July 3, 2012 By gpc1981
‘The
following is an excerpt from my (Summers’) latest issue of Private
Wealth Advisory. In it I outline the brutal reality
about
However,
the details surrounding the source of the funding for this “bailout” still
remain a mystery as there is no entity capable of providing the €100 billion in
capital: neither the IMF, nor the Federal Reserve, nor the ECB have the political
backing to launch a bailout of this size… and of the two EU mega-bailout funds,
the EFSF and the ESM, the former can’t even raise €10 billion successfully
while the latter doesn’t even exist
yet.
Indeed,
EU leaders have already pushed back the deadline for the creation of the ESM
from July 1st to July 9th. And even if they do manage to
hit the July 9th deadline (unlikely given that no EU political
decision has made its deadline since the Crisis began) both
As we’ve
already seen with
Spain will not immediately implement
the International Monetary Fund’s latest recommendations, which include cutting
government workers’ wages further, because they are nonbinding advice, the
prime minister said Saturday.
The
IMF is one of three organizations Mariano Rajoy’s
government turned to for an assessment of the state of
http://www.businessweek.com/ap/2012-06/D9VEB8UG1.htm
Regardless
of the underlying realities (there’s no money coming anytime soon), Spanish
banks shares have risen during the last two weeks
while the yields on Spanish bonds (most notably the ten year) and Spanish CDS
have fallen.
There
are three reasons for this:
1)
Traders are praying that somehow the €100 billion will magically appear AND prove to be enough to support
2)
3)
Two auditing firms announced that
Regarding
#1, neither the ECB, nor the Fed, nor the IMF, nor the EFSF, nor the ESM, nor
However,
let’s say, for the sake of argument, that somehow the ESM is created on time and does have €100 billion to give to
Regarding
#2: the “successful Spanish bond auction,” the markets are ignoring the fact
that during said auction the yields on
Spanish five-year paper hit their highest levels since Spain joined the Euro. So
The
markets also seem to be
ignoring the fact that the majority of the buying during the bond auction came
from Spanish banks… which, as
noted earlier, are currently receiving €316 billion from the ECB. This tells us
that:
1)
The rest of the world isn’t interested in Spanish debt (for obvious reasons).
2)
Even Spanish banks aren’t interested in buying Spanish sovereign debt unless it’s
at very high yields (permitting them to pocket the spread between the interest
they earn on the bonds and the interest they owe the ECB for the emergency
loans they’re using to buy the
debt).
In
simple terms, an honest assessment of the Spanish bond auction shows it to be
an absolute disaster. However, the EU media and political leaders are desperate
to play it off as a great success because telling the truth would result in the
acceleration of the Spanish banking system’s collapse (which is still coming
regardless).
Finally,
let us turn our attention to the alleged “audits” that found Spanish banks only
need between €51 and €62 billion in capital to be saved.
First
off, these audits were completed in a matter of weeks. Given that no one, not
the Spanish Government nor the Spanish Bank themselves, have any incentives to reveal the true extent
of the Spanish Banking system’s problems, I highly doubt that the auditing
firms were provided with accurate information (remember, the recently
nationalized Bankia passed the ECB’s stress tests).
Secondly,
the auditors based their analysis on a “worst-case economic scenario” of a 6.5%
drop in Spanish GDP between 2012 and 2014.
Let’s
put this number into perspective:
Indeed,
one has to wonder… if these audits were so great and
Finally,
how can Spanish banks only need €51-€62 billion in capital when they’re drawing
€316 billion from the ECB every month? And didn’t
Indeed,
if Spain’s banks need so little capital to be solvent again, why did Spain plead with the ECB for a rescue in the
middle of last week (remember, Spanish banks were the primary buyers of the
most recent Spanish sovereign bond auctions)?
Yields
on 10-year Spanish bonds surged to a record high of almost 7.3pc as investors
ignored the victory of pro-bailout parties in
The
closely-watched two-year yield rocketed by 65 basis points in a matter of
hours, signalling a near-total collapse of confidence
in Spain’s €100bn (£80.3bn) rescue from the EU last week to shore up its
banking system.
Cristobal
Montoro, the economy minister, warned that
To conclude,
However,
enough folks were suckered into believing that
I
view all of these developments as a terrific setup to prepare for when
With that in mind, I’ve begun positioning subscribers
of my Private Wealth
Advisory for the next leg down…
July
2, 2012 By gpc1981
The
following is an excerpt from my latest issue of Private
Wealth Advisory. In it I outline the real dynamic
between
…the
second Greek parliamentary elections in as many months came and went. While the
media is making a big deal of the fact that the anti-bailout SYRIZA party didn’t
win, the facts remain that the elections haven’t really accomplished anything
of significance for
What
I mean by this is that while the game of political musical chairs in Europe
creates the appearance of change, the fact remains that Greece is broke and
that the only thing stopping it from facing systemic collapse is continued
support from the EU, particularly Germany.
Put
another way, the primary dynamic of
Indeed, the New Democracy party, which now has the majority in Greece’s
parliament, (due to a loose alliance with the socialist PASOK party which has
shown itself to be just as willing to join the completely anti-bailout SYRIZA
party) is already calling for a
revision to the Second Greek bailout’s terms.
Greece wants tax cuts, extra help
for the poor and unemployed, a freeze on public sector lay-offs and more time
to cut its deficit under a plan likely to run into strong opposition at a
European Union summit next week.
The
new coalition government’s programme, seen by Reuters
on Saturday, reflected public pressure to ease the terms of a 130 billion euro
($163 billion) bailout saving
If
implemented in full, the new programme would undo many austerity measures the country
agreed in February to clinch the bailout package, its
second since 2010.
http://in.reuters.com/article/2012/06/23/greece-idINL5E8HN1MI20120623
Three
key takeaway items from this development:
1)
Greek leaders, no matter what party they belong to, are unwilling to get
2)
The current Greek Government is formed via a very
loose coalition, which could very easily fall apart, resulting in yet another election.
3)
In
simple terms, at this point things have become truly farcical:
Greece
breached the rules of its EU-IMF loan agreement by taking on some 70,000 public
sector staff in two years, undermining efforts to reduce the state payroll, a
report said on Sunday.
To Vima weekly said the hirings in
2010 and 2011 were highest in local administration, health, the police and
culture, where the number of employees actually
increased.
http://www.france24.com/en/20120624-greece-breached-bailout-rules-with-staff-hirings-report
This
is extremely problematic for several reasons.
For
one thing, this sends a clear message to the EU as well as the ECB and IMF that
Greek PM cannot attend EU summit due to surgery
German
Finance Minister Wolfgang Schaeuble repeated this
view Sunday, in an interview to newspaper Bild am Sonntag.
“It must now be the most important
task of Prime Minister Samaras’ new government to swiftly and immediately
implement the agreed program without hesitation or asking, yet again, what the
others could do in addition for Greece,” German Finance Minister Wolfgang Schaeuble was quoted as saying. “The ball is in
The Sunday tabloid published a
survey on
In
it, 78 percent
of the Germans polled, 65 percent of the French and
about a half of the Italians said
http://www.foxnews.com/world/2012/06/24/greek-pm-cannot-attend-eu-summit/#ixzz1yjbQVEOR
EU
political leaders and their respective citizenry aren’t the only ones realizing
that Greek political leaders are a bunch of crooks; the Greek people are also
beginning to realize that their political leaders are not looking out for their
best interests or for Greece’s: only
20% of the Greek bailout money went into the economy, the rest
went towards paying off Greece’s creditors (read EU banks) and the ECB.
As a
result of this, Greeks are increasingly voting for the SYRIZA party which is
completely anti-bailout, anti-Euro, and anti-austerity:
|
|
October 2009 |
May 2012 |
June 2012 |
|
SYRIZA’s % of Vote |
4% |
16.8% |
26.9% |
As
you can see, SYRIZA is rapidly gaining popularity amongst Greek voters. This is
extremely problematic as it
indicates that should the current, new Greek
government fall to pieces (as it most assuredly will… the new Finance Minister
just resigned after being in office for only one week), it’s quite possible
SYRIZA will win whatever subsequent election takes places.
European
leaders will be meeting this Thursday and Friday to discuss
However, we already know from the
headlines this morning that Angela Merkel will not agree to Euro bonds or any
kind of shared deposit insurance if it means “joint liability” (read: Germany
being on the hook for other EU members’ bank losses).
We also know that the ECB is not
interested in buying more government bonds (it hasn’t for 14 weeks now). And
the ECB has stated point blank that Greek negotiations will not begin with
So,
there is a relatively high probability that a Grexit
will be coming sooner rather than later. It all boils down to one simple fact: the second the money spigot from the EU to
Consequently,
the real question is: “when does
With
that in mind, I’ve begun positioning subscribers of my Private Wealth
Advisor for the possibility of a Grexit
coming sooner rather than later. We’ve already locked in over 30 winning trades
this year by finding “out of the way” investments few investors know about and
timing our positions to benefit from the various developments in
