Posts Tagged ‘EMU’

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: King Checks, Trichet raises but signals he is not necessarily a serial raiser

April 7, 2011

As expected, the Bank of England held rates at 50 basis points and the ECB moved to raise rates to 1.25 percent. BOE Governor KING does not hold news conferences post-announcement so we will have to wait to find out if the MONETARY POLICY COMMITTEE (MPC) voted 5-3-1 again. Also, with inflation in the U.K. above the targeted level, Mr.King will be writing another to the ECHEQUER to explain why the BOE kept rates at the present level and held back from raising as prescribed by its mandate.

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Notes From Underground: 1992 again?

January 20, 2010

The Greek credit markets got hammered today, as at one point the 2-year note had risen 88 basis points in yield. We are concluding that the markets are going to question just how serious the Greek government might default on their debt. At the same time, the market is going to test the hypothesis of the European Union all for one or one for all concept. The goal and result of the Soros challenge to the European Monetary Union was to find out how far the Brits and others would go to defend the philosophical construct of the EMU. After bringing the Bank of England to its knees, the OLD Lady surrendered. It realized the cost to Britain was too great.

It appears that market participants wish to find out how far the Greeks will go to meet the strictures of the EU. The question we pose: Will the Germans allow a massive”loan” to the Greeks, or will the IMF interfere to aid the profligate PIIGS? This is the challenge that awaits the markets, but it seems that the entire global financial system is beginning to understand the ramifications of a debt default.