Notes From Underground

The news is so slow that some ridiculous headlines just creep in, but I wonder what the Greeks think. If the fiscal sheriffs from the TROIKA only took the tip it wouldn’t have been so bad but the German creditors took the entire reproductive assemblage. Ok, enough. New word out of Germany is that a Berlin-based think tank has filed a new case against the legality of the ESM but is asking the Federal Constitutional Court to allow the EUROPEAN COURT of JUSTICE (ECJ) to hear the case and decide if the stability mechanism is legal under EU law. The Eurosceptic group EUROPOLIS is asking for European to determine the legal status of any European bailout program.

From what I know of the ECJ, this move makes little sense as the ECJ has proven to bend over backwards to protect the power of Brussels and maintain the EU at all costs. The Financial Times raised the issue that the move by EUROPOLIS could force the German High Court to delay its September 12 hearing date and set back the implementation of the ESM by several months. German domestic politics is making the entire EURO political game more difficult to comprehend and will continue to cause great uncertainty in the financial markets … and yet the EURO rallied today.

It seems that shorts were covering as no major news happened and the market’s calm reaction to the SPD leaders call for a referendum led to some risk-on positions. The S&Ps closed basically unchanged after last week’s solid rally and the markets were comforted by that action. Even the GOLD, the ultimate haven, sold off after six previous days of steady to higher closes. The yield curves of Spain and Italy flattened a bit but are holding at fairly steep levels of 250+ basis points. Spanish 2-year notes were back above 4%, yielding 4.135 and Italy was back at 3.41%. Everyday cannot be DEBT RELIEF DAY. If the 2-YEAR YIELDS were to rise about 5%, the ECB would probably become very concerned.

The Spanish is without question the major concern and as the 2-YEAR NOTE CHART shows the 52-week high in the Spanish yield was made recently on July 24 while the Italian high yield was made on November 25, 2011. The recent spike in Italian 2–YEAR NOTES YIELDS failed to even approach last November’s levels. The market appears to be much more fearful of Spain.

***In tomorrow’s FT there is an article by one of the best trader/analysts I have read for many years. Jeremy Grantham of GMO INVESTORS has an opinion piece titled, “The Food Crisis Should Not Be Left to Cowboy Capitalists.” Readers of NOTES are well aware of my views on the grains and ethanol and why it is dangerous to “screw” with the global food chain. The markets had become complacent about global agricultural production meeting increased demand. Grantham sums up his views: “China is the only government that seems to appreciate the potential consequences of resource and food shortages. In contrast,the U.S. seems to be in complacent isolation in its agricultural fortress.”

This doesn’t mean that grains are going parabolically higher tomorrow. It means that ag corps will be solid investments for the coming years. Back in February I discussed the Chinese premier being on a food buying mission as he visited the U.S. and headed to IOWA and CALIFORNIA. China has been buying and filling its bins while global carryovers are extremely low and global politics are so fragile. Hello, Brazil!

Tags: ECB, ESM, Euro, European Court of Justice (ECJ), Europolis, Greece, Italian 2-yr notes, Jeremy Grantham, Spanish 2-yr notes, SPD, SPS, Troika

This entry was posted on August 13, 2012 at 8:09 pm and is filed under Debt Market, Europe, Germany. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.