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Friday, November 25, 2011

The Rise & Fall of The Holy Roman Empire (aka, the European Union)

As we all digest our Thanksgiving dinner, now it is time to focus on what may be the unwanted left overs, namely the Holy Roman Empire, now known as the European Union.

The Eurozone situation is approaching a major climax (not a satisfying one). If you have time to follow only one financial story this is the story to follow in the coming days and weeks. Unfortunately, there is a major ongoing political crisis in the EU, with a Eurozone blowup undoubtedly sinking the US economy and any minimal recovery we may be experiencing. On top of that we also face a Chinese hard-landing.

First, enter the Greeks. The terms of the Greek creditor haircut (the "savior of the Euro") have now fallen apart. From Reuters:
 "The Greeks are demanding that the new bonds' Net Present Value, -- a measure of the current worth of their future cash flows -- be cut to 25 percent, a second person said, a far harsher measure than a number in the high 40s the banks have in mind. Banks represented by the IIF agreed to write off the notional value of their Greek bondholdings by 50 percent last month, in a deal to reduce Greece's debt ratio to 120 percent of its Gross Domestic Product by 2020."
Second, stocks plunged at the close for the third day in a row to cap the worst Thanksgiving week ever. US equities seemed in a world of their own for much of the day - especially financials - as all the hope and rumors faded and clearly a large number wanted to be flat or short into the weekend. The concerns that European entities are repatriating anything and everything should be very worrisome and the volume into the ES close suggests that fear is growing. As Peter Tchir noted, it is increasingly evident that the only logical conclusion is that we are further away from a solution or agreement in Europe than we have been in a long time.

So what does that mean for you and me? Deutsche Bank's Jim Reid, said "We are fast running out of options.

 No sh*t Sherlock.

Charles I (aka Angela Merkel)
But, finally, the ultimate question: the questionable integration of Europe's countries in a union whereby they abdicate their sovereignty to Germany in exchange for the issuance of Eurobonds. It is not only extremely unlikely, it will also come too late according to Deutsche Bank's Jim Reid: "Should we get excited ahead of the treaty changes? The answer is that we are undoubtedly slowly moving closer to the start of a path towards fiscal union. However this process, even if it runs smoothly, will likely be a long, drawn-out, arduous journey. Unfortunately markets are moving at a much, much faster pace and we probably don’t have the time for a slow measured path towards fiscal union."

In other words, even if the ECB, and thus Germany were to relent, the markets can at best hope for a few days rally before risk tumbles off once again, and ... well you know, hell breaks loose.

So The Roman Empire falls yet again and probably bring us with it!


  1. now that is a black friday.

  2. Great, easy explanation of this crisis. I understand it so much better now. Thank you. Diana

  3. The whole world is falling to pieces! I'm losing hope in humanity. Nancy- Texas

  4. What a bunch of insane and mentally ill looking people!