“For the past year the Greek government has been playing the population off against the European creditors. But just as a teenager will promise his mum he has stopped smoking in order to collect the $100 promised for doing so, while just sucking on mints to cover the smell, Greece hasn’t stopped the rot at all and the wafts of peppermint no longer shroud the stink of smoke from the utterly horrendous data out recently from Greece (Nominal GDP -2.1% vs 5%+ financing rates, Real GDP -6%).

So the European debt collectors have started knocking on the door but have arrived to be greeted by a debtor threatening to trigger the suicide belt of leaving the Euro, causing collateral damage that threatens the very foudantions of the building.”

The path that ends with Lions;

Courtesey, http://macro-man.blogspot.com/

What could possibly go wrong?

“Europe’s debt crisis has returned full-circle to where it seemed to have peaked almost a year ago, when the euro zone agreed to a €110 billion ($158 billion) bailout of Greece and the creation, together with the International Monetary Fund, of a €750 billion safety net for other struggling euro nations.

Portugal is currently negotiating the third such aid package, following Ireland’s bailout agreement last fall. But Greece’s deepening woes show that weaning countries off aid, and restoring investors’ trust in them, is proving far harder than expected.” (WSJ)

http://online.wsj.com/article/SB10001424052748703864204576312883521075492.html?mod=WSJEurope_hpp_LEFTTopStories

Spain had a “buy a villa in Spain” road show event last week, where Ministers tried persuading countries to invest in the “cheap” Spanish real estate market. Without going into too much discussion, thetrader believes prices are heading lower again. For holiday home buyers, who might as well take the flight to Florida, your money will buy twice the house, closer to the beach and properly built houses, compared to popular destinations in Spain.

Barclays notes from the above mentioned roadshow.

“So far for April two private sector agencies have released estimates for Spanish house prices. Cotizalia recorded a 0.9% m/m drop (-4.3% y/y) and Fotocasa recorded a 0.7% m/m decline (-5.4% y/y). The third private sector agency which we monitor, Tinsa, has yet to release April data. Our aggregate of the three agencies’ indices is therefore currently -0.8% m/m in April, down 4.7% y/y. This is the sharpest pace of annual decrease since March 2010. As well, the monthly averages signal a slightly stronger deceleration in prices … In our view, the recent apparent intensification of house price declines can be attributable to three factors. First is the end of a tax allowance for mortgage interest payments for those on higher incomes which happened at the end of last year (and which had therefore brought forward some demand). Second is the rise in 12m Euribor rates, which is by far the dominant mortgage interest reference rate in Spain. 12m Euribor continues to rise and today was at 2.157%, up from 1.2% during March 2010.  Third is the ongoing prevalence of excess supply. In a roadshow today in London the deputy housing ministry said that the excess inventory of unsold homes was 700k (though various private sector estimates have previously put the number at more like 1mn. The RR de Acuna consultancy last November estimated that the excess inventory was 1.5mn. This includes 200k owned by financial institutions, 683k new homes, and an estimated 620-720k that are existing, suggesting that with a pace of transactions of 240-280k per year it will take six years to clear).“ (Alphaville)

We are still amazed by the total denial of over 1 million empty properties in the country. For the full report, click the link and enjoy with the Sangria…..

http://www.fomento.gob.es/NR/rdonlyres/105BDA4A-9266-4FE1-9D0C-06CA1C8A53B7/101815/110504Reuni%F3nFomentoLondresPressKit.pdf

All focus on Greece for the time being. Politicians delivering contradictions makes the situation even more hard to grasp. The big elephant nobody talks of yet, Spain, is slowly detoriating on it’s Peninsula. Growth projections from Zapatero & co seem a little to optimistic, despite the festive summer vacations coming up.

“Domestic demand is still largely negative and the only positive contribution comes from exports,” Bloomberg quoted, Giada Giani, an economist at Citigroup in London, as saying. “There’s been a mix of data recently that suggests the second quarter could be weaker than the first.”

The government is targeting GDP growth this year of 1.3 percent, but other experts, including the Bank of Spain, believe the actual figure could be around half of that.

“These figures [from the central bank] are far from the government’s growth target, and are clearly insufficient to create jobs,” Reuters quoted Emilio Ontiveros, the chairman of the Analistas Financieros Internacionales (AFI) think-tank, as saying.” (El Pais)

http://www.elpais.com/articulo/english/Cuts/of/two/billion/euros/on/the/way/if/growth/falls/short/elpepueng/20110509elpeng_1/Ten

Aplhaville reports Roubini’s guide to Greek Debt Restructuring. Click the “map” for details.

The path of Greek public debt is manifestly unsustainable. Fiscal austerity and structural reforms are necessary but will not suffice. In the best-case scenario—incorporating a 10% of GDP fiscal adjustment and structural reforms—Greek public debt to GDP peaks around 160% before “stabilizing.” It is more likely that the debt ratio will exceed 160% and, left untended, will render market access both before and even after 2013 severely limited (or effectively non-existent).

There are multiple approaches to an orderly debt restructuring, with varying degrees of debt relief for the sovereign, additional official financing and systemic risk for the eurozone (EZ). We assume only domestic public debt—95% of the public debt stock—would be restructured.

So the world’s largest fund manager increases further to his already short Us position. PIMCO is getting rather aggressive, but we wonder why pay the management fee, when Cash held is 37%?

May 10 (Bloomberg) — Pacific Investment Management Co., manager of the world’s biggest bond fund, increased its bet against government-related holdings, which now account for negative 4 percent of assets, according to details of the company’s holdings in April posted on its website.

Cash accounted for 37 percent of Pimco’s Total Return Fund holdings last month, according to the data.

After JPM reported Perfect Trading last week, Goldman today reports it lost on ONE day. We are amazed by the Trading these guys conduct. As Trading is a zero sum game, somebody is loosing. We saw some big losses at some hedge funds during last weeks commodity implosion, so we suppose the banks were all perfectly positioned for that move too? For earlier article on the subject, visit Trading Perfected .

“Goldman Sachs Group Inc., the U.S.

bank that makes more than half its revenue from trading, lost
money in that business on one day during the first quarter, its
best record since posting zero days of losses a year ago.
After losing money on 13 days in the fourth quarter,
Goldman Sachs’s traders lost between $25 million and $50 million
on one occasion in the first quarter, according to the New York-
based firm’s quarterly filing with the Securities and Exchange
Commission. They generated more than $100 million on 32 days out
of 62 total days, the filing showed.
Goldman Sachs’s performance beats Morgan Stanley, whose
traders lost money on three days and made more than $100 million
on 10 days, according to a filing yesterday. It falls short of
JPMorgan Chase & Co. and Bank of America Corp., which both
reported zero days of losses in the quarter”. (Bloomberg)

Bloomberg video on Sergey Aleynikov, the guy who “stole” Goldman’s secret Algo.

From the Attorney “….to not use it in UNFAIR ways”. This is simply great.

http://www.youtube.com/watch?v=lrlQSMCx-aE&feature=player_detailpage

Further insight,

http://www.youtube.com/watch?v=bEOlv8paQTo&feature=player_detailpage

Instead of  IMF “bailing out the bail out”, Greece should exit the Euro and fix the Economy. That’s what we call a Stop Loss. Today’s OpEd from NYT gives some more colour on the issue.

“SOMETIMES there is turmoil in the markets because a government threatens to do what is best for its citizens. This seemed to be the case in Europe last week, when the German magazine Der Spiegel reported that the Greek government was threatening to stop using the euro. The euro suffered its worst two-day plunge since December 2008.

Greek and European Union officials denied the report, but a threat by Greece to jettison the euro is long overdue, and it should be prepared to carry it out. As much as the move might cost Greece in the short term, it is very unlikely that such costs would be greater than the many years of recession, stagnation and high unemployment that the European authorities are offering.” (NYT)

http://www.nytimes.com/2011/05/10/opinion/10weisbrot.html?_r=1&hp

Bail outs, Austerity, Greece, Ireland, MENA, Bin Laden or not. Dow Jones is up 90% from the bottom. Liquidity is getting rather depressed. Volatility is relatively low, and not many believe markets can go down. Let’s look at the charts compared to 1907, the Rich Man’s Panic. (Courtesey ritholz.com)

ECB has loaded up on Greek debt acting like the lender of last resort. Greece was given the possibility of surviving for some additional time, but the problems aren’t solved. The dilemma ECB faces is that it now holds a lot of illiquid assets, that have very little value in the market….TARP all over again?

“Now that everyone agrees that Greece will engage in a figleaf operation to extend maturities without inflicting net present value losses on its creditors, it is worth mulling the institutional implications of any such operation. If a debt exchange takes place as rumored, I am most worried about two things: the cost to Greece of paying higher interest rates to kick the can down the road, and the costs to the international financial system of getting central banks formally involved in a debt restructuring (re-profiling, re-coloring, whatever). The Greece piece is a replay of the Latin American debt crisis of the 1980s: Greek debt stock and borrowing costs grow as uncertainty lingers, while its creditors build up a capital cushion to face up to reality. The central bank piece is more complicated, and perhaps more broadly important.”

And talking of yesterday’s theme on thetrader, the need to take a STOP,

“As an aside, it is important to distinguish the matter of central banks taking losses from that of central banks participating in a multi-creditor restructuring.  Central banks can and do take losses just like anyone else holding a securities portfolio.  Central banks have also restructured unilaterally (recall the Fed changing the terms of AIG’s support package, extended through a special purpose vehicle). This is different from participating in a general restructuring, even one that is NPV-neutral.”

http://www.creditslips.org/creditslips/2011/05/central-bank-drift-eupdate-extra.html