All the plans to save Greece, Spain et al and keep them in the eurozone are still based on growth recovery prospects which are in turn based on entirely unrealistic assumptions. And every single turn of the way those assumptions have to be recalibrated downwards. Which always leads to more austerity demands, more cuts. And at some point that will no longer work. You can’t cut beyond the bone. And obviously you can’t grow an economy with 25% unemployment or with over 50% of your young people out of work.
The eurozone is about to fall to pieces. That will shake the global financial world to its core, including the US. There are estimates for countries that leave the currency union to see their GDP fall as much 40-50% in the first year. It’s today all but certain that Greece needs a debt restructuring in which the EU and ECB will be forced to write off substantial parts of their holdings. For the incumbent politicians in the richer core countries that’s about the last thing they want to explain back home. If only because they know full well that there’s much more of that in the offing.
Europe should focus on a painless as can be transition to a situation in which the hardest hit countries can leave the eurozone and still remain friends. But it’s still double or nothing all the way for the leadership, an increasingly dangerous kind of blindness. The longer they delay accepting this, the more devastating the explosion will become. And not just in Europe. It will expose the facade, the mirage that the world economy has become, where keeping up appearances has become possible only through mobster accounting standards and grand theft auto from coming generations.
When the eurozone explodes, so will the rest of the world economy. Including the US. Obama doesn’t have to worry about NOT getting a second term; he should instead worry about getting it, and about what’s going to happen on his watch in the next four years. If he lasts in office that long.
From Zerohedge: …anyone looking for a reason why the futures have proceeded to slide to their day’s lows, this may be it: all the good news is now fully priced in. Things to look forward to now: Fiscal Cliff, Debt ceiling debate, further collapse of Greek and potential resumption of Grexit speculation (just look at the EURUSD), Spain bailout (Spanish bonds today are very unhappy), and the prompt unwind of all “better than expected” jobs number following the election, regardless of who wins the Oscar for best presidential performance. Because now there is an alibi for not only weak future numbers, but for historical revisions. It’s name is “Sandy” – get used to it: it will be the excuse for every upcoming economic data miss until January.
Been saying for awhile now, all this can kicking was just to ensure another O victory…after the election, all bets are off. The FED is burning through tens of billions a month (which will over double starting next January), the weak EU nations are about to implode, China is no powerhouse and will NOT be coming to anyone’s rescue, we’re going over the fiscal cliff, etc. And again, even the FED is going to be powerless to stop what is going to happen within the next 4-5 months.
The Entire World Will Once Again Be Watching An Insanely Close Greek Parliament Vote That Could Have Huge Ramifications
Two weeks ago, Greek prime minister Antonis Samaras declared that Greece would run out of cash on November 16, which why it’s so critical that a decision on sending further aid to Greece is made at the upcoming meeting of eurozone finance ministers on November 12.
Before a decision can be made, though, Greece’s troika lenders (EU, IMF, ECB) have demanded that Greece pass controversial labor reforms – to which some factions of parliament are staunchly opposed.
A slew of ugly PMI reports.
Markit just published the Euro area’s October manufacturing PMI reports as its stock markets open for Friday trading.
The decline of the Spanish, Italian, and German manufacturing sectors accelerated in October.
France’s downturn is decelerating a bit, but its PMI measure sits at an ugly 43.7.
Any reading below 50 signals contraction.
Yesterday, we learned that while many Asian countries continue to see their manufacturing sectors contract, they are doing so at a slower rate.
The big news was that China’s manufacturing sector seems to have turned a corner and is growing again.
Below is a scorecard for today’s PMI reports with links for more details:
- Spain: Markit Manufacturing PMI — 43.5, down from 44.5 in September
- Italy: Markit/ADACI Manufacturing PMI — 45.5, down from 45.7 in September
- France: Markit Manufacturing PMI — 43.7, up from 42.7 in September
- Germany: Markit/BME Manufacturing PMI — 46.0, down from 47.4 in September
- Eurozone Manufacturing PMI — 45.4, down from 46.1 in September
Phoenix Capital Research
Spain continues to heap one impossible idea on top of another.
The latest “plan” consists of Spain creating a bad bank called SAREB that will buy up bad assets in Spain in an effort to clean up the country’s finances.
SAREB was part of the €100 billion Spanish bailout plan which was set forth in June. Once again, none of it makes any sense.
Spain’s Bad Bank to Buy Up Assets
SAREB, which is set to begin operations on Dec. 1, will absorb soured investments that have dragged down the balance sheets of Spanish banks since the collapse of the country’s housing market four years ago.
Fernando Restoy, head of Spain’s bank-bailout fund, said SAREB will likely purchase about €60 billion of toxic assets using Spanish resources and some of the funds allocated under the bank-bailout agreement.
It will apply an average 63% discount on land and housing units and an average 46% discount on real estate loans, he said, and will aim to sell the assets to investors over the next 15 years, with a return on investment of at least 14% for any investors in the bad bank.
Wait a second… isn’t Spain bankrupt?
After all, their regional bailout fund has used up all of its funds, the country has only received €30 billion of the original €100 billion bailout, and Spanish banks are now beyond broke, selling even Spanish sovereign bonds to free up cash to face a systemic bank run (18% of deposits have fled Spain this year alone).
So where exactly is the €60 billion going to come from? Even if Spain uses all of the €30 billion it’s received in bailout funds so far, it’s still €30 billion short.
Even if Spain were to get the funds together to do this… this move is still not big enough. Spanish Prime Minister Rajoy admitted in private that Spain’sreal funding needs are in the ballpark of €500 billion. And that’s assuming he knows the true state of Spain’s finances (unlikely given that he’s a career politician with no financial background).
Given Hurricane Sandy and all of the economic data and earnings releases that were compressed into a shortened week this week, markets didn’t move much.
With presidential elections in the U.S. and a critical vote in Greece, the week ahead is going to be even bigger, and markets are going to have even more to digest in a short period of time – event risk is back.
In a note titled Dress up for next week’s events, BofA rates strategist Max Leung writes this morning that “next week will probably see the largest concentration of risks for the rest of this year,” and that “such a diverse mix of events, some of them rather binary as politics are involved, makes it rather difficult to position for them via directional trades.”
“Instead,” Leung writes, “we prefer long [volatility] strategies with little to no directionality.”
In other words, no idea which way markets will go – but betting that it’s going to get volatile.
Greece faces a critical vote next week in order to secure much-needed bailout aid by November 12.