Category Archives: European Debt Crisis
Here is all you need to know. About 40 minutes ago, the Energy Department reported that oil stocks were up another 900,000 barrels. Inventories currently stand at 4.2% higher than last year, which if I recall were higher than the year before that. Prices are rallying, because the move is “less than expected”. That’s great, but this is just the beginning.
At the same time, gasoline demand has fallen through the floor. Recession is setting in in Europe. China has been disappointing. And US exports are set to get hit in unison.
My expectation is that May – August will be horrible; an exact repeat of the last three years. I’ll revisit these assumptions midway through any selloff, or if one fails to materialize. As for the Fall; I’ve been caught off guard plenty of times over the last few years, thinking “this is the end”. And each time, trillion dollar money balls and hope manage to squeeze me – this year was the exception to the rule.
Well, I’m sick of the rule, and much preferred the exception. So I will likely consider buying into the Fall. But we need to monitor everything and be very careful. This year is exceptional in its uniqueness; a number of very unusual motions will set in starting 2014, including Obamacare and the end of the line for pension gap coverage is looming. Throw in tax hikes and the waves of retiring Baby Boomers leaping every year for the next decade, and I’m not happy.
But I can be crazy if I need to be. Surely, the Fed is aware of all of these problems, and monetary easing is the preferred course of action over letting panic set in. So even though I’m afraid for what’s coming, sometimes you need to let go of reason and embrace the lunatic’s way out.
Since the Cyprus intervention, the euro debt markets have exhibited remarkable calm, in spite of the precedent that was set. Italian and Spanish yields are both pushing back towards the lows, and it seems that stability has won out.
Let’s gloss over the inconvenient fact that Italy hasn’t had a government for, oh, seven weeks now. According to Italy’s debt, all is well in the land shaped like a boot.
Clearly, this is a contradiction. It’s a matter of if, not when, this thing blows up.
At some point, people are going to question exactly, what business do the remnants of Italy’s last government have in collecting taxes, or administering programs. Or issuing debt at all. How can a country with no government make its payments?
I know it’s all about the northeaster countries at this moment, dictating events and how they play out. But at some point, you have to question, what is “Italy”? Seven weeks without any government is kind of a big deal. And where does this get resolved?
Yet, here we find money flooding into the country-less bonds. Why? I’ve heard a few theories, but I’m not really interested in them. More importantly, at what point do the theories become a distraction from the problems?
And when the problems become front and center, what does that mean following everything that has happened up until now?
I have to hand it to the EU countries. We are now years into this crisis, and still they manage to keep their bonds funded. Spanish bonds are easing back down from the 5% mark that had me on my toes. It would appear that the flare up has been contained…for now.
But that’s not the name of this game. They can save themselves as many times as they like. It would be better to ask, “what are the odds they save themselves every time one of these crises kicks up.” Much like a kid juggling eggs in his mom’s kitchen, the prudent bet is that he drops them. The moments leading up to the inevitable wrath bearing down on him are of entertainment value only.
Gasoline prices are imploding. That is merely a factual statement. I can’t decide what to think about it yet. Lower gasoline prices are inherently good for the consumer, it is true. But following the economic reports we’ve been receiving, and right out of Christmas and the optimistic projection parties that come with that time of year, and I’m not entirely sure of the thing being good.
My preference remains withdrawn defensiveness. Lots of cash, hand picked hedges. And only names of quality that I don’t mind being left holding without a bid.
Look, it should be pretty well obvious that a bank run will not materialize in Cyprus. How could it? The population is limited to 300 euros a week and there are armed guards and security forces everywhere.
Incidentally, there aren’t really “banks” in Cyprus anymore either. Last I checked, I can take my money out of a bank…
The currency controls have effectively created an entirely different social structure on the island, and euros there have significantly different value from euros anywhere else. By all measures, Cyprus is no longer a capitalist country.
However, there will still be long term damage done. If you’re a Cyprus resident, will you be depositing much money with your trusty bank branch over the next few years? Dark pool currency is going to swell, and since modern banking is built on top of fractional reserve systems, that will carry a heavy toll.
Now, avert your attention back to Spain. Yesterday, yields of Greece, Italy and Spain bonds all exploded. Today, there’s been some retracement in Greece and Italy bonds. But Spanish 10 years are flat. No recovery.
You need to have your eyes pegged on Spain. She’s the real danger. Not the tiny island tax shelter. You know the problems with Spain well enough – youth unemployment, Catalonia wanting to cede from the country, housing crisis, huge debt – if Spanish bonds start to blow out and it looks like Europe needs to step in, well…currency controls aren’t in place there yet.
Do not be mistaken by the market recovering from the lows of the day, for there is severe damage being done in surreptitious ways.
Leading the pack is the euro, which has seen itself cut down, and doesn’t appear anywhere near support yet.
The debt of Italy, Spain and Greece is selling off hard. Spanish yields in particular ramping back above 5% carry a heavy hand against this market.
Those idiots helming the EU made a monumental miscalculation when they stole the Cyprus accounts. At that moment, they gave themselves no room to maneuver; balancing the entire euro project on a wobbly pinnacle. If debt of the PIIGS continues to sell off, the result will be calamitous.
Dijsselbloem will be taken at his word, and the ensuing bank run will force depression across the currency bloc.
Stay vigilant here. There will be no second chances given if the wrong developments materialize.
I added a position in SCO for $40.19.
This takes my artificial cash position north of 50%. We are at the “edge of disappointment”, where things are neither good nor bad, but merely “meh”.
“Meh” gets you killed.
Europe will flare up again. Cyprus doesn’t matter particularly. The underlying reason we keep hearing about the EU is because the EU is fundamentally fucked on a spindle. The cost of holding the euro together, not just in terms of money, but in terms of man hours, resources, lost opportunities, bitter resentment, livelihood,…is just immense.
It’s never just about the money. When the economics and numbers don’t work, it should usually be a warning sign that you’re screwing something up largely. Money is a metric for measurement; hence why when obnoxious social justiciers whine about people only caring about the money – refusing to just go along with their latest “great idea” – I have a resounding urge to punch them in the throat.
I really don’t understand why European citizens are subjecting themselves to this. It’s not like they’re avoiding the losses…the pain is coming either way, so it’s a choice of accepting that, making changes to improve their underlying format, and moving on, or…not accepting that, getting the beat down anyway and setting themselves up for more failure later.
Anyways…Italian/Spanish/French debt is docile now, but it’s just a matter of time before the next explosion. Europe continues to miss deficit reduction targets by a quarter mile, and they’re all in recessions.
Dangers to the SCO position would include if the ECB and Fed were ever permitted to team up like Batman and Robin; doesn’t seem in the cards at the moment (or ever), but it’s worth stipulating that I really believe Bernanke & Co would view $150 oil as a “successful policy outcome.”
For the meantime, however, I’ve got decreasing industrial production overseas, an oil production bonanza here at home, and a hundred-years demographic movement towards smaller commutes all playing to my hand.