NEW THINGS: @13:25, 01/18/12 4

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http://www.nakedcapitalism.com/2012/01/greece-poised-to-default.html

Wednesday, January 18, 2012

Greece Poised to Default

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.
Another melee won by the ECB overnight with the LTRO once again pushing sub 3 year sovereign auctions into a “happy place”.
Spain sold 12-month debt with a yield of 2.049% against a previous 4.05% in December along with 18-month paper at 2.399 percent, previously 4.226% Greece sold 1.625 billion euros of 91-day bills in an auction that saw a decline in yield to 4.64% compared with 4.68% at a slightly lower bid to cover.
Belgium was also in the action selling 1.76 bln euro worth of 3 month T-bills cover 2.24 vs 2.13 , yield 0.429% vs 0.264 % an Eur 1.2 bln of 12 mth t-bills cover 2.06 vs 2.21 , yield 1.162% vs 2.167 %. The EFSF was also in on the action with 1.501 bln of new 6 month bills and managed a yield 0.2664%, bid to cover 3.1.
So all good news. To add to the up side the German ZEW jumped from -53.8 in December to -21.6. The ZEW is a survey of German analysts and investors of their market sentiment. The big jump is seen as a direct result of the ECB’s action to stem the economic crisis. Although the result was good, I am not really sure why anyone was ever concerned about Germany. The problem for Europe at this point is not Germany’s weakness but its strength, the survey suggests that issue is going to get worse.
The last information on car registrations presents the growing imbalances of Europe nicely and matches much of what we have seen in the recent PMI data:

The European car market fell by 1.4% to 13.6 million vehicles in 2011, marking the fourth-consecutive annual decline, and the outlook for this year looks bleak as tough austerity measures are expected to eat into demand.
“In 2011, most of the significant markets declined,” the European automobile manufacturers association, or ACEA, said Tuesday in a statement.
The French market dwindled by 2.1%, the U.K.’s fell 4.4%, while new-car registrations in Italy contracted by 10.9% and in Spain by 18% year-to-year, reflecting the region’s economic woes, particularly in Southern Europe.
Still, Germany—Europe’s largest car market—posted an 8.8% increase compared to 2010, backed by a more robust economy and better consumer confidence

It would appear from the across the board yield drops, even in Greece

which is rumoured to be on the verge of default, that the LTRO is now creating its own momentum and it is likely we are now also seeing some front-running action. Again this is all good news for sovereign yields as it appears banks are actually running the carry trade through the ECB. We need to wait until the end of February to get an understanding of the true size of that carry trade when the ECB offers the second round of extended maturity LTRO. I suspect we will probably see some more sovereign-bank bond issuance partnerships, as we did last time, in the lead up to next operation.
Although the news is good, it should be noted that it is still very early days:

European sovereigns and banks need to find Euro 1.9 trillion to refinance maturing debt in 2012, equivalent to around Euro 7.5 billion each business day.
Italy requires Euro 113 billion in the first quarter and around Euro 300 billion over the full year, equivalent to around Euro 1.5 billion per business day. Italy, Spain, France, and Germany together will need to issue in excess of Euro 4.5 billion every working day of 2012.
European banks, whose fates are intertwined with the sovereigns, need Euro 500 billion in the first half of 2012 and Euro 275 billion in the second half. They need to raise Euro 230 billion per quarter in 2012 compared to Euro 132 billion per quarter in 2011. Since June 2011, European banks have been only able to raise Euro 17 billion compared to Euro 120 billion for the same period in 2010.

The question also remains what happens after March 1st to keep the ball rolling? A new round of asset purchases perhaps?
Either way, the LTRO does appear to be helping both the sovereigns and the banks to re-capitalise which are both good outcomes. However, as I have stated over the last few weeks, the LTRO will do very little to help the real economies of the periphery for two reasons. Firstly the banks appear to be using the facility to re-capitalise while at the same time they shrink their asset base in order to meet capital requirements, and secondly, in a poor economy the appetite and/or desire for credit is low and the availability of credit-worthy customers is limited.
This is where the focus of the problem is now. I am not sure if it is just rhetoric at this stage but the Euro-elite seemed to have had an epiphany over the last few weeks that the austerity measures aren’t working as they expected. We are now seeing more and more speeches focusing on the need for employment growth such as that from the President of the European Council, Herman Van Rompuy:

In the meantime, we should re-focus on growth and job creation. Growth friendly consolidation and job friendly growth are what we need! Growth should be enhanced by strengthening supply and by stimulating demand. We must urgently put in place an anti-recession strategy, mobilizing means and efforts at the Union level and – most importantly – at Member States level.
….
We also need to stimulate demand. Restoring confidence in the euro zone will strengthen consumer confidence, which is key to enhancing private consumption. New trade opportunities and new markets are to be exploited to stimulate foreign demand and export. Recent exchange rate developments for the euro will help our competitive position. We need to push our trade and investment opportunities with our strategic partners. I will travel next month to Beijing and Delhi to promote trade and investment with these two countries.
But our foremost concern should be stimulating employment. We need more, better and new jobs. Today, over 23 million people are unemployed in Europe. The economic slowdown risks increasing this number. Many of them are young. Women are particularly affected. The young are Europe’s future and we need to give them hope and a decent perspective of joining the labour market.
Our focus in the European January summit should be on youth employment and lifelong learning. The recent “youth opportunities” Commission initiative offers perspectives for skills, training and job placements. Also our “green jobs” potential should be fully developed. In parallel, and during the semester, we need to foster strong labour demand. Hiring people should be easier and more attractive. The EU can help Member States in their efforts to reform labour markets, and to overcome the “skills mismatch” in supply and demand, and the “geographic mismatch” by facilitating mobility.

Oh the horrible irony. “Think of the children” indeed. Expect to hear more of this toff over the coming days in the lead up to the next summit. Hopefully we will get something more concrete from there, but obviously given past performances you should not hold your breath.
Also in breaking news, it appears Greece may have a PSI deal at 32%:

Greece is nearing a deal with private creditors that would give them cash and securities with a market value of about 32 cents per euro of government debt, according to Bruce Richards, a hedge-fund manager on the creditors’ committee.
“I’m highly confident the deal will get done,” said Richards, chief executive officer of New York-based Marathon Asset Management LP, in a telephone interview today with Bloomberg Businessweek.

Given that Fitch stated this yesterday:

Parker said that Fitch believed that even a voluntary agreement by private investors to take a haircut on Greek debt would constitute a default.
“We have said for a long time that we don’t think this PSI is the way to go and we would treat it as a default. It clearly is a default, however they try to spin it,” he said.

We await the initial fallout… and wonder what the Portuguese and Irish are thinking right now?

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  The Commentariat -- January 18, 2012
  My column in the New York Times eXaminer is on, oh, the banality of the Times op-ed writers. A huge chunk of it is by Akhilleus, which you wouldn't know to read it at this point (9 am ET), as most of the part he wrote is not indented. I'm working on getting that fixed.
  Wikipedia is blacked out today. Go to this page to find out why. Also, if you try to call up any Wiki entry, you'll get this page, which guides you to contact your Representative. Do it. ...
  ... Update. Jenna Wortham of the New York Times: "With a Web-wide protest on Wednesday that includes a 24-hour shutdown of the English-language Wikipedia, the legislative battle over two Internet piracy bills has reached an extraordinary moment — a political coming of age for a relatively young and disorganized industry that has largely steered clear of lobbying and other political games in Washington. The bills, the Stop Online Piracy Act in the House and the Protect IP Act in the Senate, are backed by major media companies and are mostly intended to curtail the illegal downloading and streaming of TV shows and movies online. But the tech industry fears that, among other things, they will give media companies too much power to shut down sites that they say are abusing copyrights." ...
  ... The Washington Post story, by David Fahrenthold, is here.
  In a fascinating New York Times op-ed, historian Kevin Kruse explains how corporate leaders co-opted God in the 1930s & '40s in an effort to descredit "creeping socialism" & restore their own prestige. Their pet phrase: "One nation under God" was meant to be used as propaganda in exactly the way Mitt Romney used it the other day -- to protect the One Percent:
  
  When you have a president encouraging the idea of dividing America based on the 99 percent versus 1 percent, you have opened up a whole new wave of approach in this country which is entirely inconsistent with the concept of one nation under God. -- Mitt Romney
  CW: As Kruse notes, Congress [at the behest of President Eisenhower] added "under God" to the Pledge of Allegiance in 1954. As a child, I found this change confusing, but our teacher instructed us to say the newly amended pledge, so I did. I don't anymore. I just pause while everybody else says the "under god" bit. I wish more of us would skip the addition. Or skip the pledge altogether. It's a pretty annoying piece of indoctrination, even if it was written by a socialist (who purposely left out the word "equality" because so many Americans were opposed to equality!).
  If you read Andrew Sullivan's Newsweek cover story, which I linked a couple of days ago, do go and read Driftglass's response to it. Sullivan is Sullivan. Driftglass is in a class by himself.
  Bob Reich: "Mitt Romney is casting the 2012 campaign as 'free enterprise on trial.'" It sure is, but he has it upside-down. "What Romney and the cheerleaders of risk-taking free enterprise don’t want you to know is the risks of the economy have been shifting steadily away from CEOs and Wall Street – and on to average working people. It’s not just income and wealth that are surging to the top. Economic security is moving there as well...."
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  Paul Krugman: "Aha. Romney concedes that the estimates people have been making about his taxes are basically right:
  
  At an event in Florence, SC, Mitt Romney told reporters that his effective tax rate is probably close to 15% because most of his income comes from investments, reports Bloomberg’s Julie Davis.
  ... "And an immediate question is, do you agree that unearned income should be taxed at a rate so much lower than earned income?" ...
  Out. Of. Touch. Nicholas Confessore, et al., of the New York Times: "He also characterized as 'not very much' the $374,327 he reported earning in speaking fees last year, though that sum would, by itself, very nearly catapult most American families into the top 1 percent of the country’s earners.... As a candidate, Mr. Romney has also advocated for tax policies that would significantly benefit people who, like him, derive most of their income from investments." CW: These are tidbits from a feature article. Read the whole thing. ...
  ... Sarah Kliff of the Washington Post: "But that might not be the end of the issue for Romney. It’s likely he also benefited from related tax privileges during his time at Bain. While the lower rate on capital gains and dividend income is supposed to benefit investors, private-equity executives and hedge-fund managers who get paid by taking a share of their firm’s profits rather than a normal salary are also able to classify their income as a capital gain rather than a wage, and so they, too, pay a 15 percent tax rate — even when that money is, effectively, their salary. Ultimately, the private-equity tax loophole could become far more controversial than whether private-equity deals destroy or create jobs. Today, even the Wall Street Journal came out against the loophole...." CW: My tax rate is about double that of Romney's. And I resent it. Big time. ...
  ... More from Robert Reich on "The Romney Tax Loophole.... "Congress has vowed for years to close this loophole. But somehow it persists. Even when Democrats have been in charge, they haven’t been able to close it. Guess why. The managers and executives of private-equity funds are big donors to Republicans and Democrats alike."
  ... ** Richard Escow: "Taxing Romney under the same rules most of us follow would have put something in the neighborhood of $61 million more into the US Treasury." Escow lists some programs that just Romney's taxes (not people like Romney -- just Mrs. & Mrs. Willard) could have saved -- and hey, some of those programs actually do create jobs! Thanks to reader Bonnie for the link. ...
  ... Ruth Marcus: "Romney would spend hundreds of billions for a tax cut whose benefits flow overwhelmingly to the wealthiest Americans, even as he would cut even more from programs that help the most vulnerable. Those skewed priorities are hard to square with Romney’s stated concern, however heartfelt, for the poor. The man from Bain Capital needs to take another look at his figures." CW: Read Marcus' column to get a good overview of Romney's plans to make live easier for him & his super-rich friends & harder for everyone else.
  How South Carolina Republicans Celebrate Martin Luther King, Jr. Day. Reader Haley S. sent me the link to this video. Listen to the crowd reaction -- if you can stand it. Never mind Gingrich; he is just playing to the crowd. It is they who make me weep:
  ... CW: I don't know how many cheering racists attended the debate, but assuming there were 2,000 there, that means than for every one of those bigots, 500 Badgers signed petitions to recall Scott Walker. On, Wisconsin! ...
  ... ** New York Times Editors: "In South Carolina, where a Confederate flag still waves on the front lawn of the State Capitol largely because of the efforts of the state Republican Party, it remains good primary politics to stir up racial animosity and then link it to President Obama. Mr. Gingrich, Mr. Santorum and the crowd that cheered them are following in a long and tawdry tradition, singling out a minority group for lectures while refusing to support policies that help all Americans." ...
  ... Dog-Whistling through Dixie. Charles Blow of the New York Times: "Gingrich seems to understand the historical weight of the view among some southern whites..., that blacks are lazy and addicted to handouts. He is able to give voice to those feelings without using those words. He is able to make people believe that a fundamentally flawed and prejudicial argument that demeans minorities is actually for their uplift. It is Gingrich’s gift: He is able to make ill will sound like good will." ...
  ... Ari Berman of The Nation: "This racially inflammatory rhetoric was on full display last night, as candidate after candidate auditioned to be the next George Wallace." ...
  ... Jon Stewart comments:
  
  ... This what that reprobate Gingrich -- I mean his non-coordinated superPAC -- thinks an Obama-Romney debate would look like. I hope he's -- I mean they are -- right:
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  ... Think Progress: "The number of signatures comes close to the 1,128,941 votes Walker received, and was far more than the 540,000 needed." ...
  ... Charles Pierce on the Wisconsin recalls: "On the day that his state rose up and hocked a loogie in his general direction, Scotty Walker was in the Big Apple, raising money with [Maurice Greenberg,] the founder of AIG — a guy with his own checkered history — the company which, if this were a just world, would have its corporate logo serve as the official collective mugshot of the criminals and grifters and dunces who almost wrecked the world's economy. The company that paid its executives $165 million in bonuses a year after all of us bailed their sorry asses out? I mean, what the fk, Scotty? Was the banquet hall in the old Enron building booked?""
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http://www.borowitzreport.com/
The whole thing:
"Romney Under Pressure to Prove He Was Manufactured in US
Rivals Demand He Produce Label

MYRTLE BEACH, SC (The Borowitz Report) – Controversy swirled at the Republican debate in South Carolina last night as Mitt Romney’s rivals pressured the GOP frontrunner to prove that he was manufactured in the United States.
The other candidates for the Republican nomination repeatedly pounded the former Massachusetts governor on the issue throughout the night, demanding that he produce a label proving that he was made in the U.S.A.
The attacks came amid rumors that Mr. Romney was assembled in a plant overseas, possibly in France, where a microchip was installed enabling him to speak French.
“At a time when we are losing an increasing number of manufacturing jobs to other countries, can we really afford to have a President who wasn’t made here?” asked former House Speaker Newt Gingrich.
Former Senator Rick Santorum joined in the attacks, saying that if it is proven that Mr. Romney was assembled overseas he might be liable for tariffs and customs duties.
Texas Governor Rick Perry abstained from the attacks, but only because he seemed unclear as to who Mr. Romney was.
The former Massachusetts governor did little to tame the controversy, flailing his arms wildly at one point as smoke billowed from his head.
“Attendez!” Mr. Romney barked stiffly, drawing hoots from the debate audience.
Perhaps in an attempt to deflect attention away from the controversy, the Romney campaign announced today that the candidate had received the endorsement of the IBM supercomputer known as Watson."
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  In biological terms it has given up sex and cannot adapt to changing conditions by evolution.
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