Late action today, managed to lift the index from the Abyss. More interesting is though how the VIX index traded. The ex fear Index, according to many pundits, that have never traded volatility, has during the past days risen, just like thetrader has been arguing. Volatility and risk, has been mispriced for such a long time, so people simply don’t understand how volatility should be priced. Despite the fact, the market went up, VIX also went up. Compare the last time SPX traded at these levels, VIX was below 20. People have definitely been caught very short volatility, and will be panicking for some more days to come. As Taleb said, “don’t buy vol when you have to, buy vol when you can”. Just some weeks ago Vix was almost 50% lower….

• SEES 2Q REVENUE $4.2B-$4.8B, EST $5.47B
• SEES YEAR OPER EPS $5.25-$6.00, HAD SEEN $7.50; EST. $6.24
• CUTS YEAR FORECAST, SETS BUYBACK, JOB CUT PLAN

Soon we will all be eating only Apples.

It doesn’t get better than this. Romania to help Greece. If this help is money or good gypsy music we don’t know. Fanfare Romani next?

Romania’s central bank has a plan to aid the units of Greek banks operating in the country, in case the deepening debt crisis in the Mediterranean country shuts down funding flows from the parent lenders, Deputy Governor Florin Georgescu said.

“In case one of the Greek owners shows it doesn’t have the ability to financially support its unit in Romania, we can apply these measures gradually, in the appropriate dosage, which is not the case now,’’ Georgescu told reporters in Bucharest on Thursday.

“We don’t have the obligation to act preventively, under the law, and we have a plan to react, if needed, which includes certain measures,’’ he said, without providing further details.

The eastern European country’s Banca Nationala a Romaniei is monitoring Greek-owned banks on a weekly basis because they control about 17 percent of the Romanian banking industry.

The Greek banks’ Romanian units, including Alpha Bank, EFG Eurobank and National Bank of Greece (NBG), are “well capitalized’’ at this point and have a solvency ratio of 15.7 percent, one percentage point above the banking sector’s average, Georgescu also said.

The banks’ portfolios include state treasuries, which they can use as collateral and resort to the central bank’s financing lines, according to Georgescu.

Romania’s banking industry is dominated by Austrian lenders, which control about 38 percent of the market, followed by Greek banks and French lenders with 15 percent.

Meanwhile, Standard & Poor’s (S&P) cut its long-term credit rating on Thursday on United Bulgarian Bank (UBB) to ‘B-’ from ‘B’, after its parent NBG was downgraded.

“The continued weakening of NBG’s creditworthiness raises the risk of contagion for UBB, in terms of reputation and funding, particularly in the confidence-sensitive wholesale markets,” S&P said in a statement

Some further insight into the Greek Drama. Who holds what, cross border style. Things could get extremely dynamic, if Spain and Italy start rocking, that’s where the risk lies. Stratfor reports;

The European Central Bank (ECB), the International Monetary Fund (IMF) and Germany have been engaged in a monthlong escalating confrontation regarding the best way to avoid a Pan-European financial crisis. The prevalent fear, voiced by the ECB, is that the restructuring of the Greek debt advocated by Germany will trigger a series of financial institution defaults through Europe, mimicking the chain reaction that followed the September 2008 bankruptcy of the Lehman Brothers financial group in the United States.

However, there are factors that could mitigate the risks of a catastrophic Pan-European financial crisis. The possibility of a Greek default is common knowledge, and financial markets have reflected that fact for months. A main indicator of this risk is found in the skyrocketing cost of insuring Greek debt; credit default swaps (essentially an insurance instrument in the financial world) for Greece are currently the costliest in the world, almost twice as expensive as those for the runner-up, Pakistan. Understandably, financial institutions in Europe have divested themselves of risky assets from the troubled European peripheral states — Portugal, Italy, Ireland, Greece and Spain. This process, in confluence with the overall drop in the market value of these assets, translates into lower exposure to peripheral debt for eurozone financial and banking institutions.

The adjacent graphics show both the overall diminution of exposure in the major eurozone countries to the peripheral countries and the particular composition of that exposure. For example, the German financial sector reduced its exposure to assets in the peripheral countries by more than 40 percent between May 2008 — before the crisis — and December 2010. France’s financial sector reduced its total exposure by 30 percent, from more than $900 billion to less than $650 billion, during the same period.

Between 2008 and 2010, the major eurozone countries primarily lowered their exposure to Ireland. France and Germany decreased their exposure to Irish assets by 50 percent and 62 percent, respectively.  Ireland is unique among the troubled peripheral countries in that exposure to it has mainly been in the form of bank and non-bank private assets; exposure to Irish sovereign debt has been minimal since the government has not issued very much of it over the past several years.

Nonetheless, what Germany is more worried about than its bank exposure to Greek sovereign debt — which is still only slightly more than $20 billion — is the  political backlash against bailouts at home and among its closest allies, such as the Netherlands and Finland. To counter this populist sentiment against bailouts, Berlin wants to involve private creditors at all costs, including costs to its banks.

The ECB and France have a different plan in mind. The ECB has purchased nearly 74 billion euros ($104 billion) worth of peripheral debt since May 2010 and wants Germany and the European bailout fund, the European Financial Stability Fund, to take over supporting mechanisms. France meanwhile has no populist backlash against bailouts at home, probably because at a fundamental level the French population understands that Paris ultimately could need supportive mechanisms itself.

France and the ECB therefore oppose Germany’s designs for restructuring. However, the ECB, Berlin and Paris will have to reach some level of agreement soon, because the political crisis in Greece has escalated to the point where Athens can no longer guarantee that it will fulfill the conditions of its bailout. In the end, this gives Athens a better negotiating position — the more pressure on its government from the street, the more concessions it can get from its eurozone partners.

The Pentagon is about to roll out an expanded effort to safeguard its contractors from hackers and is building a virtual firing range in cyberspace to test new technologies, according to officials familiar with the plans, as a recent wave of cyber attacks boosts concerns about U.S. vulnerability to digital warfare.

The twin efforts show how President Barack Obama’s administration is racing on multiple fronts to plug the holes in U.S. cyber defenses.

Notwithstanding the military’s efforts, however, the overall gap appears to be widening, as adversaries and criminals move faster than government and corporations, and technologies such as mobile applications for smart phones proliferate more rapidly than policymakers can respond, officials and analysts said.

A Reuters examination of American cyber readiness produced the following findings:

* Spin-offs of the malicious code dubbed “agent.btz” used to attack the military’s U.S. Central Command in 2008 are still roiling U.S. networks today. People inside and outside the U.S. government strongly suspectRussia was behind the attack, which was the most significant known breach of military networks.

* There are serious questions about the security of “cloud computing,” even as the U.S. government prepares to embrace that technology in a big way for its cost savings.

* The U.S. electrical grid and other critical nodes are still vulnerable to cyber attack, 13 years after then-President Bill Clinton declared that protecting critical infrastructure was a national priority.

* While some progress has been made in coordinating among government agencies with different missions, and across the public-private sector gap, much remains to be done.

* Government officials say one of the things they fear most is a so-called “zero-day attack,” exploiting a vulnerability unknown to the software developer until the strike hits.

That’s the technique that was used by the Stuxnet worm that snarled Iran’s enriched uranium-producing centrifuges last summer, and which many experts say may have been created by the United States or Israel. A mere 12 months later, would-be hackers can readily find digital tool kits for building Stuxnet-like weapons on the Internet, according to a private-sector expert who requested anonymity.

“We’re much better off (technologically) than we were a few years ago, but we have not kept pace with opponents,” said Jim Lewis, a cyber expert with the Center for Strategic and International Studies think tank. “The network is so deeply flawed that it can’t be secured.”

Full report,

http://www.reuters.com/article/2011/06/16/us-usa-cybersecurity-idUSTRE75F4YG20110616

…it truly is, Pandora trading below IPO price. Time to close that Pandora Box, or is this time different?

Some update on the Greek Politics. Kathimerini reports;

Greece’s beleaguered Prime Minister George Papandreou’s plans to unveil a new Cabinet on Thursday before seeking a vote of confidence from Parliament later in the week were thrown into disarray after two PASOK deputies quit his socialist party.

Meanwhile, in Brussels, the European Union’s top economic official said it was “regrettable” that talks on Wednesday between the leaders of Greece’s two mainstream parties over forming a union coalition fell through, but expressed confidence that the debt-choked country will push with the requisite reforms and spending cuts by the end of June.

Although the resignations of Giorgos Floridis and Ektoras Nasiokas did not affect the government’s five-seat majority in Parliament, as the deputies gave up their seats, they put intense pressure on Papandreou.

There are now calls for him to go from within PASOK. In response to the rising pressure, PASOK’s headquarters issued a statement saying that Papandreou would chair an emergency session of the party’s parliamentary group at 4.30 p.m. to discuss what the government’s next steps should be. Prominent PASOK deputy and former minister Vasso Papandreou told reporters that the issue of a possible party leadership change would be among those on the agenda.

A key member of the Cabinet stressed the importance of presenting a united front. “In these tragic circumstances, we all have to be united,” Health Minister Andreas Loverdos told Parliament.

However, the mood among PASOK MPs was not one of patience and understanding.

“The country is descending into chaos,” Piraeus deputy Dimitris Lintzeris told Skai radio on Thursday. “There is a deficit in terms of the country’s governance. I am calling on PASOK’s top officials to assume their responsibilities,” he said.

Sources close to the prime minister insisted that his plans for a Cabinet reshuffle would not be affected by Thursday’s resignations.

Full article,

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_16/06/2011_394891

Gold is higher in Euros but mixed in other currencies this morning as the euro continues to weaken on sovereign debt and contagion risk. The euro has fallen against all currencies in recent days but especially against gold with euro gold having risen from below €1,050/oz on Tuesday to over €1,083/oz today. Sterling gold has risen to close to record highs at £950.81/oz after retail sales slumped on fuel and job fears.

Risk of Eurozone “Lehman Moment” & “Financial Armageddon” Sees Euro Gold on Verge of New Record High

Greek, Portuguese and Spanish debt is under pressure this morning. Greek bonds are being decimated with the 2 year government note now over 30%.

Irish bonds remain stable despite Ireland’s finance minister’s reasonable assertion that some senior bondholders must share the burden of losses. European equities are also under pressure on concerns of a “Lehman moment” in the Eurozone debt crisis.

The increasing talk of a “Lehman moment” in Europe is due to real concerns that a sovereign default could lead to contagion and a new global credit crisis which could send shock waves through markets and see risk assets come under pressure.

This time, the situation may be worse involving as it does both large sovereign and bank debtors and given the fact that it will be both a credit and solvency crisis. Talk of “financial Armageddon” is hyperbole – at the same time there are serious risks and investors and savers should prepare by owning less risky, high quality, liquid assets that will protect from these risks and the attendant risk of a currency crises.

Euro gold looks very strong after consolidating in the last year. Gold at over €1,080/oz today is only some 7% above its price seen exactly a year ago. The gradual increase in price and recent period of correction and consolidation is hardly indicative of exponential gains which would be representative of a bubble.

Euro gold is less than 1% from a new record nominal high (when converted from Deutsche mark) against the euro. Record highs in euro terms (over €1,088/oz) should be followed by new record nominal highs in dollars and in recent years record highs in euros are a precursor to record highs in other currencies.

Indeed, it appears that the real bubble is a form of bubble in paper currencies and in the euro which developed in recent years.

The recent crisis and  period of deflation contributed to the erroneous belief that “cash is king” and in blind belief and confidence in cash and deposits.

This is changing again as people very gradually realize that the massive creation of money seen in recent years will lead to currency debasement and devaluation.

The rise of gold in all currencies shows how confidence in paper currencies, and increasingly the euro, as stores of wealth and monetary assets is gradually being eroded.

This is clearly seen in the increasing preference of central banks internationally to favour gold as a monetary and reserve asset over the major currencies such as the dollar, the euro and pound.

Eurozone Central Banks Net Buyers of Gold in 2011 for First Time Since Inception of Euro – Global Central Bank Gold Demand Increases by 43% So Far in 2011

Central banks have already bought 129 metric tons in 2011 through April, exceeding last year’s total of 90 tons. This represents a sizeable 43% increase in demand when compared with the first four months of 2010.

The World Gold Council’s Managing Director Marcus Grubb told a conference in London today that central banks will be net buyers of gold this year and probably next year.

It must be remembered that these are declared central bank purchases and some central banks such as the People’s Bank of China have been quietly buying gold and not declaring their purchases and the increase in their gold reserves.

Given the scale of public debt and monetary challenges facing all major western economies and the global financial and monetary system, central bank demand is likely to continue not just into 2012 but for a few years more.

Indeed, the small holdings of many creditor nation central banks, especially in China and the rest of Asia, means that this demand is sustainable and not a short term phenomenon.

Indeed, it is a very important development that Eurozone central banks have become net buyers of gold in 2011. This is the first time that this has happened since the inception of the euro in 1999.

Eurozone central bank gold purchases have been small to date but what is more important is that this source of gold supply –  from Eurozone central banks – looks unlikely to continue.

Indeed, this could be the beginnings of the Eurozone central banks buying gold as a monetary asset in order to protect the euro and hedge their exposure to the other reserve currencies such as the pound and most especially today’s global reserve currency – the U.S. dollar.

Greece is falling apart, just like thetrader has been arguing over the past months. Instead of taking the big STOP, the country is prolonging the inevitable default by new bail outs, resulting ultimately in a huge fire sale, where crown jewels will be sold at a fraction of what it is worth.

Don’t forget, Greece is a relatively small country and a rather modest Economy. The biggest Mediterranean Elephant nobody dares even talking about, Spain,  is about to tip over. The very peculiar Latino macho culture has during the history created a very strange attitude towards losses. Generally speaking, the Spaniards “never” take the STOP. In crisis, restaurants put prices higher, instead of lower in order to fill up the place. Same logic applies to the housing market. Although prices are falling, people talk of “was” prices, they increase prices in order to try fooling a tourist or two getting the trade done in the middle. This culture and mentality is hard to understand, unless you have lived in Spain for many years.

According to us, having spent many years in different Med countries, including Spain, this mentality will ultimately bring forward the big Panic when people realize the huge holes in Bank’s balance sheet.

Some charts on Spain, the next headache of Europe. Espana, everything under the Sun. Click each chart for better view;

Quick summary of Momos holding Greek debt;

Japan banks 500 million USD

Spanish Banks 600 million USD

USA banks 1.8 billion USD

Italian banks 2.8 billion USD

UK Banks 3.2 billion USD

French Banks 19.8 billion USD

German Banks 26.3 Billion USD

Other Eu countries 15 Billion USD

Trichet’s (ECB) aggressive buying has some exposure too….With the paper they bought about to default, look for ECB seeking new equity, in the middle of the Flash Crash around the corner.

Contagion effects of the Greek situation will be spread beyond only the Banks with exposure having to write off the debt. Eastern European countries such as Bulgaria, Romania etc will fall into trade and funding problems when Greece defaults. Austrian banks on the other hand have large exposure to Eastern Europe etc. Europe is interconnected, and the problems facing this the region are huge.