Black Monday 2: Economic Boogaloo

[Ara Pacis]

You toseeked me by mere seconds!

Oh, and lets hope it was just water... there were comments wandering around the internet about the use of something less pH neutral recently.

[mike alexander]

Oh, yes, that fellow from Rhodos Dactylos Aurora, the neo thug party with the cleverly disguised swastika emblem.

I get the feeling from all this that Freedonia is going to war. Firefly hits Chicolini, and hijinks ensue.

[Ara Pacis]

Apparently, the economy is improving, if clean underwear is any indicator.

[publius]

"Spailout":

http://online.wsj.com/article/SB1000...LEFTTopStories

€100B, or "up to" that amount to contain the pain in Spain. That sum is about 10% of Spanish GDP, or twice our own TARP in relative terms.

The fact they did it now rather than continue to talk is telling. Well, actually, it is just talk so far, saying they've agree to the bailout. Anyway, a Grexit will shake everything up so that it could moot anything done now, and you figured they wait until the Greek do-over election to do anything. The fact they announced "Spailout" now indicates things were getting pretty bad and required action right now.

I remember someone predicted that when Greece finally goes, it will be relatively minor, as much bigger events would be transpiring.

[publius]

Oh dear, looks like Spailout has Ireland a bit miffed:

http://www.france24.com/en/20120609-...medium=twitter

Ireland wants the same condition-free or condition-lite terms as Spain.

[mike alexander]

Eurozone finance ministers said Saturday they were willing to give Spain up to 100 billion euros to help its troubled banks, *which are suffering due to their massive exposure to the ailing property sector.*

The disease analogy pretty much sums it all up. 'Twas an evil wind swept through, naught could be done.

[Hlafordlaes]

"Spailout":

http://online.wsj.com/article/SB1000...LEFTTopStories

€100B, or "up to" that amount to contain the pain in Spain. That sum is about 10% of Spanish GDP, or twice our own TARP in relative terms.

The fact they did it now rather than continue to talk is telling. Well, actually, it is just talk so far, saying they've agree to the bailout. Anyway, a Grexit will shake everything up so that it could moot anything done now, and you figured they wait until the Greek do-over election to do anything. The fact they announced "Spailout" now indicates things were getting pretty bad and required action right now.

I remember someone predicted that when Greece finally goes, it will be relatively minor, as much bigger events would be transpiring.

There's a bit of schadenfreude about this here in Catalonia. When Bankia was up for grabs during its formation from Caja Madrid and Bancaja (Valencia), Catalonia's La Caixa offered to buy it, and has the resources (just) to perhaps have made a go of it. The offer was soundly rejected due to regional rivalries (in the case of earlier sales of some utility companies, the idea of allowing a Castillian company to be bought by those pesky Catalans was so scandalous that the companies were sold to Italian firms.)

Spanish Savings & Loans, called Cajas de Ahorro, have traditionally been the financiers of the political parties in their region. Catalonia actually correctly identified its deficits long ago, and undertook the greatest reductions in spending, yet suffered endless criticism from the rest of the country precisely because its "sins" were bared for all to see. Those who were preaching the loudest are now on shameful display for the very late admission of massively higher debts in both regional governments (Madrid province), as well as at Bankia.

In many ways we here are reliving the 1930's politically.

...

Strangely, this year business is up during the tourism season, much better than last year. We're even getting slightly more business from locals. All relative, of course, and revenue is still in the dumps in historical terms, but it seems odd. Last summer was one of our worst ever, and I expected with all the dire news to go completely off the cliff this year.

[Ara Pacis]

There's a bit of schadenfreude about this here in Catalonia. When Bankia was up for grabs during its formation from Caja Madrid and Bancaja (Valencia), Catalonia's La Caixa offered to buy it, and has the resources (just) to perhaps have made a go of it. The offer was soundly rejected due to regional rivalries (in the case of earlier sales of some utility companies, the idea of allowing a Castillian company to be bought by those pesky Catalans was so scandalous that the companies were sold to Italian firms.)

Spanish Savings & Loans, called Cajas de Ahorro, have traditionally been the financiers of the political parties in their region. Catalonia actually correctly identified its deficits long ago, and undertook the greatest reductions in spending, yet suffered endless criticism from the rest of the country precisely because its "sins" were bared for all to see. Those who were preaching the loudest are now on shameful display for the very late admission of massively higher debts in both regional governments (Madrid province), as well as at Bankia.

In many ways we here are reliving the 1930's politically.

...

Strangely, this year business is up during the tourism season, much better than last year. We're even getting slightly more business from locals. All relative, of course, and revenue is still in the dumps in historical terms, but it seems odd. Last summer was one of our worst ever, and I expected with all the dire news to go completely off the cliff this year.

They're not looking at another Civil War, are they?

[publius]

There's a bit of schadenfreude about this here in Catalonia.

...

In many ways we here are reliving the 1930's politically.

...

Strangely, this year business is up during the tourism season, much better than last year. We're even getting slightly more business from locals. All relative, of course, and revenue is still in the dumps in historical terms, but it seems odd. Last summer was one of our worst ever, and I expected with all the dire news to go completely off the cliff this year.

Thanks. It's nice to get a local perspective right on the ground that doesn't have to filter up and then back down through all the news pathways.

Reliving the '30s is about how I figured it would go. Well, as they say history doesn't repeat exactly but does ryhme, and so it will be the same theme but a somewhat different play played out with differenta actors. The crisis is imposing a polarizing field so to speak, and the extremes will rise and fight it out, communists vs. fascists basically. Or whatever they end up calling themselves.

[publius]

How did Spain get such favorable terms compared to the others? Oh, ho ho ho:

http://www.businessinsider.com/the-t...guindos-2012-6

According to that the Spanish PM told his FM to remind them it would cost €500B if Spain blew up and another €700B when Italy blew up immediately after. IOW, give us the bank bailout, *on our terms*, or we sit back and let you all blow up.

Somehow, I get the feeling this is actually the type of gun they're using:

[Hlafordlaes]

I'm not sure Rajoy is that clever. Article today in La Vanguardia was rehashing his track record as an expert at muddling through, which is a fair depiction imo.

As for the deficit and banking crisis, the best interpretation would be that he was claiming all A-OK until the last second, while knowing the worst was coming, and in so doing avoiding a bank rush until relief was in sight. Of course, the worst interpretation is that he was clueless. Regardless, given what was tardily discovered (or merely announced tardily) at both Bankia and Madrid's local government finances, the only possible interpretations seem to be that the party and its leaders have either been running a massive cover-up of Popular Party shenanigans, or they are entirely clueless and inept.

Neither alone works for me. It's both and then some.

To understand the Popular Party, one must think in terms of how following a [given] dogma may lead one to enter a state of shocked inaction at seeing how going by an inerrant book fails miserably. And since one's actions have been pure, one yet declares oneself faithful and innocent, even defiantly so to those considered to have delivered the original articles of faith. And since falling short of expectations is shameful, one engages in simultaneously attempting to cover up or delay any hard truths when they emerge.

To understand the PSOE, only the [given] changes, then ditto.

[Ara Pacis]

How did Spain get such favorable terms compared to the others? Oh, ho ho ho:

http://www.businessinsider.com/the-t...guindos-2012-6

According to that the Spanish PM told his FM to remind them it would cost €500B if Spain blew up and another €700B when Italy blew up immediately after. IOW, give us the bank bailout, *on our terms*, or we sit back and let you all blow up.

Somehow, I get the feeling this is actually the type of gun they're using:

Reminds me of a scene from Blazing Saddles... but it's not appropriate to post.

[publius]

I'm actually surprised. Spailout's half-life turned out to be just hours, not days. Spanish 10yr yield hit 6.54%, 30 bps higher than the close Friday, and it pulled Italy along with them, Italian 10yr back up above 6%. And the Dow started out soaring, but end up crashing.

Wonder what will be announced at the close of markets this coming Friday? Wait, the Greek do-over election is Sunday, the 17th, which is this next weekend. Monday the 18th may be very black indeed.

[publius]

Here you go:

http://www.reuters.com/article/2012/...85A0ZB20120611

THe first thing they do is assure the reader that these are just worst case plans. No one "expects" Greece to leave. You can take that to mean that everyone expects them to leave.

Anyway, note the people controls as well as capital controls. I remember some report many months ago about leaks from the British Foreign Office which I think I posted here or in the other thread. Anyway, the jist of it was the Brits were planning for a Euro breakup and all the bailouts were just buying time. In there, there was something about concerns of people being "trapped" unable to withdraw money. That report looks to be accurate now.

[HenrikOlsen]

That sounds like the starting gun for the stampede.

[Hlafordlaes]

Here you go:

http://www.reuters.com/article/2012/...85A0ZB20120611

THe first thing they do is assure the reader that these are just worst case plans. No one "expects" Greece to leave. You can take that to mean that everyone expects them to leave.

Anyway, note the people controls as well as capital controls. I remember some report many months ago about leaks from the British Foreign Office which I think I posted here or in the other thread. Anyway, the jist of it was the Brits were planning for a Euro breakup and all the bailouts were just buying time. In there, there was something about concerns of people being "trapped" unable to withdraw money. That report looks to be accurate now.

Gulp.

If'n we do not have ourselves a bout of serious civil strife that would scare them tourists away, soon about the only viable business in Spain other than farming will be catering to foreign folks visiting places far from the bread lines. Mebbe the missus and I ought to move to a coastal village with high-end clientele and a March to October tourist season. L'Ametlla de Mar is looking good, in spite of the bad photo on Wiki.

[publius]

I was just reading something from some Credit Suisse analyst whofigures 2 months tops until France blows up. That is their sovereign yields start blowing out.

Basically you can't solve a debt crisis with more debt and that's essentially what they're trying to do. Entity A's debt goes bad. Entity B comes in with a bailout. But how does B finance it? Why by debt of its own. Then Entity B's debt goes bad, and it needs a bailout. And so on until everyone's debt goes bad. That's what's happening in the EU and they're gonna blow themselves all up.

Then we blow up. That will be history rhyming pretty much. In Great Depression 1.0, the stock market crashed in '29. But that was but the first wave. There were green shoots and rallies and good times just around the corner. The second wave, much worse than the first, came when a big European bank, Creditanstalt, blew up. The Creditanstalt event this time is going to be the EU meltdown.

[Extravoice]

"These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality."

[publius]

Yes, soon somebody in the role of ol' Bob there will be in front of the cameras telling the public not to panic, their money is perfectly safe and to remain at home. He will step down, trip, and his briefcase will fly open revealing wads of cash (Swiss francs, most likely) or diamonds, maybe some gold, and then his plane tickets.

[Selenite]

You can't solve a debt crisis with more debt and you can't grow your way out with austerity and spending cuts. You look at the dwindling choices we face and I'm reminded of a Woody Allen quote.

“One path leads to despair and utter hopelessness. The other to total extinction. Let us pray we have the wisdom to choose correctly.”

[publius]

Oh, it's not hopeless. In the long term. It's the same situation as the drunk/junkie/morbidly obese person. To continue on is death. But to get better, one is going to have to go through a hell of a lot of pain and suffering and you might wish you were dead during the process. Any proposed solution that seeks to avoid that pain and suffering part is going to fail and make things worse.

That pain and suffering is debt destruction. It's hell. The last example was Great Depression 1.0.

[Ara Pacis]

Oh, it's not hopeless. In the long term. It's the same situation as the drunk/junkie/morbidly obese person. To continue on is death. But to get better, one is going to have to go through a hell of a lot of pain and suffering and you might wish you were dead during the process. Any proposed solution that seeks to avoid that pain and suffering part is going to fail and make things worse.

That pain and suffering is debt destruction. It's hell. The last example was Great Depression 1.0.

Debt destruction is the key and the self destruct all in one. That's why I said we all outta just start over from the beginning of these threads and in discussion with people in person. Unfortunately, people who have things often have this strong belief that they actually earned and deserve them and it makes them feel very attached.

[profloater]

So Soros predicts a Euro-positive election. Actually it would not matter if the anti-Euro socialists won because the "no-negotiation" stance would become "OK we renegotiate" overnight. Greece can be afforded. The real problem is a continued run on the banks but where to put the hot money? The only place big enough would be the US dollar, therefore back door restrictions on cash withdrawals and currency conversions would seem to be the logical policy within the Eurozone.

[HenrikOlsen]

Just too bad that Denmark doesn't have enough bonds to cover the upcoming demand.

[profloater]

Just too bad that Denmark doesn't have enough bonds to cover the upcoming demand.

Wouldn't it be great if a small entrepreneurial country took up all that cash and then invested it in the real economy?

[Space Chimp]

Yes, soon somebody in the role of ol' Bob there will be in front of the cameras telling the public not to panic, their money is perfectly safe and to remain at home. He will step down, trip, and his briefcase will fly open revealing wads of cash (Swiss francs, most likely) or diamonds, maybe some gold, and then his plane tickets.

I suspect, as with the Titanic, the upper crust of society will quietly drift away to be picked up shortly and put back into the first class luxury to which they are accustomed. Maybe some will get their Guccis wet.

The rest of us will be fighting madly over deck chairs, life rings and the odd piano cover.

[Heid the Ba']

Just too bad that Denmark doesn't have enough bonds to cover the upcoming demand.

That is why countries with good credit ratings borrow at 2.5% and lend to the IMF etc. at 4%.

[Heid the Ba']

You can't solve a debt crisis with more debt

But you can if the debt is of a different type, over a different period and at different rates which is what is happening now. High interest debt is being replaced with lower interest debt over a term that suits the debtor better.

and you can't grow your way out with austerity and spending cuts.

But if you don't go with austerity and cuts then arguably you are simply trying to solve a debt crisis with more of the same type of debt.

[Heid the Ba']

In many ways we here are reliving the 1930's politically.

It is just the perennial story of Spanish regionalism. When politicians are assasinated, the Falange are fighting the unions in the streets and there are tanks on the Ramblas we can talk about the early 1930s. When it reaches open warfare get back to me.

[Ara Pacis]

Contrary to what Gonzalo Lira suggested a while back, about flight to commodities, hedge funds are dumping them.

Hedge funds and other money managers pulled nearly $1.7 billion from commodity markets in the first week of June, extending the bearish mood from May, as the euro zone crisis and stuttering global economy roiled markets, trade data showed on Friday.

Together with last month, speculators have cashed nearly $30 billion from the major energy, metals and agricultural markets, and wiped out almost half of the value in all U.S. commodity futures since the end of March, data from the Commodity Futures Trading Commission showed.

"If you take that data and couple it with the broad sell-off we've seen over the last two months in commodities, it clearly shows the largest funds and institutions are not just whittling positions but dumping them," said Adam Sarhan at Sarhan Financial in New York.

Also, Oil may make big moves soon, as Saudi Arabia tries to work around Iranian issues.

According to Mark Fisher of MBF, oil doesn’t belong at $83 and won’t remain at this level for long. “Either it goes back to $100 or it drops to $65 – but we’re not staying here,” he says.

“I think ultimately we’re going up,” Fisher adds, "that’s my gut, but when I get a gut feeling I’m either really right or really wrong.”

“They’re trying to put the screws to Iran,” he says. (It's believed that Iran is suffering due to falling oil revenues.) And Saudi Arabia's oil minister seemed to imply in the near-term his nation has no plans to decrease production; he said Saudi Arabia is committed to keeping markets 'amply supplied.' Fisher adds, "I don't think all this is a big coincidence."

He thinks they'll jack prices up later after sanctions have kicked in.

And now I hear that Russia is sending military assets to Syria. This may make the markets jump, just a little bit.