by David Levenstein, IBTimes Gold:
After trading above $1640 an ounce last week, the price of gold fell after hopes for another round of quantitative easing was quashed when US Federal Reserve chairman, Ben Bernanke, failed to provide any hint of further monetary easing in his testimony on Thursday. However, on Friday prices rebounded as there were talks of an imminent bailout for Spain’s banking sector. Then, on Saturday, Eurozone finance ministers agreed to lend Spain up to 100 billion euros ($125 billion) in order to prevent the Spanish banking sector from collapsing. After a 2 1/2 hour conference call of the 17 European finance ministers, Madrid said the amount of the bailout would be sufficiently large to banish any doubts.
Spain has now become the fourth country to seek assistance since Europe’s debt crisis began. With the rescue of Greece, Ireland, Portugal and now Spain, the European Union and International Monetary Fund have now committed around 500 billion euros to finance European bailouts.
If anyone remembers, as recently as May 28, Spanish Prime Minister, Mariano Rajoy, flatly rejected any chance of outside help for distressed banks crippled by a huge exposure to the collapsed property sector. “There will be no rescue of the Spanish banks,” he said.
One of the problems with the Hispanic Pandora’s box unleashed by a now insolvent Bankia, which as we noted some time ago, is merely the Canary in the Coalmine, is that once the case study “example” of rewarding terminal failure is in the open, everyone else who happens to be insolvent also wants to give it a try. And in the case of Spain it quite literally may be “everyone else.” But before we get there, we just get a rude awakening from The Telegraph’s Ambrose Evans-Pritchard that just as the bailout party is getting started, Spain is officially out of bailout money: “where is the €23.5 billion for the Bankia rescue going to come from? The state’s Fund for Orderly Bank Restructuring (FROB) is down to €5.3 billion.”
If Raoul Pal was some doomsday spouting windbag, writing in all caps, arbitrarily pasting together disparate charts to create 200 page slideshows, it would be easy to ignore him. He isn’t. The founder of Global Macro Investor “previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe… Raoul Pal retired from managing client money in 2004 at the age of 36 and now lives on the Valencian coast of Spain, from where he writes.” It is his writing we are concerned about, and specifically his latest presentation, which is, for lack of a better word, the most disturbing and scary forecast of the future of the world we have ever seen….
by Thomas Kee, Seeking Alpha:
All eyes are fixated on Europe right now, and the market swings with each headline that comes across the wires. Uncertainty abounds as investors try to determine the credibility of these headlines, and try to predict the outcome for Greece … and then Spain, and then Portugal, and then Italy.
But, the old saying goes, “Those who live in a glass house can’t throw stones.” On Tuesday, May 22, the Congressional Budget Office released a report indicating that if the Bush Tax Cuts are allowed to expire, as is currently planned, and if the agreed upon budget cuts are put forth next year, the economy will slip into a recession in early 2013. This got much less press than the drama coming out of Europe, but I find this to be a much more significant risk to the market this summer.
During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks. This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using. In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog. It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal. There are already rumors that the “smart money” is pulling out of Spanish and Italian banks. So could we see some of these banks collapse? Would they get bailed out if they do collapse? It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.
Posted below is a clip of Jim Cramer making his bold predictions during his appearance on Meet The Press. He is obviously very, very disturbed about the direction that Europe is heading in….
from, Gold Money:
The fallout from the weekend’s European elections continues, with leftist politicians in Greece now attempting to form a new “anti-austerity” coalition government, with one radical-left leaders stating that “the people of Europe can no longer be reconciled with the bailouts of barbarism.” France’s new president Francois Hollande is still insisting that “austerity can no longer be the only option”, but Berlin remains unmoved.
Spain also declared yesterday that it is preparing a bank bailout – a risky political venture considering that the Spanish unemployment rate is close to an eye-watering 25% of the workforce. It’s no exaggeration to say that such economic conditions, as in Greece, carry potentially revolutionary political implications.
The euro sunk to a three-and-half year low against sterling yesterday, while against the US dollar it hit a new three-month low of $1.3020. The Dollar Index gained 0.13% on the day to settle at 79.60, moving further above its 100-day moving average at around 77.00. “Risk off, buy the dollar” being hedge funds’ familiar knee-jerk response to any bad news from Europe.
What happens when debt-fueled false prosperity disappears? Just look at Spain. The 4th largest economy in Europe was riding high during the boom years, but now the Spanish economy is collapsing with no end in sight. When a debt bubble gets interrupted, the consequences can be rather chaotic. Just like we saw in Greece, austerity is causing the economy to slow down in Spain. But when the economy slows down, tax revenues fall and that makes it even more difficult to meet budget targets. So even more austerity measures are needed to keep debt under control and the cycle just keeps going. Unfortunately, even with all of the recently implemented austerity measures the Spanish government is still not even close to a balanced budget.
[ED NOTE: For Those In Greece We Would Love To Get Your Opinion On This Looming Default, Reply Below If You Have Anything To Add.]
Well, it is official. The restructuring deal between Greece and private investors has been pushed through and the International Swaps and Derivatives Association has ruled that this is a credit event which will trigger credit-default swap contracts. The ISDA is saying that there are approximately $3.2 billion in credit-default swap contracts on Greek debt outstanding, and most analysts expect that the global financial system will be able to absorb these losses. But still, 3.2 billion dollars is nothing to scoff at, and some of these financial institutions that wrote a lot of these contracts on Greek debt are going to be hurting. This deal with private investors may have “rescued” Greece for the moment, but the consequences of this deal are going to be felt for years to come. For example, now that Greece has gotten a sweet “haircut” from private investors, politicians in Portugal, Italy, Spain and other European nations are going to wonder why they shouldn’t get some “debt forgiveness” too. Also, private investors are almost certainly going to be less likely to want to loan money to European nations from now on. If they will be required to take a massive haircuts at some point, then why in the world would they want to lend huge amounts of money to European governments at super low interest rates? It simply does not make sense. Now that Greece has defaulted, the whole game is going to change. This is just the beginning.