European Debt Pandemic spreads

MarketWatch reports that late Monday night European finance ministers said,

“they are ready to adopt further measures to ensure Greece’s sovereign debt crisis does not spread to other parts of the European Union.”

Hello? These people need to get out more and inhale less of their own fog of lies. This isn’t any longer a “Greek sovereign debt crisis”, it’s a European sovereign debt crisis. The bond market isn’t sitting there every day looking at Greece only. They are already looking hard at Spain and it’s debts and at Italy.

Certainly Greece is a pressing concern for the bond markets. But fix Greece and the European debt crisis will NOT go away. It will recede, like sea recedes in between waves as it sucks back for the next one.

The Tide is what counts here people not the waves.  And the tide is coming in.

Bourses across Europe are staggering this morning. Paris is down 2.3% Frankfurt 2,2% (10.39 GMT). Spain and Italy had both fallen into a pit this morning. Straight down.  Then they both started to rocket up.  This rally was not, I don’t think, just a relief reaction to the Finance Minister’s statements about doing whatever was necessary to help Greece. That was old news when the markets opened.  Of course the markets will rally if they think the  Ministers are going to break all their rules and bail out Greece by any and all means as seems likely they now will.  I believe what we are seeing in Italy particularly and perhaps in Spain as well, however, is a concerted effort to prop up shares and Bonds by buying them hand over fist internally. I think we will find that the word went out in Italy to Italy’s banks and regions “BUY” and buy now.  I think the rally is an exercise in nations propping up the share values in their banks by buying them.  Which means it is not a reflection of the broader market and is not sustainable over the longer term. It is a losing player doubling down to try to bluff his way through.

I don’t think it will work.

It won’t work for European reasons and for international reasons.  Europe-wise I think it’s a matter of critical mass. A while ago Greece and Ireland had fallen over the cliff but there was the rest of Europe still on firm ground roped to them pulling them up. Or at least not letting them fall further. They were dangling there in the wind while those on the other end of the rope argued about how to pull them up, what price they should demand, with the occasional German voice cutting through the hubbub saying “shit, just cut the rope!”

Now the situation has deteriorated. While they were all arguing the ground under two more of the ‘team’ gave way and Italy and Spain if not actually over the cliff are scrabbling on the loose soil at the edge and are certainly no longer part of the team doing the heavy lifting to save the day.  UniCredit is down again today 8%.  Once a slide happens the danger is that it picks up speed.

The balance has shifted and may have passed the critical point where those needing saving are heavier than those still holding the rope.  Over the next three years Spain needs to find (to refinance present debt and fund new debts) around €380 Billion while Italy has to find about €630 Billion. Neither can do this at the rates they are now looking at.

That’s the situation in Europe.

Beyond Europe, people need to take a look back at China.  There are major and ominous signs over there which ZeroHedge has been keeping an eye on. Two things raise red warnings for me. First the SHIBOR, which is the equivalent of the LIBOR over here. They are the rates banks charge each other for short term borrowing. They are a measure of liquidity and confidence that banks extend to each other.  Remember how in the 08-09 crisis here the libor froze up and there was no funding. Well the Shibor is showing the same signs of confidence drying up.

The Shibor rate, what banks charge each other, doubled recently. The spike was not as big as in ’07. We’re not there yet.  And some are saying this isn’t a crisis but a ‘re-adjustment of rates’. Uh huh.

I would believe that more is not for the second piece of news.  The Chinese Central Bank just held an auction for 50 billion Yuan Regional Government Bonds/debt. It could only sell half.  There were no bidders for the other 23 billion or so despite the fact that there were 59 bidders required  to bid. Those bidders are mostly the big Chinese banks and financial houses. The banks who only last week I was telling you had a new train load of their own bad debts which were going to have to be be buried on another gov. funded unmarked grave somewhere.

If local government’s can’t sell their debt and the banks won’t buy it this does not speak of confidence and liquidity does it?  The banks are in their own world of stupid, with their own bad debts and guess who the defaulters are? The local governments and the projects they have funded. Oops.

Things are not looking dynamic and stable over there either. So don’t expect the Chinese to take a hand on the rope from which half of Europe is now dangling.

Greek debt crisis? No. Spreading Euopean debt pandemic is more like  it.