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NYP: Bove: Cuomo is more to blame for Wall Street's meltdown, not BofA's Lewis
5:30 PM, February 5, 2010 ? By MARK DECAMBRE
Bank analyst Dick Bove had some choice words today for New York Attorney General Andrew Cuomo and the fraud charges he filed against Bank of America.
A day after Cuomo filed fraud charges against BofA, ex-CEO Ken Lewis and former CFO Joe Price for allegedly misleading investors about losses at Merrill Lynch in order to complete its merger, Bove in a research note questioned Cuomo's populist cred, saying Cuomo might have played a bigger role in Wall Street's implosion than Lewis ever did.
"When Andrew Cuomo, the current attorney general of New York, was the secretary of the [Department of] Housing & Urban Development, he was was instrumental in forcing the [government-sponsored enterprises like Fannie Mae and Freddie Mac] to take on more alt-A mortgages," wrote Bove, who works at Rochdale Securities.
"He was a major advocate for subprime lending," he continued. "Many thought that his actions ultimately led to the collapse of the GSEs and untold suffering to possibly millions of American households," he said.
"In sum, the actions of Andrew Cuomo and the [Securities and Exchange Commission] cost billions and untold suffering. The actions of Bank of America resulted in benefits to all involved,"
Bove hasn't been shy in expressing his fondness for Lewis and his leadership at BofA, praising Lewis for not getting BofA mixed up in the toxic-mortgage mess that has brought down some of BofA's peers and for BofA coming to Uncle Sam's rescue by buying Merrill Lynch and Countrywide Financial.
http://www.nypost.com/p/blogs/thespread/bove_cuomo_lewis_more_bofa_blame_cikZVLIWrxU9tcHAgsepJI
>>Jim Willie: Breakdown Of The Gold Market
Commodities / Gold and Silver 2010
Feb 03, 2010 - 05:07 PM
The Market Oracle
By: Jim_Willie_CB
A great disconnect exists in the gold market between the exchange futures contract price (the paper price) and the gold bullion paid price for transactions (the physical price). The differential in price is growing wider, enough to place tremendous pressure on the gold market itself. Look not to the gold premium paid for purchases, but to high volume purchases in the tens of million$. In mid-December, almost every demand for gold contract delivery was matched by a cash delivery, complete with 25% bonus premium offered. The officials even produced a new ledger item called 'Cash For Delivery' that was necessary to balance their badgered books. It prompted little attention. Some call it a basic bribe. Others call it a technical default.
Fast approaching is the event of GAME OVER for London, a condition that has already reached critical level, according to a key reliable source of information with London connections and direct experience with its market events. How long can a major metals exchange sell contracts but have miniscule supply of gold in their vaulted possession? The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in London requires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration. The opportunity to convert fiat money into precious metal at prices considered reasonable is also vanishing. The London gold banker said,
"There is going on a lot more than meets the eye. The physical system is actually consolidating bigtime and is organizing itself with lightning speed, totally hidden from pretty much anyone, even the so-called insiders. The paper precious metal market and the physical precious metal market have defacto disconnected. The paper and physical gold markets currently operate in parallel universes. The outflow of physical metal from bank vaults is happening at a mind bending pace."
Notice the reference to consolidation and re-organization in a manner not apparent to those fixated on the existing cockamamy corrupted system that is permitted by loyalist regulators. The officials in the LBMA, COMEX, USDept Treasury, and elsewhere are struggling to maintain the current system, and reportedly are not in step with awareness of the newly devised structures coming into place. In the background, far from view, new systems are being fabricated from scratch. Some involve complex barter systems soon to emerge and hit the scene with a splash, with impressive vertical integration. At the same time, new currencies for usage are still undergoing planning, foundation setup, contract latticework, and more for actual implementation.
The true gold price might very soon become unknown, an extremely positive development. Telltale events such as bankruptcy, lawsuits, and arrests are likely to come, all in time, since the breakdown in order has led to extraordinary reactions. Right now, we see extremely strong tactics using naked gold short contracts at the London metals exchange (LBMA) and the COMEX in the United States to drive down the gold price. It is all illegal and permitted. Margin calls have hit, forcing further selling of paper contracts. Gold investor sentiment among the naive and less informed has been dragging, ever since early December.
The world is approaching a climax event. Sure, many analysts have made such a claim for months. But with Europe in flux, the USCongress in flux, the Persian Gulf in flux, the US-China trade battles escalating, and USTreasury debt finance recognized more and more as monetized printing press activity, we are truly approaching a climax event as gold metal has exited the London market. The trigger event is unknown. It will likely not be directly related to the above event fronts. It will probably be a typical garden variety event pertaining to the far from ordinary stresses tied to the ongoing crisis in the credit market, gold market, and currency market.
The financial press is critically important precisely now, for not spilling the facts on the current gold market breakdown and divergence. Much of the pressures are hidden though, since the financial press networks report only the official paper-based prices. Do not expect to read in Reuters or Bloomberg or the Associated Press or Wall Street Journal or the New York Times or Investors Business Daily or Barrons that a grotesque gold shortage exists in the London metals exchange or at the COMEX in New York and Chicago. They will not report that London is virtually drained of gold, yet still sells gold contracts. Accurate news reporting would accelerate the breakdown and remove the possibility for time extension. The press will not report that billionaires are emptying their gold bullion accounts at rapidfire pace, out of gross distrust of the bankers, since gold leasing has illegally been standard practice for many years. Imagine selling lumber contracts without wood delivered. Imagine selling mortgages without home titles delivered. Actually, Wall Street did precisely that from 2003 to 2007.
LONDON AS TARGET
Last August 2009, a busload of former key employees from the USDept Treasury and Wall Street firms arrived in Brussels Belgium. They turned themselves in to legal authorities in an attempt to avoid eventual prosecution. They came loaded with evidence, documents, emails, testimony, boxes of CDs, and much more. They won asylum in exchange for turning state's evidence. The Brussels Serious Fraud Squad is running with the data. All indications point to a strategic decision made by the Brussels Interpol squad. Their target is London, because it lies at the center of the syndicate enforcement of the fiat currency system, where the gold suppression is centered, where the greatest point of weakness exists, where the absence of gold is most glaring to make them vulnerable. London is the weakest link in the Ponzi Scheme chain, known as the global monetary system with USDollar price mechanism and USTreasury Bond reserve component in banks.
Another important event occurred, this in December. A clearinghouse held a Letter of Intent to supply the London metals exchange with 250 metric tonnes of gold bullion. The contract was interrupted. The method used to disrupt and derail the contract is a story unto itself. Little is known in verifiable form. The point is that London bankers were denied an important channel of gold in supply. At the same time, demands came from private billionaires to take back possession of their gold in allocated accounts. They are often called in the gold industry the 'sovereigns' politely. When pressed for details, my sources tell of their Chinese background. In recent weeks, the billionaires have been joined by others from Central Europe, in particular from Switzerland. So London is being drained of gold and not being resupplied, from the front door and from the back door. A breakdown is coming, and accidents assured. Gold is the ultimate vulnerability. It underpins the USDollar, competes with the USTreasury Bond, while the USDollar remains buttressed by the Petro-Dollar defacto standard. That too has been served notice. See the Saudi announcement last May 2009, with Russia, China, Japan, and Germany at their side. Eventually, crude oil sales will not be fulfilled in US$ settlement.
PARADOX OF INELASTICITY
Gold is unique as a market, as far as its tendency to seek equilibrium from matched supply and demand. Since the year 2005, my analysis has pointed out the unique condition of gold as far as supply inelasticity is concerned. My forecast over four years ago was to expect less gold output from the mining industry, even with higher gold price. That forecast was correct. In addition to more difficult mine projects, deeper ore bodies, thinner gold veins, and more costly projects, other paradoxical factors have been at work. The industry projects surely translate greater challenge into lower output. Introduce the lunatic management of the Marxist leaders in South Africa concerning electricity production. Dirty coal at power plants and higher mining firm taxation assure much lower gold output from the industry's former leader. Numerous are the reasons for lower gold output in the current year, even with high gold price. The industry is in decline. Ultra-rich ore bodies are long gone.
My forecast of lower gold output at higher gold price, the inelastic factor, went like this. As large mining firms suffer the consequences of their unwise (surely illicit, perhaps illegal) future gold sales within their cratered hedge books, the losses would approach catastrophic levels. Take Barrick Gold for example. In 2007, they announced the complete cover of their disastrous hedge book. They lied and covered about one third, using dilutive new stock issuance and new long-term corporate debt. In summer 2009, they announced again the complete cover of their disastrous hedge book. The financial press forgot that they supposedly removed all future commitments just two years ago, hardly a surprise lapse of memory. Again Barrick lied, since they ran out of funds from yet another grand stock issuance that again crippled their stock from vast dilution.
The Toronto and Wall Street investment community still loves this total dog of a stock, as collusion and kickbacks must be main features to prop the stock. Just look at its Board of Directors to detect vast syndicate presence. In fact, it has two Boards to provide extra service to the stockholders, more like one to the syndicate. So in conclusion, the cover of huge hedge books cost the big mining firms tens of billion$ in funds that otherwise would be devoted to mine projects and additional gold output. It did not happen, since mine industry funds went into the sewer of future gold price suppression. The most curious aspect of this factor is the lack of investor lawsuits for failed fiduciary responsibility.
The flip side to this important price reaction factor is the demand inelasticity. When on the upslope, the phenomenon is called Gold Fever. A rising gold price prompts a rising demand for gold. Imagine a 50% increase in the price of televisions resulting in lines forming to buy more costly TVs. Never. But such is normal for gold. When on the downslope, the phenomenon works in reverse. A falling gold price, in particular for the paper gold price dictated by brutal gold futures contract pressures, often not reinforced by the presence of gold bullion, results in a gradual darkened gloomy sentiment for gold. People do not rush to buy more gold since it has been offered at a cheaper price. Rather, they are trapped in margin calls when leverage is applied. Rather, they give up and sell out, dump their gold, and lick their wounds. These are the legion of dummies and risk junkies. These are the vast hordes who do not exercise patience and prudence, fully aware of the gold exchange distress. They will return, but when they do, they will purchase gold at a price 50% higher than when they abandoned the precious yellow metal. They will double up when the gold price has doubled.
DIVERGENCE TOWARD COLLAPSE
My forecast on gold made a couple months ago within the Hat Trick Letter was clear. The gold price will experience a remarkable divergence. As the collapse approaches, the paper gold price (from futures contracts) will decline while the physical gold price (from bullion purchases) will rise sharply. The differential will grow gradually at first, then burst into a grotesque price disparity. When this occurs, expect darkness to fall upon the gold market. At this point, pure speculation follows. My expectation is for the official gold metal exchanges to shut down, at least temporarily. They have no gold, after all, so there aint nuthin to sell! To remain open only aggravates their contract and legal risk. Look for prosecutions of middle level officials from the exchanges, heavy police pressures put on them, and deals cut to bring down the kingpins. This is standard police procedure. Lawsuits are the wild card, hard to control, difficult to predict.
Pressures build that contribute toward the divergence. Whenever large deliveries are made in recent months from the gold exchanges, a new rigorous procedure must be followed. Delivery verification involves strict assayer information like certificates and dates and firm names and stamps. Before autumn 2009, such procedures were unheard of. One can make two conclusions. First, the buyers are distrustful of the gold bullion quality, amidst prevalent stories of not just 80-year old bottom of the barrel London gold bar quality, but of tungsten bars with gold plating. My sources tell of widespread cooperation toward data gathering for the documentation of the pathways that prove broad tungsten bar fraud. The risk is palpable, as murder threats hang over the project. These are after all syndicates, and they have had full control of the government treasuries ever since 1992, when Robert Rubin infiltrated the scene as US Treasury Secretary from his former Goldman Sachs currency trading post.
My expectation is when the breakdown comes, several key locations across the world will post and publish their actual transaction prices without names. They will vary somewhat. Even today, the Hong Kong gold spot price differs from the London gold spot price by $10 to $20 per ounce. This is standard, and reflects different demand levels against different supply levels. However, in the not too distant future, several key locations will herald their actual gold prices, which will be averaged, thus enabling the first true gold prices in a few decades. That day is coming, and those who stubbornly hold their physical gold & silver, do not yield to pressures, do not react to phony paper prices, they will be rewarded.
People who expect that day to be accompanied by unaltered political and economic landscapes are badly misguided. Think ugly! In fact, some ugly developments already have begun to crop up. A new USGovt rule requires that any large volume gold purchase must satisfy strict anti-money laundering guidelines. So further restrictions have come. Maybe the day will come also for declaration of any American owning a foreign bank account to be illegal. Think desperation!
THE GOLD BASE AMIDST CONFUSION
Many are the background factors to gold. The principal story comes from Europe. The default of sovereign debt is assured to all but the experts, for Greece, for Spain, for Italy, for Portugal. Germany walks a fine line, as they pretend to prevent the breakdowns. They eagerly push for defaults, along with expulsions from the European Monetary Union, that group sharing the Euro currency. The Euro experiment has been a failure to Germany, ransacked of $400 billion each year in savings for a full decade. That tally is $4 trillion to Germany, which wants the Southern European fat trimmed off completely. The Euro currency decline will continue until clarity comes to the expelled member nations and to the new structure in the aftermath. The current Euro will continue to flounder in confusion, seen as a queer benefit to the USDollar.
The European core with Germany and Benelux nations at its nucleus has firm fundamentals, a fact to emerge soon. European leaders benefit from a lower Euro valuation, as export trade can be encouraged in an economic stimulus, but more importantly as US$ reserve assets rise in value for bank support. Dubai started the process of debt intolerance. The Euro has embarked on a death-birth process, the end of the Broad Euro and the beginning of the Core Euro. The new Core Euro currency will resemble the old Deutsche Mark, whose return will coincide with other nations reverting to their former domestic currency. Except the new DMark will be strong and the reversion currencies will be trashed 25% to 40% lower. Unless and until Germany emerges with a solid plan with a new Super-Trim Euro currency, the US$ will benefit at the Euro's direct expense. The Euro usage as a secondary global reserve has caused suffering. It was not designed for that purpose. Reversal is demanded. Gold faces competing forces to both lift its price and harm its price.
The currency market is in disarray. A bizarre USDollar rally seems to be underway, a second chapter to the Dollar Death Dance from one year ago. The chaos in the Euro currency combines with threats to sidetrack the extreme USGovt wasteful spending course, to offer cause for a higher USDollar. Such confidence in restored fiscal management is grossly misplaced, as the Black Holes of Fannie Mae & AIG expose colossal costs, and as the military budget grows without check or balance. The wrecked USGovt, USBank, USHousing, and USEconomy indicate a continued decline is justified. The Q4 Gross Domestic Product figure should have elicited laughter, but at least analysts noted the powerful effect of inventory buildup. Q4 data will reveal a climax sugar high, clearly evident as the USFed and USDept Treasury attempt to step back from powerful monetary excessese. Without a lower USDollar and lower USHousing prices, no economic recovery is remotely possible. A bright populist light attempts to expose the wayward US central bank. Chairman will defend its ramparts, but the syndicate is growing desperate.
Gold is hostage to the European reconstruction and the USCongressional revolt. At the same time, the paper gold market and the physical gold bullion market have finally separated. Divergence and havoc come next. The paper gold price might find the 1080 level to serve as a base for the next upward leg in recovery. Be sure to know that gold has entered the Twilight Zone, along with the major currencies. The USDollar and the Euro currencies float adrift in the FOREX seas of confusion, as fiat money is more openly doubted. What is the value of the Euro if suddenly two, three, or four nations must end its usage, default their debt in its denomination, revert to older drachma, peseta, lira, complete with devaluation? Who knows? Gold will benefit from the chaos and confusion. The USDollar appears to benefit. The USGovt is much like a desperate gambler in Las Vegas, who is doubling down as the bust looms large. The main tool used by the USGovt to finance its debt is the hidden Printing Pre$$. So far in the last twelve months, credit must be given not by creditors, but instead credit must be given to the Inflation Engineers who have managed to keep the vast monetization of USTreasury debt off the pages of the financial press and off the air of the financial networks. For every dollar financed by actual bond bids and purchases, three to five dollars are financed by Printing Pre$$ kept as hidden as possible. The levitation of the USDollar in such an environment is a very temporary situation.
When the billionaire sovereigns demand their gold to be returned home, no longer under custodial mismanagement, this does not represent new demand. The new demand comes from legitimate funds like those run by Paulson and Sprott, which have actual gold bullion behind their funds as stipulated in the prospectuses. The trust for the biggest Exchange Traded Funds is grossly misplaced in my view. No further slam criticism will be provided for the GLD & SLV funds. In my view, they will each become objects of criticism, lawsuits, and possible legal action at later dates. When the flack comes, their shares will probably trade at deep discounts to the gold & silver prices, maybe sooner than one might think. Little fanfare came when the decade closed in December, and the big winner among all investment classes was Gold. As the story of its performance is more fully recognized, when the facts sink in, expect investment demand to increase.
Futures contract in gold are broken, and former failures to deliver will become common. Anticipate counter-parties to go bankrupt and investors to be stuck with worthless paper gold derivatives. Physical gold is the best protection. Sovereign gold reserve levels have been updated. These are lowball figures that exclude holdings outside central banks, like in certain sovereign wealth funds. The IMF & USGovt levels are pure fiction. The Russian central bank is ramping up its gold holdings. Private sources tell of Putin storing much more gold in non-govt Russian locations in addition, that avoids public accounting. China also has hidden gold holdings. At a mere 1.5% of stated reserves held in gold, China has much catching up to do. Most nations command 15 times as much gold as China in ratios. Demand by China will surely be steadily strong, powerful, and significant for years. Most industrial nations command a 60% to 70% gold ratio in total reserves. Debate aside on reserves reality, if China were to strive toward 65% in gold ratio of reserves, it would need to accumulate 44,619 tonnes of gold bullion. Their deficit represents 27% of the total existing gold hoard held above ground. The path toward prudent reserves management will push the gold price skyward.
Gold inspectors have arrived in London, barbarians at the gate. The drainage of gold bullion at the exchanges is well along. Revelations of contract fraud and delivery failures has begun. Some analysts have dished out criticism of an article written by the Jackass last May 2009 about hitmen coming to bust the COMEX. Eric deCarbonnel of Market Skeptics seemed to require the signed contracts with dates and ordered hits, even weapons used, methods detailed, blood spray patterns documented, in a very foolish rebuttal. Curiously, Eric deC has provided corroborating evidence to fortify my arguments, with details on irregularities in well written articles to cover events from London. Otherwise, he does excellent analysis. My comments were general in the article, offered figuratively. In no way were they intended in literal fashion, like men with uzis and machine guns in a hail of bullets directed at exchange officials, laying waste to the corrupt halls leaving pools of blood. The process has begun, as hitmen have indeed arrived. The location is London, not New York, but no difference since a strong umbilical cord of fraud connects the two primary locations.
The hitmen came in two types. The first were contract holders who drained the London Bullion Market Assn of its gold in late autumn, especially December. Many were wealthy Chinese billionaires, demanding return of their own gold bullion, forcing return with legal action and hired attorneys. Others more recently were Swiss wealthy individuals, whose demands confirm suspicion of illegal and illicit practices, like leasing from gold accounts for sales. Now secondly have come the inspectors, hired by individual billionaire account holders who could soon demonstrate improperly leased gold. The inspectors are the HITMEN!! They actually began arriving in early December but have widened their scope of work. The metals exchanges cannot stop them from performing their inspections and verifying hundreds of million$ in gold account holdings, sometimes billion$. Gold bullion has improperly been leased. Exchange officials should be worried about lawsuits and claims of contract fraud, as well as prosecutions and middle level employees offering state's evidence. They might be more worried about angry billionaires defrauded of their gold bullion, who hold mere paper certificates. Such men indeed have hefty budgets to hire professionals to do some dirty work in the shadows. Eric deC might actually see contract hits if patient enough.
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by Jim Willie CB
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MO: Solution To Greece Sovereign Debt Default Scare, Easy…Kick Them Out Of The E.U.
Economics / Global Debt Crisis
The Market Oracle
Feb 06, 2010 - 03:49 AM
By: Andrew_Butter
On Friday European monetary affairs commissioner Joaquin Almunia declared;
LOL...my favorite recent Python play :)
LOL...maybe in another pinkie universe, not these 3 dimensions, amigo
>>G7 preoccupied with eurozone debt, China 'bubble'
By Michel Comte (AFP) – 3 hours ago
IQALUIT, Canada — Finance ministers and central bankers from leading industrial nations Saturday held a second day of talks in northern Canada as fresh market turmoil cast doubt on a fragile global economic recovery.
Topping the agenda for the final day of "frank" G7 talks was to be growing concerns over eurozone debt as well as the yuan, which China has been accused of keeping deliberately weak to boost exports to the West.
A press conference was due to be held at 13:15 pm (1815 GMT) with Canadian Finance Minister Jim Flaherty due to sum up the debate, being held far from prying eyes in Canada's frigid far north.
The state of the public coffers in Spain and Portugal have been causing growing unease, with investors fearing a scenario similar to that in Greece.
Greece has been placed under unprecedented EU surveillance as it attempts to implement austerity measures to slash its massive debt and a 12.7-percent public deficit, while Portugal's deficit hit 9.3 percent last year, its highest since 1974.
Over dinner Friday, delegates digested Greece's debt crisis and fears that a bubble was developing in China, which is poised to overtake Japan as the world's second largest economy this year, ministers told reporters.
"Fundamentally, (Greece's debt woes) are an issue for the European Union, but a number of countries represented here are EU countries, so it's a matter of concern that I'm sure we'll talk about tonight and tomorrow," Flaherty said Friday.
European Central Bank chief Jean-Claude Trichet said Thursday the high deficit and debt in some countries was placing an "additional burden" on monetary policy and undermining the bloc's stability and growth pact.
By a roaring fire and a bearskin rug, G7 delegates were also to touch on the timing of "exit strategies" from costly stimulus measures undertaken by G7 governments, as well as concerns about their combined debts of more than 30 trillion dollars.
Flaherty had said there would be "major discussions" about China's currency over the weekend.
"This is an issue that cannot be avoided," he told reporters. "It is a G20 issue ... but it is also an issue that concerns Western industrialized countries represented in the G7."
The value of the Chinese currency, which has effectively been pegged to the US dollar since mid-2008, has been a bone of contention between Beijing and its Western trading partners, which say it is kept low to boost exports.
China has kept its yuan weak against the dollar, and critics say this keeps Chinese exports artificially cheap and has fueled a massive trade surplus with the West. China's trade surplus reached 196.1 billion dollars in 2009.
Japanese Finance Minister Naoto Kan, however, said exchange rates were barely mentioned at the dinner that officially kicked off the conference.
Rather, he said he told his counterparts that Japan was preoccupied with "China's economic conditions."
"We're concerned about a bubble" in the Chinese economy, he said.
France, meanwhile, circulated proposals for reforming the global financial system.
The talks formally opened Friday evening in this capital of Canada's Nunavut territory.
But before getting down to business, the Canadians and Europeans went dog-sledding on frozen Frobisher Bay.
The G7 delegates from Canada, the United States, France, Germany, Italy, Japan and Britain were joined by officials from the International Monetary Fund, the World Bank and the European Commission.
With the G20 taking the lead as the world's premier economic forum at meeting in Pittsburgh in September and the rise of China's economic clout, the G7 is now struggling to remain relevant.
The G7 once ran the world economy, but with high unemployment, soaring public debt and subsidized banks, some suggested that G7 nations are now holding it back.
Copyright © 2010 AFP. All rights reserved. More »
OOh..useful list! Worthy of it's on watchlist, ty
Hmm: Will the Euro Survive? - Hudson New York
Thursday, January 28, 2010
The Euro was created artificially giving political strength to it's member states to compete with the United States, but like the United States who exists in a greater political union it faces inflation because of the inability to devalue local economies that depend on tourism. The oversized political union is bulky. Those sectors of Europe that depend on tourism need the Euro to be worth less so that those outside of the currency can afford to visit. What is worse is even those inside the union travel outside of the union where the prices are less. The system overextended itself and has forced it's member states into situations that could of been avoided had they not insisted in including economies that did not reflect their own business culture. This is a blue print for why it is so important for local communities to have the ability to control their own economy. Centralization always fails. Even if it looks good in the short term. Because of vanity now Europe is in an uncomfortable position of treating it's members as burdens when these members would of been sustainable independently.
The euro is in serious trouble.
A decade ago, the introduction of the euro, the common currency of 16 of the 27 EU member states, was a political decision -- not a monetary one. When the euro was introduced in 1999, Nobel Prize winner Milton Friedman wrote to his friend, the Italian economist Antonio Martino: “As you know, I am very negative about the euro and I am very doubtful about how it will work out. However, I am less pessimistic about it now than I was earlier simply because I never expected that the various countries would display the kind of discipline that was required in order to qualify for the euro.”
The problems result from the recent economic crisis which have badly affected the economy of Greece, one of the countries of the eurozone. Analysts doubt whether the government in Athens is able or willing to address Greece's financial problems. If not, the other 15 nations using the euro will suffer the consequences, which is something they are not likely to accept.
Thomas Mayer, the chief economist of Deutsche Bank, warned last week: “The situation is more serious than it has ever been since the introduction of the euro. […] If the Greece situation is handled badly, the Eurozone could break down, or face major inflation.”
The problems of the euro affect the entire world. The EU currency was not introduced because of economic considerations, but because the European Union is pretending to be a genuine state and states are expected to have single national currencies. Hoping to become a powerful political force in its own right, the EU adopted the euro as the common currency of some 327 million Europeans, so that the currency's economic power would prefigure the political power to be.
The eurozone represents the second largest economy in the world. During the past decade, the euro became the second largest reserve currency after the U.S. dollar. With banknotes and coins in circulation for more than €790 billion, the euro has surpassed the U.S. dollar's circulation. The euro appeared to be very strong, with the value of the U.S. dollar, the British pound, and other currencies dramatically falling in comparison to it -- one of the causes of Greece's problems. Tourism is a major economic sector in Greece. For tourists from outside the eurozone, such as the Americans and British, the country became too expensive as a holiday destination. Last year, when the world economic crisis also affected Europe, with a huge drop in the numbers of EU-citizens, such as Italians, who headed for Greece, the Greek economy collapsed and the Greek government was no longer able to pay the country's public debts.
With Greece facing bankruptcy, the fears about Greece's financial situation have led to a drop in value for the euro. Last week, the finance ministers of Germany and the Netherlands - the two eurozone countries which in pre-euro days had the strongest currencies in the EU: the German mark and the Dutch guilder - announced that they will not help Greece solve its problems. Polls indicate that 70% of the Germans oppose using their taxes to bail out other countries. Despite the EU propaganda line that EU citizens share a common European national identity, this is simply not true. As a leader in the Financial Times Deutschland noted earlier this month: “Spain believes in 'more Europe'. Whether that's the case for Germany as well one cannot be so sure any more.”
Moreover, the German economy has also been badly affected by the crisis. Last year, Germany's GDP fell by 5%, the biggest drop since the War, with a drop of 15% in exports and 20% in the sale of German manufactured goods. The German people are not prepared to lift countries such as Greece, Romania, Spain, Portugal and Ireland out of the recession at their own expense.
There is also a lot of anger towards the Greeks in the other EU countries: for some years Greece seems to have covered up its bad economic performance by officially presenting better economic figures than was the case. The promise of the Greek government to reduce Greece's budget deficit from 12.7% of GDP in 2009 to 2.8% in 2012, is being met with scepticism. Many doubt whether the government in Athens will be strong enough to resist the domestic pressure from the powerful trade unions against the radical deficit-cutting efforts that are needed, while others doubt that the Greeks will refrain from manipulating the economic data again.
Unwillingness to help the Greeks is huge within a eurozone currently facing an unemployment rate of 10% of the workforce, the highest figure since the single currency was introduced eleven years ago. Under EU rules, however, all the 27 member states of the EU, not just the 16 member states of the eurozone, are obliged to help the Greeks if the EU decides to bail them out. Article 122 of the EU Treaty, which went into force last December, states: “Where a member state is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the council of ministers, on a proposal from the European Commission, may grant, under certain conditions, Union financial assistance.”
This decision is taken on a majority vote. Consequently Britain, which always refused to join the eurozone, might be forced to help save the euro. The British press has already reported that if an EU rescue fund for Greece matches the Greek budget deficit, and if the EU decides that member states have to contribute in accordance with their own share of the total EU economy, Britain might be forced to pay a £7 billion bill to bail out Greece -- or perhaps even more, if other bankrupt eurozone countries, such as Spain, are excused their share.
British Eurosceptics fear that if Greece, which represents 3% of EU GDP, is bailed out, other eurozone countries facing financial difficulties (Spain, Portugal, Italy) might claim the same treatment. This, they say, would saddle Britain with a bill of £50 billion to save a currency in which the Brits have never believed.
Even though European public opinion is opposed to a bailout plan for the Greeks, Irwin Stelzer recently wrote in The Wall Street Journal that he expects European politicians to present just such a plan. “There is so much political capital invested in the euro by the political class,” he wrote,”that even the stern and parsimonious [German Chancellor] Angela Merkel will in the end contribute to a bailout fund if necessary.”
However, there also are indications to the contrary. Greek politicians might feel that the only way to avoid civil unrest in Greece might be to drop the euro and re-establish their own national currency, the Greek drachma. This would allow the Greek government to devalue the currency in order to stimulate exports and economic growth - a political-monetary tool which Athens lacks if it remains in the eurozone. It seems that some people at the European Central Bank (ECB), which controls the euro, favor such a move.
On Jan. 17, Ambrose Evans-Pritchard wrote in the London Daily Telegraph that at the ECB headquarters in Frankfurt the legal ground is being prepared for a euro break-up. A major problem, however, appears to be that once a country has accepted the euro it cannot get rid of it unless it leaves the EU altogether. “This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion.” Apart from Britain and Denmark, two countries which obtained opt-outs in the EU treaties, all EU member states are obliged to join the eurozone or peg their currencies to it. Former IMF analyst Desmond Lachman is quoted in CityAM warning: “There is every prospect that within two to three years...Greece's European membership will end with a bang.”
Evans-Pritchard also reports, however, that the dominant view of financial circles in London seems to be that “if a rescue [bailout of Greece] turns out to be necessary, a rescue will be mounted.” This is a bet, says Evans-Pritchard, that Berlin will do “what it did for East Germany: subsidise forever. It is a judgment on whether EMU is the binding coin of sacred solidarity or just a fixed exchange rate system like others before it. Politics will decide.”
Which brings us back to Milton Friedman: When politicians decide to rule economic and monetary issues, the results are usually catastrophic.
via hudsonny.org
on the plus side at least Europe unlike the United States can envision a break up. The United States suffers many of the same problems because the ability to locally control the value of currency can not be done in a single political unit.
by NoahDavidSimon at 7:28 AM
http://noahdavidsimon.blogspot.com/2010/01/will-euro-survive-hudson-new-york.html
Good article! A guest on Tom Keene's the other day was saying that the USD is higher than the euro, because there is an implied guarantee that the US govt will support the states, whereas the EU has more of a 'you're on your own' mentality towards member nations
However, just wait until enough US states are in trouble...it may not be possible to rescue them all.
Are there states that are "too big to fail"? Certainly California and New York spring to mind...
and the minute you ask that question, you must then ask, is there na inevitable "Lehman" collapse of one of these, as the Federal govt is forced to make a triage decision of who will survive, and who will have to sweat it out? If things don't start improving soon, that is the situation we may develop
Ah, to live in interesting times...amazing to think the worst that most of us could conceive of was the prospect of NYC going BK
Wow! How many great articles you found, while all I did this morning so far was make eggs!
Excellent sleuthing, my friend
>>AUDIO WRAPUP for Feb 1/5/2010:
http://www.stockchat.tv/radio/WU252010b.mp3
CFR: The Sovereign Debt Dilemma
Interviewee: Sebastian Mallaby, Director of the Maurice R. Greenberg Center for Geoeconomic Studies and Paul A. Volcker Senior Fellow for International Economics, Council on Foreign Relations
Interviewer: Roya Wolverson, Staff Writer, CFR.org
February 5, 2010
European countries' debt problems--in Greece, Portugal, Spain, Ireland, and elsewhere--have spurred market volatility and raised doubts about whether the global economic recovery is sustainable.
Investors fled the euro after the European Union failed to convince them that faltering EU members could rein in government deficits and pay down debt. Investors are also questioning the U.S. dollar's stability--despite its rise against the euro--given the United States' growing deficits, high U.S. unemployment, and loose monetary policy.
While government interventions have led global recovery, the market's reaction to Greece and other indebted countries suggests governments may "have used up all their ammunition" to boost global growth, and their weakness causes a "new source of instability in the system," says Sebastian Mallaby, director of CFR's Center for Geoeconomic Studies and a senior fellow for international economics. Loss of confidence in sovereign debt means governments may have to continue fiscal and monetary stimulus, Mallaby says, though the markets will likely punish them for increasing budget deficits. Emerging markets continue to buy U.S. dollars "because they can't figure out where else to put their savings," he says, but once a viable alternative arises, "they will all jump." Mallaby says the United States is not at risk of inflation, since unemployment numbers remain high and industrial production low. That leaves room for the Federal Reserve to continue so-called "quantitative easing," or buying government securities to promote lending when interest rates are already near zero.
What does the market volatility--resulting from doubts about European countries' sovereign debt in Greece, Portugal, and elsewhere--say about the state of the global recovery?
Two big things: The first is that in 2008 and 2009 we got used to thinking of governments as the saviors that would charge in and rescue everything in sight. So, in the United States, a series of financial institutions were rescued and bailed out, and in Europe, pretty much the same story. Governments were the rescuers. Now, we may be getting to a point where governments have used up all their ammunition, and their own resulting weakness is the new source of instability in the system. That's what we saw a little bit later in 2009 with the scare over Dubai, and now we're seeing it in Europe with the scare over Greece and to some extent, Portugal behind Greece.
The second thing, related to that, is that the recovery globally has been based on enormous public interventions--both these rescues that I mentioned, but also stimulus packages from governments, very low interest rates, and quantitative easing from central banks--and there's a debate over when we should withdraw those government actions to stimulate the recovery. And until now, the debates have been "let's wait and see when recovery appears to be self-sustaining, and then you can take the government medication away. But don't take it away before it's self-sustaining, because the risk of reverting into a recession is more costly than the risk of stimulating too much and getting inflation." Inflation seemed to be a pretty remote danger, and a renewed recession an acute danger.
Now governments may not have the luxury of making that choice [to withdraw stimulus] as they would wish. They may want to carry on stimulating by having budget deficits, but the markets may punish them, as we are seeing in Greece. So they're forced to cut the budget deficit dramatically to keep the markets from panicking. A version of that is visible in the United States, where most voters tell pollsters that they would like to see the budget deficit reduced, but President Obama's plan is only to start the reduction next year in 2011, and this year to have another stimulus package focused on jobs.
The question is: Can he do that stimulus package politically, and also, does it actually encourage more spending in the economy if everybody is really worried that too much government debt is stirring up trouble? You might actually hurt confidence more than help it with another stimulus package. We're reaching a tipping point in the ability of governments to carry on supporting global markets.
Portugal, Spain, Ireland, and Greece are all suffering from deficits. How will that crimp European growth, and, by extension, U.S. and global growth?
It was already the case that if you had to rank where the recovery was healthy, you would say healthiest in emerging markets, particularly Asia; reasonably healthy in the United States where fourth quarter growth in 2009 came in a bit over 5.7 percent; and then most anemic in its recovery has been Europe. As you say, Europe faces the additional problem that the markets are compelling a fiscal consolidation--the withdrawal of stimulus spending--particularly in the southern rim. That's obviously going to reduce growth in its direct effect. The problem is, even if you had the luxury of not withdrawing that stimulus, the lack of confidence in government from the big deficits was itself a drag on growth. So, Europe doesn't have any choice about tightening budgets in these high-deficit economies like Greece, Spain, Ireland, and Portugal. But it is going to bring growth down. That does have a knock-on effect for the rest of the world economy, as slower growth in Europe means less opportunity to sell goods to European consumers. That's bad for growth everywhere. The answer may be that the European central bank has to act more aggressively to sustain growth by reconsidering its plans to withdraw some of its quantitative easing.
What happens if Greece can't refinance its debt? Who, if anyone, steps in, and what implications does that have for the European Union?
If somebody is going to step in, there are two kinds of "somebodies." The first is a European bailout. Greece, being a member of the eurozone, is considered to be Europe's responsibility. The problem is that there is no established mechanism for providing bailout funds for a eurozone member that gets into this sort of trouble.
The rules of the euro say that you can't be bailed out, and that you're not supposed to be running these enormous budget deficits in the first place. Now that those rules have been ignored, there is a big budget deficit. There is talk of some sort of ad-hoc bailout, but the politics of that are very difficult. If the German voters felt they were paying for the partying profligacy of southern Europeans, having themselves [the Germans] spent a long time saving up their money, one can imagine how politically unpopular that would be. It would also set a precedent if the Germans felt they were bailing out Greece--well, then, they'd next have to bail out Spain, Portugal, Italy, and so on. So, it's very hard for the German government to approve a European bailout, which German taxpayers would be on the hook for. And because of that, if they did do it, they would probably do it in a fairly stingy way, charging very high interest rates for the bailout package. And then maybe the bailout wouldn't work because it would come with so many tough conditions that it would impose new kinds of stress on the Greek economy. For the Germans to order the Greeks how to run their economy is not going to be popular in Greece. So for lots of reasons, politically a bailout within Europe is very difficult.
That raises the question: Would it be better to bring in the International Monetary Fund to organize a bailout? The IMF after all has a whole machinery, which is expert at providing crisis lending in precisely this kind of situation. I think it would be better to go that route. It's just that there's a certain amount of European pride at stake here. The Europeans feel that their first option should be to sort out their own difficulties without resorting to the humiliation of going to the IMF.
The U.S. dollar benefited from the decline in the euro, as investors fled to it as a safe haven. How long should the United States--which has its own sizeable deficits--expect to enjoy that safe haven currency status?
Well, that's an enormous and important and almost impossible to answer question, because it depends on sort of predicting a tip in investor psychology, when you know that the chemistry of that collective psychology is almost impossible to foresee. On the one hand, the U.S. dollar's position as a reserve currency is extremely fragile, because it's a reserve currency that many important powers in the international system don't actually like. The Chinese government, for example, has accumulated a vast amount of reserves held in dollars, and at the same time is calling on other countries to help it to establish an alternative to the dollar as a reserve currency. Its position is, "We're buying all these dollars we hated." That's not a very stable equilibrium.
You see versions of that all around the world, where other emerging-market countries--which have big reserve buildups because they're running current account surpluses--are buying dollars because they can't figure out where else to put their savings. But they're aware that on their sort of medium- to long-term view, the dollar is going to depreciate, and they're going to lose money on these investments. They're not happy about it, so they're looking for alternatives. It's just that there isn't one easily to hand. Private investors, too. U.S. private investors would like to get more money out of dollar instruments into faster-growing emerging-market instruments, and foreign investors who in the 2000s invested a lot in U.S. assets discovered during the subprime crisis that these assets were not always as safe as they had hoped.
So for many reasons, one would expect people to move out of dollars. The problem is, move out of dollars into what? It's not particularly attractive to go into euro instruments at the moment when there is a financial crisis going on in Europe; it's difficult to hold Chinese instruments because of capital controls. There isn't an alternative easily to hand, and so one has this uneasy feeling that everybody is looking for an alternative. When they see one, they will all jump, but when that time comes is difficult to predict.
What policy tools are left to stimulate growth if markets are frowning at both deficit spending and continued monetary stimulus?
There is a backlash against central banks increasing their intervention in the economy. I see it more as a political issue than an economic issue. The economic allegation is that hyperactive central banks are printing money and risking inflation, but really I don't see much danger of inflation in a world economy that has very high unemployment. When you've got a lot of idle workers and spare capacity in your factories, the idea that you're going to run into capacity constraints and experience inflation seems a remote threat relative to the others we are facing. So I don't think there is much constraint on continued central bank activism to pump demand into economies. You could see the Fed--for example, if the U.S. economy went into a double dip--resuming some of the quantitative easing that it has recently discontinued.
A lot of people feel that central banks shouldn't behave in this fashion, pumping money into all corners of the financial system, and there is a severe danger of Congress reacting negatively against the central bank. We saw that a bit in the arguments over Federal Reserve chairman Ben Bernanke's reconfirmation, which at one point looked as if it might be derailed. One could see central bank independence suffering because lawmakers politically don't like seeing central banks, which after all are run by unelected technocrats, having that much influence over the economy.
How should this situation inform thinking about using bailouts to address future financial crises?
When governments do bail out [financial institutions], what you see is governments themselves get into enormous budget deficits, which then themselves become a new source of so-called "systemic risk." So if the question is, "How do you prevent a future bailout of the financial sector?" that gets you into the intricacies of financial reform. We've seen President Obama announce a couple of additional ideas to the financial reform package that's passed the House of Representatives and is pending in the Senate. These are to limit the risks to taxpayers posed by large banks by reining in their proprietary trading, preventing them from running so many hedge funds, and temporarily imposing a tax on their size. These are all steps in the right direction, but definitely not quite enough to get us into a position where we can honestly say we won't expect governments to bail out the private sector next time there is a crisis.
Weigh in on this issue by emailing CFR.org.
http://www.cfr.org/publication/21381/sovereign_debt_dilemma.html?breadcrumb=%2Fpublication%2Fpublication_list%3Ftype%3Dinterview
WSJ: Dow's Reversal Comes Too Late for Global Selloff
By BRIAN BASKIN
FEBRUARY 5, 2010, 4:24 P.M. ET
The selloff in global markets accelerated, then abruptly reversed late, leaving commodities and the euro down on fears about the potential global fallout from Europe's sovereign debt crisis but U.S. stocks up.
U.S. Treasurys, a traditional safe haven in times of global turmoil, rallied while the dollar soared, pushing the euro below $1.36 to its lowest level since May 20; the common currency hit its weakest point against the yen in almost 12 months. A steep drop in oil futures triggered losses across the commodities spectrum, as investors nervous about the pace of the economic recovery gravitated toward the dollar.
U.S. stocks were deep in the red for much of the day before eking out a gain on a dramatic recovery after a much better-than-expected reading of U.S. consumer credit in December. But the reversal came to late for stock markets elsewhere, which slid amid fears that the fiscal woes of Greece, Portugal, Spain and other euro zone countries could ripple further, pushing a global economic recovery further out on the horizon.
"The sovereign-credit concerns are just overwhelming people," said Peter Boockvar, strategist at Miller Tabak. "It's one big liquidation. People have been hoping there will be one event that will clear up the problems, but they're having to realize, it's going to be a process."
For much of the day, the sharp market moves appeared to beget additional declines, with stock market investors citing the soaring dollar and vice versa.
"It is a flight-to-quality trade from Europe," said Thomas Roth, executive director in the U.S. government bond trading group at Mitsubishi UFJ Securities (USA), Inc in New York.
The Dow Jones Industrial Average ended up 10.05 points, or 0.1%, to 10012.23, escaping its first close below 10000 in three months. General Electric fell 1.6%. The Nasdaq Composite Index gained 0.l7% to 2141.12. The Standard & Poor's 500-share index added 0.3% to 1066.19.
Analysts said the veracity of the moves across financial markets was likely exacerbated by the fact that Friday is the last trading day ahead of the weekend. Finance ministers from the Group of Seven, including Germany, France and Italy as well as European Central Bank President Jean-Claude Trichet, are meeting this weekend in Canada and there is potential for other political developments in Europe.
"The markets are betting on a situation that I don't think will happen, which is a more extreme situation of default or an economy leaving the euro area," said Carlos Almeida Andrade, chief economist of Banco Esprito Santo in Lisbon.
That said, the euro could still decline to $1.30, or "a little bit further" before investors over the next few weeks determine belt-tightening plans in Greece, Portugal and Spain will save the monetary union from crisis, he said.
The cost of insuring Greek and Portuguese debt against default remained near record-high levels Friday, although down from late Thursday.
In the commodity markets, the rush to the exits began when oil prices dipped below $72.43 a barrel, the 2010 low, in late morning trading in New York. Futures had managed to bounce back from around that price three times in the last week, but support crumbled amid concerns about weak oil demand in what is shaping up to be a slow economic recovery.
"A lot of people piled in [the oil market] at the beginning of the year, and at the beginning of this week," when investors held a more optimistic economic outlook, said Andy Lebow, senior vice president for energy with MF Global in New York. "There's a sense of uneasiness about ... how robust the recovery's going to be."
The breach triggered numerous sell stops, automatic orders to exit trading positions that many investors set up around major price milestones. Within minutes, oil prices had tumbled to $69.50 a barrel, the lowest price seen since Dec. 15. Crude for March delivery rebounded to settle at $71.19, down $1.95, or 2.7% on the New York Mercantile Exchange.
Oil's free-fall acted as a cue for other commodities to follow suit. Copper sank to its lowest settlement since October, with the most actively traded March contract ending 0.8% lower at $2.8575 a pound. Gold, too, followed oil lower, with the most active April contract settling 1% lower at $1,052.80 an ounce. ICE March sugar was down 4.5% at 26.44 cents a pound.
The euro fell to $1.3585, its weakest point since May. The dollar has gained ground in recent sessions as investors steer clear of assets that are perceived to be riskier.
A weak recovery in the U.S. and Europe leaves commodities even more heavily dependent on emerging markets, particularly China, for demand growth. Commodity prices, particularly copper, had already fallen from highs hit near the start of the year after China's government moved to reduce bank lending, in an attempt to stave off high inflation with the potential cost of slower growth.
Write to Brian Baskin at brian.baskin@dowjones.com
HedgeCo: Sovereign Debt Spreads Widen on Greece/Portugal Worries,
Posted By Bret Rosenthal, February 5th, 2010 : Permalink
The equity and commodity markets get rocked as Sovereign debt woes resurface.
The burning question: Will the dramatic widening of credit spreads in Sovereign debt, beginning to resemble the CDS collapse of 2008 in the private sector, lead to a revisit of a 2008 type credit crisis and all the fallout associated with it?…
Greece, Portugal woes intensify – WSJ The Wall Street Journal reports the cost of insuring the debt of euro-zone members with large budget deficits against default rose Thursday, dashing hopes that the European Commission’s qualified endorsement of Greece’s budget plan would calm investor fears. Greece, Portugal and Spain were in focus, with their five-year sovereign credit default spreads moving sharply wider. Greece’s five-year sovereign credit default swap spreads were recently at 4.14%, compared with Wednesday’s closing level of 3.97%, according to to CMA DataVision. Portugal’s five-year sovereign CDS spreads were at 2.09 basis points—their widest level ever—after closing Wednesday at 1.96%. Spain’s sovereign CDS spreads widened to 0.12 percentage point to 1.64%. The moves followed news Wednesday that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only EUR 300 million of treasury bills at an auction, compared with an indicative offer of EUR 500 millon; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012. Spanish and Portuguese stock markets fell sharply for the second consecutive day, with banks leading decliners on sovereign debt worries.
…The jury is still out on the above question but market participants are voting today. As usual, voting like this is detrimental to long term investment decision making. I would suggest all take a step back relax and reassess after the smoke of today’s battlefield clears. In the meantime, tomorrow’s employment report may shed some light on the absurdity or validity of today’s flight into the US$. I stress the word, may, because government released employment numbers are notoriously manipulated. For those who wish to debate this manipulation issue and wish to cast aspersions about conspiracy theorists please view the following story…
Explaining The Government’s 1.8 Million Job Overestimation In Pictures
Last October the BLS announced it would revise historical payrolls lower by 824,000 on February 5 (this Friday’s NFP release). While this number will not impact the actual January NFP report (a loss of nearly one million jobs in a month would probably even take out the persistent SPY algo that has been hugging the bid for the past 10 months), it will be prorated across all months in the 2008-2009 reporting period. The reason for this adjustment has to do with a huge glitch in the birth-death model, which is exactly the same problem that the rating agencies faced when housing prices plummeted: the birth/death model assumes, in the long-run, jobs are created, not destroyed. Any period of excess volatility in the stock market therefore translates into major prior downward revisions to already disclosed payrolls. And while we know what the current revision will be, the scarier prospect is that the next historical adjustment, due out in early 2011, will be even larger, at least 990,000. This means that the government has overrepresented running payroll data by over 1.8 million jobs over the past 20 months. Read More…
Today, world equity markets suffer, the “risk” trade is reduced and scared investors run into treasuries and the US$. Meanwhile, the underlying fundamentals of the US$ continue to deteriorate….
Zerohedge: It’s Official: Congress Passes Debt Ceiling 231-195; All Republicans, 20 Democrats Vote Against Raise. Congress Democrats have just signed off on the US hitting 100% debt/GDP. About 140% if one adds GSE liabilities which also should be on the budget.
Initial Claims 480K vs 455K consensus, prior revised to 472K from 470K
Continuing Claims rise to 4.602 mln from 4.600 mln
NY Fed’s Dudley says “nothing is on automatic pilot” when asked about ending MBS purchases in March, according to AP – Reuters (The expected end of Q.E. in March has been a major factor in the strong US$ theory since Dec.. Now we see, at the 1st sign of trouble, S&P500 down 3%+ today, the Fed begins to backtrack – surprise, surprise.)
Tags: CDS, commodities, credit markets, credit spreads, employment report, equity markets, Fed, Greece, initial jobless claims, sovereign debt
BL: U.S. Stocks Rebound on Consumer Credit Data, Speculation EU to Help Greece
U.S. Stocks Rebound on Greece Speculation, Consumer Credit
By Nikolaj Gammeltoft and Craig Trudell
Feb. 5 (Bloomberg) -- U.S. stocks rose, rebounding from the biggest losses since March, as consumer credit dropped less than forecast and investors speculated the European Union may come up with a solution for Greece and Spain’s budget deficits.
Cisco Systems Inc., Intel Corp. and Alcoa Inc. climbed more than 2 percent for the biggest gains in the Dow Jones Industrial Average as the 30-stock gauge reversed a 167-point slide. Freeport-McMoRan Copper & Gold Inc. led commodity producers to the biggest advance among 10 groups in the Standard & Poor’s 500 Index as oil, gold and copper rebounded in electronic trading following the close of commodities exchanges.
“People don’t want to be short over the weekend if the EU says it will bail out Greece and Spain,” said Neil Massa, an equity trader at MFC Investment Global Management Co. “A lot of investors were short and they’re closing their positions because they don’t want to get caught if something happens over the weekend.”
The S&P 500 climbed 0.3 percent to 1,066.19 at 4:06 p.m. in New York after earlier extending its two-day slide to as much as 4.8 percent, the biggest since the end of March. The Dow rose 10.05 points, or 0.1 percent, to 10,012.23 after falling below 10,000 during the session for a second straight day.
The Dow jumped 120 points in the final hour of trading as speculation of an EU bailout of Greece and Spain grew and the Federal Reserve said consumer credit in the U.S. declined in December by $1.7 billion, less than the $10 billion decrease economists anticipated, according to the median estimate in a Bloomberg survey. November’s $21.8 billion slump in consumer credit was a record.
Weekly Loss Trimmed
The S&P 500 pared its five-day retreat to less than 1 percent. The benchmark index has fallen four straight weeks as concern over rising government debt grew, China stepped up measures to curb lending and U.S. President Barack Obama proposed limits on risk-taking at banks.
Stock markets will recover from the recent correction because of improving economic indicators and company earnings, according to equity strategist Peter Oppenheimer at Goldman Sachs Group Inc.
“Despite the current focus on Greece and contagion, macro data remains supportive,” Oppenheimer told investors in a report dated Feb. 4. “Meanwhile earnings data on both sides of the Atlantic continue the trend of upside surprises.”
To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.
Last Updated: February 5, 2010 16:17 EST
Rally next week? The PPT got the DJIA over 10,000, and oil had a nice strong rebound, as did Brazil stocks...
Depends on Greece and the USD, imho
GOLD upticking, OIL upticking, FAZ downticking, DJI upticking...will it hold the next 20 mins?
I'm going to go with a rally of sorts going into the close, not quite the PPT, but an uptick from LODs
DJI below the supports: 9,868.79 (-1.33), and FAZ $22.16. Oil lost $71 again, and only gold looks to me like it has stopped falling, perhaps finding support at 1050 (now 1062.60)
Euro is at 1.361 and USD at 80.68. If the dollar keeps rising, then we are looking at more losses going forward, esp in those equities associated with emerging markets or commodities
HAHA! Well, it helps that Mr Market ate those tainted clams we sent down from Nova Scotia..lol
I can't always count on this kind of month, been amazing so far
I can't post VIX tickers through Alphatrade, but I can trade VIX in OEX...I picked up those $30 Calls yesterday in the afternoon, figured it was a pretty decent bet
No sure things these days, tho...like jogging on a minefield each and every day
Dang, it took a while, lol, but I figured that I had enough time, and felt the overall market was headed my way
Not always that lucky tho, this is an exceptional market!
>>VIX OPTIONS on FIRE: VIXBF ($30 calls) +77.50%, VIXBY ($27.50) +61.54%
FUTURES: VIX: 29.09 (+11.50) DJI 9,870 (-1.33%), S&P 1,048 (-1.40%), NASD 1,719 (-0.74%) USD 80.72 (+.8%), GOLD $1055.7 (-0.6%)
>>BAC $12 Puts +40% (.07) CLIMBING! Lotto tickets alerted yesterday at .04c
>>EWZ $65 Puts +63.79% now! I bought a big batch of these around .80c, lol, been flipping/dipping EWZ puts and calls for weeks
Great play, btw, and ever since China released their lending bombshell news, EWZ puts have been a year changer
>>V $80 Puts +46.30% ($1.58), Been holding these since I was called a basher, and deep in the red, lol