LMAOOOOOOO
Those looking for fundamental newsflow and/or facts to justify the latest bout of overnight risk exuberance will not find it. To be sure, among the few economic indicators reported overnight in the Thanksgiving shortened week, European construction output for September tumbled -1.4% from August, after rising 0.6% previously. How long until Europe copycats the latest US foreclosure sequestration, "demand pull" gimmick and gives hedge funds risk free loans to buy up housing (aka REO-to-Rent)? More importantly, and confirming that Spain is far, far from a positive inflection point, Spanish bad loans rose to a new record high of 10.7%. This was the the highest level since the records began in 1962. The total value of these loans was €182.2 billion ($233 billion) in September, according to the Bank of Spain (more on this shortly). The relentless rise indicates that the Spanish bad bank rescue fund will be woefully insufficient and will need to be raised again and again. So while there was nothing in the facts to make investors happy, traders looked to hope and prayer, instead pushing risk higher on the much overplayed Friday "news" that politicians are willing to compromise in the cliff (which as we reported was merely a market ramping publicity stunt by Nancy Pelosi et al), and that Greece may be saved at tomorrow's Eurogroup meeting, for the third time. That this will be difficult is an understatement, with the Dutch finance minister saying no final decisions on Greece should be expected, and his German counterpart adding that a Greek debt writeoff is "inconceivable." In other words, even hoping for hope is a stretch, but the market is doing it nonetheless.
But if it is inconceivable to cut Greek debt on the public funds side, and a bond buyback for the private sector is improbable (as reported previously), what is the basis for Greek hope tomorrow? There is a loophole as SocGen explains:
Speaking over the weekend, Bundesbank President Weidmann also pointed to the moral hazard of offering Greece debt forgiveness (something he believes will ultimately be needed) today. His suggestion was to offer Greek conditional debt forgiveness, once the agreed austerity measures and reforms are implemented. The conditionality holds political appeal, but this involves handing over taxpayer money to Greece (so far, only private money has been lost).
A neat twist on the idea would be to allow the ESM to take over Greek bank recapitalisation (around €50bn or 25% of Greek GDP), placing responsibility for any losses on the Greek government, until austerity and structural reform are agreed. This solution would hold several advantages. First, the amount is large enough to secure general government debt below 120% of GDP by 2020 on paper. Second, it involves no unpalatable debt forgiveness. Third, it could easily be replicated for the other programme countries. Fourth, it would break the sovereign-national banking sector link. The question remains, however, whether such a solution can be introduced before the single supervisory mechanism is in place. Combined with the idea of using ECB profits from Greek government bonds of just under €10bn to buy back Greek bonds, the final outcome could be a debt reduction to the tune of 45% of GDP. Sadly, this would still not be enough in our opinion to make Greek public finances sustainable in the long-term.
Obviously, the important section is bolded: once again it is obvious that nothing can help Greece save a Grexit, but in the meantime, the Greek people will be bled some more, with what little wealth remains in Greek society, transferred to European banks, and what little assets remain in Greece, encumbered with further bank liens.
What else is on today's macro agenda:
Political uncertainty will be one of the major forex an
http://www.zerohedge.com/news/2012-11-19/overnight-summary-hope-back-however-briefly
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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