Some thoughts on Mr Hollande by Spiegel.
On the night of his victory, France’s new president seemed tired and overwhelmed by the magnitude of his new office as he pushed his way through the crowd towards the stage in Tulle, his electoral district in southwestern France.
The setting for his victory speech could hardly have been better. He stood before more than a thousand people packed into the cathedral square basked in late evening light, a picture postcard view of a rural France where everything was still right. But Hollande looked exhausted and gave a bland speech in which he repeated a few election promises. He pledged to make France a fairer place, and to help the youth. “I take the measure of the honor that’s been granted me and the challenge that awaits me,” he said.
In the weeks leading up to his victory, something had glowed in him, and it was noticeable in his television debate against Nicolas Sarkozy, where he seemed elevated by the prospect of winning. But on the evening of his triumph, the presidential aura seemed to have evaporated.
In Tulle on Sunday night, Hollande looked deadly serious and suddenly seemed small again. Like someone who has just become aware of the size of the task before him.
The president of France is, after all, an elected king. He sits on a throne above the nation. Tremendous symbolic importance is attached to his office, and it initially dwarfs everyone charged with filling it. The man about whom former president Jacques Chirac said long ago, “More people have heard of Mitterrands’ Labrador than of François Hollande,” now stands in a line with Louis XIV, Napoleon and General de Gaulle. (Full article here).
With all the news out of France and Greece, let’s not forget about the situation in Spain. While posting this, Mr Rato is resigning as Bankia Chairman. From El Pais.
The Bank of Spain and the Economy Ministry are finalizing a profound reorganization plan for troubled lender Bankia, which includes using money raised through the sale of public debt as passed in a February decree, to keep the banking group from going under because of the exorbitant amount of bad real estate loans it holds.
Market sources said on Sunday that Bankia and its parent, Banco Financiero y de Ahorros (BFA), which holds most of the troubled loans, could need anywhere between five to 10 billion euros to clean up their problematic assets from the property sector.
The bank’s financial portfolio shows more than 31.8 billion euros in slow-paying loans and defaults. Full reading here.
Guest post by Azizonomics.
Meet James. James bought a house. It cost him $150,000, of which $30,000 had come from his own savings, leaving him with a $120,000 30-year fixed-rate mortgage from the WTF Bank, with a final cost (after 30 years of interest) of $200,000. Now, up until the ’80s, a mortgage was just a mortgage. Banks would lend the funds and profit from interest as the mortgage is paid back.
Not so today. James’s $200,000 mortgage was packaged up with 1,000 other mortgages into a £180 million MBS, (mortgage backed security), and sold for an immediate gain by WTF Bank to Privet Asset Management, a hedge fund. Privet then placed this MBS with Sacks of Gold, an investment bank, in return for a $18 billion short-term collateralised (“hypothecated”) loan. Two days later Sacks of Gold faced a margin call, and so re-hypothecated this collateral for another short-term collateralised $18 billion loan with J.P. Morecocaine, another investment bank. Three weeks later, a huge stock market crash resulted in a liquidity panic, resulting in more margin calls, more forced selling, which left Privet Asset Management — who had already lost a lot of money betting stocks would go up — completely insolvent.
You should be. This is of course a fictitious story. But the really freaky thing is that this kind of scenario — the packaging up of fairly ordinary debt into exotic financial products, which are then traded by hundreds or even thousands of different parties, has occurred millions and millions of times. And it is extremely dangerous. When everybody is in debt to everybody else through a complex web of debt one small shock could break the entire system. The $18 billion debt that Privet owed to Sacks of Gold could be the difference between Sacks of Gold having enough money to survive, or not survive. And if they didn’t survive, then all the money that they owed to other parties, like J.P. Morecocaine, would go unpaid, thus threatening those parties with insolvency, and so on. This is called systemic risk, and shadow banking has done for systemic risk what did the Beatles did for rock & roll: blow it up, and spread it everywhere.
The Greeks voted with their eye on yesterday and they opened the door to tomorrow. Wishing to return to an ideal age – where they could escape from the demands of our partners and creditors – the voters destroyed the two-party political system, they fragmented the center and brought the extremes into the center of developments. Last night’s result did not leave much room for the formation of a coalition by any section of the new Parliament – neither by the parties who abide by the loan agreement nor by those which shape the “no” front.
If we go for new elections immediately it is not at all certain that New Democracy and PASOK will get back any of their old power (until 2009 they shared more than 80 percent of the vote, whereas yesterday they got barely 35 percent together). With at least seven parties in Parliament and none gaining more than 20 percent, our politicians will have to face three major challenges: they must learn to cooperate on equal terms, without any one party forming a strong pole, without one party trying to gain an advantage over another; they must deal with the neonazi Chrysi Avgi, which is now in Parliament; they must find a way to be credible partners in talks with our creditors, now that the PASOK-ND government under Lucas Papademos is gone. (full article here.)
Must read guest post by John Hussman of Hussman Funds.
In recent weeks, I’ve noted that our estimate of the prospective market return/risk profile has shifted to the most negative 1% of instances we’ve observed in the historical data. Most of the time, a given set of market conditions is associated with some mix of positive and negative outcomes, so we focus on the average of those outcomes in the expectation that doing so will produce good results over the complete market cycle even if we are incorrect in specific instances. With regard to current conditions, there is an absence of redeeming instances where things worked out well, coupled with an abundance of starkly negative market outcomes that have accompanied similar conditions. This uniformity of bad outcomes is why I keep using the word “warning” lately. The market’s prospective return/risk tradeoff here is highly unbalanced toward the risk side.
This isn’t just a matter of advisory bullishness being high in one week or another, or even valuations being rich, or just economic risks appearing high. Rather, what concerns us most is thesyndrome of evidence: the fact that we observe so many red flags at the same time – rich valuations, overbullish sentiment, heavy institutional saturation in “risk-on” trades, near-panic levels of insider selling, a burst of new stock issuance, overbought conditions (focusing on intermediate-term horizons), a two-tiered market that couples speculation in a handful of momentum stocks with broadly deteriorating market internals, a variety of historically hostile syndromes (see An Angry Army of Aunt Minnies), and increasing likelihood of oncoming recession.
Various observers will undoubtedly take issue with each of these measures. One can look at theInvestors Intelligence bullish sentiment figure, which has eased back to 43% from over 50% in early April, but ignore that bearish sentiment is down to 20.4%, less than half of the bullish sentiment figure, and the lowest level since just before the 2011 market rout. One can look the market’s price-to-forward-operating earnings multiple, which seems to be in an acceptable range, but ignore the stratospheric profit margins baked into earnings estimates. One can take issue with our recession concerns, choosing one rule-of-thumb or another that has gone “quiet” out of the broad ensemble of measures that we’ve presented over time, but ignore everything else we’ve written on the subject.
This is how it looks like when the market goes the “wrong way”. Sunday evening video below.
It sure seems the foundation of the European Union and the Euro will feel the first reality pinch check after the “surprising” upswing for the extreme parties in Greece over the weekend. Unfortunately, rather scary developments are taking form in this United Europe. What’s next, Weimar inflation, and after that everything that followed? Some color on the “new” Greek dilemma, via Ekathimerini.
Greece was plunged into political uncertainty on Sunday night as national elections produced a fragmented Parliament of at least seven parties and a result that could preclude New Democracy and PASOK forming a coalition government over the next few days.
The possibility of the two parties that backed Greece’s new bailout combining their forces was undermined by a collapse in their support, particularly in the case of PASOK. The Socialists suffered a drubbing around the country and looked to have been beaten into third place by the Coalition of the Radical Left (SYRIZA) with what could be PASOK’s worst ever showing at the ballot box.
The election result was also notable for the entry into Parliament of the neo-Nazi Chrysi Avgi (Golden Dawn), which in 2009 had only gained 0.29 percent of the vote and looked set to gather close to 7 percent at these elections.