The Trouble with Greece.
Speaking Joe Brusuelas, John Tamny, Aaron Task re the euro kerfluffle and the major Greek risk. Steve Moore, WSJ, tells me that the Europeans do not have a Greek problem, or a currency problem, or even a credit problem. The Euros have a spending problem. The patch of the leaking boat - which rallied the oversold and rewarded the worrisome (above) -- will not solve the underlying failure that the EU spends more than it can afford and can no longer raise taxes and mandate public servant largesse. In sum, the welfare state has run aground on bad leadership and sloth. The trading opportunity is obvious. For some weeks the turmoil will offer rumor, doubt, fantasy and threat from Berlin, Paris, Athens, Brussels and now London. The American market is not protected from European mischief and French dunderheadedness. The rejection of Merkel in Rhineland-Westphalia is not idle. Also, the Europeans now push themselves into slow growth in order to pay down the debt, and this means un-hiring and drift, not conditions that will invite American growth. What goes around is around. The fate of Iceland, Greece, the UK and California -- and soon enough the USA, absent proportional discipline at the Federal trough.
The Trouble with the USA.
Housing overhang continues as the curse of the bubble of '04-'08. Spoke Connor Dougherty, WSJ, re the limited prospects of growing out of the mess. Two million construction jobs are gone, not coming back. Consumers feel poor because their houses have crashed in value, and a larger percentage are underwater. Small businesses cannot borrow effectively because of the decline in the value of their commercial real estate holdings, which then weakens their collateral at the bank. Also, municipal and state governments are in sharp decline because property taxes are in sharp decline. Dougherty also mentions that people without good job prospects are stuck in poor job locations because they cannot sell their underwater houses.
The Trouble with the UK.
Gordon Brown, David Cameron, Nick Clegg and a population living in denial as big as California. Spoke Brusuelas again, re what does Ben Bernanke watch to worry about the Europeans. The answer is the LIBOR OIS, which opens at 6 AM Eastern Time. The LIBOR rate has backed off the spike up, but it is not quiet; and it points to the fact that the smart money does not believe the European package. Am told that Larry Summers and Tim Geithner told the EU finance ministers and Trichet of the ECB to overstate and overwhelm and overpromise with the bailout package. Now the best-case scenario is in the market, and the facts will come slowly over weeks that the Europeans cannot and will not deliver on the promises and sacrifices.
there is a mass of mumbo jumbo about what markets say...
boil it down to this
what do you believe about the future?
really and truly.
not about tomorrow.
in a year, in 5 years, in 30.
lending is different from equity investing.
equities can go up or they can go down.
bonds can only go down.
lenders worry about risk not rosy tales of glory.
will he pay me back?
will greece pay me back?
rofl
credit is about character.
if you owe me money and i trust you i will work with you.
would you trust greece?
why?
will you go for the head fake?
or will you wait?
That Joe Brusuelas is spectacularly blunt. When I heard about the ECB putting a trillion on the table, I asked of no one in particular, "Where's the money coming from? If an EU member actually draws on it, the entire system comes crashing down for lack of real money. And how can Germany, Britain, and France, already deeply in debt themselves, bail out states in worse shape. Can bankrupts back the destitute?"
Just finished listening to Kudlow 5/10. Peter Morici added some meat to the bullet points about the sustainability of the bailout, the rally, and the European version of tough love. He said, "yes, they have a common currency but no enforcement mechanisms and no tax harmonization. We tax New York and send the money to Mississippi to help with their medicaid problems. The ECB and the Eurozone have no such transfer mechanisms." Andy Busch agreed and said the Lisbon treaty (aka The European Constitution) would have to be amended to install such mechanisms, including disciplinary mechanisms.
Raise your hands, all of you who see revisiting the Lisbon treaty this soon after it had to be dragged across the ratification finishline by a combination of rabid indifference in the voting public and nefarious shennigans by the governments most desperate to see it pass.
a nomura analyst cracked that if 140 bill was good for 16 hrs of breathing room 1 trillion might last a week.
"disciplinary mechanisms" rofl
ecb on the hook to buy sovereign bonds. how long can they last?
Wonderful understatement from Stratfor:
European Unity and Diversity
Northern and Southern Europe are very different places, as are the former Soviet satellites still recovering from decades of occupation. Even on this broad scale, Europe is thus an extraordinarily diverse portrait of economic, political and social conditions. The foundation of the European project was the idea that these nations could be combined into a single economic regime and that that economic regime would mature into a single united political entity. This was, on reflection, a rather extraordinary idea.
CC, I don't trust the US government right now either.
Is Geitner and Summers ready to prevent any contagion from spreading to the USA?
Sapientia,
no contagion for the us, i think.
the us represents security to the world.
it is part of the reason so many parts of the world love to hate us and hate to love us.
the world is getting scarier now.
in part because of our feckless foreign policy.
if you have wealth in venezuela, or kyrgystan, or georgia, or latvia, or greece, or niger, or uk, or russia, or shanghai, and so on and so on, where do you go?
no default risk in the us because the fed has a printing press.
there is inflation risk but
frightened money around the world is flooding into the us
into treasuries
so the frightened money of the world will finance us ... for a while.
but governments do not discipline governments.
nor do pols.
voters do.
citizens.
throw the bums out.
not just in washington.
in each state, county, city, town and school district.
replace them with grown ups.
people who will speak the truth and lead with integrity
there are men and women like adams and washington and jefferson in the country today.
When reality bites later this year or next, there is no way Geithner or Summers or Bernanke can prevent it from hitting here. The shallow down day on the markets and the stunning record-breaking one-day spike in the gold trade after hours illustrates the Market Knows. Okay, so Trichet kicked the can down the road for today and this week. The problem is the collapse of the welfare state and any pretense that governments can simply borrow their way out of it indefinitely is just that: pretense. To quote David Goldman or First Things, "We're in Bernie Madoff land here." The borrowing is a ponzi scheme to buy off the demonstrators in the street, the farmers pouring milk out in the fields, the California prison guards' and teachers' unions for now. Now doesn't have a long shelf-life. Eventually the bills come due and someone has to pay. You want to know who that angel is? Look in the mirror.
Much more of a political crisis than an economic one. Economic principles remain fixed. Two plus three will always be five no matter what politicians tell us. Though I must admit, it’s a neat trick that’s being played by the ever scheming Left: Entice all the world’s currencies to seek refuge in America and then blow it up. They never had much use for currencies anyway. It should be easy now to consign capitalism to the ash heap of history. When everybody is equally poor, there’s your equality. Sure, there will be bloodshed, chaos, dislocation and hand wringing. It can’t be helped. The revolution must kick off the new age. The transformation of America and the world is at hand. What will constitute the new currency? Brutality? Sex?
http://peterkoelliker.blogspot.com/
750 rallies the piigs bonds.
anyone who owns piigs bonds at this point should sell into this fake rally and run from euro space.
the silly germans have permitted a bailout and forced the ecb to fund it.
a tale of hubris worthy of greece.
this story will not have a happy ending.