Financial Market report for July 25, 2011
1) … Sentiment rises against the Leaders’ Greek Default Framework Agreement
Zero Hedge relates Merkel facing German revolt over Greek Bailout.and Open Europe relates A long summer ahead as Sarkozy and Merkel face criticism at home on Greek debt deal.
CNNMoney reports Europe’s Big Debt Deal leaves plenty of room for worry. The big challenge, economists say, is how to revive growth in troubled European economies so that debts and deficits can be resolved organically. Jonathan Loynes, an economist at Capital Economics, said the new measures include “some significant advances” in the policy response to the debt crisis.”But once the dust settles, the markets will surely return to the question of whether the package really addresses the fundamental economic and fiscal challenges facing both Greece and the euro zone in general,” he said. “They will probably conclude that the answer is no.”
Bloomberg reports Dexia may lose $662 Million in Greek Rescue Plan, L’Echo reports. Dexia SA (DEXB), the bank that took the most Federal Reserve discount-window help in October 2008, may face losses of as much as 461 million euros ($662 million) on its holdings of Greek bonds if it joins a euro-area bailout plan, L’Echo reported, citing its own calculations. Dexia holds a maximum of 2.2 billion euros of Greek debt that matures before the end of 2020 and would fall under the voluntary private-sector component of the 159 billion euro rescue, the Brussels-based newspaper reported today, citing its own estimate. Given that participating banks will agree to write down the value of their Greek securities by 21 percent as part of the bond exchange and debt buyback program, according to the Institute of International Finance, Dexia would face as much as 461 million euros of losses, L’Echo said. Europe’s 90 biggest banks hold about 98 billion euros of Greek debt, according to the European Banking Authority. They stand to lose 20.6 billion euros on their Greek government bonds after lenders in the region pledged to contribute to a new rescue package. Dexia hasn’t committed to participate in the support measures for Greece. The bank is waiting for the European Banking Authority to issue conclusions on the plan, L’Echo said, citing spokesman Benoit Gausseron.
2) … Stocks falling lower today included
3) … The failure of the seigniorage of Neoliberalism is seen in a number of indicators:
The Small Cap Value, RZV, and Small Cap Revenue Firm, RWJ, and Mortgage REIT, REM, and securitization of GSE debt company, Annaly Capital Management, NLY, falling 2.1% lower.
Gold mining stocks, GDX, and US Treasuries, EDV, always make market turns lower together as is seen in the ratio of GDX:EDV manifesting a dark cloud covering.
The ratio of the Small Cap Pure Value shares relative to the Small Cap Pure Growth shares weekly, RZV:RZG Weekly turning lower.
In April 2011, the world passed from the Age of Leverage into the Age of Delveraging, and thus passed from prosperity into austerity; and from Neoliberalism and into Neofeudalism with the Announcement of the Leader’s Framework Agreement for Greek Default, which effected a bloodless Eurozone wide coup de etat, where the state leaders waived national sovereignty, and established the EFSF as a European Monetary Fund, that is a common Eurozone Treasury, at the insistence of President Sarkozy, but long opposed by the Germans. Those living in the Eurozone are no longer citizens living in sovereign nation states; but rather residents living in a region of global governance, one of ten called for by the Club of Rome in 1974.
4) … In today’s news
Bloomberg reports Vietnam’s Inflation Accelerates to 22%, Highest Among Economies in Asia. Vietnamese inflation accelerated for an 11th month in July after the central bank cut a key interest rate even as the nation faces the fastest price gains in Asia. Consumer prices rose 22.16 percent from a year earlier, compared with June’s 20.82 percent pace, data released by the General Statistics Office in Hanoi showed today. Prices climbed 1.17 percent from June. The central bank reduced its repurchase rate to 14 perent from 15 percent on July 4 after a spate of increases since November to fight inflation, leading the International Monetary Fund to say the cut may confuse investors. The benchmark VN Index of stocks is down 16% this year, on concern price gains will hurt the economy.
The Wall Street Journal reports UAW Focuses on VW’s Tennessee Facility. Volkswagen AG’s gleaming new auto plant in Tennessee is becoming a focal point in union efforts to gain a foothold among foreign auto makers’ U.S. manufacturing operations. An unusual nexus of German labor rules and U.S. law has raised union officials’ hopes in a region that has long resisted their overtures. The United Auto Workers union and labor officials at Volkswagen in Wolfsburg last week held talks about VW labor efforts to establish a German-style system of worker representation at the Tennessee plant.
Between The Hedges relates Welt am Sonntag reports European Central Bank Executive Board Member Lorenzo Bini Smaghi warned against provided a Greek-style debt-relief package to other euro-area countries. Bini Smaghi said he was “surprised” by former ECB chief economist Otmar Issing’s comment that Greece should quit the euro area after a debt restructuring.
Open Europe reports Bundesbank President Jens Weidmann spoke critically of the bailout deal saying, “The euro area [has] made a big step toward a collectivisation of risks in cases of unsolid public finances and economic mistakes…That’s weakening the foundations of a monetary union founded on fiscal self-responsibility.” Widespread support for the package within Angela Merkel’s coalition government still looks unsure. The deal may be ratified with the support of the opposition SPD party, but without unified coalition backing there would be widespread calls for a general election.
And further relates EU summit agreement “rests on some heroic assumptions” Writing in the Sunday Telegraph, Open Europe Director Mats Persson argued, “Eurozone leaders took some decisive action this week to save their currency. But while the deal agreed at Thursday’s EU summit looks decent on paper, it rests on some heroic assumptions…For starters, the deal is a huge political gamble on the willingness of taxpayers throughout the eurozone to continue to underwrite other countries’ debts. This package also amounts to another step on the slippery slope towards debt union in Europe…So where does all of this leave Britain? Well, the UK remains exposed to future problems in the eurozone, not least via its banking system. Additionally, the new deal leads to cuts being made too far and too fast – necessary for the long-term – it could trigger a pretty nasty economic downturn in the eurozone in the short-term. Given the trading volumes between the UK and the eurozone, this could have a hugely negative impact.”
In the Telegraph, Edmund Conway argues that the deal struck by eurozone leaders last week “is dripping with moral hazard. Not only has a eurozone member been allowed to default, it has been promised a package of economic aid measures to set it back on the road to prosperity (and, one presumes, profligacy).” Italian economist Francesco Giavazzi writes in Il Corriere della Sera, “The message conveyed to debt-laden countries is: you need to make sacrifices, but don’t strive.”
Writing in the FT Weekend, Europe Editor Tony Barber argued, “Sooner rather than later, politicians must address the problem of legitimacy. The paradox is that the debt crisis is driving Europe’s leaders towards closer integration while simultaneously sapping the public’s faith in that same goal.”
Writing in the Telegraph, columnist Ambrose Evans-Pritchard argues, “They never wavered in their faith that EU states would yield sovereignty to save the euro if push came to shove, that monetary union would force the pace towards joint EU government. So it proves to be, for now. But let us not forget that Europe’s ideologues have achieved this only by pushing the world to the brink of catastrophe and holding parliaments to ransom with their great gamble.”
Saturday’s Times: Wighton Saturday’s Times: Parris Saturday’s Independent El País: Juppé El País: Colombani Sunday Express: Ferrari Independent on Sunday: McRae Coulisses de Bruxelles Independent on Sunday: Pagano Independent: Leader Observer: Hutton Observer: Keegan Telegraph: Conway Le Monde: Pisani-Ferry FTD: Hankel WSJ: Stelzer Sunday Telegraph: Persson Sunday Times: Marsh Independent: O’Grady BBC: Flanders Sunday Telegraph: Daley Saturday’s Telegraph: Armitstead Weekend FT Weekend FT: Barber Weekend FT: Mallaby Telegraph: Evans-Pritchard FT: Munchau
Mike Mish Shedlock reports that the financial markets are no longer certain about last Thursday’s agreement, as interest rates came back up again on Friday and over the weekend. and the Wall Street Journal reports Italy, Austria cancel bond auctions
The FT reports US money market funds are withholding funds from the European banking system, with the result that liquidity has been drying up.
Wolfgang Münchau writing in the FT says the Leaders’ Agreement failed to address Greek debt sustainability and contagion.