Why is social media such a hype? Self explanatory video below, SHIFT happens;
The European Union has raised 4.75 billion euros on May 24 for both Ireland and Portugalvia a bond sale. The bond sale was executed by the European Commission on behalf of the EU member states via what is known as the European Financial Stabilization Mechanism, or the EFSM.
The EFSM is the lesser known of the two bailout funds that the European Union has set up to deal with the ongoing European sovereign debt crisis. The 60 billion euro EFSM is coordinated by the European Commission, and the European Commission essentially acts as a member state financial authority conducting bond sales — bond auctions — via which it raises the necessary funding that then goes to the peripheral eurozone member states that need it. The 440 billion [euro] European Financial Stability [Facility], the EFSF, is headquartered in Luxembourg as a completely independent financial institution that does not have anything to do directly with either the European Commission or the EU bureaucracy — it’s almost essentially an offshore bank. Of the 440 billion euros worth of member state guarantees that the EFSF is made up of, about 250 billion euros are available to lend to various troubled member states.
The EFSF is the larger and the more well known bailout mechanism. However, it has been the EFSM that has been more active in terms of bond auctions. There have been three bond auctions thus far: In the beginning of the year, the [EFSM] tapped the markets in January for a five-year, 5 billion euro bond; then, in March, it tapped the markets again for a seven-year, 4.6 billion euro bond; and finally, on Tuesday, it went to the markets and issued a 10-year, 4.75 billion euro bond. All three bond auctions produced considerable interest from investors, which illustrates that investors and markets are very much interested and have confidence in the bonds issued by the European bailout authorities. Furthermore, the costs of the lending are relatively cheap. The 440 billion euro EFSF has thus far only tapped the markets once and that was also at the beginning of the year in January for a 5 billion euro, five-year bond.
The idea behind both bailout mechanisms is that they would sequester the peripheral countries in trouble from the international markets, allowing them — giving them time — to undergo austerity measures and cut their budget deficits. That said, what is really interesting about both bailout mechanisms is that their legality is very much in question. But what’s really important is that the Europeans, who often have struggled over issues of legality and other issues, when confronted with existential threats to the eurozone have completely chosen to sweep the issue under the rug. And this is a very important point for investors because it shows that when it comes to EU treaties and EU laws, the eurozone countries do not intend these to be suicide pacts; they are very much willing to budge and to work on the margins to create such facilities such as the EFSF, which is an offshore bank for all intents and purposes, headquartered in Luxembourg. They have also been willing, for example, to force the European Central Bank to continuously support peripheral eurozone member states by buying their bonds directly in the secondary market or continuing to acceptgovernment debt as collateral even when it is downgraded by credit rating agencies. These are all very important mechanisms that Europeans have utilized throughout the crisis, and they have all taken place outside of the bonds envisaged possible by EU treaties.
That said, despite the ingenuity of the supportive mechanisms, there are factors that Europeans don’t have control over, specifically the mounting populist angst both in the countries doing the bailing out and the countries being bailed out. And this is something that could potentially scuttle all the plans that thus far have managed to sequester the crisis and at least mitigate it. This is why it is important to continue watching for the evolution of euroskeptic parties in Germany and other core eurozone states as well as the mounting angst among the students, the youth, the unions in the streets of Spain, Greece and other peripheral economies that have been caught up in the storm.
Let’s see how this plays out. Both Spain and Greece are timing their protest badly. Tourist season is starting, but people want vacations, not anti austerity protests.
Thousands of people demonstrating against austerity measures braved heavy rain in Athens to protest in front of Parliament for a second consecutive day on Thursday.
After a notable first day of protest in Athens and other Greek cities on Wednesday, thousands of people who are following the example of “The Indignant” demonstrators in Spain gathered in Athens and other city centers on Thursday.
Social networking sites were abuzz with discussions about Wednesday’s protest and people were invited to return on Thursday to keep up the pressure on politicians over austerity measures and the quality of life in Greece.
Remember Fukushima? If this is true or not, we can’t tell, but it sure is horrific. Hopefully the food exporters didn’t repackage their vegetables, in other countries, making us believe we ate food from Indonesia.
“After the nuclear accident, government and the media said there was no immediate effect on the health. But in the town of Namie Tsushima, which is outside the 30 kilometer area or outside the mandatory evacuation zone, it happened. So far as there has been no news about this kind, it certainly makes one suspect that the government is deliberately making an effort to keep news of the radiation leak a secret. The rabbits, which are housed in an outdoor bunny pen, are eating wild grass, which resulted in earless bunny’s birth. This is the first anomaly/deformation ever born. Life cycle of a bunny is quicker than humans. As I am wondering if humans will be the next victim, I imagine the future picture of human babies.”
Not only are our governments lamentable here in Greece, but so are our opposition parties.
Just look at what Prime Minister George Papandreou is going through to get out of all the “commitments” he made in the past. Who can forget him back in the day when he climbed on a soapbox to resist the sale of OTE telecom and other privatizations? Who can forget Louka Katseli — soon to be the economy minister — before the elections, when she tried to convince us that she would renegotiate the COSCO deal with China for the Piraeus Port cargo terminal so that the government could buy back OTE? And, of course, who can forget Papandreou when he fought against the establishment of private universities and the imposition of fiscal discipline measures?
The premier was literally stuck during his first months in government because there were those who warned him that if he strayed from the pre-election program, he would lose credibility. And this is exactly what he did, ignoring all the signs and warnings of the storm that was rolling in. Just cast your mind back to the epic battle he fought over public sector salaries over 2,000 euros a months being trimmed.
It is this style of opposition that has eroded the credibility of Greece’s politicians. The average citizen in this country wants to know whether Papandreou believes he was right then or whether he’s right now. At least the people want to know why he’s treating them like imbeciles by asking them for the exact opposite of what he once stood for because the country is broke. After all, shouldn’t he have known this when he was preaching outside the Maximos Mansion? These are the questions on the minds of citizens who want to see a little less arrogance and hear a little less “I know best what’s good for the country.”
The people have lost their faith in politicians and they feel that they are being treated like dimwitted children. There is a lot of anger out there and voters are not likely to display much patience.
This is something opposition New Democracy had best bear in mind, because its time back in government may come a lot sooner than expected. And then it will be its turn to face an explosive situation and explain why its plan was great in 2004, but not so convincing in May 2011.
The last two Secular Forums projected that, after the global financial crisis, the world economy would not reset in its traditional, cyclical manner. Instead, it faced multi-year re-alignments of both a national and global nature. The world economy would heal, but in a slow and uneven fashion, as advanced economies muddled through while the more dynamic emerging world gradually closed today’s income and wealth gaps.
Developments since then have been consistent with this characterization. The G-7 recovery has been unusually sluggish, notwithstanding large and unprecedented policy stimulus (particularly in the US). As a result, unemployment has surged, now exceeding that of emerging economies. Meanwhile, deficit and debt indicators have worsened, both in absolute terms and relative to emerging economies, and the average risk premium on advanced economies’ debt now exceeds that for emerging economies.
These are outcomes that fall well short of policymakers’ expectations, be it in America or in Europe. Indeed, for most of the post-crisis period, all of them have been understandably fixated on stimulating growth.
To the extent that this scenario holds, the next few years will follow the same multi-speed dynamics that we have seen recently. Specifically:
- Advanced economies will face sluggish (call it 2%) growth and persistently high, increasingly structural (and therefore protracted) unemployment. Already-large disparities in income and wealth will continue to deepen, amplified by higher inflation and financial repression. And debt and deficit concerns will remain, with the virtual certainty of at least one sovereign-debt restructuring in Europe.
- Emerging economies will achieve higher growth (in the 6% range), and their income and wealth levels will continue to converge with those of advanced economies. But this will create its own challenges, including recurrent inflationary pressures and surges in capital inflows, leading to greater policy experimentation. ·
- Sovereign creditworthiness will continue to diverge, with a further deterioration in advanced countries and continued improvement in emerging markets.
- Inflation convergence – between high headline and low core rates, as well as between high emerging-market and low advanced-country rates – will occur at levels higher than currently anticipated. ·
- The global economy overall will hobble along, continuing its gradual transition from a uni-polar to a multi-polar world.
Multi-year re-alignments are messy and complex, especially when they occur simultaneously at the national and global levels, and when multi-speed growth, inflation, and credit dynamics are at work, as is the case today. Parameters become variables; balance sheet repairs proceed in a slow and uneven fashion; and policymakers experience an uncomfortable shift in the balance of benefits, costs, and risks.
and the conclusion;
As much as we may wish for a more reassuring outlook, the world economy will remain unusually fluid in the coming years. What appears as a systemically interconnected world will also turn out to be increasingly fragmented cognitively, with weak global governance and policy coordination. This is a global economy that must be navigated carefully, lest those that seek to benefit from change find themselves falling victim to it.
From Goldcore today;
While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt.
Risk of a U.S. default can be seen in the credit default swap (CDS) market. 1 year U.S. CDS has risen from 23 to 37 or by 60% in the last six trading days (see chart below). According to this measure, the U.S. is now more likely to default than Slovenia and Indonesia in the next year.
In the more liquid 5 year U.S. CDS, the cost to insure has risen by some 50% in the last week. The U.S. is considered more likely to default in 5 years time than South Africa, Malaysia, Panama, Brazil and Colombia.
Credit default swaps on U.S. debt saw a flutter of activity in the past week with investors placing 135 trades in U.S. CDS in the week ended May 20, far above previous weeks, when in some cases only one contract trade was seen.
This compares to 360 CDS trades in the week on Spain’s sovereign debt, 191 on Greece, 142 on Portugal and 136 on Italy.
Thetrader has argued over the past weeks, the market is topping out big time. We have many arguments for the top to be in which we have published over the weeks. There is one peculiar chart pattern we would like to draw your attention to. Since the QE programmes started, we have had many no volume melt ups, where the trend continues, ie “whoever” is buying futures, accomplishes the object of the printing, by buying futures aggressively, and people joining and taking the market higher. Last 3 sessions in SPX have shown the aggressive buying, without any of the other risktrades following the SPX move. After the SPX is pushed higher, it suddenly falls all the way back. Could it be, the market has become “impossible” to push higher, by aggressive buying, and getting people to cover shorts? If so, watch out for the exit….
Below, last 3 days of SPX late day action where the market gives up all the aggressive buying gains, and falls all the way back.
Below chart from Capital context showing the action yesterday. Only SPX moves up and then falls back. The risk basket is not moving at all while the SPX tries the no steam rally. Let’s see if we get the same action today.
After all, maybe the ordinary people are way too stupid to get the truth. Below a must read interview with the might Juncker. It doesn’t get better than this. We advise Juncker to read our article about Similarities between Belarus and Greece?
In a SPIEGEL interview, Jean-Claude Juncker, the prime minister of Luxembourg and president of the Euro Group, argues that Athens isn’t bankrupt and that it is still possible for Greece to emerge from the crisis. He also states that the “nervousness” of financial markets makes it difficult to adequately and correctly inform the public.