Posts Tagged ‘default’

Notes From Underground: And The Winner of This Year’s GREENSPAN MORAL HAZARD Award Is … JON CORZINE

November 1, 2011

Another day another crisis in EUROLAND, or the LA LA LAND of Wall Street, which we will know refer to as THE LAND OF MORAL HAZARD. The leaders of the Wall Street establishment have proven again that no risky investment is too big as long it is with OPM (other people’s money). Jon Corzine went all in on a bet on PIIG DEBT in an effort to increase the annual returns at MF GLOBAL. In a ZIRP environment, a clearing house has a difficult time making money because the earnings, which are the overnight float, are so extremely low. In order to generate greater earnings on the FLOAT, greater risks need to be taken so the need to purchase riskier sovereign debt becomes the outlet.

(more…)

Notes From Underground: Did I miss anything while I was away???

September 7, 2011

The unemployment report on Friday was much weaker than expected as zero net jobs were created. More disheartening was that average hourly earnings produced a negative number, which failed to confirm and support the earlier released personal consumption data. The equity markets went into risk-off mode as the economy went into the Labor Day weekend in a very fragile state.

(more…)

Notes From Underground: Lies, Damned Lies and SADISTICS

June 27, 2011

The news out of Europe continues to create volatility as EUROCRATS vacillate between defaults and bailouts. It seems that the Greeks will vote on a “new and improved” austerity package that, if accepted, will allow the EMU,IMF and ECB to provide the needed funds to get Greece through the immediate crisis.

Lies compounded by lies has made the situation much more difficult to comprehend. The problem is one of insolvency but because of the opaqueness of the entire EU, it is very difficult to ascertain who is in fact insolvent. Even though the European Union ran bank stress tests, very little is known about which banks will be insolvent in the event of a sovereign default. The biggest fear is that a Greek default will become contagious to the other peripheries and several of the large banks in France and Germany.

Another lie is that the EUROCRATS do not want the “EMPTY CREDITORS” [read speculators] to be paid out on a default so the Orwellian nature of Brussels is trying to manufacture a default by any other name. Today, the French government persuaded the large French banks to accept a type of BRADY BOND solution, which would extend the maturities of Greek debt in order to buy time for the credit hit to be spread out over time–deemed by the politicians to be a non-default. However, the ratings agencies have opined that any extension of duration would result in a DEFAULT.

The battle lines are being drawn between the nation-states and rating agencies. Interestingly, Frankfurt was looking into certifying a new European ratings group so the pressure will continue to build against S&P, Fitch and Moody’s. All the talk out of Brussels is totally devoid of the impact of domestic politics. It is the Greek Parliament who now holds Europe’s immediate financial fate in the raised hands of 151 Greek members of Parliament.

Democracy is still the prevailing means of political decision making and if the Greek politicos listen to the voices of dissent in Greece, the Parliament may well vote NO just to get Europe to raise the ante–sounds similar to the rejection of the first TARP vote in the U.S. HOUSE. The Greek nation has more to gain by pushing the DEFAULT game a bit further to maybe get some modicum of relief from the coming ravages of austerity.

The NEGATIVE FEDBACK LOOP that is perpetuated by an austere budget in a declining economy with no ability to devalue its currency may be too sadistic for a Greek populace staring into the abyss of financial contagion. Sadists of economic rectitude and the lies they promote have placed an already fragile global financial system into a very precarious predicament. Oh well, WEN will we have some certainty?!?!

For a quick update on the impact of austerity budgets:

Portugal 2/10: -260 basis points
Ireland 2/10: -135 basis points
Greece 2/10: -1114 basis points

These are the inverted curves of economies attempting to ring out the excesses of inflation. Unfortunately, economies in question do not have the problem of excess inflation but rather excess debt, which would normally call for negative real rates of return an steep curves.

As Brussels has dithered and deceived, the markets have exacted a price,a very high price. Where it all ends it is impossible to know but Athens will be the first test of the people versus the political elite of Brussels. Will Sisyphus roll the rock further or will the Greeks call the existential question for the EU???

Notes From Underground: The Greek Parliament Shows Its Confidence … Will the Markets Do the Same?

June 21, 2011

In a widely predicted outcome, the Greek Parliament voted 155-144 to sustain the government of George Papandreou and allow for next week’s vote on the new austerity budget–and the release of another round of bailout funds. The global equity markets and the EURO sustained a second day of rally as investors were willing buyers of risk in the HOPE of a respite from the turmoil of European sovereign debt. Tomorrow’s Financial Times has an article about Greek citizens cashing in their EUROS for GOLD.

(more…)

Notes From Underground: Trichet, Juncker, Papandreou, Sarkozy and Merkel Provide the Dance of the Seven Veils

June 20, 2011

Another weekend full of “surprises” as the EU tried to entrance the markets with the slow dance of default/reprofiling/insolvency/bailouts/bail-ins/austerity budgets and of course a voluntary agreement to reschedule the duration of the debt of the PIIGS. No matter if you put a veil on it: a PIG is a PIG. The language of the Eurocrats is so convoluted that every press release creates more confusion rather than offering any type of clarification of how the financial support mechanism is to provide support in real terms. In seems that the Brussels Eurocrats are mainly concerned about the banks and how much exposure they have to a Greek default. A major credit event in Greece will cause the other PERIPHERALS to consider the possibility of a “default” in response to a major solvency action by the Greek authorities.

(more…)

Notes From Underground: Mr. Bernanke, Remember your Bailiwick is MONETARY POLICY

June 15, 2011

Today’s economic data continued the recent pattern of tepid activity. The EMPIRE MANUFACTURING INDEX was very soft but the analysts believe that the Japanese earthquake played havoc with global supply chains and thus impeded some manufacturing sectors. The CPI number was right on target and thus had no impact. The CAPACITY UTILIZATION and INDUSTRIAL PRODUCTION were on the soft side, which added more concern to the fragility of the U.S. economy. Markets are left with moderate growth while being plagued with the continual problems of the PIIGS.

(more…)

Notes From Underground: Housing is Still Looking for a Foundation of Support

May 31, 2011

The Case-Shiller index today reported a further erosion in home values, which put more pressure on the U.S. economy. In addition to a drop in the major asset of most U.S. households, the CHICAGO PMI came in much weaker than expected as consumer confidence showed renewed weakness. Even with record low interest rates, the U.S. housing market cannot find any support for prices. As I have argued for years, if employment stays weak then housing will struggle … and so it goes.

(more…)