Saturday, December 4, 2010

Saturday Musings

A few things to share today.

I wanted to start with xtra normal folks.  These guys are on fire.  Buy silver!:

I also caught this graph on Zero Hedge:

My Take:

CNBC and the bankers can take their economic recovery and shove it up their you know what. 

I find it ironic how the stock market started surging right around the same time this chart went parabolic.

How can Wall St expect the economic recovery to continue when almost 15% of this country can't afford to eat?  Imagine what this chart will look like 6 months from now when people start running out of their 99 weeks of unemployment benefits.

Think about it folks:  The majority of the job losses in this country hit in the second half of 2008 and the first quarter of 2009.   99 weeks of benefits is about two years when you do the math.

This means millions of people are going to start losing their benefits over the next 6 months, and most of them have likely burned through what savings they had in the process because their unemployment checks weren't enough to pay the bills.

As a result, I expect the graph above to surge even more dramatically over the next 2-3 quarters.   Consumer spending is going to fall off a cliff as Americans start running out of their government handouts.  

As this happens, I wonder how Apple going to continue to sell their little I-pods when consumers need to start using what money they have left to buy food instead.

You have to amusingly ask yourself:  Will the Helicopter Fed come in and bailout these companies too when there are no buyers left?  I say why the hell not?  He did it when there was no one was left to buy treasuries.  Why not do the same thing when we run out of consumers?

Perhaps Mr. Bernanke can create a consumer "TARP" where he buys 100 million I-pads and 500 million smart phones in order to keep our "awesome" economic recovery going.

Face it folks, our economic recovery is a sham, and I can't wait to watch our sociopathic bearded Fed chairmen on 60 minutes tomorrow night.

Friday, December 3, 2010

Is It Time To Worry About Inflation Once Again?

It looks like the market is saying yes.

Bond yields are rising.  The 10 year closed above 3% which it has not done since the summer:

Gold rose $25 today and closed near it's all time highs of $1424:

Oil also soared and closed at it's highest levels today since the commodity bubble burst back in MAy/June of 2008:

My Take:

Let the debate begin.  We have seen some signs of life out of the economy this week.  It's been seen most notably in retail sales and the service sector numbers which didn't look bad today. 

Unemployment still sucks but when the government is handing out free unemployment/entitlement checks like water does it really matter for the time being? 

The problem the market now has is if we are about to see some sort of an economic recovery then inflation will rapidly become a serious issue because the Fed is printing money and tossing it out of helicopters.

The Fed is in a tight spot here because unemployment still sucks yet the economy does show signs of turning around.  I personally believe that this is only a temporary fluctuation higher economically but nonetheless it must be priced into the market.

So the question now becomes is will the Fed be able to react to the risk of inflation before it becomes a serious issue?  History has told us they have always been too late to take away the punch bowl.

The Bottom Line

I have been warning over the last couple of weeks that if oil gets up to $100 per barrel we will lose any positive momentum we have seen in the economy.

We closed over $90 per barrel today so we are officially in the "danger zone". 

I think we could easily reach $100 per barrel very soon because the Fed still has the "easy money" gas pedal nailed to the floor as it desperately tries to avoid deflation.

This irresponsible behaviour is starting to kill our currency because the rest of the world is tightening up their purse strings.  The currency traders will start to beating the crap out of the Fed with a giant stupid stick via flushing our currency down the toilet if they don't stop this insanity.

The bond market will do the same thing with treasuries.  The technical breakouts seen in oil and the 10 year today must be paid attention to.  The market is scared that the easy money Fed POMO's are rapidly starting to look reckless as the economy begins to show signs of a little life.

This being said, I just don't see how the economy recovers with unemployment at these levels.  Nonetheless, the economy will show signs of life at times during secular bear markets.   Nothing heads down in a straight line.

The fact that treasury yields are rising despite the Fed's purchases should not be taken lightly.  This is a serious problem for the Fed because they can't afford higher rates because we have issued so many trillions of treasuries that we must pay interest on.

If rates keep rising as a result of inflation fears then the USA could be bitch slapped "Greece" style by the bond market because the USA will begin to look insolvent due to the rising costs of servicing their debt issuance.

The Fed has to be sweating bullets.  If the economy recovers then inflation soars, bond market yields then soar as they attempt to keep pace, and millions will find it very difficult to survive because they won't be able to afford to live.

If the economy continues to deteriorate then a deflationary collapse is likely in the cards as the unemployment situation forces the consumer to eventually fall off a cliff.

Mr. Bernanke can't be sleeping well at night these days.  No win situations aren't fun for any central bank to go through.

BTW, Don't forget to buy stocks on Monday!  The trading robots are counting on you!  Remember:  All is well...All is well....All is well....


Unemployment rises to 9.8% on Weak Jobs Report

Don't worry though folks.  The trading robots have your back.  Stocks are basically flat on the news which is flat our ridiculous.  Here are the numbers from the BLS:

"The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today. Temporary help servicesand health care continued to add jobs over the month, while employment fell in retail trade. Employment
in most major industries changed little in November."

My Take:

Stocks basically ignored the report thanks to the black boxes but the currency markets didn't.  The dollar got slammed and gold rose $14 dollars on the news.

Here is a look at the buck:

The Bottom Line

I wouldn't be surprised to see gold move higher later on in the session.  The drop on the dollar is ugly when you think about how bad things are in Europe.

The reality here is we continue to QE and it's not working.  Meanwhile, many countries are now heading in the opposite direction by using extreme austerity as they begin to pay back their debts.

Austerity is coming to America folks whether you like it or not.  The US dollar is going to get destroyed and inflation will then soar if we don't.  Enjoy this stimulus filled market while you can because it's days are numbered.

At some point the bond market is going to call out America on it's bloated debt load just like it has in the land of the PIIGS. 

When it does and the Fed stops spending:  The music will stop, the party will be over, and it will be time to for the hangover which isn't going to be pretty.

Today's jobs report is just more proof that we are pissing away our wealth via policies from the Fed that are a complete and total failure.

How many more hundreds of billions do we have to spend before we realize this isn't working?

Recoveries are built on jobs.  Without jobs, consumers can't buy houses, flat screen TV's, and all the other useless toys that none of us need. 

The consumer represents 70% of our economy.  Without them we die as an economy. 

Anyways, I will end it here because I am sure many of you have some stocks to buy for no fundamental reasons.

I mean that's what we do here in America these days right? The worse the economy looks the more stocks we buy.

Someone please wake me up when this episode of "The Twilight Zone" finally ends.

Thursday, December 2, 2010

"Traders Die Broke"

I will always remember these words from "the credit trader".  I bet you all have friends that are getting killed trying to trade this disaster.  Why wouldn't it?  The market zigs when it fundamentally should zag.  You can thank the robots for this price action.  Unless you own one of these little black boxes you are the "fish" at the trading "poker table".

If you are a new reader my friend is a 50 year Wall St veteran who has seen it all.  "Traders die broke" is an old Wall St adage. 

He explained to me that only a few percent of people have the intuition/instinct to trade successfully on a consistent basis.  A select privileged few are beating the system on Wall St today because they are able to cheat via inside info and sophisticated robots that sit on the trading floor and front run your trades. 

Anyone not on the inside is an instant "fish" for these sharks so consider yourself warned:)

I wanted to talk about why now is not the right time to invest.  I have discussed this in deep detail with my Wall St friend.  I have also discussed the topic with many of his co-workers.

Each of their answers vary to some degree but the take home message is essentially the same:  In extrordinary times like these it's all about preservation of capital versus return on capital. 

Each of them goes on to explain that there will be several "investment opportunities of a lifetime" when we eventually see the massive default/restructuring of our economy that cannot be avoided at this point(I will discuss where later on in this piece). 

Let me emphasize what I said above:  We WILL see massive defaults.  The money simply isn't there to keep this credit bubble hidden for much longer.   The pain can be delayed but it can't be avoided.

Everyone on Wall St with half a brain understands that this whole economic mess is a slow motion train wreck.  They will deny it to the very end of course as they attempt to keep "the game" going.  I mean why wouldn't they?  The staus quo is just fine with them because they all live like kings.

The Ultimate Ponzi Scheme

The Fed has now created the ultimate Ponzi scheme by lowering rates to zero and quantitative easing.  This environment is forcing everyone into risky assets in an attempt to find yield.   The "free money" from the Fed via QE is exacerbating the pumping of these risk assets because the banks have extra cash to play with as the Fed buys their treasuries off of them. 

The herd eventually catches onto this and before you know it just about everyone starts hopping into the market.  The fund managers are then forced to hop on the Ponzi bus because their performance starts to seriously lag the market. 

The DOW starts to scream higher as a result.  The way I see it:  The Fed has basically poured lighter fluid on all risky assets and then lit a match using QE and zero rates.   We are now witnessing a raging fire that I believe is either going to start burning out of control or simply burn itself out.

Nonetheless, this Ponzi scheme looks very tempting as it morph into a euphoric mania .  It's human nature to feel this way.  At times I am sure some of you have thought about going "all in" on stocks in your 401k as you see the DOW rise on an almost daily basis.  

The problem with Ponzi schemes is by the time they are identified, the train has already left the station.  This is not a place where you want your capital to be.

Jumping into a Ponzi scheme late in the game is basically a recipe for disaster.  Ask any investor that was buying tech stocks hand over fist when the NASDAQ was at 5000 and they will share their horror stories.

I'll admit that I got caught up in the craze.  It was hard not to.  Looking back, I am glad it happened to me because I learned a lot from it.  I am also thankful it occurred early in my investment career when I didn't have much capital invested.

It's important to remember that any good investor learns from their mistakes, and the lessons I learned from that debacle helped me avoid the 2008 fiasco.  My speculating days were over after the tech bubble as a result of learning my lesson in a very painful manner.

What made swallowing my tech bibble mistakes even tougher was the fact that I was warned to not to get involved repeatedly.   "The credit trader" was warning me all the way up that it didn't make sense to him but I didn't listen.  I was convinced that I was going to make a killing in tech stocks.  I proceeded to then ate a big fat piece of humble pie a few years later as I watched my triple digit stocks drop to $4 a share.

Like all Ponzi schemes, the only real winners among the suckers are the ones who get in early and then sell out before it bursts.  The creators of the scheme make out like bandits as they piss away your "investment" dollars knowing that they have no intentions of ever giving you your money back. 

The problem with Ponzi schemes is when the music stops almost everyone is left holding the bag because greed is a very powerful emotion.  When the game is working greed tends to overtake you.  It blinds you from the fundamentals and keeps you in the game.  

The Bottom Line

Let me preface the rest of this article by saying that this is not investment advice. 

I write this post as a warning to anyone involved in this market.  Stocks currently have huge tailwinds, but they are not the type of tailwinds you want when you are investing.

The tailwinds seen today are artificially being created by the Fed via low rates and QE.  Stocks are being bought based on speculation and desperation instead of the fundamentals.  The desperate investors are the ones who must find yield in order to survive financially.  Retirees anyone?  The speculators are the guys that own little black boxes.

The reality of it all is the market is not being bought based on any solid fundamentals.  It's being bought based on artificial stimulation thanks to the Fed.  The problem with buying stocks in such an environment is the carpet could be pulled right from underneath you if the Fed is forced to raise rates or stop spending.

At some point this is going to happen because inflation and/or a fiscal default will eventually make the music stop.

When it does is when you want to put your capital to work.  Fortunes were made in the early 1980's when people were able to buy Treasuries that yielded 20%.

No one will want to own stocks after the bubble bursts because of the destruction so great companies will be forced to raise their dividends in order attract investors. 

Credit bubble burstings also create incredible buying opportunities on assets like houses which will sell for a fraction of what they cost today.

Don't think for a second that the banks and the rest of Wall St don't see this coming.  Why do you think the banks are not lending and buying treasuries?

They are building capital for the same reason you are if you are sitting on the sidelines.   Always remember that every financial destruction creates incredible investment opportunities.  The key is to have the money available to take advantage of it.

I can't tell you when this will happen.  Timing the market is a fools game.  What I can say is restructuring is a virtual certainty at this point IMO..

The key right now is to just be patient and watch the fireworks.  You will be handsomely rewarded if you have te ability to sit back and wait.

Patience Grasshoppers

I know many of you are frustrated watching the markets recently.  It becomes very tempting to join the crowd of pump monkeys when you see irrational exuberance in the markets.

Here is an excellent reminder on investing from Howard Marks in a letter he sent out to his Oak Tree clients.  Howard reminds us that managing risk is as important as making returns on investments.  

The government is blowing another huge bubble via stimulus and zero interest rates.  We have seen this game over and over again in the past as Howard describes and it always ends in tears.

Huge hat tip to Zero Hedge for sharing this:

Open and Shut 12_01_10 -

Wednesday, December 1, 2010

The Truth

This clip says it all.  Please take a look:


"Buy the dip"

Frickin hilarious and so true:

ECB Bond Purchasing Speculation Pushes Stocks Higher

The Ponzi scheme rolled on today as speculation of ECB bond purchases rallied stocks:

"LONDON, Dec 1 (Reuters) - Bond purchases by the European Central Bank and growing expectations it could expand the scheme turned down the heat on the euro zone's higher-yielding sovereign debt on Wednesday and sent German benchmarks tumbling.

Irish, Italian and Iberian countries' bonds outperformed German debt, and the cost of insuring their debt against default fell, with some in the market anticipating the ECB would announce fresh details of bond purchases at its monthly policy meeting on Thursday."

My Take:

The world once again has been "saved" thanks to the magic of QE.  This time we get to see it Euro style.  It's not official yet but I can't see how they don't pull the QE trigger.

Europe will default if it doesn't.  As I warned yesterday, Spain, Italy, and Portugal's surging bond yields were about to take down the whole EU.

Defaults were imminent within a matter of weeks without a sticksave.  Of course, this solves nothing and only makes the world's problems worse.   Europe is going to spend more money that it doesn't have just like we have with QE2.

The markets of course loved the news because the music gets to keep playing.   I am sure the Fed has been calling the ECB all week and begging them to quantitative ease.

Folks, all I can do at this point is just shake my head.  I am speechless. 

Meanwhile back here in the states Rome continues to burn.  Mortgage applications fell off a cliff last week:

"(RTTNews) - U.S. mortgage applications dropped last weeks as refinancing activity continued to slump, the latest figures from a leading housing industry watcher showed Wednesday.

The Mortgage Bankers Association's weekly mortgage applications survey for the week ending November 26 showed loan application volume decreased 16.5 percent on a seasonally adjusted basis from one week earlier.

This week's results include an adjustment to account for the Thanksgiving holiday. On an unadjusted basis, the Index decreased 34.2 percent compared with the previous week."

Take Continued:

I can't even describe how bad this number is.  Without housing the economy and the banks are going nowhere.  Wall St doesn't seem to care as long as the bailouts keep rolling in.

The Bottom Line

I expect to see increased volatility in the markets over the next several weeks.  The ISM number was below expectations but the market was much more worried about Europe so the potential European QE was a pleasant surprise for the street.

The market has already priced in the "recovery" so we needed a new catalyst to create another huge buying spree in the casino and the ECB news certainly did the trick. 

Anytime Wall St hears the letters QE they automatically hit the buy button.  Wait, let me change that, the trading robots automatically hit the buy button.  There fixed.

I speculate that a lot of traders got caught offsides today as they went short after watching how bad Europe was deteriorating.  This likely exacerbated today's move higher.

Of couse this creates huge trading opportunities for the black boxes.

Once the market begins roaring higher the trading robots love to look for stocks that have large short positions.   Once they are discovered, the bots buy them with both fists.  The shorts are then left to be taken out to the woodshed and shot as a result.

I took no positions today and remain fully hedged from this insanity as I sit mainly in cash. 

Folks, violent moves like today are not signs of a healthy market.   The price action only validates my thinking that the stock market has been turned into a bubble making speculative mess that remains controlled by a very powerful few.

Be careful if you decide to jump into this shark tank and play with the sharks.

Tuesday, November 30, 2010

S&P Puts Portugal on Review for Possible Debt Downgrade

It looks like another one is about to bite the dust:

"Standard & Poor's Tuesday put Portugal's A-minus credit ratings on review for a possible downgrade, citing uncertainties related to a possible recourse to EU/IMF funding by the country.

"If Portugal does seek an external support program and if we believe private creditors will be subordinated to public creditors, or if Portugal's fiscal or growth prospects weaken further, we could lower the long- and short-term ratings," the ratings agency said in a statement."

My Take:

Portugal's Prime Minister is attempting to deny that it will ask for a bailout but it's too late at this point.  The bond market has spoken.

Portugal's yield soared today to over 7%:

Spain also saw yields on it's 10 year rise 7/10's of a point up to about 5.5%:

Portugal can say they are fine all they want.  The problem is you cannot afford to finance your government when you must pay a 7% yield on your sovereign debt.

The bailouts of Greece and Ireland allowed them to get their yields down into the 5% range which makes their government funding feasible as long as extreme austerity policies are implemented.

As you can see above, Spain is right on the edge of being in trouble as their yields hover in the "danger zone" of over 5%.

Italy is now close to entering center stage on the sovereign crisis map as this debt contagion spreads:

"Italian and Spanish government bonds fell, driving the extra yield investors demand to hold the securities instead of German bunds to euro-era records, as Europe’s debt crisis intensified.
The drop pushed the yield spread between 10-year Italian securities and similar-maturity German debt to more than 2 percentage points for the first time since 1997.

The Italian 10-year bond yield rose a sixth day, gaining three basis points to 4.68 percent at 4:34 p.m. in London, after reaching 4.88 percent earlier today. The 3.75 percent security due in March 2021 fell 0.26, or 2.60 euros per 1,000-euro face amount, to 92.89. The spread with 10-year German bonds increased to as much as 212 basis points, a euro-era record."

Take Continued:

As you can see folks this debt contagion is spreading like wildfire, and the world's financial system hangs in the balance as the EU and the ECB frantically try and contain it.  Like suprime, it remains unlikely that this crisis will ever become contained.

This is a very serious situation folks.

Anyone thinking of buying stocks at this point needs their head examined.  

One thing IMO is very clear right now as I look at the markets: Our trading robots over here in the US are NOT painting the correct picture as to how much trouble this crisis represents.

Just look at how erratic the trading was today on the ES:

This chart looks absolutely mangled.  The only way you would ever see this much choppiness was if you flew through a Category 5 hurricane in a four seat airplane.  The tape looks ridiculous and completely manufactured.  I will leave it at that because you guys know my thoughts on the market right now.

I will end with a chart of Bank of America:

Supposedly this is "the bank" that the Wikileak was talking about.  I wouldn't be surprised if this is true especially when I see the tape.  Of all of the TBTF banks, I think this one is in the deepest trouble because the worst of the group was backstopped(Citi).

Bank of America swallowed more garbage than a sanitation dump when the Fed basically forced them to eat Countrywide and Merrill Lynch.

This bank is definitely insolvent.  Keep in mind that Merrill reported a $20 billion dollar loss in the 4th quarter alone when it was acquired by Bank of America.

The Bottom Line

I didn't even get a chance to touch on the Case/Shiller number today which came in way below expectations.  Prices dropped .8% percent in Septemeber versus the consensus estimates of a  .3% percent drop.

Needless to say there is no surprise here on the miss.

Forget about housing at this point.  Stay focused on Europe folks.  This is as serious a situation as the Lehman collapse was in 2008. 

Try and ignore all of the noise in the stock markets right now.  They are not representative of what is going on in the world markets. 

Stay focused on the bond market and currencies.  They will guide you much more intelligently than the manipulated stock market that's filled with nothing but speculative robots that hold positions for seconds at a time.

Disclosure:  No new positions held at the time of publication.

When Nothing Makes Sense Buy Gold

That's what I see this morning.  Gold continues to rise despite a dollar that continues to scream higher:

Here is the rising gold chart:

Here is the US dollar:

My Take:

Since the open the dollar has pulled back a bit, but if you look above you can see that the spike in gold occured at the same time the dollar was at it's strongest.  Let me put up one more chart.

Treasuries are also soaring this morning.  Let's take a look at the 10 year bond:

The Bottom Line

Translation?  People are scared ****less and have no clue where to put their money.  They don't trust any currencies, they don't trust stocks, and they don't trust Wall St.

As a result. investors end up going back to "old school" flight to safety investments like gold, bonds, and cash.

The Eurozone mess continues to worsen.  The trading robots have managed to control the pain over here thanks to some better than expected Chicago PMI and consumer confidence numbers.

The way I see it, a confident consumer is not a positive in this environment because about 20% of them are jobless.  The fact that they are spending(and the data is starting to show this) and not saving is pretty horrifying when you think about it.

When TSHTF these people will be wandering the streets homeless wondering how this all happened.  I find it sad that the majority of the people in this country are so stupid.

The elite continue to dangle consumer carrots in front of the serfs and they continue to take the bait using their unemployment checks and what little left they have saved.

Anyone with a brain should be hoarding cash right now.  The debt bubble freight train is heading right at us full speed ahead and there is nothing we can do at this point to stop it.

Europe will go down first and we will quickly follow them.  I am loving this huge move higher in treasuries.  Once the PIIGS go down US bonds should be at near all time highs.

This will create the short of the century as we get targeted next.  Remember folks, we are Greece, but risk is relative so our bonds and currency should fare well as the European crisis plays out.

Don't be fooled when this happens because once the PIIGS are done getting  torn apart we are next.

Monday, November 29, 2010

Robot Rally Monday!

Wow, what a day.  Folks, I lose more and more confidence in the stock market with each trading session.  Stocks rallied hard in the afternoon after plunging this morning as the European debt crisis continues to unravel.

I was really surprised by the late day stock market rally.  The only plausible reason the  market rallied this afternoon was a result of more cheap POMO money from the Fed. 

Let's take a look at today's tape of the S&P futures.  I wanted to use the ES today because I want to discuss the volumes seen at the bottom of the chart:

My Take:

Personally, I don't believe today's pump was mainly POMO related.  In fact, recent POMO's suggest that POMO is starting to lose it's MOJO as the Fed's cheap funny money liquidity becomes overwhelmed by scared market sellers who see Europe on the brink of a catastrophe.

The problem we have today is the market becomes much easier to manipulate when the volumes are anemic and dominated by trading robots.  The lack of participation from the public due to a lack of confidence in the markets has made them very vulnerable to the volatile price action like we saw today.

Let's get real here:  There was no real fundemental reason for the market to rally.  The European markets closed at their lows.  The debt crisis continues to spiral out of control.

One might suggest that today's rally was a result of money moving out of Europe and into the US.  Perhaps, but the move higher wouldn't have been so violent and late in the day.  The European markets were closed by the time the rally started.

IMO, this afternoon's move higher has trading algo manipulation written all over it because it was so fast and violent.  The way I see it, once the buying got started, it triggered a series of buy orders by the robots who are all basically programmed to look for the same price action.

Once the S&P recovered to a specific level they began selling and taking profits.  This is proven by the huge spikes in volume at the end of the day.  Scroll back up and take a look at the bottom of the ES chart at both the beginning of the afternoon rally and then look at the ensuing spike right before the market closed as the robots took profits.

The volume was non existant after the intitial sell off for the whole day until the violent reversal.  Why did everyone start buying and then later selling the market all at once within minutes of each other? 

If this were individual human investing you would never see such coordinated buying and selling at the same time like this.   You would see a more slow and steady increase in volume as traders started sniffing out a rally.  These violent moves prove to me that this whole market is nothing but a computer generated sham.

Seeing any rally following what happened in Europe today is ridiculous from a fundamental standpoint:

The 10 year Spanish bond remains in a virtual free fall as the bond market continues to sell off their debt in an attempt to force the EU's to play it's hand when it comes to a Spanish bailout:

I don't see this sell off ending anytime soon until Spain and Portugal are dealt with by the EU,IMF, or the ECB.  The problem of course is Spain.  If they go down we are all in deep trouble.  Their economy is larger than Greece, Portugal, and Ireland COMBINED.

Good luck backstopping that!

Here is something else that is beginning to worry me.  Below is a chart of oil prices:

One must ask themselves why oil is surging as the dollar continues to strengthen?  We all saw what happened to the consumer in 2008 when oil started getting up close to $100.

Gas was once again over $3 a gallon when I filled up today.   Oil might become the Grinch that stole Christmas if this trend continues.

The Bottom Line

The market continues to become more and more erratic.  I have zero confidence in what is going on at this point.  All of the POMO funny money and zero interest rates have turned the markets into a chaotic mess.

Europe is an absolute disaster.  Keep in mind that Ireland has to get their budget approved next week by the countries Parliament.  You can be assured that there will be angry masses that will attempt to get this bailout blocked.

The Irish realize that this is a bailout for the bankers and not Ireland that they are being forced to pay for.  The Irish have a history of violence when they feel they are getting screwed. Stay tuned on this one.

Keep an eye on Spain and Portugal the rest of the week.  The way I see it, the Irish bailout will settle things for days or perhaps a few weeks before the rest of the PIIGS have to be addressed.

I'll end this with an excellent video that discusses this very topic:

European Debt Panic Intensifies

Stocks plunged this morning as the markets continue to worry about the European debt crisis.

The Financial Times chief economic commentator Martin Wolf chimed in this morning with his take on how this crisis could spread across all of Europe minus Germany.

The cost of protecting Portuguese and Spanish debt soared to record highs on the news of the Irish Bailout:

"The cost of insuring against default on Portuguese and Spanish government debt soared to record high levels as an aid package for Ireland failed to reassure investors the region’s debt crisis will be contained.

Credit-default swaps on Portugal jumped 36.5 basis points to 538.5, and contracts on Spain climbed 24.25 to 347, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 6 basis points to a record 194, based on closing prices."

My Take:

The terms of the bailout are flat our ugly for the people of Ireland.  The austerity plan that will be implemented to pay back these debts is brutal and it includes a provision where they will raid their pension funds:

"EU ministers tonight spelt out the terms of Ireland's €85bn international financial rescue package, and revealed the Dublin government will have to raid its national pension fund and other cash reserves for €17.5bn as a condition of the deal to bail out its banks and debt-laden economy.

The unexpected contribution from Ireland was demanded at a hastily arranged meeting of the eurozone's finance ministers, who were desperate to secure a deal before the markets open tomorrow."

Take Continued:

One must seriously ask themselves if the Irish people are going to take this sitting down.  Essentially, the banks destroyed the country financially and the people are left paying the tab.

Using the pension funds to pay off debt would be no different then the USA raiding our 401k's to do the same if we were in Ireland's shoes.  Don't think that could happen here?  Think again.

I would have told the EU to go screw themselves if I was Ireland.  This was not the people's fault so why are they forced to pay for it?  Every banker that was involved with this blatant fraud must go to jail.

I am seriously afraid that social chaos could break out in Ireland as they suffer through a wicked depression in order to pay off these debts.  I also wouldn't be surprised to see some type of revolt against the government as a result of this debacle.

The Bottom Line

Europe finds themselves in a full blown debt panic.  The bond vigilantes are trying to force the hand of the EU by punishing Portugal and Spain's debt.

They are demanding answers from the ECB/EU because the problems in these two countries look to be the same as Greece and Ireland.  The problem here is the money isn't there to bailout Spain's trillion dollar economy.

Debt contagion is ugly when it starts to unwind, and I don't see a way out without massive debt restructurings.  If Spain goes down, then I believe the Euro is in deep trouble.

Stay tuned folks.  These are very serious problems. 

The threat of political and social chaos also loom large as the people of these countries realize how badly they have been screwed by the bankers and the politicians.

Sunday, November 28, 2010

Howard Davidowitz on the PIIGS

Restructuring specialist Howard Davidowitz did another excellent tech ticker on the European debt crisis. 

Howard believes that we're next once the PIIGS all get taken down.   He also predicts that there will be a flight out of the dollar within 2 years as a result of our moronic fiscal behaviour:

Chris Whalen Presentation

Do yourself a favor and take an hour out of your day and watch this.  Cris Whalen is the co-founder of Institutional Risk Analytics.

Chris is one of the most respected analysts out there, and he does an awesome job describing where we are now and where we are headed when its comes to finance.

Whalen believes we are only 25% through the foreclosure mess because the banks refuse to take the losses on their bad loans because they don't have to thanks to the Fed's "extend and pretend" games. 

Some of the statistics he shares below are stunning.