So I thought Europe was fixed over the weekend. The MSM pundits and courageous politicians told me so. Stock markets have been programmed to go up this morning. All is well. Right?
If the solution agreed to on Saturday was supposed to save Spanish bankers with German taxpayer money, then imagine what would happen if they decided not to “save” the Spanish bankers. The 10 Year Spanish bond yields have skyrocketed to 6.43%, up from 6.22% on Friday and up from 4.91% in early March. As a reminder, once rates exceed 6% these PIIGS countries have no chance to service their debt. If the market believed that Spain was really saved, interest rates would have declined.
Everyone knows that Italy is just as fucked as Spain. Their rates soared by 19 basis points to 5.96% this morning. This is up from 4.84% in early March. The crisis in Europe continues to worsen. Bailing out bankers on the backs of the citizens is growing old as a solution. Revolution is in the air. The smell of politician and banker fear is wafting across the continent. Pitchforks are being handed out, torches lit and the guillotine is being sharpened. We’ve seen this story before. It should be fun to watch.
Administrator says:
LONDON (MarketWatch) — Italian stocks dropped and bond yields surged in afternoon action on Monday, as focus turned to Italy’s banking sector after Spain over the weekend asked the European Union to help its ailing banking sector. The FTSE MIB index /quotes/zigman/1482176 XX:FTSEMIB -2.31% dropped 2.2%, with banks adding pressure. UniCredit SpA /quotes/zigman/172768 IT:ISP -5.46% slipped 5.1%, Banco Popolare SC /quotes/zigman/474619 IT:BP -5.46% fell 4.1% and Banca Popolare di Milano Scarl /quotes/zigman/171622 IT:PMI -4.73% lost 4.5%. Yields on 10-year Italian government bonds /quotes/zigman/4869096/delayed IT:10YR_ITA +4.67% rose 24 basis points to 6.02%.
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11th June 2012 at 11:35 am
Administrator says:
Pull up a chair and have some popcorn. This is about to get interesting.
Well-loved. Like or Dislike:
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11th June 2012 at 12:24 pm
Administrator says:
AFP – Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return, European sources said on Saturday.
“Ireland raised two issues: one is the need to ensure parity of the deal with Spain retroactively on its bailout from EFSF,” one European government source told AFP, referring to the temporary rescue fund, the European Financial Stability Facility.
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11th June 2012 at 12:32 pm
Administrator says:
Europe Brings Out The “Capital Controls” Bazooka
Submitted by Tyler Durden on 06/11/2012 11:31 -0400
Here we go:
•EU SOURCES HAVE DISCUSSED IMPOSING CAPITAL CONTROLS AS WORST CASE SCENARIO IF GREECE LEAVES EUROZONE – RTRS
•IMPOSING BORDER CHECKS, LIMITING ATM WITHDRAWALS ALSO PART OF WORST-CASE SCENARIO PLANNING – EU SOURCES – RTRS
•SUSPENSION OF SCHENGEN ALSO DISCUSSED
In other words, that money you thought you had… You don’t really have it. We can only hope this message was not meant to restore confidence and prevent future bank runs. Because if Europe wanted a continental bank run, it may have just gotten one.
This is getting scary very fast.
Full piece from Reuters:
European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.
EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasised that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen – no one Reuters has spoken to expects Greece to leave the single currency area.
Belgium’s finance minister, Steve Vanackere, said at the end of May that it was a basic function of each euro zone member state to be prepared for problems. These discussions appear to be in that vein.
But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.
The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.
No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of euro zone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said.
As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.
“Contingency planning is underway for a scenario under which Greece leaves,” one of the sources, who has been involved in the conference calls, said. “Limited cash withdrawals from ATMs and limited movement of capital have been considered and analysed.”
Another source confirmed the discussions, including that the suspension of Schengen was among the options raised.
“These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality,” the second source said. “It is sensible planning, that is all, planning for the worst-case scenario.”
The first official said it was still being examined whether there was a legal basis for such extreme measures.
“The Bank of Greece is not aware of any such plans,” a central bank spokesman in Athens told Reuters when asked about the sources’ comments.
The vast majority of Greeks – some surveys have indicated 75 to 80 percent – like the euro and want to retain the currency, something Greek politicians are aware of and which may dissuade them from pushing the country too close to the brink.
However, SYRIZA is expected to win or come a strong second on June 17. Alexis Tsipras, the party’s 37-year-old leader, has said he plans to tear up or heavily renegotiate the 130-billion-euro bailout agreed with the EU and IMF. The EU and IMF have said they are not prepared to renegotiate.
If those differences cannot be resolved, the threat of the country leaving or being forced out of the euro will remain, and hence the need for contingencies to be in place.
Switzerland said last month it was considering introducing capital controls if the euro falls apart.
In a conference call on May 21, the Eurogroup Working Group told euro zone member states that they should each have a plan in place if Greece were to leave the currency.
Belgium’s Vanackere said two days after that call that it was a basic function of each euro zone member state to be prepared for any eventuality.
“All the contingency plans (for Greece) come back to the same thing: to be responsible as a government is to foresee even what you hope to avoid,” he told reporters.
“We must insist on efforts to avoid an exit scenario but that doesn’t mean we are not preparing for eventualities.
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11th June 2012 at 12:34 pm
OF says:
As I said, one of those bailouts maybe one bailout too many…
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11th June 2012 at 1:08 pm
AWD says:
Funny video explaining Eurosis:
http://www.youtube.com/watch?v=aKpE0HqJtow&feature=player_embedded
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11th June 2012 at 1:26 pm
Administrator says:
AWD
I posted it seperately.
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11th June 2012 at 1:38 pm
Administrator says:
“The 100 billion-euro ($126 billion) rescue for Spain’s banks moved Italy to the front line of Europe’s debt crisis as an initial rally in the country’s bonds fizzled on concern it may be the next to succumb. Italy’s 10-year bonds reversed early gains today in the first trading after the Spanish bailout and fell for a fourth day, sending the yield up 20 basis points to 5.98 percent . . .
Italy has 2 trillion euros of debt, more as a share of its economy than any developed nation other than Greece and Japan. The Treasury has to sell more than 35 billion euros of bonds and bills per month — more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.”
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11th June 2012 at 1:47 pm
Administrator says:
It turned out to be a good day to be short stocks and long bullion if you ignored the short term gyrations and obvious price manipulation.
Greek elections which are on Sunday 17 June are overhanging the markets this week. The trade going into the weekend could be interesting.
If Spain takes the money from the ECB and uses it to bail out its banks, leaving the people with austerity and the debt payments, then the government will be on the path to self-destruction.
The economic recovery in Iceland looms large, where they rejected the banks fraudulent legacy, and even jailed two of the bank execs this week.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.
Jesse
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11th June 2012 at 4:31 pm
Administrator says:
Stock futures were up 130 points overnight. The market finished down 143 points.
A 273 point reversal is a warning to all.
This sucker is going down big time.
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11th June 2012 at 4:34 pm
Administrator says:
Spanish Bailout
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11th June 2012 at 4:45 pm
card802 says:
We laugh at Europe, but the same is happening here.
From todays Penning:
“On Jan 28, 2009, the Fed owned $302 Billion in U.S. Treasuries. On April 25, 2012, the Fed owned $1.668 Trillion. Folks that’s 5 and ½ times the amount in 2009, or for those that love percentages. 452%! Oh, and during this time, the Fed has become the single largest owner of Treasuries.”
When this bubble bursts, it will be a real spectacle.
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11th June 2012 at 8:21 am
Administrator says:
Spanish Bond Yields Hit 2012 Highs As Merkel Dismisses Eurobonds
Submitted by Tyler Durden on 06/12/2012 09:03 -0400
Spanish bond yields have leaked slowly higher all day but the very recent news from Merkel, talking on the G-20, that:
•*MERKEL SAYS WRONG TIME TO DISCUSS POSSIBILITY OF EURO BONDS
•*MERKEL SAYS STATES MUST GIVE UP SOME SOVEREIGNTY TO EU
•*MERKEL SAYS JOINT LIABILITIES IN EUROPE REQUIRE JOINT CONTROLS
•*MERKEL SAYS INVESTORS’ INTEREST NOT IDENTICAL WITH EUROPE’S (Subordination?)
has pushed Spanish CDS and bonds to they highest closing levels for the year and just shy of intraday post-EU record wides. For context, these are 15 year high yields at 6.67% and while they ‘feel’ dramatically high, Spanish bond yields were over 12% in 1995 (but the current spread to Bunds is dramatically wider) highlighting why focusing on the spread not the yield is now critical. 5Y CDS are holding above 600bps again (record wides) and 10Y Spanish spreads (over Bunds) are at 527bps – near all-time (pre- and post-Euro) wides. The last two days have seen a dramatic surge of 38bps from Friday’s close and 65bps from Monday’s open as Goldman’s ‘long’ short-dated Spanish bond bet continues to Corzine the Muppets.
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11th June 2012 at 9:44 am
Administrator says:
By Sara Sjolin LONDON (MarketWatch) — European stock markets erased earlier gains in late trade on Tuesday, as pressure on Spanish and Italian bonds spurred a selloff in equities. The yield on 10-year Spanish government bonds /quotes/zigman/4869131/delayed ES:10YR_ESP +4.44% rose to an all-time high in late trade and was up 32 basis points to 6.85%. The IBEX 35 index gave up gains and slipped 0.3% to 6,496.10.
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11th June 2012 at 10:27 am
Administrator says:
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11th June 2012 at 11:54 am
Administrator says:
Fitch Managing Director Says Spain Will Miss Budget-Deficit Targets By “Substantial Margin”; Yields in Spain and Italy Soar; Spanish 10-Year Yield Hits Record High 6.83%
The selloff on Spanish and Italian bonds continued today with yields in Spain hitting euro-era record highs.
On the deficit side of matters, I do not believe Spain will meet its budget-deficit targets, and neither does Fitch.
Fitch Managing Director Ed Parker said Spanish Prime Minister Mariano Rajoy will miss budget-deficit targets this year “by a substantial margin.” according to a Bloomberg report.
10-Year Spanish Bond Yield Hits Record High
The previous euro-era 10-year Spanish Bond Yield high-water mark was 6.7%. Today that record was shattered today with a rise to 6.83%, closing at 6.7%, right at the previous high. The yield closed up 20 basis points (.2 percentage points).
Yields Climb in Italy
10-Year bonds in Italy were hammered as well, with the yield climbing as high as 6.3% before settling at 7.17%, up 14 basis points.
Emperor Has No Clothes Moment
Yesterday, on news of a Spanish bailout, stocks and bonds gapped up (yields down). The yield on the 10-year Spanish bond dropped as low as 6.01%, but the selling began immediately.
I commented that the sell-the-news reaction represented An “Emperor Has No Clothes” Moment: ESM Has Failed Already.
The jump from 6.01% coupled with significant follow-through today offers substantial evidence that time has expired for Europe to address the crisis.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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11th June 2012 at 2:42 pm