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Stocks tank as Europe gets clobbered
6 September, 2011
The market was down, but it could have been A LOT worse..
First, the scoreboard:
Dow: -99.64
NASDAQ: -5.38
S&P 500: -8.60
From the previous day (5 September)
Italy -5.3%.
Germany -5.5%.
France -4.9%.
Athens -3.1%. That index is now down about 50% since March.
Greek 2-year yields blew past 50% for the first time.
Meanwhile, banks are getting destroyed.
Deutsche Bank if off over 8%.
Credit Suisse is down 8.8%.
Italy's UniCredit is off 7.4%.
And now, the top stories:
• The "day" arguably started last Friday, right around 4:00 PM ET, when the FHFA unveiled its big slate of lawsuits against 17 banks for fraudulent sales of mortgages to Fannie and Freddie during the housing boom. All told, the FHFA (which regulates Fannie and Freddie) sue over $191 billion worth of securities, with Bank of America and JPMorgan bearing the largest brunt. Click here for a complete guide to the lawsuits
• Then, over the weekend, it was all Europe news. Italy seemed to go in the wrong direction on Austerity, and the news became very grim on Greece's odds of securing a second bailout. Proof that this is totally up in the air is the fact that 2-year Greek debt now yields over 50%, compared to ~30% back this summer when the bailout plan was first announced with much fanfare.
• On Monday, while the US was closed and celebrating the last day of Summer, European markets got slaughtered with yields soaring, and equity indices falling over 5%. Meanwhile, the various national governments continue to dither when it moving forward, with Germany being the big one with a vote coming on September 29.
• Then today, the bombshell: At 4:00 AM ET, The Swiss National bank intervened in a MASSIVE way to weaken the Swiss Franc. Specifically it announced a hard floor of 1.20 for the Euro against the Swiss Franc. In a year that's seen tons of mini, half-hearted moves and partial interventions, this absolutely took the cake. The Franc instantly plummeted by over 8% against both the Euro and the dollar. Meanwhile, the euro itself initially did a dance of its own, surging at first against the dollar, only to collapse not long after. Click here for more analysis and ramifications of the peg from Citi's Steven Englander
• In terms of equity market reaction, stocks perked up initially after the SNB, then slid hard, especially in Europe.
• In the US, the selling was swift in the early going. The Dow opened up with a decline of about 270. At 10:00, non-manufacturing ISM came in surprisingly strong, and stocks bounced on the news, but then that mini-rally faded.
• And it was pretty ugly until mid-day. But when Europe finally closed, US stocks caught a bid, and in the end it turned into a pretty modest decline.
• And actually you could argue that it was an extremely big up day because US markets ended well above where US futures traded yesterday. Even financials didn't do THAT badly. Bank of America lost 3.4%. Goldman Sachs loss 2.3%.
• So, final tally: Big comeback in stocks (though still down), a solid rally in the dollar, and carnage in the Swiss Franc.
• Meanwhile, the cuts to S&P earnings estimates are beginning.
Athens, Rome Hold Europe to Ransom
The view from Wall Street - how about this for a headline? - “Banksters hold Europe to ransom”
5 September, 2011
Europe is engaged in a high-stakes game of brinkmanship that poses grave risks to the global economy. At last weekend's Villa d'Este Forum in Italy, European policy makers didn't hide their fury at Greece's back-sliding over promised structural reforms and spending cuts. At the same time, Italian ministers undermined the remaining credibility of Silvio Berlusconi's government with a series of complacent speeches. Given such a dangerous breakdown in trust within Europe, investors are right to fear the worst.
Germany and its Northern European allies believe only intense market pressure can force weak economies to cut spending and improve competitiveness. But Greece has learned that whenever the crisis in Europe's periphery threatens to overwhelm the core, Europe will ignore previous broken promises and step up with a fresh bailout.
Italy now appears to be making the same calculation. The government insists it will fulfill its commitment to balance the budget by 2013, but ministers show no appreciation of the urgent need for structural reforms to address the chronic weakness of an economy that grew on average 0.3% between 2001 and 2010 and experienced a 25% increase in unit labor costs relative to Germany over the same period. Instead, they talk incessantly of euro-zone bonds as a solution to misfortunes they blame largely on external forces.
But Italy's dream of euro-zone bonds is likely to remain a fantasy until trust between member states is restored. This no longer depends simply on implementing austerity budgets. Structural reforms have now taken center stage because they are a test of whether the euro zone is worth saving at all: If countries refuse to improve competitiveness, then any attempted solutions to the immediate sovereign-debt crisis will prove short-lived.
So what can be done about Greece and Italy? Athens rejects accusations it is dragging its feet but has promised to use a 10-day hiatus in talks with the European Central Bank and International Monetary Fund over progress toward its bailout targets to speed up reforms. If it fails to deliver again, European policy makers now talk darkly of a total loss of fiscal sovereignty. How this might work in practice isn't clear.
As for Italy, some now believe its best hope lies with the ECB, which last month threw Rome a life line by agreeing to buy its bonds. If the ECB were to stop buying bonds, the subsequent rise in yields might bring down Mr. Berlusconi's administration, paving the way for President Giorgio Napolitano to appoint a technical government with the constitutional authority to make tough decisions. Then, at least, the long process of rebuilding the credibility of the euro zone's third-biggest economy could begin in earnest.
Analysis: Pension funds in new crisis as deficit hole grows
Kiss your pension goodbye.
Because they are part of the global ponzi scheme they will evaporate before your eyes.
5 September, 2011
Pension funds in developed economies are facing a new crisis as falling equities and tumbling bond yields widen their deficits, threatening the incomes and retirement dates of future retirees.
At the heart of their problems is a steady move by pension plans in the United States, euro zone, Japan and the UK to cut exposure to risk after the financial crisis.
For article GO HERE
Chancellor George Osborne: UK 'ahead of the curve' in reducing deficit
George Osborne launched a spirited defence of the Government's austerity plans on Tuesday night, insisting they were Britain's only chance of sustainable recovery despite a worsening short-term outlook.
The Chancellor said the Coalition had been "ahead of the curve" in its bid to reduce the bulging deficit, adding that he would not be steered off course regardless of the views of his critics.
He added that the economic turmoil meant that “we all had to revise down our short-term expectations” on growth but insisted he would not be steered off his deficit reduction course.
For article GO HERE
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