Thursday, April 11, 2013
Sunday, April 7, 2013
EU Warns Portugal on Austerity Measures; Portugal Faces Fresh Spending Cuts; Second Bailout Coming Up
As expected, Brussels rejected the Inane Plan “B” Measure to Pay Workers in T-Bills following a Portuguese court ruling that certain austerity measures are unconstitutional.
Reuters reports Portugal must stick to agreed budget targets to get loan extension.
And so Portugal faces fresh cuts to spending.
Portugal’s prime minister says the government will have to cut spending on health, education and social security to keep the country’s €78bn bailout programme on track.Mr Passos Coelho said he had no alternative after the court decision but to make extra spending cuts that would have a significant impact on the welfare state. The budgets of state-owned companies would also be cut, he said but the premier ruled out more tax rises on top of record increases introduced in January.
“I have ordered ministries to cut expenditure to compensate for the effects of the court decision,” he said.
Mr Passos Coelho also faces a difficult task to convince international lenders that new spending cuts will keep deficit-reduction plans on target.
The decision by Mr Passos to cut spending on the welfare state is likely to intensify opposition pressure on the government to resign, potentially opening the way to an early general election.
“We have to do everything possible to avoid a second bailout,” the prime minister said.
Read that last line carefully. It is an admission Portugal is in need of a second bailout. One is coming up.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
EU Warns Portugal on Austerity Measures; Portugal Faces Fresh Spending Cuts; Second Bailout Coming Up
EU Warns Portugal on Austerity Measures; Portugal Faces Fresh Spending Cuts; Second Bailout Coming Up
As expected, Brussels rejected the Inane Plan “B” Measure to Pay Workers in T-Bills following a Portuguese court ruling that certain austerity measures are unconstitutional.
Reuters reports Portugal must stick to agreed budget targets to get loan extension.
And so Portugal faces fresh cuts to spending.
Portugal’s prime minister says the government will have to cut spending on health, education and social security to keep the country’s €78bn bailout programme on track.Mr Passos Coelho said he had no alternative after the court decision but to make extra spending cuts that would have a significant impact on the welfare state. The budgets of state-owned companies would also be cut, he said but the premier ruled out more tax rises on top of record increases introduced in January.
“I have ordered ministries to cut expenditure to compensate for the effects of the court decision,” he said.
Mr Passos Coelho also faces a difficult task to convince international lenders that new spending cuts will keep deficit-reduction plans on target.
The decision by Mr Passos to cut spending on the welfare state is likely to intensify opposition pressure on the government to resign, potentially opening the way to an early general election.
“We have to do everything possible to avoid a second bailout,” the prime minister said.
Read that last line carefully. It is an admission Portugal is in need of a second bailout. One is coming up.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
EU Warns Portugal on Austerity Measures; Portugal Faces Fresh Spending Cuts; Second Bailout Coming Up
Friday, April 5, 2013
Tuesday, March 12, 2013
Kyle Bass Warns "The "AIG" Of The World Is Back"
Kyle Bass, addressing Chicago Booth’s Initiative on Global Markets last week, clarified his thesis on Japan in great detail, but it was the Q&A that has roused great concern. “The AIG of the world is back – I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp – $ 5bn at a time… and it is happening in size.” As he explains, the regulatory capital hit for the bank is zero (hence as great a return on capital as one can imagine) and “if the bell tolls at the end of the year, the 27-year-old kid gets a bonus… and if he blows the bank to smithereens, ugh, he got a paycheck all year.” Critically, the bank that he bought the ‘cheap options’ from recently called to ask if he would close the position – “that happened to me before,” he warns, “in 2007 right before mortgages cracked.” His single best investment idea for the next ten years is, “Sell JPY, Buy Gold, and go to sleep,” as he warns of the current situation in markets, “we are right back there! The brevity of financial memory is about two years.”
Click the image below for the full presentation (unembeddable):
The main thrust of the discussion is Bass’ thesis on Japan’s pending collapse – which we wrote in detail on here, here, and here – and while the details of this thesis should prepare most for the worst, it is the Q&A that provides some very clear insights into just what is going on in the world.
Starting at around 50:00…
Bass On Immigration Reform in Japan – hailed as a solution to the demographic problem – Bass says “Ain’t gonna happen. They need wage inflation and this will not encourage that. It’s an untenable situation.” Summing up his whole view on Japan – “I just don’t think it can be fixed.”
Question: When you look today in the capital markets at the tactical asymmetry that exists among the various financial instruments to take advantage of cheap optionality – what is that instrument?
I’ll give you guys a bit of an idea… we don’t talk about exactly what
we do – we tell you how much we love coke but we’re not gonna give you
the formula.
The AIG of the world is back – I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp – $ 5bn at a time.
You know why? Because it’s outside of a 95% VaR, its less than one-year to maturity, so guess what the regulatory capital hit is for the bank… I’ll give you a clue – it rhymes with HERO…
If the bell tolls at the end of the year, the 27-year-old kid gets a bonus… and if he blows the bank to smithereens, ugh, he got a paycheck all year.
We are right back there! The brevity of financial memory is about two years.
I wouldn’t sell nuclear holocaust risk in Dallas for 1bp – you should be fired for thinking about selling something for less than 50bps.. and yet – this is happening again…
And it’s happening in huge size – huge – we bought half a trillion dollars worth of these ‘options’… and interestingly enough, one of the biggest banks in the world called me the other day and asked me if I would close my position – that was an interesting day for us – that happened to me in 2007 right before the mortgages cracked.
They said “we ran some new risk tests,” and I said “really?”
“Yeah, the new stress scenario is a little more punitive than the last one.”
“What is it?”
“Well, we don’t wanna share our proprietary secrets”
“Ok, then I am not closing it”,
and they said “woe woe woe.. in our old model rates stressed 50bps, in the new one they stress 400bps“
“Yeah, that would really hurt wouldn’t it”.
“Yeah, we’d like to close that one”
“I’d like to but I am not going to do that for you”…The point is - Why would they run a stress test like that? They are starting to realize! Who would have them run that stress test. It’s happening again.
Question: Do you buy guns, gold, neither, or both?
I don’t get paid to be an optimist, I don’t get paid to be pessimist, I get paid to be a realist – and a prudent fiduciary of the capital, and then if i have time I care about the social issues of the world.
If I am right, the social issues are going to be very difficult. I don’t think we devolve into anarchy and I do think the payment systems will continue to work but what they will pay with will be wumpum…
We will go thru a period where its a little tougher…
We went through a period where it was briefly tough and now there are 1400 new billionaires in the world – maybe some capital was misallocated…
Question: Which one investment would make for the next ten years
I would buy Gold in JPY and go to sleep… Sell JPY, Buy Gold, Go to sleep, and wake up ten years later and you’ll be fine. Don’t put all yourr money in it but that is the single best investment you can make today.
(h/t Steve M)
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Kyle Bass Warns "The "AIG" Of The World Is Back"
Wednesday, February 20, 2013
Germany Warns Against "Silvio the Savior" (And That May Backfire); Fake Horse Race Odds Get Around Blackouts
Italians head to the polls on February 24-25 to replace the technocrat government of prime minister Mario Monti.
Pier Luigi Bersani, who heads the centre-left Bene Commune (Common Good) coalition was considered a shoo-in a few short weeks ago, at least in the Chamber (the lower house of parliament).
It’s all up in the air now as Silvio Berlusconi, head of the centre-right Il Popolo della Libertà (the People of Freedom) has staged a massive rally in the polls (now blacked out). Berlusconi has been on a rampage lately blaming Germany and Chancellor Angela Merkel for the unemployment problems in Italy. It’s a populist message that is resonating well with voters.
Beppe Grillo’s Movimento 5 Stelle (Five Star Movement) has been largely ignored in the Italian press, yet Grillo has been wildly popular at rallies. Grillo has a chance to come in second, and I would not be surprised by a first place finish.
Mario Monti, who heads the centrist Con Monti per l’Italia (With Monti for Italy) coalition, is running a very distant 4th.
“Fare per Fermare il Declino” (literally “Act to Stop the Decline”, acronym FiD), is a primarily Libertarian party founded less than a year ago but until a recent stumble had been gaining enough steam to possibly overtake Monti.
For further analysis of FiD and the other parties, please see European Reader Offers Insights on Upcoming Italian Election
Poll Blackouts
Officially, pollsters cannot post poll results in a blackout period before the election. That blackout period started February 9. Here is a snapshot of the polls on February 8.
Those results are misleading because they do not include undecided voters, and the undecided vote is a whopping 20-25 percent!
With such little difference between Berlusconi and Bersani, and with huge rallies for Beppe Grillo and Berlusconi, any outcome is possible. Will Grillo take votes from Berlusconi or Bersani (or both). If enough of both I could even envision a win. If he takes more votes from Bersani, then Berlusconi is likely to win.
From my experience, late deciders break in a massive way for one candidate or the other (and in the US election I predicted for Obama). Here, it appears against Bersani (to who is more uncertain).
Fake Horse Race Odds Get Around Blackouts
Adding more confusion rather than clarity, Yahoo!News reports Fake horse racing blog dodges Italy’s election polls blackout
A blog appears to have found a way around a publishing ban on polls in the two weeks before the vote by writing up the results of pretend “underground horse races”, which appear to reflect each party’s standing.On the final day polls could be published before the blackout fell, bloggers Andrea Mancia and Simone Bressan posted “The illegal races return!” on their site Notapolitica.it setting out the main “stables” and “jockeys” competing.
In line with the last published official polls, the winning horses of Tuesday’s “San Nicola Racetrack” came from the “Bien Comun” stables, a thinly disguised name for the centre-left “Italia Bene Comune” coalition.
The centre right of former Prime Minister Silvio Berlusconi was shown coming in just 3.5 “seconds” behind. Using a mix of puns and French, Notapolitica.it renders centre-left leader Pier Luigi Bersani as jockey “Pier le Smacchiateur” and Mario Monti as “Mario de la Montaigne”. Berlusconi is dubbed “Burlesque”.
Horses representing Beppe Grillo’s 5-Star Movement are referred to as “stellar”, while the names of races allude to different pollsters. “San Walter Giuliano Racecourse”, for example, appears to refer to research group SWG.
It is difficult to say if those are official polling results or fictional. Assuming the polls are accurate (not an assumption I am ready to make), it is still difficult to know how undecided voters were handled.
Germany Warns Against Berlusconi
Of potentially more importance, Berlin Warns Italians against Berlusconi
Here are a few examples from the story.
German Finance Minister Wolfgang Schäuble reportedly said (but later denied) “Silvio Berlusconi may be an effective campaign strategist, but my advice to the Italians is not to make the same mistake again by re-electing him.”
Polenz, a senior member of Chancellor Angela Merkel’s Christian Democrats, said: “Italy needs political leaders who stand for the future. Berlusconi is certainly not one of them.”
One Italian bank even went so far this week as to issue a report arguing that a Berlusconi election would almost certainly force the country to apply for emergency bailout aid from the EU. Mediobanca, Italy’s largest investment bank, wrote that “a last-minute Berlusconi victory would scare the market sufficiently to put pressure on the spread.”
“Silvio the Savior”
In Italy, the opposite is happening. Spiegel reports Berlusconi’s Faithful: ‘Only Silvio Can Save Italy’
Adoration of Berlusconi in Italy remains widespread. In the parallel universe occupied by his followers, there is no room for doubt about Berlusconi and lines are clearly drawn. Silvio is good and the others are bad.These fans gather at his speeches, like the Saturday rally in Palermo, where thousands crowded into the venerable Teatro Politeama. There were women in long fur coats and fine gentlemen in three-piece suits. Dock workers like Ferrante squeezed with them through the entrance, everyone pushing and shoving each other like adolescents at a rock concert. The hundreds who didn’t make it in must stand outside.
Silvio the Savior
Fans of the 76-year-old ex-premier see him as more than just a beacon of hope. “Berlusconi will now start a revolution,” says teacher Marinella Romano. She confesses “I have always loved Silvio.” Donatella Catalano, a friendly retiree, gushes, “He stands for everything that is good in the world.” The unemployed Ferrante says that “only Silvio can save Italy, he will bring us much good.”
Fully a quarter of Italians are prepared to vote for Berlusconi again. It is an astounding degree of homage paid to man who faces allegations of abuse of power and bribery; who faces the scandal surrounding the underage escort Karima el-Marough, alias Ruby Rubacuori; who has been blasted for blatantly misogynistic comments; and who broke many promises as prime minister. Instead, the opposition, left-leaning judges and even the Germans are blamed for all that is not right with Italy.
“It was Merkel who toppled him,” says retiree Catalano, referring to the German chancellor. She then turns to her neighbor and says: “It’s better not to tell the man anything, because the Germans always write negatively about Berlusconi.” Another voice yells: “First World War II and now attacks against Berlusconi!”
The comments are not surprising. In almost every campaign speech, Berlusconi rails against Germany. “Should we continue to allow Germany to dictate policies that ruin Italy?” he calls out. “Nooooo!” scream his followers.
Election Predictions
It’s difficult to judge from this side of the Atlantic, but things do not look good for a viable center-left coalition. At best, Bersani will win the Chamber and lose the Senate. That would likely result in a hung parliament.
Anti-German sentiment in Italy is high already. The entrance of German politicians into the battle may fuel that sentiment in a major way.
It is conceivable “Silvio the Savior” pulls off a stunning upset win in both the Chamber and Senate, but a Senate victory would still require a coalition (no party will come close to a majority).
In theory, Movimento 5 Stelle and Silvio Berlusconi could form a nice anti-Euro coalition and put the Euro to a vote, but given the anti-political party platform of Movimento 5 Stelle it’s hard to see that coalition forming.
Indeed it may be difficult if not impossible for any party to form a Senate coalition if Monti’s party does poorly enough (as I expect it will).
The most likely outcome once again is a hung parliament, and the next most likely outcome may very well be a return of Silvio Berlusconi (rather than a weak center left coalition of some sort that most seem to expect).
Regardless, Berlusconi is no savior (nor is there one to be found in the entire group). There are no good outcomes for Italy.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Germany Warns Against "Silvio the Savior" (And That May Backfire); Fake Horse Race Odds Get Around Blackouts