July 2011
- 1 July 2011
Observations by Nouriel Roubini.
1. “The factors slowing U.S. growth are chronic. Private- and public-sector deleveraging is slow but persistent, despite a recent pause in household deleveraging due to even more releveraging of the public sector. Rising oil prices are crimping growth. Job creation is barely meeting the increase in the labour force. The housing market is in a double dip, with prices falling, quantities moving sideways at the bottom and no end in sight. Severe fiscal problems at the state and local levels are leading to a serious fiscal drag. At the federal level, an unsustainable deficit has gone unaddressed, while some spending cuts and the phase-out of transfer payments threaten to lead to increasing fiscal drag in 2011, 2012 and especially 2013. A second round of quantitative easing and third round of fiscal easing gave us a meagre 3% y/y growth handle for just one quarter—Q4 2010—before growth slumped to 1.8% in Q1 2011 and likely stayed in that vicinity in Q2. Given the deleveraging, the fiscal drag and the global economic shocks, H2 2011 and 2012 are not likely to be much stronger.”
* 6 July 2011
1. Sobering observations From Nouriel Roubini
“My prediction for the perfect storm is 2013, because right now everybody is simply kicking the can down the road. In the U.S., we will have problems after the election if we don't resolve our fiscal issues. At the same time, Europeans are putting off their problems, while Greece, Ireland and Portugal need to restructure their debt to deal with insolvency. I see policy makers trying to push these problems to the future. Private debt, supranational debt and balance-sheet crises will all come to a head in 2015.”
2. America and Britain's Economic Policies Will Soon Be Similar by Mohammed Elrian- PIMCO:
1. The U.S. and Britain share the unfortunate experience of having gone way too far in embracing the "Great Age" of leverage, credit and debt-entitlement. By imposing austerity programs to “cleanse” the system, the UK is hoping to free up resources that can be devoted to pay down debt.
2. The U.S. is hoping to create resources to pay down debt via economic growth – an approach that can have disappointingly narrow feasibility.
3. Other options include restructuring or defaulting on debt, inflating out of it and imposing financial repression by paying creditors less than they deserve
4. Both countries behaved as if "finance" was a legitimate stage in the economic maturation of a society - coming after agriculture and industry. In the process, they lost sight that the "financial industry" is not a stand-alone that can be sustained by clever financial engineering. Instead, its legitimacy depends on how well it facilitates real economic activity.
* 8 July 2011
1. Greek unemployment time bomb squeezes Papandreou’s government
2. Italian Bonds, under fire as yields rise 2, 5% to 5, and 25%. Italy is a major concern as banks unable to met stress tests. The economy of Italy, is equal to Greece, Portugal, Ireland combined. Debt to GDP 120% is unsustainable with little or no growth particularly in export markets. If the economy is stagnant, and some $40 billion interest repayment looms. Potential for default September , has been brought forward, hence market jitters.
* 11 July 2011
1. Italy contagion looms. EURO markets and bonds slide. Italian yields surge
2. Swaps show Europe crisis bigger than US NB
3. Italy as the worlds 1/3 largest trader in bonds is exposed to $175 Billion by the end of 2011.
4. Italy is 2% points away from a bailout.
5. US Debt debate continues in Washington, with 23 days to go. See PIMCO review of the Grand Bargain
6. The European Banking association plans on Friday to release a detailed debt holdings data for 91 of Europe`s largest banks including 13 from Germany as part of its much anticipated stress tests.
* 12 July 2011
1. Italy, Spain trade- like junk related debt as Contagion spreads
2. Rate swaps soar, as EURO under contagion threat
3. Dubai may have to sell main assets as yields decline
4. Suisse Franc at record levels as money moves out of Euro
5. Newscorp market cap shrinks $7 billion in 4 days
6. Obama presses for a $4 trillion Grand Bargain on deficit as Republicans resist on taxes
7. The current ECB discussion for resolution - An Orderly, Selective or Temporary default ?
8. Cross currency swaps most into US Treasuries since 1979
* 13 July 2011
1. SA mine nationalization scares away investors- Cutifani says
2. Italian Debt n EU1,8 trillion , making it the third largest
3. Italian debt risk puts BNP Paribas & Credit Agricole in the front line. French banks have the greatest exposure outside of Italian banks
4. GECAMINES undisclosed sale of Congo copper mines to Israel`s Gertler may undermine share offer.
5. Portugal, Ireland overtake Venezuela in global risk
6. UK unemployment grows at fastest pace since May 2009
7. Bernanke warns politicians to sort out the debt, or risk the economic recovery. Twice a year FRB Chairman has to brief the US on the economy. The ripple effect on markets if the US Defaults is turmoil, for the DOLLAR, interest rates, and the markets. The caution will be the theme of Congressional Testimony today at 4 pm is rising unemployment, EU Debt contagion and ask Congress what they are going to do for the economy. He gave QE1 & 2.and only Congress can raise the debt ceiling.
8. Putin ‘outraged’ on Ratings with yield spreads to Latin America
9. Comments by Steven Bell , Chairman of Hedge Fund GLC. CEO of Global Corporate Fund.( Worked under Bernanke for 25 years.)
Next Council meeting needs to deal with contagion. Moody`s problem is with Europe not Ireland. US retails sales due tomorrow is critical information to analyses current status. There is a limit to how many bonds the FDR can buy. Interest rates can be kept low, but with growth diminishing in US, and Europe is shaky, that is a huge part of global economic growth. There is a terrific amount of pessimism, and Steven Bell is feeling more cautious now, than a week ago with the developments in Italy & Spain. These developments are a game changer, and the Bond markets have been hit with no defence. We are in a new phase! The problem of the US is balance growth with the deficit.
10. Mario Draghi: Debt crisis enters a new phase .2 Trillion Euros required to fix the Euro debt market-ECB- That`s the number!
11. Truth or Dare: Breaking the Glass Ceiling on U.S. Federal Debt
* A deficit reduction plan of US$2.0-2.4 trillion attached to a similar-sized extension of the debt ceiling appears more plausible than a larger-sized deal before there is a situation of technical default.
* Even in a worst-case scenario, interest payments can and will be made, as will Social Security Payments—a partial government shutdown would be likely
* Rather than contemplating the unlikely eventuality of a technical default, watching the amount of fiscal austerity included in the debt ceiling negotiations is more important.
* Front-loaded fiscal austerity, beyond the already substantial fiscal contraction in store for 2012, will weigh on growth but should be a positive for rates generally
12. _ Italian Government Bond Yields Rise to Critical Level _
* Italy’s 10y government bond yields broke the 6% mark on July 12, after rising to a new nine-year high on July 8, unsettling some traders and bringing the euro zone closer to a potential disaster scenario, according to some analysts. With €1.9 trillion of outstanding debt, Italy is the world's third-largest government debt market, making it too big to save, unlike Europe's much smaller periphery economies. A rift between Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti has also contributed to market concerns in the past week, along with widespread confusion over the recent €40 billion austerity package.
* 14 July 2011
1. 1. Greek default inevitable with every citizen $40 000 in hock
2. US debt placed on review for downgrade by Moody`s of AAA
3. Italy to big to bail out as debt contagion engulfs in a new phase
4. Italy has one of the highest saving rates in EU , with only 10% of debt held by foreigners.
5. Italy can manage yield increase & expects a balanced budget in 3 years -Fitch
6. Despite Serious Vulnerabilities, Italy Is Not Greece; the Show Will Probably Go on. Italian debt is probably sustainable with interest rates below 7%, but there are material downside risks to growth and the fiscal balance. While higher borrowing costs are certainly concerning, increases in interest rates will take time to feed through into higher debt-service costs. JamesMason and the RGE Economic Research
7. Nouriel Roubini observation.
1. “A maturity extension with no face-value reduction would provide massive debt relief to the Greek sovereign: A euro due in 30 years is worth less than a euro due in a year on a net present value (NPV) basis, and such a par bond is equivalent—on an NPV basis—to a discount bond with lower face value and a higher coupon. And an exchange offer should provide a menu that includes—in addition to a par bond for hold-to-maturity investors such as banks—a discount bond that would be appealing to mark-to-market investors such as hedge funds.”
2. Eastern Europe’s (EE) Vulnerability to Euro zone Crisis: “While EE economies have so far shown significant resilience in the face of the eurozone debt crisis, the region remains exposed to spill over risks via its financial and trade links.
3. Western European parent banks operate in the region through subsidiaries and account for 70-90% of total bank assets...Reduced parental support to regional subsidiaries would further choke off credit supply and undermine the flagging recovery in domestic demand
4. The potential direct impact is on southeast Europe, and the indirect impact is through banks in western Europe and ultimately also through growth in the euro zone.” The ripple effects are being felt in the markets, as Hungary and Poland’s currencies reached new lows against the Swiss franc, hurting borrowers who took out FX-denominated loans.
* 15 July 2011
1. Pentagon hack attack. Revel 24 000 sensitive files were removed
2. Credit Suisse the target of an investigation by US Justice probe into private banking practices.
3. US –House plans to vote on a $2,4 trillion debt limit increase
* 18 July 2011
1. . EU Stress Test 2.0: Eight EU Banks Fail Stress Test; Combined Shortfall of €2.5 Billion
2. South Africa Labour Market: Strike Season Intensifies
3. Goldman leads the banks to sell property bond holdings
4. BOFA mortgage settlements magnifies strain
5. Sovereign, Corporate default swaps rise in EU after stress tests.
6. US Debt limit equivocation. Default referred to as a contagion Armageddon.
7. US risk of default does not shake treasuries
8. Arab ‘spring’ pits Saudi Security against US interests.
9. Oil rich Bashkortostan raises first bond sale since 2007
10. EU Sovereign debt risk hits new record with default swaps
11. Core Europe infected by debt contagion as France leads debt swaps. Europe debt woes converge with the US
12. Italian bond yields go beyond 6% & unsustainable. Current ECB meeting critical. The European leaders have to ensure they avoid contagion. Spain 10 year bond 6.33%.
* 19 July 2011
1. Japanese stocks slide amid US/ Europe debt concerns
2. Soros Quantum cash holdings of 75% leave Hedge Funds baffled by instability. NB
3. Accounting ‘spreads’ red flag swaps to highest level
4. China raised treasury holdings as reserves reach a record NB
5. EU Banks facing a tripling of capital reserves as they move to Basle 111
6. IMF staff sees ‘Serious Risks of Contagion’ in Euro area. ( News Flash ) NB
7. IMF sees ‘Major consequences of Contagion’ in Euro area, even if Greece can divert a crisis ( News Flash) NB
8. Bailout of Moscow Lehman like crisis sends MTR soaring
9. US Congress bickers as Bond Holders brace for panic.
10. EU- sovereign crisis pushes options to a 14 month high
11. Basle committee says 28 banks would have to comply with Basle 111 surcharge. NB
12. Banks too big to fail face surcharge of 25%
13. US Money market funds elude Dodd Frank regulations
14. US -5 States on a AAA credit rating review for a downgrade by Moody`s for a possible cut. NB
15. European stress tests may spark an increase in reserves =S&P;
16. Wells Fargo shares climb on record profits. $ 15 billion cost cutting plan NB
* 21 July 2011
1. EU Banks need to raise 460 billion Euros to stem default crisis. Merkel & Sarkozy reach consensus that Greece needs a further 110 billion Euros. A decision is critical at today`s EU Summit
2. US John Taylor FX Concepts- US headed for recession next year similar to 2008. They have used up all of their ‘gimmicks’, even with QE3, & interim relief with the raising of the debt Ceiling. NB
3. IMF urges stronger Yuan to avoid recession
4. Basel 111 may be onerous for Australian banks
* 28 July 2011
1. Vikram Pandit Citibank CEO: Does not see US defaulting!
2. UK executives flock for Mandarin at the Confucius Institute
3. US Credit swap ceiling hits 80& as debt deadline nears
* 29July 2011
1. Spain downgraded to Aa2. S&P; threatens a further downgrade. 10 year bond 6.13%
2. US Treasury may have to apply a risky payment plan as debt limit looms
3. US Debt proposal has spending cut ‘trigger’ which historically is full of failures
4. Morgan Stanley says Ireland & Greece funds pouring into Suisse Francs. Swiss safety rules.
5. Fed meets top 20 banks to mitigate debt default after.