After the historic loss of PSOE, Zapatero i humiliated. Welcome to ANTI Austerity SPain, and a new game plan for Spain and Europe.  From El Pais;

A man knows that a tsunami will arrive a few hours to the beach next to the residence.You can not escape. Lived there for too long, has nowhere to go, all roads are blocked. So you wait.
Something like this tragedy explained yesterday announced a Socialist leader in analyzing mid-afternoon on election day: “The only question is whether the tsunami will drown us in its path or we can go swimming.”

“It” summed up the Socialist spokesperson Elena Valenciano before the start of the slow drip of bad news, “the expression of a collective malaise and legitimate” by the incessant increase in the number of unemployed. The PSOE lost 1.5 million votes over 2007. José Luis Rodríguez Zapatero took office as his own failure to acknowledge the painful defeat and attributed the tremendous electoral punishment

Zapatero and his party have practically lost the elections. Like thetrader wrote earlier, a situation where Zapatero looses, could spark ANTI austerity movement in Spain, and bond vigilantes flock around the new victim. Look out for Spanish rate hikes asap. From El Pais;

I confirm election results a historic victory for PP. With a greater share than four years ago, the 66.20%, as reported in a press conference Vice President Alfredo Perez Rubalcaba-foremost in popular almost 10 points to the Socialists in the city, with 98.71% of open ballots. They have also won in Castilla-La Mancha, Madrid, Comunidad Valenciana, Castilla y Leon, the Balearic Islands and Aragon.

Four years ago, the difference between popular and Socialists in the city was seven tenths. It is therefore a great popular victory, which would have doubled the distance with the Socialists, as the greatest distance achieved so far in 1995, with José María Aznar as party leader, the difference between the two formations of 4.45 points.

We clearly see the sharp unwinding of Usd shorts continued this week. Overleveraged hedge funds suffered on the last two weeks Usd spike. The short Usd trade has got way too crowded, and we expect the Usd to strenghten further, even though the short ratio is not that extreme anymore. Let’s see this weeks action after the many interesting developments in Europe during this weekend.

Charts, GSI

Merkel is loosing some popularity in Germany, and definetely loosing in Greece. Europe seems to be going less united by the day. Below from Kathimerini;

“It is also important that people in countries like Greece, Spain and Portugal are not able to retire earlier than in Germany — that everyone exerts themselves more or less equally,” she said in a speech at a meeting of her party, the Christian Democratic Union, in Meschede on Tuesday.

There was nothing wrong with her statement in terms of policy. After all, if we want a Europe where we can all rely on one another, our policies have to be more integrated. But Merkel undermined her position by disregarding the facts. Giving the impression that Greeks retire on fat pensions in their 50s may be useful in addressing a domestic audience that is skeptical about the EU’s bailouts, but it is a disservice to the truth.

According to figures compiled by Eurostat, the EU’s statistics office, the minimum retirement age in Greece last year was 61.4. In Germany it was 62. Of course there have been some exceptions to the rule in Greece but they have been exactly that: exceptions. The discrepancy in retirement ages between Greece and Germany is marginal. In fact, the pension reform bill voted through the German parliament in 2007 aims to raise the minimum retirement age to 63 by 2029. The pension law passed in Greece last year will raise the retirement age to 63.5 by 2015.

In her speech, Merkel also suggested that Greeks take too much time off work. But a study by Mercer Human Resource Consulting found that while there are big variations between holiday entitlements in the EU, the differences between Greece and Germany are not that great. The report indicated that an employee in Greece with 10 years’ service will have a total of 37 days’ leave each year (12 of them public holidays) while his or her colleague in Germany will receive 33 days off (13 of them public holidays). Four days a year difference hardly seems like the greatest injustice within the eurozone, nor is it the cause of the downfall of the Greek economy.

The image of the undisciplined Greek loafer who fritters away the day doing nothing is proving useful for a number of European politicians, not just Merkel, but it is difficult to criticize them when the government in Athens is doing nothing to combat this image. If anything, it is allowing it to be cultivated — perhaps because Greece’s politicians feel that this way they have an alibi when they are unable to meet the targets set by the EU and the IMF. It is easier to blame economic and political shortcomings on social inadequacies or cultural traits rather than accept your own failure.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_19/05/2011_391445

It has been an intense European weekend. Beside Italy being downgraded buy S&P, we had a vulcano eruption on Iceland, unseen protests in Spain spreading to many places in the world and some new rumours out of Greece. The country is sadly in  a very bad shape. Thetrader has argued, it would be best to default and take the big STOP, in order to be able to regain the competitvness in future. Euro is the direct looser of all these happenings taking place over the weekend. We will see the currency market open soon, and how the Euro vigilantes will behave. Euro is up for some really bumby rides, just as ECB, but on the other hand, the worl has never had a currency uniom that didn’t break up. Below from the Greek paper Kathimerini on new AUSTERITY packages, that risk starting new protests in Greece, well timed for the tourist season;

Increased taxes on property owners with assets worth more than 400,000 euros, a reduction in allowances paid to public servants and a levy on soft drinks are among the options the Finance Ministry is looking into as a means of saving 26 billion euros until 2015. With representatives from the European Commission, European Central Bank and International Monetary Fund having left Athens for a short period, the ministry is looking for ways to find 6 billion euros’ worth of savings or revenues for the year in a bid to convince investors that Greece is on track to reducing its deficit by 2015. According to sources, the government is looking at lowering the tax-free threshold for property owners. Currently, only those with assets worth more 400,000 euros are hit with a property levy, however, the ministry is looking into dropping this cut-off mark to 300,000 euros. If implemented, the measure will apply from 2010, which means that property owners will have to pay backdated taxes as of January last year. The government is also considering increasing a tax paid on large property portfolios, which means assets worth more 400,000 euros, a source added. Government data show that about 150,000 taxpayers in the country own assets worth more than 400,000 euros. Other options the ruling Socialists are looking into in an effort to bump up revenues is through the introduction of levies on natural gas and soft drinks, as of the start of next year. With the country in its third year of recession and consumption and investment activity falling, Greece is struggling to bring in revenues, which fell short of annual targets early in the year. Government figures for the first four months of 2011 show that net ordinary budget revenue totaled 14.46 billion euros, down 9.2 percent year-on-year, compared with a January-April target of 16.34 billion euros. Other planned revenue-raisers the government is eyeing is upping several goods from the lower 13 percent value-added tax group to the higher 23 percent group. The reduction of tax breaks for first-home buyers is also being examined, the source added. The ministry is expected to unveil its medium-term 2011-15 strategy aimed at helping restore the country’s fiscal health in the next few days.

Let us see the outcomes of today’s elections in Spain. Durnig the past year, Austerity is the new fashion word among the PIIGS countries. Remember, this is the hard part for poiticians, to explain people need to get less in order to get more in future. If the Socialt loose tonights election, Spain might move into bond vigilantes hands. With people so fed up with austerity, there is a risk of people voting for ANTI Austerity parties, which in turn will make the vigilantes smell the blood. This would cause the Spanish rates to soar, and CDS and credis spreads spike higher.

Thetrader has argued in many articles during the past months, that beside the huge unemployment and other structural problems in Spain, the big Elephant in the room is the collapsed property market, that nobody wants to aknowledge. If all those reposessed properties had a “realistic” value, many of the Spanish banks, and especially the Cajas would be in big trouble. Not dealing with a STOP, the banks might end up going well into negative equity, and this is something the vigilantes will attack.

From Reuters;

Tens of thousands of Spaniards demonstrated in the past week in city squares around the country against austerity measures that have kept a fiscal crisis at bay but aggravated the highest jobless rate in the European Union.

The protesters have called on Spaniards to reject the Socialists and the center-right Popular Party, the main two political options in Spain.

“I don’t like the policies of some of the parties,” said Cristina, a 23-year-old student who declined to give her last name outside a Madrid polling station. She didn’t want to say who she voted for but said: “You can also cast a blank ballot.”

The protests are not expected to shift the outcome of the voting for 8,116 city councils and 13 out of 17 regional governments, where the center-right Popular Party is expected to make major gains.

Polls show the Socialists could lose strongholds such as the Castilla-La Mancha region, where they have controlled the regional legislature for decades, and the city of Sevilla, where they have been in power for 12 years.

If forecasts hold true, the outcome will be a rebuke for Prime Minister Jose Luis Rodriguez Zapatero, applauded abroad for his fiscal discipline during the euro zone crisis but unpopular at home as the economy stagnates.

The Socialists, in power since 2004, are also looking likely to lose the next general election, which is scheduled for March 2012, but could come earlier if big losses on Sunday spark a leadership crisis within the party.

After the euro zone debt crisis forced Greece, and later Ireland and Portugal, to take bailouts, Zapatero implemented round of measures to tackle a huge public deficit and persuade financial markets that it has the budget under control.

He is expected to maintain unpopular economic policies whatever the outcome on Sunday.

“Unless the government wants to run the risk of another episode of financial distress and the debt spreads sky rocketing again, it will have to implement another austerity package before the next elections,” Fernando Fernandez, an analyst at Madrid’s IE business school, said. (Reuters)

http://www.reuters.com/article/2011/05/22/us-spain-election-idUSTRE74L0QI20110522

Beside the extensive updates on Spain this weekend, thetrader finds the below as significant weekend news. Welcome to the new Europa….

Greece seems to be on the soft default path. The current interest rates are simply unsustainable, and like we at thetrader have argued over the past months, Greece needs to default, and restart the engines. from WSJ;

French support for proposals to extend the maturities of Greek debt—a so-called soft restructuring—would leave the ECB isolated in its opposition. and possibly force it to accept a compromise.

“What we certainly don’t want is a state bankruptcy, a default, in Europe,” Ms. Lagarde said in an interview published Friday in Austria’s Der Standard newspaper. “You can use a lot of words—reprofiling, restructuring, re-this, re-that—but what there won’t be is a restructuring of Greek debt.” At the same time, she said: “We would accept anything that is based on a voluntary accommodation by banks.” (WSJ)

http://online.wsj.com/article/SB10001424052748704816604576335361278895404.html

and then we got some credit ratings downgrade preparations by S&P. this time it is Italy.

“With regard to the economy, the government has initiated and will intensify its reforms; in regard to the budget, a phase of measures are in advanced preparation in order to balance the budget by 2014,” the Treasury said today in an e-mailed statement from Rome. It also said the measures will be submitted to the Parliament for approval by July.

Italy had its credit-rating outlook lowered to negative from stable by Standard & Poor’s, which cited the nation’s slowing economic growth and “diminished” prospects for a reduction of government debt, according to an S&P statement sent late yesterday. S&P affirmed Italy’s A+ long-term rating, the fifth-highest, and its top-ranked A-1+ short-term rating.

“What S&P is saying is that Italy’s economy is not growing because it has not undertaken structural reforms, and this lack of growth could make it difficult for the country to meet its commitments in the medium to long-term,” said Nicola Borri, who teaches economics at Rome’sLuiss University. “They’re not saying we’re like Greece and Portugal now, we’re OK for now, but we need to reform or there will be trouble down the line.” (Bloomberg)

http://www.bloomberg.com/news/2011-05-20/italy-outlook-revised-to-negative-by-s-p-ratings-affirmed-1-.html

and finally to some volcano eruption this weekend. Norway has rescheduled flight, let’s see who will follow. Deja Vú all over again. Remember the Flash Crash last year?

It has been confirmed that Grimsvotn volcano underneath the Vatnajokull glacier in southeast Iceland has begun erupting.

A plume of ash is visible, which has led scientists to confirm earlier reports of an eruption. Vidir Reynisson at the public safety unit of the Icelandic police says it is too early to tell how big an eruption it will be, although it shows signs of being bigger than the last one in 2004.

Earthquake activity began in the area at 18.00 this evening (local time) — which was taken as a clear sign of an imminent eruption. The emergency co-ordination centre at Skogarhlid in Reykjavik is in operation. (icenews)

Great summary of the past week’s protests in Spain. Click the link below for full article.Translated by Google, fresh from El Pais;

“There has been a very rapid disintegration of society,” said Miguel Martinez, a sociologist expert in social movements, Complutense University professor and researcher Ramón y Cajal. “The insecurity has emanated from the political elites, have been tightening the nuts every day. Governments have pursued policies very aggressive for most people. The picture is very sad. It had to come a safety valve. The people feel that their life is volatilized. When it’s indignation can no longer go there because they make you disappear as a person. If you lose your dignity and you’re just labor. ”

Full article,

m15 may22

Below is the link to an interview with Matt Taibbi,  author of People vs Goldman.

http://youtu.be/_WS0rpNHzT0

With Greece close to a default, according to us, we provide you with some historical reading on how some of the creative accounting of Debt was set up.

Thetrader has argued the market is up for a bigger correction. Many leading markets are signaling the top, while the no volume melt up equity market, is trading somewhat “confusingly” strong. Every uptick is on diminishing volume, while the sell offs are accompanied with bigger volumes. We have argued, in order to make new fresh highs, the leading stocks need to take us higher. We won’t take out new highs on LinedIn trading at +1000 p/e, that is not sustainable. Goldman Sachs has seen it’s stock really underperform. Remember this stock showed us the way up when the market made a bottom, and is now leading on the way down.  Leaders leading us lower, forget LinkedIn There is always a time lag, between what happens in the real world, and when people’s minds understand the consequences, especially evaluating risks when it come to taking in facts about financial positions. We strongly believe Goldman Sachs stock price is telling us something is about to happen….Below from Forbes.

As Congress and the media were debating the controversial and populist-tinged Dodd-Frank Financial Regulation bill, my first inclination was to defend Wall Street and traders overall. I didn’t like Dodd-Frank’s Volcker Rule, which divests proprietary trading and alternative investments (hedge funds and private equity) from Wall Street (commercial) banks. I believed the bill was similar to reinstating the Glass-Steagall Act separating investment banking and trading from commercial banking.

I argued that banks need trading profits — where the main profits have been the last decade — to offset losses on lending, especially during a recession. But now I agree with Chairman Volcker. We can’t be certainGoldman Sachs CEO Blankfein and other sleuths won’t steal client inside information to front run, compete, and trade against their clients and the public’s interests. The Chinese Wall is the biggest myth and lie on Wall Street.

What’s clear to me now after learning more is that Wall Street embraced and abused conflicts of interest for its own private good, directly at the great expense of its clients and the public.

Goldman should be tarred and feathered over the 2008 meltdown. Like others on Wall Street, Goldman had an active mortgage department designing, packaging, securitizing, promoting, and selling mortgage-backed securities and related synthetic derivatives. Goldman’s trading desk conceived, promoted, and sold various protection strategies as market maker, agent, and principal.

Many EU and German officials accuse Goldman of doing a similar pump and dump trade with Greece and other PIIGS. They argue that Goldman and Lehman sold their currency swaps and Repo 105 strategy to help Greece cheat to enter the Euro, disguising debt as sales. Later, Goldman and Lehman dumped the Greek bonds, setting off a mark-to-market bomb around Europe. That tragedy is still unfolding. Will the EU tar and feather Goldman before the U.S. does? Is the U.S. protecting Goldman? (Forbes)

http://blogs.forbes.com/greatspeculations/2011/05/18/its-getting-harder-to-defend-goldman-sachs/

And here is GSI compared to SPX;