated. We are following the same schematic as we did with
Ireland; first it was the banks and then it was the country and then the
“Men in Black” showed up to take over. Spain says it is a 50 billion
Euro problem and the reality is probably more like a 400 billion Euro
problem. There is all kinds of cross lending between the banks in Spain
and while Spain’s largest two banks have tried everything they could to
isolate themselves; I predict there will be no escape for anyone. Now
that Spain has asked for a bailout of their banks the European auditors
will show up and I would bet large money that the values of many loans
and the value of Real Estate and the securitizations tied to it will be
found to have been vastly overstated. Then it will be the regional
governments and their debts and the house of cards will implode. The
Spanish Finance Minister kicked off the first domino this morning and we
can all just stand by now and watch the rest fall.Compare the Cycles 1929-1944 and 2000-Present
Eric De Groot at Eric De Groot - 1 hour ago
1929-1944 & 2000-Present Comparison: S&P 500 to Gold ($/oz) Ratio
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Chinese Growth: Some Meaningful Indicators
Admin at Marc Faber Blog - 2 hours ago
Latest CNBC video interview.
Related: United States Oil Fund ETF (USO), United States Steel (X);
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*Marc Faber is an international investor known for his uncanny predictions
of the stock market and futures markets around the world.*
Be Very Worried About 2013
Admin at Jim Rogers Blog - 3 hours ago
Be very worried about 2013 and be very worried about 2014, because that’s
when the next slowdown comes. In 2002 we had a recession and in 2008, it
was worse because the debt was so much higher. The next time is going to be
even worse because the debt is so staggeringly high now. So if you are not
worried about 2013, please — get worried. - *in fyxnews *
*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 regu... more »
"Monetary Easing" Fixes Nothing
Stripped of acronyms and pseudo-economics, Central banks have one lever: monetary easing. Whatever the name offered for creating money electronically and suppressing interest rates, it boils down to making money abundant and cheap to borrow, at least for banks and other favored players, such as buyers of homes using 3% down-payment FHA mortgages. The problem is that easy money doesn't fix what's broken. Incentivizing debt and leverage does nothing to reduce leverage or debt, and incentivizing speculation does not reduce household debt loads or increase household incomes. And without improving household incomes, you have a recessionary economy held aloft by unsustainably profligate Federal borrowing and spending.
Is this a "solution"? No. Is this sustainable? No.
European Funding Chaos Resumes
With much of Europe's credit trading parents to the unruly equity trading children still on vacation, it is still clear that Europe's liquidity situation remains as critical as ever. 2-year EUR-USD basis swaps have pushed to new post-LTRO record lows
(its costs more now than in the last five months to create USD funding
from EUR for a two-year term). With performing collateral in
short-supply and a world awaiting the ECB to save the day, it seems odd that basis-swaps would be bleeding worse unless the reality is that the ECB is not about to put on its cape of invincibility.
European Banks are nothing but desperate to lock in term funding at
these premia and while hope prevails, it would seem the banks are indeed
preparing for the worst.Another Failed BOJ Intervention?
... or just another algo driven stop hunt? At this point does anyone even care?
Goldman Previews ECB "Hope For Best, Prepare For Worst"
Germany
remains vehemently opposed to any euro-wide deposit guarantee scheme
as the head of the association of savings banks believes it: "would lead to a spreading of risks to the detriment of German financial institutions" and that this would "increase the burden for national protection schemes, which is not in the interest of German banking clients". Not exactly encouraging and along with the fact that Goldman notes that Germany's 'growth plan'
(which includes increasing EIB capital and redirecting existing funds
to the periphery) with which it will attempt to bolster its opposition
to soaking up more peripheral risk, contains 'nothing really new in it'.
For this reason Goldman is far less sanguine heading into the ECB
meetings as they hope for the best and prepare for the worst. They expect
Draghi's forward-looking statements on being ready to act, conditional
on events in the periphery, will be the most important headlines
but expect him to remain stoic in his position on governments
contributing to the solution. Goldman's view remains that, at least for
the time being, the ECB has to play a leading role in stabilising the
system (though SMP remains marginalized given its potential to sit
outside of the ECB mandate) given that it can operate more quickly and
more effectively, given the many political constraints governments face.
A genuine long-term solution, however, falls once again in the domain of governments. So Much For The G7
- JAPANESE FINANCE MINISTER AZUMI SAYS G7 WILL NOT ISSUE A JOINT STATEMENT
- AZUMI: G7 DID NOT DISCUSS GREECE LEAVING THE EURO
- AZUMI: G7 AGREED WILL WORK TOGETHER TO DEAL WITH PROBLEMS IN SPAIN, GREECE - RTRS
- AZUMI URGED EUROPE TO EASE CONCERNS OF FINANCIAL MARKETS
- AZUMI: G7 AGREES TO COOPERATE TO RESOLVE SPAIN, GREECE PROBLEMS
Iran Gold Imports Surge - 1.2 Billion USD Of Precious Metals From Turkey in April Alone
Global gold demand continues to surprise to the upside – especially sizeable demand from the Middle East and China. Confirmation of continuing huge demand in China came yesterday with data showing that Hong Kong shipped 101,768 kilograms of gold to mainland China in April, up 62% on the month - marking the second-highest monthly exports ever. While demand from India continues it has fallen from the record levels recently but demand from other Asian countries is robust with reports of demand in Thailand, Vietnam, Malaysia and Indonesia. A new and potentially significant source of demand is that of demand from Iran. Iran imported a massive $1.2 billion worth of precious metals from Turkey in April alone. Turkish exports of gold, precious metals, pearls and coins to Iran rose to $1.2 billion in April from a tiny $7,500 a year earlier, according to figures released by the state statistics institute in Ankara yesterday. This is a massive increase in demand and suggests that there may be official involvement in the imports from the Central Bank of Iran.Frontrunning: June 5
- Spain says markets are closing to it as G7 confers (Reuters)
- Germany Pushes EU Bank Oversight (WSJ)
- Falling Oil Prices Are No Mystery (Bloomberg)
- Aussie Rises After RBA Cuts Rate Less Than Swaps Suggest (Bloomberg)
- Euro falls on Spain worries as market awaits G7 (Reuters)
- Bad News Piles Up for China's Economy (Bloomberg)
- Japan Lawmakers Push to Curb Central Bank (WSJ)
- Lawyer Kluger Gets 12 Years, Bauer 9 for Insider Trades (Bloomberg)
- All eyes on Wisconsin governor's recall election (Reuters)
- The Global Obesity Bomb (BusinessWeek)
A Sampling Of This Morning's Eurosis Schizophrenia
While the world patiently awaits, not even sure why because it is now absolutely guaranteed that it will be a huge disappointment, the G7 headlines which now appears to be merely an update session, and not one where any decisions will be taken, here is a sampling of this morning's schizophrenia out of Europe:- FINNISH FOREIGN MINISTER URGES ORDERLY GREEK DEFAULT: ZEIT
- FINNISH FOREIGN MINISTER SAYS GREECE NEEDS 2ND DEBT DEAL: ZEIT
- FINLAND'S TUOMIOJA SAYS NOBODY WANTS TO OUST GREECE FROM EURO
Overnight Sentiment: More Economic DetEUROration
Another day, another set of disappointing European economic data. While the final Euroarea Composite PMI index increased by one tick from the 45.9 Flash reading to 46.0 in the final, the prior revision was also upward from 46.5 to 46.7 thereby indicating that while things had not necessarily deteriorated much in the past 2 weeks, they did relative to benchmark. Also minutes ago German April factory orders printed at -1.9 on expectations of a -1.2 decline, and coupled with the prior revision from 2.2% to 3.2%, this confirms that the peripheral shakedown in Europe is impacting the core countries, as well as non-Eurozone targets increasingly more. This was confirmed when looking at the spread of domestic vs foreign orders. Again, per Goldman: "Domestic orders rose 0.4%mom after +1.8%mom, while foreign orders declined -3.6%mom after +4.4%mom. Within foreign orders, orders from the Euro area declined 1.8%mom after +0.9%mom, continuing the downward trend. Foreign orders from outside the Euro area declined +4.7%mom after +6.6%mom, still showing an upward trend (see chart below). There is no indication in these data that activity in the German manufacturing sector saw a sharp deterioration in Q2. Business sentiment, however, suggests that the sector is likely to lose some momentum going forward." Which means that once again, everyone's attention is now focuses on what external help can come: either from the G7 phone call in minutes, which will be a disappointment, or the ECB on Thursday, which we are confident, will also be a whimper, not a bang. As a reminder: there must be blood in the streets for coordinated intervention by both banks and fiscal authorities in Europe, for it to be effective.
And Now, Courtesy of Bridgewater... It's Italy's Turn
Earlier today, by way of a simple graphic,
the world's biggest hedge fund, Bridgewater, was kind enough to remind
the world just how pointless any debates about Europe's future
viability are if the primary funding conduit: the EFSF/ESM hybrid can
not provide the cash needed for even half the combined funding needs of Italy and Spain. Now, Bridgewater strikes at Europe once again, this time redirecting the general attention to where it is long overdue: Italy. Beijing Alone Has 50% More Vacant Housing Than The US
Putting some housing things into perspective. From the (less than credible) NAR: "Total housing inventory at the end of April rose 9.5 percent to 2.54 million existing homes available for sale"... And on the other side of the world: "The Beijing Public Security Bureau Population Administration Department said yesterday that vacant houses are 3.812 million."Today’s Items:
According to the Bank of International
Settlements, the total size of derivatives, as of the end of Q4 of 2011,
that was recently released, is over 647 trillion dollars. The collapse
of the euro below 1.2 could trigger an event that would make Lehman look
like chump change.
It appears that “Surprise” can now be
interchanged with “Unexpectedly.” Anyway, new orders for U.S. factory
goods feel when overpaid economists were expecting a 0.2 percent
increase. Outside transportation, orders dropped 1.1 percent and
machinery down 2.9 percent. Don’t you just love this recovery?
Deflation is in almost all cases a side
effect of a collapse of aggregate demand. The aggregate demand for goods
and services is markedly declining all across Europe. The banking
systems, not just in Spain, is in tatters and bank lending is eroding
significantly. The solution, many central banks will embrace of course,
is money printing to stop it; however, this will lead to inflation.
Officials in the Navy, believe that a new
class naval vessel will be the answer to the emerging Chinese fleet.
This ship will have advanced stealth technology to slip past Chinese
sensors to start a war. It was originally estimated to cost $3.8
billion, but with inflation, congressional earmarks, and an extra cup
holder, the price has nearly doubled.
Because nickles, made with 75% copper,
have not changed their physical make-up, nickels are perhaps the best
coin to stock up on in regards to copper. The only exception to the
nickel make-up was the World War II nickels and they were made of
silver. Anyway, because of uniformity, nickels will be better to
barter with than even pre-1982 pennies. Keep stacking!
Smart money is getting the out of paper.
In fact, American Eagle gold bullion coins in May rose 158%, over the
total number purchased in April. In April, 19,000 were sold while in May
it was 49,000. Keep stacking!
With life expectancies increasing and
disability payments, is it any wonder that Social Security is all but
broke? The original intent was to be a small pension for those who lived
beyond the average life expectancy. Because of the debt situation,
expect legislation that will greatly curtail, or even eliminate, all
social security programs, on a world wide scale.
Here are a few…
1. Use it as a fire extinguisher
2. Use it as toothpaste
3. Use it to treat insect bites
4. Use it to clean to off fruit and vegetables.
1. Use it as a fire extinguisher
2. Use it as toothpaste
3. Use it to treat insect bites
4. Use it to clean to off fruit and vegetables.
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