Financial Market report for November 1, 2011
1) … G-Pap provides the Greeks a gun with six bullets in the barrel … And the world with a sovereign debt crisis intensified worse than ever.
Open Europe reports Greek Prime Minister George Papandreou told a meeting of MPs from his party yesterday that the country would hold a referendum on the EU and IMF rescue package agreed last week. Papandreou said, “Citizens will be called on to say ‘yes’ or ‘no’ to the agreement. It is not for others to decide but the Greek people to decide…We have faith in the people. We believe in democratic participation. We are not afraid of it.” The Guardian reports that Greek Interior Minister Haris Kastinidis said that the vote would most likely take place in January. Die Welt reports that, according to Greek Finance Minister Evangelos Venizelos, the referendum should only be held once the details of the deal have been negotiated. However, Handelsblatt notes that if Papandreou loses a vote of confidence scheduled for Friday, it might not even come to a referendum as there would be new elections and the prospect of an uncontrolled default would increase due to the resulting uncertainty.
Le Monde journalist Arnaud Leparmentier writes on his blog that French President Nicolas Sarkozy was “dismayed” by the announcement and quotes a source close to Sarkozy saying, “The Greeks’ gesture is irrational and, from their point of view, dangerous.”
FT Deutschland’s Deputy Editor Sven Clausen writes that although the Greek referendum is “a highly risky undertaking, it is nonetheless correct…the debt crisis can only by resolved by those who can credibly demonstrate that they want to reduce the debt permanently, which requires a political mandate from the sovereign, which in Europe’s case means from the people.” Clausen concludes, “Greece has lost a lot in these last few months, it has however preserved its great democratic tradition.”
The announcement caused new uncertainty in the financial markets as investors fear that Greek voters could derail the bailout plan. Open Europe’s Raoul Ruparel is quoted by the Guardian arguing, “If the Greek public vote no in the referendum Greece could be left with no funds and no government, teetering on the edge of a disorderly default and a disorderly exit from the eurozone. It is only fair that the Greek people have their say, but the eurozone must begin preparing for a no vote and specifically how to handle a rudderless and broke Greece, which would probably include plans for allowing it to exit the euro.” Raoul is also quoted in City AM and by MSNBC. Zerohedge features Open Europe’s analysis of the Greek referendum.
Meanwhile, Italy’s borrowing costs continue to rise, with the interest rate on ten-year bonds reaching 6.2% this morning despite yesterday’s purchase of Italian debt by the ECB, reports Il Corriere della Sera. The interest rate on Spain’s ten-year bonds is at 5.6%, reports Expansión. Separately, the FT reports that the eurozone’s bailout fund, the EFSF, faces “lacklustre demand” for its planned bond issue this week designed to finance Ireland’s bail-out.
Guardian Times Times 2 Times 3 FT FT 2 FT 3 FT 4 CityAM CityAM 2 WSJ Mail European Voice MSNBC Conservative Home Irish Times Irish Times 2 BBC BBC 2 BBC: Hewitt Welt FAZ FTDFTD 2FTD 3HandelsblattHandelsblatt 2ReutersElsevierNRCStandaardLe FigaroLe Figaro 2Coulisses de BruxellesEUobserverLes EchosLe MondeEl PaísEl País 2ExpansiónLe Monde blogs: LeparmentierLes Echos 2Corriere della Sera Corriere della Sera 2 WSJ FT 5 Telegraph FT 6 City AM 3 Expansión: Rivero and Tejo IHT: Vinocur IHT: Taylor Le Figaro: de Kerdrel Il Sole 24 Ore: Napoletano Corriere della Sera: Galli della Loggia FT: Buiter FT: Amato & Ghizzoni FT Editorial FT: Yongding FT: Jenkins FT: Rachman Le Monde: Gougeon Handelsblatt FTD: Clausen Zerohedge
Open Europe relates La Tribune reports that Iceland’s Supreme Court has ruled that the Icelandic bank Icesave, which went bankrupt in 2008, will have to repay 340,000 European customers, the majority of whom are British or Dutch. La Tribune
And Open Europe writes Greek PM announces referendum on EU bailout deal: Democracy is coming home. Open Europe blog
And Open Europe reports Europe’s politicians react to prospect of Greek referendum. Open Europe blog
Reuters reports Greek vote would be on euro membership, Finnish minister says.
Michael Pento writes in Safehaven The Zombie Cult of Nations
Karl Whelan questions A Greek Referendum?
Tyler Durden relates Nikos Konstandaras of Kathimerini Six Bullets In The Barrel. After my initial despair at the announcement of the referendum, a decision I considered frivolous, suspicious and dangerous, I was overcome by a strange calm. I understood, as never before, that the Greeks do not feel alive if not flirting with death. I don’t know if, in his simplistic political obsessions, George Papandreou felt this and therefore pushed the country into a game of Russian roulette. In any case, he put bullets in the revolver and handed it to the people.
Ambrose Evans Pritchard writes Revenge Of The Sovereign Nation The Greek referendum, if it is not overtaken by a collapse of the government first, has left officials in Paris, Berlin, and Brussels speechless with rage. The ingratitude of them.
The spokesman of French president Nicolas Sarkozy (himself half Greek, from Thessaloniki) said the move was “irrational and dangerous”. Rainer Brüderle, Bundestag leader of the Free Democrats, said the Greeks appear to be “wriggling out” of a solemn commitment. They face outright bankruptcy, he blustered.
Well yes, but at least the Greeks are stripping away the self-serving claims of the creditor states that their “rescue” loan packages are to “save Greece”.
They are nothing of the sort. Greece has been subjected to the greatest fiscal squeeze ever attempted in a modern industrial state, without any offsetting monetary stimulus or devaluation.
The economy has so far collapsed by 14pc to 16pc since the peak, depending who you ask, and is spiralling downwards at a vertiginous pace.
The debt has exploded under the EU-IMF Troika programme. It is heading for 180pc of GDP by next year. Even under the haircut deal, Greek debt will be 120pc of GDP in 2020 after nine years of depression. That is not cure, it is a punitive sentence.
Every major claim by the inspectors at the outset of the Memorandum has turned out to be untrue. The facts are so far from the truth that it is hard to believe they ever thought it could work. The Greeks were made to suffer IMF austerity without the usual IMF cure.
So no, like the Spartans, Thebans, and Thespians at the Pass of Thermopylae, the Greeks were sacrificed to buy time for the alliance.
The referendum is a healthy reminder that Europe is a collection of sovereign democracies, tied by treaty law for certain arrangements. It is a union only in name. Certain architects of EMU calculated that the single currency would itself become the catalyst for a quantum leap in integration that could not be achieved otherwise. They were warned by the European Commission’s own economists and by the Bundesbank that the undertaking was unworkable without fiscal union, and probably catastrophic if extended to Southern Europe.
Yet the ideological view was that any trauma would be a “beneficial crisis”, to be exploited to advance the Project. This was the Monnet Method of fait accompli and facts on the ground. These great manipulators of Europe’s destiny may yet succeed, but so far the crisis is not been remotely beneficial.
The sovereign nation of Germany has blocked every move to fiscal union, whether Eurobonds, debt-pooling, fiscal transfers, or shared budgets. It has blocked use of the ECB as a genuine central bank. The great Verfassungsgericht (Constitutional Court) has more or less declared the outcome desired by those early EMU conspirators to be illegal and off limits.
And as my old friend Gideon Rachman at the FT writes this morning: the Greek vote is “a hammer blow aimed at the most sensitive spot of the whole European construction, its lacks of popular support and legitimacy.” Indeed, how many times did we chew this over in the restaurants of Brussels, Stockholm, Copenhagen, Dublin, or the Hague years ago, as one NO followed another every time an EU state dared to hold a referendum.
Business Insider questions If people vote ‘no’ in the referendum, what happens to the Summit plan? We cannot rule out the event that Greek citizens irrationally vote ‘no’ in the referendum. If this is the case, the Summit plan will have to be re-negotiated with the newly elected government. If no agreement can be reached, Greece will default. This once again increases the tail risk of Greece leaving the Eurozone, and a potential break-up of the union as a whole, with bank runs throughout Europe. This marks a step back after recent progress made ahead of the EU summit. And what are the economic repercussions of holding the referendum? At the very least, the referendum is likely to delay deadlines for the implementation of the second bailout package. The uncertainty surrounding the vote is likely to have a negative impact on markets, which will further hamper confidence and lending, and hence growth prospects in the Eurozone.
Tyler Durden posts Spiegel’s Reaction To G-Pap’s Referendum Announcement
Junk Bonds, JNK, trade lower with stocks, VT. The Flattner ETF, FLAT, rose, and the Steepner ETF, STPP, fell, reflecting a flight to safety in US Treasuries. Longer Duration Bonds, BLV, and Bonds, BND, rose strongly, as US Treasuries, TMF, ZROZ,EDV, TLT, show likely three white soldiers. But world government bonds, BWX, and emerging market bonds, EMB, fall sharply lower. Short duration corporate bonds, LQD, like German Treasuries, rose to a new high.
Mike Mish Shedlock writes EU Deal Unravels from Many Sides; Italy, France Bond Spreads Hit Record High vs. Germany; Bund Yield Drops Most on Record; All Out Bond Crisis. In the wake of Papandreou’s Call for Voter Referendum on EU Debt Deal sovereign debt yields plunged in Germany and surged higher in most other European countries, but most notably Italy and France. Bloomberg reports Italian Bonds Slide, Premium to Bunds Reaches Record, Amid Greece Concern. The deal is certainly “unraveling from many sides” with force, so much so that Europe is in the midst of an “all out sovereign bond crisis”.
The US Dollar, $USD, traded by UUP, rose as currencies seen in this Finviz Screener traded lower against the Yen, causing a severe unwinding of carry trade lending, FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, BNZ, DBV, CEW, CCX, FXRU. The 1.5% fall in commodity currencies, CCX, caused commodities, DBC, led by timber CUT, silver, SLV, copper, JJC, and base metals, DBB, to fall lower. OIl, USO, fell lower as risk appetite turned to risk avoidance.
Former safehaven Utilities, XLU, fell strongly lower.
Leading stock ETF fallers of the day included QABA, RWW, ALUM, KRE, TAN, WCAT, RZV, KCE, VROM, WCAT, COPX, PSP, VROM, URA, ALUM, KCE,
Leading country fallers of the day included RSX, KROO, VGK, FEU, EWQ, EIRL, EWO, EWG, EWD, EWN.
Bloomberg reports Morgan Stanley Leads Bank Shares Lower. Morgan Stanley (MS) fell as much as 12 percent in New York trading, leading financial stocks lower on concern a Greek referendum on Europe’s bailout plan will worsen the region’s debt crisis. Morgan Stanley dropped $1.11, or 6.3 percent, to $16.53 at 10:37 a.m., the biggest decline in the 81-company Standard & Poor’s 500 Financials Index, which slid 2.3 percent. Citigroup Inc. (C) fell 4.3 percent and JPMorgan Chase & Co. (JPM) decreased 4.1 percent.
Bloomberg reports Iron-Ire Collapse Seen Ending Most Profitable Shipping in a Year Shipping, SEA, Steelmaker demand for iron ore, the biggest source of cargoes for commodity carriers, is weakening, threatening to end the most profitable shipping rates in almost a year. Ore stockpiles at ports in China, the largest user, already expanded to within 3.6 percent of a record, according to Antaike Information Development, a Beijing-based researcher. Chinese steelmaking is near the least profitable in almost three years, data compiled by Bloomberg Industries show. Iron-ore swaps, traded by brokers and used to bet on future costs, show no price rebound until at least 2013, according to Clarkson Securities Ltd., a unit of the world’s biggest shipbroker. ArcelorMittal, the world’s biggest steelmaker, and Angang Steel Co. are among producers that idled furnaces as slowing global growth drove benchmark prices for the metal down 15 percent since March. For capesizes, vessels hauling about 80 percent of seaborne iron ore, that means a 40 percent drop in rates in the next quarter, according to Pareto Securities AS. “The decline we have seen in both iron-ore and steel prices is a sign of slower demand in China,” said Martin Korsvold, an analyst at Pareto Securities in Oslo, whose recommendations on shipping companies have returned 13 percent in the past year. “It’s a very stark indicator of what’s going to happen for capesizes.” Benchmark iron-ore prices at the Chinese port of Tianjin fell 35 percent to $118.40 a metric ton since Sept. 7, according to The Steel Index Ltd., which publishes data on the cost of steel, ore and scrap metal.
The WSJ reports For Ordinary Greeks, Big Bailout Adds Up to Years of Hardship Many Greeks blame the political classes for the crisis, and for the lack of resolution. For decades, both the socialist party and the principal opposition conservative party have seized the opportunity, when in power, to pack the civil service with supporters. Greece now has thousands of teachers without classrooms and salaried bureaucrats with no job to do. The result is both a bloated public payroll and, just as worrisome, a state sector ill-equipped to manage an epochal crisis. “We are afraid of becoming a Third World country,” says Apostolos Doxiadis, a prominent writer. “It’s not just a financial thing. It’s the lack of a functional government. People are afraid that we may be driving toward a failed state.”
Mr. Papadopoulos, the blogger, says Greeks are fatigued by the stream of reforms that have come with the EU’s bailout—and with their failure to produce any wisps of hope. Greece’s recession is far worse than the EU authorities predicted, and the country is nowhere near being able to borrow again on its own from private markets, as hoped. “There’s a point where you say, ‘I’m sorry…let’s fail,” Mr. Papadopoulos says. “We’ll live poor but we’ll have our freedom, and we’ll decide what to do.”
2) …An inquiring mind asks will the EU be a union of choice?
The Eurozone is a collection of sovereign nation states, well better said was a collection of sovereign nation states, as the sovereignty of Angela Merkel, Nicolas Sarkozy over nation states and the seigniorage of diktat is now ruling in the EU, as is seen in the Bloomberg report Banks Bow to ‘Last Word’ From Merkel, Sarkozy on Greek Debt
The Greek Referendum, if it actually comes, will give Greek people two choices: first, the option of approving or rejecting the Troika Plan, or the option of being in union and under debt servitude, austerity measures, abrogation of its constitution for structural reforms such as the termination of constitutionally guaranteed employment, pension reforms and having the Troika, provide seigniorage, that is moneyness; or second of being a sovereign nation and having no debt sovereignty, no viable currency, fiscal spending capability, which would result in anarchy in Greece and dislocations so great that a anarcy will result in the EU, and possibly through a run on banks, and MMFs, to result in anarchy in the US.
I believe that fate is operating through the 1974 Clarion Call of the Club of Rome, which is clear, distinctive, and ringing for regional economic government, it comes with an authoritarian imperative that cannot be resisted; it is coming to establish totalitarian collectivism, and statism, that is state corporatism. As for Greece, it may be a casualty of its referendum if held, and as a resul it may become an outlier nation, existing much like North Korea, abandoned by all nations to be left foundering on its own.
We are witnessing the beginning of the end of democracy in Europe, as Steven Erlanger of the NYT reports “They have to speak with one tongue, not 17, or so”, says Kurt Hubner of European Studies at the University of British Columbia Vancouver. This will never happen, as Greeks cannot be Germans, One is industrious, and is of the industrious state. The other is club med, and is of the olive state.
Soon out of Sovereign Armageddon, a credit bust and global financial breakdown, One Leader, the Sovereign, and his banker, the Seignior, will arise to speak for and to the Eurozone, which will be transformed into a Federal Europe as leaders meet in summits and wiave national sovereignty, and implement a Fiscal Union, empower the ECB as a bank, and develop a common European Treasury.
The word, will and way of the Sovereign, and the Seignior, will replace sovereign nations and sovereign debt, providing sovereign authority. Diktat, austerity measures, and structural reforms will provide seigniorage, that is moneyness. People will be amazed by this and place their faith and trust in it; they will give their full allegiance to it. The Sovereign may be Herman Van Rompuy, and the Seignior might be Mario Draghi. Associated Press reports Draghi urges speedy reforms to spur growth, or Italy will be swept into debt crisis. And Bloomberg reports Draghi urges Italy to implement austerity to avert spiral. And The Telegraph reports Mario Draghi fears Italy risks a debt spiral without drastic steps to cut spending and restore confidence in public finances.
Structural reforms will be made to national labour law. The Constitutional right to not be terminated from a state job in Greece will be abrogated. Renee Maltezou of Reuters write Constitutional Crisis Looms: Greece to tackle difficult task of firing state workers.
Bank reorganization will be the order of the day: banks will be nationalized, that is integrated with the government and be known as the government bank or gov bank for short.
Under Neoliberalism, fiscal sovereignty came from sovereign nations issuing sovereign debt. But under Neoauthoritarianism, where nations have lost their sovereign debt authority, the Sovereign and the Seignior will have fiscal sovereignty. Credit will not come from the securitization of debt; but rather from the word, will and way of sovereigns and stakeholders appointed from industry and government. Lending will only go firms that are key to the region’s security and prosperity. Moneyness, that is seigniorage, will come via diktat. And the people will marvel, and follow after it, placing their full faith and trust in it as they give allegiance to it.
I’ve consistently recommended that one buy and take personal possession of gold bullion as a means of wealth accumulation and preservation. Frank R. Suess writes in Mountain Vision Beware Of Big Brother Tantrums. What we are observing today is a flood of government bureaucracy and intervention that, while offered under a cloak of ‘economic rescue and consumer protection´, is but an increasingly aggressive drive for tax money and power by fundamentaly socialistic and desperate politicians. They will not be stopped by any constitution or law. If need be, they will ignore or change the law to achieve their goals. As a free individual and as an investor, you must be aware of and considerate of this trend.