Ireland Brinksmanship with the EU: Slow Motion Bank Run May Be Giving Government Leverage
by ilene - November 19th, 2010 12:42 am
Ireland Brinksmanship with the EU: Slow Motion Bank Run May Be Giving Government Leverage
Courtesy of Yves Smith at Naked Capitalism
In negotiations, understanding where you have leverage relative to your counterpart is key. Ireland appears to be engaged in a quiet staredown with the EU, evidently with the objective of securing a rescue of its banks rather than its government.
In case you managed to miss it, Ireland is in the midst of a long running budgetary crisis that has reached an acute phase. The implosion of a real estate bubble has left the country with banks up to the gills in bad loans. The government set up a “bad bank” entity, and the commitments per taxpayer, which were over 25,000 euros per taxpayer as of July, just keep rising. Deep budget cuts to meet eurozone fiscal deficit targets have put the economy in freefall, with nominal GDP falling nearly 20% and unemployment at 13%.
The immediate trigger for panic over Ireland was Merkel’s announcement that bondholders would have to take their lumps in any Eurobailouts. That immediately put Irish and other periphery country bonds under pressure. And although Merkel was beaten a bit back into line (all bondholders will supposedly be protected through 2013), the damage was done. As Richard Smith noted two weeks ago:
Since the Irish budget is fully funded for a few more months (ex any revenue surprises, or God forbid, further bank loan writedowns), they can in principle trundle along like this until their date with destiny in Q2 2011, when they have to raise funds again. But somehow it’s hard to believe that that is going to be the way things go. We will see if the budget gets thrown out or not; or the government. It will be close, on either count. Either eventuality brings forward the timetable for the Irish crisis proper, but it’s coming, one way or the other…
The folk close to the action think
…
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Could The Financial Crisis Erupting In Ireland, Portugal, Greece And Spain Lead To The End Of The Euro And The Break Up Of The European Union?
by ilene - November 18th, 2010 1:39 am
Could The Financial Crisis Erupting In Ireland, Portugal, Greece And Spain Lead To The End Of The Euro And The Break Up Of The European Union?
Courtesy of Michael Snyder at Economic Collapse
The Irish banking system is melting down right in front of our eyes. Ireland, Portugal, Greece and Spain are all drowning in debt. It is becoming extremely expensive for all of those nations to issue new debt. Officials all over Europe are begging Ireland to accept a bailout. Portugal has already indicated that they will probably be next in line. Most economists are now acknowledging that without a new round of bailouts the dominoes could start to fall and we could see a wave of debt defaults by European governments. All of this is pushing the monetary union in Europe to its limits. In fact, some of Europe’s top politicians are now publicly warning that this crisis may not only mean the end of the euro, but also the end of the European Union itself.
Yes, things really are that serious in Europe right now. In order for the euro and the European Union to hold together, two things have got to happen. Number one, Germany and the other European nations that are in good financial condition have got to agree to keep bailing out nations such as Ireland, Portugal and Greece that are complete economic basket cases. Number two, the European nations receiving these bailouts have got to convince their citizens to comply with the very harsh austerity measures being imposed upon them by the EU and the IMF.
Those two things should not be taken for granted. In Germany, many taxpayers are already sick and tired of pouring hundreds of billions of euros into a black hole. The truth is that the Germans are not going to accept carrying weak sisters like Greece and Portugal on their backs indefinitely.
In addition, we have already seen the kinds of riots that have erupted in Greece over the austerity measures being implemented there. If there is an overwhelming backlash against austerity in some parts of Europe will some nations actually attempt to leave the EU?
Right now the focus is on Ireland. The Irish banking system is a basket case at the moment and the Irish government is drowning in red ink. European Union officials are urging Ireland to request a bailout, but so far…
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Is Europe Coming Apart Faster Than Anticipated?
by ilene - November 17th, 2010 2:43 pm
Is Europe Coming Apart Faster Than Anticipated?
Courtesy of Gonzalo Lira
The sky is black with PIIGS coming home to roost: I was going to write my customary long and boring think piece—but the simmering crisis in the Eurozone just got the heat turned up: Things are boiling over there!
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| “Euro Dead” by Ryca. |
So let’s take a break from our regularly scheduled programming, and give you a run-down of this late-breaking news:
The bond markets have no faith in Ireland—Greece has been shown up as having liedagain about its atrocious fiscal situation—and now Portugal is teetering—
—in other words, the PIIGS are screwed. I would venture to guess that we are about to see this slow-boiling European crisis bubble over into a full blown meltdown over the next few days—and it’s going to get messy.
So to keep everything straight, let’s recap:
The spreads on Irish sovereign debt widened, and the Germans are pressing them to accept a bailout—despite the fact that the Irish government is fully funded until the middle of 2011. But it’s not the Irish fiscal situation that the bond markets or the Germans are worried about—it’s the Irish banking sector that is freaking everyone out.
After all, the Irish government fully—and very foolishly—backed the insolvent Irish banks back in 2008. And for unexplained reasons, the Irish government is committed to honoring Irish bank bonds fully—which the country simply cannot afford. However, German banks are heavily exposed to Irish banks, which explains why Berlin is so eager to have Ireland accept a bailout.
Right now, European Union, International Monetary Fund and European Central Bank officials are meeting with Irish representatives, putting together a bail-out package. The reason the Irish are so leery, of course, is that any bail-out would be accompanied by very severe austerity measures: In other words, the Irish people would suffer the consequences of shoring up the Irish banks—which is the same as saying the Irish people would suffer austerity measures in order to keep German banks from suffering losses. Also, the EU/IMF/ECB bail-out would probably also cost the Irish their precious 12.5% corporate tax rate—a key magnet for bringing capital to the Emerald Isle.
Add to the Irish worry, Greece is once again wearing a bright red conical dunce cap: They’ve been shown up to have lied again about their fiscal situation. Three guesses what they lied about: If you guessed Greek deficit, you win—yesterday, the Greek government officially revised…
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The Tidal Forces Ripping Europe Apart
by ilene - November 13th, 2010 1:02 pm
Tidal forces are pulling the European Union apart. On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet, rendering many of the smaller European states insolvent. On the other end, Europe is unwilling to carry out sovereign default and restructuring of debt of any one of its member nations. So as Europe gets closer and closer to the Global Depression, we are seeing as these two opposing forces—insurmountable debt vs. unwillingness to default and restructure—pull the continent apart as surely and relentlessly as tidal forces. — Gonzalo Lira
The Tidal Forces Ripping Europe Apart
Courtesy of Gonzalo Lira
In July of 1994, a comet named Shoemaker-Levy 9 crashed into Jupiter—it was quite a sight.
According to astronomers, Shoemaker-Levy was a comet that was captured by Jupiter’s gravity twenty or thirty years before it was discovered. As the comet circled Jupiter, at one point it passed the Roche limit—the line around a large mass where its gravity will rip apart a smaller mass by way of tidal forces.
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| Comet Shoemaker-Levy, after Jupiter’s tidal forces ripped it apart. |
By the time Shoemaker-Levy crashed into Jupiter, tidal forces had had their way with the comet. As the picture shows, it was no longer a single comet—it was a string of small lumps of rock and ice
Tidal forces are pulling the European Union apart.
On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet. These debts and liabilities are near-term enough that there is only one way to characterize many of the smaller European states: They are insolvent.
On the other end, Europe is unwilling to carry out sovereign default of any one of its member nations. Indeed, there is a sense that—constant drumbeat of the Germans aside—Brussels is unwilling to evencontemplate the very notion of sovereign default and debt restructuring. Brussels and the European Central Bank believes in bailouts, not default, because they believe that the entire European project rests on the non-default status of all the EU members. They believe that all EU debt is backed by the entire EU, no matter how irresponsible the EU country that issued the EU debt.
As we watch Europe get closer and closer to the Global Depression,…
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Monday Market Movement – More Monetary Madness
by Phil - November 1st, 2010 12:45 am
Get ready for a crazy week!
We have data this week, we have the Fed and we have elections and yes, we have a worthless currency that’s worth less and less every day. This morning, China’s PMI hit 54.7 for October, up from September’s 53.8 and indicating that China’s decision to raise rates had no impact on growth. India found this thrilling and went up 1.4% (as of midnight) but the Nikkei flatlined because China’s gains are Japan’s losses at the moment as the Dollar failed to maintain an early pop to just 81.2 and fell back more than half a point in Asian trading.
The yen’s moves have been "excessive" recently, a Japanese government official said Monday, but he declined to comment on whether Tokyo authorities intervened in the foreign exchange market earlier in the day to knock the currency lower. Exporters remained under selling pressure, with Canon off 0.6% and Toyota Motor down 1.1%. Honda Motor lost 3.4% despite reporting solid second-quarter earnings as the automaker cut its fiscal second-half net profit outlook. Sony shares fell 2.2% as news that the electronics giant had returned a net profit in the July-September was offset by concerns over pressure on earnings at its television division.
"The soft U.S. dollar suggests that the market is still gearing up for a sizeable QE this week," said Greg Gibbs, currency strategist at RBS in Sydney. In Seoul, the market was modestly higher but investors were cautious ahead of the Fed meeting this week. Net selling by foreigners also tempered demand. "Some investors appear concerned that the Fed’s meeting this week may not take enough quantitative easing measures to satisfy market demands," said Lee Kyoung-min at Woori Investment & Securities in Seoul.
QE2, QE2 and more QE2 – this is the basis for the global rally. How much QE2 will be enough to satisfy a global market that is now counting on AT LEAST $1Tn to be handed out by the Fed in 2011? It’s not just QE2, of course, the Fed continues to hand out money to Wall Street on an almost daily basis through their Permanent Open Market Operations or "POMO" and that trade has become as reliable as our "3am Trade" on the Yen as we at PSW have now begun to follow the POMO schedule (as Goldman Sachs has been advising their own clients) to give…
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Monday Morning – Basel Boosts Bourses
by Phil - September 13th, 2010 8:03 am
Nice pop in the futures this morning!
The big news, which we already discussed in the "Weekend Reading" post, is the historic remake of the World’s banking regulations, which was finalized in Basel, Switzerland by the G20 Finance Ministers over the weekend. You can click over there for the details, as well as discussions on gold, college costs and the jobs market – so I won’t get into all that here. Suffice to say, the rules are good and, like FinReg, they will take a long time to go into effect and the markets are relieved that the uncertainty is over (well, that particular uncertainty, at least).
Jean-Claude Trichet, President of the European Central Bank and Chairman of the Group of Governors and Heads of Supervision, said that "the agreements reached today are a fundamental strengthening of global capital standards." He added that "their contribution to long term financial stability and growth will be substantial. The transition arrangements will enable banks to meet the new standards while supporting the economic recovery." Nout Wellink, Chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank, added that "the combination of a much stronger definition of capital, higher minimum requirements and the introduction of new capital buffers will ensure that banks are better able to withstand periods of economic and financial stress, therefore supporting economic growth."
All seems right with the World this morning as Oil touches our $77.50 goal in pre market trading and Gold stays below the $1,250 mark (no panics). Copper is in the upper end of our expected $3.40-$3.50 range and is likely to break over -even our poor Natural Gas is catching bids at the $3.80 mark, now $3.85 and TLT continues to fall (TBT continues to climb – see Dave’s chart) . This is all despite a strong dollar That held the 50 dma all last week – another week over the line and we begin to bend it up to match the rising 200 dma and then the fun can begin. Fortunately, we have had less of a run in the commodity sectors this time so, hopefully, the rising dollar won’t be the market-killer it usually is but we will be watching out for that.
Another chart we’ll be watching is the VIX, the volatility index, which is known as a "fear" indicator for the markets, hasn’t been below 20 since April and,…
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IS GOLD GETTING OVERBOUGHT?
by Chart School - September 8th, 2010 9:43 pm
IS GOLD GETTING OVERBOUGHT?
Courtesy of The Pragmatic Capitalist
In a recent piece Nomura Group highlighted some of the more interesting gold ratios with the implication that gold is bumping up against some high historically levels:
Personally, I still believe the “irrational” move in gold is very much alive and will likely find support on any significant weakness. Gold is likely to remain the “go to” asset for investors looking for a hedge to the fear and uncertainty of the current environment. The Euro is being viewed as a faulty fiat currency (incorrectly I believe) and the US dollar is believed to be in long-term disarray due to the actions of the Fed. As long as the de-leveraging cycle persists and the sovereign
Source: Nomura Group
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Tuesday – Uncle Rupert Throws A Tantrum
by Phil - September 7th, 2010 7:28 am
Happy Tuesday to you!
Nice market take-down by the Journal this morning, who led off with an article questioning the EU stress tests saying: "From this point of view, it is not surprising that the doubts raised about the validity of the stress tests are weighing on the Euro and also on other risk-correlated currencies." Then, to make sure no one misses the article, they run another headline for the US markets that says "Concerns Over EU Banks Hit Euro" in which they quote themselves:
New concerns about the ability of European banks to weather the financial crisis came after the WSJ story highlighted once again the weaknesses of the stress tests. The report helped to widen the bond spreads on peripheral debtors and knocked European stock markets lower as another wave of euro zone jitters hit the market.
If this seems like BS manipulation to you, you will be doubly insulted to know that the US isn’t even the target of the manipulation. Mr. Murdoch, an Aussie and long-time foe of the Euro, is simply expressing his displeasure in a Labor Party victory in the Australian elections this weekend (real Democracy’s hold elections on weekends to encourage voting) and is knocking down their dollar by simultaneously boosting both the dollar and the Yen (also in the article is news that the BOJ will not intervene in the Yen, which is total BS) to push down his native currency and make a post-election statement. Just a media giant throwing a temper tantrum this morning.
![[EUSTRESS]](http://sg.wsj.net/public/resources/images/P1-AX101A_EUSTR_NS_20100906180015.gif)
Think about the "nature" of this story. There is nothing NEW in this NEWs, is there? It’s the kind of article that could be written any time someone wants to push the markets. Even the data they are using is from back on 3/31 – they didn’t even bother to update their facts for Q2! Notice that the article is pure worst-case speculation by the WSJ, followed by comments like:
- An FSA spokeswoman declined to comment.
- CEBS didn’t disclose that the banks were calculating the figures in that way.
Wow, pretty damning evidence that they couldn’t get a comment contrary to their BS on a holiday weekend, right? This news is also conveniently drowning out Obama’s proposed 6-year Public Works Program to combat unemployment by committing $50Bn for needed reparis on roads, rails and airport runways – putting some of our nation’s unemployed construction workers back to…
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Fearful Thursday – Manic Over, Depression Sets In
by Phil - August 12th, 2010 8:59 am
The markets are clearly insane.
I diagnosed manic depression in the markets years ago but it’s been getting worse and worse to the point where we now have mood swings from week to week and sometimes even day to day. Much of this is politically driven with the Conservatives currenly in overdrive – looking to "prove" that every single thing the Democratically-controlled Government does is nothing short of a disaster. Nothing works, nothing will work and nothing proposed will work other than more tax cuts and "throwing the bums out" (the Democratic bums, not the Republican bums).
There is a 24-hour television network that is slightly conservative and, if you look on the Fox web site, you will find out that 8% of the children in the US are born to "illegals," that cutting the World’s largest defense budget will make U.S. less safe (YOU DECIDE – they say), Democrats IGNORE ethics cloud by attending Charlie Rangle’s 80th birthday party, Democrats are using the Tea Party against the GOP (but don’t worry because "the tide is turning at the polls"), the drilling ban is crippling the Gulf, we’re "wasting" Billions of dollars by sending aid to other countries and, best of all, the page is sponsored by BipolarDepression.com!
Heck, after reading that page I’m ready for a few Xanex myself!
The front page of the WSJ is not much better with the headline: "ECB Warns on Economic Recovery" along with their very accurate Page 1 print headline: "Markets Swoon on Fears." Of course, if you actually read the ECB article, you’ll find what they actually said is "The sustainability of the recovery in global and euro-area trade will depend critically not only on a further strengthening of private demand, but also on the robustness and health of the global financial system" IN THE CONTEXT of an article analyzing the collapse of global trade in the wake of the 2008 financial crisis. But that doesn’t make a great headline does it? That doesn’t make you pick up the paper or stay tuned through the commercial so it’s ALTERED, spun to maximize the FEAR reaction in the readers – the one that is most likely to lead to a purchase decision.
The European Union’s Eurostat statistics office, meanwhile, said industrial output dropped 0.1% from May and was 8.2% stronger than last June. Economists…
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SP 500 September Futures – Goal of 1100 Reached Inspiring Euro Confidence, Or Not
by Chart School - July 24th, 2010 7:04 pm
SP 500 September Futures – Goal of 1100 Reached Inspiring Euro Confidence, Or Not
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The Merry Marketeers were able to coax the SP futures to the 1100 level, in a show of support for the results of the Euopean Bank Stress Tests. Huzzah!
The results were rather anemic, even given the somewhat unrealistic nature of the tests.
I can understand that they did not include a sovereign default by the likes of Greece, but that they included only the banks’ trading portfolios, and not their commercial loan portfolios, seemed almost astonishing.
Reggie Middleton does a good job discussing the European Stress Tests here and here
But in the meanwhile, the increasing trivialization of the capital markets by the financial engineers in the service of their nonsensical schemes seems more alarming than anything else I could imagine.
Can they do what they did in 2005, and break the market out to the upside and inflate yet another financial asset bubble? They may very well do this. And it will once again end badly, much worse than the last. But why should they care, or stop, while they continue to become rich?
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(