Monthly Archives: May 2012

11-May (AP) — Greece’s wrangling politicians were locked in last-ditch efforts Friday to form a coalition government, with chances of a deal appearing slim and the country’s future in Europe’s common currency at stake.

Voters on Sunday punished both main parties, the conservative New Democracy and socialist PASOK, for their handling of the country’s protracted financial crisis, deserting them for a myriad of smaller parties on the right and left. The result left a hung parliament, with no party able to form a government.

Hopes for a deal between election winner New Democracy and third place PASOK with the small Democratic Left party of Fotis Kouvelis suffered a setback Friday when Kouvelis insisted he could not participate in a government with just the conservatives and socialists.

“We have made our position clear. In a government with (only) New Democracy and PASOK, we will not take part,” Kouvelis said.

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PG View: Last weekend’s elections were so loved by the markets…it’ll be really fun to do it again in several weeks. The latest polling in Greece shows a new election would garner even greater support for anti-bailout Syriza party. Yeah, that’ll be real fun…

11-May (Financial Times) — Spain is to force its banks to set aside a sector-wide €30bn of new provisions against real estate loans or take expensive government aid in the country’s latest attempt at restoring confidence in the stability of its financial sector.

Spain will also use two independent valuations of banks’ balance sheets, as requested by the European Commission, dealing a blow to the Bank of Spain, which has been attacked by the ruling Popular Party for its supervision of lenders during the crisis.

Spanish banks will be asked to split out their real estate-related loans into separate entities, allowing them to be then sold off at market prices, Luis de Guindos, finance minister, said on Friday.

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PG View: If they were to truly mark those real estate assets to market, they will quickly find that €30 bln is not nearly enough. Bandaids and half-measures remain the order of the day…

08-May (Financial Times) — Markets are repeating the downturns of 2010 and 2011, and it is time to search for safety, Gluskin Sheff’s David Rosenberg tells James Mackintosh, FT investment editor. That means gold eventually reaching $3,000 an ounce, and bonds remaining appealing even at rock-bottom yields.

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MK comment: Not sure if the two events are linked but here’s something that was reported back in April originally by Bloomberg:

April 9, 2012
Economic Times/Bloomberg

“A JP Morgan Chase & Co trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the $10-trillion market, traders outside the firm said.

The trader is London-based Bruno Iksil, according to five counterparts at hedge funds and rival banks who requested anonymity because they’re not authorised to discuss the transactions. He specialises in credit-derivative indexes, a market that during the past decade has overtaken corporate bonds to become the biggest forum for investors betting on the likelihood of company defaults.

Breaking…………

“Shares of J.P. Morgan Chase & Co. JPM -5.89% dropped after the bank said in a regulatory filing late Thursday it had “significant” mark-to-market losses in its synthetic credit portfolio. Shares fell 4.5% to $38.87 in after-hours activity. In a Securities and Exchange Commission filing, the bank said its synthetic credit portfolio had proved to be riskier and more volatile than expected.”

MarketWatch

MK comment: Sound familiar? Think Bear Stearns, early 2008.

10-May (Financial Times) — Wolfgang Schäuble, German finance minister, has given vital political cover to the Bundesbank, speaking out in support of the idea that Germany could tolerate a rate of inflation above the eurozone average.

Making a rare exception to the rule that Berlin does not comment on central bank policy, Mr Schäuble declared that price rises “in a corridor between 2 and 3 per cent” would be “tolerable” in Germany – slightly above the European Central Bank’s target of keeping average inflation across the eurozone at close to but below 2 per cent.

His statement followed comments before a parliamentary committee on Wednesday by a Bundesbank official, who cautioned that the eurozone’s largest economy might face “an inflation rate somewhat above average” as the likes of Greece and Portugal squeezed prices and wages to regain competitiveness.

Mr Schäuble’s comments seemed aimed at helping prepare an inflation-averse public for higher price rises to counter the deflationary effects of restructuring policies on the eurozone’s periphery.

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PG View: The sudden German tolerance for above-target inflation is likely reflective of just how dire the situation in Europe has become. Perhaps it’s just a false flag to lend support to the market, while the Greek political crisis sorts itself out…if that’s even possible. If however, the tolerance is legitimate; can the inflation inducing policy be far behind?

10-May (Der Spiegel) — Germany’s central bank has indicated it may tolerate higher inflation in Germany as the price of rebalancing economies within the euro zone. The move marks a major shift away from the Bundesbank’s hardline approach on price stability. Economists have hailed the decision as a “breakthrough.”
Info

Inflation is a political hot button issue in Germany, where the hyperinflation of the early 1920s has not been forgotten and many people still have a deep-rooted fear of their money losing value. Now Germany’s central bank, the Bundesbank, has made waves with signals that it is willing to tolerate higher inflation.

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