Greece risks financial Armageddon while Ireland makes cuts
by ilene - December 13th, 2009 10:07 pm
Greece risks financial Armageddon while Ireland makes cuts
Courtesy of Edward Harrison at Credit Writedowns
The Irish government announced draconian spending cuts of 6 billion Euros in order to stave off a debt crisis in the worst modern-day downturn in the nation’s history. Even so, Irish government
The Greek government, on the other hand, is not taking the same tack. Witness comments by the country’s Premier as reported in the Telegraph by Ambrose Evans-Pritchard:
Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state.
Nice sentiment. But what does that mean in practice? I see this as asking for trouble. The only way to interpret this statement is as a vow not to take the same draconian up to ten percent pay cut measures the Irish are now taking – ones that are likely to lead to strikes and social unrest. But, the reality is the Greeks have no other choice. Either make the cuts or face national bankruptcy. It’s as simple as that.
To be clear, these cuts will mean depression in Greece as similar measures in Latvia have done. Evans-Pritchard says:
Mr Papandreou has good reason to throw the gauntlet at Europe’s feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to
IMF plans. The prescription is ruinous and patently self-defeating. Public debt is already 113pc of GDP. The Commission says it will reach 125pc by late 2010. It may top 140pc by 2012.If Greece were to impose the draconian pay cuts under way in Ireland (5pc for lower state workers, rising to 20pc for bosses), it would deepen depression and cause tax revenues to collapse further. It is already too late for such crude policies. Greece is past the tipping point of a compound debt spiral.
Indeed, as I indicated in a recent post, market participants are talking openly of a bust-up in the Eurozone because of what is happening in Greece and Ireland. The thinking is that the stress of the tie to the Euro would cause the countries…
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2009 REVIEW & 2010 PREVIEW
by ilene - December 13th, 2009 9:50 pm
2009 REVIEW & 2010 PREVIEW
Courtesy of The Pragmatic Capitalist
The following is the excellent 2009 review and 2010 preview by PFG Best:
As we approach year-end, I thought it would be helpful to share a quick recap of 2009 and an outlook for 2010. Feel free to call or email me with any questions: Eaven Horter (ehorter@pfgbest.com).
It’s my belief the main market drivers of 2009 were interest
rates and risk aversion. Let’s first begin with the Federal Funds rate. The last elongated period of sub-2% interest rates lasted 3 years – from December 2001 to November 2004. This time period was post-9/11, when our country rebuilt itself in many ways, where low interest rates led to several “asset bubbles” that did indeed end up popping – easy credit and real estate made for a dangerous duo. We are currently just over a year with the Federal Funds rate under 2%, which dropped below the 2% level in October 2008. The current rate was set just a year ago – a historical low of 0% to 0.25%. However, the US economy and global economies are MUCH worse off now then post-9/11. With this in mind, an easy case can be made that Bernanke’s continued message of an “extended period” of low interest rates is truly not just rhetoric.An interesting consideration for this current recession and interest rate scenario is how much more interconnected the world economies are now versus earlier in this decade. What were emerging economies eight years ago are now developing nations, which makes for less of a reliance on larger countries, such as the United States. An example of this is how the world has moved from a G7/G8 focus to a G20 circle, bringing important players into the global economic decision making process. With this interconnectedness, especially in relation to the United States, we saw a focus on commentary and policy from Foreign Central Banks and the large effects these had on global
markets – just look to interest rate increases in Australia and how that affected the value of the USD and the AUD.Luckily, some of us have learned from our histories and we’ve now begun to see lawmakers take proactive measures in respect to asset bubbles. An example would be the development of “taxation” policies to limit the perceived fast and furious growth that has taken place in certain markets, e.g. Brazil. We’ve even seen it here in…
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BULL VS. BEAR: THE 2010 OUTLOOK
by ilene - December 13th, 2009 9:28 pm
BULL VS. BEAR: THE 2010 OUTLOOK
Courtesy of The Pragmatic Capitalist
A few different perspectives from highly respected traders for 2010. This week we have Todd Harrison vs. Jeff Saut and John Markman:
The bulls:
The bear:
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Hmmm…. Dubai (Again) - More?
by ilene - December 13th, 2009 9:15 pm
Hmmm…. Dubai (Again) - More?
Courtesy of Karl Denninger at The Market Ticker
There is never only one
It appears, in fact, there are a lot of cockroaches…. not only is there an official bond issue (with potential default) there appear to be a whole scad of contractors who haven’t been getting paid for their work over there….
"Some Japanese construction companies are facing very serious debt problems as Dubai can’t pay,” said Seiichi Otsuka, the Japanese consul general in Dubai. “Some companies engaged with the construction of the Metro are facing some payment issues.” He said companies were also owed money by Nakheel.
Oh oh…. And how big is this problem? Nobody seems to be saying, exactly….
“It is inappropriate to reveal details about our arrangements with contractors as we respect the confidentiality of our business exchanges,” said a Nakheel spokesman. “We remain committed to working in partnership with our contractors over the long term.”
Is that especially true when you’re not paying them on time… or at all?
“Certain of the Nakheel Group’s financing arrangements may contain cross-default clauses whereby a default under one of the Nakheel Group’s financing arrangements may constitute an event of default under other” obligations, according to an offering circular for the Nakheel 2011 bonds on Bloomberg.
That could be fun. How do you spell "cascading boom-booms"?
Finally, confirming what I had suspected, the WSJ points out:
But the prospectus notes that "trusts" and "beneficial interests" are alien to Dubai’s laws and that Dubai’s legal system has no track record of adjudicating complex international transactions. Some other disclaimers: Dubai World, the chief guarantor of the Nakheel bonds, doesn’t issue audited financials; the issuer has no attachable foreign assets; the real estate assets under the trust that secure the debt are located in Dubai, which likely wouldn’t enforce a judgment from an English court, the document matter-of-factly explains.
So you mean that banks bought - and own - this crap even though there are no audited financial statements and there are no foreign assets that can be seized (those assets INSIDE Dubai can’t be seized as they’re formally the property of the Emir, and you can’t seize the King’s land you see.)
This looks like a prospectus for MBS that were stuffed full of liar loans!
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Italian Prime Minister Berlusconi Attacked At Rally In Milan, Condemned As “Act Of Terrorism”
by ilene - December 13th, 2009 1:42 pm
Courtesy of Tyler Durden
Populist anger is starting to awake all over the world, as the G-20’s actions continue favoring only the "aristocratic" banker class. We hope Berlusconi’s mistresses will still find him just as attractive even with a black eye, bleeding lips and busted teeth.
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Jon Stewart on Glenn Beck’s Gold Interest
by ilene - December 13th, 2009 11:30 am
Jon Stewart on Glenn Beck’s Gold Interest
H/t to Barry Ritholtz
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Beck - Not So Mellow Gold | ||||
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Finreg I: Bank capital and original sin
by ilene - December 13th, 2009 11:07 am
This is a very thoughtful article on the banks, the financial system, government and regulation. I share Steve’s feeling of bleakness, maybe more so, because while Steve suggests workable solutions are possible, it seems to me that given the political money system controlling government, real, long-lasting solutions are unlikely. (My yellow highlights.) - Ilene
Finreg I: Bank capital and original sin
Courtesy of Steve Randy Waldman at Interfluidity
I have always flattered myself that I would someday die either in prison or with a rope around my neck. So I was excited when The Epicurean Dealmaker invited me to write about financial regulation and crosspost at a site called The New Decembrists. But my views on the topic have grown both more vehement and more distant from the terms of the current debate (such as it is), and I’m having a hard time expressing myself. So I’ll ask readers’ indulgence, go slowly, and start from the beginning. This will be the first long post of a series.
Banks are not financial intermediaries. Their role is not, as the storybooks pretend, to serve as a nexus between savers with capital and entrepreneurs in need of capital for economically valuable projects. Savers do transfer funds to banks, and banks do transfer funds to borrowers. But transfers of funds are related to the provision of capital like nightfall is related to lovemaking. Passion and moonlight are often found together, yes, and there are reasons for that. But the two are very distinct phenomena. They are connected more by coincidence than essence.
The essence of capital provision is bearing economic risk. The flow of funds is like the flow of urine: important, even essential, as one learns when the prostate malfunctions. But “liquidity”, as they say, takes care of itself when the body is healthy. In financial arrangements, whenever capital is amply provided — whenever there is a party clearly both willing and able to bear the risks of an enterprise — there is no trouble getting cash from people who can be certain of its repayment. Always when people claim there is a dearth of “liquidity”, they are really pointing to an absence of capital and expressing disagreement with potential funders about the risks of a venture. Before the Fed swooped in to provide, 2007-vintage CDOs were “illiquid” because the private parties asked to make markets in them or lend against them perceived those activities as horribly risky at…
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Americans More Pessimistic On Economy, Nation’s Direction
by ilene - December 13th, 2009 9:30 am
Americans More Pessimistic On Economy, Nation’s Direction
Courtesy of Mish
A Bloomberg survey shows Americans Grow More Pessimistic on Economy, Nation’s Direction.
Americans have grown gloomier about both the economy and the nation’s direction over the past three months even as the U.S. shows signs of moving from recession to recovery.
Almost half the people now feel less financially secure than when President Barack Obama took office in January, a Bloomberg National Poll shows.
Those concerns have put consumers in a miserly mood as they head to the mall for holiday shopping, with half the country planning to spend less on gifts than last year and few buyers willing to run up credit-card debt for Christmas.
The mood among members of Obama’s own Democratic Party has shifted most dramatically: While Democrats remain the most positive, the proportion saying the country is on the right track dropped to 58 percent from 71 percent in September. Among independents, 26 percent say the country is on the right track, down from 29 percent in September.
“The recession may be over, but the administration seems to be losing the battle when it comes to winning the hearts and minds of Americans,” says Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This is important because the spending of consumers is the main factor that will turn the economic recovery into a self- sustaining one.”
Poll Highlights
- Only 31 percent expect the economy to improve in six months
- 81 percent say persistently high unemployment is a major threat
- 60 percent say stimulus plans have no effect or actually hurt the economy
- Only 26 percent feel more secure now than when Obama took office
- Only 33 percent view Bernanke as favorable
- Only 8 percent plan on spending more for the holidays, while 47 percent plan on spending less.
Click here to see the Bloomberg National Poll questions, answers, and methodology.
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The Trend in the Freddie Mac US Housing Price Index
by ilene - December 13th, 2009 8:55 am
The Trend in the Freddie Mac US Housing Price Index
Courtesy of Jesse’s Café Américain
I suspect that the US Treasury and the Fed will continue to monetize the decline in housing prices and the mortgage market, such that we may see an inflation that this trend is never realized in nominal values. Ultimately, the government may bury most of the losses in a currency devaluation.
US Housing: Four More Years to Fall - Michael White
"The exhaustive Freddie Mac price index fell 2% nationwide in the 3rd quarter and analysis of its data predicts prices will continue to fall for the next four years.
While Freddie announced Tuesday that its purchase-only index has gained for the past two quarters, the “Classic Series” of the Conventional Mortgage Home Price Index, which includes refinance appraisals as well as purchase values, has fallen 9% from the high in June 2007 and 3.8% for this year.
The projections say homeowners have lost only $1 for every $3 they can expect to lose in the end.
The trends show values will fall for four years through September 2013. Readers should take this estimate as an educated guess. The estimate may have greater relevance than forecasts described in mainstream-media headlines which typically fail to place new data within a long-term trend…"
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All Bubbles Pop, No Matter What Color They Are
by ilene - December 13th, 2009 1:08 am
All Bubbles Pop, No Matter What Color They Are
Courtesy of Mish
I frequently agree with ideas expressed on New Geography but certainly not Ian Abley’s article There is no "Free Market" Housing Solution
The common line used by advocates of housing affordability has been that the solution lies in “free markets”. Yet this "free market" solution does not address the fundamental problem which is really a political one.
The root of this problem lies with an elite agenda that is highly ideological. The ideology at work is environmentalism, making a moral virtue of the retreat of political and commercial elites from the industrial production of housing.
Home Price Index
On 24 November 2009 the Housing Minister John Healey confirmed that Britain will be the first country in the world to require zero carbon homes as a matter of law from 2016. Britain is the world leader in green ideology.
All of the newly built British housing will have much better insulated walls, windows, roofs and floors. The clear aim of the government is to keep reducing the energy consumption of all new homes to be measured in kilowatt-hours per square metre of floor area per year.
The commitment to "zero carbon" allows government to appear virtuous in its legislation for the new build sector.
This suits the financial markets as well, since it guarantees house price inflation by making it difficult to meet the demographic demand for homes. Environmentalism offers more and more reasons not to build. Green thinking ensures that house price inflation can be sustained through a bubble, and projected beyond the bursting of that period of financialisation into the next.
The idea of a "free market" is a long running ideological myth. But the universal freedom to build would mean people are free to attempt to raise the finance to buy land and build.
The market is not capable of being a “free market”. Capitalism is a system of control by political and commercial elites, and their professional employees. British capitalists tend to be less interested in industry, which is held to have caused Climate Change, and more interested in finance these days.
Missing The Free Market Boat
Ian Abley misses the boat. I would agree that "there is no free market".
However, it is foolish to say "there is no free market solution". The solution is there, the problem is government pandering for social and political goals interferes with the solution.
Ian Abley might believe that home prices will keep…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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