Chillin' out till it needs to be funded
The day has started well with the Ira Sohn conference giving a lot of hope to ideas floating around in my head since that jump began last year, but then Jobless claims seem to have kidnapped good news baselines to 370k this time than going below the 350k as looked likely ( even as the Great white hope) when the S&P was scaling up the 1350 mark and higher.
Thursday’s bond auctions in Spain went well with Spain raising nearly 2.5 bln Euros but the yields jumped 50% higher to above 4.3% for the bonds maturing July ’15 and ’16 The demand was three times higher than the amounts on offer but at the higher yields.
Election years apart , austerity based Euro discipline has already claimed a few victims as hedge funds countdown to a out of cash Greece. there is a presentation out there by Variant Perception which you should brose through depending on your love for detail as John Mauldin(http://www.johnmauldin.com/) explains that currency break ups have happened near 69 times this century from Colonial examples to the Czech-Slovak break up just miles out of Athens and the most recent examples of Venezuela and others that either exited currency areas or large countries and currency areas breaking up.
A Greek exit fromt he Euro is however not the option recommended by the Greek populace bu tausterity led fiscal corrections have run into hot water as higher than expected degrowth means lesser capacity to service debt and thus a negative spiral based on austerity alone. Some have commented on how italy’s probable ( improbable) exit from the Euro would be curtains for the banking system but with most sovereign debt locally issued in the covenants they can easuily be converted to local currency debt and similarly for bank debt that has not been borrowed from outside the country leaving negaotiations between ECB and the defaulting/leaving nations key to the degree of disorderliness in the default if any, and likely to be half as chaotic as the current media coverage of the European Union
The paper also covers how local currency can be issued and older Eros phased out as required in the new regime and can work as a primer for rating agencies too, out to confuse the public confusion with fiscal default to gain back their currency int he Financial markets where their current downgrades of banks and bond issues have been taken with a pinch of salt helping banks maintain existing collateral requirements and thus solvency. meanwhile Greek banks are likely going to raise local debt from the Greek National Bank without ECB intervention and avert any issues with recapitalisation but with Deposits continuing to flee Greece and the new government uncertain Greek exit is still an option for the euro zone to stabilize itself on an even keel.
The Facebook IPO is well headed to a $19.5 B helping it to overtunr the highest Watermark set by Visa later today (http://advantages.us/2012/05/16/the-deal-economy-new-numbers-for-the-facebook-ipo-deal-insight/)
A look at Einhorn’s Greenlight Capital (http://advantages.us/2012/05/17/beat-the-new-einhorn-short-the-retail-lifestyle-stars-fund-insight/)
and The inevitable squeeze on JP Morgan and the trading losses at Goldman Sachs (http://advantages.us/2012/05/17/trading-losses-to-hit-goldman-sachs-again-banking-insight/)
Meanwhile the US continues to look at a new hope for recovery in the Housing crisis as foreclosure rates fall to their lowest in California and Arizona and refi rates keep up the ongoing boom if only for the ongoing contraction in Purchases. the philly Fed Survey will likely confirm the Empire State Fed index’s confirmation of the better production while US production stats are showing a more than 5% growth in the latest Fed report and witht he Euro headed down , the US Dollar and the US Economy are looking up again! Also Asia joined in with good GDP growth numbers as Japan and Singapore reported (Asia Economy: Singapore, Japan GDP growth tracks positive reversal in fortunes)