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Give Me Your Tired, Your Poor, Your Huddled Masses Yearning To Breathe Free

Nov 14 • Market Commentaries • 4623 Views • 1 Comment on Give Me Your Tired, Your Poor, Your Huddled Masses Yearning To Breathe Free

As the dust settles with regards to Greece and Italy can we expect their respective crises to ‘do a Libya’ and simply disappear from the mainstream media’s glare as if the crisis is over, or will the stark realisation emerge that nothing has changed other than (day by day) the problems get deeper as certain countries’ positions become more entrenched?

If the domino/contagion effect is a real phenomena then Spain’s election process will be a revelation given the timing doesn’t fit in with the automatic technocrat installation ‘procedure’ the ECB and EU would prefer to see adopted. The timing couldn’t be worse for the ECB and the EU, it’s too late for any interference in the democratic process unless the looming weekend election is called off and the protagonists agree a coalition with a typical ex Goldman Sachs tutored leader immediately installed to do their bidding. That’s unlikely as the Spanish and not the EU get to choose this coming weekend, as to what proposals they’ll put in place to tackle Spain’s debt will then become clearer. A prediction that the new government will fold inside twelve months to be ‘coalition-ed’ into the willing technocracy fever sweeping Europe cannot be ruled out.

Opinion polls are pointing to a big win next on Sunday (November 20) for the centre-right opposition Popular Party, led by Mariano Rajoy. Polls suggest the ruling Socialists will be ousted because of their handling of the economic crisis that has left Spain with 21.5 percent unemployment and circa 50% youth unemployment. Although Jose Luis Rodriguez Zapatero’s government has introduced several labour reform and austerity packages, they have so far failed to lift the country.

Ireland may also hit the news radar over coming weeks, there have been noises coming from that direction that they’re somehow in control of their economy, nothing could be further from reality, unless an imploded economy with over 30% youth unemployment is regarded as sufficient progress to get the next EU handout. It’s difficult to contemplate how demeaning this situation is; “please Sir, we’ve been good, we’ve tidied up the economy like you asked, made billions of savings, can we have more?” The initial terms of the crippling bailout of circa €85 billion have been met therefore Ireland should expect to get their next €3 billion which will ensure that the country’s economy and society is simply kept on respirator and stagnates whilst numbers not seen emigrating since the 1980’s give up their homeland and leave.

The Economic and Social Research Institute predicted earlier this year that 100,000 Irish would be emigrating in the next two years; 50,000 this year and 50,000 in 2012. However, certain estimates put the emigration figure at circa 90,000 over the last twelve months. What is for certain is that more Irish people will emigrate this year than in 1989, when emigration last peaked and 44,000 left Ireland. The only ‘benefit’ is that this lost generation is exporting 100,000 unemployment figures primarily from the circa 30% youth unemployment the country is currently experiencing. It’s safe to assume that; Greece, Italy, Spain and Portugal won’t be on their desperate jobs flight plan and it’s unlikely that the USA will welcome the Irish with special dispensation.

Italian bank UniCredit has the biggest capital shortfall among Italy’s lenders, the European Banking Authority confirmed recently. The Milan-based bank must reach a core capital target of 9 percent by June 30 after writing down sovereign debt holdings, and it has until Dec. 25 to submit its money-raising plans to national supervisors. UniCredit, which has a capital shortfall of 7.4 billion euros according to the EBA, received the green light from the Bank of Italy to count as much as 2.4 billion euros of convertible and subordinated hybrid equity-linked securities, known as CASHES, as core capital. UniCredit has raised 7 billion euros in the last three years through two capital increases, including a rights offer and a convertible-bond sale. How much Italian bond risk they hold is debatable, but as they move forward with their plans they may wish to be mindful of two suggestions published this morning…

 

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Europe’s banks need to keep dumping Italian bonds and other assets tainted by the region’s debt woes to avoid being sucked into the epicentre of the crisis, said Christian Clausen, president of the European Banking Federation. Clausen, who is also the chief executive officer of Nordea Bank AB, said in an interview in Stockholm.


The banks are doing exactly what they should be doing, they are reducing their risk toward this event. We can see that clearly as now Italian bonds are being sold off. They should keep doing what they are doing. The banks are actually moving out of the epicentre. I don’t think, for now, there is a euro risk, as such. But there is a risk that if the governments don’t start to really work on this, there might be a real euro risk at the end.

Speaking at the EuroFinance conference Jens Weidmann president of the Bundesbank makes it clear that expecting the ECB to save the day is not on his, the bank’s or Germany’s ‘to do’ list. His comments, via Bloomberg, were enough to take EURUSD under 1.37 and take EURJPY below Friday’s lows – dragging risk assets lower across the board.

ECB’S WEIDMANN SAYS ITALY HAS `WORRYINGLY’ HIGH DEBT BURDEN

WEIDMANN: ECB MUST NOT SOLVE SOLVENCY ISSUES OF STATES, BANKS

WEIDMANN SAYS MARKET FORCES HAVE `IMPORTANT DISCIPLINARY’ ROLE

WEIDMANN SAYS USE OF MONETARY POLICY FOR FISCAL NEEDS MUST STOP

Asian markets were mostly positive in early morning trade particularly Japan were the Nikkei closed up due to improved GDP figures despite their debt versus GDP ratio being at circa 220%. The Nikkei closed up 1.05%, the Hang Seng closed up 1.94% and the CSI closed up 2.05%. The ASX showed marginal improvement closing up 0.19%.

Snapshot at 10.30 am GMT (UK) time
European bourses have been treading water in the morning session which is to be expected given the prevailing uncertainty now phase one of the Italy and Greece crises appear to have been controlled by the installation of ECB preferred technocrats. The STOXX is currently down 0.39% the UK FTSE is flat, the CAC is down 0.47% and the DAX is down 0,10%. the SPX index equity future is currently is flat. The euro has lost circa 34 pips versus the dollar and sterling circa 105 pips.

There are no significant economic data realises likely to affect market sentiment in the afternoon session.

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