The squeeze on Italy

[Puppycow]

Doomed. Doomed. Doomed.

http://www.nytimes.com/2011/11/07/business/in-europe-anxious-market-shifts-focus-to-italy.html?hp

Among fresh warning signs, Italy’s cost of borrowing has jumped to the highest rate since the country adopted the euro. Others signs include pressures building in the plumbing of Europe’s banking system. While those pressures are not yet at the levels experienced during the 2008 financial crisis, when some markets in the United States froze altogether, they are high enough to cause worry, analysts say.
. . .
European banks are likely to remain wary about lending to one another, analysts predict, and investors will continue to require high interest rates on the billions of euros in loans Italy needs each month to keep its economy afloat.

The yield on 10-year Italian notes has surpassed that on Spanish debt, reaching 6.35 percent on Friday after leaders at a meeting of the Group of 20 nations failed to come up with details on how to stop the European crisis from spreading. The rising yield is troubling because once the interest rates on the debt of the bailed out countries Greece and Portugal surpassed 7 percent they shot up far higher, requiring those countries to turn to outside sources of financing. Rates on their debt remain in double digits.
. . .
The latest rate “is a warning,” said Mark McCormick, currency strategist at Brown Brothers Harriman. “Seven percent would be a point of no return."

Catastrophic tipping point approaching.

Italy is a rapidly aging country with a low birth rate, so somebody please tell me how their debt situation is ever going to get better? It seems like the moneylenders are starting to wake up to the mathematical problem.

 

[Undesired Walrus]

As I understand it, Italy has been practicing extreme austerity for the last couple of years but its borrowing figures are through the roof, so doesn't this put Keynesian economics in a better light?

 

[Puppycow]

I'm a Keynesian but I think that Euro zone countries are a special case because they don't really have the option of taking a Keynesian approach. They don't control their own money supply.
A country that controls its own money supply and borrows only in its own money cannot default.

 

[This is The End]

Italy's Berlusconi to resign after economic changes OK'd

The debt crisis in Europe has claimed another head of state as Italian Premier Silvio Berlusconi — in office for two decades — promised Tuesday to resign after parliament passes economic reforms demanded by the European Union.

Italian President Giorgio Napolitano met for about an hour with Berlusconi after the premier lost his parliamentary majority during a routine vote earlier Tuesday.

 

[Puppycow]

However, yields on Italian bonds keep rising.

The yield on Italy's benchmark 10-year bond hit a 14-year high of 6.79 percent on Tuesday, approaching levels seen in the government bonds of Portugal and Ireland when they had to seek bailouts.

 

[kevsta]

Barclays says its all over

"mathematically past the point of no return"

hope everybody's got their crash hats on, this is going to get ugly fast now

 

[Puppycow]

Now past 7%.

Italy borrowing costs hit record 7%

ETA: the ECB and other central banks ought to do something fast. By which I mean, buy as much Italian bonds as it takes to get the yield back down to something less than 6%. I know they don't want to that, but the alternative is probably a lot worse. A little inflation isn't really the worst thing in the world.

 

[kevsta]

Now past 7%.

Italy borrowing costs hit record 7%

ETA: the ECB and other central banks ought to do something fast. By which I mean, buy as much Italian bonds as it takes to get the yield back down to something less than 6%. I know they don't want to that, but the alternative is probably a lot worse. A little inflation isn't really the worst thing in the world.

"Control P" the final solution. or it leads to it anyway.

somebody's going to print, that's for sure, nobody ever wants to take medicine this bad voluntarily. more likely the Bernank will backdoor bailout Europe than the Germans print IMO.

 

[epix]

This kind of news usually spread via Goldman Sachs, a powerful investmemt firm that employs its own analysts who see things the way that short sellers benefit from the result.
http://money.msn.com/market-news/post.aspx?post=bf1a17eb-c517-44cb-8261-9b4138120365

 

[kevsta]

This kind of news usually spread via Goldman Sachs, a powerful investmemt firm that employs its own analysts who see things the way that short sellers benefit from the result.
http://money.msn.com/market-news/post.aspx?post=bf1a17eb-c517-44cb-8261-9b4138120365

heh, yes I know all about the vampire squid and their market games.

the sell-side upgrades something so their clients pile in, meanwhile squiddy "makes the market" happily selling their stock to their excited buyers, and usually perfectly top tick it, fleecing them all.

over and over again.

you want to do what the goldman prop desk, or whatever it is called these days does, not what their "analysts" say to do.

this behaviour has been thoroughly documented by Zerohedge

http://www.google.com/search?q=site:zerohedge.com+goldman+sell+side+upgrade+prop+desk

 

[epix]

heh, yes I know all about the vampire squid and their market games.

The Dow is up about 120 points right now "as Italy stabilizes." In other words, Goldman Sachs is buying back cheaper than it sold yesterday right before the lovely firm spread around the word that Italy wasn't doing well at all, causing Dow to lose like 390 points. It's all the same bee-es-gee-es...

 

[daenku32]

I for one stopped worshiping the all-mighty Dow and S&P long time ago.

I know my 'retirement' income will come from me working during my 'retirement'. If I'm actually disabled, that's a whole another thing. But I expect to make more from part time work than any investment dividends.

 

[kevsta]

The Dow is up about 120 points right now "as Italy stabilizes." In other words, Goldman Sachs is buying back cheaper than it sold yesterday right before the lovely firm spread around the word that Italy wasn't doing well at all, causing Dow to lose like 390 points. It's all the same bee-es-gee-es...

Im not sure we can blame the Italian bond market meltdown on a GS rumor.

the Dow was down yesterday because EURUSD finally found gravity and the Euro and US risk markets move in virtual lockstep now in our wonderfully free and not-at-all manipulated or algo driven "market".

 

[Ingoiolo]

The Italian bond market meltdown is (was) a problem of confidence, linked to their idiotic prime minister. Fundamentals do not support it, italy has a stagnant economy, but it still is the eight largest in the world and, differently from anglosaxons ones, it's population is a populations of net savers, not debtors.
The total households net wealth (excluding real estate) is 8 times GDP. Debt is 2x GDP.

In Europe countries like the uk or Spain are in a way worse economic situation. The uk gets away only coz it can print money and is making people pay a 6% shadow tax via inflation on top of a 30% depreciation vs the euro over the past few years.

The incoming Italian pm should quiet markets down, and hopefully he will adopt some reform to stimulate growth

 

[epix]

Im not sure we can blame the Italian bond market meltdown on a GS rumor.

the Dow was down yesterday because EURUSD finally found gravity and the Euro and US risk markets move in virtual lockstep now in our wonderfully free and not-at-all manipulated or algo driven "market".

That was not the comment that accompanied yesterday's financial breaking news.

The Dow Jones industrial average plunged 300 points in morning trading Wednesday after Italy's borrowing costs soared, a sign that Europe's debt crisis had spilled into the third-largest economy in the euro bloc.

The yield on the benchmark Italian government bond spiked above 7 percent, a sign that investors are losing faith in the country's ability to repay its debt. Greece, Portugal and Ireland required bailouts when their bond yields rose above 7 percent. Unlike those countries, Italy's $2.6 trillion in debt load is too large for other European nations to rescue.

You can't really prove that Goldman Sachs was the first to find out about the 6.98% yield and started the selling, but there is really no one around who would have enough money to create such a drop. The other investors need to see a clear reason - "the squeeze on Italy" - to become afraid, join and create a profitable base for the next move by GS. Today, "Italy stabilized" and Dow went up 112 points. Life is good - if you are a part of GS.

 

[timhau]

Now past 7%.

Italy borrowing costs hit record 7%

What actually hit 7% was not Italy's borrowing costs, but the aftermarket yield on Italian bonds. Yesterday (Nov. 10th) Italy sold bonds at 6.087% (which is still way up from the 3.57% they had to pay a month ago).

 

[kevsta]

but there is really no one around who would have enough money to create such a drop.

er, yes there is. every single pension fund and institutional holder who holds the bonds was thinking about, or actually selling them.

the reason for the selling was/is contagion fears and because central planners have (in their divine ultimate wisdom) have now negated the sovereign CDS market by cheating Greek bondholders out of the CDS payment with their laughable "a 50% haircut is not a credit event" ************

so the only option bondholders now have to hedge is the old way, sell them.

The other investors need to see a clear reason - "the squeeze on Italy" - to become afraid, join and create a profitable base for the next move by GS. Today, "Italy stabilized" and Dow went up 112 points. Life is good - if you are a part of GS.

Italy "stabilized" because the ECB hit Ctrl+P again big time and bought (more) Italian paper. otherwise there would have been no stablilizing, only flames.

it was "an intervention" and like all interventions, the half life is ever declining, and it will ultimately fail.

That was not the comment that accompanied yesterday's financial breaking news.

we get our "news" from different places I think. the Dow is a computer generated illusion, think of it like an "Econometer" for the masses, that's what Bernanke does.

 

[epix]

the reason for the selling was/is contagion fears and because central planners have (in their divine ultimate wisdom) have now negated the sovereign CDS market by cheating Greek bondholders out of the CDS payment with their laughable "a 50% haircut is not a credit event" ************

The fears of contagion was also present on Tuesday, but the markets didn't react to it.

Italy "stabilized" because the ECB hit Ctrl+P again big time and bought (more) Italian paper. otherwise there would have been no stabilizing, only flames.

According to Bloomberg, it didn't go exactly that way:

As yields soar to euro-era highs above 7 percent in Italy, some politicians and economists have called on the ECB to commit to buying as many bonds as it takes to calm markets.

European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.

If ECB didn't calm the markets by pressing CTRL+P, then who did?
According to the top-tech CIA spy satellite, it was hacker Paolo acting upon his instinct.

 

[kevsta]

The fears of contagion was also present on Tuesday, but the markets didn't react to it.

According to Bloomberg, it didn't go exactly that way:

Quote:
As yields soar to euro-era highs above 7 percent in Italy, some politicians and economists have called on the ECB to commit to buying as many bonds as it takes to calm markets.

European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.

If ECB didn't calm the markets by pressing CTRL+P, then who did?
According to the top-tech CIA spy satellite, it was hacker Paolo acting upon his instinct.

"to significantly ramp up purchases"

The ECB did calm the markets.

..of the 1.1 trillion Euros extended to European banks and governments (through sovereign/covered bond purchases and repo)
970 billion has been given by the ECB.",

So anyone demanding that the ECB print even more outright..

Italian bond auction reeks of illegal intervention

Now we know already that the ECB stepped in to aggressively mop up Italian bonds in the secondary market immediately after the auction to bring 10 year yields below 7%, however briefly: the bond has since widened above that level once again.

Yet what is shocking is the primary market strength for the 1 year: since the ECB is prohibited by law from intervening in the primary, auction market, we wonder just what illegal backdoor funding scheme the ECB has concocted with friendly banks in order to have the auction price where it did, and how much money was transferred by back door channels to keep Europe from imploding one more day.

Considering that the EURUSD was trading below 1.35 just prior to the auction at around 3 am, and has since regained losses, just as we expected yesterday, please remind us to add this latest illegal central bank intervention feature to the list of things to uncover once Europe blows up and the ECB's secret trading records are laid out for all to see.

In the meantime, here is the Wall Street snap reaction to the Bill auction.

From Reuters:

RICHARD MCGUIRE, RATE STRATEGIST, RABOBANK, LONDON

"This represents the highest such yield since September 1997 and although favourable relative to that of the Oct. 12s, which had briefly broken through 8.0 percent in the secondary market this morning, certainly does nothing to dispel the concern that Italy's debt costs have moved firmly into unsustainable territory."

so it definitely wasnt him doing the printing

 

[kevsta]

haha funny we were just discussing vampire market tactics, we can watch an example live and see how it pans out

http://www.zerohedge.com/news/goldman-issues-140-price-target-eurusd

Goldman Issues 1.40 Price Target On EURUSD

Time to sell the EURUSD with both hands and feet, not to mention with MF Global-type leverage: that uber-contrarian FX indicator, Goldman's Thomas Stolper, who has not had a notable call correct in the past 2 years, just came out with a long EURUSD call, calling for a 1.40 target and a 1.35 stop loss.

Yes, this means Goldman is now selling EURUSD until 1.40 and will begin buying it at 1.35. As a reminder here is how Stolper's last EUR/$ recommendation ended.

this is the technical perspective.

http://www.oftwominds.com/blognov11/euro-stock-crash11-11.html