Thursday, August 19, 2010

Troubles in Europe?

What a day.  I will start with my trades that I talked about yesterday.  I ended up sitting on my hands.  I got no entry on my shorts after the hideous jobs report, and I also remembered that tomorrow is Op-Ex.  These days can often be brutal so i decided to not get involved. 

Without the hedging of short positions I saw no reason to get in front of the bond freight train without any protection.  No harm no foul.  We will see where we are with this on Monday.

Something else of note:  We got a second confirmed Hindy today which is something to take notice of. 

Lets get to the markets:

Jobless claims...YYYYYYuck............

From Haver:

"Unemployment insurance claims jumped unexpectedly in the week ending August 14, reaching 500,000 from an upwardly revised 488,000 the week before (originally 484,000). It was the first appearance of 500,000 initial claims since November 14, 2009. The 4-week moving average was 482,500 in the August 14 week, up from 474,500 August 7 and 459,250 July 31. Forecasts, according to the Action Economics consensus, called for a decrease in the weekly number to 476,000."

We then took another punch to the gut when the Philly Fed number came out:

"Disappointingly, the Philadelphia Fed's monthly business outlook survey turned negative for this month. The general activity index was -7.7% compared with July's +5.1%. It was the first negative reading since July 2009."

My Take:

Ouch.  These numbers are not only awful, they are flat out frightening!  Without jobs this economy is toast.  I know you all are probably tired of hearing it but it can't be emphasized enough.

I can tell you one thing:  I see no double dip recession here!(sarcasm off).

All of the data is telling you that the economy has basically been fallen off a cliff since May.  The only thing rising right now is our deficits.

This leads me to my next piece.  If you want to see what can happen to the people in a country that is struggling from a debt crisis all you have to do is take a look at Greece.  Unemployment has now reached 60-70% in some areas.  A few snippets from the article:

"A report by HSBC said banks had lost 8pc of their entire deposit base in the five months to May. "The Greek market has never, since the first data in 2001, experienced such attrition," said banking analyst Joanna Telioudi.

While some withdrawals point to capital flight by wealthy Greeks, it is clear that households and companies are running down savings to make ends meet. The Athens Chamber of Commerce warned yesterday that its members are in "dire straits", with a majority facing a liquidity threat."

"Simon Ward from Henderson Global Investors said Greek lenders are covering their funding gap through loans from the European Central Bank (ECB), which reached a record €96bn in July. "The question is how much eligible collateral they have left to take to the ECB. It must be nearing the limits," he said.

"What is worrying is that this is not just Greeks. Portuguese banks borrowed €50bn in July compared to €41.5bn in June. Together with Ireland and Spain they have borrowed €387bn from the ECB," he said."

Mr Stannard said a report on Greece by Spiegel magazine entitled "Entering a Death Spiral" revived worries about political stability, painting a picture of a country nearing popular revolt. It said unemployment had reached 60pc to 70pc in depressed areas.

"The entire country is in the grip of a depression," said Speigel. "Everything seems to be going downhill. The spiral is continuing unabated and there is no clear way out."

"The markets suspect that Greece will have to restructure its debt sooner or later, and bondholders will be the losers. They don't believe that Greece's euro membership on present terms is economically viable. The country doesn't have the freedom it needs to get out of this crisis," he said."
Take Continued:

As you can see above, the situation is getting desperate over there.  Greece's debt problems are still exploding despite effectively implementing severe austerity measures.  The yields on their bonds shot up to over 10% once again today.

The article basically concludes that Greece cannot get out of this crisis as long as it stays with the Euro because it can't be devalued.

This is the only way for Greece to get out of this mess, and it will eventually happen over here as well although are day of reckoning is a little ways off. 

I must admit:  This article bothered me more than anything else today.  Can you imagine what this country would look like with 60-70% unemployment?  Don't say it can't happen here.  The way we are spending is putting is on the same exact path as Greece.

Believing that "it's different here" puts you in the same category as a person who believed a Realtor who told them that "housing always goes up!" back in 2005.

This article also triggered an alarm bell in my head today:

Perhaps "austerity" can't work alone without a devaluing of a currency?  Greece may be telling us that this is the case.   If you look at most economic collapses you will notice that many of them end with a currency devaluation.  Argentina anyone?

Articles like this makes me want to go out and buy more gold!

The Bottom Line

What a crazy time in history folks.  You can almost smell the fear in the air.  Never in my life have I seen a stock market like this.

I am drooling at the idea of shorting treasuries.   Why wouldn't you when you look at the Ponzi scheme below that continues to roll on?

We plan on selling $194 billion in treasuries next week alone:

"• Monday: In the usual weekly sale, $30 billion in three-month bills and $30 billion in six-month bills will be sold. The bills will be dated Aug. 26 and mature Nov. 26, 2010, and Feb. 24, 2011, respectively. The Cusip number for the three-month bills is 912795W80 and for the six-month bills is 9127952C4.

Noncompetitive tenders for the bills must be received by 11 a.m. Eastern time on Monday, and competitive tenders by 11:30 a.m.

• Monday: $7 billion in 30-year TIPS will be sold: dated Aug. 31 and maturing Feb. 15, 2040. TIPS are Treasury inflation-protected securities. Cusip number is 912810QF8. Noncompetitive tenders must be received by noon on Monday, and competitive tenders by 1 p.m.

• Tuesday: $25 billion in 52-week bills will be sold: dated Aug. 26 and maturing Aug. 25, 2011. Cusip number is 9127952A8. Noncompetitive tenders must be received by 11 a.m. Eastern time on Tuesday, and competitive tenders by 11:30 a.m.

• Tuesday: $37 billion in two-year notes will be sold: dated Aug. 31, and maturing Aug. 31, 2012. Cusip number is 912828PH7. Noncompetitive tenders must be received by noon on Tuesday, and competitive tenders by 1 p.m.

• Wednesday: $36 billion in five-year notes will be sold: dated Aug. 31, and maturing Aug. 31, 2015. Cusip number is 912828NV8. Noncompetitive tenders must be received by noon on Wednesday, and competitive tenders by 1 p.m.

• Thursday: $29 billion in seven-year notes will be sold: dated Aug. 31, and maturing Aug. 31, 2017. Cusip number is 912828NW6. Noncompetitive tenders must be received by noon on Thursday, and competitive tenders by 1 p.m."

I guess you might as well sell as much as you can when you have so much demand right?

I just don't see how this continues.  It will be interesting to see how all of these auctions go. 

There will come a time where there is simply not enough money to soak up all of these auctions week after week.   The jig is up when this eventually happens.

A word of caution before I end here folks:  If this bond run isn't a bubble then get prepared for the worst economic collapse this country has ever seen because that's exactly what the bond market is telling you. 

People do not sit in investments that return no yield unless they are VERY afraid.

I will have more tomorrow.   
Disclosure:  No new positions at the time of publication.


getyourselfconnected said...

I am with Rosenberg that a US default is "impossible". That said the process by which we pay our debts (PragCap says no debts?) may well render some major change which may not be "acceptable" to US citizens.

Jeff said...


No default but we will be forced to inflate out.

The dollar will rise as the deflation trade and troubles in Europe continue.

Longer term I believe reality will set in and they will be forced to toast the destroy the currency and inflate.

This was the ultimate ending for the Yen in Japan even though it was a deflationary collapse.

PragCap could be right. We might just tell China to stuff it when they ask for their money back.

I am sure we will see a few wars before this is over.

Crazy times.

Jeff said...


Just picked this up. Another article on Greece.

The publics patience atience appears to be wearing thin:

" They only organize strikes to serve their own interests!" shouts one man, whose name is Panayiotis Peretridis. "The only thing that interests me anymore is my daily wage. A loaf of bread is my political party. I want to help my country -- give me work and I'll pay taxes! But our honor as first-class skilled workers, as heads of families, as Greeks, is being dragged through the dirt!"

"If you take away my family's bread, I'll take you down -- the government needs to know that," Meletis says. "And don't call us anarchists if that happens! We're heads of our families and we're desperate."

He predicts the situation will only become more heated. "Things are starting to simmer here," he says. "And at some point they're going to explode.",1518,712511,00.html

getyourselfconnected said...

A friend of mine is leaving for Greece in twoo weeks for a two week vacation. I asked her 'Are you going there to riot?" and she had no idea what I was talking about. Now I hope she didnt read up on it!