Failcascade

Endgame ahead

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Greece has been safed… again?

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I’m not going to write a long and witty post on the latest Greek rescue package, since it’s getting kinda boring. I think by now even the EU bureaucrats have lost count how many times exactly Greece has been rescued.

The announcement came in the early morning hours, after weeks of failed talks and was rewardet by a 1 or 2 bps “spike” in the EURUSD, just to fade away within hours. Of course the markets in Europe opened with a another rally, which turned out to be… modest and short lived (a couple hours that is). The US markets didn’t even bother to rally, since by the time they opened, people managed to find their calculators and read the Eurogroup’s “plan”, just to figure out it really doesn’t make much sense. Surprise! Who’d have guessed?

Then again, the whole package isn’t finished anyway, since it still has to be ratified by every nation involved. And (among other things) assumes a “voluntary” haircut of 70% on Greek debt by private investors holding it. All within the next two weeks.

Good luck with that…

Then again, let’s just assume for some reason (magic!) creditors agree to those terms and everything will go as planned. How much exactly will those cuts matter? Thanks to thetrader.se, here’s something nice to look at:

We’re talking about the red part. The official sector debt can’t be cut, since the German Bundesverfassungsgericht (among others) would most likely throw a hissy fit the second anyone would suggest that. For now that is – in a couple years the recent ruling will probably be forgotten since nobody cares about laws and contracts anymore anyway and a official sector “forgiveness” seems inevitable. If the whole EU / Euro conglomerate still exists by then that is…

 

But in case they really pull it off and flush another 40 billion Euro down the toilet, here’s what the rescue package assumes the Greek economy will do during the next 10 years:

And here’s how their past projections turned out:

Yeah… I’m sure that will work just fine.

UPDATE, less than 24 hours later – fresh from Bloomberg:
EURO GROUP AGREES MAY NEED TO AUGMENT GREEK ACCORD: SCHAEUBLE.

Really? REALLY? Well that’s what I call a completely unpredictable turn of events!

Written by mo

November 27th, 2012 at 5:26 pm

Posted in Europe

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FrAAAnce no more, here comes FrAa1nce

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Oh well, it was only a matter of time anyway… As Bloomberg reports, Moody’s just took away the oh so beloved AAA rating from France.

  • MOODY’S DOWNGRADES FRANCE’S GOVT BOND RATING TO Aa1 FROM Aaa
  • FRANCE MAINTAINS NEGATIVE OUTLOOK BY MOODY’S
  • Long-term economic growth outlook negatively affected by multiple structural challenges
  • Fiscal outlook uncertain
  • Predictability of France’s resilience to future euro area shocks diminishing

Just a few hours after an completely inexplicable day-long market rally, taking equities higher across the board in Europe and the US. Not even another leak to blame it on.

Now, let’s see what the next couple hours and days will bring.

Written by mo

November 20th, 2012 at 12:17 am

Posted in Europe

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Kyle Bass on Europa, tearing apart at the core

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157 well-spent seconds to summarize just what is going in Europe, as he concludes with Milton Friedman’s quote on Europe: “when they hit a bump in the road, it will tear them apart at the core.”

Written by mo

November 17th, 2012 at 12:44 am

Posted in Europe

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Lights out in Greece

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According to Reuters chances are Greece will soon become a much darker place… at least at night that is, since apparently their electricity infrastructure is about to collapse as well, just like their banking system, their hospitals and pretty much everything else.

ATHENS (Reuters) – Greece’s power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country’s electricity and natural gas system.

“RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system,” the regulator’s chief Nikos Vasilakos told Reuters.

RAE took the decision after receiving a letter from Greece’s natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.

Written by mo

June 11th, 2012 at 10:21 pm

Posted in Europe

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Spain gets a bailout

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Who’d have thought – looks like Spain will get a bailout for their banks as well:

The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.

The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request.

The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The  Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.

The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the financial assistance with regular reporting.

What’s that? Only 100 billion Euro? Hardly worth mentioning then…

Of course it’s just for the banks, not for the government. After all, as everyone knows, it’s only the banks that are broke, not the country itself. Rest assured, your bonds are totally safe and not just a bunch of paper, worth hardly more than any other empty promise. But why safe the banks then? Why of course so they can continue buying those government bonds, as nobody else in their right mind would buy them…

Update, June 11th 2012: Guess what? Looks like the bailout already starts to fall apart

Nothing like figuring out your hare-brained bailout attempt was a failure from the beginning. Ok: Here are the problems with this band aid:

  1. Unfunded
  2. Temporary, and eventually will be replaced by the ESM. Markets can, luckily, still discount.
  3. Negative pledge issue still exists as Finland made all too clear. Countries will demand extra security interest while under EFSF regime and until ESM priming comes in play.

Finally, all of this, is just semantics.

Well, that didn’t take too long.

Written by mo

June 9th, 2012 at 8:06 pm

IMF advisor Robert Shapiro: 2 to 3 weeks till meltdown

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In an interview with IMF advisor Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone’s mind: “If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serrious than the crisis in 2008…. What we don’t know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems.”

So if you live in (Western) Europe, my investment advice would be to go long on: food supplies, fuel, guns & ammunition

Written by mo

October 7th, 2011 at 12:00 am

Current European market summary

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Quoting Peter Tchir of TF Market Advisors:

[…] we are back to rallying on headlines and sound-bites and hopes that “Europe Finally Gets It”   Maybe this time the details won’t disappoint.  Actually, maybe this time we will get to the details, since so many of the last few rallies were based on rumors or plans that never even made it to the detail stage.  In the meantime I will try and figure out how Italy providing money to EFSF so the EFSF can buy their bonds, how Italy contributing to the ECB which buys its bonds, how Italy providing money to the IMF to buy Italian bonds, and Italy working on plans to save Italian banks whose exposure to Italy is a part of their problem, fixes anything.

Yep, that seems to sum it up nicely.

Written by mo

October 5th, 2011 at 12:41 pm

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