The EU Denies Planning Spain Credit Line with IMF, US, although rumors and leaks are propping in more places that a Swiss damn being plugged with a bunch of slender, fair fingers of those many blond maidens - after all, Greece did not want and was not looking for aid either. That trillion dollar bailout fund was the result of a bunch of politicians with too much money on their hands having absolutely nothing else to do with their time.
Cliff Wachtel gathers much of the evidence:
After 2 German newspapers reported that Spain was seeking aid, now add a Spanish newspaper, El Economista, as the third to report a coming aid package for Spain, after 2 German papers reported this last week. All reports have been denied by the Spanish Government, which is rapidly losing credibility as the reports build. See details here from Bloomberg.
Yesterday, the German newspaper Frankfurter Allgemeine, citing an unnamed source in Berlin, reported that Spain was discussing a bailout with EU officials following last week’s freeze in interbank lending as markets have lost confidence in the Spanish banking sector. Spain denied the report, did Greece had done the same thing earlier, so EU credibility isn’t what it once was. If the allegations prove true, look for A LOT more downside in risk markets. This was the second such report, the first was last week from from FT Deutschland
Remember that just last week Spain had a 3 year bond sale at an average yield of 3.32%, roughly double the yield needed to sell 3 year bonds as recently as April, an ominous sign given that Spain needs to sell about € 25 bln in bonds in July. It is unclear how long Spain can continue to withstand a doubling of its borrowing costs, which will counteract efforts to cut its deficit.
June 9 (Bloomberg) -- France and Germany called on the European Union to speed up curbs on financial speculation, saying some bets against stocks and government bonds should be banned as markets suffer a resurgence of “strong volatility.”
I have been bearish on European banks since the UK mortgage banks collapsed several years ago. To this day, despite mounds of fundamental and macro evidence pointing to very bad things happening, there are still cheerleaders stating that concerns are overblown. A good example can be found in the post "Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!", on March 14th:
“The worst of Greece’s financial crisis is over and other European nations won’t follow in its path", said former European Commission President Romano Prodi. “For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.””
Okay, I shouldn't have called him a liar, but a tad bit optimistic, maybe? I actually agree with the last part of his statement. The euro system will not suffer greatly because of Greece, it will suffer greatly because of individual member countries' problems collectively weighing on the union. As for Mr. Prodi's accuracy, let's take a look at the Greek CDS over the time period in question...
Yeah, that's right! Listening to the former EC President would have gotten you on the wrong side of the TRIPLING of CDS spreads. Not to fret though, the ECB allocated 1 trillion dollars to alleviate this problem, and now spreads have just more than doubled, but are still rising. And for those of you who believed me over Prodi (I apologize again for the "liar, liar pants on fire" bit, though)...
Relevant commentary from BoomBustBlog and sources throughout the Web on the accounting change that added 80% to the S&P since March 2009!!!
Warning Shots from the IASB: FT
- The IASB came under fire in the fall/winter of 2009 in regards to mark to market rules
- Banks wanted continued relaxation of valuing models in order to “smooth out volatility swings in asset prices”
- IASB and FASB plan to converge on mark to market ruling by 2011, both have stated a desire for more transparent financial statements, but have been politically compromised by bankers and commercial lenders
FASB Plan Would Force Banks to Report Loan Fair Value: BusinessWeek
- FASB is seeking to approve a proposal that would force banks to mark loans at market value by 2013, potentially having billions of dollars at risk for writedowns
- In April 2009, FASB gave significant leeway to banks in regards to pricing and modeling loan values, banking consultants are very opposed to a reversal of the measures
- Pension obligations and leases will be exempt from new measures
In continuing my data intense, hardcore, uber-objective dissection of the stuff that is proffered through the mainstream media (MSM), I bring you:
June 4 (Bloomberg) -- Employers in the U.S. hired fewer workers in May than forecast and Americans dropped out of the labor force, showing a lack of confidence in the recovery that may lead to slower economic growth.
Payrolls rose by 431,000 last month, including a 411,000 jump in government hiring of temporary workers for the 2010 census, Labor Department figures in Washington showed today. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey. Private payrolls rose a less-than-forecast 41,000. The jobless rate fell to 9.7 percent.
This was not hard to see coming if you studied the numbers with an objective eye. If we dig up last year's BoomBustBlog article on the topic, we'll ponder... "Are the Effects of Unemployment About To Shoot Through the Roof?" as excerpted below.
A recent zero-hedge article rightly questioned the reliability of the reported unemployment figures by comparing the reported increase in the unemployment benefits paid with the reported increase in the number of insured unemployed. According to the figures reported by Department of Labor (DOL), the total number of insured unemployed in the US has risen by nearly 400% since September 2007 and has reached nearly 10.5 million as of Dec 19, 2009. However, if we look at the monthly withdrawals on the unemployment insurance account (according to the Daily Treasury Statement prepared by the Financial Management Service), the expenditure has risen by nearly 550%. The difference has been widening since April 2009 (coincidentally, right about the time the S&P 500 rocketed skywards, and the housing market made several month to month gains [see If Anybody Bothered to Take a Close Look at the Latest Housing Numbers..."]) and has increased substantially in Dec 2009.
For those who have been following me in the Asset Securitization and Pan-European Sovereign Debt Crisis series this may be old news, but let's go through the exercise anyway. It looks as if we are back to those non-sense games being played by those that manipulate the market. Taking a look at Bloomberg.com's front page, you'll see "Stocks, U.S. Futures Rally on Economic Outlook; Yen Weakens, Bonds Decline" (hey, good times are here again) followed directly by "Banks Deposit Record $394 Billion With ECB, Avoiding Loans to One Another"(hey, isn't this the exact same environment wherein Bear Stearns, then Lehman Brothers collapsed leading the Treasury Secretary Hank Paulson to proclaim the end of the financial world was coming?). Then there's "Covered Bond Sales Surge; Transocean Tumbles: Credit Markets": Sales of covered bonds are accelerating as investors seek debt backed by collateral amid concern about the creditworthiness of governments and banks.
Okay, let's take this by the numbers....
For those who feel that the simple application of arithmetic and math amounts to "Doomsday Scenarios", Fear-mongering, and vultures in the market place, I present to you BoomBustBlog's scenario analysis of the Portuguese Haircut.
You think those are ugly? You ain't seen nothing yet!
The Mathematical Truth Concerning Portugal's Debt Situation
Before I start, any individual or entity that disagrees with the information below is quite welcome to dispute it. I simply ask that you com with facts and analysis and have them grounded in reality so I cannot right another "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!". In other words, come with the truth, or at lease your closest simulacrum of it.
In the news this morning:
- Stocks, U.S. Futures Tumble on China Growth Concern, BP Spill; Oil Plunges: We discussed the topic of China's unsustainable growth and the knock on effects its slowdown would have on other economies in detail just last week. How timely...
- The Narrowing Chinese Trade Surplus
- In Australia, Tax as a Contagion
- Australia: The Land Down Under(water in mortgage debt)
- BoomBustBlog China Focus: Inflation?
- BoomBustBlog China Focus: Interest Rates
- My China Ruminations Have Come to Pass As the Country Enters a Bear Market
- Chubble (The Unmistakeable, Yet Thoroughly Argued Chinese Bubble), Unemployed/Deleveraging Shopaholics Pushing Retail Stocks & Other News
- Euro Weakens Against Dollar on Speculation Crisis Hurting Region's Economy: Nothing new here. BoomBustBlog newcomers, see the Pan-European Debt Crisis here.
- BP Tumbles Most in 18 Years After Abandoning Attempt to Plug Leaking Well: The company's future doesn't look to bright!
- Paulson Drops 6.9% as Hedge Funds Post Biggest Monthly Losses Since Lehman (HNWs and institutional investors should take the time to read this article and my summaries): Many funds, including Paulson's, made hard bullish bets on the financial sector recovering, in direct contravention to my positions and research. Yes, the financial sector took off like a bat out of hell the last 3 quarters of 2009, but one shouldn't confuse sharp market price movements with fundamentals. Many, if not most are in bad shape, and it ain't lookin' much better in the near term either. See The Next Step in the Bank Implosion Cycle???. Most importantly, many (if not most) professional money managers and analysts totally underestimated the extent of the damage being done Europe. I have was weary of Europe since 2008, put short research and positions on in 2009 (with mixed results due to the bear market rally) and went full blown GRIZZLY BEAR in 2010 (reference the Pan-European Debt Crisis which publicly documents and details it all). Back to the news clip:
- (Bloomberg) -- John Paulson, Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940. Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index, as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier. Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased. “Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,” said Brad Balter, who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. “The only defense that seems to work in months like these is being in cash.”
"SAC Capital Advisors LLC, the hedge-fund firm run by Steven Cohen in Stamford, Connecticut, with about $12 billion under management, lost 2.9 percent last month through May 21 with its SAC Capital International fund, trimming this year’s gain to about 4 percent, according to people familiar with the firm.
Citadel Investment Group LLC, the $12 billion hedge-fund firm run by Ken Griffin, lost about 2 percent with its biggest funds last month through May 21, said people familiar with the Chicago firm. The funds soared as much as 62 percent last year as markets rebounded after losing as much as 55 percent in 2008.
Brevan Howard Asset Management LLP in London, Europe’s largest hedge-fund firm, lost 0.1 percent for the month through May 21 with its Brevan Howard Fund Ltd., leaving it with a decline of 0.3 percent this year, according to an investor.
- I will gladly compare the performance of BoomBustBlog research to any bank, fund or asset manager that charges big commissions or 2 and 20! Reference Updated 2008 performance and the 2009 Year End Note to BoomBustBlog Readers and Subscribers for rough performance numbers covering 2007, 2008 and 2009.
- Analysts Boosting Forecasts See 25% Stock Gain Defying El-Erian New Normal: Yeah, but aren't analysts mostly wrong unless we're in a bull market? Stocks always go up, Right????!!!! Reference Blog vs Broker, Who Do You Trust?
- Cameron Bull Market in Gilts Beating Merkel Bonds as U.K. Keeps AAA Rating: For now, at least. Subscribers, see
UK Public Finances March 2010
From Blomberg: Mining Tax ‘Contagion’ Set to Spread From Australia:
May 20 (Bloomberg) -- Australia’s planned 40 percent tax on mining profits has set a benchmark for other countries weighing higher levies, reducing earnings forecasts for BHP Billiton Ltd. and Rio Tinto Group and the attraction of mining stocks.
“It could create what the miners are now describing at a global level as a type of tax contagion,” said Tom Price, commodities analyst with UBS AG in Sydney, in an interview. “They might levy a new tax at the miners in Brazil. Canada is another mineral province and South Africa.”
The new Australian mining tax coupled with rising worries over possible slowdown in China has become a serious concern for both domestic and international mining companies that have substantial exposure to Australian mining assets.
Here's a synopsis on the topic from my point of view...