Posted by: John Gilmore | September 16, 2006

Global Monetary System Collapse Continues – May 6, 2010

European debt crisis is accelerating. I expect a significant global stock market correction any day now.

Greek President says ‘The country is at the edge of the abyss’.

Euro remains under pressure (approaching 1.27/$1.00).

Asia stock markets down significantly overnight.

Debt contagion fears spread as CDS (credit default swap) traders bet against UK, France & Germany.

There are many very intelligent people out there – who do not understand what is happening. Heavily indebted nations attempting to bailout other heavily indebted nations will not work – fails the math test.

Greek Riots Escalate, Branch Of Finance Ministry Set On Fire

Submitted by Tyler Durden on 05/05/2010 17:58 -0500

Things are heating up again in Greece. Literally. After a firebomb at a Marfin branch earlier today was the cause of three tragic deaths, the latest building to succumb to rioting pyrotechnics is a branch of the Greek ministry of finance, reports Market News. We eagerly await for the Greek FinMin to announce that the docs burned down were the only copies of all sovereign lending agreements with foreign entities… all $300 billion of them. Perhaps now that Greece has lost all control is why the Greek president Karolos Papoulias just said that “The country is at the edge of the abyss.” Luckily for the country, its riot police is not striking just yet. Which is more than one can say about Greek journalists: “Even Greek journalists were on strike, but they later went back to work in order to cover the riots.” And that about explains all you need to know about Greece.

From Market News:

ATHENS (MNI) – A building belonging to Greece’s Finance Ministry was set afire Wednesday by rioters protesting the stringent four-year austerity plan the Greek government has agreed to accept in exchange for up to E110 billion in aid from fellow Eurozone countries and theInternational Monetary Fund.

The Finance Ministry issued a statement Wednesday night saying that no crucial documents had been lost, though the damage to the building was extensive.

The fire came on a day when a general strike against the government’s new fiscal plan erupted into violence, leaving three dead and tens of others wounded. In Athens, protesters gathered around the Parliament while some groups threw fire bombs at buildings, cars and banks. The police answered with tear gas and arrests.

The package of spending cuts and tax hikes is intended to reduce the public budget deficit by 5.5 percentage points of GDP this year alone, from 13.6% to 8.1%. It is envisioned that by 2014, the deficit will be brought under the EU’s limit of 3%. But in that same year, outstanding public debt is projected to be an astronomical 144% of GDP, up from 113% in 2009 — leading many to predict that a Greek bond default is inevitable.

All we know is that Lazard, which no way, no how is advising on a restructuring, is scrambling more furiously than the fine folks at Liberty 33 to come up with “imaginative solutions.”

The CDS Traders’ Verdict Is In – UK In Deep S***… As Are France And Deutschland

Submitted by Tyler Durden on 05/05/2010 19:14 -0500

Portugal… Spain…Greece…these are all last week’s news based on CDS trading patterns. Indeed, this week saw the biggest trade unwinds of all top 1000 CDS entities (including all corporates) precisely in these three names. As the PIIGS implosion is finally being appreciated by everyone and their grandmother, the “speculators” are booking massive profits: the net cover/rerisking in Portugal and Spain was a massive $500 million net notional unwinds in each in the week ended April 30. Also known as taking profits. Greece and Ireland were also in the top 5, so as we have repeatedly claimed, the market will no longer make the news in Club Med. So where will it? No surprise there – the UK, France and Germany. The smartest money in the world is now actively betting the core of the eurozone is where the next CDS blow up will take place. With a stunning $630 million, $558 million and $370 million in net notional derisking, France, UK and Germany are the top three most active recipients in negative bets in the prior week, not just in sovereigns but in all names. The greatest non-sovereign derisker in the last week? Goldman Sachs, with $175 million. Nuff said. Yet a tangent on the UK: last week the UK saw $443 million in net notional derisking. This week the number is even higher: $558 million. There is now over $1 billion in net risky bets made that the UK may not last. And Zero Hedge’s outside bet to be the first core country to blow up, thanks to its massive PIIGS exposure, France, finally made the top spot in net derisking, with $629 million in net notional, or 189 contracts. The smart money is now massively betting that Europe’s core is done for; as the PIIGS have demonstrated, the blow out in spreads for the core trifecta can not be far behind.
MAY 6, 2010, 8:35 A.M. ET

Asia Suffers Sharp Losses

Wall St. Journal


HONG KONG—Asian stocks and currencies suffered Thursday on deepening worries about European sovereign debt and the ability of local firms to raise new capital.

Investors dumped risky positions across the board and jumped for the safety of U.S. dollar assets, sending local currencies besides the safe-haven Japanese yen sharply lower and creating limited disruptions in currency markets as the supply of dollars ran short. Stocks with exposure to world trade, property and banks were hit especially hard.

Japan’s benchmark Nikkei Stock Average of 225 companies fell 3.3% in its first trading day following a three-day holiday. China’s benchmark Shanghai Composite fell 4.1% to an eight-month low, while Hong Kong’s Hang Seng Index fell 1%.

Elsewhere, South Korea’s benchmark fell 2% after a holiday, while Australia’s fell 2.2% and India’s fell 0.6% to a two-month low.

“We are starting to see signs that market conditions are becoming a little unhinged. That’s something that will worry policymakers,” said Richard Yetsenga, Asian currency strategist for HSBC in Hong Kong. “A market adjustment is one thing. A disorderly market adjustment is another.”

The quickly shifting sense of confidence in stock markets forced Hong Kong property player Swire Properties Ltd. to halt its potential $3.1 billion initial public offering saying it couldn’t achieve its target pricing.

May 6, 2010

Euro Hits Fresh 14-Month Low against Dollar; Franc Soars

Wall St. Journal


TORONTO—The euro dropped to yet another 14-month low as markets remain focused on euro-zone sovereign debt crisis.

It fell as far as $1.2716 after the European Central Bank left its key interest rate steady at 1.0% at its scheduled policy meeting.

The Swiss franc soared to a record against the common currency after traders said the Swiss National Bank had abandoned efforts to prevent the currency’s rise, with the euro plunging to 1.4141 Swiss franc.
European Corporate CDS Blowing Out Wider, Xover At 505, HiVol At 152 bps, Public Funding Crisis Becoming Private Again

Submitted by Tyler Durden on 05/06/2010 07:26 -0500

The greatest fear of central banks, that the “isolated” sovereign contagion could spill right back into the private sector, is starting to be realized: now in Europe and soon in the US. Market News reports that high beta European CDS names and indices are all blowing out as fears of a funding/liquidity crisis are becoming prevalent. From MNI: “The CDS market has seen another session of sharp widening in many sectors, taking its cue from falling Eurozone peripheral government bond prices rather than stocks which are more stable today. Greece and other widening government bond spreads continue to drive sentiment, with the CDS market seeing underperformance in places, with high beta cyclicals, TMT and basic materials dragging the market wider.” Corporate have so far been relatively spared from the deterioration in sovereign spreads, however if the risk perception in the public arena spills right back to the private sphere, then the entire private-to-public risk transfer episode will have been for nothing. And if corporate funding costs shoot higher, with no sovereigns to back them out (themselves in need of a bailout), well then our thesis that only Mars could possibly bail out the world’s bankers will be all too real.
Goldman Update On EURUSD – Adding To Shorts With 1.2457 Target Once Support Taken Out

Submitted by Tyler Durden on 05/06/2010 04:23 -0500

Goldman is now officially killing the euro.

The Euro collapse continues and what has until now be an orderly and persistent move is threatening to become erratic and disorderly ; panic is starting to set in. Today we have the ecb press conference and the market will be focused on every word of Trichet’s address. We have seen mainly buying interest this morning as people do the prudent thing and take some profit in case Trichet is able to pull a rabbit out of his hat. But I am at a loss to think what he can really deliver that will assuage the markets growing concerns. I think there is a real likelihood that the market will again be disappointed and the euro will accelerate lower once he stops talking. We may be entering a new more violent phase of the sell off with bigger whips in both directions but with more risk still to the downside. We are sticking with a core short position and will look to add quickly should Trichet offer nothing new or on a bounce back to 1.2860-70 (unless a genuine rabbit is forthcoming) and roll down our stop to 1.30. Technicians have important support at 1.2740 and a close below this level should open a test of last years 1.2457 low.

Good luck
Moody’s Sees Contagion Risk For European Banking System

Submitted by Tyler Durden on 05/06/2010 04:28 -0500

London, 06 May 2010 — As shown by the recent downgrade of Greek banks as a result of sovereign weakness, the potential contagion of sovereign risks to banking systems could spread to other countries such as Portugal, Spain, Italy as well as Ireland and the UK, says Moody’s Investors Service in a new Special Comment entitled “Sovereign Contagion Risk — Part I: Assessing the Impact on Banking Systems of Southern Europe, Ireland and the UK”.

The report is available at:

Overall, Moody’s notes that each of these countries’ banking systems faces different challenges of different magnitudes, but warns that contagion risk could dilute these differences and impose very real, common threats on all of them.

This Special Comment assesses the contagion risk for those systems where the transmission mechanism primarily stems from the market concerns about the sovereign credit profile, but where, prior to this pressure, the banking systems had been less affected by asset price bubbles or exposure to structured financial products. These are the banking systems of Greece, Portugal, and to some extent Italy. Despite facing a fundamentally different situation compared with Greece, Portugal is now under heightened investor scrutiny, resulting in this week’s review for possible downgrade on the ratings of all Portuguese banks. A key factor determining whether contagion risk continues in this case will be the market’s view of the likely success or otherwise of the recently agreed IMF and European Union support package for Greece. Italy is another country where the banking system had been relatively robust so far, but where the major risk to its banking system could also be challenged by contagion risk should the market pressures on the sovereign increase.

The Special Comment then explores those banking systems that have weakened from within, often due to excessive loan growth (mostly Spain and Ireland and to a lesser extent the UK); contagion could potentially also spread to these banking systems where sovereign creditworthiness has been impacted by developments within the banking system.

Moody’s new report, the first of a two-part series, is based on a presentation that Moody’s senior analysts made to investors in various European cities throughout April 2010. The second and forthcoming part of this series, which will be published shortly, will assess the exposures and capital implications for major European banking systems to the four (most) vulnerable countries.

Hugh Hendry: The Greek “Bailout” Is Really A Bailout Of French Banks

Submitted by Tyler Durden on 05/06/2010 04:34 -0500

Yesterday we pointed out that France was a global top three derisker in sovereign CDS as traders have shifted their worries from the periphery to the core. We have long discussed that the reason for this is that France, not Germany, has the greatest exposure to Greece and the PIIGS. Below is an RT clip in which Hugh Hendry confirms just this: according to the Ecclectica head man, a mark to realistic market of Greek debt would wipe out E35 billion in French bank capital, “and it is questionable whether the French banking system would take such a hit.” Hendry’s solution, as has been the case from the solution, is for Greece to leave the euro, and points out that due to FX inflexibility, there will be no tourists in Greece this year as everything becomes painfully expensive, not in Drachmas but in Euros. We would add that the burning parliament is probably not that much of a tourist draw either. In typical fashion, Hugh dismembers Angela Merkel’s hypocrisy: “When the truth becomes unpalatable, what is the truth. Angela Merkel, when we say she is being generous, there is nothing generous about spending taxpayers’ money in another country, that is not generosity, that is merely trying to salvage a bankrupt set of political ideology. So to blame the messenger when it’s the truth that hurts, I find that inexcusable.” Just as Hugh’s huge bet against the euro has proven to be a terrific success, we are confident that he will be correct about the end of the EMU quite soon as well. And as the moderator adds “Shame on you, Europe, for needing the IMF to bail you out. Europe is like an African nation.” Amen.

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