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Wednesday, June 16, 2010

More Euromess

There are a bunch of reports about a Spanish bailout in the making, which has utterly freaked people out. Yields on T-bills are pretty much dropping across the board, although Spanish yields are rising, which means that Spanish bond prices are dropping, which means I guess that the ECB has to buy them all.

So I hazard that's why the bailout is under discussion, because the ECB doesn't want all those Spanish bonds. Supposedly the Fed is going to be on the hook for some of this. Doesn't that just make the American taxpayer see red, white and blue stars! But never mind, the EU is "firmly"denying the reports. It does not appear that anyone believes the denial, perhaps because of stuff like this.

Obviously this will be some sort of special purpose vehicle (SPV) deal. So the big question is whether the countries participating will carry their guarantees on their Euro balance sheets or not. One guesses not, but that surely makes the Maastricht rules about deficits somewhat ridiculous.

As if it weren't ridiculous anyway that countries with debt larger than GDP are allowed to rack up 3% deficits under the rubric of "financial responsibility". The only way that would be financially responsible would be if trend growth were at 3% or above. This isn't happening in any of those economies. Germany can get by with 3% deficits (probably, as long as it limits its default guarantees), but don't tell me Italy and France can. This is not really about Portugal, Spain and Greece at all, although Spain's relative size and its recent disproportionate contribution to European growth does make Spain more of an issue.

We're not admitting this publicly. because it is so awful. Even Ackermann of DB was forced to come out and state that he had profound confidence that Greece would not default. I guess they threatened him with whatever happened to the German finance minister in the EuroFin Struggle meeting. This is reminding me more and more of the Cultural Revolution in China. Bankers are paraded onto the stage and forced to say whatever the crowd wants. It is true that instead of students in Mao suits the crowd consists of European politicians, but that's really not much of a difference.

US industrial production is very good, as was the last European IP reported. But that did not overcome the extremely bad US housing data. Also FedEx's profit statement is not helping US stocks.

Other matters not inducing optimism are:

Wherein M_O_M makes TEOTWAKI funny.

Loved the comparison between students in Mao suits and European politicians.
But never mind, the EU is "firmly"denying the reports. It does not appear that anyone believes the denial, perhaps because of stuff like this.

It would be absolutely, totally, and in all other ways inconceivable!!

September 18, 2007
David Taguas vs. Vizzini
An excellent time to run something by the Eurozone
public with the World Cup as a distraction.
Perhaps this is why the Swiss upset Spain today ?

On the FedEx warning, don't they downplay
their forecasts anyway ? They then get a nice
bump when they beat. FedEx ground is not
generating enough revenue yet and I think
that is where their future lies.
Spork - I think the debt worries are overshadowing anything else.

Anon - the analysts think they'll do better. The gap between the expected and the estimate was what startled folks.

Bob - there is a ghastly sort of humor in a lot of this.

Mark - We do not think they know what that word means. "Not mentioned in public" is not most people's definition of "inconceivable".
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