It is now official: EUROPE UNDER THE GUIDANCE OF THE TWO DEANS OF PSY-OPS HAVE A PLAN FOR RECAPITALIZING THE BANKS AND BOLSTERING THE EUROPEAN FINANCIAL SYSTEM. The world heaved a sigh of relief that the Sunday meeting in Berlin resulted in a PLAN. The intricacies of what the plan entails are a secret, but for today the markets reacted positively, grasping for any sense of hope. The world’s equity markets reacted as if EURO’s were being air dropped all over the continent. The BUNDS were sold as the reallocation trade sent money exiting the havens in search of risk and the possibility of higher returns … at least for a day.
Adding to the “EUPHORIA” was the weekend news about the Belgium and French bailout of the DEXIA, the BELG-FRANCO financial conglomerate. Rumors also circulated that DEXIA would be broken up into digestible pieces and that an international investor of substance was looking to purchase DEXIA BANQUE INTERNATIONALE A LUXEMBOURG. The governments were offering guarantees on forward losses so it seems there will be many suitors chasing the assets of Dexia. We will probably hear that the Russian and Chinese sovereign wealth funds will be looking to purchase European banks guaranteed by various governments for that would seem to be a better investment then solely sovereign debt: Buy the institutions and have the government backstop the losses.
The markets were caught LONG DOLLARS into the weekend so it appears that the relief rally in RISK forced a great deal of short covering. It appears as if the shorts were frightened by the fear of a huge injection of liquidity based on the MERKOZY secret plan of action. The GOLD also found strength in the idea that LIQUIDITY would be the answer to the Berlin resolution. At the end of all the celebration the question will still remain: WHO WILL GUARANTEE THE LIQUIDITY THAT IS PROVIDED AND ULTIMATELY IS IT A LIQUIDITY OR SOLVENCY ISSUE FOR EUROPE?
There was a front-page story in the Financial Times that went unnoticed regarding CONCERN ABOUT FANNIE AND FREDDIE. Asia and Middle-East sovereign wealth funds (SWFs), central banks and foreign-based pension funds have increased their concerns about the long-term health of the GSE paper. It appears that foreigners are selling their holdings of GSE mortgages as they worry about the budget battles and whether or not the U.S. will stand behind the “IMPLICIT” guarantees when reining in the excesses of Washington’s profligacy. Bader al-Saad, head of the Kuwait Investment Authority, said, “We have become hostage to the irresponsible behavior of politicians.”
It seems that large holders of U.S. DOLLAR ASSETS ARE USING THE FED’S QE PROGRAM TO EASE THEIR WAY OUT OF AN OVERWEIGHT POSITION. There are fears that the FED will slowly DEBAUCH the CURRENCY OF THE REALM IN ORDER TO SUSTAIN SOME IMPROVEMENT IN A MISERABLE EMPLOYMENT ENVIRONMENT. When the FED CHAIRMAN pronounces his continued concerns over a jobless recovery, foreign holders of U.S. paper assets become unnerved. It failed to catch the market’s attention admist the EUPHORIA from the SECRET bailout plan, but it is on the radar of NOTES.
Quick Hitter #1: Swiss authorities have become worried by the dramatic rise in home prices as the policy to push interest rates lower and inhibit a rise in the value of the FRANC has resulted in a possible real estate bubble. A Bloomberg article by Carolyn Bandel details the problems that ordinary Swiss citizens are having buying a home. As the currency is pushed lower, foreigners are utilizing the opportunity to seek properties in Zürich and elsewhere as a hard asset alternative to the euro and dollar. The ultra-low rate interest policy is forcing some Swiss citizens to borrow more than they can afford as they compete with various foreign buyers. Just when the SNB believed it solved its FRANC PROBLEM another issue arises (and why Milton Friedman maintained that “THERE IS NO FREE LUNCH”).
Quick Hitter #2: The lead article in Monday’s FT was British Prime Minister David Cameron warning the Europeans to get their house in order for it was damaging the world economy. In “CAMERON GIVES VOICE TO EURO FRUSTRATIONS” by George Parker and Lionel Barber, Cameron states that Europe needs a “BIG BAZOOKA,” as he takes a page out of Hank Paulson’s playbook. Cameron is especially unnerved as “40% of UK EXPORTS go to the single market area.” Cameron advises that the EU needs to leverage up the EFSF so it has the ability to recapitalize its banks as well as provide liquidity through the purchase of sovereign debt. Cameron continues: “Britain’s national interest would not be served by the break-up of the Euro zone.”
It is interesting that the UK, with no skin in the game but its self-interest, seems to be in a hurry to advise others how they OUGHT to spend their citizens’ money and possibly subvert their systems of laws. The British do not even belong to the EURO and are not directly on the hook for the actions of the ECB and EFSF but yet this windbag has to put his two pence on the table. In pursuing Britain’s self-interest, Mr.Cameron has ventured into questionable territory. IF YOU WANT TO OPINE ON EUROPEAN SOLUTIONS BRING MONEY … and LOTS OF IT. The opinions of a passive observer will not go down well in Brussels. The BRITS are already concerned that the EUROCRATS are trying to subvert the financial power of London. Cameron’s bloviating will only increase the ire of Europe’s political elite.
Tags: Berlin, Bernanke, Bunds, China, David Cameron, Dexia, EFSF, Euro, Eurocrats, European Debt Crisis, Fannie Mae, Fed, Financial Times, Freddie Mac, Gold, Kuwait Investment Authority, liquidity, Merkel, Milton Friedman, Russia, Sarkozy, solvency, Sovereign Wealth Funds, Swiss Franc, U.S. dollar assets, UK