Flashman Letters

A Grab bag of bad news for Spain - This is getting tiring....

LSE Professor Paul De Grauwe accused the ECB of cherry-picking treaty clauses to justify inaction and failing to carry out its crucial mandate of financial stability. “They should buy Spanish and Italian bonds to cap yields at 300 basis points over Bunds, and let the lawyers argue about it for the next ten years,” he said.

Eurozone data released on Wednesday show that private credit and all key measures of the money supply contracted in April, suggesting that ECB’s €1 trillion liquidity blitz over the winter has failed to gain traction.

Guy Mandy, credit strategist at Nomura, said the ECB has lost sight of the big picture and risks losing the euro altogether if if fails to restore basic confidence. “They need to weigh up events on a grander scale, stop worrying about moral hazard, and do the job of a central bank,” he said.

Academic Wonderland and a Lesson on Moral Hazzard

LSE professor Paul De Grauwe is a complete fool trapped in academic wonderland.

If the market thinks the yield of Spanish and Italian debt should be greater than a 300 basis point spread to German bunds, then the ECB would soon be the proud owner of 100% of Spanish and Italian debt.

via globaleconomicanalysis.blogspot.com.es

Exactly...

Then there is the question of whether it is irrational to vote for Syriza. Let us assume that if Syriza forms a government with like-minded parties, and refuses to implement the current austerity programme, Greece is somehow ejected from the Eurozone. Knowing that this is a likely outcome, is it irrational for Greeks to vote for Syriza?

I’m not so sure.

If they vote for the two parties that have brought Greece to this sorry state of affairs — and why on earth would they? — then what is the likely outcome? The programme continues, and what Greece has lived through for the past few years continues for the next few years. This would offer zero hope for ordinary Greeks; no prospect of anything changing in the foreseeable future which might improve their lives. And in the end the strategy will probably fail, anyway.

If they vote for Syriza, perhaps Greece will leave the Eurozone. In that case, what happens? There is the certainty of a major economic crisis in the short run, but then what? Some commentators argue that the result will be hyperinflation. Given that the Greek primary deficit is very small, I am puzzled by the certainty with which this prediction is sometimes made. I suppose there is a certain probability of a very bad outcome like this occurring, but the probability is surely much less than one. On the other hand, there is also the possibility of default and devaluation leading to a recovery in two or three years. Again, the probability of this scenario occurring is less than one, but it is surely rather greater than zero.

And then there is the possibility that the Europeans will blink, and that the Greeks will get something like their preferred solution. I think this probability is vanishingly small myself, but perhaps I am wrong.

So, Greek voters can do what Europe’s elites are now urging them to do, and vote for the two establishment parties. In this case, they know with certainty that nothing will get better, and indeed that things will continue to get worse. Or, they can roll the dice. I don’t think it’s irrational for them to roll the dice. And thankfully, they seem to be gambling on Syriza, not Golden Dawn.

Of course, with a certain probability, which may be less than one, but is certainly much bigger than zero, a Greek Eurozone exit will lead to financial chaos elsewhere, and possibly even the collapse of the single currency. But that will primarily be our problem, not a problem for Greek voters.

via www.irisheconomy.ie

Spain at the back of the grid and this is pre austerity.....

Output fell at a substantial pace that was the strongest in more than three years as the rate of decline quickened for the fourth successive month. Where production decreased, respondents attributed this to declining new business.

via ftalphaville.ft.com

"The End Game: 2012 And 2013 Will Usher In The End" - Someone woke up on the wrong side of the bed. Click to link for Full Presentation

• We don’t know exactly what is to come, but we can all join the very few dots from where we are now, to the collapse of the first major bank…
• With very limited room for government bailouts, we can very easily join the next dots from the first bank closure to the collapse of the whole European banking system, and then to the bankruptcy of the governments themselves.
• There are almost no brakes in the system to stop this, and almost no one realises the seriousness of the situation.
• The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives…
• Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations
• From an EU crisis, we only have to join one dot for a UK crisis of equal magnitude.
• And then do you think Japan and China would not be next?
• And then do you think the US would survive unscathed?
• That is the end of the fractional reserve banking system and of fiat money.

• It is the big RESET.

It continues:

• Bonds will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
• The whole bond market will be dead.
• Short selling on bonds - banned
• Short selling stocks – banned
• CDS – banned
• Short futures – banned
• Put options – banned

• All that is left is the Dollar and Gold

It only gets better. We use the term loosely:

• We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses.
• Spend your time looking at the risks of custody, safekeeping, counterparty etc. Assume that no one and nothing is safe.
• After that…we put on our tin helmets and hide until the new system emerges

via www.zerohedge.com

La mejor carne del mundo, en El Capricho

Por ello, les animo a peregrinar a Jimenez de Jámuz. Un oasis cárnico donde encontrarán además una excelente bodega y un servicio muy atento. No se despisten en su comanda: céntrense en las carnes y la cecina, de gran profundidad mineral. Y no olviden, queridos golosos, cuando se encuentren en las laberínticas cuevas de este templo del pueblo alfarero leonés, que la experiencia que estarán viviendo será culinaria arqueológica. Un legado que la siguiente generación no va a poder vivir.

 

EL CAPRICHO
Jiménez de Jamuz, León
987.664.227/4
15,5/20
60€
Vinos recomendados: Valtuille 2004 (DO Bierzo)

via www.vanitatis.com

Discorso Bruno Leoni 2012 - Tyler Cowen - Worth the watch

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via www.youtube.com

Director's Chair: John Mauldin - The European Debt Endgame- Click to Link - Totally worthwhile

Director's Chair: John Mauldin - The European Debt Endgame

by The Institute for... on May 30, 2012

In this five-part INET “From the Director’s Chair” interview, INET Executive Director Robert Johnson talks with financial commentator John Mauldin about Mauldin’s new book Endgame: The End of the Debt Supercycle and How It Changes Everything.

Mauldin says that we’re facing “a fundamental restructuring in Europe.” And what’s more, “it’s not just Greece.”  Mauldin suggests that Europe faces three fundamental problems: sovereign debt, insolvent banks, and trade imbalances. “All three have to be solved for Europe to be made workable,” he says.

Can Europe save itself?

via ineteconomics.org

How Political Clout Made Banks Too Big to Fail

Another reason that large banks are politically influential is that their demise can create a catastrophic disruption in the economy -- or so policy makers believe. Whether they are right is irrelevant.

Suppose a large asteroid is hurtling toward Earth and has a 5 percent chance of hitting us, creating $10 trillion worth of physical damage to the U.S. Should the president authorize a $700 billion mission to destroy the asteroid and stave off disaster? If you reason in purely statistical terms, the expected cost of failing to act (0.05 × $10,000 billion = $500 billion) is much less than the cost of acting.

But if the president spends the money to stop the asteroid, nobody will know whether it would indeed have hit the Earth, had he neglected to act. By contrast, if he does nothing, he has a 5 percent chance of going down in history as the president who knowingly failed to avoid catastrophe. Doesn’t the operation to destroy the asteroid suddenly look much more appealing? And, after all, the aerospace industry would be delighted to be paid to work on the mission. Perhaps because all of the experts would, directly or indirectly, benefit from the proposed mission, the public would start hearing that the chances of disaster are really 10 percent to 20 percent. With those odds, the $700 billion mission would make sense, both politically and statistically.

The circumstances that make policy makers succumb to the “too big to fail” doctrine are similar. An important difference, however, is that a Federal Reserve chairman’s resolve to bail out banks actually increases the likelihood of disaster, since the implicit promise to intervene has a perverse influence on the banks’ willingness to take risk.

via www.bloomberg.com

Biderman & Santschi On Europe's Delusions And Money-Printing Illusions

People need to stop expecting simple solutions" is how David Santschi succinctly describes to Charles Biderman the delusion that so many European leaders (and seemingly US and European investors) perceive our world. The prevalence of lying and delusion in Europe is what worries the TrimTabs' chaps the most - especially since in a Fiat money system (where money is backed by nothing but confidence) - with the people running the system lying on a grand scale, the chance of systemic failure are very high. He is careful to point out that this is not just a European issue, we in the US are just as delusional, but the European issues are simply more acute. Simply put, "losses have to be recognized honestly" and Biderman's bro' asks rhetorically "why on earth are we five years on still trying to bailout bondholders and banks so they don't lose money on their crappy debt - it's crazy." The two gentlemen of the Bay Area then describe why money-printing does not solve the problem as Europe faces solvency, not liquidity, problems (detailing exactly our thoughts on the fact that so many of the supposed solutions have/will fail and "there aren't any painless solutions to a debt problem". Avoiding all EUR-exposure, holding USD cash/TSYs short-term, and gold as a long-term insurance cover is how they suggest one is positioned. While the tone is less 'ranty', the content is just as pithy - six minutes well-spent for a summary of why Europe's (and the US) problems are far from over - no matter how much hope is placed in CB largesse.

 

via www.zerohedge.com

Spain faces 'total emergency' as fear grips markets - Telegraph

Mr Roberts said the collapse in Spanish tax revenues is replicating the pattern in Greece. Fiscal revenues have fallen 4.8pc over the last year, and VAT returns have slumped 14.6pc. Debt service costs have risen by 18pc.

The country is caught in a classic deflationary vice: a rising debt burden on a shrinking economic base. “Once you get into such a negative feedback loop, you can move beyond the point of no return quickly,” he said.

via www.telegraph.co.uk