Sorry for the silence.
There is a growing feeling of unease and expectancy around. The markets have tried 3 or 4 times to rally and failed each time. Today was a triple digit rise followed by losing it all and ending down. The markets need a bigger, more convincing peice of news to make-believe with. And what is also conspicuous, is how the end of day pump is not as regular as it was a few months ago.
Anyway, I have been watching and thinking and here is the result.
There are only two acceptable ways out of the situation the governments have got themselves into – Growth or borrow/print. I leave aside my own solution as it is NOT acceptable to them or the their banker friends.
Growth is obvioulsy the one they want. Growth was touted today as having jumped 9% from April last year, in Euro land. The Markets shot up. Growth in Euro land is essential not only to the European core but also to Poland Czech Republic and Hungary who HAVE to export to us. If we don’t grow they will contract. And if Hungary has to face contraction on top of its debts, then it WILL default.
Two problems with this bit of growth spin. Yes there was growth but it has already very probably tailed off. As should become apparent in a month or so when data from May and June slithers into view.
Second problem with 9% from last April is it’s like a drowning man surfacing for a gulp of air. Sure, its a whole lot more air than he had in the last 4 minutes. But is he going to go straight back to drowning? My guess is, yes, he is. And aparently that’s the market’s guess too. Hence the sell off.
And what is he drowining in? The same as its been for the last two years -debt.
Debt is getting worse not better. Theere is more of it surfacing like corpses in floodwater.
Moody’s downgraded greek debt to junk. There is nothing below junk but default. The ONLY buyer of Greek debt is the ECB. The ECB has been buying crap, worthless debtand getting away with it (without killing the Euro) because the markets believed albeit tentatively, in European growth. As soon as they no longer believe, and tha may be now, then the ECB’s junk debt purchases will start to poison the Euro and the ECB like septacemia.
But more damaging, to my mind at least, is the situation in Spain. Spanish banks cannot borrow in the markets. This is a problem that can not, will not wait for grwoth. Spain’s banks, the Caja’s, are acutely short of cash. The mergers were about hiding debts but did little to help with funding. And they all need it. The only place they can get funding is from their central bank which in turn is reliant on the ECB.
I do not believe the Spanish debt austions have been the rave success they were claimed to be. Imthink they were a fix. A german paper today claimed the EU was preparing a rescue package for Spain – in the envent it would need to call on it. The Spanish denied it immendiately. Just like Greece did some months ago.
They will need it.
The banks are already raising their voices to urge the ECB to monetize all of the Greek debts held by the big European banks AND to buy all the debt needed to fund the Spanish banks over the next 3-6 months. One consultant urged the ECB to use its full 750 Billion Euro bail-out fund to create and EMF (European IMF) to monetize all the debt. And what I nearly choked on, was how it was described as not allowing a sovereign problem to become a bank problem. Neatly inverting reality to suite the financial world. This is a bank problem which is creating sovereign problems. If we try to monetize these bank debts then we really will have a sovereign-implosion chain reaction. Let the banks go and we will have a bank chain reaction.
The louder their ‘advice’ to bail-out gets, the closer you’ll know we are to the next big fall.