Monday, December 19, 2011

LOOKING FOR A STAR TO RISE

As of yet, it hasn't.   The promise of salvation is yet to be fulfilled and as a matter of fact Super Mario through even more cold water on the whole idea this morning by proclaiming that there would be no torrent of money pouring out of the skies onto the troubled Euro zone at least not if he had anything to say about it..  The only surprise, really, is that the boys and girls are working right up to Christmas it appears trying to make progress which is a far cry from the Euro financiers of my youth.  They would have been out of town long before this no matter what the crisis.

I joke about all of this but in truth the crisis is severe and not getting any better.  I took a few days off (apologies) simply to think about this a bit in an attempt to present a more positive approach in my future efforts.  I must confess that I came up with very little to influence a different outlook. They are really in a whole and there aren't many ways out other than the continued wailing by the French to monetize the debt--anathema to the Germans and to the ECB at this point--or a true adjustment process to include debt reduction and rescheduling which might fit for Greece but would be eorld-ending for Italy, but which looks more and more likely.

Today, the involvment of the IMF, entirely necessary for any form of monetization, became less likely as the British refused to take any part in such an effort which may well doom the effort entirely.  The numbers are daunting: whilst fully available to none but a chosen few, I would estimate that approximately 400+ billion Euros of sovereign refinancing--ex Greece--is due in the first have of 2012 as well as at least 200 Billion of bank debt.  Now admittedly money is fungible and the medium term facility announced by the ECB for the benefit of the banks may assist in this, but the amount is still huge given the liquidity squeeze on the institutions and the burdens they face in the sovereign area: remember, there is NO private financing available at this time.  For the full year it is anybody's guess but I estimate the financing requirement to be upwards of 1.3 trillion Euros with, taking into account the European rescue fund and the IMF, a financing gap of at least 500 billion and probably more.  The viscious circle is the banks borrowing more and more from the ECB with poorer and poorer collateral leaving the central bank with an enormous balance sheet backed by a worsning pool of collateral.  I'm probably too low in my full term estimates.  Not a pretty picture.

Corporate Europe is being starved for credit.  Some commentators have called this the greatest opportunity of U.S. in history and it is, but one needn't look further than the stock market reaction today at the news of Draghi's comments; U.S. financials crashed in a clear overraction but crashed none the less.  Having been there, I am sure the Citibanks and Morgans of this world recognize the opportunity, but also realize that anything with a Euro zip code is the kiss of death from an investor's standpoint and opportunity be damned...RUN!

I had a call from an old friend the other day, a priest actually, who is what they call the procurator for his order...that's the money guy.  "Charlie," says he, "We have a lot of money in Euros and dollars over in Europe.  What do you think?"  On the street, it was lunch money but a lot for him.

"From the standpoint of return on principal" says I?

"Charlie, all I care about is return OF principal."

He needs the Euros for working capital but I suspect that the dollar portion of his order's holdings are now tucked away in multiple accounts at multiple U.S. banks happily (in his case) insured by the you, the taxpayer, and he is sleeping better than he has in weeks.  He tale is not unique.  Liquidity except from official sources has all but vanished, to be replaced by a healthy concern and in some cases fear.  Hope is supposed to be the emotion of this season.  Not this year

1 comment:

  1. Mr. James, your little friends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except [what] they see. They think that nothing can be which is not comprehensible by their little minds. All minds, Mr. James, whether they be men's or children's, are little. In this great universe of ours man is a mere insect, an ant, in his intellect, as compared with the boundless world about him, as measured by the intelligence capable of grasping the whole of truth and knowledge.

    Yes, Mr. james, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist, and you know that they abound and give to your life its highest beauty and joy. Alas! how dreary would be the world if there were no Santa Claus. It would be as dreary as if there were no Charlies. There would be no childlike faith then, no poetry, no romance to make tolerable this existence. We should have no enjoyment, except in sense and sight. The eternal light with which childhood fills the world would be extinguished.

    Not believe in Santa Claus! You might as well not believe in central bankers! Nobody can conceive or imagine all the wonders there are unseen and unseeable in the world.

    Merry Christmas.

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