WELL, I'LL BE DAMNED

I must admit, I never in my wildest dreams thought the Euros could pull something like this off...something so stupid, that is.  In one swell foop, they have put the balance sheets of two countries behind the entire EU...well, three countries if one counts the good ol' US of A...and in return from where I sit they have received sweet fanny adam.  Now don't get me wrong, The Dow closing up 400 or so is not a bad thing and I hope all who were short over the weekend (being logical and stupid) are people who I don't like, but at the end of the day to go back to my WW II analogy somewhere there had to be somebody screaming, "Save your ammo, save your ammo," but in the end all the ammo got shot and the bad guys are still out there.

Methinks The Leader and The Suit are thrilled about this.  Both are big action guys, Bold step guys as The Leader is fond of saying.  It also removes for the time being the rather awkward comparison of the trend in this country's fiscal movement which is looking more and more like the worst of Europe.  But let us stick to an analysis of what has just occurred.

The EU has ponied up around E700 billion and the IMF around E200 billion.  In Europe's case the vast amount of the funds made available at the end of the day come from Germany and France which in the former case may be a touch dicy as Lady Angela lost her by-election in the most populated state which means control of the upper house is kaput and approval of this bail-out somewhat in doubt.  France is, well, France and the IMF has just committed all of their available funds to EUROPE for cryin' out loud which means that if, say, Bongo-Bongo gets in a bit of a financial bother they may have a long wait.  Of course Uncle has about 18% of anything that goes out the IMF door so we're on the hook but we knew that ahead of time.  Now out of money, how long will it be before the Fund comes around to it's members with it's hand out and isn't that going to be fun to watch in the Congress of the United States!

In return, the Euros got exactly bupkus...any chance at real conditionality among member states is long-gone except for a hand over the heart and a promise to be better people.  We REALLY mean it this time.    What in the hell makes these people think that issues of sovereign debt are akin to every other financial crisis and can simply be dealt with by throwing money at the problem.  The cause of what has occurred in Greece and in Portugal, Italy and to a lesser extent in Spain is not a financial problem but a problem of fiscal mismanagement aided and abetted by yield whores who equated the countries' sovereign debt to the Bund and saw an opportunity to gain 25 basis points on the same perceived risk.  What this does is to enshrine contagion across the Union and bail out (in the immediacy) the holders of Greek debt without so much as a stubbed toe.  Yeah, there are some widows and orphans involved but the big winners in all of this are the European banks who walk away scott free.  You might remember I told you the Euros would take care of their banks but I never thought that our taxpayer bucks would be in play for this sort of outrageous bail-out.

Of course it aint over til it's over, once again quoting the Yogi-man, but with an ounce of intelligence they could have dealt with this in a manner that achieved stability and long-term goals.  Suppose--just suppose--if the Euros had, in the case of Greece suggested that they were prepared to issue a guarantee of a certain portion of Greek debt based, perhaps on the short end of the curve.  In exchange for a modest fee, all obligations of Greece in the 2 to, say, 7 year maturity range would now become obligations of the EU or the ECB with a yield reflecting the enhanced risk, say, that 25 basis points you whores were looking for, but with now an extended maturity to, say, 15 years.  Oh, and if you are a bank holder, the paper you agreed to exchange would be eligible as tier one capital.  No obligation on your part of course...except that is if you choose NOT to go along...well, you are on your on and by the way, you are going to have to cover the paper with a substantial slug of new capital.  If done on an auction basis, what percentage do you think would not be tendered?  How close to zero can you get?

Had they done that or something like it, every option would have been preserved and more importantly the structure of the free market would have been preserved.  They have just ended that.  Take away the opportunity for people to lose money and the concept of a market is lost.  Isn't that what we have been trying to get at in Chris the Crook's bill in Washington or did I miss something?   Greece and the banks go home scot free...and with my money.  I'll be damned.

ThHE WEEKEND COMETH

...and not a moment too soon.  And no, I don't know what the hell happened in the stock market yesterday and it appears that neither does anyone else, but not to worry, The Leader announced that there will be some sort of Fed investigation to get to the bottom of the matter so I will sleep well tonight knowing that the Feds are looking over me.

I do know, however, that there are damn few long positions anywhere and the situation in Europe will dominate things for a while.  There was very little liquidity around and the markets seemed to be taking a few deep breaths wondering what Monday will bring.  Remember the old WW II movies when one guy turns to his buddy and says, "I don't like it, it's too quiet?"  That's the way I feel.  Having put some sort of package in place and gotten parliaments to approve the same, the leadership of Europe took off for a weekend of revelry in where else but Paris.  Not a bad job being a head of state.  The G-7 had a bit of a chin-wag and The Suit put out an announcement that discussions were going just fine, everyone was of one mind on Greece and everyone was looking at alternatives and monitoring the situation closely.

You moron.  The one thing you don't want to talk about is alternatives because everyone knows there is only one real alternative and you sure as hell don't want to stumble into that without real preparation.
Meanwhile on the home front the Reps are up in arms about U.S. taxpayer money being used to bail out Greece and God knows who else via the IMF.  Now I can understand some consternation about the role of the IMF but the leading voices at this moment...and there are some Dems as well...can't spell IMF and frankly are doing a disservice in raising the truly important question of what the role of the IMF should be at this point in time.  There are going to be bigger issues we will have to face; let's not run off chasing what quite frankly is a minor irritant except from a political "red meat" standpoint.   For example...

My old buddy The "Eagle" rang up today.  Eagle has been laid low by a bum ticker these last few years but there's nothing wrong with his mind.

"Charlie," says he,  "The whole damn world is on a cash accounting basis.  These clowns are lending Billions to solve today's problem without a clue how they are going to be paid back!"

"Appears so."

"The states are in the same boat.  Contingencies are all off the balance sheet.  They're broke but still want to borrow even more money to pay today's bills."  What the hell do you do?"

"Have a drink?"

"No thank you.  I want to be home for Christmas.  Kudlow on tv can tell you about that. I'm serious, what the hell do you do?  I've lived a long time and I have never seen so many people in denial.  Do they have any idea what the problem is?"

"Sure, they're not stupid but right now it's whistling past the graveyard that is the preferred strategy."

"Charlie, it's the banks isn't it?  They're scared to death of the system.  Where are the U.S. banks?"

"I'm not sure, Ege but if I were to bet I don't think the exposure to Greece is very big at all...as a matter of fact I'd put a big bet on that."  But what we are seeing is a bit of 2008 all over again; who do you trust and this whole thing, as you know is trust.  This weekend is more important than people realize.  If we have an "event," Monday should never come.  Politically, I just don't think they can go back to their people and suggest that more needs to be done.  Right now it looks to be too close to call but we may get through the next month or so, then again..."

We spoke for a long time and it was good to hear his voice.  Good guy.  He asked me, remembering I majored in English what was that thing I used to quote all the time from Hamlet.

"Which one, Ege?"

"You know the fates thing."

'If tis now, tis not to come; if tis not to come, tis now...?

How's it end..."

"If it be not now, yet it will come."

"That's it!  It's going to come isn't it?"

"The weekend?"

"Don't be a smart ass all your life Charlie."

"Yeah Ege, I'm afraid it will come."

"See ya Charlie."

"Later, Ege."


Memo to Al Gore:  Where the hell is this global warming.  It's going to freeze this weekend.  I have to dig up my tomatoes.